[Senate Hearing 107-868]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-868

 
    NEW SOURCE REVIEW POLICY, REGULATIONS AND ENFORCEMENT ACTIVITIES

=======================================================================


                             JOINT HEARING

                               BEFORE THE

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                                AND THE

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON



                               __________

                             JULY 16, 2002

                               __________


 Printed for the use of the Senate Committee on Environment and Public 
                                 Works 
               and the Senate Committee on the Judiciary

                                 ______

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                            WASHINGTON : 2003
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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      ONE HUNDRED SEVENTH CONGRESS
                             second session

                  JAMES M. JEFFORDS, Vermont, Chairman
MAX BAUCUS, Montana                  BOB SMITH, New Hampshire
HARRY REID, Nevada                   JOHN W. WARNER, Virginia
BOB GRAHAM, Florida                  JAMES M. INHOFE, Oklahoma
JOSEPH I. LIEBERMAN, Connecticut     CHRISTOPHER S. BOND, Missouri
BARBARA BOXER, California            GEORGE V. VOINOVICH, Ohio
RON WYDEN, Oregon                    MICHAEL D. CRAPO, Idaho
THOMAS R. CARPER, Delaware           LINCOLN CHAFEE, Rhode Island
HILLARY RODHAM CLINTON, New York     ARLEN SPECTER, Pennsylvania
JON S. CORZINE, New Jersey           PETE V. DOMENICI, New Mexico
                 Ken Connolly, Majority Staff Director
                 Dave Conover, Minority Staff Director

                                 ------                                

                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin              CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       JON KYL, Arizona
CHARLES E. SCHUMER, New York         MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois          JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington           SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina         MITCH McCONNELL, Kentucky
       Bruce A. Cohen, Majority Chief Counsel and Staff Director
                  Sharon Prost, Minority Chief Counsel
                Makan Delrahim, Minority Staff Director

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

                             JULY 16, 2002

                           OPENING STATEMENTS

Baucus, Hon. Max, U.S. Senator from the State of Montana, 
  prepared statement.............................................    94
Biden, Hon. Joseph R., Jr., U.S. Senator from the State of 
  Delaware.......................................................    16
Bond, Hon. Christopher S., U.S. Senator from the State of 
  Missouri.......................................................    42
Cantwell, Hon. Maria, U.S. Senator from the State of Washington..    96
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    39
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................    50
Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey..    56
Durbin, Hon. Richard J., U.S. Senator from the State of Illinois.    54
Edwards, Hon. John, U.S. Senator from the State of North Carolina    45
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...    19
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..     6
Leahy, Hon. Patrick, U.S. Senator from the State of Vermont......     1
Lieberman, Hon. Joseph I., U.S. Senator from the State of 
  Connecticut....................................................    12
Schumer, Hon. Charles E., U.S. Senator from the State of New York    67
Sessions, Hon. Jeff, U.S. Senator from the State of Alabama......    48
Smith, Hon. Bob, U.S. Senator from the State of New Hampshire....     9
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...    14
Wyden, Hon. Ron, U.S. Senator from the State of Oregon...........    94

                               WITNESSES

Elliott, Donald, co-chair, Environmental Practice Group, Paul, 
  Hastings, Janofsky & Walker, LLP...............................    85
    Prepared statement...........................................   619
    Responses to additional questions from:
        Senator Voinovich........................................   622
        Senator Wyden............................................   622
Harper, Stephen, director, Environmental Health, Safety and 
  Energy Policy, INTEL Corporation, Washington, DC...............    80
    Exhibit, Intel Aloha Pal.....................................   603
    Prepared statement...........................................   599
    Responses to additional questions from Senator Voinovich.....   604
Holmstead, Jeffrey, Assistant Administrator for Air and 
  Radiation, U.S. Environmental Protection Agency................    29
    Memorandum, Bryan Hubbell, senior economist, U.S. 
      Environmental Protection Agency, Innovative Strategies and 
      Economics Group............................................   156
    Prepared statement...........................................   109
    Reports:
        Benefits Associated with Electricity Generating Unit 
          Emissions Reductions Realized Under the NSR Program....   156
        New Source Review: Report to the President, Overview....134-155
        New Source Review: Report to the President, June 2002, 
          Recommended Improvements to the New Source Review 
          Program...............................................130-134
    Responses to additional questions from Senators Jeffords and 
      Leahy.....................................................113-130
Kelley, Hilton, founder, Community In-Power and Development 
  Association....................................................    77
Articles:
        Project Texas, Gasoline Alley............................   580
        Report, Refinery Reform: Overview Report on the 
          ExxonMobile Baytown Refinery, July 12, 2002............   595
        The Texas Observer, Port Arthur Blues, A Native Son 
          Returns to Revitalize His Pollution-Plagued 
          Neighborhood, Feature: 31/2002, by Michael May.........   589
    Logs, PortArthur Odors.......................................   583
    Prepared statement...........................................   569
    Report, Refinery Reform Campaign.............................   571
    Responses to additional questions from Senator Voinovich.....   599
Pryor, Bill, attorney general, State of Alabama, Montgomery, AL..    65
    Prepared statement...........................................   396
    Responses to additional questions from Senator Voinovich.....   397
Sansonetti, Thomas L., Assistant Attorney General, Environment 
  and Resources Division, U.S. Department of Justice.............    27
    Letter from Daniel J. Bryant, U.S. Department of Justice.....   105
    Prepared statement...........................................    96
    Report, U.S. Department of Justice, Office of Legal Policy, 
      New Source Review: An Analysis of the Consistency of 
      Enforcement Actions with the Clean Air Act and Implementing 
      regulations, January 2002..................................   106
    Responses to additional questions from:
        Senator Cantwell.........................................   104
        Senator Graham...........................................   104
        Senator Jeffords.........................................    99
        Senator Leahy............................................   100
        Senator Lieberman........................................   102
        Senator Voinovich........................................   104
Schaeffer, Eric, director, Environmental Integrity Project, 
  Rockefeller Family Fund........................................    71
    Brief, United States of America v. Southern Indiana Gas and 
      Electric Company..........................................407-483
    Letter from Henry V. Nickel, Hunton & Williams..............484-494
    Prepared statement...........................................   398
    Responses to additional questions from Senator Voinovich.....   495
Slaughter, Bob, president, National Petrochemical and Refiners 
  Association....................................................    75
    Chart, Cumulative Regulatory Impact on Refineries, 2000-2008.   501
    Letters:
        Chevron Texaco Company...................................   567
        National Petrochemical and Refiners Association..........   530
            API NSR 90-Day Review Comments, EPA Docket No. A-
              2001-19, July 19, 2001............................559-561
            Attachment 1, New Source Review Examples............534-552
            Attachment 2, New Source Review Potential Impact 
              Examples..........................................553-555
            Attachment 3, NPRA Paper, Market Based Alternative to 
              Existing New Source Review, July 23, 2001.........556-557
            Memorandum, Status of the New Source Review 
              Improvement Rulemaking, EPA........................   562
            News Release, NPRA Comments on EPA's NSR Reform 
              Package............................................   558
    Prepared statements:
        April 5, 2001............................................   517
        February 28, 2000........................................   503
        July 10, 2001............................................   526
        July 16, 2002............................................   496
    Responses to additional questions from:
        Senator Voinovich........................................   565
        Senator Wyden............................................   566
Sorrell, William H., attorney general, State of Vermont..........    60
    Prepared statement...........................................   163
    Supplemental Comments........................................   164
Spitzer, Eliot, attorney general, State of New York..............    63
    Brief, State of New York v. Niagara Mohawk Power Corp.......180-360
    Charts:
        Department of Public Service, Article X Cases, Revised 
          July 30, 2002..........................................   362
        2000 Air Emissions From Coal Fired Power Plant That Are 
          Targets of New York State Attorney General Enforcement.   178
    Prepared statement...........................................   167
    Report, Attorney General's Action Plan for a Balanced 
      Electric Power Policy in New York State....................   366
    Responses to additional questions from:
        Senator Cantwell.........................................   394
        Senator Voinovich........................................   361
Walke, John D., clean air director, Natural Resources Defense 
  Council........................................................    83
    Prepared statement...........................................   604

                          ADDITIONAL MATERIAL

Letters:
    Josten, Bruce R., U.S. Chamber of Commerce...................    24
    Senators Inhofe and Breaux...................................    20
    Senators Inhofe and Specter..................................    21
Response to Climate Change Report by several State Attorneys 
  General........................................................   627
Statements:
    Abbott, Ande, director, Legislative Department, International 
      Brotherhood of Boilermakers................................    25
    Bast, Joseph, president, Heartland Institute on New Source 
      Review Reform..............................................   625


    NEW SOURCE REVIEW POLICY, REGULATIONS AND ENFORCEMENT ACTIVITIES

                              ----------                              


                         TUESDAY, JULY 16, 2002

                                       U.S. Senate,
               Committee on Environment and Public Works,  
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committees met, pursuant to notice, at 10 a.m. in room 
106, Senate Dirksen Building, Hon. Patrick J. Leahy (chairman 
of the Committee on the Judiciary) and Hon. James M. Jeffords 
(chairman of the Committee on Environment and Public Works) 
presiding.
    Present for the Committee on the Judiciary: Senators Leahy, 
Biden, Durbin, Edwards, Schumer, Sessions and Specter.
    Present for the Committee on the Environment and Public 
Works: Senators Jeffords, Bond, Carper, Chafee, Clinton, 
Corzine, Inhofe, Lieberman, Smith, Voinovich and Warner.

OPENING STATEMENT OF HON. PATRICK LEAHY, U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. We welcome everybody here. Thank you for 
attending this joint hearing of the Senate Environment and 
Public Works Committee and the Senate Judiciary Committee.
    Before we start the hearing, I would note that the record 
will be kept open for 2 weeks so that Senators can ask followup 
questions, and they are sent to committee staff within the next 
week, but also give the witnesses a chance to look at their 
answers should they want to add anything to them. Obviously, 
this is unusual and I want to extend thanks to my fellow co-
chair, Senator Jeffords, who is also my colleague from Vermont. 
I thank him for helping to put this together, and Senator Bob 
Smith, who is the ranking Republican, and of course the ranking 
Republican on the Judiciary Committee, Senator Orrin Hatch. We 
will have statements by myself and Senator Jeffords and Senator 
Hatch and Senator Smith. The two appropriate subcommittee 
chairmen and ranking members are Senator Lieberman and Senator 
Voinovich, and Senator Biden and Senator Grassley.
    I am disappointed that Administrator Christie Whitman was 
unable to join us today. We tried to make things easier by 
having two major committees with jurisdiction here, but she is 
not here. I would like to thank the Administration for having a 
couple of representatives who are willing to take time to be 
with us.
    I also want to thank the State attorneys general who 
traveled long distances to be present. I would like to 
recognize among them my good friend, Vermont's Attorney General 
William Sorrell, a highly respected attorney general. We pay 
attention to that, because we have another highly respected 
former attorney general from Vermont, Jim Jeffords. I never 
made it beyond the ranks of being a State's attorney. I also 
see Attorney General Spitzer here and Attorney General Pryor 
and others.
    Our committees have come together because of the issues we 
are discussing, the Administration's proposed revision to the 
Clean Air Act's New Source Review regulation, or NSR. Now, it 
does not just go into the question of quality of air, it goes 
into the question of enforcing our laws and the quality of air. 
Back in 1977, New Source Review was a part of an agreement to 
give corporate energy companies a temporary, and I emphasize a 
temporary, grace period before they adopted modern Clean Air 
Act standards at their facilities. I was here at the time, and 
I remember the negotiations that went on between both Democrats 
and Republicans, the industry and the Administration. We worked 
out a compromise, and the understanding of the compromise was 
that everybody would keep their word, including whoever might 
be in the Administration. The Clean Air Act exempted or 
grandfathered pre-1977 industrial facilities from immediate 
installation of modern pollution controls, requiring them to do 
so only when they made significant modification to their sites. 
It was a fair and generous concession that gave corporate 
energy companies the benefit of the doubt.
    Now, several of the largest corporate energy companies did 
not keep their word. They completely abused our trust in 
upgrading old, dirty plants on the cheap. They ignored required 
air pollution controls--controls required by the New Source 
Review regulation. For more than 25 years, these irresponsible 
polluters who did not keep their word have chosen to save money 
by allowing their 1950's-era plants to belch hundreds of 
thousands of tons of excess pollution into the air, including 
harmful toxins such as mercury. Vermont and other States have 
paid the price with decades of acid rain and mercury deposits 
in our soils, our lakes and our rivers.
    Some of us here were among the strongest supporters of the 
action by former President Clinton's Environmental Protection 
Agency and the Department of Justice. They recognized and 
documented this corporate abuse. They cracked down on our 
Nation's most flagrant NSR violators in 1999. The owners of 
these facilities happen to be some of the largest and 
wealthiest corporate energy giants in the country, especially 
those in the utility sector, as we show on our chart over here 
on the side. This shows the incredible amount of annual 
emissions emitted by eight of these companies. American 
Electric Power, Southern Company, and Tennessee Valley 
Authority exceed the corporate average emission for the 
Nation's top 100 utility companies' emissions by five to eight 
times. The lawsuits brought by the last Administration were 
landmark enforcement cases against the largest corporate air 
polluters. They set the stage for a multi-billion dollar 
settlement by those companies and hundreds of thousands of tons 
of annual pollution reductions.
    For the children in my State, having the pollution go down 
is worth a lot more than having the money in fines. But I would 
point out that unless these companies face the fines, our 
children are going to continue to breathe the pollutants. We 
have paved the way for numerous settlements with refineries 
around the country, and these are smaller in cases--fines and 
pollution reductions--but they are significant for the 
communities who live there.
    But as you might imagine, the largest of these corporate 
polluters did not like being caught, especially when it meant 
billions of dollars in fines. So what did they do? Instead of 
paying the fines or cutting the pollution, they went last year 
to the new Bush Administration for relief--relief from a 
regulation they had circumvented for more than a quarter of a 
century. Somebody finally called them on it, and told them they 
had to keep their word, they had to obey the law, and now they 
want to get away with it. Lobbyists for the biggest corporate 
polluters complained these lawsuits were in error. They had 
done nothing wrong. The explanation for why they continued to 
operate ancient pollution-spewing facilities was simply they 
had never performed major maintenance--only routine 
maintenance, which of course would not trigger the NSR. Their 
justification is so transparent that one would think it would 
not even pass the lab test, but the Administration saw it 
differently.
    Meeting behind closed doors in secret meetings that have 
yet to be fully disclosed to Congress or to the American 
public, Vice President Cheney's Energy Policy Task Force 
created this document. They sent it to the President in May 
2001. Tucked within its pages is a short paragraph recommending 
a review of the NSR by the Department of Justice and the 
Environmental Protection Agency. That is a huge victory for 
corporate polluters. The path was clear for corporate energy 
lawyers to get their clients off the hook.
    As quoted in the New York Times earlier this year, one 
energy lawyer revealed the strategy. The thinking was, how can 
you do things that will influence the NSR issue in the pending 
litigation? The Administration recants NSR provisions and the 
lawsuits fall apart. They knew exactly what to do. They could 
say, go ahead and pollute, because the Administration doesn't 
give a hoot. That is exactly what happened. Last month, the 
Environmental Protection Agency proposed sweeping revisions and 
despite pledges by the Administration officials that these 
revisions would not change the course of pending litigation 
against NSR violators, we are already seeing the effects of 
this roll-back. Two of the largest utility cases have been 
settled in principle. Cinergy and VEPCO remain stalled to this 
day. Those cases would have required $2.6 billion in fines, but 
more importantly the reduction of 800,000 tons of pollutants. 
As soon as they heard that the Administration was backing off, 
those cases became stalled.
    The bellwether case that set precedent for all litigation, 
U.S. v. Tennessee Valley Authority, was recently sent to 
mediation. That was a surprise to all involved. It is a much 
weaker outcome than expected, but it was following what was 
being said on the NSR revisions. Early estimates of the case 
might have been in settlement, and it would have, and TVA would 
have been responsible for over $1 billion in fines to the 
American people.
    Now, this is not an obscure regulatory battle. Relaxation 
of the Clean Air Act has made headlines for months. In fact, it 
is the lead story in today's Post. I believe the American 
people will be listening for this Administration to explain 
itself. The dismantling of these lawsuits did not happen by 
themselves. The gutting of them is done in a calculated and 
planned manner, or it is completed in confidence. Either way, 
it is now allowable.
    Recalling the American people in every single poll say have 
tougher action against corporate abuse. There is no way we can 
accept this roll-back of our Nation's clean air laws to benefit 
the wealthiest, largest, dirtiest corporate polluters, and 
sadly at the health and safety of our children.
    [The prepared statement of Senator Leahy follows:]
Statement of Hon. Patrick Leahy, U.S. Senator from the State of Vermont
    Good morning to all of you and thank you for attending this joint 
hearing of the Senate Environment and Public Works Committee and the 
Senate Judiciary Committee.
    Before I move to the hearing itself, let me take a moment to 
mention that the record for this hearing will be open for 2 weeks from 
today and that any follow-up questions that Senators wish to post: to 
our witnesses today will be accepted if sent to committee staff within 
the next week.
    I want to extend my sincere thanks to my co-chair and fellow 
Vermonter, Senator Jim Jeffords, for his help in putting this hearing 
together as well as to my good friend from the Granite State, Ranking 
Republican Bob Smith. And of course, I would like to thank this 
committee's Ranking Republican Member, Orrin Hatch.
    While I am disappointed Administrator Christie Whitman did not join 
us today, I would very much like to thank the Administration's 
representatives for taking time to be here and the State attorney; 
general who have each traveled long distances to be present. In 
particular, I would like to recognize my good friend, Vermont's 
Attorney General William Sorrell. Thank you so much for being here. 
Finally, I would like to thank the many witnesses that acre present to 
testify today--your time is much appreciated by both committees.''
    Our committees have come together for this special session today 
because the issue we are discussing--the Administration's proposed 
revisions to the Clean Air Act's New Source Review regulation (or 
NSR)--is not just about the future of our air quality, it is about 
enforcing the law.
    Written in 1977, New Source Review was a part of an agreement to 
give corporate energy companies a temporary grace period before they 
adopted modem Clean Air Act standards at their facilities.
    The Clean Air Act exempted, or ``grandfathered,'' pre-1977 
industrial facilities from immediate installations of modern pollution 
controls, requiring them to do so only when they made significant 
modifications to their sites and increased emissions.
    This was a fair--and, generous--concession that gave corporate 
energy companies the benefit of the doubt acid trusted that they would 
use future modification upgrades to not only extend the life of their 
plants, but also to clean up the air.
    Sadly, several of the largest corporate energy companies completely 
abused our trust, upgrading old, dirty plants on the cheap, and 
ignoring the required air pollution controls--controls required by the 
New Source Review regulation.
    For more than 25 years, these irresponsible polluters have chosen 
to save money by allowing their 1950's era plants to belch hundreds of 
thousands of tons of excess pollution into the air, including harmful 
toxins such as mercury. Vermont and other States have paid the price, 
with decades of acid rain and mercury deposits in our soils, our lakes, 
and our rivers.
    Some of us here were among the strongest supporters of the actions 
by former President Clinton's Environmental Protection Agency and 
Department of Justice that recognized and documented this corporate 
abuse, cracking down on our nation's most flagrant NSR violators in 
1999.
    The owners of these facilities happened to be some of the largest, 
and wealthiest, corporate energy giants in the country, especially 
those in the utility sector.
    On the chart behind me, you can see for yourself the incredible 
amount of annual emissions emitted by eight of these companies. Three 
of them--American Electric Power, Southern Company, and Tennessee 
Valley Authority--exceed the corporate average emissions for the 
nation's top 100 utility companies' emissions by five to eight times.
    The Clinton lawsuits were landmark enforcement cases against the 
largest corporate air polluters--especially those in the utility 
sector--and set the stage for a multi-billion dollar settlements by 
those companies and hundreds of thousands of tons of annual pollution 
reductions. These, in turn, paved the way for numerous settlements with 
refineries around the country. While these were smaller cases in terms 
of fines and pollution reductions, they were and are significant cases 
for those communities living under the cloud of refinery smog.
    Yet, as you may imagine, the largest of these corporate polluters 
did not like being caught--especially when it meant billions of dollars 
in fines.
    So, last year, they went to the new Bush Administration for 
relief--relief from a regulation they had circumvented for more than a 
quarter of a century. Lobbyists for the biggest corporate polluters 
complained that the Clinton Administration's lawsuits were in error and 
that they had done nothing wrong.
    Their explanation for why they continued to operate ancient, 
pollution-spewing facilities was simply that they have never performed 
major maintenance--only ``routine maintenance''--to their facilities 
for the past 25 years. As you might guess, ``routine maintenance'' does 
not trigger the pollution controls of NSR.
    This justification is so transparent that one would think it would 
not, should not, even pass the laugh test. Yet this Administration 
obviously saw it differently.
    Meeting behind closed doors in secret meetings that have yet to be 
fully disclosed to Congress or to the American public, Vice President 
Cheney's Energy Policy Task Force created this document and sent it to 
the President in May 2001.
    Tucked within its pages is a short paragraph, recommending a 
``review'' of the NSR regulation by the Department of Justice and the 
Environmental Protection Agency.
    It cannot be understated that this recommendation to review NSR by 
Vice President Cheney's Task Force was a huge victory for corporate 
polluters. With it, the path was clear for corporate energy lawyers to 
get their clients off the hook. As quoted in the New York Times earlier 
this year, one energy lawyer--who chose to remain anonymous--revealed 
the strategy:
    ``The thinking was,'' he said, ``how can you do things that will 
influence the NSR issue and the pending litigation? If the 
Administration recants NSR provisions, the lawsuits fall apart.''
    And that is exactly what has happened. Last month, the 
Environmental Protection Agency proposed sweeping revisions to the New 
Source Review regulation--revisions that could have been written in 
corporate energy boardrooms or by the legal teams for corporate NSR 
violators.
    And despite pledges by Bush Administration officials that these 
revisions would not change the course of bending litigation against NSR 
violators, we are already seeing the effects of this rollback.
    Two of the largest utility cases that had been settled ``in 
principle'' in early 2000 under the Clinton Administration--Cinergy and 
VEPCO--remain stalled to this day. Those cases would have required $2.6 
billion in fines and the reduction of more than 800,000 tons of 
pollution.
    And the case that has been called the ``bellwether'' case to set 
the precedent for all litigation against illegal pollution from coal-
fired powerplants--U.S. vs. Tennessee Valley Authority--was recently 
sent to mediation. This action by the judge was a surprise to all 
involved and is a much weaker outcome than had been expected before the 
NSR revisions were publicized.
    By all accounts, the mediation ruling occurred because of publicity 
surrounding EPA's revision to the NSR regulation.
    As you can see on the chart behind me, early estimates of this case 
might have ended in settlement and would have held TVA responsible for 
well over $1 billion in fines to the American people.
    This issue is not an obscure regulatory battle--the relaxation of 
the Clean Air Act has made headlines for months and was a lead story in 
today's Washington Post, with the headline ``Bush Plan to Ease Clean 
Air Rules Roils Court Cases Against Utilities.''
    We will hear much more about the details of this issue in today's 
hearing.
    I believe the American people will be listening for this 
Administration to explain itself. The dismantling of these lawsuits did 
not happen by itself. The gutting of these lawsuits was either done in 
a calculated and planned manner or it was a product of complete 
Administration incompetence and lack of foresight.
    At a time when the American people ware calling for tougher 
government vacation against corporate abuse, this Administration needs 
to be held accountable for its rollback of our nation's clean air laws 
for the benefit of the wealthiest, largest, dirtiest corporate 
polluters and, sadly, at the expense of the American people.

    Senator Jeffords.

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. I am pleased also to be here with my 
colleagues and co-chair from Vermont. I believe this is the 
first joint Judiciary-EPW hearing ever held, but the gravity of 
the Administration's actions on New Source Review, or NSR, 
requires scrutiny of both legal and environmental grounds.
    I am also glad to see one of my successors--Vermont 
Attorney General William Sorrell is here today. I appreciate 
his willingness to testify along with others. I wish we were 
meeting jointly on a happier occasion, but these changes in NSR 
regulations appear to be the biggest regulatory roll-back in 
the history of the Clean Air Act. They seem designed to subvert 
the Federal Government's own enforcement actions that would 
otherwise remove millions of tons of pollutants from the public 
air space.
    They also seem intended to give away the billions of 
dollars worth of health benefits that NSR provides every year. 
Under these proposals, far fewer plants and maybe 50 percent or 
less will have to apply pollution controls. The basic concept 
of NSR is one of constant improvement. That means industry 
should emit less and less pollution as time passes, as 
investments occur, and as technology develops. The Clean Air 
Act does not provide loopholes for non-routine maintenance or 
picking decade-old baselines or any of the other loopholes that 
this Administration is trying to finalize.
    When any physical change as a stationary source increases 
the amount of any air pollutant by that source, ``then 
pollution controls must be applied.'' That is simple. It is 
straightforward and it is the law. Unfortunately, aside from 
the dubious legality of the public health cost of these 
proposed NSR changes, the Administration's poor handling of 
this matter has created an atmosphere of distrust. Even if 
these proposals were legal or justified, I would be suspicious. 
To my knowledge, no attempt was made to reach consensus among 
the various stakeholders or consult with the committees of 
jurisdiction before issuing the reform package.
    Overall, this has been a much different, much less open 
rulemaking process than the one used by the Clinton 
Administration. This Administration seems to have largely 
ignored comments from public health advocates and the States, 
while listening mainly to industry. The Senate Environment and 
Public Works Committee's legitimate request for information on 
this matter and others have been treated disrespectfully and 
disdainfully by the White House.
    While the EPA has recently begun to provide information in 
response to our December request, 90 percent of which is 
already in the public docket, the Department of Energy has been 
very unresponsive. We will be reviewing the additional material 
that EPA has promised to deliver by the end of this week, then 
we will decide whether a subpoena is necessary. I hope it does 
not come to that, but this White House may give the committee 
and Congress little choice.
    I will note, however, that I do not recognize any validity 
in the Agency's claim, made largely by the White House 
insistence, that the documents we are requesting cannot be 
shared before the rules become final. There is no precedent or 
protection provided by statute or case law to defend that 
position. I am saddened by what the White House is doing to the 
Environmental Protection Agency. It seems intent on gagging and 
binding this independent agency. This prevents us from working 
together in any kind of productive and cooperative manner. Even 
communication at the staff level has been intentionally 
stifled.
    More than a year ago, the President directed the Agency to 
prepare a three-pollutant legislative proposal. The Agency 
developed and analyzed a proposal that it thought was 
defensible from air quality and public health perspectives. 
That straw proposal from August 2001 disappeared almost as soon 
as it was floated. Then in February of this year, a new version 
of targets and timetables was announced, one that looked quite 
different and substantially less protective, but no 
environmental or economic justification for those numbers had 
been provided to Congress or the public to see. We still do not 
have legislative language or any comprehensive analysis or 
demonstration on it.
    NSR fits into a similar pattern. The Clinton Administration 
did a draft regulatory impact analysis in 1996 with its 
proposed regulations. Many years of stakeholder discussions 
took place, with lots of commentary and the analysis was 
shared. That Administration ended without a final rulemaking 
because of the many concerns, including environmental and legal 
questions. In June of this year, this Administration announced 
the NSR reform package. It did not conduct stakeholder meetings 
on the rulemaking passage. It provided no final regulatory 
impact analysis or any environmental or public health 
assessment. Worse yet, the Agency staff indicated that no 
qualitative analysis had been done or would be forthcoming.
    That does not seem to comport very well with the 
requirement of the Executive Order on regulatory relief or with 
EPA's own internal documents. The NSR reform package is a 
recipe for litigation. If these changes become final, they will 
be overturned by the courts or perhaps by the Congress. The 
Agency will not be due any deference in court on its expert 
opinion because it has not justified how these changes can 
improve and protect the public health.
    Except for a brief period, Congress has counted on EPA to 
be the ``green'' eyeshades people for 30 years. The Agency job 
is to make sure that pollution is accounted for and reduced. 
The EPA is supposed to keep corporate polluters honest and look 
out for the public good. But given these NSR changes and the 
White House anti-disclosure policy on information, it is hard 
not to think that the executives are overruling the green 
eyeshades people and trying to cook the books. Instead of 
greenbacks, we are talking about millions of tons of pollution 
that severely damages the health and welfare of the public.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Jefford follows:]
   Statement of Hon. James Jeffords, U.S. Senator from the State of 
                                Vermont
    I am pleased to be here with my colleague and co-chair from 
Vermont. I believe this is the first joint Judiciary-EPW hearing ever 
held. But, the gravity of the Administration's actions on New Source 
Review, or NSR, requires scrutiny on both legal and environmental 
grounds.
    I am also glad to see one of my successors, Vermont Attorney 
General William Sorrell, is here today. I appreciate his willingness to 
testify along with the other distinguished witnesses.
    I wish we were meeting jointly on a happier occasion. But these 
changes in NSR regulations appear to be the biggest regulatory rollback 
in the history of the Clean Air Act. They seem designed to subvert the 
Federal Government's own enforcement actions that would otherwise 
remove millions of tons of pollutants from the public's air space.
    They also seem intended to give away the billions of dollars worth 
of health benefits that NSR provides every year. Under these proposals, 
far fewer plants, maybe 50 percent or less, would have to apply 
pollution controls.
    In exchange for these giveaways, what would the public get? More 
premature deaths, more lung disease, and more polluted landscapes. That 
doesn't seem like a fair trade to me.
    I'd like to place in the Record a letter from Ben Rose of the Green 
Mountain Club and the Hikers for Clean Air. Their letter clarifies that 
such NSR changes will foul the air, ``shroud our State and national 
parks in haze,'' and acidify our lakes and streams.
    The basic concept of NSR is one of constant improvement. That means 
industry should emit less and less pollution as time passes, as 
investments occur and as technology develops. The Clean Air Act doesn't 
provide loopholes for non-routine maintenance or picking decades-old 
baselines or any of the other loopholes that this Administration is 
trying to finalize.
    When ``any physical change in a stationary source increases the 
amount of any air pollutant by that source'' then pollution controls 
must be applied. That's simple and straightforward. And, it's the law.
    Unfortunately, aside from the dubious legality and the public 
health costs of these proposed NSR changes, the Administration's poor 
handling of this matter has created an atmosphere of distrust.
    Even if these proposals were legal or justified, I would be 
suspicious.
    To my knowledge, no attempt was made to reach consensus among the 
various stakeholders or consult with the committees of jurisdiction 
before issuing this reform package. Overall, this has been a much 
different, much less open rulemaking process than the one used by the 
Clinton Administration.
    This Administration seems to have largely ignored comments from 
public health advocates and the States, while listening mainly to 
industry. The Senate Environment and Public Works Committee's 
legitimate requests for information on this matter and others have been 
treated disrespectfully and disdainfully by this White House.
    While the EPA has recently begun to provide information in response 
to our December request, 90 percent of which is already in the public 
docket, the Department of Energy has been very unresponsive.
    We will be reviewing the additional material that EPA has promised 
to deliver by the end of this week. Then we will decide on whether a 
subpoena is necessary. I hope it doesn't come to that, but this White 
House may give the Committee and Congress little choice.
    I will note, however, that I do not recognize any validity in the 
Agency's claim, made largely at the White House's insistence, that the 
documents we are requesting cannot be shared before the rules become 
final. There is no precedent or protection provided by statute or case 
law to defend that position.
    I am saddened at what the White House is doing to the Environmental 
Protection Agency. It seems intent on gagging and binding this 
``independent'' agency. This prevents us from working together in any 
kind of productive and cooperative manner. Even communication at the 
staff level has been intentionally stifled.
    More than a year ago, the President directed the Agency to prepare 
a three-pollutant legislative proposal. The Agency developed and 
analyzed a proposal that it thought was defensible from an air quality 
and public health perspective. That ``straw proposal'' from August 2001 
disappeared almost as soon as it was floated.
    Then, in February of this year, a new version of targets and 
timetables was announced, one that looked quite different and 
substantially less protective. But no environmental or economic 
justification for those numbers had been done for the Congress or the 
public to see. We still don't have legislative language or any 
comprehensive analysis or documentation on it.
    NSR fits into a similar pattern. The Clinton Administration did a 
draft regulatory impact analysis in 1996 with its proposed regulations. 
Many years of stakeholder discussions took place where lots of 
commentary and analysis was shared. That Administration ended without a 
final rulemaking because of many concerns, including environmental and 
legal questions.
    In June of this year, this Administration announced its NSR reform 
package. It did not conduct stakeholder meetings on this rulemaking 
package. It provided no final regulatory impact analysis or any 
environmental or public health assessment. Worse yet, the Agency's 
staff indicated that no quantitative analysis had been done or would be 
forthcoming. That doesn't seem to comport very well with the 
requirements of the Executive Order on regulatory review, or with the 
EPA's own internal documents.
    This NSR reform package is a recipe for litigation. If these 
changes become final, they will be overturned by the courts or perhaps 
by Congress. The Agency will not be due any deference in court on its 
expert opinion, because it has not justified how these changes can 
improve and protect public health.
    Except for a brief period, Congress has counted on EPA to be the 
``green'' eye-shades people for 30 years. The Agency's job is to make 
sure that pollution is accounted for and reduced. The EPA is supposed 
to keep corporate polluters honest and look out for the public good.
    But given these NSR changes and the White House's anti-disclosure 
policy on information, it is hard not to think that the executives are 
overruling the ``green'' eye-shades people and trying to cook the 
books. Instead of greenbacks, we're talking about millions of tons of 
pollution that severely damages the health and welfare of the public. 
Thank you.

    Senator Leahy. Thank you very much.
    We go next to Senator Bob Smith of New Hampshire, and then 
Senator Hatch, and then Senator Lieberman as the subcommittee 
chair and Senator Voinovich as ranking member, then Senator 
Biden and Senator Grassley, and then the witnesses.

  OPENING STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE 
                     STATE OF NEW HAMPSHIRE

    Senator Smith. Thank you very much, Mr. Chairman.
    Goodness gracious, I wonder if there might be a priest in 
the house and I could go to confession for being a Republican 
after listening to all of that. Man. I guess it is an election 
year. Politics is in the air.
    Senator Leahy. You got that right.
    Senator Smith. I wonder, though, really how in the world 
this kind of discussion can be productive in terms of 
addressing the problems that we face in this country. Remember 
these terrible people are the ones that have produced the power 
to run this country through the last 100 years, including the 
Cold War--the machinery that they produced to win the Cold War 
and to keep a free Nation. So if we just get that on there, 
just to get a little balance.
    NSR, in my view, is a nightmare that does little to protect 
the environment. In fact, it often is the mechanism that delays 
the upgrades that would provide for cleaner air. This 
discussion has ignored the new technology that is being 
produced every day, that will in fact clean up the air. If they 
will just be given the opportunity to unleash that technology 
and not be restricted from doing so by some of the actions that 
we take here, the results would be beneficial to the 
environment.
    Lest some people think that it is all one-way with me, in 
1999 just days after I became chairman of the Environment and 
Public Works Committee, I opposed a rider that many on my side 
supported that would have ended NSR enforcement cases. I 
opposed that rider because I believe that we need to set clear 
environmental rules and prosecute violators. I opposed it, and 
at the same time I recognized the merits of the amendment and 
why they sought it. It was to avoid yet another round of 
litigation that would not clean up anything and just make 
lawyers rich. That is all we would accomplish with that--
provide less clean air and make more lawyers wealthy.
    There is a better way, to be frank. NSR, which is anything 
but clear, has been the subject of near-continuous litigation 
and revision since its enactment in 1977--continuous revision 
and litigation. It is no wonder. A few pages of Federal law, 
led to a 20-page regulation that needed to be, ``clarified'' by 
more than 4,000 pages of guidance. Let me repeat that. A few 
pages of Federal law led to a 20-page regulation that needed to 
be clarified by 4,000 pages of guidance documents. This should 
not be a partisan issue. I don't know of anybody that wants to 
breathe dirty air. I don't. I will speak for myself. I don't 
think any of my colleagues down here on this side of the table 
want to breathe dirty air. But it is worth reminding my 
colleagues on both sides that the Clinton Administration 
realized the problems with NSR. That Democratic Administration 
in a proposal by Vice President Gore proposed the NSR reforms 
that are now in the Bush proposal and brought forth some of the 
same proposals that are now being roundly criticized on the 
other side.
    I do not believe regulatory efforts alone are enough of an 
answer. I do not fault President Bush in the least for trying 
to create order out of this jumbled heap of nonsense and chaos 
that some generously call an environmental program. 
Unfortunately, while we have yet to even see drafts of the 
final or proposed rules, we have already heard threats of 
future lawsuits. We haven't seen a draft yet, and now future 
lawsuits are being threatened. That is in addition to the 
cries--the biggest roll-back of the Clean Air Act since its 
inception. Biggest roll-back? On what data and analysis is the 
biggest roll-back based? I haven't seen any data. It was just 
in the last week that this committee, the Environment and 
Public Works Committee, received 13 boxes of information and 
analysis from the Administration's NSR review, long after 
claims of a roll-back were splashed across our Nation's 
newspapers and TV news. The majority has even indicated that 13 
boxes are not enough. They may decide to issue a subpoena to 
get some more boxes.
    If we do not have enough analysis yet, how can we conclude 
that this is a roll-back of the Clean Air Act? If you haven't 
got all the boxes they want, how do you know what is in the 
boxes? Maybe we do not need a roll-back of the Clean Air Act. 
If there is enough information to support such a conclusion, 
why do we need another subpoena?
    It seems that again environmental politics is trumping real 
environmental policy. Good environmental politics is not good 
environmental policy, believe me, and it is now going to lead 
to cleaner air. Believe me on that, too. Real environmental 
progress would be working together to enact consensus, multi-
emissions legislation for electrical utilities. Real 
environmental progress would be working together to build on 
the success of the acid rain program which worked, frankly, not 
at a cost of $5 billion as many said, but less than $1 billion, 
rather than to fight to keep a program that has reduced maybe a 
pound of emissions per lawyer involved.
    Well, the President is trying to move forward on this, just 
like his predecessor did, but politics dictates that we must 
oppose a consensus approach. We cannot have a consensus 
approach because that would not have a political debate, and 
then we cannot call all Republicans polluters. That is the 
bottom line, folks, and that has served as an employment 
service for Clean Air Act lawyers and has produced very little 
in terms of environmental benefits. What we need is a 
legislative solution. That is what we are here for--a 
legislative solution. Isn't it about time we sit down and do 
it? Why don't we go in the back and stop all this rhetoric out 
here in the front and sit down and work it out? You know that 
solution is? It is a market-based cap and trade program modeled 
on the acid rain program.
    I spent weeks talking to Carol Browner about it in the 
Clinton Administration and she supported it--a program with 
clear admission reduction levels and compliance dates set in 
law, allowing cap and trade. And yes, putting NSR on the 
table--a program that avoids needless litigation and delay; a 
program that provides industry with incentives to make deeper 
and faster reductions that would employ their new technology. 
That is my goal. That is where I am coming from. That is what I 
think we all should be working to achieve--the most reductions 
with the least litigation, and we ought to get started this 
morning. Unfortunately, that is not going to happen.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Smith follows:]
    Statement of Senator Bob Smith, U.S. Senator from the State of 
                             New Hampshire
    Thank you Mr. Chairman.
    This must be an election year, because there is definitely politics 
in the air.
    NSR is a nightmare that does little to protect the environment; in 
fact it often is the mechanism that delays upgrades that would provide 
for cleaner air. None-the-less, in 1999, just days after I became 
chairman of the Environment and Public Works Committee, I opposed a 
rider that would have ended NSR enforcement cases. I opposed the rider 
because it is my belief that we need to set clear environmental rules 
and prosecute violators.
    At the same time, I recognized the merits of the amendment. It 
sought to avoid yet another round of litigation. Lawsuits make lawyers 
richer, but do little to provide for cleaner air--there is a better 
answer.
    NSR--which is anything but clear--has been the subject of near-
continuous litigation and revision since its enactment in 1977. And 
it's no wonder--a few pages of Federal law led to a 20-page regulation 
that needed to be ``clarified'' by more than 4,000 pages of guidance 
documents.
    This shouldn't be a partisan issue either--its worth reminding my 
colleagues on both sides of the aisle that the Clinton Administration 
realized the problems with NSR. That Democratic Administration--led by 
Vice President Gore--proposed NSR reforms that are now included in the 
Bush proposal that is being so roundly criticized.
    Although I do not believe regulatory efforts alone are enough of an 
answer, I do not fault President Bush in the least for trying to create 
order out of this jumbled heap of nonsense some generously call an 
environmental program. Unfortunately, while we have yet to see even 
drafts of the final or proposed rules, we have already heard threats of 
future lawsuits.
    That's in addition to all the cries of this being ``the biggest 
rollback of the Clean Air Act.'' Biggest rollback? On what data and 
analysis are those claims based?
    It was just in the last week and a half that the committee received 
13 boxes of information and analysis from the Administration's NSR 
review--long after claims of a ``rollback'' were splashed across our 
nation's newspapers and television news shows. And the majority has 
indicated that even 13 boxes are not enough--they may decide to issue a 
subpoena to get more.
    If we don't have enough analysis yet, how can we conclude that this 
is a rollback of the Clean Air Act?
    If there is enough information to support such a conclusion, why 
would we need to issue a subpoena?
    It seems that, again, environmental politics is trumping a real 
environmental debate that could lead to cleaner air. Real environmental 
progress would be working together to enact consensus multi-emissions 
legislation for electric utilities. Real environmental progress would 
be working together to build on the success of the Acid Rain Program, 
rather than fighting to keep a program that has reduced maybe a pound 
of emissions per lawyer involved.
    Well that's what I've tried to do. That's what the President has 
proposed doing. But politics dictate that the majority must oppose a 
consensus approach. While NSR has served as an employment service for 
Clean Air Act lawyers, it has produced very little in terms of 
environmental benefits.
    What we need is a legislative solution.
    That solution is a market-based, cap-and-trade program modeled on 
the Acid Rain Program--a program with clear emission reduction levels 
and compliance dates set in law--a program that avoids needless 
litigation and delay--and a program that provides industry with 
incentives to make deeper and faster reductions than required.
    That's my goal, and that's what I think we all should be working to 
achieve--the most reductions with the least litigation and delay.

    Senator Leahy. Thank you.
    Senator Lieberman is the chairman of the Clean Air, 
Wetlands and Climate Change Subcommittee, the Committee on 
Environment and Public Works--quite a mouthful.
    [Laughter.]

  OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, U.S. SENATOR 
                 FROM THE STATE OF CONNECTICUT

    Senator Lieberman. It is a mouthful.
    Thanks, Chairman Jeffords and Chairman Leahy. This is an 
all-Vermont-led hearing. I feel as if I have enlisted in the 
Green Mountain Boys here today, but it is an honor to be 
marching alongside behind you. I thank you for convening this 
hearing, which is aimed at shining a spotlight on these 
proposals to amend the New Source Review provisions of the 
Clean Air Act.
    This is a very important hearing because the Bush 
Administration is on the brink of gutting these New Source 
Review provisions and replacing them with nothing, or with an 
alternative that is so weak it is essentially nothing. That 
would be devastating to the quality of air in Connecticut and 
all across the country. There is a good deal of attention that 
we are paying in the Senate these days, and the whole country 
is to so-called ``corrupt corporate accounting.'' I am not 
saying that the accounting being done here is corrupt, but I am 
saying that with regard to New Source Review, the environmental 
accounting that is being done is at best deceptive.
    The Administration asserts, for instance, that an increase 
of thousands of tons of emitted pollutants by a power plant 
would not be an increase under the law. Why? Because a decade 
ago, the plant polluted at the higher level. As a result of 
this change alone, some in EPA have estimated that over 50 
percent of the polluters currently required to install 
pollution controls would, under the President's plans, get to 
escape regulation and breathe a little easier.
    Not so for the rest of us. The more noxious pollutants in 
the air, the more the American people will have to grapple with 
more asthma, more cardiac disease and more cancer. That is just 
not my conclusion. In 1999, EPA sued eight utility companies 
that it believed has violated the New Source Review provisions 
and according to EPA's own analysts, these eight utilities 
alone, a fraction of all those that are subject to the New 
Source Review regulations, produced emissions responsible for 
14,000 cases of acute bronchitis, 140,000 asthma attacks, and 
5,900 premature deaths every year. It is those lawsuits that 
these rule changes would under-cut, and those health problems 
that would be a prelude, I am afraid, to many more to come if 
the Administration's proposed rule change goes through.
    In an effort to understand the full environmental and 
public health consequences of these Administration's actions, 
as has been indicated here today, last December I was proud to 
join Chairman Jeffords and other colleagues on the Environment 
Committee in requesting EPA's analysis of the impacts of these 
rule changes. Since then, I would say we have been slow-walked 
and have not truly received answers to our questions. This is 
subject to two interpretations, I would say. The first is 
either that the Agency has not done the analyses we have 
requested, and therefore is gutting the Clean Air Act without 
adequate evaluation of the consequences. Or second, the Agency 
has done the analyses and does not want to release them.
    Either way, it says that these amendments are not built on 
a strong foundation. The divergence between EPA's proposal and 
the position of the United States in these lawsuits is 
stunning. In legal briefs that were actually signed by Mr. 
Sansonetti, who is a witness on the first panel, and submitted 
to Federal courts, the United States argued that any exemption 
from the New Source Review provisions should be, ``narrowly 
construed,'' that utilities, ``indisputably had notice of EPA's 
interpretation,'' of the New Source Review rules and that EPA's 
interpretation has been held constant for at least the past 
decade.
    These legal arguments directly contradict the EPA proposals 
we are looking at in this hearing today, which seek to carve 
out what I would call a cavernous exemption for routine 
maintenance and which announce a need to clarify previous 
interpretations of these provisions. Why would there need to be 
any clarification if, as the Justice Department asserts, the 
interpretation has not varied for a decade, and industry has 
had fair notice? I hope that from the witnesses today, we will 
be able to clarify the Administration's true position on these 
provisions.
    Mr. Chairman, there is room for improvement in the New 
Source Review program. That is clear. I think it would best be 
done, however, in concert with the legislation that you and I 
and others have sponsored, which would limit the emissions of 
all four major pollutants from power plants, and that 
legislation was passed out of our committee last month. The 
reason I think any alteration of New Source Review would best 
be done in concert with new pollution protections is that 
otherwise we are going to be replacing the existing 
environmental regime with nothing, or with something that 
promises even more pollution, and that is not good for the 
health and well-being of the American people.
    So I congratulate both of you for your leadership. I thank 
you for convening this hearing. I always preserve the hope that 
out of this kind of dialog, even confrontation, will emerge a 
path to cooperation in the interest of the health and safety of 
the American people.
    Thank you very much.
    Senator Leahy. Thank you.
    Senator Voinovich.

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. Mr. Chairman, first of all I object to 
the majority's gross negative sinister characterization of the 
Administration's initiative to clarify New Source Review. It 
reminds me of the old bogeyman, and that is characterize 
something as bad before you know what it is or it has been 
finalized. That being said, Mr. Chairman, thank you for calling 
today's hearing on New Source Review.
    [Laughter.]
    Senator Leahy. Strong message to follow.
    Senator Voinovich. Yes.
    The program has been around since 1977. It requires new 
facilities to install the best demonstrated technology to 
control emissions. The program also requires older facilities 
to update their equipment to state-of-the-art as they undergo 
major modifications. I think it is important to point out at 
the very beginning that it is a fallacy to say that any plants 
are so-called ``grandfathered'' from the Clean Air Act. On the 
contrary, every major facility is regulated by the Clean Air 
Act and must meet defined permit levels, all of them. Every 
plant must abide by the ozone and PM standards, the MACT 
standards, the NOx and SIP Call, and every regulatory program 
applicable to each industry.
    It is important to note, particularly for me as the former 
Governor of Ohio, that our utilities have spent more money to 
reduce pollution than all of the utilities in the northeastern 
part of the United States of America. We have reduced pollution 
significantly since the Clean Air Act, which never seems to be 
mentioned in any of these hearings.
    It is also a fallacy to assume that NSR only applies to 
utilities and refiners. It applies to every stationary source 
in the country as evidenced by the testimony you will hear 
today from Intel. The EPA issued first NSR regulations back in 
1980--a 20-page document. Since then, they have produced, as 
Senator Smith said, over 4,000 pages of guidance documents in 
an attempt to explain and reinterpret the regulations. I think 
it is important for this committee to understand that the 
lawsuits blossoming all over the country were triggered by an 
EPA guidance in 1998 which changed the definition of routine 
maintenance. That is a guidance. It was not a regulation. 
Somebody came out with a new guidance and said that the way we 
define routine maintenance is wrong, and subjected these 
utilities to these lawsuits because they said they violated New 
Source Review. This has led to confusion and misunderstanding 
by the Agency, the States and the regulated community.
    Mr. Chairman, this chart, which I have used once before at 
a Governmental Affairs Committee hearing, shows by companies 
are reluctant to subject themselves to NSR permits. Only a fool 
would put themselves into this maze to do ordinary repair and 
maintenance of a generating facility. Look at that chart. It is 
no wonder companies postpone making changes that would improve 
efficiency and the environment. We need clarification of the 
regulations. We need to do everything possible to encourage new 
investments in more efficient equipment that produces fewer 
noxious emissions. That is why, and I think it is really 
important for this committee to know that Senator Conrad and I, 
along with 24 of our colleagues, sent a bipartisan letter to 
Administrator Whitman in May, calling on her to complete the 
NSR review and undertake the necessary regulatory process in 
the future to clarify and reform the NSR program.
    Our letter was bipartisan, with 9 Democrats and 17 
Republicans all calling for reform. While I am sure that all of 
us will not necessarily agree on exactly what the reforms 
should ultimately look like, we did all agree we had to move 
forward with reform. If members of this committee have concerns 
with certain aspects of the proposed reforms, then this hearing 
should take place after the proposed changes are published. At 
that point, we could debate the merits of the proposed 
regulations and whether the reforms go far enough. In the 
letter, we also stated that we have heard of many situations in 
which confusion over the NSR program is having a dampening 
effect on utilities' willingness to perform energy efficiency 
and environmental improvement projects.
    Mr. Chairman, I would just like to mention just a few of 
the examples I am aware of. I think it is important. There is a 
new technology called dense pack, which enhances the efficiency 
of turbine blades in coal-fired power plants, and can result in 
significant improvements by generating more electricity with no 
additional use of fuel. If one of those generating units could 
improve efficiency between 2 and 4 percent with this 
technology, which is a conservative estimate, it would result 
in additional output of 6,000 to 12,000 megawatts of power in 
the near term, and significantly reduce emissions of NOx and 
SOx. This is the equivalent of building 20 to 40 new power 
plants of 300 megawatts today, with no more emissions. It is my 
understanding that these dense packs would trigger NSR today. 
That is where we are.
    Another example--the EPA concluded that a plan by the 
Detroit Edison Company to replace worn turbine blades with new 
improved blades was non-routine. The replacement would increase 
the efficiency of two turbines by 4.5 percent each along each 
unit, to produce 70 additional megawatts of additional power 
with no increase in fuel consumption, or to continue to 
producing at past levels while reducing fuel consumption and 
emissions.
    For refiners, I am aware of one example in which tubes 
failed, resulting in a fire which damaged the remaining tubes. 
New tubes were installed and the unit was back in production 
within 2 weeks. However, they were in violation of NSR due to 
the actual potential emission test. If NSR regulations were 
followed, the unit should have followed the PSD permit process, 
resulting in the refinery being out of commission for 5 to 18 
months instead of the 2-week period that it took for them to 
repair it. I think my colleagues should remember that the next 
time a refinery closes and gas prices spike.
    Mr. Chairman, the 26 Senators who signed the letter are not 
the only ones that think NSR has prohibited reductions in 
emissions. According to the national coal study commissioned by 
the Clinton Administration, if the EPA were to return to pre-
1998 NSR definitions, we would generate 40,000 new megawatts of 
electricity from coal-fired facilities and reduce pollution at 
the same time--reduce pollution at the same time.
    One last point, and that needs to be made. The cost of NSR 
are passed on to the rate-payers. Somehow, people forget that 
the customer always pays. (INAUDIBLE) about the utilities, 
about those industries and those bad people that run them? But 
when it comes to utilities, it is the rate-payers that 
ultimately have to pay the cost of this.
    We have an interesting mix of witnesses today. I am 
particularly eager to hear from the Administration because 
those opposed to NSR reform have put a negative spin on their 
announcement. Isn't that why we are here today?
    Thank you, Mr. Chairman.
    Senator Leahy. Thank you.
    Senator Biden is the chairman of the Crime Subcommittee of 
the Senate Judiciary Committee.
    Senator Biden.

 OPENING STATEMENT OF HON. JOSEPH R. BIDEN, JR., U.S. SENATOR 
                   FROM THE STATE OF DELAWARE

    Senator Biden. Mr. Chairman, thank you for the opportunity 
to hear these witnesses. I would like to ask unanimous consent 
that my entire statement be placed in the record, and I would 
like to abbreviate it if I may.
    Senator Leahy. Without objection, all statements can be 
placed in the record.
    Senator Biden. To state the obvious, I would like to thank 
you and Chairman Jeffords for holding this hearing.
    I would like to just say a few things at the outset. We 
sometimes forget the focus of the Clean Air and Clean Water 
Acts, which were passed when I came to the Senate in 1972. 
Their purposes are not to maintain the status quo or to 
generate more energy. They are to fundamentally change the 
quality of the air we breathe and the water we drink. The 
objective is not to stay static, but is to improve the 
environment; and there is a whole hell of a lot of improvement 
needed.
    Without blaming anyone about anything, I suspect our 
perspectives are impacted upon by which way the wind blows. I 
would like for a while to have the wind blow into Ohio instead 
of out of Ohio. I would like the wind to blow from Delaware 
into Pennsylvania, rather than from Pennsylvania into Delaware. 
I was raised in a steel town called Claymont, DE. I lived a 
tenth of a mile from the Pennsylvania border, a place called 
Marcus Hook, PA. The Delaware River has more oil refineries--I 
don't know if it still the case--in any one spot than any other 
place in America, including Houston, TX.
    The prevailing winds blow our way, not the other way. As a 
kid, I would wake up in the morning. My uncle would drop me off 
at the local school. If there was mist that day, literally he 
would turn on the windshield wiper and there would be an oil 
slick on the window.
    Now, we have improved, but it was not a joke. It was real. 
It is exactly how it worked.
    Where we sit impacts on where we stand on this issue. I am 
not being critical of the State of Ohio or any other State, but 
if the coal plants in Ohio and Michigan and other places were 
20 feet high instead of 300 feet high, they would just seep 
over the top and all the folks in Ohio would get the benefit of 
the acid rain that we get where we live.
    I understand the perspective, but we should be straight 
with each other. Part of what is at stake and the degree to 
which we feel intense about this depends upon who breathes what 
and what happens to our constituents. In my State, it is a big 
deal. If I take issue slightly with my friend Senator 
Lieberman, is not to clarify what you think, but rather to 
change what you think. You guys have a chance to correct this.
    I am not being facetious. I think we need to bring some 
focus on this. The President says that he fully is focused on 
this--but it is a little bit like when we started off the 
debate on corporate difficulties we now have. When it started, 
we did not alter very much at all the bill that Senator 
Sarbanes brought out of committee. We saw overwhelming 
opposition from about a third to probably a little more than 
that of the Members of the Senate. Then the public spoke. The 
public figured out what was going on and the Congress passed it 
overwhelmingly--not a single dissenting vote. That is my hope 
for this issue. You have time, fellows. Redemption is at hand. 
You can change this. I mean it sincerely--you do not have to go 
this route.
    This is understandable; it happens in every Administration. 
A relatively small group of people who feel very strongly for 
one position end up having control of it, and move it. Then 
once the whole deal is figured out by everybody else, there are 
sometimes second thoughts. My hope is for second thoughts. This 
is all about cleaner air and cleaner water.
    It is a serious issue to the people in my State. We live in 
a region that is in non-attainment of the Federal ozone 
standard. We are a tiny State. No place is wider than 55 miles; 
no place can you drive in a straight line longer than 113 
miles. We have the highest cancer rates of any State in the 
Nation on average. We are one, two or three among the four 
cancers that are the biggest killers in America. Why in the 
heck is that? I don't know. We can't prove anything, but I will 
tell you what--we cannot build a barrier 300, 500, 700, 800, 
10,000 feet high. We can't. Nothing we can do about it. Nothing 
we can do about it. Yet the standards are higher in Delaware 
than elsewhere and we cannot meet the non-attainment Federal 
ozone--we are in non-attainment.
    The bottom line is, we don't have the ability to meet the 
current health-based standards. But to state the obvious, not 
all of our air pollution comes from Delaware. Think about this. 
I think maybe one of the big wake-up calls every once in a 
while--I have been here a long time--every once in a while, 
something happens that is totally unrelated to the issue at 
hand that sheds light on the issue like nothing else. The 
entire East Coast was in a fog because of a forest fire up in 
North Central Canada. If you ever need a graphic description of 
how the air we breathe is affected by what happens in other 
parts of the country, I don't know what more you would need to 
understand that point.
    I would love to do something. I would love to be able to, 
just for kicks, make every emission that comes out of a coal-
fired plant, to have a color, literally. I mean this sincerely. 
I am not joking. Instead of it being what is emitted, not 
discernible to the naked eye, I would love to be able to 
literally color code what was coming out of it, just like we 
saw that smog and smoke coming down from thousands of miles 
away in Canada. We would have, as we Catholics say, ``a real 
epiphany,'' a real epiphany here in America.
    My friend from Ohio makes a very valid point--the rate-
payers pay. I will lay you 8 to 5, if you went to the rate-
payers and said, look, your rates are going to go up 2, 3, 5, 7 
percent, but the air you breathe is not going to cause my son's 
asthma to get any worse. I will get they would pay. I bet they 
would pay. We don't ask them that question. We don't get there.
    I will make one last and concluding point. Under the 
leadership of Delaware's Governor Carper, now Senator Carper, 
Delaware's Chrysler wanted to build a new plant--to build the 
Dodge Durango. They had to build a new paint plant. They 
debated whether or not they were going to meet the standards of 
New Source Review. The Delaware officials--the Governor, and 
our Secretary of our EPA our Secretary of Natural Resources, a 
guy named DiPasquale--came up with a program that is permitted 
in which there is a plant-wide applicability limit, the so-
called PAL permit.
    They did a heck of a job. Working with EPA, one of the 
first PAL permits was issued to the plant in 1996. The permit, 
the first of its kind in the automotive industry, was issued in 
99 days. Everybody acknowledged we have to reform some of 
this--it was issued in 99 days. The plant continues to operate 
under flexible permit; and as an added benefit, it saved 
Chrysler $13 million in increased productivity and pollution 
prevention costs.
    This can be a win-win situation. Chrysler won with a permit 
giving the flexibility to meet production needs. Delaware 
citizens won through reduced air pollution. Clearly the PAL 
permits are one of the many ways industry can meet its 
responsibility to prevent pollution, while continuing to grow 
and expand under New Source Review rules. The Administration 
says it wants to promote the use of PAL permits. As part of the 
NSR reform, it has proposed a new PAL rule, but the similarity 
between the PAL permit that you all are proposing and the one, 
the old PAL permit that we used, is one in name only. In the 
words of the bluegrass singer Guy Davis, ``This permit is a 
two-dollar chicken on a three-dollar plate.''
    The Administration is using the successful Delaware PAL 
record to support their new version, but the new version is 
fundamentally different. It gives the industry fewer regulatory 
requirements, but it fails to get in return pollution 
reductions that could come from state-of-the-art pollution 
control technology. The new version would force States to issue 
those new permits without gaining the benefits derived from the 
old permit.
    Not surprisingly, Delaware does not believe it could 
achieve the same pollution prevention results under the new 
rule. It is opposing the reform proposal. In a letter sent to 
Administrator Whitman, Natural Resources Secretary DiPasquale 
said the following:

    ``Fundamental differences in Delaware's approach versus EPA's 
apparent proposal make the use of our permit to support your proposal 
in appropriate. The Delaware approach ensures the use of state-of-the-
art pollution control technology and lower emissions per emission unit 
than would otherwise be attained. Delaware believes this level of 
commitment from the source is needed in order to ensure those obtaining 
a PAL are truly environmental leaders and are capable of complying with 
a permit that offers streamlined regulatory requirements and 
flexibility along with the responsibility of self-regulation.''

    Don't confuse what we did in Delaware with what you are 
proposing now. This is serious stuff. These rules are designed 
to protect public health, not to protect industry from 
fulfilling its civic duty. If it is going to cost more, why 
don't we engage in a little bit of truth in lending here? I 
sued to be on the Banking Committee. We went through this whole 
truth in lending thing 28 years ago--a gigantic fight. Why 
don't we have a little ``truth in lending'' in pollution 
control? If in fact you all tell us it is going to cause these 
staggering increases in the cost of energy, tell us what they 
will be and let the voters choose whether or not they would 
rather breathe cleaner air or pay a little more money.
    So I look forward to the hearing, Mr. Chairman. Thank you 
for your time, and I yield the floor.
    Senator Inhofe. Mr. Chairman, Senator Hatch has yielded his 
time to me for opening statements.
    Senator Leahy. Well, he would have to yield to somebody on 
the Judiciary Committee.
    Senator Inhofe. All right. Let me throw something else at 
you. Could I make an opening statement and then defer my 5 
minutes, since I was the early bird at the meeting and I was 
the first one here?
    Senator Leahy. We are going to make sure that you are going 
to be one of the first to be heard and you will be able to make 
a statement during that time.
    Senator Inhofe. Wouldn't it be easier to do it now?
    Senator Leahy. I would like to hear from Mr. Sansonetti, 
and we will have him----
    Senator Inhofe. They have been sitting there for an hour 
already. I don't think another 5 minutes is going to bother 
them. Is it going to bother you guys?
    Senator Leahy. The chairman of your committee said to let 
you go, so go ahead.

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. All right. Thank you very much.
    As a lot of you know, in March 2001, Senator Breaux and I 
wrote the first congressional letter on the New Source Review 
program to Vice President Cheney. In our letter, ``EPA's flawed 
and confusing NSR policies will continue to interfere with our 
Nation's ability to meet our energy supply needs,'' and I ask 
unanimous consent that be placed in the record at the 
conclusion of my remarks.
    Senator Leahy. Without objection, it will be.
    [The referenced document follows:]

                                      United States Senate,
                                    Washington, DC, March 23, 2001.
Hon. Richard B. Cheney,
Vice President of the United States of America,
Washington, DC.
    Dear Mr. Vice President: In your capacity as the chairman of the 
National Energy Policy Development Group, we are writing to bring to 
your attention our concerns that, unless addressed, the prior 
Administration's EPA's New Source Review (``NSR'') enforcement policies 
will continue to interfere with our nation's ability to meet our energy 
and fuel supply needs. We strongly urge that the Administration take 
into account these concerns in developing its national energy plan.
    As you are very much aware, the Nation faces a potential energy 
supply shortage of significant dimensions. The California energy crisis 
is receiving the greatest attention in the media. However, major 
challenges exist in meeting demands for gasoline and other fuels, 
especially in the Midwest. More troubling, current projections suggest 
fuel shortages and price spikes--far exceeding last year's problem. 
These are due to a number of factors including: difficulties in making 
summer-blend Phase II reformulated gasoline; EPA hurdles to expanding 
refinery capacity, and the overall increase in energy demand.
    Unless reviewed and addressed, EPA's implementation of NSR 
permitting requirements will continue to thwart the nation's ability to 
maintain and expand refinery capacity to meet fuel requirements. In 
1998, EPA embarked on an overly aggressive initiative in which it 
announced new interpretations of its NSR requirements that it has 
applied retroactively to create a basis for alleging that actions by 
electric utilities. refineries and other industrial sources taken over 
the past 20 years should have been permitted under the Federal NSR 
program. We also understand that these new interpretations conflict 
with EPA's regulations, its own prior interpretations and actions. and 
State permitting agency decisions.
    EPA's actions have been premised heavily on its reinterpretation of 
two elements of the NSR permitting requirements. First, EPA's 
regulations specifically exempt ``routine maintenance, repair and 
replacement'' activities from NSR permitting. EPA now claims that 
projects required to be undertaken by utilities and refineries over the 
past 20 years to maintain plants and a reliable supply of electricity 
and fuels were not routine and thus should have gone through the 18-
month, costly NSR permitting process. EPA's enforcement officials are 
asserting this even though, for more than two decades, EPA staff have 
had full knowledge that these maintenance, repair and replacement 
projects were not being permitted.
    A second ground for many of EPA's claims has to do with whether 
projects resulted in significant emissions increases. By employing a 
discredited method for determining whether emissions increases would 
result from a project-using so called ``potential emissions'' instead 
of actual emissions, EPA is asserting that numerous projects resulted 
in emission increases when in reality they had no effect on emissions 
or were followed by emissions decreases.
    EPA's NSR interpretations have created great uncertainty as to 
whether projects long recognized to be excluded from NSR permitting can 
be undertaken in the coming months to assure adequate and reliable 
energy supplies. Electric utilities and refineries have expected that 
they could undertake maintenance activities, modest plant expansions, 
and efficiency improvements without going through lengthy and 
extraordinarily costly NSR permitting, as long as the project involved 
either routine maintenance or no significant increase in actual 
emissions.
    Now, in light of the new interpretations, utilities and refineries 
find themselves in a position where they cannot undertake these very 
desirable and important projects. This is not an acceptable result when 
the Nation is faced with severe strains on existing facilities. Against 
this backdrop, we strongly urge that the National Energy Policy 
Development Group:
     give investigation of EPA's implementation of its NSR 
requirements a high priority;
     suspend EPA's activities until such time as there has been 
a thorough review of both the policy and its implications;
     clarify whether the implications of EPA's new NSR 
interpretations and its enforcement initiative are being reviewed by 
the White House Office of Energy Policy and the Secretary of Energy 
prior to actions that could undermine energy and fuel supply; and
     establish guidelines to assure that EPA's application and 
enforcement of its NSR requirements will not interfere with the 
Administration's enemy and fuel supply policy. Requirements should be 
developed, which are consistent with responsible implementation of the 
statutory NSR requirements.
    Specifically, to assist you in assessing the implications of NSR on 
meeting the nation's energy and fuel supply demands, you may want to 
obtain the following: (1) all requests since January 1, 1998 for 
information under section 114 of the Clean Air Act issued to facilities 
and companies in any sector involved in energy and fuel supply: and (2) 
notices of violation issued to, and complaints tiled against, any such 
company and/or facility alleging NSR violations during that period. We 
are submitting a similar request to EPA today.
    Thank you for your consideration of this matter. We look forward to 
working with you in the future to develop environmental policy, which 
further protects human health and the environment and works in concert 
with sound energy policy.
            Sincerely,

James M. Inhofe,
U.S. Senator.
John B. Breaux,
U.S. Senator.

    Senator Inhofe. I would like to publicly thank the 
Administration for being responsive to Senator Breaux's and my 
concerns. It took real courage to do this, to pursue NSR 
reforms. It takes courage because this is always misconstrued 
as a sneak attack on the environment. Despite all of the 
partisan rhetoric we have heard today about NSR reforms and the 
process of developing these reforms, make no mistake, President 
Bush's decision will result in a cleaner environment and 
greater energy security.
    I am not going to go into this because it has already been 
touched upon by Senator Smith--that is, it was the Clinton 
Administration that developed the draft proposals that 
accumulated over 130,000 comments on NSR reforms. It was 
Clinton's Environmental Chief, Bob Perciasepe, who wrote a 
letter outlining the NSR reforms, which are similar to 
President Bush's reforms, and called for the Bush 
Administration to consider formalizing the reforms. I would 
like to place this letter in the record also.
    Senator Leahy. Without objection, the letter will be placed 
in the record.
    Senator Inhofe. From my tenure as the chairman of the 
Senate's Clean Air Subcommittee, I know that New Source Review 
is a major issue for the energy sector. In fact, I held the 
very first congressional hearing on New Source Review in your 
State of Ohio back in February 2000. I could not believe my 
ears of what I was hearing. We heard from companies who were 
trying to make environmentally friendly modifications to the 
facilities being stopped dead in their tracks, ironically by 
the Clean Air Act. As a result of my March 2001 letter, a 
number of stakeholders from all over the country have contacted 
me to discuss their experience with the NSR program. These 
examples further shocked me, so much so that Senator Specter 
and I sent a letter to the EPA and DOJ outlining some of the 
examples, and I would ask that that letter be made a part of 
the record.
    Senator Leahy. Without objection, the letter will be made 
part of the record.
    [The referenced document follows:]

                                      United States Senate,
                                     Washington, DC, June 20, 2001.
Hon. Christine Todd Whitman, Administrator,
U.S. Environmental Protection Agency,
Washington, DC.
    Dear Administrator Whitman: Thank you for your May 14, 2001 
response to the Inhofe letter, regarding all requests for information 
under Sec. 114 of the Clean Air Act and Notices of Violation (NOVs) 
issued to the energy sector. The information submitted was very useful 
and has provided us with a greater appreciation of the impact of the 
New Source Review program on our energy sector.
    We have serious concerns that continuation of the prior 
Administration's New Source Review (``NSR'') enforcement policies may 
interfere with our nation's ability to meet our energy and fuel supply 
needs. For that reason, we were very pleased to see that the President 
has included in his energy policy an Environmental Protection Agency 
(EPA) and Department of Energy review of the NSR program and a 
Department of Justice (DOJ) review of the NSR enforcement initiative.
    Prior to the Inhofe letter, we knew that New Source Review was a 
major issue for the energy sector. However, as a result of the Inhofe 
letter, a number of companies from all over the country have contacted 
us to discuss their experience in responding to EPA's information 
requests, the first step EPA takes in initiating an NSR enforcement 
action. The information included in your response to the Inhofe letter 
and the information received from these companies has raised a number 
of issues for which we would appreciate additional information. 
Therefore, we respectfully request the following information:
     Information and examples submitted to our offices by 
companies over the past several weeks suggests that the response 
provided by EPA does not include all of the Sec. 114 requests issued by 
EPA since 1998. Specifically, our offices have become aware of 
facilities that have received Sec. 114 requests without any official 
cover letter. These requests were apparently not included in the 
information sent to Sen. Inhofe. Please explain why these requests were 
excluded from the information presented to Sen. Inhofe's office. In 
addition, please explain how often the Agency submitted Sec. 114 
requests without the appropriate cover letter, and the reason for this 
apparent informality.
     Additionally, it has come to our attention that, in some 
cases, the Sec. 114 requests came in the form of a photo-copied 
document with the name of one facility scratched out and the name of 
another facility penciled in. We are interested in knowing how many 
Sec. 114 requests are issued in this manner and the reason for using 
photo-copied requests with new names penciled in. Please include a copy 
of each of these requests and the names of the individuals in both the 
regional offices and headquarters who signed off on the Sec. 114 
request in this form. Are Sec. 114 requests usually allowed to be 
issued in this manner?
      According to individual companies that contacted our 
offices, some Sec. 114 requests asked for information which had already 
been produced. We are interested in understanding further how often 
this occurs and the rationale for asking for the same information 
twice. In instances where the same information is requested again, does 
the company have to provide the same documentation again or can the 
company simply refer to a previous submission?
      Similarly, some companies have also stated that Sec. 114 
requests referred to attachments that were not provided. We would 
request your staff to review the Sec. 114 requests sent out over the 
past 2 years to determine how often the Sec. 114 requests refer to 
attachments that are not provided.
      In addition, we are puzzled by the fact that upon 
receiving these Sec. 114 requests, some company officials received 
follow-up calls apologizing for the Sec. 114 request, requesting that 
the recipient ``ignore'' or ``put on hold'' the request. Please tell us 
how many of these calls were made and the reason for the retraction. 
What are the legal implications for the company of having received a 
Sec. 114 request followed-up by a ``disregard call?'' Is the company 
still obligated to respond to the request? If not, how does the company 
adequately document that the Sec. 114 letter is not being pursued? In 
light of these incidents, please provide us with information on any 
requests for information under section Sec. 114, which have been 
submitted to a facility and, subsequently, withdrawn for any reason, 
including the date of the submission and withdrawal of the Sec. 114 
request.
      Given these incidents, we would also appreciate 
information on the procedure that EPA personnel must follow before 
issuing information requests under section Sec. 114 of the Clean Air 
Act. Please describe this procedure and all cases of a violation of 
such a procedure since 1998, including the name of the facility 
affected, the date of the violation of the procedure, the names and 
titles of any Federal employees involved, the supervisors of the 
Federal employees involved, and the nature of the specific violation of 
the procedure. What quality controls procedures does EPA have in place 
to assure compliance with these procedures?
      Unfortunately, because of the fear of retribution, many 
of the parties receiving these Sec. 114 requests have requested that we 
not disclose their names. None-the-less, we find it very troubling that 
we did not see any of these Sec. 114 requests included in EPA's May 14, 
2001 response. In your testimony before the Senate Committee on 
Environment and Public Works on May 15, 2001, you responded to inquires 
on these issues by stating that the problem is being addressed. Please 
explain to us what actions you are taking to assess the magnitude of 
these potential procedural missteps and the measures that you are 
planning to take to address the problem.
      In addition, we would also like information on all 
requests for information since 1998, which may not explicitly cite 
section Sec. 114, but derive the power of the requests from this 
section.
      With regard to the NOVs and complaints submitted, please 
provide us with a list of the types of projects cited in the NOVs and 
complaints.
      Finally, we would appreciate an explanation as to why EPA 
apparently chose not to comply with the requirements of the Paperwork 
Reduction Act (PRA) when it issued these Sec. 114 requests to the 
electric utility companies and refineries. As you maybe aware, under 
the PRA and the Office of Management and Budget's (OMB's) implementing 
regulations, an agency such as EPA is not to conduct or sponsor the 
collection of information without first consulting with and obtaining 
approval from OMB. Under the PRA, this consultation and approval 
process is intended to ensure that, among other things, the agency's 
information collection request is necessary for the proper performance 
of the functions of the agency, including whether the information will 
have practical utility.
    As you maybe aware, the PRA applies to all information collection 
requests consisting of essentially identical questions or requests for 
information imposed on 10 or more persons. OMB's implementing 
regulations further specify that any collection of information 
addressed to all or a substantial majority of an industry is presumed 
to involve 10 or more persons. The information you previously submitted 
to Sen. Inhofe indicates that this threshold requirement has been met 
with respect to both the electric utility and refinery sectors.
    Since the Sec. 114 requests you previously provided to Sen. Inhofe 
do not display OMB control numbers, should we assume that EPA has 
concluded that those requests are not subject to the PRA? If so, what 
is the basis for EPA's conclusion? We are aware of the fact that the 
PRA makes an exception for requests for information submitted during 
the conduct of a civil action to which the United States or an agency 
thereof is a party, as well for requests made in conjunction with an 
administrative action or investigation involving an agency against 
specific individuals or entities. But if this is the provision of the 
PRA on which EPA is relying, we must remind you that OMB's implementing 
regulations clarify that this exception applies only after a case file 
or equivalent is opened with respect to a particular party. Are we to 
understand that EPA has opened a case file for each and every one of 
the electric utility companies and refineries to which EPA has 
submitted Sec. 114 requests? If so, we would appreciate your formally 
confirming this for us. If not, then the question remains, what is the 
basis for EPA's apparent conclusion that the PRA does not apply? In 
particular, we direct your attention to the provision of the PRA that 
specifies that the PRA does apply to the collection of information 
during the conduct of general investigations undertaken with reference 
to a category of individuals such as a class of licensees or an entire 
industry.
    We respectfully request this information no later than July 13, 
2001. A timely response is requested, so that we can assess the impact 
of these enforcement policies on our energy supply. We trust that 
producing such information will bring to light some interesting facts 
for your review of the New Source Review program.
    These examples concern us because they suggest a sloppy and poorly 
managed enforcement initiative with little regard to the impact on 
companies that often have to unearth and certify up to 20 years of 
information in 30 days. Additionally, it costs a small facility 
hundreds of man hours and hundreds of thousands of dollars to comply 
with these information requests. Because these companies face the full 
force of the law and must respond to any information request, the 
government must bear the responsibility of being judicious in 
undertaking these requests.
    Therefore, we further request a full investigation by the EPA's 
Inspector General, involving procedural errors and mismanagement. 
Additionally, we request that you share this information and any 
findings with DOJ, so DOJ can use this information for their review. We 
will also be requesting that, during the NSR enforcement review called 
for by the National Energy Plan, DOJ take a serious look at the extent 
to which these and other procedural errors exist within the NSR 
enforcement initiative.
    We understand that you are still working hard to place your team 
together, but we firmly believe that these issues must be investigated 
immediately. If you have any questions, please feel free to contact us 
or have your staff contact Louis Renjel with Sen. Inhofe's staff.
            Sincerely,

      James M. Inhofe,
      U.S. Senate.
Arlen Specter,
U.S. Senate.

    Senator Inhofe. As if it is not bad enough that no one 
really understands NSR as a policy and NSR is stopping projects 
which would make facilities cleaner and more efficient, under 
the NSR enforcement initiative, I saw outrageous examples of 
bureaucratic harassment. There were examples of information 
requests submitted to companies by EPA employees without any 
official authorization. There are other information examples in 
the form of photocopied documents with the name of one facility 
scratched out and the name of another facility penciled in. 
There are also requests which were addressed to one facility, 
but referred to operating units of another facility half-way 
across the country, just to mention a few.
    I fully support strong enforcement of the Nation's clean 
air laws, but I am not going to stand by and watch what appears 
at the minimum to be a gross incompetence and carelessness by 
the Federal employees who appear to care nothing for the costs 
involved. As a former businessman, I have personally dealt with 
similar behavior from the government, and I often wish that 
more people had a background like I had so they would know what 
it is like to be overregulated when nothing is going to be 
gained from it.
    I think Congress and the executive branch are going to have 
to understand how these various layers of regulation impact 
sections of the economy. We have a chart here I have used 
before, and this chart shows refiners who are currently working 
at almost 100 percent capacity, are going to be simultaneously 
hit with a multitude of regulations in the next few years. NSR 
will make it close to impossible for refiners to make these 
environmental upgrades. Higher energy prices affect everyone, 
but you know, you had, Senator Voinovich, someone come in and 
testify, I think his name was Tom Mullen, that it affects the 
poor the worst. Twenty-five percent of the people have to make 
a decision as to whether they want to heat their homes or have 
groceries. That was your constituent that made that testimony. 
Oklahoma is a poor State, so that percentage is much higher.
    I think the NSR reforms enjoys the support of a wide range 
of interests. You have States' attorneys general, you have 
labor unions. I would like to submit two letters, one from the 
U.S. Chamber of Commerce and one from the International 
Brotherhood of Boilermakers to support the NSR reform at this 
point--without objection so ordered.
    [The referenced documents follow:]

       Chamber of Commerce of the United States of America,
                                     Washington, DC, July 15, 2002.
Hon. James Inhofe,
U.S. Senate,
Washington, DC.
    Dear Senator Inhofe: I am writing on behalf of the U.S. Chamber of 
Commerce (U.S. Chamber), the world's largest business federation, 
representing more than three million businesses and organizations of 
every size, sector, and region, to express our support for reform of 
the New Source Review (NSR) program. NSR, in its current form has 
impeded environmental progress and energy production for decades. The 
revisions recently announced by the U.S. Environmental Protection 
Agency (EPA) are a good beginning to reforming a deeply flawed program.
    The NSR program concerns the Clean Air Act (CAA) emissions 
standards applicable to significant new and modified stationary 
sources. In 1980, EPA established a regulatory exclusion for ``routine 
maintenance.'' The scope of this term, however, remains subject to 
debate. A clear administrative interpretation of ``routine 
maintenance'' would be an improvement over the present situation, which 
is mired in complexity and confusion.
    Reducing the problems with the NSR program is vital. Governments 
should not unnecessarily impede the work of the private sector. The NSR 
program is a classic example of bureaucratic complexity. More than 20 
years after the initial regulation, a plant manager cannot determine 
with any certainty whether planned maintenance activities will subject 
the facility to millions of dollars of extra costs.
    The NSR program, as presently constituted, is a severe impediment 
to increasing domestic energy supply. Electric generating plants cannot 
make even minor changes to their operations without running the risk of 
ruinous enforcement actions that would impose huge fines and enormous 
compliance costs on their facility. National energy policy, indeed 
national security, requires the removal of every obstacle to increased 
domestic energy production.
    The National Energy Policy Report directed EPA to review the NSR 
program, and report on its effect on environmental protection and 
energy production--EPA's review found that the NSR program has impeded 
or resulted in the cancellation of projects that would maintain or 
improve reliability, efficiency, or safety of existing power plants and 
refineries.
    On June 13, 2002, EPA announced a set of revisions to the NSR 
program. Among other changes, facilities would be able to make physical 
changes to their plants without obtaining an NSR permit, if their 
emissions do not exceed a plantwide cap. Projects would be excluded 
from NSR requirements if they result in a net overall reduction of air 
pollutants. EPA would also establish a safe harbor test. Projects whose 
aggregate costs are below the threshold established by the safe harbor 
test would be exempt from NSR requirements.
    These proposals promise a major improvement to the NSR program. 
They will lead to improvements in the environment, as regulatory 
certainty will allow facilities to perform routine maintenance and 
repairs without the fear of triggering NSR requirements. Plants have 
deferred routine maintenance, which would have improved safety and 
decreased emissions, due to the potential costs of NSR requirements. 
With the NSR program modifications, overall emissions will be reduced. 
The reforms, particularly the plantwide cap, will benefit facilities by 
allowing increased operational flexibility. The revised NSR program 
will simplify an overly complex program.
    The recently announced NSR reforms are long overdue. The 
regulations to be made final later this year were proposed in 1996. The 
proposals requiring notice and comment rulemaking will not be in effect 
until 2004, at the earliest.
    The U.S. Chamber supports reform of the NSR program. The U.S. 
Chamber urges the Senate to encourage these efforts to improve 
environmental progress and energy production.
            Sincerely,
                                                   R. Bruce Josten.
                                 ______
                                 
      Statement of Ande Abbott, Director, Legislative Department, 
               International Brotherhood of Boilermakers
    Chairman Jeffords, Chairman Leahy, and members of the committees, 
my name is Ande Abbott and I am the director of Legislation for the 
International Brotherhood of Boilermakers, Iron Ship Builders, 
Blacksmiths, Forgers and Helpers, AFL-CIO. I thank you for this 
opportunity to present our views.
    Commonly referred to as the Boilermakers Union, we are a diverse 
union representing over 100,000 workers throughout the United States 
and Canada in construction, repair, maintenance, manufacturing, 
professional emergency medical services, and related industries. 
Boilermakers, who make and maintain industrial boilers and the 
pollution control equipment they use, have had a long-time commitment 
to a clear, effective and reasonable new source review (``NSR'') 
policy. We support the recent efforts of this Administration to clarify 
the program. The efficiency of our facilities and the safety of our 
workers hang in the balance.
    First, let me be clear today that Boilermakers do not oppose the 
Clean Air Act, nor do we oppose its rigorous enforcement. In fact, 
construction lodges of our union look forward to doing much of the 
actual work for the installation of new technologies and controls at 
utility plants and for industrial boilers across this region and the 
country. In reference to the NOx control program alone, our 
international President Charlie Jones recently wrote:
    ``The EPA estimates that compliance measures will cost about $1.7 
billion a year. A sizable portion of that money will go to the 
Boilermakers who do the work necessary to make the additions and 
modifications required by the SCR technology.''
    Aside from NOx control, Boilermakers have always led the way on 
Clean Air Act issues. For example, Boilermakers were pioneers in 
installation of scrubbers and further in fuel-substitution programs at 
our cement kiln facilities. In short, Boilermakers have been there to 
meet the challenges of the Clean Air Act, to the benefit our members 
and all Americans that breathe clean air.
    However, Boilermakers could not support the EPA's 1999 recent 
interpretation of its authority under the New Source Review program. 
NSR, correctly interpreted as we believe the Administration's 
clarification does, forces new sources or those undergoing major 
modifications, to install new technology, like the technology President 
Jones mentioned. We support NSR in that context.
    But, when NSR is applied to the routine maintenance policies and 
schedules of existing facilities, very different results occur. In 
those cases, facilities are discouraged from undertaking routine 
actions for fear of huge penalties or long delays or both. By applying 
NSR in that way, we are pretty sure that Boilermakers won't have the 
opportunity to work on maintenance projects that we know are extremely 
important to energy efficiency. Just hearing about recent events in 
California is enough to make the case that facilities need to be as 
efficient as possible. We now have read that New York maybe facing 
similar problems. The New York Times reported just a few days ago that, 
the State ``is unexpectedly facing the potential for serious power 
shortages over the next couple of months.'' Now is definitely not the 
time to play with the reliability of power grid.
    Efficiency is not the only reason to encourage routine maintenance. 
Experienced professionals or Boilermakers new to the trade can both 
tell you: maintenance is necessary to maintain worker safety. Electric 
generating facilities harness tremendous forces: superheater tubes 
exposed to flue gases over 2000 degrees; boilers under deteriorating 
conditions; and parts located in or around boilers subjected to both 
extreme heat and pressure. Any EPA interpretation which creates 
incentives to delay maintenance is simply unacceptable to our workers.
    Some critics of the June 13 action by the Administration have 
contended that the NSR decision was made with insufficient attention to 
public process. This simply has not been the experience of the 
Boilermakers or other unions working on this project. The U.S. EPA held 
four public hearings in each region of the country. Paul Kern, the 
recording secretary of our Local 105 in Piketon, Ohio, offered a 
statement at the hearing in Cincinnati. In addition, it is our 
understanding that over 130,000 rulemaking comments were received on 
this initiative. Given our experience with certain regulations that 
just seem to appear over night, the Administration's action on NSR seem 
pretty open and fair to us. When you compare the current clarification 
to the way the program changed by in 1999--without any rulemaking 
process whatsoever--the Administration's June 13 announcement looks all 
the better!
    Boilermakers are not just workers; they are also consumers of 
electricity that work hard for their wages. One item often lost in the 
mess regarding NSR is that capital expenditures not justified for 
environmental protection are still passed along to ratepayers. 
Unfortunately, the less money you make, the greater the percentage of 
your paycheck goes to your electricity bills. According to Energy 
Information Administration data, those living at or near the poverty 
level pay 4 to 6 times the percentage of their income for power. So, 
advocates of misusing the NSR program hurt those least able to afford 
it the most!
    As you can see, Boilermakers have never asked for repeal or 
substantial revision of the NSR program. We encourage the development 
and installation of new technology, and we stand ready to continue to 
train and apprentice workers to meet the needs of the Clean Air Act. 
However, when the NSR programs goes where it wasn't intended--and 
discourages the very maintenance, repair and replacement activities 
that constitute the livelihood of Boilermakers--we must strongly 
object. Thanks for the opportunity to make a statement.

    Senator Inhofe. President Bush will not place layer after 
layer of regulations without considering the energy 
implications.
    Mr. President, we now have an energy crisis in this 
country----
    Senator Leahy. I will settle for ``Chairman,'' as one of 
the very few members of the Judiciary Committee who has never 
run for President.
    [Laughter.]
    Senator Inhofe. I see. That is true. Well, we heard some 
really great Presidential speeches already today, and I kind of 
enjoyed them. The season is starting early.
    [Laughter.]
    But we do have a crisis and it is not a laughing matter, 
and the extreme left environmental extremists do not want to 
drill, they do not want to refine, they do not want nuclear 
energy. I don't know what they want. You cannot run the most 
highly industrialized Nation in the history of the world on 
windmills.
    Thank you, Mr. Chairman.
    Senator Leahy. Thank you.
    Mr. Sansonetti is the Assistant Attorney General for the 
Environment and Natural Resources Division of the Department of 
Justice. He is the top law enforcement official on 
environmental issues. He will go first, followed by Jeffrey 
Holmstead, who is the Assistant Administrator for Air and 
Radiation at the U.S. Environmental Protection Agency.
    In your statement, Mr. Sansonetti, please also tell us 
whether you had any involvement with development of the 
Administration's energy policy, including specifically its 
Clean Air Act stance before you were confirmed to your current 
post as chief environmental enforcer.
    Please go ahead, Mr. Sansonetti.

STATEMENT OF THOMAS L. SANSONETTI, ASSISTANT ATTORNEY GENERAL, 
 ENVIRONMENT AND RESOURCES DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. Sansonetti. Chairmen Leahy and Jeffords, members of the 
committees, I am pleased to be here today to discuss the 
Department of Justice's enforcement activities on behalf of the 
New Source Review program. We take the health impacts of air 
pollution seriously, and our enforcement activities in this 
area are an important part of the effort to clean up our air 
and to protect public health and the environment.
    Accordingly, we are continuing to prosecute vigorously a 
variety of actions in connection with the NSR program. One 
point that I want to state at the outset is that there is much 
more to this program than the regulation of power plants. We 
are targeting a variety of industries. This approach has 
resulted in significant gains for public health and the 
environment across the United States.
    In addition, the committee should be aware that the NSR 
litigation is only one part of the Environment and Natural 
Resources Division's enforcement docket. We have many other 
enforcement actions focusing on other environmental laws, 
including for instance the Clean Water Act, and we have to 
thank both of the Chairmen for our Vermont pure natural spring 
water that you supplied us with today. We are committed to 
vigorously enforcing all of these laws, as well as NSR 
violations.
    In the late 1980's, the Department of Justice began 
bringing enforcement actions for NSR violations. Our primary 
goal in these actions has always been the protection of the 
public health and the environment by compelling facilities that 
are in violation of the law to install state-of-the-art 
pollution controls. We also seek to impose appropriate civil 
penalties for past violations so as to discourage noncompliance 
and ensure a level playing field between those who comply with 
the law and those who fail to do so. Over time, working with 
our colleagues at EPA, we developed a strategy of targeting 
industries that had significant compliance problems with regard 
to NSR requirements that were major sources of air pollution. I 
would like to describe just a few or our recent successes in 
those areas.
    Beginning in the late 1980's, we focused our first NSR 
enforcement efforts on the wood products industry. In a 
landmark settlement, we resolved an action against Louisiana 
Pacific in 1993 with a consent decree that required the company 
to install pollution controls at its facilities nationwide. 
Since then, we have had a string of successes in obtaining 
similar settlements from other major wood product 
manufacturers. In March, we filed a settlement with Boise 
Cascade that will require reductions of up to 95 percent of the 
emissions from the company's eight plywood and particle board 
plants. Boise Cascade will also pay millions in civil penalties 
in its supplemental controls to reduce emissions at its various 
plants. The State of Louisiana which joined us in bringing this 
action will receive a portion of that civil penalty.
    We have also been very successful in reaching settlements 
for NSR violations with several major refiners. After 
prevailing at trial on the issue of liability, we joined with 
the EPA and the Wisconsin Department of Justice in January to 
announce a settlement with Murphy Oil, which will dramatically 
cut sulfur dioxide emissions from the company's Wisconsin 
refinery. Murphy Oil will also pay a civil penalty of $5.5 
million, the largest ever leveled in Wisconsin in an 
environmental enforcement case. Also last December, we 
announced comprehensive environmental settlements with Conoco, 
Navajo Refining and Montana Refining Company that are expected 
to reduce harmful air emissions from seven petroleum refineries 
by more than 10,000 tons per year. Several States joined in 
those settlements.
    These are only a few of the many settlements that we have 
reached with major refiners in the last 18 months. All 
together, these settlements cover 37 refineries and almost 31 
percent of the Nation's domestic refining capacity, and are 
expected to reduce air emissions of nitrogen oxides and sulfur 
dioxides by more than 150,000 tons per year.
    Now, what about coal-fired utilities? The Department has 
filed 10 enforcement actions against coal-fired utilities. So 
far, we have reached settlements with two companies and 
agreements in principle with two others. Our most recent 
success in this area came in January when we joined forces with 
the State of New Jersey to reach a settlement with PSEG, in 
which it will spend over $337 million to install state-of-the-
art pollution controls to eliminate the vast majority of sulfur 
dioxide and nitrogen oxide emissions from two New Jersey coal-
fired power plants. The combined effect of the pollution 
controls will reduce the company's sulfur dioxide emissions by 
90 percent and nitrogen oxide by over 80 percent. PSEG also 
agreed to pay a civil penalty of $1.4 million and to spend at 
least $6 million on three pollution reduction projects. As 
Attorney General Ashcroft stated, ``This important settlement 
reflects our continuing commitment to enforce vigorously the 
Clean Air Act to protect public health and the environment.''
    What about the current status? We currently have 11 pending 
enforcement actions in which NSR violations are the main issue. 
Eight of those eleven involve power plants. The remaining three 
involve other industries. Of the eight pending power plant 
cases, five are currently in active discovery on liability 
issues, with one of these scheduled to go to trial this year in 
October. In the other three pending power plant cases, the 
parties are either engaged in settlement negotiations or 
discovery has been stayed because the district courts are 
awaiting the 11th Circuit's decision in TVA v. EPA. That case 
was argued in May. The 11th Circuit has not reached a decision 
and has recently referred that case to mediation.
    Last, the Department's Office of Legal Policy has reviewed 
the existing enforcement actions for their consistency with the 
Clean Air Act and determined that the existing enforcement 
actions are supported by a reasonable basis in law and fact. It 
further stated that the Division will continue as it has during 
the pendency of this review to prosecute vigorously the EPA's 
civil actions to enforce the New Source Review provisions.
    In conclusion, I would like to assure these committees that 
the Department of Justice takes very seriously its obligation 
to enforce the existing laws and to protect public health and 
the environment. As directed by the Attorney General, we will 
continue to vigorously prosecute the NSR enforcement actions 
and to defend the action brought by TVA against EPA.
    I will be happy to answer any questions you have about my 
testimony.
    Senator Leahy. Mr. Sansonetti, you asked several questions 
yourself and answered them, but I did not hear the answer, 
which can be a simple yes or no.
    Mr. Sansonetti. It is a no.
    Senator Leahy. You had no involvement with development of 
the Administration's energy policy, including specifically its 
Clean Air Act stance before you were confirmed here?
    Mr. Sansonetti. That is correct, sir.
    Senator Leahy. Thank you.
    Mr. Holmstead.

STATEMENT OF JEFFREY HOLMSTEAD, ASSISTANT ADMINISTRATOR FOR AIR 
      AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

    Mr. Holmstead. Good morning, Chairman Jeffords, Chairman 
Leahy and members of the committee. Thank you for giving me the 
opportunity today to discuss the changes that the EPA is 
planning on making to the New Source Review program.
    I must admit that I have been looking forward to this 
opportunity because for some time now, I have been wanting to 
try to clear up some of the misperceptions that are circulating 
about the NSR program. Since I arrived at EPA almost a year and 
a half ago, I have spent much of my time learning about the 
details of this very complex program and I am eager to share 
with you what I have learned.
    As several of you have mentioned, Congress created the New 
Source Review program in 1977 to allow for industrial growth 
without compromising our progress toward cleaner air. To 
accomplish this goal, the NSR program requires companies to 
install state-of-the-art pollution control equipment when they 
build a new major-emitting facility or when they modify an 
existing plant in a way that results in a significant emissions 
increase. We believe that the New Source Review program should 
provide a bright line for industry and regulators to follow in 
meeting these statutory requirements, but it does not. Over the 
years, the program has become increasingly complicated, often 
leading to protracted litigation. For example, as Tom 
mentioned, EPA filed several NSR-related lawsuits against power 
plants in 1998 and they are still far from being resolved. Now, 
as Tom has said and as Governor Whitman has repeatedly said, we 
are committed to pursuing those cases, but we do not believe 
that a properly designed program should need protracted and 
uncertain litigation to make it work. EPA is attempting to end 
this system of regulation by litigation by putting common sense 
back into this important program.
    In May 2001, the President's National Energy Policy Group 
asked EPA to review the NSR program. During our review, we met 
with more than 100 public officials, industry groups and 
environmental and consumer groups. We held a series of public 
meetings and public hearings around the country, and we 
evaluated more than 130,000 public comments, although I should 
mention that probably about 1,000 of those were substantive 
comments; about 129,000 were postcards that were virtually 
identical.
    The review found that NSR, as it applies to new facilities, 
works quite well and has provided substantial environmental 
benefits. As the current program applies to existing 
facilities, however, we found quite the opposite. It has become 
a source of frustration that has impeded or caused the 
cancellation of many projects that would have improved 
reliability and energy efficiency in existing plants. Now, 
perhaps this would be an acceptable price to pay if the program 
were effective in improving air quality. As it relates to 
existing sources, however, and again I want to state we are not 
talking about how the program applies to new sources, but as 
the program relates to existing sources, there is no evidence 
that it actually has improved air quality. We know that in some 
cases it has effectively prevented companies from making 
changes at their plants that would have reduced emissions.
    We also know, perhaps more importantly, that it has created 
an artificial incentive for companies to keep their emissions 
high because under the current program, this is the best and in 
some cases the only way for a plant to preserve its operational 
flexibility. This is entirely consistent with the current 
regulations.
    Now, no one should be surprised to hear that there are 
problems with the current NSR program. Officials from the last 
three Administrations, State and local government leaders, 
Members of Congress from both political parties and consumer 
and environmental groups have all acknowledged that the New 
Source Review program is not working as well as it should. For 
the past 10 years, practically half of the life of the program, 
EPA under both Democratic and Republican Administrations has 
been engaged in a formal process to figure out how to make the 
NSR program better. I am pleased to say that we are finally 
moving forward on this effort.
    Last month, we announced major improvements to the New 
Source Review program, and rather than summarize those, I would 
just refer you to the documents that I believe that you already 
have. But let me just mention that those are really two 
different sets of improvements. The first several, as you have 
mentioned, will be final rules that will adopt proposals that 
were first made under the Clinton Administration back in 1996. 
That accounts for, the way we count them, five of the eight 
improvements to the program that we are making.
    In addition, we are now at the initial stages of going 
through I believe exactly what Senator Biden asked us to do, 
which was to put these ideas out for public comment, to take 
input from all of the interested stakeholders, and to decide 
whether these are additional changes that need to be made. Let 
me just emphasize that each of these changes, whether they are 
the changes that we are going final on, or the changes that 
will go through the full process, have undergone an extensive 
public notice and comment process.
    I believe that the changes we have made and those that we 
will propose will make a real difference in the effectiveness 
of the New Source Review program. By removing unnecessary 
barriers to modernization and pollution prevention, we can make 
our power plants, refineries and factories cleaner and more 
energy-efficient.
    Just a quick word if I can on power plants. We as an 
Administration, and I personally, agree with the concerns that 
have been raised by many of the members of the committee, 
especially those of you in the Northeast. We understand that in 
fact there are serious pollution problems that are caused by 
coal-burning power plants. We also know how to address those 
problems, and I commend Mr. Jeffords for his leadership on the 
issue. We have spent an enormous amount of time in my Agency 
over the last 18 months, and actually over the last 10 years, 
trying to study how we can effectively reduce those emissions. 
I will tell you that the answer is to do something like what 
you all did in 1990, which is to not have a complex program 
that allows facilities to decide when they are going to reduce 
their emissions, but to have Congress enact legislation that 
says you are now required to reduce your emissions by a certain 
amount over a certain period of time, and that is what the 
President's Clear Skies proposal would do, and we very much 
look forward to working with all of you on that proposal and 
passing this important piece of legislation.
    One other thing, I would like to ask if I may that the 
reports that are already in the public record on our 
recommendations, as well as our report on the New Source Review 
program, if those could be placed in the record, I would 
appreciate that.
    Senator Leahy. Without objection.
    Mr. Holmstead. I look forward to answering any questions 
you may have.
    Senator Leahy. Thank you.
    Mr. Sansonetti, in January, your department issued a report 
which upheld the legal basis of the Clinton NSR lawsuits. In 
March, you were quoted as saying about the NSR cases, ``We are 
going full stream ahead. We are actively pursuing all cases. 
When companies refuse to settle, DOJ will take them to trial.'' 
Tough words; I happen to agree.
    But following these kind of tough words, the press reports 
indicate that because of EPA's recent actions revising the NSR, 
defendants who were close to settlement are now walking away 
from the bargaining table and doing it with confidence. In 
fact, defendants in courts are brandishing the EPA's own 
documents in their court filings in support for dismissing the 
multi-billion dollar lawsuits. All of a sudden, everything 
seems to be going backward. Did you and your lawyers at DOJ see 
that coming?
    Mr. Sansonetti. First of all, I disagree with the 
interpretation from press reports, because frankly, while 
obviously I cannot get into the details of any of the ongoing 
litigation, the details of the settlements, I can tell the 
Senator that the folks in my division continue to work on all 
these pieces of litigation and the settlements----
    Senator Leahy. Without going into the particular press 
reports, are there cases where they were close to settlements 
and now they are backing away from those?
    Mr. Sansonetti. No.
    Senator Leahy. None? That is your statement here--your 
statement here is that there are none.
    Mr. Sansonetti. That is correct. We are going forward with 
our attempts to settle and we continue to negotiate with the 
attorneys.
    Senator Leahy. Are defendants in courts brandishing the 
EPA's own documents in their court filings as support for 
dismissing the lawsuits? Are there any such cases?
    Mr. Sansonetti. The only case that I am aware of is one 
that is not within my shop. I read the report on the New York 
State case brought with Niagara Mohawk. We are not involved in 
that case. To my knowledge that is the only one----
    Senator Leahy. Did you counsel EPA to refrain from 
publishing a revision of NSR during the ongoing enforcement 
actions?
    Mr. Sansonetti. Did I counsel them not to do what?
    Senator Leahy. Did you counsel them to refrain from 
publishing a revision of NSR during these enforcements?
    Mr. Sansonetti. No, that is not my business. I am in the 
law and litigation business, not policy formation.
    Senator Leahy. You don't think that their publishing that 
might affect in any way the settlement discussions that are 
underway?
    Mr. Sansonetti. May, may not. It is a case-by-case basis.
    Senator Leahy. But it is irrelevant to you whether it would 
or not?
    Mr. Sansonetti. Right, because the announcement does not 
affect my cases. I am going forward with them regardless of 
what ends up happening with this proposal.
    Senator Leahy. But you don't think that changing a key 
Clean Air Act regulation mid-stream might affect those legal 
cases?
    Mr. Sansonetti. It depends on the judge. One judge could 
say that that does affect it, and maybe they go back and make a 
certain decision; another judge may say ``I'm sorry''----
    Senator Leahy. But as far as you are concerned, it is 
irrelevant to your actions?
    Mr. Sansonetti. Because, if I can use a baseball analogy, I 
am in the game. I have got to go to the plate and bat. And some 
people are saying----
    Senator Leahy. But it is irrelevant to your actions?
    Mr. Sansonetti. That is correct. I have got to go forward. 
I have no choice.
    Senator Leahy. In your report to the President on the 
pending NSR cases, the concluding line of the summary reads, 
``Any decision to withdraw, terminate or otherwise circumscribe 
them would rest in the discretion of the ENRD''--DOJ's 
Environment and Natural Resources Division--``which must assess 
the relative strength and weaknesses of a given case.'' But 
then in the same report, it concludes, ``Any decision to 
withdraw, terminate or otherwise circumscribe them would 
constitute policy determination as to Clean Air Act enforcement 
strategy, or regulatory interpretation, determinations that 
properly rest with EPA, the Agency charged by statute with the 
responsibility to make such decisions.'' I just wanted to 
understand for the record, does responsibility for the 
enforcement of the Nation's environmental law lie with DOJ or 
with EPA?
    Mr. Sansonetti. DOJ.
    Senator Leahy. Do you believe that it is appropriate for 
defendants in ongoing NSR cases to use EPA's proposed NSR 
revisions as support for dismissal of those cases?
    Mr. Sansonetti. I have to leave that to the attorneys 
representing the other side. I supposed if I were on the other 
side and I thought that might help me, I might use that, but 
that is up to them.
    Senator Leahy. Do you think it is a good defense?
    Mr. Sansonetti. I do not. I think that the courts are going 
to look at what the existing law is at the time that the 
matters come before the court, and the proposals are not going 
to be anywhere near final by the time these trials come up.
    Senator Leahy. But you do not think that there have been 
any changes in the status of cases that were close to being 
settled because of this?
    Mr. Sansonetti. I cannot read somebody else's mind. All I 
can do is go forward and listen to my attorneys.
    Senator Leahy. Now, Mr. Sansonetti, that is not responsive 
and that is beneath you and this committee. That is not the 
question, nor are we asking you to be--but if you are going to 
be in charge of this, you have to make some judgments for 
tactics and otherwise. Do you get the impression that following 
this, there was a backing off of settlement discussions?
    Mr. Sansonetti. No. I might also note that in the testimony 
that was given by EPA today, it says specifically that the 
changes that they are making to the NSR program will be 
prospective in nature. EPA will continue to vigorously pursue 
its current enforcement actions.
    Senator Leahy. I understand their testimony, but what I am 
saying is, you have said you are in charge of the enforcement 
of this. I am asking you whether it had an effect on you and on 
your ability to enforce.
    Mr. Sansonetti. So far, not, but let's see how the trials 
come along and if the settlements end up on the courthouse 
steps, as many times they are as you get close to the trial 
date, settlements come up. That first case is about 90 days 
away, a couple more in February, so we will soon know. Those 
trials will come up before this regulation.
    Senator Leahy. Mr. Holmstead, when EPA developed this 90-
day report on NSR, did you engage the Department of Justice's 
NSR legal team in these deliberations?
    Mr. Holmstead. At the time we were developing that report 
and the list of recommendations, we worked extensively, my 
staff worked not only with the Department of Justice, but also 
with our own Office of Enforcement. And so there was 
extensive--the answer is yes, there was extensive consultation.
    Senator Leahy. Did you go into a question of how these 
proposals would impact either prospective or retrospective NSR 
enforcement cases?
    Mr. Holmstead. Yes, that was one of the primary issues that 
was discussed. What I can say is, based on numerous meetings 
that I have had, which have included staff attorneys from Tom's 
office as well as attorneys from our own enforcement office is 
we do not believe these changes will have a negative impact on 
the enforcement cases.
    Senator Leahy. So you were advised by DOJ that they would 
not have an impact?
    Mr. Holmstead. I cannot say that I have had specific advice 
from Tom, but----
    Senator Leahy. By ``Tom,'' you mean Mr. Sansonetti?
    Mr. Holmstead. I am sorry--Mr. Sansonetti. But based on 
conversations between our staffs, I have been informed by our 
enforcement folks as well as by people in Mr. Sansonetti's 
office that they do not believe these will have a negative 
impact on the enforcement cases.
    Senator Leahy. On these multi-billion dollar cases that 
have been filed, your understanding from DOJ is that this would 
not have any effect?
    Mr. Holmstead. That is correct. If I can also just mention, 
I was interested to read this morning in the Washington Post 
that there was an article that addresses this issue, and I know 
that--and a spokesman from Attorney General Spitzer's office 
said exactly the same thing. If I could just read from the 
article, he says, this is from Attorney General Spitzer's 
office, ``Nothing the Bush Administration does prospectively 
will have any impact on the violations these plants committed 
in the past,'' said Mark Violeta, spokesman for the Attorney 
General's office. ``We feel we are pretty solid ground.'' I 
think that represents our position on these cases as well.
    Senator Leahy. Thank you.
    Senator Jeffords.
    Senator Jeffords. Mr. Holmstead, I understand that EPA 
projects about 70 percent of the sources in several industry 
sectors have not bothered to get NSR permits when they should 
have. What would you estimate is the current rate of 
noncompliance?
    Mr. Holmstead. I have no idea. I have read that statistic 
before. I believe that that comes also from our enforcement 
office, and they believe that in some industry segments that 
there is that sort of high rate of violation. I honestly do not 
know what the violation rate may be. One of the things that I 
know that you are interested in, as am I, is that we have 
another way of regulating power plants, the Acid Rain program, 
where we know we have effectively 100 percent compliance, and 
we think that sort of a program where we get compliance and we 
get the reductions is a much better way of going about these 
things, but I do not have specific statistics on what we think 
the compliance rate is.
    Senator Jeffords. If these rules go final this year, which 
you have proposed, when and by how much will pollution 
decrease? Could you tell us with respect to each rule?
    Mr. Holmstead. Yes, I would be happy to. As you mentioned, 
there are five different rules that we plan to go final on. We 
have analyzed each of those extensively and let me just go 
through them quickly. The first one, as Senator Biden 
mentioned, has to do with what we call plan-wide applicability 
limits. We have done a number of pilot projects on these so-
called PALs, and have a study that we hope to publish within 
the next few weeks, but it has found that in each of the cases 
that we have studied, you get significant reductions that you 
would not otherwise get under the program. It is very difficult 
to quantify the extent of those reductions, but we are highly 
confident that that reform will lead to much greater emission 
reductions than we currently get. We can say the same thing 
about something that we refer to as exclusion for pollution 
control projects.
    So we know of a number of cases where people have not 
undertaken these sorts of projects, and we are going to 
eliminate that barrier, and we know that that will also reduce 
emissions. So again, quantifying exactly how much is very 
difficult to do, but we do know that as with the PALs, that we 
will get significant emission reductions.
    The same is the case with respect to something we call the 
clean unit test, which really for the first time provides 
industries with an incentive to install the best available 
control technology. Under the current program, if you go 
through NSR and as a result of that you install the best 
available controls, you can be in the same process again 2 
months later or 6 months later next time you make a change. We 
do not think that is the way the statute was really intended to 
work, and we believe that if we can give people an incentive to 
put on the best available controls, that will also reduce 
emissions.
    The last two changes, one of which has to do with a change 
in the emissions test. Currently, the program uses something 
called the actual to potential emissions test, which focuses 
not on actual emissions, but theoretical emissions. We believe 
that by focusing on actual emissions, that that will allow 
people to go forward with projects that will reduce pollution. 
Again, it is very difficult to quantify, but we know it is in 
the right direction. And then the fifth one has to do with a 
change in the baseline, and we do not see that that has a 
difference on way or another.
    So based on pretty extensive analysis of all of these 
reforms, we know that they will result in emissions decreases, 
but it is very difficult to say by how much.
    Senator Jeffords. Well, we would like you to the best 
extent possible to give us some specific objectives in tons so 
that we can better understand the ramifications of what you are 
doing.
    Mr. Holmstead. We would be happy to do that. I will just 
need to tell you it will need to be based on some assumptions 
and we will be clear about those assumptions. For instance, one 
of the things--we think PALs are a good idea and we wish States 
would do what some States have done, and that is require PALs 
for everyone. That is, for instance, what the State of Oregon 
does that has a very effective program. Under our program, PALs 
are optional and so we have to make some assumptions about how 
many sources would adopt PALs. But we can make those sorts of 
assumptions and provide that information to you, and we will be 
happy to do that.
    Senator Jeffords. Thank you.
    Mr. Holmstead, when will the Agency provide us with a 
quantitative analysis of the aggregate impact of the rules that 
you intend to finalize this year on quality, public health and 
emissions? I would note that a combination of the Congressional 
Review Act and the Executive Order on Regulatory Review 
requires such an analysis due to their significance. I would 
like your comments on how you would be able to accommodate us 
on that.
    Mr. Holmstead. I am quite familiar with both the 
Congressional Review Act and the Executive Order which was 
signed by President Clinton which require what is called a 
regulatory impact analysis or an RIA for regulations that 
exceed a certain threshold in terms of their impact on the 
economy. Back in 1996, the Clinton Administration determined 
that these five regulatory changes that we are making now that 
none of them exceed that threshold, and so therefore a 
regulatory impact analysis was not required. As I know you 
know, under both the Executive Order and the Congressional 
Review Act, it is only major regulations that are subject to 
the RIA requirements, so we have not prepared a formal RIA. In 
the preamble to these final rules, we will be again discussing 
why we know that these will improve the environment.
    In terms of quantifying the emissions reductions that I 
mentioned, that is hard to do. We will try to get something to 
you that you can see, but again what we will have to do is just 
make some assumptions about how many facilities will 
voluntarily accept PALs because that does actually put a cap on 
the emissions, something the current program does not do. We 
will make some assumptions about that, and we will be happy to 
provide that information to you.
    Senator Jeffords. I think our view is that the impacts on 
public health are very significant, and therefore it does 
apply. We would appreciate it if you would look at it from that 
perspective.
    Mr. Holmstead. We will be happy to.
    Senator Jeffords. Mr. Holmstead, I understand that the 
informal interagency review of this package has begun, even 
before it is sent to OMB. Will you agree to docket any written 
comments from other agencies in this process?
    Mr. Holmstead. Yes, I would be happy to. We will 
certainly--and in fact, I am quite sure that we are doing that 
already, yes.
    Senator Jeffords. Mr. Holmstead and Mr. Sansonetti, have 
you had any meetings with representatives of power companies or 
TVA that are the subject of the NSR enforcement actions, in 
which they suggested modifications to the NSR regulations that 
would, if implemented, have prevented or precluded the filing 
of those enforcement actions?
    Mr. Sansonetti. In my case, no.
    Mr. Holmstead. I believe that is the same for me. I am 
trying to think if, because TVA is a Federal Agency, I have had 
some discussions with TVA, but not in relation to any of the 
enforcement actions. I certainly understand their perspective 
on the NSR program on an overall basis, but I do not believe it 
is fair to say that they have proposed changes that would have 
any impact on the enforcement actions.
    Senator Jeffords. Thank you, Mr. Chairman.
    Senator Leahy. Thank you.
    Senator Voinovich.
    Senator Voinovich. Mr. Sansonetti, how long have you been 
there, again?
    Mr. Sansonetti. One-hundred and ninety-six days.
    Senator Leahy. Liking it better every day.
    Senator Voinovich. Are you familiar with when the lawsuits 
started to be filed under NSR--about when?
    Mr. Sansonetti. As I mentioned in my earlier testimony, I 
remember that the initial cases were filed in the 1980's. Many 
of the cases that are presently coming up for trial were filed 
in the 1998-1999 period.
    Senator Voinovich. Here is what I am trying to get at. I 
think in 1996, President Clinton asked the EPA or the EPA in 
conjunction with the President, to go forward with reform of 
the regulations that dealt with New Source Review, and as a 
matter of fact some of the regulations that are being now 
considered are recommendations that have come out of the 
Clinton Administration. Is that right, Mr. Holmstead?
    Mr. Holmstead. That is correct, yes.
    Senator Voinovich. OK. Something happened prior to 1998. 
Some of the companies were doing routine maintenance and repair 
and going on and doing a lot of things. Then something 
triggered these lawsuits, and there were a lot of them that 
were filed. The issue is, what was it? What change took place 
at the EPA that caused these lawsuits to be filed in 1998 when 
many of the things that were done were being done in 1991, 
1992, 1993, 1994, and at that time nothing was done about them? 
I suspect the people that were doing them understood that we 
were doing routine maintenance and repair and this was OK, and 
then all of a sudden, wow, a whole flurry, as I mentioned in my 
opening statement, blossomed--all these lawsuits. It is my 
understanding that it occurred because someone in the EPA 
issued a guidance. Could either one of you shed light on just 
what it was that caused the Agency to start to go after some 
people on things that prior to that time they were not 
bothering with?
    Mr. Sansonetti. I am afraid I can't. During that period of 
time, I was practicing law in Cheyenne, WY. So I am afraid I do 
not have any personal knowledge of what was going on at EPA 
during that time.
    Mr. Holmstead. I am sorry, I cannot really help you either. 
I don't know exactly what the thinking was within the EPA back 
in those days, but I do know, as you say, that the current 
round of cases was initiated I think back in the 1998-1999 
timeframe, so exactly what precipitated those cases, I do not 
know.
    Senator Voinovich. Well, Mr. Chairman, I would like to ask 
the EPA to do an investigation as to what it was that triggered 
these lawsuits, as I mentioned, for things that had heretofore 
been done by these companies and all of a sudden they now 
became subject of lawsuits under New Source Review. I am very, 
very interested. How did it happen?
    Mr. Holmstead, there has been a number of--I would like to 
get that in the next couple of weeks.
    Mr. Holmstead. Yes, sir. I am sure we can provide that.
    Senator Voinovich. Mr. Holmstead, there have been a number 
of allegations in the media that the EPA has engaged in a 
closed process. There are some allegations here from some of 
the questions and statements made by members of the two 
committees here, that somehow it was a closed process in 
developing the NSR reform package; that this was done in a 
sinister way in the dark rooms of the White House, with big 
utility and other people. I would like you to comment. What 
kind of process did you use in trying to come up with the 
recommendations that you are making in terms of regulations?
    Mr. Holmstead. If I can just make an initial observation. 
One of the most interesting things about being at the EPA is to 
be involved in an issue, and then read about that issue in the 
press and realize that there is usually no relationship 
between, at least in my experience, what is going on and what 
is reported in the press as going on. I have heard these 
accusations before about a secret process, a backroom process, 
and I have to admit I am just sort of baffled because this has 
been done in a very open, public way, going back to 1992. At 
the very end of the first Bush Administration and then on 
through the Clinton Administration, there was actually a formal 
FACA, Federal Advisory Committee Act, committee that met dozens 
of times to talk about NSR issues.
    Senator Voinovich. Excuse me--were all these open hearings, 
were they the ones--after those hearings was what triggered the 
Clinton Administration's recommendations for regulations in 
1996?
    Mr. Holmstead. Yes. The five things that we are going final 
on all stem directly from that process. So there were literally 
dozens of public meetings. There was a formal proposal in 1996. 
There were public hearings on that proposal. There was a series 
of meetings. I think our files indicate there were something 
upwards of meetings with 50 different groups on those 
proposals. There was a supplemental notice published in the 
Federal Register in 1998 and again additional public comment on 
these very same reforms that we are talking about today.
    Senator Voinovich. Have you changed those regulations that 
came in 1996 in any way, from the Clinton Administration?
    Mr. Holmstead. There were a number of regulations--there 
were many, many things that were proposed. We are not 
finalizing all of them, partly just because of manpower 
concerns. So we are focusing on the five most important ones. 
For those that were proposed, I cannot say that in every single 
respect they are the same, but they are quite close to what was 
proposed in 1996 by the Clinton Administration.
    Senator Voinovich. I would like to see what was proposed 
and what you are proposing with these regulations, and make 
that available to this committee also.
    Mr. Holmstead. That is something that we will do shortly. 
When we issue the final regulations, we will be able to--one of 
the things that of course we have to do under the 
Administrative Procedure Act is explain any differences between 
the proposal and the final rule, as well as our response to any 
comments. So that will all be, again, available to you very 
soon.
    Senator Voinovich. So the regulations that we have been 
talking about here, we are speculating about what those 
regulations are going to be because you have not really issued 
them, then. Is that right?
    Mr. Holmstead. That is correct. We have provided, as I 
think you know, an announcement where we did provide some 
detail about what we are planning to go final on, but again 
those are sort of one or two paragraphs of what are fairly 
complicated regulatory packages.
    Senator Voinovich. The question I have is if these 
regulations have not been issued yet, how can we attribute them 
being so terrible when we really do not know what they are yet?
    Mr. Holmstead. I think that is a good question. As the 
person who has been accused of gutting the Clean Air Act and 
rolling back the Clean Air Act and various other things, I have 
often asked that same question myself.
    Senator Voinovich. So there has been a lot of speculation 
here in this committee about how terrible they are and how they 
are going to roll back the rules and regulations, and yet we 
still don't have those in front of our face yet so that we can 
really ascertain whether or not they do what some people say 
they are going to do.
    Mr. Holmstead. That is correct. The regulations are not--we 
are still finalizing those within the Agency. That is correct.
    Senator Voinovich. It might be good for this committee to 
get together after the regulations have been issued so we 
really know what we are talking about.
    Mr. Holmstead. I will look forward to that.
    Senator Voinovich. Thank you.
    Senator Leahy. Thank you.
    Senator Carper.

 OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM 
                     THE STATE OF DELAWARE

    Senator Carper. Thank you, Mr. Chairman, and to our 
witnesses, thank you for joining us today.
    Like several members of this panel, I am a supporter of 
legislation that seeks to cap and reduce the amount of 
pollutants, four principal pollutants, including sulfur 
dioxide, nitrogen oxide, mercury and carbon dioxide. Senator 
Jeffords has sought to lead our panel, Environment and Public 
Works panel, with legislation called Four P's, you are I am 
sure familiar.
    We reported the bill out of committee and it is, I guess we 
are now positioned to go to the floor. There are those of us 
who are interested in looking at an approach to a Four-P bill 
that still sets targets and reduces pollution emissions in all 
four areas, but also revisits New Source Review policy at the 
same time.
    Here is my question, and I will ask either of you to take a 
shot at it if you would. I want to in focusing on New Source 
Review ask, does it currently, as it is currently applied, does 
it, and this is what I think it ought to do, and then I will 
ask you do you think it does, and if not, how can we change it. 
My view of New Source Review is that it ought to protect our 
health and our environment. New Source Review should promote 
energy efficiency and reduce our consumption of energy in this 
country. New Source Review should provide the reliable, 
affordable electricity to consumers. And finally, New Source 
Review, in my own judgment, ought to provide some regulatory 
certainty for utilities. Those are really the four things I 
would hope it would help us to provide.
    Here is my question, two-part. One, does it do those 
things? If not, how can we change it in order to accomplish 
those four goals?
    Mr. Holmstead. I would like to address that if I can. Let 
me make sure that I understand the four factors. One is energy 
efficiency; one is regulatory certainty; one is energy 
security.
    Senator Carper. Yes.
    Mr. Holmstead. And I am sorry, the fourth?
    Senator Carper. Protecting a healthy environment.
    Mr. Holmstead. OK. I have to say that as some of you know, 
I have spent an enormous amount of time trying to understand 
these very questions. I think the New Source Review program has 
been quite effective for facilities that build brand-new 
sources. As the program applies to the existing sources, and 
people I think have misconstrued what the statute says. The 
statute says that New Source Review applied if a facility makes 
a change that would result in a significant emissions increase. 
So they are free to make all the changes they would like to 
make as long as it does not result in a significant emissions 
increase, and there is a lot of debate back and forth as to how 
you quantify that.
    What we can say with some certainty on each of these four 
factors is first of all, with respect to protecting human 
health and the environment, it certainly has been a useful tool 
that applies to new sources, but it does not really do anything 
to reduce emissions from existing sources for the reasons that 
I mentioned. As long as they do not increase their emissions, 
they can keep going.
    We actually have done a very extensive analysis of power 
plants, and our basic conclusion is this: With respect to the 
most harmful of these pollutants, and that is SO2, 
which contributes to fine particles, the only way the New 
Source Review program reduces those emissions is if a facility 
violates the NSR program and then is subjected to a lawsuit and 
through settlement or otherwise has to put on controls. If they 
comply with the program, and again we have modeled this 
extensively, and we have modeled any number of changes we could 
make to the program, it does not get any reductions at all in 
SO2 emissions. As I say, the only way it gets those 
reductions is to have people violate the program and then be 
subject to an enforcement action. So we believe that in terms 
of actually reducing the emissions that many people, including 
ourselves, believe that are the most significant, it does not 
really provide us with anything.
    We also believe, for reasons I can explain--I do not want 
to use up all of your time--but it has impeded energy 
efficiency. We know of many cases where changes that a facility 
could make that would improve its energy efficiency have been 
prevented or canceled because of concerns about New Source 
Review.
    In terms of regulatory certainty, that is one of the big 
issues. I think that one of the things we want to do is provide 
that sort of certainty. The program has been in existence since 
1977. We have never defined in our regulations what routine 
maintenance, repair and replacement is. So that is something 
that we are endeavoring to do now.
    But if I could leave you with one thing, and I appreciate 
your question, from an energy perspective, from an 
environmental perspective, the most important thing that we can 
do for the utility industry and for the public health, 
especially in the Eastern United States, is to do something 
along the lines of what you have talked about and Senator 
Jeffords and the President's Clear Skies initiative which is to 
say, we know that SO2 emissions right now are at 11 
million tons. We want them brought down to 4.5 million tons and 
then 3 million tons, and that would provide us with certainty. 
It would encourage energy efficiency. It would provide health 
and environmental benefits that we cannot get under the current 
program.
    So I just have to say, judged on the four criteria that you 
mentioned, I think the program really does not work as it 
relates to existing sources.
    Senator Carper. Mr. Chairman, has my time expired?
    Senator Leahy. Go ahead.
    Senator Carper. The second half of my question, how do we 
need to change New Source Review in the context of a four-
pollutant bill, in order to better meet the four goals that I 
described earlier?
    Mr. Holmstead. I am sorry. I did not explain that very 
well. In the context of a stringent cap program of the kind 
that I know the President has proposed or others, the New 
Source Review program becomes entirely redundant. It honestly 
has no additional benefit for the environment. So our 
recommendation is that once you have a cap program in place, as 
long as those caps are at least as stringent as what the 
President has proposed, then there is really no longer a role 
for the New Source Review program as it relates to those 
sources. You would still need it for--as you know, it applies 
to many, many other sources besides power plants--but as it 
relates to power plants, there is really no longer any role to 
be played by the NSR program. It really is counterproductive.
    Senator Carper. As we go forward, and I am still new at 
this here, but the idea of doing away entirely with New Source 
Review, as opposed to working with us to see if there is a 
middle ground, I am going to encourage you to try to work with 
us to find if there is a middle ground.
    Mr. Holmstead. I appreciate your comment. And let me say, 
and I may get carried away with my own rhetoric here, under the 
President's proposal, which we hope will be introduced in both 
the House and the Senate fairly soon, we have retained certain 
features of the NSR program. For instance, under the current 
program there is sort of a guaranteed level of technology that 
any new plant would have to meet, and that would be retained. 
There would also be a need for new sources, a new power plant 
for instance, before it could be located anywhere, it would 
have to do modeling to show that that would not cause an air 
quality problem. That would be retained under the President's 
proposal, as would some other protections for national parks 
and what we call class-one areas.
    So I think it would be really constructive to have a chance 
to sit down with you and others and talk about the features of 
the program that would still make sense in that context, and we 
would be delighted to have the opportunity to do that.
    Senator Carper. We look forward to that.
    Mr. Chairman, is that my time? Is that it?
    Senator Leahy. It is.
    Senator Carper. Can I just ask one question for the record 
and ask for a response in writing? Thank you very much.
    About 4 years ago, Mr. Holmstead, when I was privileged to 
be Governor of Delaware, our State submitted a section 126 
petition to EPA, and we did it with regards to controlling NOx 
emissions from upwind power plants. I was surprised to learn 
the other day that EPA has not yet responded to Delaware's 
petition. It has been about 4 years. I understand it is also 
the case with petitions from the District of Columbia, New 
Jersey and our neighbors in Maryland. Here is my question. 
Don't answer them now, but I would like to have a followup if 
you would. When do you expect EPA to respond to Delaware's 126 
petition? And what can we do in the future to help ensure that 
responses are more prompt?
    Mr. Holmstead. We will be happy to respond to that 
question, yes.
    Senator Carper. Thanks very much, and thank you, Mr. 
Chairman.
    Senator Leahy. Senator Bond.

  OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR 
                   FROM THE STATE OF MISSOURI

    Senator Bond. Thank you very much, Mr. Chairman. I 
appreciate the opportunity to speak about the subject of the 
hearing today.
    As we have heard I believe in the testimony from these 
witnesses, this is not really about clean air. It is about 
litigation, policies, regulations, bureaucratic landmines and a 
whole raft of other problems. Why are we here today? I think 
there may be other factors in improving air quality, and for 
the information of our good friends on the Judiciary Committee, 
I think the Environment and Public Works Committee last month 
scuttled further electric utility pollution cuts in NOx, SOx 
and mercury in order to make a political point about carbon 
dioxide. A four-pollutant bill is not going to go anywhere. A 
three-pollutant bill should go somewhere and we continue to 
support it.
    Today, we have spent the morning discussing an obscure 
program that was just an afterthought in the technical 
amendments of 1977. As witnesses have testified, if you are 
really serious about dealing with air pollution and continuing 
to make progress, there are better ways to do it. We have not 
even discussed those aspects of the NSR program that have been 
successful, which will ensure that new facilities will not 
further harm regional air quality.
    The Clean Air Act has brought America major air quality 
improvements. Since peaking in 1975, electric utility air 
emissions of SO2 are now five million tons lower per 
year. In response to the 1990 Clean Air Act amendments, and I 
played a role in that with the Bond-Byrd, as we call it in 
Missouri, or they call it the Byrd-Bond emissions trading 
proposal in Washington, we have seen progress. Utilities have 
cut NOx by two million tons per year.
    The major NSR enforcement cases begun by the last 
Administration in 1999 are responsible for none--let me 
emphasize none of these air pollution decreases. The recent 
enforcement cases are most striking in that they do not involve 
a single violation of air and air emissions permit. Many, 
especially in the environmental regulatory community, like to 
measure damage to the environment in terms of pollution 
discharge or emissions permit violations. If that is the test, 
these NSR cases are of no value to the environment.
    Not one case alleges that a utility exceeded its 
government-permitted air emissions levels. These are all 
construction permits they are fighting over. Most cases involve 
only potential increases in emissions. Those plants which 
increase the actual emissions were still below the levels 
allowed by the government in their emissions permits. The NSR 
has produced bureaucratic confusion, conflicting and changing 
regulations that leave this littered with traps for a utility 
trying to improve efficiency and reduce environmental 
pollution. As one witness later on will testify, EPA has issued 
multiple and inconsistent interpretation over the years. So 
much for regulatory certainty.
    The other point that has already been brought out here in 
testimony is that the debate--the greatest value to the 
environment in NSR reform should be energy efficiency, but this 
debate is leaving that out. We spent much of the spring in the 
Senate debating an energy bill, an important issue for 
environmental advocates was promoting greater energy efficiency 
because the more efficiently we generate and use energy, the 
less damage we do to the environment. However, advocates of the 
NSR program abandon their environmental friends' energy 
efficiency arguments. The fuel efficiency improvements we want 
for cars, trucks and air conditioners now do not seem to matter 
for electric utilities.
    We also hear charges about rolling back environmental 
protections. Nothing could be further from the truth. I was 
interested to see a quote from a new administrator of EPA just 
before she took office. One of her pledges was, ``examine ways 
to simplify and streamline the New Source Review process to 
reduce changes of legal challenge.'' That was not a statement 
by Governor Whitman. That was a statement by Administrator-to-
be Carol Browner.
    That should not be surprising since all the rules the 
Administration announced in June essentially were finalizing 
the proposed changes initiated by the Browner EPA, either the 
rollbacks back in 1996 under the last Administration were the 
substance, or maybe the substance is not so bad at all. They 
just don't like the messenger. I smell a sickening odor of 
political campaign rhetoric, which is the greatest potential 
pollutant coming out of this hearing.
    [Laughter.]
    Senator Bond. And I think we ought to be aware of the 
dangers of that to the health of our democracy.
    Harsh letter to follow. I will submit the rest of my 
statement for the record.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Bond follows:]
     Statement of Hon. Christopher S. Bond, U.S. Senator from the 
                           State of Missouri
    Thank you, to both of the chairmen, for holding this joint EPW and 
Judiciary Committee hearing on the New Source Review Clean Air program. 
Unfortunately, for those who actually care about clean air, and not 
just litigation, policies, and regulations, you will be sorely 
disappointed.
    So why are we hear today? I think it may have more to do with 
factors other than improving air quality. For the information of my 
Judiciary Committee colleagues, the Environment Committee last month 
scuttled further electric utility pollution cuts in NOx, SOx, and 
mercury in order to make a political point about carbon dioxide.
    Today, we will spend time discussing an obscure program that was 
just an afterthought in the technical amendments of 1977. We won't even 
discuss the successful part of the program which ensures that new 
facilities will not further harm regional air quality.
    The Clean Air Act has brought America major air quality 
improvements. Since peaking in 1975, electric utility air emissions of 
SO2 are now 5 million tons lower per year. In response to 
the 1990 Clean Air Act amendments, utilities cut NOx 2 million tons per 
year. The major NSR enforcement cases begun by the last Administration 
in 1999 are responsible for none of these air pollution decreases.
    The recent enforcement cases are most striking in that they do not 
involve a single violation of an air emissions permit. Many, especially 
in the environmental regulation community, like to measure damage to 
the environment in terms of pollution discharge or emissions permit 
violations. If that is the test, then these cases are of no value to 
the environment.
    Not one case alleges that a utility exceeded its government 
permitted air emissions levels. These are all construction permits we 
are fighting over. Most cases involve only potential increases in 
emissions levels. Those plants which increased their actual emissions 
were still below the levels allowed by the government in their 
emissions permits.
    The other point that amazes me about this debate is how the 
greatest benefit of NSR reform, energy efficiency, suddenly has no 
value to the environment. We spent much of the Spring in the Senate 
debating the energy bill. One of the most important issues for 
environmental advocates was promoting greater energy efficiency. The 
more efficiently we generate and use energy, the less damage we do to 
the environment.
    However, advocates of the NSR program abandon their environmental 
friends' energy efficiency arguments. Fuel efficiency improvements 
recommended for cars, trucks and air conditioners now shouldn't apply 
to electric utilities.
    We will also hear charges today that the current Administration is 
halting enforcement suits and rolling back environmental protections. 
Nothing could be further from the truth.
    I have a quote here from a new administrator before she took 
office. One of her pledges was to, ``examine ways to simplify and 
streamline the New Source Review process [and] to reduce chances of 
legal challenge.'' No, this wasn't Governor Whitman; this was Carol 
Browner.
    This shouldn't be surprising since all of the rules this 
Administration announced in June that it will finalize were proposed 
under the Clinton Administration by the Carol Browner EPA. Either the 
rollbacks began in 1996 under the last Administration or the substance 
isn't so bad after all. It's just the new messenger they don't like.
    Meanwhile, the Bush Administration continues to bring more NSR 
cases. EPA announced just last week that it filed a notice of violation 
for alleged NSR violations against two coal-fired plants in Colorado. 
That is hardly taking the cop off the beat.
    I urge my colleagues who are serious about improving air quality to 
get back to the real work at hand--passing a three-pollutant bill that 
will bring a new generation of air pollution cuts for nitrogen oxides, 
sulfur dioxides and mercury. I look forward to working with my 
colleagues on that measure.
    Thank you.

    Senator Leahy. I thank the Senator from Missouri, as 
always, for being here.
    [Laughter.]
    Senator Leahy. I appreciate the opportunity to be on the 
committee with him, as I am not a member of the committee that 
he is representing here.
    The next would be Senator Clinton, but I understand she is 
willing to yield a minute to the Senator from North Carolina.
    Senator Edwards. I think actually she is willing to go 
further than that and let me go ahead, Mr. Chairman, which I am 
very appreciate of Senator Clinton for doing.
    Senator Leahy. I thank the Senator from New York.
    The Senator from North Carolina?

 OPENING STATEMENT OF HON. JOHN EDWARDS, U.S. SENATOR FROM THE 
                    STATE OF NORTH CAROLINA

    Senator Edwards. Thank you.
    Let me say first, Mr. Holmstead, I agree with a lot of the 
others, that I think our priority here should be about reducing 
pollution that is killing senior citizens, causing kids to get 
asthma and smogging up our national parks. Personally, this is 
a huge issue for us in North Carolina. We have every year in 
North Carolina 1,800 people who die from breathing pollution 
and soot. I think that is actually the fourth-worst rate in the 
country. We have got 46,000 kids with asthma in just 17 
counties. We have got clouds that are literally more acidic 
than vinegar.
    Our State has actually made a real effort to do something 
about this. Governor Easley got enacted the Clean Smokestacks 
Act, which I think is a model and we are proud of it. The 
problem for us is obvious. North Carolina is not an island. 
Pollution travels across our mountains and across our borders, 
and the Cumberland TVA plant in Tennessee for example, emits 
about as much pollution every year as every car in North 
Carolina together. A lot of that pollution, unfortunately, is 
getting into the lungs of kids and our senior citizens.
    I think we have got to do something about it. We have got 
to do something about it not just in North Carolina, but for 
the entire country. As you well know, New Source Review is an 
important part of that. What I am concerned about is it seems 
to me that what you are doing is gutting New Source Review 
without any kind of adequate replacement for it.
    Let me just ask you a couple of questions. I listened to 
your testimony earlier. You talked about your rule changes and 
you said it is your feeling that those rule changes do not 
increase pollution, but you have difficulty quantifying it. Let 
me ask you this question, can you quantify the effect of those 
rule changes on human health?
    Mr. Holmstead. Let me answer your question in two ways. 
First of all, I agree completely and the Administration agrees 
completely that the State of North Carolina has a significant 
problem that is not caused by facilities in its own State. 
Those problems, including premature deaths, including a 
negative impact on children with asthma and others, are largely 
the result of emissions that come in from neighboring States. 
We absolutely believe that those emissions need to be 
significantly reduced, and that is what the President is trying 
to do with the Clear Skies initiative. Again, just to put that 
in context----
    Senator Edwards. I apologize for interrupting you, but I 
have gotten in front of Senator Clinton. I want to see if I can 
get an answer to my question. My question is, can you quantify 
the effect of these proposed? You are proposing changing the 
law. These will have the effect of laws, I understand it--these 
rule changes. If you are proposing to change the law for the 
country, can you quantify the effect of those changes on human 
health?
    Mr. Holmstead. What I can tell you is that the changes that 
we are finalizing will have a positive impact on public health. 
They will make the air cleaner than it otherwise would be.
    Senator Edwards. Can you quantify those changes? Can you 
tell us what the quantification of those changes on human 
health would be?
    Mr. Holmstead. Senator Jeffords asked us to try to do that, 
and we will attempt to do that. The other thing----
    Senator Edwards. You have proposed rule changes and you 
have not yet attempted to quantify what the effect on human 
health is?
    Mr. Holmstead. Many times what we do in EPA, oftentimes is 
when we make regulatory changes, we analyze those changes on a 
number of different factors. For instance, some of the things 
that we are proposing to do are just designed to bring some 
clarity to the program and to make it work better. What we can 
say is we have analyzed each and every one of these changes 
that are the final changes that we are making, and on an 
overall basis they will make things better. It is difficult to 
quantify how much better because as I said before it depends on 
how many people choose these options.
    But let me say one other thing which I think is important. 
The concerns that you have raised are largely--the health 
impacts in North Carolina have to do almost entirely, or let me 
say largely with power plant emissions. None of the changes 
that we are making will have any impact on power plant 
emissions one way or the other. Because of the way the program 
works, as I said before, there are other programs that regulate 
the power sector.
    Senator Edwards. Can I ask you about that, what you just 
said?
    Mr. Holmstead. Yes, please.
    Senator Edwards. One of the things--and this is related to 
that--one of the things that you said earlier when you talked 
about the rule changes is that you said the change in the 
baseline for determining where there has been an increase in 
emissions for purposes of determining whether an NSR is 
triggered, that that change would have, I think you said, no 
effect up or down--I am paraphrasing or something to that 
effect.
    Mr. Holmstead. Correct. Yes.
    Senator Edwards. Now, I am having trouble making sense out 
of that. As I understand the current law is that the baseline 
for determining whether there has been an increase in emissions 
and whether a New Source Review is triggered is the last 24 
months, unless there is another more representative period. You 
are changing that to say that they only have to undergo a New 
Source Review if they have had an increase above, and I am 
quoting now, the highest consecutive 24-month period within the 
immediately preceding 10 years. So what you have said is, they 
can choose the highest level of emissions over any 24-month 
period for the previous 10 years for determining whether they 
have in fact gone above that level to see if a New Source 
Review can occur. It just defies common sense to me that that 
does not improve the chances that an NSR is not going to be 
triggered; that a period of greater emissions can be used for 
purposes of determining the baseline. I would add to that at 
least according to press reports, there are internal EPA 
documents where your own career lawyers say that a change in 
that 10-year baseline would substantially diminish, I am 
quoting now, ``substantially diminish the scope of the 
program.''
    Do you disagree with them?
    Mr. Holmstead. Let me answer your question. First of all, 
and Senator Lieberman I think suffers from the same mis-
impression and talks about power plants that by changing the 
baseline that somehow we are going to allow them to increase 
emissions. We are not changing the way the baseline works for 
power plants. The baseline issue for power plants is contained 
in a separate rule. That rule was promulgated in 1992 and is 
referred to as the WEPCO rule, and it creates a different way 
for power plants to calculate whether there is an emissions 
increase. We are not changing that. So in terms of the power 
plant sector, what we are doing today is irrelevant on the 
baseline issue.
    With respect to other sectors, again there has been a great 
deal of misunderstanding about what we are doing. As you 
mentioned, under the current program the baseline that we refer 
to is either the average of the two most recent years or 
another period that is, ``more representative of normal source 
operations.'' That subjective piece, what is more 
representative of normal operations, has caused a lot of 
controversy over the years for this reason. A lot of times when 
someone goes in for an NSR permit, it is when they are coming 
out of a downturn in the economy and they want to improve their 
facility because they realize that demand is growing. That 
means that the 2-years immediately preceding the change are 
often a period when their utilization is very low.
    So they go in to the permitting authority and they sort of 
have this negotiation about really what is a period that is 
more representative of normal source operations. We would like 
to remove that subjective piece from the regulation altogether, 
and just have a hard and fast rule which says you cannot look 
back more than 10 years. There is no longer a question about 
more representative source operations. You have to choose a 24-
consecutive-month period. I should mention that when the 
Clinton Administration--the Bill Clinton Administration, 
Senator--I didn't mean to confuse them----
    Senator Clinton. I did not know there was another one.
    [Laughter.]
    Mr. Holmstead [continuing]. When they proposed this change, 
they proposed a one-in-ten baseline. We were concerned that a 
one-in-ten baseline would allow sort of unusual periods of high 
emissions. So we have gone to a two-in-ten baseline. That was 
not the source of a great deal of concern in the public comment 
period, and here is why. We are allowing people to look back 10 
years to 24 consecutive months, but then they have to reflect 
additional pollution controls that have come online since that 
time. You do not have to do that under the current program. So 
as we look at this, in some cases our change will lead to a 
higher baseline, as you suggest; in other cases, it will lead 
to a lower baseline. But we do know that in all cases it will 
just make the program a lot more clear and a lot more 
understandable to people and there won't be the subjective 
element anymore. So that is why I say in some cases the 
baseline will be higher; in other cases, it will be lower.
    Senator Edwards. I think in fact, the power plants are a 
small fraction of the industries that are covered by the NSR, 
when I asked you the question about the change in the baseline.
    Mr. Holmstead. That is correct.
    Senator Edwards. I appreciate your explanation. I still 
have trouble making it make sense.
    Let me just say this, and there are others who have been 
waiting, I think that you are not able to quantify the effects 
on human health of these proposed changes in the law, which is 
what they are. It seems to me that at a minimum when we are 
talking about senior citizens' lives, and we are talking about 
kids getting asthma, when we are talking about protecting 
people from the harmful effects, that if we are going to make a 
change in the law, we ought to be certain that it is a positive 
change and we ought to be able to quantify what that change is. 
I am glad that Senator Jeffords has asked you to do that and I 
would like to see whatever information you have about that. But 
I will tell you that I believe that what you are proposing is 
wrong. I intend to do everything I can to stop it in the 
legislative process.
    Thank you, Mr. Holmstead.
    Senator Leahy. Senator Sessions.

OPENING STATEMENT OF HON. JEFF SESSIONS, U.S. SENATOR FROM THE 
                        STATE OF ALABAMA

    Senator Sessions. Thank you, Mr. Chairman.
    Well, I think the Carol Browner goal, as Senator Bond said, 
was a good one, that we need and have for some time needed to 
simplify the rules of the New Source Review to avoid 
litigation. Now we have attorneys general in New York and other 
places suing power plants all over America asserting what they 
think the rule means. You have the Federal Government 
Department of Justice leading a battle here against utilities 
that another agency of the Government thinks is not correct. So 
we have obviously serious differences of opinion.
    As I understand it, the EPA sat down with seven of the 
major power companies and basically said either agree to what 
we tell you or we are going to sue you. They just could not 
feel like they could agree to it. And so now we are in 
litigation. Who knows, but I will say this, a lawsuit in the 
11th Circuit or any other Circuit in the country is not going 
to come out with a comprehensive rule. It is only going to 
answer the issues presented to the court. Isn't that correct?
    Mr. Sansonetti. That is correct, Senator.
    Senator Sessions. So you will end up with some partial 
issue settled, and other issues never touched or ruled on by 
the court. That is not a way to establish a procedure that 
could cost of tens of billions, maybe $100 billion out there. 
So we need to do this properly.
    Mr. Holmstead, when did EPA come to learn that the sources 
of power were violating what they now conclude to be the New 
Source Review rules? How long had they known about that before 
they filed a lawsuit?
    Mr. Holmstead. I do not know the answer to that question, 
because I was not in the Agency at the time those suits were 
brought.
    Senator Sessions. That is an important question, it seems 
to me. It has been going on for 18 years, or really 16 years 
before the lawsuit was filed. As a Judiciary Committee member, 
what concerns me about this solely is are we following 
appropriately the Federal administrative rules process and are 
we handling this in a legal and fair manner? I believe that 
grandfathered-in plants are not provided protection forever. We 
can through legislation or rule change alter the rules or alter 
the legislation, if we deem it is important to public health. 
But if regulations are in place, they ought to be carried out 
with integrity, Mr. Sansonetti, and ultimately when you file a 
lawsuit you are responsible for that. You represent EPA and the 
Department of Justice has to look a court in the eye with 
integrity.
    One of your attorneys in the 11th Circuit, when I asked 
when the EPA knew about these NSR violations, the Department of 
Justice attorney apparently said the EPA did not know about it 
until they filed a lawsuit, the cop was in another block--did 
not see the crime occur. And the chief judge there questioned 
that. Surely, EPA for years has known how the power plants are 
updating and modernizing their facilities, haven't they? That 
is an important question because if they knew about it, they 
may well be estopped to file a lawsuit and ask for damages back 
to 1982.
    Mr. Sansonetti. Obviously, this was before my time as well 
in the department, but as I understand it the TVA case was 
brought after the EPA had finished its negotiations with TVA, 
had brought in an administrative compliance order issued by 
EPA. When TVA did not like the result of that, it was TVA suing 
EPA in that case. This is a matter of two Federal agencies 
after each other, and of course it is the Department of 
Justice's responsibility to defend EPA in this case. This one 
is a little bit different from the other cases we were 
discussing earlier where we were on the left-hand side of the 
versus.
    Senator Sessions. Well, this is an important, maybe even a 
pivotal issue in this litigation. Is EPA estopped from pursuing 
a suit against TVA because they knew about these improvements 
and have been approving these procedures for 16 years? Isn't 
that a significant issue in the case?
    Mr. Sansonetti. It is a significant issue in the case.
    Senator Sessions. Your attorney has now asserted on the 
record that they did not know about it. That keeps the lawsuit 
alive, but I wonder if you have had occasion to question that 
attorney and if he was in error in that regard as a matter of 
ethics, is he not required to correct the record?
    Mr. Sansonetti. I obviously am not aware of the situation 
you just described, but I sure will ask about it, yes sir.
    Senator Sessions. I think what I am going to ask you to do 
is to review that simple question, and if your attorney was in 
error, to correct the record, because that has something to do 
with it.
    Mr. Holmstead, why did the EPA not notice a rule change 
instead of commencing litigation? Why didn't they announce, 
have public hearings, take the public input, go through the 
process of just changing the rules if they thought that the 
things were not working out well?
    Mr. Holmstead. I know that the Agency believes that it did 
not change the rule; that in fact what the Agency has argued is 
that those rules have been in place for many years and people 
were on notice of them. So I believe that is why they did not 
think it was necessary to go through a notice and comment 
rulemaking to do anything because they believe that those rules 
were well-understood for a number of years.
    Senator Sessions. So they understood, but they just allowed 
it to continue, presumably?
    Mr. Holmstead. Again, I know just in general that there is 
a lot of controversy around this issue, whether the Agency was 
aware that some of these changes were going on. I honestly do 
not know. My impression is that for the most part, these 
facilities were not the subject of EPA investigations or 
inspections, and so the Agency may not have known that these 
changes were going on, but I honestly do not know very much 
about the record in that respect.
    Senator Sessions. I hope that whatever rules you propose 
you will do what you said and will make the air cleaner. I 
think we can definitely do that, and I would support that, but 
I also think we need to be careful about suing businesses for 
damages back 16 years for things that it is pretty obvious to 
anybody that is looking at their plants what has been going on.
    Thank you, Mr. Chairman.
    Senator Leahy. The order we will have now will be Senator 
Clinton, Senator Durbin, and Senator Corzine.

OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, U.S. SENATOR 
                   FROM THE STATE OF NEW YORK

    Senator Clinton. Thank you very much, Mr. Chairman.
    Well, I think as our witnesses can tell, there are numerous 
questions that many of us will want to submit in writing, 
because clearly we do not have the time to go into all of them. 
I am also hoping that we will have a chance to hear from our 
next panels, one of which includes our Attorney General from 
New York, Eliot Spitzer, who has been extremely active on the 
legal front in trying to determine how best to enforce the 
rules that are in existence, that we are now hearing testimony 
about changing with respect to power plant emissions. A number 
of Senators have asked questions with respect to the EPA's 
prior actions, especially with respect to enforcement. Eric 
Schaeffer, who was the director of EPA's Office of Regulatory 
Enforcement is also scheduled to testify and I am sure that he 
can answer a number of the questions that have been raised.
    One of the problems that we are having here, of course, is 
that the reason this hearing is being held is that many of the 
changes which are being discussed are intended to go directly 
to final status. Therefore, we have to comment now because we 
won't have the opportunity to comment if the Administration 
carries forward on its intention to finalize these rule 
changes. Now, many of us have these continuing questions and I 
think that it would be appropriate, Mr. Holmstead, for us to 
have more of an opportunity to comment than we have at the 
moment. Would you commit to allowing us that opportunity to 
comment going forward, before these rules are finalized?
    Mr. Holmstead. What I will commit to is that we will 
satisfy all of the requirements under the Administrative 
Procedure Act to make sure that there has been a full and 
complete opportunity for the public to comment on all rules 
before they go final. So I can assure you that everything that 
we promulgate will be in full compliance with all of the public 
notice and comment requirements that are imposed upon the 
Agency, yes.
    Senator Clinton. In your testimony, you have repeatedly 
said that you do not intend that these changes would be 
retroactive. Will you commit that EPA will explicitly state in 
the preamble to these proposed rule changes that the NSR 
changes that the Agency is promulgating will not be 
retroactive?
    Mr. Holmstead. It is certainly our intent to make these 
prospective only, and I believe that the preambles already make 
that statement, that they are not retroactive, they are 
prospective only, but I will go back and double-check on that 
to make sure that that is the case.
    Senator Clinton. Here is the problem that many of us are 
having, and perhaps it is because the rules are being described 
by some, including those within the Agency, somewhat 
differently than your testimony seems to describe them. I was 
taken aback by your testimony that your rule changes would not 
have any effect on power plant emissions. Did I hear you 
correctly?
    Mr. Holmstead. What I said is, it will not have any effect 
on SO2 emissions from power plants, which are by far 
the biggest issue, as you know, in New York because of the acid 
rain. We actually have for the power sector a very 
sophisticated computer model that allows us to look at the 
response in the industry to any number of different rule 
changes. That has been a relatively simple matter to conduct 
the analysis using that computer model for SO2 
emissions. We have not yet finished that for the other emission 
of concern, which is NOx, but our preliminary indications are 
that any change that we would make might have a modest impact 
one way or the other, but we have not finalized that analysis. 
When we do, we will make that public.
    Senator Clinton. Mr. Holmstead, with all due respect, 
others also have computer models and it is very difficult to 
understand how you can claim that this is either neutral, 
having no effect, or in some of the rest of your testimony 
actually claiming it would be an improvement, when on the basis 
of the change in the baseline that you discussed earlier with 
Senator Edwards, there would be, as I understand your 
testimony, the opportunity for a refinery to substitute its 
current emission baseline, which is now equal to the average of 
the last 2 years' emissions, with a new baseline consisting of 
the average of the 2-years of highest emissions within the last 
10 years. Now, based on modeling that others have done, this 
would allow significant increases in SO2 emissions 
and I have before me some of the specific plants--a plant in 
Detroit, MI; the Marathon Oil plant, current baseline 1,984.42 
tons up to 4,194.55. You know, a three times increase, just 
about.
    There are other plants that have been modeled. These 
baseline changes at least according to the modeling that I have 
seen, these are oil refineries, obviously, not power plants, 
but they are still going to add SO2 to the air. So 
you have got on the one hand a claim that the power plant 
emissions stay even, then you have got a permission within the 
baseline that will permit an added load of SO2 into 
the atmosphere.
    I am not asking you to respond. I am just explaining that 
many of us find your testimony very difficult to follow. Now, 
maybe that is the purpose of it, but it does not provide much 
benefit to those of us who are trying to understand the true 
impact of these changes. I can only say, based on the 
information provided to me and my staff, these are sweeping 
changes. I would argue they are illegal changes; that they 
violate the Clean Air Act; that they violate the capacity of 
this Administration to rewrite legislation that is the province 
of this Congress.
    I certainly will be joining with my colleague, Senator 
Schumer, and our Attorney General to join an amicus brief 
against your ability to promulgate and enforce these illegal 
changes.
    Mr. Holmstead. I am actually sorry to hear that anybody 
would do that before they have actually seen the changes that 
we have made.
    Senator Clinton. We have not seen them.
    Mr. Holmstead. Right. That is my question.
    Senator Clinton. But once they are promulgated--you know, 
once--you have come up to testify about something that you 
don't share information with us fully. We get contradictory 
approaches about what it will or will not mean. You talk about 
computer modeling. Other people, based on the information they 
have available do different computer modeling. You are 
essentially trying to change the law without informing this 
Congress sufficiently so that it can make an informed decision.
    Mr. Holmstead. Again, I would be happy to take however much 
time you would like to walk through each of these things. On 
the baseline issue, when I was talking about computer modeling, 
I was specifically referring to power plants. I have said we 
have modeled that very comprehensively and we can say that 
almost regardless of what we did to the NSR program, it would 
not make any difference with respect to SO2 
emissions from power plants.
    With respect to refineries that you have looked at, again I 
have seen--and by the way, I think what you are referring to is 
not a modeling study. It is some assertions made by some 
environmental activists that again have not understood what we 
are proposing to do. All of those plants have new emission 
requirements that have come into place over the last 10 years, 
and so you have to look at what those--for instance, we have 
done a number of MACT standards that affect the refinery 
industry. All of those now have to be included in the baseline.
    So I cannot tell you, and I do not think anybody can tell 
you right now for a specific plant, without doing the analysis, 
whether the baseline will be higher or lower. That was the 
point----
    Senator Clinton. Why would we promulgate regulations in the 
21st century that would lead to any higher baseline for any 
SO2 emissions? I don't care whether it is a refinery 
or a power plant. All I know is that it lands in my lakes and 
rivers and in the lungs in my people. Why on earth would you 
even contemplate rule changes that would push us backward in 
the wrong direction?
    Mr. Holmstead. We are not. As I have said before----
    Senator Clinton. You have said many things before.
    Mr. Holmstead. I think I have been entirely consistent in 
everything I have said, at least I certainly try to be, and I 
am happy to take as much time as you or others would like, 
because this is an important program, and those of us at EPA 
who have worked on these changes feel pretty strongly that we 
are making a dramatic improvement in a program that everybody 
knows for more than 10 years is broken and needs to be fixed. I 
can explain all of these in a great deal of detail if you would 
like me to, but what I can say is this--the environment will 
not be worse off because of these changes. In fact, it will be 
better off, and I am happy to walk you through on each 
individual thing and explain to you why that is the case, but 
again, we have spent an extraordinary amount of time working on 
these issues and we want to make the air better.
    In fact, one of the things that amazes me about this whole 
debate, the big issue that you have in your State is not 
emissions from refineries, it is emissions from power plants.
    Senator Clinton. Right.
    Mr. Holmstead. We agree that is a huge issue, and that is 
why we have proposed legislation, and I know you are supporting 
similar legislation that would actually substantially reduce 
those emissions in a way that NSR just doesn't do.
    So I hope that for those of us that really care about 
improving the environment will focus on----
    Senator Clinton. What legislation? Are you talking about 
the Clean Skies Act?
    Mr. Holmstead. The Clear Skies Act, yes.
    Senator Clinton. The Clear Skies Act, which we have not yet 
received. So we are being asked to put our trust in legislation 
whose language we have not received, that it will do what you 
are claiming to do. And we are also asked to trust NSR changes 
which are claiming, in conjunction with legislation that has 
not yet been delivered to the Congress, will make our skies 
better.
    Mr. Holmstead. The Clear Skies proposal is not a complex 
thing. It takes emissions from today's levels, reduces them by 
73 percent----
    Senator Clinton. That is not the way it is interpreted by 
many of the rest of us. In fact, we think it does less than if 
we just continued with the Clean Air Act right now. So there is 
a dispute about that, Mr. Holmstead.
    Mr. Holmstead. But anybody who I think has analyzed the 
current Clean Air Act compared to, say, Clear Skies, and again 
our career folks who work on the Clean Air Act, have worked on 
the Clean Air Act for 30 years, have done a projection of the 
emissions reduction we would get under the current Clean Air 
Act, compared to the President's Clear Skies proposal, and 
there is just no way under the current Clean Air Act to get 
anywhere near the reductions. Again, we would be happy to 
share--in fact, we have shared that information with everybody. 
We want to clean up the air. We want to make it cleaner. We 
want to do it as quickly as we can and as efficiently as we 
can, and that is what we are trying to do.
    Senator Jeffords. OK.
    Senator Leahy. Someone said you do want to--you have been 
very consistent in one thing. You have explained that the 
Senators do not understand what is going on. You have explained 
the press does not understand what is going on. And you have 
explained that some of these environmentalists do not 
understand what is going on. I appreciate your air of 
infallibility, but I would also appreciate it if you would 
answer some of the followup questions you will be getting.
    Senator Durbin.

OPENING STATEMENT OF HON. RICHARD J. DURBIN, U.S. SENATOR FROM 
                     THE STATE OF ILLINOIS

    Senator Durbin. Thank you very much, Mr. Chairman.
    I think it is appropriate that this is a joint hearing 
between the Judiciary Committee and the Environment and Public 
Works Committee. I am glad that you are both doing this because 
all of us are concerned about the issues at hand and we 
understand that it is not just a question of how the law is 
written, but how it is enforced. For over 25 years, most of the 
action when it comes to this issue has been in court. On the 
Judiciary Committee, we have the responsibility of selecting, 
at least initially selecting the judges who will interpret 
these laws. So if there are those who think that those 
decisions about the men and women who serve on the court are 
not that consequential, consider the issue that we are talking 
about today.
    I come to this issue with a State that has a dramatic 
investment in this debate. We had, and I underline had, a 
substantial coal-producing industry in Illinois. It is all but 
gone today. In the name of clean air, we have seen our high-
sulfur coal virtually disappear. There are good and sound 
arguments that with the current technology, we had no choice. 
But many of us feel that States like Illinois have given at the 
office and given at the coal mine and given in the small 
communities to the issue of clean air. That is why when we get 
to this discussion about whether or not we will enforce the 
laws that have closed down the industry, the coal-mining 
industry in my State, many of us have a certain passion. If we 
are going to close down that industry in the name of clean air, 
for God's sake, we are not going to give up the battle in a 
marathon court proceeding which this has turned out to be.
    Mr. Holmstead, help me and see if I understand the basic 
premise of this whole hearing. So in 1970 when we passed the 
Clean Air Act, and in 1977 when we amended it, we said we want 
you to have less air pollution, fewer emissions coming out of 
industry in America, and we are going to set standards. Now, we 
understand there are some 17,000 companies that are already in 
business that have air emissions and we know we are going to 
have to grandfather them in, but here is our notice to you in 
1977.
    When you start to change these plants, if you are going to 
make any significant change in the plants, particularly one 
that creates more air emissions, then you are going to have to 
start complying with the new law. We will grandfather you as 
long as you are dealing with the old plant, but when you start 
making it a new or newer plant, you are going to have to come 
into compliance. That seems to me to be a pretty fair and 
reasonable standard.
    But if I am not mistaken, for 25 years this has been the 
source of nonstop litigation between the industry and the 
government as to whether old plants, grandfathered in, were 
ever going to clean up their acts. One of these issues got down 
to the question of routine maintenance. Attorney General 
Spitzer has in his testimony here an allegation to leaky pipes. 
Well, if you fix a leaky pipe, you know, is that routine 
maintenance?
    But let me ask you this specifically, Mr. Holmstead, do you 
feel that what you are proposing will broaden or narrow the 
definition of maintenance so that older grandfathered plants 
will have to meet new air quality standards?
    Mr. Holmstead. Older plants right now have to meet new air 
quality standards.
    Senator Durbin. Yes.
    Mr. Holmstead. There are dozens and dozens of programs that 
Congress created that apply to these older plants. For 
instance, the most important one that I think everybody, and 
the one that has impacted the coal business in your State, is 
the acid rain program under Title IV, that every power plant in 
the country is subject to. So they are subject to that 
regulation. Every power plant in the country is also subject to 
the national ambient air quality standard. So if there is a 
power plant or any other old facility that causes a violation 
of the national ambient air quality standards, then those have 
to be regulated.
    Senator Durbin. Understood. But your proposal--let's get to 
the question--your proposal, I am asking you, does it expand or 
narrow the exception for routine maintenance so that older 
plants, grandfathered plants, do not have to meet new standards 
to reduce emissions of air pollution?
    Mr. Holmstead. I think the specific issue you are asking 
about has to do with the definition of routine maintenance, 
repair and replacement.
    Senator Durbin. I am asking a question--broaden or narrow? 
Now, you can try to go somewhere between those, but I think 
those are two fair standards. Does it broaden or narrow the 
standard for old plants on routine maintenance?
    Mr. Holmstead. On routine maintenance, we have not made any 
changes yet. We are proposing a series of options. Some of them 
would broaden the definition of routine maintenance; others 
would basically leave it where it is now. We are putting that 
proposal out for public comment so that everyone who is 
interested in that specific issue can take a look at it.
    Senator Durbin. Let me go to Mr. Spitzer's testimony and 
ask you this. Is the EPA proposing to allow companies to treat 
multi-million dollar, once-in-a-lifetime projects as routine 
maintenance, even though as industry documents establish, the 
power plant staff never considered the projects routine? Do you 
feel that your new regulations would achieve that?
    Mr. Holmstead. Our new regulations do not address that 
issue. The regulations that we are proposing on routine 
maintenance, repair and replacement--we propose or we will be 
proposing a series of options on routine maintenance.
    Senator Durbin. Narrow or broaden?
    Mr. Holmstead. Some of them could broaden; some of them 
would leave them where they are now.
    Senator Durbin. Let me just close, because my time is up 
and everybody has other things that they have to do and other 
panels are coming. Pardon our skepticism as we sit on this side 
of the table. Your refusal or failure or inability to answer 
that question, which I think is about as basic as it gets----
    Mr. Holmstead. I thought I just answered it.
    Senator Durbin [continuing]. Does it broaden some, narrow 
some, maybe we will let you see it sometime soon----
    Mr. Holmstead. This is a proposed rule.
    Senator Durbin [continuing]. Maybe it will come later. It 
is a proposal, trust us, we love you.
    [Laughter.]
    Senator Durbin. I mean, all of these statements 
notwithstanding, we are looking at an Administration that 
struggled with the concept of arsenic in drinking water. We are 
looking at an Administration that does not want to fund the 
Superfund program again to clean up toxic waste. We are dealing 
with an Administration that won't even disclose the names of 
the industry leaders who sat down with the Vice President to 
write the energy bill; an Administration that opposes any new 
fuel efficiency standards to deal with our Nation's energy 
crisis. I hope you understand our skepticism as we sit on this 
side of the table and hear that kind of testimony.
    Thank you, Mr. Chairman.
    Senator Leahy. Thank you.
    Senator Corzine.

OPENING STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM THE 
                      STATE OF NEW JERSEY

    Senator Corzine. Thank you, Chairmen, and I appreciate your 
holding the hearing.
    I can only say ``ditto'' to my colleague from Illinois' 
underlying fundamental premises that bring skepticism, but I 
will say one positive thing. I noticed in your response to 
Senator Clinton you said that New York's, I presume that also 
would include New Jersey's, air is negatively impacted most by 
out-of-State power plants, as opposed to refineries. That is 
certainly the case.
    I want to start with the specific and move to the more 
general. There is a lot of concern in our State, particularly 
in the northwest portion of it, with regard to a power plant, 
PPL's Martin's Creek Power plant in Pennsylvania. Asthma rates 
have doubled in the last 10 years. This is an old plant that 
has no scrubbers and contributes significantly to air pollution 
problems in that sector of the State. Now, they are applying 
for authorization for building a new plant on the same site. I 
wonder if EPA is planning on conducting a review with regard to 
that plant.
    Senator Torricelli has written Administrator Whitman and a 
number of us have inquired about this and we have not received 
an answer with regard to that individual power plant. I think 
it is symptomatic of a lot of what happens in general, but is 
one where the public health impact is very measurable and clear 
in a specific sector of our State, and there is a failure to 
deal with NSR provisions, at least with the old parts of that 
plant, and now they are trying to expand it.
    So I wonder if you could comment on that specifically. Do 
you know whether there has been an NSR review with regard to 
it?
    Mr. Holmstead. Here is what I know about that plant. I 
believe that we are conducting, along with the State, an 
investigation of possible NSR violations there. That is really 
all that I know about it at this point, but yes, if it is 
something that you have asked about, I am sure that that is 
something that we will look into further.
    By the way, what I have tried to say a number of times is, 
we absolutely agree that we need to have an effective way to 
reduce emissions from these older coal-fire power plants. We 
agree completely that they contribute to serious health 
problems in your State, and Senator Clinton, in your State. I 
think all of us would like to find an effective way of reducing 
those emissions as quickly as we can.
    Senator Corzine. But if we do not address the specifics, if 
there are not actions taken by EPA with regard to specifics 
when actions are being taken to expand the business, then the 
purpose of the NSR is not being fulfilled and we are not making 
real progress on this. That is before we get to the cumulative 
effect of the proposed changes in the rules, which a lot of us 
are fairly skeptical, are intended to upgrade pollution 
controls, but actually undermine them.
    Has EPA referred any additional NSR enforcement cases to 
the Justice Department since Administrator Whitman took office?
    Mr. Holmstead. I might ask Mr. Sansonetti. I do not know 
the answer to that question. I do not do the enforcement issues 
at EPA. I do the policy issues.
    Mr. Sansonetti. The Enforcement Administrator at EPA has 
continued to have its investigators continue their work and we 
are continuing to receive cases from them.
    Senator Corzine. Have there been cases referred to the 
Justice Department since Administrator Whitman took office?
    Mr. Sansonetti. Yes.
    Senator Corzine. Is Martin's Creek one of those?
    Mr. Sansonetti. I would not know. Sorry.
    Senator Corzine. I would like to request a list of those 
references, if that is possible.
    I was not here earlier, but I am under the impression that 
there was a statement made by you, Mr. Holmstead, that NSR does 
not produce benefits from existing sources unless it is 
violated--hard to understand. Isn't it true that NSR has been 
violated many times by existing sources like Martin's Creek?
    Mr. Holmstead. I do not know about the Martin's Creek 
Plant, but yes it appears that many existing sources have 
violated NSR and that is the work that our enforcement office, 
as well as Mr. Sansonetti's office, are working on right now. 
We do believe that as a result of those cases, those are likely 
to lead either to settlements or judgments that will result in 
emissions reductions, yes.
    Senator Corzine. But you are arguing that the NSR has no 
benefits with respect to existing sources?
    Mr. Holmstead. No, what I said was this. The big issue that 
I think many of us in this room are concerned about are sulfur 
dioxide emissions from power plants--by far the biggest single 
pollutant emitted by any industrial source in the United 
States. We have done an extensive analysis of that particular 
issue, and what we can say is that if companies comply with the 
NSR program, it does not reduce SO2 emissions from 
the utility sector at all. That is absolutely--we are happy to 
share the analysis, and it is not that hard to understand. I 
can walk you through it if you would like, but if companies 
comply with the NSR program as it is right now, with a very 
stringent, narrow definition of routine maintenance, repair and 
replacement, it does not lead to any reductions in 
SO2 emissions from the power sector.
    Here is the basic reason why. The Act says that a company 
triggers NSR only if it makes a physical change that results in 
a significant emissions increase. So as long as they keep their 
emissions where they are now, they can make any changes they 
would like to. So all of our analysis, and again we have some 
very sophisticated computer modeling. We know more about this 
industry than any other industry. We can analyze the impact of 
the current rule versus any number of changes, and no matter 
how we analyze that, the program does not reduce SO2 
emissions from existing power plants.
    As I said before, if companies violate the NSR program, 
then at that point they are subject to enforcement action, and 
through the enforcement process we can actually get some 
reductions, although even there you only get reductions if a 
company agrees as part of a settlement to retire some of the 
SO2 allowances that it has under the acid rain 
program. But again, I am happy to provide anybody with that 
analysis, but it is absolutely true that that is just the fact. 
That is the way the law works.
    [The prepared statement of Senator Corzine follows:]
  Statement of Senator Jon S. Corzine, U.S. Senator from the State of 
                               New Jersey
    I thank both Chairmen for convening today's hearing.
    Mr. Chairmen, air quality problems continue to plague New 
Jerseyans. Some of these problems are of our own making. But according 
to the New Jersey Department of Environmental Protection, one-third of 
New Jersey's air quality problems originate outside of New Jersey.
    That's why enforcement of Federal clean air laws is so important. 
And that's one of the reasons why the Clean Air Act New Source Review 
provisions are so important to my State.
    So I look forward to hearing the Administration explain their New 
Source Review proposals in more detail. Because as far as I can tell, 
the proposals are rollbacks, pure and simple. They may be help 
industry, but they're going to hurt public health in New Jersey and 
across the country. In fact, Abt (pronounced Apt) Associates estimates 
that that rolling back New Source Review will result in 160-220 
premature deaths annually and between 3,000 and 4,300 asthma attacks 
annually in New Jersey alone.
    If the Administration disagrees with these numbers, then I invite 
them to produce their own. Because to my knowledge, the Administration 
has not conducted an analysis of the health impacts of their proposals.
    For that matter, I don't think that the Administration has 
conducted a rigorous analysis of the business impacts of the current 
NSR rules that they are proposing to change. Today's EPA testimony 
asserts that uncertainty about the current NSR rules ``has resulted in 
the delay or cancellation of some projects that would maintain or 
improve reliability, efficiency and safety of existing energy 
capacity.'' This is vague, anecdotal evidence at best, and is no basis 
for trading away the tangible health benefits that have been and can 
yet be achieved by rigorously enforcing NSR.
    Mr. Chairmen, I won't take up too much more time, as we have many 
other members to hear from and many witnesses to hear from as well. But 
I do want to run through just a few additional points, because this 
issue is so important.
    First, I am greatly concerned about the effect of the proposals on 
pending NSR cases. In New Jersey, PSEG settled with EPA earlier this 
year. But many of PSEG's competitors are stalling, betting that they 
can wait out the Administration's changes. Now the Administration will 
argue that its proposals will have no effect on ongoing NSR 
enforcement. Yet we will hear testimony today that proves that the 
proposals have already impacted ongoing cases.
    Second, I am concerned about the impacts of the proposals on the 
full range of pollution sources that they apply to. The Administration 
offers its Clear Skies proposal as better way to achieve air quality 
benefits than New Source Review. Yet Clear Skies applies only to power 
plants, while New Source Review applies to thousands of other sources 
of pollution such as oil refineries. What is the Administration's plan 
for continuing to protect the health of families who live near 
refineries?
    Third, I am concerned that the Administration's proposals may run 
counter to the intent of the Clean Air Act. In spite of claims to the 
contrary, NSR has consistently been interpreted to allow for only de 
minimis increases in pollution from grandfathered sources without 
triggering installation of new pollution control technologies. But it 
appears that the Administration proposals will have the effect of 
allowing significant pollution increases without triggering NSR 
requirements.
    Mr. Chairmen, I think the question before us today is simple. Will 
the Administration proceed with its NSR proposals? Will they allow 
industry to continue to operate old, dirty plants indefinitely? Or will 
the Administration fulfill the promise of the Clean Air Act by pulling 
these proposals and vigorously enforcing New Source Review to protect 
New Jerseyans and all Americans. Thank you.

    Senator Leahy. Thank you.
    If there are no further questions, I know that Mr. 
Sansonetti and Mr. Holmstead would love to have this go on a 
lot longer, but on the basis they may have other things to do, 
Mr. Holmstead, thank you; Mr. Sansonetti, thank you.
    Senator Jeffords. Yes, thank you both.
    Senator Leahy. I turn it over to you.
    Senator Jeffords. We will continue to continue. I will have 
to leave shortly and be able to come back, but Senator Clinton 
will take over. We will now go to the next panel.
    Senator Leahy. Why don't we take about a 1-minute break 
just to let the staff change the----
    [Recess.]
    Senator Jeffords [presiding]. I want to thank our next 
panel. I will be here somewhat briefly. I have a meeting with 
the Administration that I cannot change, but I want to thank 
the panelists. I know they are all experts, and we are 
appreciative of your guidance. I will ask each of the panelists 
to introduce themselves and then we will proceed. I will start 
with my good friend my Vermont.
    Mr. Sorrell. Yes, thank you, Mr. Chairman. I am William 
Sorrell, the Attorney General of Vermont.
    Mr. Spitzer. I am Eliot Spitzer, the Attorney General of 
New York State.
    Mr. Pryor. I am Bill Pryor, the Attorney General of 
Alabama.
    Senator Jeffords. Fine. I believe you probably have opening 
statements. Please, General Sorrell, will you commence?

  STATEMENT OF WILLIAM H. SORRELL, ATTORNEY GENERAL, STATE OF 
                            VERMONT

    Mr. Sorrell. Thank you, Chairman Jeffords, Chairman Leahy, 
members of the committees. Thank you very much for allowing me 
this opportunity to share my thoughts regarding the New Source 
Review program.
    To the two Chairs, particularly, I bring greetings and 
thanks from so many of your friends from home.
    Let me be blunt, we need your help. The quality of our 
Nation's air is of critical importance, not just to those of us 
living in the Northeastern United States, but also to everyone 
in this Nation, and most especially our children, the elderly 
and those among us who suffer from respiratory illness.
    We have worked very hard in Vermont to attain the quality 
of life that is so important to us. We value our natural 
resources and do our best to be sure we are not soiling our own 
backyard. I believe it is fair to say that we join the dialog 
regarding air pollution with clean hands.
    Unfortunately, in Vermont we are living with the 
consequences of pollution problems that are not of our making. 
Our neighbors to the west are in some respects not being good 
neighbors. To give you an idea of the scope of the pollution 
caused by all dirty coal-fired power plants, I want to impress 
upon you that in 1998 all Vermont sources of sulfur dioxide 
pollutants, all sources--mobile, stationary, residential, 
industrial, commercial--all sources in 1998 from Vermont, a 
total of approximately 18,000 tons of SO2. We are 
involved in the lawsuit that was filed by DOJ and EPA against 
American Energy Electric Power Company, which operates about 11 
plants in the Midwest. Just looking at one of the plants that 
is in that litigation, it is the Cardinal Plant in Brilliant, 
OH. That plant alone in 1998 emitted more than 152,000 tons of 
sulfur dioxide. I might add that its stack-height, I am told, 
is over 800-feet high. We did not pick the worst offender. The 
Cardinal Plant is not the most heavily polluting of the plants 
that are in the litigation I mentioned.
    We have good reason to be deeply concerned about massive 
amounts of air pollution being carried into our State by the 
prevailing winds. The impacts attributable to this wind-borne 
pollution in Vermont and regionally are sobering and bear 
repeating. In Vermont, 20 percent of our lakes are moderately 
to extremely sensitive to acid deposition, and several lakes 
are critically acidic and thus unable to support fish and/or 
other aquatic life. They are like swimming pools.
    Various studies conclude that the percentage of acidified 
lakes is expected to increase or even double over the next four 
decades unless up-wind emissions of nitrogen oxide and 
SO2 are significantly reduced.
    Acid deposition is a major cause of the widespread decline 
of red spruce in high-elevation forests throughout the 
Northeast. Since the 1960's, more than half of large canopy 
trees in the Adirondack Mountains of New York and in our Green 
Mountains, and approximately one-quarter of large-canopy trees 
in the White Mountains of New Hampshire have died.
    There is growing also evidence that the sugar maple decline 
is linked to acid deposition. Senator Jeffords, I know you 
realize how important sugar maples are to our maple syrup 
industry. According to one analysis, with a more than 80 
percent reduction in electric utility emissions beyond that 
required under the 1990 Clean Air Act, recovery of certain 
watersheds to non-acidic levels will take 20 to 25 years, and 
recovery of the acid-neutralizing compounds in soils will not 
occur until the year 2050. That is with an 80 percent reduction 
in current emission levels, it will take that long for our 
environment to recover.
    Our children and grandchildren in generations to come will 
know all of the devastating impacts resulting from decades of 
air pollution and will not see the recovery of the forests and 
lakes. Is this to be our legacy?
    As a Nation, we must take swift and decisive action to 
improve the quality of the air. We applaud the efforts of EPA 
and DOJ in working cooperatively with the States to protect air 
quality. Our shared successes have included important victories 
affirming certain aspects of regulatory programs, and the 
Agency's determinations regarding the long-range transport of 
ozone-forming pollutants.
    We also appreciate the ongoing efforts by the Agency and 
DOJ in seeking full implementation of EPA's regional haze rule, 
which will help to protect and improve visibility in our 
Nation's pristine wilderness areas, including the Shenandoah, 
Great Smoky Mountains, Yosemite and the Grand Canyon. This is 
not just a Northeastern issue.
    New Hampshire, Maine and Vermont, joined by Utah and New 
Mexico, the National Tribal Environmental Council, and national 
advocacy groups have been actively involved in supporting this 
effort. We are hopeful that these efforts will lead to real 
improvements in the quality of our Nation's air in years to 
come.
    The State of Vermont is also working cooperatively and 
productively with the Environmental Protection Agency, the 
Department of Justice, other States and national public 
interest advocacy groups to enforce the existing New Source 
Review program against corporations operating coal-fired power 
plants. There is no question that implementation by EPA of the 
reform package will seriously under-cut these efforts. Let me 
repeat, there is no question in our mind that implementation by 
EPA of the reform package will seriously under-cut the ongoing 
litigation efforts.
    Now is not the time to water down the laws needed to 
protect air quality. The announced reforms of the New Source 
Review program will take us 180 degrees in the wrong direction. 
As one State regulator has put it, these reforms will assure 
longer lives for old dirty coal-fired power plants and shorter 
lives for Americans.
    We very much hope that the Administration will change 
course and not backtrack on existing environmental protections. 
However, if it chooses to go forward with its announced 
changes, we encourage the Congress to reject such efforts to 
weaken the New Source Review program.
    Thank you again for the opportunity to meet with you and to 
provide these comments, and I hope that all of my prepared 
comments will be made part of the record.
    Senator Jeffords. They will be made part of the record.
    I am going to make a little statement and do a little 
question. I have got to go. Governor Ridge does not like my 
opinion of what we should do with one of the parts of his 
operation, so I have to go meet with him.
    What kind of impact will these changes have on the States' 
ability to have more stringent programs and protect local air 
quality? And what effect will they have on the NSR cases where 
Vermont has joined in filing?
    Mr. Sorrell. I think they will have a significant impact on 
the litigation, certainly in any attempts to negotiate a 
settlement of the suits. In terms of your question on the 
impact on the States going further than the Federal Government 
to set or to maintain their own emissions standards or 
pollution control standards that might be more stringent than 
the Federal Government has set, it is my understanding that 
just yesterday two organizations of State and local air 
pollution control administrators wrote Administrator Whitman 
expressing objection and concern that the EPA proposals will 
set a standard and not allow States to maintain or to set 
higher or more stringent emissions standards unless it is done 
on some sort of a test-case basis that is affirmatively 
approved by the EPA.
    So we hope very much through this process that the EPA will 
revisit that issue and allow individual--and to set stringent 
standards for emissions, but if individual States wish to go 
further and to set more stringent standards in their own 
backyards, that they would be allowed to do that.
    Senator Jeffords. Well, thank you very much. As I say, I 
have to leave now, but I really appreciate your testimony and 
being here. I know, obviously, being a resident of Vermont that 
the problems we have had in the past, even some with New York 
State, but I will not get into those.
    Senator Schumer. Please do.
    [Laughter.]
    Senator Jeffords. So thank you. I will be back, I assure 
you, probably before you are finished.
    Senator Clinton will now take over.
    Senator Clinton [presiding]. Attorney General Spitzer, we 
are delighted that you are here and I can tell that this is of 
great interest to New York since both my colleague Senator 
Schumer and I have a great deal of interest in this issue and 
feel that it directly impacts on the health and the environment 
of our State.
    I know you have a prepared statement, but I cannot help but 
ask that--you sat through the entire first panel, for which you 
should receive some kind of combat ribbon. I would love for you 
to perhaps add your observations to the confusing testimony 
that we heard from the Administration about the meaning and 
potential impact of the proposed rules as you go forward. We 
are delighted that you are here.

STATEMENT OF ELIOT SPITZER, ATTORNEY GENERAL, STATE OF NEW YORK

    Mr. Spitzer. Thank you, Senator Clinton. Thank you, Senator 
Schumer, also for being here.
    I will take your lead and ask that my prepared testimony be 
submitted for the record. I would like merely to respond to a 
few of the points that were made this morning because I think 
they do bear responding to. To the extent they were addressed 
in my written testimony, I can be more succinct and more 
pointed in my testimony right now.
    First, Mr. Holmstead took a quotation from the Washington 
Post this morning and completely misinterpreted it. He was 
trying to argue that the proposed regs from EPA have not had an 
impact on the pending litigation. He could not be further from 
the truth. The quotation he used is from a spokesman from my 
office. It says, ``Nothing the Bush Administration does 
prospectively will have any impact on the violations these 
plants committed in the past.'' The point is, they committed 
violations. There were violations. They should be prosecuted 
civilly for those violations. They cannot rewrite that law.
    However, the fact that we are in regulatory limbo right now 
has made it virtually impossible either to pursue finalizing 
settlements that should have been finalized with Vepco and 
Cinergy, or to pursue effectively ongoing litigations in the 
myriad of other cases that are pending.
    We are caught, I would suggest, in an intentional 
regulatory limbo with the Administration having proposed and 
made very public the fact over a year ago that it was going to 
rewrite the NSR regs. They have refused to set forth the final 
regs, so we are caught between the Scylla and Charybdis of 
their not being any regs on the books that a court can rely 
upon, and the inability to attack what they will finally issue.
    I would suggest this is an intentional decision made by the 
EPA, which has done everything it can do to hinder us. This is 
not an effort to study more and further. As has been pointed 
out, we do not even know with whom the Vice President met to 
discuss these proposed regs.
    So to the extent that Mr. Holmstead was arguing that there 
has not been an impact on the pending litigations, I could not 
disagree more fundamentally. In my prepared testimony today, 
you can see how the judges who were presiding over the pending 
cases feel that their hands are being tied because they have an 
inability, or feel some hesitation, in imposing upon companies 
a remedy that may no longer be feasible or authorized by the 
regs that would be finally issued by the EPA. These proposal, 
this regulatory limbo has had a devastating impact upon our 
ability to ensure the cleanliness of the air that our children 
breathe.
    I would also like to respond to the allegation made by one 
Senator that it was politics somehow underlying either our 
skepticism of what EPA is doing or the litigation. I would like 
to point out that when New York State filed these litigations, 
we were joined, I am glad to say, by a significant number of 
East Coast States, neighbors and those who are farther afield. 
A decision was made specifically by the Governor of New Jersey 
at the time to join these litigations. The Governor of New 
Jersey then was Christie Todd Whitman.
    These are litigations that are critical. And they are 
based, and this is point three, upon a static interpretation of 
statutes that has not changed. The notion of there being a 
newfangled interpretation that emanated from the EPA in the 
prior Administration is simply false. The case law in this 
matter is crystal clear, and I would cite to you two documents. 
I will read one, a letter that was sent by Administrator, 
former Governor Whitman to Congressman Mascara on November 9 of 
last year in which she said, ``The cases did not hinge on a new 
interpretation of NSR rules.'' That is a direct quote. 
``Rather, EPA's interpretation of routine maintenance is 
consistent with both the statute and case law.''
    You see it as well in a DOJ brief that was submitted last 
week in which this Department of Justice felt constrained to 
say, the interpretation EPA urges in this current case is the 
same interpretation that the Seventh Circuit upheld more than a 
decade ago in Wisconsin Electric Power v. Reilly in the Seventh 
Circuit in 1990. There has not been a change in the law. It is 
constant. It is understood. It is understood by the industry. 
The documents obtained from the industry in discovery make it 
crystal clear they know the law.
    I do not deny their right to try to change the law. That is 
their right. I respect it. That is what this process is about. 
But let us not be fooled into believing that the law has been 
ambiguous or that these lawsuits are predicated upon a new 
interpretation of the law. That simply is not the case.
    I am also rather beguiled by the argument that has been 
made by several Senators this morning that because there has 
been litigation since the statute has been promulgated in the 
past few years, and therefore there must be a flaw in the 
statute. It seems to me that enforcement actions show clearly 
that the statute has teeth. They would force us to repeal most 
of the statutes that have been passed by this Congress. The 
very fact that we have enforcement actions means that we as 
prosecutors are doing our job--nothing more, nothing less.
    Let me make a few final points if I may. The proposed rules 
have been publicized by the EPA. Yet, Mr. Holmstead likes to 
hide behind the fact, and I lost count how many times he said 
this morning, that, there may be proposals. They are not yet 
final. Therefore, don't criticize us. However, it has been over 
a year since this process began and they have very publicly and 
in many discussions with industry discussed what these proposed 
rules should look like. If the rules look anything like the 
proposals, anything like what the public statements by this 
Administration have been, I will go to court to overturn them. 
I am proud, Senators Clinton and Schumer, that you will join in 
that effort.
    The point here is very simple. This Administration cannot 
gut the Clean Air Act unilaterally. Congress passed the 
statute. Congress wrote into the law a particular meaning that 
was understood and has been understood since day one, 
judicially articulated, understood by every participant since 
day one. This Administration cannot by administrative fiat 
repeal that statute. It would be an illegal act. We will go to 
court to prevent it, and I think we will win.
    The issue is who pays. Will the companies pay as the 
statute said they should? And they may pass that cost back to 
their ratepayers. That is a regulatory process. Or will we 
continue to see people dying of cancer and asthma without doing 
anything? That is the only question. I think the skepticism 
that was evidenced by at least one side of this room this 
morning toward Mr. Holmstead makes it very clear what the right 
decision should be.
    Thank you.
    Senator Clinton. Thank you, Attorney General Spitzer.
    Attorney General Pryor, we welcome you. There are two 
attorneys general named Pryor, because I know you have a 
colleague in Arkansas also named Pryor, so it must be a good 
name to be elected Attorney General.
    Mr. Pryor. That colleague, Senator Clinton, as you well 
know, is trying to become one of your colleagues.
    Senator Clinton. That is right.
    Mr. Pryor. He is a great guy and a distinguished colleague.

 STATEMENT OF BILL PRYOR, ATTORNEY GENERAL, STATE OF ALABAMA, 
                         MONTGOMERY, AL

    Mr. Pryor. Senator Clinton, Senator Schumer and Senator 
Sessions, I appreciate the opportunity to be with you today, 
along with my distinguished colleagues, General Sorrell and 
General Spitzer, to discuss an important issue--Clean Air Act, 
New Source Review.
    As the Attorney General of a State that exports surplus 
electricity, my point of view may be a little different from 
that of my colleagues who represent States that import 
electricity. I support the thrust of the report submitted to 
the President by the EPA Administrator to revitalize the NSR 
program and in so doing to restore the delicate balance of 
cooperative federalism embodied in the Clean Air Act Amendments 
of 1970.
    Until the 1970's, the maintenance of clean air was viewed 
as predominantly a State and local concern. In 1970, after a 
series of smaller experiments, Congress adopted a new blueprint 
for the battle against air pollution. The new plan created a 
model of cooperative federalism.
    This new model gave the Federal Government responsibility 
for establishing national air quality standards, along with a 
variety of enforcement tools for ensuring that those standards 
are met.
    The Clear Air Act reserved to each State, however, ``The 
primary responsibility for assuring air quality within the 
entire geographic region comprising such State by submitting an 
implementation plan for such State which will specify the 
manner in which national primary and secondary ambient air 
quality standards will be achieved and maintained within each 
air quality control region in such State.'' Underlying this 
provision was the congressional finding that ``air pollution 
prevention . . . is the primary responsibility of States and 
local governments.''
    In a series of decisions in the mid-1970's interpreting the 
then-new statute, the Supreme Court laid out and clarified the 
Act's division of responsibilities between the Federal 
Government and the States. In the quarter-century since these 
cases, the Federal Courts have staunchly protected the 
federalist design of the Clean Air Act.
    For example, in 1984 the Seventh Circuit struck down an 
attempt by EPA to strengthen a State Implementation Plan 
through a partial approval that was more akin to an amendment. 
As Judge Posner explained, ``The Clean Air Act is an experiment 
in federalism, and EPA may not run roughshod over the 
procedural prerogatives that the Act has reserved to the 
States, especially when, as in this case, the Agency is 
overriding State policy.''
    As these and other courts have acknowledged, the delegation 
of implementation decisions to the States reflects not only its 
spirit of comity, but also a recognition that State regulators, 
well-versed in local needs and circumstances, are best able to 
craft detailed programs to improve air quality while ensuring 
the continued availability of energy and maintaining economic 
prosperity.
    In the late 1990's, EPA upset this sound design. EPA 
commenced enforcement actions against a variety of companies, 
including a cross-section of the Nation's utilities, declaring 
that certain plan activities triggered the extensive NSR 
permitting requirements.
    For two decades, EPA, front-line State regulators and 
regulated sources had all interpreted these activities as 
falling within an exclusion for routine maintenance, repair and 
replacement. Their common understanding was that NSR applied 
only to major modification activities that are akin to new 
construction. During the Clinton Administration, EPA advanced a 
novel interpretation that would require the adoption of state-
of-the-art pollution controls at existing sources for 
activities that State regulators had considered routine 
maintenance, repair and replacement activities.
    In several instances, State and local regulators inspected 
the facilities that became the subject of EPA enforcement 
actions--before or immediately after the maintenance 
activities--without suggesting that a permit was necessary. 
Indeed, some plants sought out and received explicit 
determinations from State regulators that a particular 
maintenance activity did not trigger the NSR requirements.
    EPA undertook this abrupt reversal of course without notice 
and comment rulemaking and without consulting the States, which 
had the primary responsibility to implement NSR standards for 
over 20 years. EPA's course eviscerated the cooperative 
federalist approach that is the heart of Congress' design. EPA 
invaded the province of the States and threw their respective 
air pollution control programs into upheaval--my State's clean 
air administrator uses the term ``chaos''--by reversing, with 
the blunt tool of enforcement instead of collaborative 
rulemaking, interpretations that are central to day-to-day 
activities of State regulators. Clarity and consistency are 
vital to State regulators, as well as power generators, and 
must be restored. I urge these committees to work with the 
President and the EPA in a bipartisan spirit to develop better-
defined standards of New Source Review consistent with the 
original design of cooperative federalism in the enforcement of 
the Clean Air Act. I will be happy to answer questions.
    Senator Clinton. Thank you very much, General Pryor.
    I am going to yield my time for questions to my colleague, 
Senator Schumer.

OPENING STATEMENT OF HON. CHARLES E. SCHUMER, U.S. SENATOR FROM 
                     THE STATE OF NEW YORK

    Senator Schumer. Thank you, chairman.
    I want to thank all of our witnesses, particularly my 
Attorney General, who has been such a leader in this. We are 
just amazed in New York. Here we had successful lawsuits which 
our Attorney General spearheaded. You had companies finally 
coming to the table, and boom, the rug was pulled out from 
under it by this Administration policy.
    The thing that galls me so about this, I have to tell 
everybody, and particularly our fine Attorney General from 
Alabama, it is, you know, State by State. Well, our State has 
done a great job making sure its power plants comply and do a 
better job. But we have wind, and we have a handful of plants 
in the Ohio Valley that build their smokestacks way into the 
air so the pollution that they spew will not fall on their 
people, but gets blown over to us. If there was ever a need for 
interstate action, it is here.
    The fact that you have just a handful of plants poisoning--
that is the only word that can be used--poisoning not only our 
lakes and our streams, a quarter of our beautiful Adirondack 
lakes and streams are dead, no life. It will go to half in 10 
years. This is now beginning to happen in other parts of the 
country. We learned it first, but we have seen it elsewhere--
calls for strong action; does not call for saying to the 
polluter, which is in economic Adam Smith terms, creating an 
external negative good that has to be recaptured. It is their 
responsibility. You do some good, you should get economic 
credit. This is strict economic model. But if you do economic 
harm, you should be forced to recapture, but just because it is 
in the air does not mean you are immune from it. You created 
that bad, as well as creating a good, and good economics says 
the two should be reconciled.
    That is what we have tried to do here. The anger that I 
have on this issue is just large because it is a small group, a 
small group of power plants that are destroying the environment 
of a large part of my State, and actually at the bottom line, 
killing people, making them less well, shorter. It is indirect. 
It is not a standard of murder. But sure enough, if these 
plants would clean up their acts, a lot of people would be 
living longer and healthier.
    So I just--you have answered the questions I have had in 
the anticipatory round. I just want to say to our Attorney 
General and to the others in the Northeast, Democrat and 
Republican, that we are going to move forward here. We are not 
going to let a small group of power plants who have enormous 
political clout, poison our environment and poison our people. 
It can be changed. It can be changed relatively easily, without 
huge amounts of cost, and it ought to happen immediately.
    I want to thank you for the good work you have done here, 
Eliot, and yield back my time.
    Thank you.
    [The prepared statement of Senator Schumer follows:]
 Statement of Hon. Charles E. Schumer, U.S. Senator from the State of 
                                New York
    I would like to thank Chairman Leahy and Chairman Jeffords for 
holding this important and timely hearing on New Source Review. I would 
also like to welcome New York State Attorney General Eliot Spitzer to 
the hearing. Attorney General Spitzer has been leading the charge 
against power plants that do not comply with New Source Review. Our 
offices have worked together very closely on this issue and I 
appreciate him testifying today.
    It is a challenge to imagine a more aggressive attack on our clean 
air protections or a more blatant disregard for the health of our 
citizens and our environment than the announcement EPA Administrator 
Whitman made on June 13 to effectively gut the Clean Air Act's New 
Source Review program.
    I know that many of my colleagues have already spoken about the ill 
effects these proposed changes will have on our air, waterways and 
forests. I would just like to take a minute to describe the effects 
such changes will have on my home State of New York.
    Ecosystems throughout New York have already been devastated by acid 
rain created by pollution from factories in Ohio, Indiana, Virginia, 
West Virginia, Kentucky and elsewhere. According to the EPA's own data 
bases, the Gavin Plant in Ohio alone emits over one-half the NOx of all 
power plants in New York combined.
    The Adirondacks have endured the worst damage in the Nation from 
acid rain, with over 500 of its lakes now unable to sustain life--a 
number which is expected to double over the next 40 years.
    The Administration has yet to put forth a comprehensive proposal 
that would effectively improve air quality in the Northeast, reduce 
unlawful emissions that produce acid rain and reverse the recent trend 
of high ozone readings in New York. Instead, we have seen numerous 
attempts to rollback any progress we have been making in this area.
    This latest attempt, which will make it easier for power plants to 
pollute our air at the expense of our citizens, raises numerous 
questions. I am particularly concerned about the effects these changes 
will have on pending enforcement cases and I look forward to having the 
opportunity to pose some of these questions today.
    These cases play a key role protecting the health and lives of tens 
of millions of people. It is estimated that pollution from the targeted 
plants shortens the lives of between 5,500 and 9,000 people each year.
    I have already sent a letter to Administrator Whitman asking that 
the EPA immediately review the grave consequences of its New Source 
Review announcement and retreat from the dangerous path down which we 
are headed.
    We simply cannot allow this assault on our clean air to go 
unnoticed.

    Senator Clinton. Senator Sessions.
    Senator Sessions. Thank you, Madam Chairman.
    Attorney General Pryor, it is good to have you in 
Washington.
    Mr. Pryor. Thank you, Senator.
    Senator Sessions. I appreciate your service. Attorney 
General Pryor is just a tremendous Attorney General. He is one 
of the finest lawyers I have ever known, and was editor-in-
chief of the Tulane Law Review and he cares deeply about public 
policy and doing the right thing.
    You know, General Spitzer, I admire your advocacy and your 
passion for making things better for the people of New York. I 
remain a bit troubled by one of the comments Attorney General 
Pryor said that some of these companies that were being sued 
actually had explicit approval for the activities they have 
taken. Just on a matter of administrative procedures and due 
process fairness in the court of law, isn't that something we 
ought to concern ourselves with, that there has been an 
understanding or in some cases an explicit recognition that 
these kind of improvements in a plant do not constitute the 
kind of modifications that violate the New Source Review?
    Mr. Spitzer. Well, Senator, as I said in my testimony, I 
think indeed there has been a very constant understanding of 
what the definition of routine maintenance meant. I think when 
we parse, and we have done this in our briefs that has been 
submitted to many courts and the judicial opinions themselves, 
and I would suggest that you read the WEPCO case and other 
judicial opinions that have reviewed the history of what 
routine maintenance means and the history of the Clean Air Act. 
I think you will see a very constant strain of what that term 
of art was meant to mean by the Congress, what it meant to EPA, 
and what it has meant to the courts. That is why I quoted only 
two of the many possible citations I could have pulled from, 
because I thought they were recent and they came from this 
Administration, and therefore they might be more probative.
    With respect to your due process concern that perhaps a 
State agency somewhere gave a seal of approval to an 
improvement and that State agency or that administrative board 
or that county supervisor or whomever said, well, I think this 
means this does not violate that threshold and does not cross 
the boundary of routine to non-routine--well frankly, this is a 
statute that was passed by the Congress to be interpreted by 
the courts. The fact that a waiver perhaps was given properly 
or improperly by another individual is not going to be, to me, 
dispositive over whether or not that is going to be a final 
determination.
    Now, should we be worried about government issuing 
inconsistent decisions? Of course we should. That is something 
we have been trying to mediate through the 200-plus years of 
our federalism. Attorney General Pryor and I have had some 
spirited and informed debates about federalism and how you 
apply it in these different contexts. But I do not think there 
is any question that right now we are dealing with a Federal 
statute, Federal regs that are going to be interpreted by the 
Federal Courts and have been interpreted in a way that has been 
constant.
    Senator Sessions. Well, you know, Attorney General Mike 
Moore of Mississippi has written to Attorney General Ashcroft, 
and of course Mike Moore has been a strong attorney general 
also, a vigorous advocate.
    Mr. Spitzer. Yes, sir, he has been.
    Senator Sessions. He was a leader in the effort against 
smoking and the State lawsuits against tobacco and he testified 
before the Judiciary Committee a number of times. He has 
written, and I will quote from his letter. I understand that 
the Director of Virginia's Air Program has written to the EPA 
that, ``If EPA wants to change the way they have historically 
looked at routine maintenance, repair and replacement, they 
should do it by rulemaking, rather than an enforcement 
initiative that contradicts EPA's own policies for the last 25 
years.'' Moore goes on to say, ``I strongly agree that any 
significant departure from prior regulatory practice should be 
preceded by notice and then applied prospectively only. I am 
concerned that EPA has not historically applied the Clean Air 
Act modification rule in the manner in which EPA is now 
attempting to apply it through those enforcement actions. If 
you find this is the case, I urge you to take whatever measures 
are necessary to resolve the pending lawsuits in a manner that 
is compatible with those basic principles of administrative law 
and fundamental fairness.''
    General Pryor, is that part of your concern? Is that what 
you are saying?
    Mr. Pryor. Absolutely. That concern is not a solo one. I 
have a stack of letters from State attorneys general from 
across the country--Utah, Colorado, North Dakota, South Dakota, 
Nebraska, Indiana--a host of States--Virginia, and General 
Moore from Mississippi who has that perspective and have 
expressed it both to Administrator Whitman and to General 
Ashcroft.
    Senator Sessions. Well, thank you, Madam Chairman. I think 
the best thing we could do for clean air, and it is something I 
support, is the expansion of nuclear power. It is the only way 
we are going to meet the kind of goals that many have set for 
us. Alabama has one plant that never was completed, or was 
coming on line or would be brought on line, and two others that 
were 60, 70, 80 percent complete that could be brought on line. 
That would have a tremendous reduction in pollutants into the 
atmosphere. I just believe we have got to go back and give 
thought to it, since France obtains 80 percent of their power 
from nuclear sources. We have never had an American citizen 
lose his life because of an accident at a nuclear power plant.
    So there are some things we can do, but I think in the 
course of what we do, we need to follow the basic law. I 
respect my good advocates there that are testifying.
    Senator Clinton. Thank you, Senator.
    We are about to take a recess. Before I do, do any of the 
Attorneys General have any final comments that they wish to 
leave us with?
    General Sorrell?
    Mr. Sorrell. No, other than to repeat my thanks to the two 
chairs and the two committees for convening and taking up this 
issue that is so important to Vermonters.
    Senator Clinton. General Pryor?
    Mr. Pryor. No, thank you, Senator.
    Senator Clinton. General Spitzer?
    Mr. Spitzer. No, thank you, Senator Clinton.
    Senator Clinton. The hearing will be in recess for a short 
period until Chairman Jeffords returns at approximately 2 p.m.
    Thank you all very much.
    [Recess.]
    Senator Jeffords [presiding]. The hearing will come to 
order. We are pleased to welcome our third panel, consisting of 
Eric Schaeffer, director of the Environmental Integrity Project 
at the Rockefeller Family Fund; Bob Slaughter, president of the 
National Petrochemical and Refiners Association; Mr. Hilton 
Kelley of Port Arthur, TX; Mr. Steve Harper, director of 
Environmental Health, Safety, and Energy Policy for the Intel 
Corporation; John Walke, clean air director of the Natural 
Resources Defense Council; and Mr. E. Donald Elliott, co-chair 
of the Environmental Practice Group at the law firm of Paul, 
Hastings, Janofsky & Walker. Gentlemen, please come forward.
    Now, I am going to want to hear from you as to how we 
handle the problems that we have and suggestions of what we 
should do to improve the law. So I am going to start with Mr. 
Schaeffer, then for opening statements I will go down through 
for everybody's opening statement, and then come back to the 
questions.
    So Mr. Schaeffer, if you would start.

STATEMENT OF ERIC SCHAEFFER, DIRECTOR, ENVIRONMENTAL INTEGRITY 
                PROJECT, ROCKEFELLER FAMILY FUND

    Mr. Schaeffer. Thank you, Mr. Chairman, for the opportunity 
to testify today. I was the director of the Civil Enforcement 
Program until March of this year, and now at the Rockefeller 
Family Fund working on environmental issues. I am pleased to be 
here.
    I think it makes sense, given the hour and the fact that we 
are bringing up the rear on this panel, to respond to some of 
the points raised earlier, to see if we can shed some light on 
some of the issues you discussed.
    I would like to start with the question to Mr. Sansonetti, 
I think from Senator Leahy: Have defendants raised the issue of 
EPA changing the rules as a reason to put off lawsuits or stall 
or walk away from settlements? I don't think you need to look 
any further than the argument in front of the 11th Circuit in 
the TVA case, which I think everybody recognizes is one of the 
most important cases, and the first one we are likely to get a 
decision on.
    In that case, defendant lawyers walked right into court--
lawyers for TVA--waved a copy of the proposed changes, and said 
very clearly that the court should consider putting off or 
postponing hearing the case or making a decision because the 
government was still making its mind up as to what the law was. 
I am paraphrasing, but that was pretty close to what was said.
    Senator Jeffords. I understand what you are saying.
    Mr. Schaeffer. I can also say from my experience, sure, 
defendants walked or left the settlement table when they heard 
the law was changing. That is a rational decision in a way on 
their part. I guess I would suggest that you put that question 
to the Agency and to the enforcement officials and staff 
lawyers who are handling these cases, and I think you will be a 
clear answer.
    Mr. Holmstead also said that enforcement in EPA, the 
Enforcement Office I assume he meant, has told him and the Air 
Program that his proposals and final changes would not affect 
disposition of the enforcement actions. Without saying more, I 
just strongly encourage you to check that statement out. You 
might start by asking the Acting Director of the Enforcement 
Program if that is in fact true, because I believe it is not. I 
think Enforcement has consistently expressed concern about some 
of these changes and their impact on the cases.
    I think what is going on is, defense lawyers who are 
working for utilities are playing a classic game. They are 
taking a law that courts have said is pretty clear and they are 
trying to turn it into so much wisp and smoke. And then when 
you press the Administration about the direction it is going 
in, although their purpose seems to be to add more clarity, you 
get more wisp and smoke: ``We do not know what the impact on 
emissions is going to be. We are just making proposals. We have 
not made any decisions yet.''
    I hope to shed a little bit of light on it, just starting 
with the basic notion once again of what the law is. These 
cases did not spring out of fevered minds of the EPA in the 
late 1990's. They began in the early 1980's and go through the 
early 1990's, with the Alabama Power and the WEPCO cases. The 
courts looked at the law you wrote, which says you cannot 
physically modify a plant in a way that increases emissions 
without going in and getting a permit and putting on controls. 
And the courts have said not once but several times, the law 
means what it says. The law is very broad. There is an 
exception for routine repair. That is not found in the statute. 
That is an exception that EPA created out of concern that very 
small projects would have to go through permitting. Courts have 
said, when agencies create an exception to a general duty in 
the statute, that exception must be read narrowly.
    So the first question I hope you will put to the Agency is, 
do you, in fact, agree with statements the courts have made, 
that the law is broad and exceptions must be read narrowly? I 
know Mr. Sansonetti agrees because he argued that in the 
summary judgment motion in the Southern Indiana Gas and 
Electric case. He argued it very forcefully and very well, and 
that brief is worth reading.
    If I could turn to what the Administration proposes to do 
with what I think is a bright line that Congress has drawn for 
grandfathered plants, and how they plan to change the 
definition of routine repair--on my right, you will see a 
reheater being replaced at a typical power plant. This is one 
of the changes that we have talked about that has been 
undertaken and it had the impact because they are replacing an 
old part and replacing it with a more powerful unit of driving 
emissions up. That is a crane you see on the left, moving the 
part into place. We have more dramatic examples, too big, 
actually, to fit on a chart. This is what the Administration is 
proposing to call routine repair.
    What the Administration is talking about, and you got what 
I would treat as feigned ignorance today from Mr. Holmstead 
about what these changes mean, when in fact, his 
recommendations announced in June make very clear. What they 
have said is, if you pull one of these units out and you 
replace it with a more powerful unit, even if that drives 
emissions up, we are going to treat it as routine repair.
    They are free to deny that. I hope they will if you ask 
them, but I do think you should ask them. We have taken a look 
at all the parts in power plants, big parts that have been 
pulled out and changed over once or twice in the lifetime of 
the unit, and you can see that nothing is left of the law if 
you go forward with these Administration-proposed changes.
    My favorite thing in Washington is to hear lawyers who made 
a lot of money arguing that we shouldn't have as many lawyers, 
push ideas that essentially eliminate the lawyers by 
eliminating the law. That is essentially what is going on here 
in the Administration's proposal.
    You heard I think from Senator Voinovich and from Senator 
Inhofe, that all these utilities want to do, if you would just 
let them, is to decrease their emissions. New Source Review is 
getting in the way; they just want to decrease their emissions, 
and why are we being so mean to them.
    I want you to turn first to the chart on the right. These 
are NOx, nitrogen oxide emissions at the plants tagged in EPA's 
complaint. In one case, we saw a 21,000-ton increase. As Mr. 
Holmstead said, and this is where I think the law draws a 
bright line, don't increase your emissions, and you don't have 
a problem. He said, and his words were, you can make any 
changes you want as long as you do not increase emissions. 
These guys increased their emissions and they did not do it by 
the 40-tons that you are allowed under the Clean Air Act. They 
did it by thousands of tons. So there is a real impact.
    There is a lot of confusion, I think somewhat pretended, 
about the impact of going to the dirtiest 24 months you can 
find in the last 10 years, and then allowing the company to 
keep that high-pollution level for the next decade and then 
some. I think Senator Clinton did a good job pointing out an 
example of a refinery where you can take a look at the before 
and after; you can say, what are the emissions today; what 
would they be if you went back and picked the dirtiest 24 
months.
    Here are three examples. The red charts that you see are 
the highest 24-month period in the past 10 years. Mr. Holmstead 
is suggesting, yes, but the emissions are not going to be that 
high, but they do not quite know what they will be. And then I 
think we ended up with, ``well, some will be higher and some 
may be lower.'' I would ask you, just put them through the 
exercise, call some of these refineries out, find these dirty 
24-month periods in the past decade, lay it in front of the 
Administration, lay it in front of EPA and ask them--is your 
proposal--actually this is a final rule--is this going to 
increase emissions or not for this plant? I think the people 
who live around those facilities are going to want to know.
    We have also heard that the law is not letting companies 
make repairs. We are losing capacity; we are in danger of 
having the lights go out and the air conditioners turned off on 
really hot days. That is another game that has been played on 
every issue that affects environmental control when it comes to 
the power industry in the United States. I cannot think of a 
single environmental debate where we have not heard from 
utility argue, you are going to be colder or hotter or darker 
if you keep going forward.
    What we did is look at just the 43 plants that the 
government has sued, that are named in complaints. We asked the 
question, did those complaints so terrify you that you were 
afraid of making repairs and you started losing capacity? This 
is what we found. The charts are not totally complete through 
2001. We have some missing gaps in 2001 because the data is not 
yet available. But you can see from looking at these charts, 
the plants sued, the very ones that should be the most 
concerned about this supposed reinterpretation, have not lost 
capacity.
    Let me make one other quick point. Refineries, if we do not 
change New Source Review, we are going to lose refinery 
capacity. I give you this chart. Again, this is from the 
Department of Energy. That spike, the red spike on the right 
shows a sharp increase in refinery capacity after--after we 
brought the New Source Review lawsuits. Again, we were so 
successful in scaring the industry with our lawsuits that they 
had a record increase in refinery capacity. They have grown at 
a record rate. This is after we brought the lawsuits.
    I think what you are getting in the Administration's 
proposals, in an Administration that likes to talk ceaselessly 
about good science, is government by anecdote. You have got the 
same old war stories recycled over and over again about the 
parade of horribles, the bad things that the law is doing to 
them. The statistics just do not support that, and you deserve 
that kind of data from the Agency. I think you deserved it this 
morning. I hope you will insist on it. I invite you to verify 
any of this.
    Senator Jeffords. I can assure you we will, so you can 
relax on that.
    Mr. Schaeffer. That is very encouraging.
    On the fair notice issue, I will not belabor this. This is 
the question of, gosh, you know, we were all complying with the 
law until EPA came along and changed its interpretation. If you 
find those 4,000 pages of guidance that keep flying around like 
the Flying Dutchman that the Agency has apparently put out on 
New Source Review, let us know. I don't think they exist.
    This is a fairly lean requirement. There are a number of 
individual decisions the Agency has made. We have not cranked 
out a lot of conflicting guidance. The Justice Department 
looked at that issue; said we have been consistent; and I would 
stand with Mr. Ashcroft on that question.
    Let me tell you what we saw, and I hope you will look at 
the same evidence that Enforcement looked at. When we asked 
plant supervisors, the people who make the decisions, are these 
big projects, like the first one I put up, are these considered 
routine in your industry and at your company? Here is what Mr. 
Hekking of the Tennessee Valley Authority said, and it is a 
classic. This is Mr. Hekking of TVA, formerly a plant 
supervisor.
    The question was, ``Mr. Hekking, did the Tennessee Valley 
Authority consider this project to be routine maintenance?'' 
``No, sir.'' ``Can you tell us why?'' ``A number of reasons. 
First, we just talked about money. I give you an idea of what 
my annual budget is to run the plant, operate it and maintain 
it. The money spent on this one project alone exceeded my 
annual budget. I think that is one reason it was not routine. 
It was performed during an outage. I told you that a routine 
scheduled outage for us was 4 weeks. This was a 12-week outage 
that was not routine. The re-heater we put back in, we replaced 
an entire component. It wasn't a tube or several tubes or a 
couple of elbows. It was an entire component. That is not 
routine.''
    That is from the industry. We had the fun of having TVA's 
lawyers, who have this sort of wisp and smoke confusion about 
the law, keep pulling their own plant people back to the stand 
to get them to correct those statements. Their plant people 
would not cooperate. They kept returning to I think the plain 
English and saying, ``We can't call these routine; these are 
big changes; they cost a lot of money; they take a lot of time. 
I am not going to sit here and testify they were routine.'' So 
they knew.
    I would like to return to the bottom line here, which is 
the impact these changes have on human health and the 
environment. Senator Lieberman referred to a study that we ran, 
looking at the impact that power plant emissions from the eight 
defendant companies have on human health and the environment.
    I will say, tall stacks or no tall stacks, the impact is 
not just in the Northeast. It is felt very heavily in the 
Midwest. You can see some very high numbers in States like 
Pennsylvania and Ohio when we are talking about premature 
death. These are estimates after the acid rain emission 
reductions kick in. This is not today's emissions. This is a 
more conservative set of numbers.
    I would invite you to ask the Agency, is this data correct? 
Or if you have a model, and they are using a model to estimate 
the benefit of Clear Skies, run the model for these companies; 
run the model for my State. We have also broken the number out 
by companies, and we fund the same impacts. I want to 
emphasize, we had Harvard School of Public Health review this 
and verify it. This was done using EPA models. I would invite 
them to respond and explain how their proposal is going to make 
this situation better when compared to enforcing current law.
    I guess I would just close echoing what Mr. Spitzer said 
most eloquently, which is everybody has the right to change the 
law. This is America. It is a democracy. This is a big change 
that the Administration has proposed. Changes of that scale, 
especially when they affect enforcement of the law as you wrote 
it, they ought to come before this Congress. They ought not to 
be made unilaterally by an agency. That is your decision. I 
hope you will take that issue under your jurisdiction. If you 
do, I know you will do good things with it.
    Thank you for the opportunity to testify.
    Senator Jeffords. Thank you for an excellent statement. I 
would urge witnesses to try to stay around 5 minutes so I can 
get to some questions.
    Mr. Slaughter.

 STATEMENT OF BOB SLAUGHTER, PRESIDENT, NATIONAL PETROCHEMICAL 
                    AND REFINERS ASSOCIATION

    Mr. Slaughter. Thank you, Mr. Chairman.
    I will summarize very quickly some points that I had in the 
formal testimony, and then I just want to add a couple of 
comments on something that was just said.
    NPRA is pleased to testify again before you today. This is 
the third time we have appeared before this committee on the 
issue of the need for New Source Review reform. Our members own 
or operate basically all U.S. refining capacity, with minimal 
exceptions, and a number of petrochemical manufacturing 
facilities as well.
    I am Bob Slaughter. I am NPRA's president. I would like 
just to make a few basic points. The NSR reform process has 
been open and public. The previous Administration, as has been 
pointed out earlier, made similar proposals to reform NSR. 
Public hearings were held. Comments were taken on them. 
Congressional hearings discussing the need for reform have been 
held on at least four occasions. We have appeared at three of 
them. EPA held an exhaustive public dialog on the issue during 
its review, pursuant to the President's plan, and the issue has 
been extensively discussed in the media, both before and since 
EPA's June 13 announcement of its reform package. We have 
attached to our formal statement copies of all our testimoneys, 
plus our submission to EPA as part of the review, for your 
information.
    Two, we believe that NSR reform will improve the 
environment. The uncertainty resulting from shifting NSR 
interpretation has placed our members in retroactive 
enforcement jeopardy, adding considerable delay and cost to 
refinery projects. The ultimate effect has been to hamper our 
industry's efforts to expand domestic refining capacity, 
increase the supply of cleaner-burning fuels, and enhance 
energy efficiency.
    Three, NSR reform is needed to enable the refining industry 
to implement significant environmental improvements in our 
fuels and facilities throughout this decade. Attached to my 
formal statement is our regulatory blizzard chart which 
basically shows an intense series of new regulatory initiatives 
which were required to undertake in refineries in this decade. 
They include significant reductions, severe reductions in the 
sulfur content of gasoline and diesel fuel, on-road diesel 
fuel, also one upcoming regulation for equally severe 
reductions in off-highway diesel fuel and a number of 
stationary source controls as well.
    This suite of environmental requirements which the industry 
must comply with in this decade will require at least $20 
billion in additional investment capital from our industry. All 
of them result from the 1990 Clean Air Act Amendments, and they 
will result in significant environmental improvements through 
our fuels and our stationary sources--refineries and 
petrochemical plants.
    Four, the domestic refining and petrochemical industries 
are essential to our economic growth and national security, but 
they are under a lot of pressure. We have not been able to 
build a new refinery in the United States since 1976. The only 
source of additional capacity has been adding capacity at 
existing sites. Confusion over NSR requirements disincentives 
the addition of capacity at existing sites. Of equal concern, 
the Oil Price Information Service recently reported that at 
least 15 U.S. refineries in many regions of the country, with 
more than 10 percent of U.S. refinery capacity, may change 
hands or be closed down by January 2003. So there is 
significant risk of loss of domestic refining capacity. We have 
one refinery in the Midwest, in Illinois, scheduled to close 
next month. There are others, according to the OPIS article and 
according to word in the industry, that are in serious danger 
of sale or closure.
    The United States demand at the same time for our products 
is increasing. EIA projects one to 2 percent growth per year in 
demand for petroleum products at the same time that we are 
unable to add significant domestic capacity to refine those 
products. This means that they will have to be imported. EIA 
projects a tripling of imports of light products into the 
United States between now and 2020. They will come from Canada, 
Venezuela, and the Middle East.
    U.S. refineries as we know here have to run full-out to 
meet the bulk of U.S. demand, much as they do today. We operate 
at 90 to 95 percent of capacity at most times, pretty much 365 
days a year, every day of the week, and we have to do that in 
order to basically make the products that the economy demands. 
So it is very important that the industry maximize its product 
output, and the upcoming rulemaking which will give us greater 
clarity on the meaning of routine maintenance, repair and 
reform will help us do that.
    The opponents of NSR reform imply that it is the source of 
most basic environmental regulation of U.S. manufacturing 
facilities, but this is really not the case. We attach to our 
testimony a number of other Federal and State programs that 
limit emissions at our facilities. NSR reform will not impact 
these.
    NSR reform has really been a bipartisan effort up to this 
time. The previous Administration, as we have said, proposed 
many of these same changes. A bipartisan group of U.S. 
Senators, as Senator Voinovich pointed out this morning, wrote 
this Administration urging NSR reform to move forward. The 
National Governors Association and many State environmental 
regulators have also urged that NSR be reformed.
    So we urge Congress not to falter in its support for this 
bipartisan effort. We think the changes will help our members 
meet consumers' growing demand for better environmentally 
sensitive processes and products, and we really do believe that 
NSR reform is the most significant step that public 
policymakers can make to maximize the domestic refining 
capacity and petrochemical manufacturing capacity in the years 
to come.
    So I would urge you to put the discussion today in that 
kind of frame of reference. I know it has been said that 
there--at least Mr. Schaeffer has a personal theory that has 
some clarity as to what NSR means, but I have sat through the 
hearing today, too, Senator, and I believe--I know I listened 
to three current attorneys general. I believe there are two 
former attorneys general on the panel--you and Senator 
Sessions. I heard a number of differences as to what this 
current rule means. You know, if five attorneys general are not 
really able to agree among themselves, and that was the strong 
impression I got today, I would say there is serious evidence 
that this particular program needs to be reformed.
    Just one other point I would like to make about the chart 
and the baseline which alleges that at least certain refinery 
emissions might go up if you basically looked at any 24 months 
within the past 10-year period. You know, refineries basically 
produce all-out almost all the time. So if there has been a 
significant reduction in emissions of one particular pollutant 
from a refinery, it is probably because there has been a change 
in the permitting requirements, because they are probably 
producing more the last couple of years than they were at any 
time during the last 10 years, particularly in the Midwest, 
where there have been significant supply problems and the 
refineries have really been producing all-out. So I urge you to 
take a close look at some of these assertions that are based on 
people's models. I think we really need to look at what the 
facts are here.
    Thank you.
    Senator Jeffords. Thank you, Mr. Slaughter.
    Mr. Kelley.

  STATEMENT OF HILTON KELLEY, FOUNDER, COMMUNITY IN-POWER AND 
                    DEVELOPMENT ASSOCIATION

    Mr. Kelley. Yes, good evening. My name is Hilton Kelley. I 
am the founder of a grassroots organization called the 
Community In-Power and Development Association. I am also the 
coordinator of the Southeast Texas Bucket Brigade, where we 
stand with and for refinery reform.
    I am grateful for the opportunity to speak out on behalf of 
refinery communities across this Nation and tell the Senate the 
truth about what pollution is doing to us and how much worse it 
would be under the new EPA proposal to roll-back New Source 
Review. For example, by allowing refineries to go backward 10 
years to pick their baseline, pollution will increase. It makes 
no sense to go backward. We need to move forward and keep 
working to reduce pollution by enforcing the NSR fully.
    Everybody needs to know that the Clean Air Act as it now 
stands must be preserved, and the new EPA proposal is really a 
death sentence for already-sick industrial neighbors. The Clear 
Skies proposal of the Bush Administration would do nothing for 
us because it deals only with power plants. It does not cover 
refineries and chemical plants. Refineries are located in 36 
States, 125 cities and up to 67 million people breathe air 
polluted by oil refineries. This is a national problem and the 
only solution we see is strict enforcement of the New Source 
Review, not relaxation.
    I grew up in Port Arthur, TX on the west side of town near 
refineries and chemical plants. I know what it smells like on a 
daily basis, and I say that it is time that we do something to 
clean this up because a lot of kids are still living in these 
neighborhoods where I grew up. I moved away about 18 years ago, 
and I have recently come back in 2000. I am on a crusade to 
empower local citizens to fight for their health and to help 
them understand what they must do to get their air clean. I say 
that we protect the Clean Air Act, and New Source Review is the 
way to do it.
    The rest of the country needs what Port Arthur makes. Just 
like other refinery communities, the neighbors live with the 
fall-out of pollution and health problems. Mr. Slaughter stated 
that refineries are asked to provide this product. That may be 
so, but the neighbors never ask for the poison that these 
refineries put into our air. Texas is home to America's largest 
oil refineries and chemical plants. While the State produces 
the energy the Nation needs, it also produces more industrial 
pollution than any other State according to the latest right-
to-know data. Our neighborhoods pay the highest price for the 
rest of the Nation's cheap gasoline. Sometimes, it can take 
your breath away. We have been losers in the bargain as we have 
high unemployment, although the plants get a tax break from our 
local government because they are located in empowerment zones. 
Our people do not see the benefits of that.
    It seems that these heavy industries concentrate on low 
income communities and communities of color, where there is the 
least bit of resistance from the citizens. They operate 24 
hours a day, 365 days a year, expanding constantly. Right now, 
we are challenging another expansion of the Premcor refinery 
that wants to dump 525 more tons of pollution on us so that 
they can make low-sulfur gasoline. It seems we never have a 
chance to get cleaner air. They can do it without dumping more 
pollution on us. NSR is one tool to make sure of that.
    The problem has a human face. In Port Arthur almost every 
day, 10-year-old Cullen Como and his sister suffer with a 
severe asthmatic condition. Their mother suffered also from 
upper respiratory problems when she was giving birth to them. 
The plants emit a toxic soup of chemicals. These chemicals are 
known to cause cancer, affect brain functions and hurt organ 
development and reproductive systems.
    We, like other refinery communities, have teamed up with 
Denny Larson of the Refinery Reform Campaign to form a local 
bucket brigade for Port Arthur, TX. The bucket is a simple, but 
effective air sampler. It uses a special bag and vacuum pump. 
Air samples taken during toxic releases have shown unhealthy 
levels of hydrogen sulfide, benzine and other dangerous 
chemicals. We were forced to do this because there are no real 
air monitors in our community. We get more expansion, but we 
get no air monitors in our communities.
    Miss Annie Edwards is another victim of pollution. She has 
to use two different types of air devices to breathe--one for 
when she goes to bed at night to ensure that she will wake up 
the next morning, and if she dares to go outside, then she has 
one that she has to walk with.
    I know from going door to door that these problems are 
widespread. Too many people are dying from cancer. Too many 
people have thyroid problems. We have two dialysis clinics in 
this small town of mine, and it is time for the citizens to say 
enough is enough, and it is time to do something about it.
    We want to work with industry. We want them to put the 
necessary controls on their stacks, put the necessary controls 
on their valves, so that they will quit emitting so much 
pollution into our community.
    We also have a huge pollution problem with accidents, 
fires, explosions, upset emissions releasing thousands of 
pounds of chemicals into our air through flares, relief valves, 
and dump stacks. It seems that after expansion, the plants have 
more and more upsets so there weren't enough controls, from 
what I can see, by our States. For example, Premcor Refinery, 
Port Arthur, TX, February 19, 2002, about 5,660 pounds of 
propane and 143 pounds of hydrogen sulfide were released during 
a 219-hour upset. More examples are on the chart, if you look 
to my right.
    Premcor Refinery, January 2, 2002, upset--about 26 pounds 
of hydrogen sulfide per hour, 2,479 pounds of sulfur dioxide 
per hour, 295 pounds of volatile organic compounds per hour, 
and 6 pounds of nitrogen oxide per hour were released. The 
upset lasted 168 hours.
    A recent health survey done by the University of Texas 
toxicologist Dr. Marvin Legator compared people living in 
housing projects in refinery communities like Port Arthur and 
Beaumont to a non-industrial similar population. Preliminary 
results show a vast difference between the health symptoms of 
those two communities' reports. Seventy-five percent of the 
people from Port Arthur complained of headaches, muscle aches, 
compared to twenty percent in the controlled area. Eighty 
percent of people in Port Arthur had ear, nose and throat 
conditions, compared to twenty percent in the controlled area. 
Eighty percent of those questioned had heart conditions and 
respiratory problems in the refinery neighborhood, compared to 
thirty percent in the non-refinery area.
    Dr. Legator has made a strong correlation between the known 
health effects between the emissions from the refineries and 
the health symptoms we experience.
    Another study conducted by MacArthur Genius Award-winning 
scientist, Wilma Subra showed that health symptoms and 
emergency room visits increase when there is a spill or 
unexpected release from the plants. Whenever we leave Port 
Arthur, it seems like our health gets a little bit better, but 
whenever we return from vacation, it seems like the respiratory 
problems and the skin rashes seem to reappear.
    Glenn Alexander, a pediatric nurse practitioner in Port 
Arthur, has been treating local children for 10 years. His 
waiting room is nearly always full. He sees an unusually large 
number of upper respiratory infections, allergies, skin rashes 
and asthma. ``I do see things because I am a health care 
provider. The air is not always clear here. Sometimes it is 
hard for the children to breathe.'' Some of the effects are 
irreversible and will be a life-long problems for these kids.
    Mr. Alfred Dominic is a life-long resident of Port Arthur, 
TX as well. He was born in 1928. He has seen a large number of 
his friends die from cancer and various other respiratory 
problems.
    This is a national problem. This is not a problem just 
concerned with Port Arthur. This is a national problem. I could 
quote many other leaders in the Refinery Reform Campaign, but I 
won't go on with that.
    Mrs. Mabel Mallard lives in South Philadelphia, PA, and she 
has a problem with the refineries out there as well. They are 
dealing with pollution day-in and day-out and she says enough 
is enough. Please do not tread all over the New Source Review. 
In other words, stand with us and help support it.
    In conclusion, New Source Review should be preserved and 
fully enforced. It is a grave matter of environmental justice 
to people who need the help of the U.S. Senate to protect their 
health and the health of innocent children. Going backward to 
allow refineries to pick a baseline and other such tricks are 
unthinkable to people living on the fenceline suffering from 
current levels of pollution. The Clear Skies plan won't help 
us. We need the Federal protection and the right to know of the 
New Source Review.
    Thank you, and if there are any questions, I will take them 
at this time.
    Senator Jeffords. Thank you, Mr. Kelley, for an excellent 
statement.
    Mr. Harper.

 STATEMENT OF STEPHEN HARPER, DIRECTOR, ENVIRONMENTAL HEALTH, 
  SAFETY AND ENERGY POLICY, INTEL CORPORATION, WASHINGTON, DC

    Mr. Harper. Yes, thank you, Senator.
    My name is Steve Harper. I am the environmental health, 
safety and energy policy director for Intel. I am here to speak 
about a portion of what EPA is seeking to promulgate and to 
propose what was referred to a little bit earlier this morning, 
but only in passing, it was very separate from in our minds 
most of the rest of the issues before the committee, and that 
is the PAL portion of the EPA's pending rule.
    Intel for several years now has been part of a coalition 
that has included Lilly, Daimler-Chrysler, DuPont and Merck. 
Companies in our coalition have all experimented under EPA's 
various reinvention programs with PALs. We believe that EPA's 
promulgation of a PAL rule is the next logical step in 
piloting, perfecting and proliferating this new approach.
    Much effort has been spent in the last 10 years or so on 
the reinvention of environmental protection under both 
Democratic and Republican Administrations. We feel strongly 
that PALs are one of the most successful, if not the most 
successful, story to come out of, innovations to come out of 
that process and we think it is time to mainstream this new 
approach through regulatory action.
    Why does Intel care about PALs? Semiconductor manufacturing 
is characterized by quick product cycles and rapid innovation 
in products and processes. The sort of tag-line in our company 
is there are only two kinds of semiconductor companies--the 
quick and the dead. We obviously would therefore prefer to be 
quick. But the kinds of needs for rapid and speedy innovation 
in our industry is not that different from that experienced and 
needed by other companies in our coalition of other industries. 
Intel operates 10 fabs, as we call our factories here in the 
United States. Each of these costs on the order of $2-$3 
billion per fab. They are characterized by constant innovation 
and changes in product technologies, the chemicals that we use, 
and the processes.
    Given the capital cost of these factories, getting to and 
maintaining full production is absolutely critical to their 
profitability. Traditional New Source Review is therefore a 
non-starter for Intel and for industries like ours because many 
of the frequent changes we make would require under traditional 
NSR permit modifications which entail uncertainty and 
substantial delay.
    What is a PAL? PALs feature an emissions cap that provides 
a bright line for NSR applicability. It determines whether 
changes made in our operations trigger or don't trigger NSR. 
Changes that don't raise emissions beyond the cap are not 
subject to NSR. In addition, within the cap or under the cap, 
there are typically a series of pre-approved changes that you 
can make at your facility without further permit modifications.
    I want to make a distinction that is in the terminology I 
use in my written testimony, Senator, I use both the term PAL 
and PAL-type permits. I want to be clear on the distinction. A 
PAL is a major source of NSR permit. A PAL-type permit is a 
minor source State permit that features the cap and the 
preapproved changes features of PALs, but lacks the NSR 
applicability feature, but in every other respect they are 
identical.
    What are the benefits of PALs? First of all, there are 
environmental benefits. PAL caps are set at levels typically 
that reflect the air quality needs of an area. PALs that are 
based on actual emissions involve sources giving up significant 
emissions headroom that would otherwise be allowed under their 
existing permits. Caps also provide emissions certainty to the 
public and to the permitting authority. Caps provide powerful 
pollution prevention incentives because if you have got a tight 
cap and you want to grow your production, the only way you can 
do so is by substantially reducing your emissions per unit of 
production which is what we have done, as I will show. PALs, 
simply put, free up facility engineers at facilities like 
Intel's to pursue pollution prevention, rather than spend a lot 
of time on NSR paperwork.
    The second area of benefit over traditional NSRs is public 
participation. PALs provide the public a much more holistic 
view of the operations of a facility and its impact on the 
environment. In traditional permitting, the public sees a 
myriad of piecemeal changes that provide a piecemeal view of 
what the impact of a facility is. However, with PALs, the 
public gets to participate in the process by which the cap and 
the preapproved changes are determined, providing a much better 
understanding of the impact of the facility and a much more 
meaningful opportunity for the public to participate in 
determining the outcome of the permitting decision.
    Indeed, although I am going to focus mostly on our Oregon 
PAL, in one of our facilities that has a PAL in Arizona, our 
Community Advisory Board is actually so happy with our 
experience that they want the State of Arizona and Maricopa 
County to make PALs mandatory for all sources because of the 
environmental and public participation benefits.
    The third benefit is to our facility--operational 
flexibility. You have the bright line in terms of NSR 
applicability. You also have the preapproved changes I made 
reference to earlier.
    So what has our experience been? We have entered into two 
partnerships with EPA permitting authorities and the public to 
pilot this approach, both begun under the Clinton 
Administration. The Pollution Prevention and Permitting Program 
at our Aloha campus in Oregon and a Project XL effort at our 
Ocotillo campus in Arizona. In the interest of time, I am only 
going to focus on the Aloha project in my remarks. My written 
testimony provides data and experience about both.
    The exhibit in my testimony at the end of the testimony 
provides we think a very graphic illustration of the 
environmental benefits. Motivated by a need to grow, but 
remained under our cap at Aloha, we reduced our emissions of 
volatile organic compounds per unit of production by more than 
90 percent during the 1990's. Although our production went up 
substantially by almost five times, we still stayed under our 
cap. We were even able to add an additional factory within the 
existing cap without having to go through and get an additional 
modification.
    Moreover, we voluntarily reduced our cap along the way in 
order to help Portland, OR with its efforts, which ultimately 
were successful, to get redesignated as an attainment area. The 
cap that we worked under and lived under produced a very 
powerful pollution prevention incentive that made that 
possible.
    In sum, PALs, in our view, are ready for prime time. As I 
have shown, our experience with PALs has been dramatically 
successful. Other companies in our coalition have also piloted 
the approach successfully, as have an increasing number of 
companies in other industries and other companies. I want to 
emphasize that contrary to the thoughts of some, PALs are not a 
niche-fix for companies like Intel. I think if you look at the 
experience of PALs, and it is a growing experience in a number 
of industries, they are not a one-size-fits-all solution to 
everybody's problems with New Source Review, but we think they 
are a win-win for both facilities and the environment.
    PALs, in our view, are an example of the right way for EPA 
to innovate, to try something out in a limited number of places 
under controlled circumstances. You evaluate your experience, 
and where successful, you mainstream that experience, you 
mainstream the success through the rulemaking process.
    I want to emphasize mainstreaming through a rule is very 
important in our view. PALs are legal under current rules, and 
under the current Clean Air Act, as my testimony goes into. But 
many sources and States need clear guidance from EPA regarding 
the value of PALs and they need clear guidance on the rules of 
the road in applying this relatively new tool. So we believe 
that EPA promulgating a rule will provide the certainty and we 
think will make it a lot easier and a lot more likely that 
other sources and States will use this new approach and will 
realize the environmental public participation and flexibility 
benefits that I have described earlier. Thank you.
    Senator Jeffords. Thank you.
    Mr. Walke.

    STATEMENT OF JOHN D. WALKE, CLEAN AIR DIRECTOR, NATURAL 
                   RESOURCES DEFENSE COUNCIL

    Mr. Walke. Thank you, Chairman Jeffords, for the privilege 
of testifying before you today.
    My name is John D. Walke, and I am the director of Clean 
Air Programs with the Natural Resources Defense Council. We are 
a 500,000-member organization dedicated to protecting public 
health and the natural environment. Prior to joining NRDC 2 
years ago, I was an air pollution attorney with the EPA's 
Office of General Counsel, where I worked for 3 years.
    Allow me to go straight to the heart of the purposes and 
consequences of the Administration's recent New Source Review 
announcements. These rule relaxations will allow significant 
increases in air pollution from over 17,000 of the Nation's 
largest polluters, allowing them to escape pollution controls.
    I want to emphasize this most basic point about the New 
Source Review program that is often lost in the rhetoric and 
misrepresentations that some use to mischaracterize the program 
and its protections. The NSR program requires pollution 
controls at new or existing facilities only when there are 
significant increases in air pollution. Industry must clean up 
its pollution under the NSR program only when the air gets 
dirtier from anywhere from tens of thousands of pounds per year 
to tens of thousands of tons per year. The corollary to this 
point is even more important. Regulatory exemptions, so-called 
industry flexibilities and other changes designed to avoid NSR 
pollution controls will allow significant increases in air 
pollution to escape clean up. Increases in air pollution, of 
course, are what we all are about, whether the air gets 
dirtier. It is that objective that drives the installation of 
pollution controls under the New Source Review program.
    It is highly revealing, however, how rarely if ever the NSR 
program's opponents in industry, and now within this 
Administration, mention the NSR program's purpose to control 
air pollution increases. Instead, I submit that the talking 
points of NSR opponents are carefully scripted to mention 
several buzz words--routine maintenance, energy efficiency 
projects, system reliability activities. The reason for this 
selective focus is very simple. Every activity that industry 
wants to pursue without being required to install pollution 
controls under New Source Review will involve significant 
pollution increases. I urge you and the committee to bear in 
mind than whenever appeals in the name of these activities are 
made, they are implicitly but necessarily accompanied by the 
argument that industry should be allowed to increase air 
pollution significantly without cleaning up that pollution.
    As we all know, NSR pollution controls are required for 
modifications that exist in pollution sources. This was added 
in the 1977 amendments. Modification at an existing plant 
requiring NSR pollution controls is a two-part test covering 
first, any physical change or operational change at a facility. 
Every court to address this question, as Mr. Schaeffer has 
said, has found that this requirement is very broad, and they 
have affirmed the inclusiveness of the concept of ``any 
physical change'' meaning exactly that. The second part of the 
test is that a facility must increase air pollution, as I noted 
earlier. So you must have a physical change or an operational 
change that must increase pollution.
    I would like to speak just briefly to something that 
Assistant Administrator Holmstead said earlier, because it is 
something I have heard him say before, and it is something that 
I find to be continually frustrating and even misleading. Mr. 
Holmstead made the claim that NSR really does not do anything 
to reduce emissions from existing sources. Because NSR applies 
only to pollution increases, pollution controls are required in 
order to minimize those pollution increases. For example, if a 
modification at an existing facility increases pollution by 
10,000 tons, NSR would require pollution controls that would 
reduce emissions by, say, 95 percent using advanced technology.
    Now, I would call keeping 9,500 tons out of the air to be a 
pollution reduction. I would also call the positive steps that 
Mr. Holmstead mentioned where sources minimize pollution to 
keep them from even having significant pollution increases to 
be emissions reductions. It is very telling that Mr. Holmstead 
declines to refer to these as emissions reductions. I would 
submit that it is because the Administration has in essence 
abandoned the modification provisions of the statute. I would 
submit further that the regulations and the changes that were 
recently announced reflect that.
    The five final rule changes, as well as the three proposed 
rule changes that they announced would systematically undermine 
and contradict the Clean Air Act's mandate that modifications 
that exist in pollution sources require pollution increases to 
be well-controlled. EPA announced new loopholes and exemptions 
from clean up obligations that are nowhere to be found in the 
statute; defined the plain breadth of the first part of the 
modification definition. EPA also announced new accounting 
gimmicks to ensure that increases from today's pollution levels 
will not be considered increases under the second part of the 
definition. My written testimony goes into the specific 
examples and our views on them.
    Let me be clear. What EPA has done with these announcements 
is repudiate an act of Congress. We now know from internal EPA 
documents that I refer to in my testimony that agency attorneys 
had advised EPA political appointees that many of the changes 
that were recently announced run afoul of the Clean Air Act. 
The recent announcements make clear what Administration 
officials did in response to that legal advice.
    We also know that the rule relaxations will allow 
significant pollution increases to escape control, thereby 
degrading air quality and harming public health. I would like 
to read to you just a single sentence from a letter issued by 
the National Association of State Air Regulators in reaction to 
the specific reforms that the Administration is pursuing. The 
letter reads, ``The controversial reforms being pursued by EPA 
will not only result in unchecked emissions increases that will 
degrade our air quality and endanger public health, they will 
also undermine the chances of any responsible changes to the 
NSR program ever taking effect.'' With your permission, I would 
like to enter those comments into the record.
    Senator Jeffords. Without objection, they will be--and 
since there is nobody else to object, they are in.
    Mr. Walke. OK.
    Let me note in passing, since it has come up several times, 
just frankly how disingenuous it is for Administration 
officials and others to point to previous general calls for NSR 
reforms from Members of Congress and other quarters and support 
of the very specific harmful reforms that they have announced. 
My organization has supported NSR reforms, as have the State 
regulators that I just referred to. But what we were seeking 
were improvements to the NSR program that would protect air 
quality while providing industry with responsible forms of 
flexibility. This Administration has capitulated virtually 
entirely to the industry demands for flexibility and abandoned 
public health protections as an objective for the program. It 
is not just my organization, it is this bipartisan group of 
State regulators that is saying so.
    I will end my comments there, and I would be happy to take 
any questions afterwards.
    Senator Jeffords. Mr. Elliott.

    STATEMENT OF E. DONALD ELLIOTT, CO-CHAIR, ENVIRONMENTAL 
     PRACTICE GROUP, PAUL, HASTINGS, JANOFSKY & WALKER, LLP

    Mr. Elliott. Thank you very much, Mr. Chairman.
    I would ask that my revised statement be made part of the 
record.
    I would like to focus primarily on what I consider a very 
disturbing fallacy that has effectively been part of the 
hearing, and that is the notion that we should equate NSR with 
reducing pollution. Of course, that is not really the case. As 
Mr. Kelley said, it is really just one tool under the Act. I 
guess my main point is I think NSR is really the wrong fight. 
It is not a very effective program. It has not been effective, 
and I think we know much better ways to deal with the problem.
    As a former General Counsel of EPA, confirmed by this 
committee over a decade ago, I do believe that EPA's many 
changing interpretations of NSR over the years have really 
created a legal mess of baffling complexity. The ultimate 
solution in my view is to replace the antiquated, inefficient 
NSR program for existing plants with a modern trading system, 
which really has tripartisan support, as Jeff Holmstead, 
Senator Smith and Senator Jeffords are all supporting something 
like that. But in the meantime, I do applaud the 
Administration's recent attempts to do what it can to resolve 
the uncertainties by creating safe harbors through the 
rulemaking process.
    I have to admit that I was General Counsel of EPA in 1990 
when the famous WEPCO case came down, which has done a lot to 
create a lot of the current uncertainties. Although that case 
has never been overruled, it creates a lot of uncertainty 
because rather than having a bright line test, it identifies 
multiple factors that have to be weighed. So I think a lot of 
the uncertainty is how do you deal with the various WEPCO 
factors.
    Urged on by majorities in both Houses of Congress in 1990 
to fix the WEPCO problem, both Houses of Congress passed the 
WEPCO fix, they were just different. So in conference, the 
Congress deferred to the Administration, passed the hot potato 
to us, and we did in fact come out in the first Bush 
Administration with an NSR interpretative rule in 1992 which I 
thought had fixed the WEPCO problem, at least as far as the 
electric utility industry was concerned.
    The key provisions of that rule were that it interpreted 
the language of the statute to require a causal relationship 
between the physical operational change and the increase in 
emissions, and that seemed to solve the problem. However, as a 
prelude to the current EPA enforcement initiative in 1998, 
without any notice and comment, the Clinton Administration in 
the Federal Register renounced our previous 1992 interpretation 
of NSR. It really is the conflict between the 1992 Bush 
Administration interpretation and the 1998 Clinton 
interpretation, both purporting to be interpretative rules that 
have created a lot of this confusion.
    I think the current Bush Administration did not really go 
far enough in trying to clarify the problem. I admire their 
courage in even touching the issue at all, but I think they 
should have done two things, and I hope they will as the 
process goes forward. First, in my opinion, the safe harbor 
provisions of the NSR rule should have been made immediately 
effective as an interim final rule under the good cause 
provisions of the Administrative Procedure Act. EPA has done 
that in numerous other situations where there is uncertainty in 
the law, and after 130,000 public comments have already been 
received, I do not think we should be waiting. The EPA-NSR 
report documents that there are a number of adverse effects 
taking place today as a result of the uncertainty.
    Second, I believe the Administration should immediately 
conform its litigating position in the pending NSR cases to the 
policy positions that it is now taking in these proposed rules. 
I disagree with my good friend, Assistant Attorney General Tom 
Sansonetti, who I served with in the previous Bush 
Administration, that it is going to be viable for the U.S. 
Government to pursue multi-billion dollar cases based on the 
premise that the same words in the law meant one thing in 1980, 
something different in 1992, something different in 1996, 
something different still in 1998, and that they are going to 
mean something yet different in the future when these proposed 
rules are finalized.
    I also disagree strongly with those who imply that the 
pending enforcement cases brought in the previous 
Administration should somehow disable the new Administration 
from implementing its views of good policy. Just as the Clinton 
Administration in 1998 could change from the 1992 Bush 
Administration interpretation, I think the second Bush 
Administration is free to impose its own interpretation.
    Of course, the Congress can make the Administration pay a 
price politically for its actions, and I guess in a sense that 
is what this hearing is about. But in my opinion, NSR is the 
wrong issue. It is the wrong issue to make the touchstone for 
good environmental policy. It has failed to work for 25 years. 
I have lived in Connecticut for 30 years and I am very well 
aware of the problems on the East Coast. But I think it is 
important to emphasize that during that 25-year period, we have 
had the NSR program on the books. The only place that I know of 
that when something does not work it becomes an argument for 
doing more of it is in government. We have had this program for 
25 years. It has not worked.
    Meanwhile, over the last 10 years, the acid rain program 
has been wildly successful. Seventy-five people at EPA, less 
than one-half of 1 percent, have gotten 50 percent of the total 
pollution reductions over the last 10 years through the acid 
rain trading program. Imagine a company like Intel that figured 
out that one-half of 1 percent of its people were producing 50 
percent of the profits. Wouldn't they want to figure out what 
those few people were doing and do more of it? I think that is 
the basic problem that we are really facing here.
    The NSR program is an antiquated regulatory technology. The 
notion that the way to regulate the environment is with case-
by-case litigation, suing plant-by-plant, having discovery, big 
litigation and oppose best available controls--that is a 1960's 
technology. We know much better how to do it, and I think that 
is what we should do.
    Much of the blame for the current NSR mess I think lies 
squarely at the doorstep of Congress. Congress in its wisdom 
enacted the requirement for modifications of existing plants in 
1977, but it has really failed to define the key operative 
concept of a modification in the statute. To date, it has 
proved impossible for the rest of the legal system to come up 
with any clear dividing line that will stand the test of time. 
I certainly tried and failed when I was in the government.
    EPA has repeatedly tried to resolve that controversy 
through a variety of changing rules and interpretations. At one 
point, EPA even came out in the Federal Register with a 
statement that routine repair and replacement is what is 
``routine in the relevant industrial category.'' EPA staff also 
developed the fascinating theory of potential emissions, so 
that a plant was considered to have increased its emissions 
when its actual emissions went down. In fact, I disagree with 
John's statement. Many of the enforcement cases, or at least 
some of the pending enforcement cases, are being brought 
against companies whose emission actually went down. So 
emissions increases ought to be part of the definition, but 
unfortunately has not been historically.
    There have already been so many varied and shifting 
interpretations by EPA that I seriously doubt that the courts 
are ultimately going to give much deference to whatever 
construction EPA now tries to place on the statutory terms. 
That unpleasant fact really leaves us with only two real 
options going forward.
    First, we can slug it out with many more years of very 
unproductive litigation, probably going to the Supreme Court at 
least three times over the next 10 years before we finally 
figure out what these delphic words about modification actually 
mean in the Clean Air Act. I think that is really the course 
that my friend Eric Schaeffer urges, that when he talks about 
the concrete facts of individual cases and a common sense 
interpretation and the testimony of utility executives, what he 
is really calling for is that we embark on a 10-year process of 
litigation. If we do that, eventually the courts, which are the 
courts of last resort, will essentially write a law for us. 
They will essentially define over time and a period of 
litigation what these terms of the statute really mean.
    I think that would be a mistake in course. I would much 
prefer to see Congress take control of the situation and put a 
merciful end to the NSR controversy by legislating a modern, 
more efficient replacement for the program with regard to 
existing plants. I think the way to do that is one that has 
tripartisan support and I hope that is what you will do.
    Thanks very much.
    Senator Jeffords. Thank you very much, Mr. Elliott. I 
assure you that we are concerned about the present situation 
and will be doing hopefully a successful legislative answer.
    Mr. Schaeffer, are there any ways that the Administration 
could approach the NSR changes that might actually benefit 
public health?
    Mr. Schaeffer. Changes they could make that would benefit 
public health?
    Senator Jeffords. Right.
    Mr. Schaeffer. Sure. The last Administration was thinking 
about taking the plant-wide limit, which I think is a good one, 
which is reflected in some of our settlements. I would refer 
you to the Marathon-Ashland settlement for an example, and 
making that a good type proposal that would have the effect of 
bringing emissions down over time. What the current 
Administration's proposal does, and this is an important 
difference, is allow you to reach back, find an old baseline of 
high emissions, and then keep that high level of emissions for 
10 years going forward. The letter that Mr. Perciasepe wrote 
which I think is attached to Mr. Slaughter's testimony, makes 
clear when he was talking about plant-wide limits, he was 
talking about an idea that would bring emissions down over 
time. That is what the Clean Air Act is supposed to do, is to 
create that downward slope. I think that is what you are trying 
to do with the legislation you are considering.
    So if they would take the PAL proposal, tighten the bolts 
on it, and have the emission levels from companies that use 
plant-wide limits step down over a period of time, instead of 
stay constant, as though it were some kind of entitlement to 
pollute, then I think it would be a great improvement, and it 
would bring clarity to companies.
    Senator Jeffords. Mr. Kelley, you had very dramatic 
testimony. Could you describe the plastic bag you got in the 
bucket brigades?
    Mr. Kelley. Yes, I can. This bag is what we use to actually 
go out and pick up the air samples. Here I have with me also, 
as being a part of the bucket brigade, you can see why we call 
it the bucket brigade. What it is, is literally a 5-gallon 
bucket and there is a top that is usually accompanied with the 
bucket that has an intake valve and an exert valve. What we do 
is take a simple computer vacuum cleaner, and it is a tube that 
is hooked to the top, and we create a vacuum inside the bucket 
that will allow the air to go inside the bag because it is 
attached to the top on the inside. Once that vacuum is created 
in the bucket, the air automatically flows into the bag.
    On a lot of occasions when I go out, what happens is I will 
smell some type of sulfur or some type of strong chemical 
order. I may get a call from a neighbor who is a part of the 
bucket brigade as well, and other citizens that I have alerted 
about the activity that is going on in our community. They will 
call me up and say, well Hilton, there is a strong odor of some 
sort in our community. So I will go to that particular 
neighborhood. I will take an air sample. The samples are then 
immediately rushed to a lab in a location outside of Texas--I 
will say it that way--and the air is then analyzed and then 
sent back to me or Denny Larson and then we give the results to 
a lot of the citizens to let them know exactly what we found.
    On many occasions, we have found that the refineries such 
as Premcor, Huntsman, Motiva are well above the EPA standards 
when it comes to what they can emit, how much they can emit 
into the air. We have found sometimes they are somewhere in the 
ballpark of 8 parts per billion over or 12 parts per billion 
over the amount of chemicals that they are allowed to dump into 
our air. This is something that is common in Port Arthur, TX. 
This is why so many of the citizens there have respiratory 
problems, and as I said earlier, we have two dialysis clinics 
in Port Arthur and the population is somewhere in the ballpark 
of 57,385.
    I would like to state, No. 1, we are not really against 
refineries, but what we are against is the amount of pollution 
that is being dumped on this small community unfairly because 
we bear the brunt of all the pollution and all the toxicities 
for the rest of the Nation to have cleaner-burning gasoline. We 
say enough is enough. It seems like we are being sacrificed for 
the rest of the Nation to have cleaner air. I say, No. 1, it is 
time that we stand together and come up with other solutions so 
that one community does not have to bear the brunt of all this 
pollution.
    We understand that we need gasoline. We understand that we 
need the products of crude oil and various products that come 
off of it. But what we don't need is the pollution that they 
dump into our communities and on our kids and everything else 
in our community. What we are saying is clean up your act. What 
we are saying is use the necessary controls on your 
smokestacks; use the controls on your flares. The flares were 
designed to burn gases as they come off, but I have pictures 
that will show otherwise. Sometimes you can see flares 25-30 
feet up in the air, and they are just burning wild, simply 
because too much product was coming to the flare too soon, and 
they had to burn off thousands of tons of gasoline and other 
products because it would go all over the ground at the 
refineries. And then the flare is just emitting all of this 
smoke, black smoke, I mean day-in and day-out sometimes for 
like 10-12 hours at a time, and tons and tons of sulfur dioxide 
is dumped.
    Sometimes you can just go outside and you could just rub 
your hand across your car and then you have all this soot and 
different chemicals on your fingers. So you can imagine what is 
going on into our lungs.
    Senator Jeffords. That is right. Thank you very much.
    Mr. Slaughter, your testimony is that NSR reform can make 
the difference between life and death for many facilities. It 
is clear that Mr. Kelley and other members in the affected 
communities feel that it will make the difference between life 
and death for many people. Have you and your members tried to 
meet with the community groups in the last year to see if there 
are NSR reforms that everyone could support?
    Mr. Slaughter. Well, one, the refinery industry, the owners 
of the individual facilities quite pervasively have community 
groups around individual facilities that they meet with and 
have a continuing relationship with. I think one of the 
problems here is that a number of these matters that are being 
discussed today by Mr. Kelley are not involved in the NSR 
issue. They are involved in these other regulatory controls 
that actually deal with emissions at facilities. The toxic 
emissions, for instance, would be subject to other controls. 
The facilities are very heavily controlled. I can tell you that 
the facilities that are in Texas are subject to some very 
stringent new requirements that are part of the new State 
implementation plan, and basically heavy industry facilities 
across America are very closely monitored.
    We have also shown the number of new proposals to change 
fuels and also do additional things at our plants that are 
required of us over the next decade. All of those will 
basically require discussion of what the emissions 
characteristics of the facilities are, and in most of those 
cases there will be input from the local community.
    Senator Jeffords. Mr. Harper, you said that PALs should be 
set to reflect the air quality improvement needs of an airshed. 
How would that work if a PAL is locked in for 10 years as 
proposed by the Administration?
    Mr. Harper. Mr. Chairman, what I understand is in the 
Administration proposal, it is not actually all that different 
in most respects from what was in the previous Administration's 
proposals. In fact, in one respect it is more cautious, and 
that is the previous Administration was willing up until the 
very last moment to promulgate an allowables PAL provision, 
which the current Administration has decided to put out for 
further comment.
    But part of what we understand to be the way the current 
Administration's proposal would work is not that much different 
than the way it has worked in our experience. The 10-year, you 
know, highest 2 years in the last 10 years is the starting 
point. It is a default or basic guideline for setting the cap 
baseline. In our experience, because PALs are voluntary, that 
is only the starting point for the negotiation. What States and 
permit authorities at the local level do is they look at actual 
emissions and from the start you are giving up the difference 
between your actuals and your allowables. In our case, it has 
often been a very substantial number. So that potential to 
amend is taken off the table from the get-go.
    Then you look at your baseline, whatever the baseline is in 
the State program--the baseline that EPA is now proposing, the 
highest 2 years in a 10-year period. We think that that is 
reasonable. In our industry, cycles are pretty quick. In other 
industries, cycles are much longer. So 10 years provides for 
all different kinds of situations.
    What you then do, at least in our experience and what we 
think will happen under the current regulation or current 
proposals as we understand it will operate, is the area will 
take that baseline. They will look at their air quality 
monitoring. They will look at their SEP and what is required. 
They will set a baseline. They will set a cap. As Eric 
mentioned, that is good for 10 years, but that is a little bit 
of a misnomer. As we understand the process will work, and we 
have no problem with this, over the lifetime of the PAL permit, 
the 10-year period, adjustments can be made downward and we 
have no problem with adjustments being made downward on the cap 
if two conditions apply. No. 1, the air quality need of the 
region is such that it requires emission reductions. As I 
stated in my testimony, in Portland we gave up a substantial 
percentage of our cap voluntarily. No. 2, PAL sources should 
not be treated any differently than any other sources. So if a 
permitting authority needs to reduce its emissions by 10 
percent area-wide or whatever the number is, and they treat PAL 
sources the same as non-PAL sources and ask everybody to pony 
up emissions reductions, we do not have a problem. We 
understand the Administration's proposal would allow the States 
to make adjustments.
    We also do not have a problem as Intel with downward 
adjustments being made in the cap during that 10-year period if 
new requirements come into play. So if there are new air 
quality requirements that will apply to a facility, we have no 
problem with those getting incorporated into the cap. We just 
don't want to have a willy-nilly reduction or a reduction that 
is targeted specifically at PAL sources and does not treat PAL 
sources equivalent with others.
    Senator Jeffords. Thank you.
    Mr. Walke, I understand that the NRDC has been 
participating in good faith and with the previous 
Administration on NSR reforms that might actually benefit the 
environment and industry. What happened to that process?
    Mr. Walke. Well frankly, Chairman Jeffords, we had an 
election in the year 2000, and the industry decided that they 
could get a better deal with the new Administration, and those 
discussions came to a halt. My organization had been in 
constructive discussions with even some more progressive 
members of industry to design PALs, as Steve has mentioned, 
that would have declined over time, bringing needed air quality 
benefits to areas. But those discussions fell by the wayside, 
and instead this Administration has announced the intent to 
adopt a PAL that would grant perpetual immunity from New Source 
Review. We refer to this approach as the grandfather-on-
steroids, because it allows these grandfathered facilities to 
pollute at the levels that they have been for time immemorial 
without cleaning up. That is a far cry from the constructive 
dialogs that we had.
    By the same token, in those stakeholder discussions, there 
was very strong agreement among State air regulators and NRDC 
for the elimination of various loopholes that exist under the 
New Source Review program. EPA under the Clinton Administration 
shared those desires in part, and we were on a constructive 
road to eliminate some of those loopholes in exchange for some 
flexibilities for industry. That consensus has also fallen by 
the wayside.
    Finally, the provisions of the Clinton proposals that have 
been mentioned so frequently here in ostensible support of the 
argument that the Bush Administration is doing something no 
different from the Clinton Administration is really quite 
striking and disingenuous. The Clinton Administration did not 
adopt the changes that the Bush Administration is going to. In 
part they did not because there was considerable opposition 
from State air regulators, which is reflected in the document 
that I have submitted to the record in relation to the Bush 
Administration's changes, and considerable opposition from 
environmental and public health organizations.
    The truth is that this Administration has adopted a package 
that abandoned that stakeholder discussion process, the Federal 
Advisory Committee process, abandoned progress that was being 
made to reach consensus, and has adopted a set of so-called 
reforms that are unilaterally favorable to industry and that 
weaken the air quality protections of the New Source Review 
program. That is what happened.
    Senator Jeffords. Mr. Elliott, I will give you a chance to 
make the last comment. Do you have something you would like to 
add to your testimony, or from what you have heard from the 
others in the last few minutes?
    Mr. Elliott. Gee, Mr. Chairman, I was all prepared for all 
the difficult questions you might ask me, but that one. I would 
say that we can replace NSR with a trading system for the 
electric utility industry for existing plants. The question 
then becomes what are you going to do for the other plants. I 
think there we either should make a judgment that their 
contribution is sufficiently insubstantial that we really don't 
need to regulate them in order to achieve our air quality 
goals, which is basically the decision that as made in the NOx 
SIP Call, as you are aware.
    Or alternatively, I think if we are going to keep NSR for 
plants outside the utility industry, we need both clear 
triggers and clear safe harbors. If there is anything that is 
unbalanced about the Bush Administration proposals it is that 
it is very clear on some of the safe harbors, it is still not 
equally clear about the triggers. I think that leaving aside 
the past history of the last 40 years, the reason that the NSR 
program does not work is that it is too confusing. It is too 
uncertain as to when it really is triggered for a plant. I have 
represented some plants outside of the utility industry in 
Connecticut, and talked to the plant people. We have settled 
those cases. People made changes to the plant and they just had 
no idea if this triggered NSR.
    So we have really got a trap for the unwary here. If you 
are going to keep NSR as part of the overall toolbox for 
existing plants, you need a very clear trigger. And you have 
got a very clear trigger in your bill. I forget the last 
section number--is it section 111 or section 711 or 743? I 
don't remember--it is the very last one. But it basically says, 
hey, after 40 years, you are subject in the electric utility 
industry to BACT--best available control technology.
    I think the flaw in the bill, if I may be so bold, is that 
it also preserves the NSR program as it is currently written. I 
think if we could get clear triggers to people as to at what 
point an existing point is required to meet the same standards 
as a new plant, this is something I think people could live 
with. The electric utility industry as I understand it, and I 
am not a spokesman for the electric utility industry, but as I 
understand it they proposed a number of different off-ramps or 
ways to deal with this. A lot of the States have legislated 
ways to deal with it.
    I think it is a good thing to have clear safe harbors, but 
I also think we need clear triggers, and the only way the NSR 
program is going to work if there is a very simple bright line. 
Really, I do regard Eric Schaeffer as a friend and somebody 
whose public service I very much respect, but I think the thing 
that is wrong in Eric's approach, and it is very typical of 
enforcement attorneys, is it is a retrospective approach. You 
know, you go in and make a case after the fact. In order for 
these programs to work and actually clean up the air, you have 
to send very clear signals to people in advance. This is what 
was wrong with the Superfund program until it was fixed by the 
Clinton Administration. It was a very retrospective program. 
You balanced nine factors. You dealt with each individual 
Superfund site as if you had never seen one before.
    We got nowhere. It was a tremendous morass. And then much 
to their credit, the Clinton Administration administratively 
fixed that program by having much, much clearer standards, much 
clearer triggers. Once you have clear triggers for the 
regulated community, I think by and large people will comply 
with the law and you will get a lot of voluntary action to 
comply with the law. The difficulty that we have got with the 
NSR program, the reason that it does not work, is that when you 
say that we are going to--you trigger NSR based on a balance of 
multiple factors. Imagine if you had a tax deduction and 
instead of having a very clear safe harbor for what it takes to 
take a tax deduction, suppose the tax code says, well, we 
decide whether or not you get this tax deduction by striking a 
balance of four or five different factors and weighing and 
balancing them in the individual case. Judges are inclined to 
do that often because it makes it easy for them. They do not 
have to decide something comprehensively. But I think the 
problem with NSR and the reason that it does not work is as of 
now, we have multiple factors. If it going to work and people 
are going to be able to comply with it, it is going to need 
both clear triggers and clear safe harbors.
    Senator Jeffords. Well thank you very much for your 
participation and the participation of all of you. It has been 
a long day, longer for me, I think, but maybe sitting and 
listening all that time is even harder.
    We take our duty and obligation very seriously, and so I am 
going to reserve the right to pepper you with questions by 
mail, as the other members under our rules have to do, but I 
would not sit by the mailbox, but you might expect some.
    Thank you all. It has been extremely helpful and I assure 
you that this committee is going to all it can to try to come 
up with a rational program and make sure that the 
Administration has all the help it needs to come up with the 
right answers.
    Thank you very much.
    [Whereupon at 3:18 p.m., the committees were adjourned, to 
reconvene at the call of their respective chairs.]
    [Additional statements submitted for the record follow:]

  Statement of Senator Baucus, U.S. Senator from the State of Montana

    Chairman Leahy and Chairman Jeffords, I apologize for being 
unable to attend this hearing today. I had to chair a hearing 
in the Senate Finance Committee and attend another hearing in 
the Senate Agriculture Committee. I just couldn't be in three 
places at once. Thank you for allowing me to submit this 
statement for the record.
    The debate over New Source Review (NSR) has become 
increasingly intense, confusing and complex. I applaud you 
both, Chairman Leahy and Chairman Jeffords, for holding this 
hearing to help us clarify what is truly at issue in this 
debate, and to better understand EPA's proposed NSR reforms and 
how those reforms could impact public health and the 
environment.
    I think we all can agree with the ultimate goals of the NSR 
program, which put simply, are to encourage the continuous 
evolution of pollution control technology, and to make sure 
that as older power plants reach the end of their useful life, 
they are gradually replaced by plants with the newest, and most 
up to date pollution control technology. This has obvious 
benefits for the environment and public health, as harmful 
emissions are theoretically reduced over time. It also attempts 
to level the playing field for new plants, while giving older 
plants some flexibility in complying with stricter pollution 
control requirements that involve significant capital 
investments.
    However, it does seem pretty clear that many folks believe 
the Administration of the NSR program could be improved, that 
currently, the program is complex and difficult for State 
agencies to administer. Industry also claims the current 
program blocks them from making necessary environmental or 
energy efficiency improvements at their plants.
    Therefore, maybe it is time for Congress to take a look at 
the effectiveness of the current NSR program, and consider 
whether it should direct EPA to make any changes. But, let me 
very clear, if any changes to the NSR program are necessary, 
they should relate to reducing the administrative burden on 
States and industry, in order to make the program operate more 
efficiently and effectively. In no way should administrative 
changes to NSR lessen the impact of the NSR program on reducing 
harmful air emissions over time. In no way should NSR 
``reforms'' relieve industry of the basic obligation to install 
the most up-to-date pollution controls if they modify their 
operations and increase their emissions.
    I know that the devil is in the details. But, I am 
concerned that the Administration's proposed NSR reforms go too 
far and will negate Congress' intent in crafting New Source 
Review. Therefore, I am pleased we will have this hearing 
record to better understand what the Administration believes 
the impacts of its proposed NSR reforms will be on public 
health and the environment and on current NSR enforcement 
actions, and how States, industry and public interest groups 
view the impacts of those reforms.
    Thank-you again, Chairman Leahy and Chairman Jeffords, for 
holding this hearing and allowing me to submit this statement 
for the record.
                              ----------                              


   Statement of Hon. Ron Wyden, U.S. Senator from the State of Oregon

    Businesses regulated by the New Source Review (NSR) program 
have legitimate interests. They want certainty, streamlining, 
and fairness in the permitting process.
    But the only certainty I see in the Administration's New 
Source Review proposal is increased air pollution.
    EPA's proposal breaks the clean air commitment made by 
industry, Congress and the first Bush Administration in the 
1990 Clean Air Act Reauthorization. It also brazenly undercuts 
key enforcement actions that EPA has brought against several 
utilities. They are proposing a definition of a routine 
maintenance, repair, and replacement that would allow, for 
example, a $1-billion refinery to upgrade its plant by as much 
as $150 million per year without triggering new emission 
controls. EPA's proposal is another step back in the 
Administration's ongoing retreat from our country's landmark 
environmental laws.
    EPA has missed an opportunity to provide a win-win 
situation for industry and the environment. NSR done right 
could both increase energy efficiency and reduce pollution. It 
could provide certainty, quick turnaround, and protect the air.
    I know this can be done because we do it in Oregon. For 
over 20 years, Oregon's new source review program allows 
sources to make changes quickly, and it protects air quality. 
Oregon's system is a ``Plantwide Applicability Limit'' or PAL; 
and it addresses all the problems that have been hashed back 
and forth for the last 10 years in EPA's NSR reform process.
    Intel has a plant in the Portland area and they are quite 
happy with Oregon's program, as you will hear from Mr. Harper 
today. In fact, Intel should be commended for their voluntary 
donation of some of their emissions of volatile organic 
compounds. Thanks to reductions from companies like Intel in 
the Portland area, we have been able to be reclassified from an 
ozone nonattainment area to an attainment area.
    Let me be clear, however. EPA's proposal for PAL doesn't 
offer the protections and improvements that Oregon's program 
does. I think it's important to point out that Oregon wants to 
keep this area in attainment, and has changed its PAL program 
so that where companies make a substantial amount of emission 
reductions, the emissions ``cap'' under a company's PAL is now 
reduced so that company's emission reductions are ``locked 
in''. The company's limit has been reduced.
    In addition, Oregon's system doesn't let a company increase 
its pollution based on phantom emission reductions nor does it 
allow companies to ``inflate'' its baseline emissions by 
selecting the highest 2 years over the past 10 years.
    And unlike EPA's PAL, approach, all new sources or 
modifications in Oregon must go through our system. EPA offers 
the States a menu of options. Obviously, it should be a State's 
choice to use a PAL system or not. But once a State chooses a 
PAL system, it should apply uniformly. Companies should not be 
given the option of picking the approach that allows them to 
minimize reductions and controls as EPA would allow them to do.
    I think the Bush Administration has missed the point, and 
an opportunity. Rather than relaxing rules and weakening 
enforcement, EPA should be ensuring that the State and local 
agencies responsible for issuing NSR permits have the people 
and resources to do the job right. Sound and reasonable 
permitting decisions will both assure the regulatory certainty 
that business is seeking and maintain clean air protections.
    EPA said it themselves: an EPA official recently stated 
many problems with NSR stem from the responsible personnel at 
the State and local agencies being ``the last ones hired''. 
They are very young, the NSR work assignment is frequently 
viewed ``entry level'' and undesirable and at the earliest 
opportunity the more ambitious personnel are ``promoted out'' 
of NSR. The result of this lack of experience, mentoring, and 
institutional memory is a cumbersome regulatory process at some 
State and local air permitting agencies.
    EPA's solution amounts to a ``Mc-NSR'' approach, where EPA 
is saying `We do it all for you' claiming its package makes the 
process easier to understand for the State and local agencies. 
Staff don't have to think anymore or make difficult decisions; 
the regulations make it all automatic.
    Rather than rewriting regulations and weakening clean air 
protections, the Bush Administration should be looking at the 
real issues associated with NSR, and real solutions. Giving 
bigger exemptions to some emissions sources does not solve air 
pollution problems. In fact, it makes it tougher for States as 
well as industrial sources to meet air quality goals. I, along 
with four other Senators, have recently signed a letter to the 
appropriations subcommittee that funds EPA. We have urged the 
subcommittee to increase funding for State and local air 
pollution control agencies by $25 million above the President's 
proposal.
    These agencies are the gatekeepers with the difficult task 
of balancing statutory environmental protection with economic 
growth. Let's help them do this! Instead of dumbing down the 
law by rewriting the regulations, and endorsing a Clear Skies 
Initiative that essentially eliminates NSR for all power plants 
in the United States, State and local air agencies and the 
public would be better served by investing the resources to 
find the smarter win-win solutions that achieve both our energy 
and environmental goals.
        
        

        Statement of Hon. Maria Cantwell, U.S. Senator from the 
                          State of Washington

    I would like to thank both Chairman Jeffords and Leahy for 
holding this important hearing today and would like to thank 
the members of our panel for taking the time to share their 
expertise and views with us.
    Protecting the air we breathe is fundamental to 
environmental stewardship. When Congress passed the Clean Air 
Act in 1972, it was a great step forward in protecting the 
health and environment of our communities.
    In 1990, Congress and President George H.W. Bush amended 
the Clean Air Act by establishing the New Source Review (NSR) 
program to enhance air quality by regulating pollution from 
energy producers. The EPA set minimum national standards for 
air quality, while States were given the primary responsibility 
for enforcement. Under NSR, older power plants are required to 
minimize pollution by harnessing new protective technology when 
they modernize the rest of their operations.
    In May 2001 Vice President Cheney's Energy Task Force 
recommended a review of NSR, after which time such regulations 
were not enforced. On June 13, 2002, the EPA recommended 
changes in the NSR that would effectively weaken many 
environmental protections. The changes would raise emissions 
limits, selecting the highest base rate of the past 10 years 
and only affecting plants that are currently increasing 
emissions; let companies avoid installing the best available 
pollution technology controls by drastically narrowing the 
definition of ``modification;'' and delay the `Best Available 
Control Technology' implementation by 10 to 15 years.
    Despite the resistance of certain companies, many 
businesses are successfully complying with the Clean Air Act. 
In my State of Washington, the Centralia coal plant has focused 
its efforts on upgrading facilities rather than litigating in 
court. And there can be no doubt that the Clean Air Act has 
improved the nation's air quality. According to a study by the 
Congressional Research Service, the Clean Air Act has lead to 
``noticeable improvements in air quality in recent years;'' 
there are now 42 more metropolitan areas meeting the 1-hour 
ozone standard and 36 more areas achieving the carbon monoxide 
standards (CRS Issue Brief, 7/8/02).
    I am concerned that the Administration's Clear Skies 
proposal ignores these successes and will undermine over a 
decade of progress in protecting our nation's air.
    I am also troubled that this Administration has encouraged 
companies to avoid settlement of current cases in the hopes of 
weaker regulations in the future. State Attorneys General 
pursuing past infractions have been hindered by the 
Administration's public interference. For example, the Federal 
Government has a pending case against the Tennessee Valley 
Authority's NSR violations, which EPA Administrator Christine 
Todd Whitman has referenced as an excuse for other plaintiffs 
to delay settlements. On March 7, 2002, she offered this legal 
advice to the Senate Environment Public Works Committee: ``if I 
were a plaintiff's attorney, I wouldn't settle anything until I 
knew what happened to that case.'' This is unacceptable. The 
EPA and the Justice Department's main focus should be upholding 
and enforcing our environmental laws, not delaying or 
circumventing them.
    The Senate must carefully examine whether the 
Administration's Clear Skies proposal will indeed improve air 
quality. I look forward to the testimony today. Thank you Mr. 
Chairmen.
                              ----------                              

    Statement of Thomas L. Sansonetti, Assistant Attorney General, 
               Environment and Natural Resources Division
                              introduction
    Chairmen Jeffords and Leahy, and Members of the Committees, I am 
pleased to be here today to discuss the Department of Justice's 
enforcement activities on behalf of the Environmental Protection 
Agency's New Source Review or ``NSR'' program. We take the health 
impacts of air pollution seriously and view our enforcement activities 
in this area as an important part of the effort to clean up the air 
that Americans breathe and to protect public health and the 
environment. Accordingly, we in the Department's Environment and 
Natural Resources Division are continuing to prosecute vigorously a 
variety of actions in connection with the NSR program.
    In my testimony today, I will give you some background on the NSR 
enforcement litigation in general and then discuss in greater detail 
our enforcement activities in this area. One of the points that I want 
to convey to you is that there is much more to this program than 
regulation of power plants, and that we have taken a broad-based 
enforcement approach encompassing a number of industries. This approach 
has resulted in significant gains for public health and the environment 
across the United States. In addition, although I will not be 
discussing it in further detail, the Committees should be aware that 
the NSR litigation is only one part of the Environment and Natural 
Resources Division's enforcement docket. We have many other enforcement 
actions focusing on other, non-NSR related portions of the Clean Air 
Act, such as violations of permits, State implementation plans, New 
Source Performance Standards, and National Emission Standards for 
Hazardous Air Pollutants. In addition, we are also actively prosecuting 
violators of the Clean Water Act, the Safe Drinking Water Act, the 
hazardous waste laws and a variety of other environmental laws. We are 
committed to vigorous enforcement of all of the environmental laws as 
well as violations pertaining specifically to the NSR program.
                 history of nsr enforcement litigation
    In 1977, Congress amended the Federal Clean Air Act to add certain 
provisions which have come to be known as the New Source Review or 
``NSR'' provisions. The NSR provisions actually have two parts--the 
Prevention of Significant Deterioration provisions, which apply to 
areas in attainment status for national ambient air quality standards, 
and the New Source Review provisions proper, which apply to areas that 
are in non-attainment status. See 42 U.S.C. Sec. 7470 et seq. and 
Sec. 7501 et seq. Both sets of provisions require that both newly 
constructed sources of air pollution and existing sources that undergo 
``modification'' obtain an NSR permit and install state-of-the-art 
pollution control technology. The Act defines a ``modification'' as 
``any physical change in, or change in the method of operation of, a 
stationary source which increases the amount of any air pollutant 
emitted by such source or results in the emission of any air pollutant 
not previously emitted.'' 42 U.S.C. Sec. Sec. 7411(a)(4), 7479(2)(C), 
7501(4). If the source is in an attainment area, it must use the best 
available pollution control technology, but if it is in a non-
attainment area, it must use the more stringent lowest achievable 
emissions reduction technology. 42 U.S.C. Sec. Sec. 7475(a)(4), 
7503(a)(2).
    In the late 1980's, the Department of Justice began bringing 
enforcement actions for NSR violations against facilities that made 
``modifications'' without obtaining a permit or installing state-of-
the-art pollution controls. Our primary goal in these actions has been, 
and continues to be, the protection of public health and the 
environment by compelling facilities that are in violation of the law 
to install state-of-the-art pollution controls. We also seek the 
imposition of appropriate civil penalties for past violations, as an 
important component of our efforts to discourage non-compliance and to 
ensure a level playing field between those who comply with the law and 
those who fail to do so.
    Over time, working with our colleagues at EPA, we developed a 
strategy of targeting industries that had significant compliance 
problems with regard to NSR requirements and that were major sources of 
air pollution. These industries included the wood products industry, 
refineries, and coal-fired utilities. I would like to describe just a 
few of our recent successes in these sectors.
Wood Products Industry
    The first industry on which we focused in our NSR enforcement 
efforts was the wood products industry. Our first actions concerned 
single facilities. See U.S. v. Louisiana-Pacific Corp., 682 F.Supp.1141 
(D. Colo. 1988). We subsequently filed another action against Louisiana 
Pacific, which was resolved in 1993 by a consent decree that required 
the company to install pollution controls at its facilities nationwide 
and to pay a civil penalty of $11 million. Since that landmark 
settlement, we have had a string of successes in obtaining similar 
settlements from other major wood products manufacturers, such as 
Georgia Pacific and Willamette Industries. In fact, I was privileged to 
announce our most recent success in this sector just a few months ago. 
In March of this year, we filed a consent decree with wood products 
industry giant Boise Cascade Corporation that will require reductions 
of up to 95 percent of the harmful emissions from the company's eight 
plywood and particle board plants, located in Oregon, Washington, 
Louisiana and Idaho. Boise Cascade will also pay $4.35 million in civil 
penalties and has agreed to spend another $2.9 million in supplemental 
controls to reduce emissions at various plants. The State of Louisiana, 
which joined us in bringing this action, will receive a portion of the 
civil penalty.
Refineries
    We have also been very successful in reaching settlements for NSR 
violations with several major refiners. After prevailing at trial on 
the issue of liability, we joined with the EPA and the Wisconsin 
Department of Justice in January to announce a settlement with Murphy 
Oil USA, Inc., which will dramatically cut sulfur dioxide 
(``SO2'') emissions from the company's Superior, Wisconsin 
refinery, and will also improve Murphy Oil's programs to monitor and 
repair leaks of volatile organic compounds and to prevent oil spills. 
Murphy will also pay a $5.5 million civil penalty, the largest ever 
leveled in Wisconsin in an environmental enforcement case; the State of 
Wisconsin will receive $750,000.
    Also, last December, we announced comprehensive environmental 
settlements with Conoco Inc., Navajo Refining Company and Montana 
Refining Company that are expected to reduce harmful air emissions from 
seven U.S. petroleum refineries by more than 10,000 tons per year. One 
consent decree required Conoco to spend an estimated $95-$110 million 
to install the best available technology to control emissions from 
stacks, wastewater vents, leaking valves and flares throughout its 
refineries, while the other required Navajo and Montana Refining to 
spend an estimated $16-$21 million to undertake similar projects. The 
States of Louisiana, Oklahoma, Montana, Colorado and New Mexico joined 
the settlements and are sharing in the civil penalties obtained. 
Attorney General Ashcroft stated that ``[t]hese settlements are a 
victory for the environment and the public,'' and that ``[t]hey 
exemplify the U.S. government's commitment to protect our natural 
resources, to promote cleaner air and to ensure that companies are 
complying with environmental law.''
    These are only a few of the many settlements that we have reached 
with major refiners in the last 18 months and that will ensure cleaner 
air nationwide. Cumulatively, these settlements cover 37 refineries and 
30.6 percent of the nation's domestic refining capacity, and are 
expected to reduce air emissions of nitrogen oxides and sulfur dioxide 
by more than 150,000 tons per year. These settlements also include 
provisions to facilitate the production of low sulfur gasoline and 
diesel fuel, enhance flexibility, and expedite permitting necessary to 
address future needs.
Coal-Fired Utilities
    The Department filed seven enforcement actions in 1999 against the 
owner and operators of coal-fired power plants located in Illinois, 
Indiana, Ohio, West Virginia, Virginia, Georgia, Alabama, and Florida, 
and three additional actions since then for plants located in North 
Carolina, South Carolina, Alabama, and New Jersey. So far, we have 
reached settlements with the Tampa Electric Power Co., and agreements-
in-principle with Virginia Electric Power Company and Cinergy, under 
which these companies agreed to install and operate state-of-the-art 
pollution controls on significant portions of their entire coal-fired 
generating systems.
    Our most recent success in this area came in January, when we 
joined forces with the State of New Jersey by filing an action against 
and reaching a settlement with PSEG Fossil LLC. Under that settlement, 
PSEG will spend over $337 million to install state-of-the-art pollution 
controls to eliminate the vast majority of sulfur dioxide and nitrogen 
oxide emissions from its Mercer and Hudson coal-fired power plants in 
Jersey City and Hamilton, New Jersey. The combined effect of the 
pollution controls will reduce the company's emissions of sulfur 
dioxide (SO2) by 90 percent and its emissions of nitrogen 
oxides (NOx) by more than 80 percent. Overall reductions will be at 
least 36,000 tons of SO2 and 18,000 tons of NOx per year. 
These decreases represent 32 percent of all the SO2 and 20 
percent of all the NOx emitted from stationary sources in New Jersey, 
and 19 percent of all the SO2 and 5 percent of all the NOx 
from all sources in the State, including cars and trucks. In addition 
to the pollution reductions secured by the settlement, PSEG Fossil 
agreed to pay a civil penalty of $1.4 million and to spend at least $6 
million on three pollution reduction projects that will partially 
offset the impact of past emissions. As the Attorney General stated, 
``This important settlement reflects our continuing commitment to 
enforce vigorously the Clean Air Act to protect public health and the 
environment.''
           current status of pending nsr enforcement actions
    We currently have 11 pending enforcement actions in which NSR 
violations are the main issue. Eight actions involve coal-fired power 
plants, and the remaining three involve other industries.
    Of the eight pending power plant cases, five are currently in 
active discovery on liability issues. The first of the five (U.S. v. 
Southern Indiana Gas & Electric Co. (``SIGECO'')) is scheduled to go to 
trial later this year in October. In the other three pending power 
plant cases, the parties are either engaged in settlement negotiations 
(U.S. v. Cinergy Corp. in Indiana) or discovery has been stayed because 
the district courts are awaiting the Eleventh Circuit's decision in TVA 
v. EPA. (U.S. v. Georgia Power Co. and Savannah Power Co. in Georgia 
and U.S. v. Alabama Power Co. in Alabama). TVA v. EPA is a challenge by 
TVA to EPA's 1999 administrative order directing TVA to install 
pollution controls at coal-fired power plants in Kentucky, Tennessee 
and Alabama that have undergone modifications. Although that case has 
been fully briefed and was argued in May 2002, the Eleventh Circuit has 
not reached a decision and recently referred the case to mediation 
until the end of August.
    Seven northeastern States (New York, New Jersey, Connecticut, 
Vermont, New Hampshire, Massachusetts, and Rhode Island) and Maryland 
have joined as plaintiffs in one of the enforcement actions against 
coal-fired power plants (U.S. and State of New York et al. v. American 
Electric Power Co. et al.) New York, New Jersey and Connecticut also 
joined as plaintiffs in U.S. and State of New York et al. v. Ohio 
Edison Co. et al. and in U.S. v. Cinergy Corp.
    A number of citizen and environmental groups also have joined as 
plaintiffs in four of the enforcement actions against coal-fired power 
plants. Citizen plaintiffs in U.S. and State of New York et al. v. 
American Electric Power Co. et al. include Ohio Citizen Action, Natural 
Resources Defense Council, Sierra Club, Clean Air Council, U.S. Public 
Interest Research Group, Izaak Walton League of America, National 
Wildlife Federation, Citizens Action Coalition of Indiana, Hoosier 
Environmental Council, Valley Watch, Inc., Ohio Valley Environmental 
Coalition, West Virginia Environmental Council, Indiana Wildlife 
Federation, and the League of Ohio Sportsmen. Citizen plaintiffs in 
U.S. v. Duke Energy Corp. include the North Carolina Sierra Club, North 
Carolina Public Interest Research Group, and Environmental Defense. 
Citizen plaintiffs in U.S. v. Georgia Power Co. include Physicians for 
Social Responsibility, Campaign for a Prosperous Georgia, U.S. Public 
Interest Research Group, and the Alabama Environmental Council. The 
Alabama Environmental Council is also a plaintiff in U.S. v. Alabama 
Power Co. Finally, Hoosier Environmental Council and Ohio Citizen 
Action have joined as plaintiffs in U.S. v. Cinergy.
            the attorney general's new source review report
    In May 2001 the National Energy Policy called for the Attorney 
General to ``review existing enforcement actions regarding new source 
review to ensure that the enforcement actions are consistent with the 
Clean Air Act and its regulations.'' This review was conducted by the 
Department of Justice's Office of Legal Policy, which issued its report 
in January 2002 (``New Source Review: an Analysis of the Consistency of 
Enforcement Actions with the Clean Air Act and Implementing 
Regulations''). The Office of Legal Policy determined that ``the 
existing enforcement actions are supported by a reasonable basis in law 
and fact,'' and that the Department's Environment and Natural Resources 
Division ``will continue, as it has during the pendency of this review, 
to prosecute vigorously the EPA's civil actions to enforce the new 
source review provisions.'' OLP New Source Review Report, January 2002, 
p. vi. I should also note that our determination does not mean that EPA 
cannot revise NSR regulations in the future. As OLP said in its report: 
``The effect of the Department's conclusion is retrospective. It 
examines only currently pending enforcement actions to determine their 
lawfulness, and expresses no opinion on how the Clean Air Act should be 
enforced in the future. Those policy determinations rest with the 
EPA.''
                               conclusion
    In closing, I would like to assure these Committees that the 
Department of Justice takes very seriously its obligation to enforce 
the existing laws and to protect public health and the environment. As 
directed by the Attorney General, we will continue to vigorously 
prosecute the NSR enforcement actions and to defend the action brought 
by TVA against EPA to the full extent of the law. I would be happy to 
answer any questions that you may have about my testimony.
                               __________
    Responses of Thomas L. Sansonetti to Additional Questions from 
                            Senator Jeffords
    Question 1. Mr. Holmstead said that he met with DOJ attorneys 
regarding the potential negative impact of the NSR reform announcement 
on the enforcement cases. Who did he meet with and when?
    Response. ENRD attorneys have discussed PSD/NSR issues primarily 
with representatives of EPA's Office of Enforcement and Compliance 
Assurance and Office of General Counsel. In addition, we have carefully 
reviewed with EPA each brief filed on their behalf to ensure that the 
brief was consistent with their position. Over time, my staff has also 
answered specific questions on several occasions that were posed by EPA 
staff concerning PSD/NSR issues. Aside from these discussions, my 
Deputy has discussed PSD/NSR reform with Assistant Administrator 
Holmstead and other EPA officials on a number of occasions.

    Question 2. How many cases have been referred to DOJ by EPA for 
prosecution in 2002? How does that compare to the average during the 
Clinton Administration?
    Response. During Fiscal Year 2002 to date, EPA has referred 287 
cases to DOJ for filing civil enforcement actions. The average for a 
similar time period in Fiscal Years 1993-2000 was 283.5 referrals.

    Question 3. Please provide any legal analysis performed by the 
Department in the 6 months prior to the announcement of the NSR Reform 
Package with respect to the potential impact of any elements of the 
announcement on the pending enforcement actions.
    Response. Prior to the announcement being made, the Department did 
not perform a legal analysis of the potential impact of the June 13 
announcement on the pending enforcement actions. Before June 13, staff 
communications took place on various issues raised by EPA staff 
regarding potential issues associated with future reforms.

    Question 4. In the filing on the Southern Indiana Gas and Electric 
Company case, you stated that the entire utility industry had 
constitutionally adequate and advance notice of EPA's interpretation of 
``routine maintenance,'' long before EPA and the Department filed 
enforcement actions in 1999. Is that still your position?
    Response. This matter is currently in litigation, United States v. 
Southern Indiana Gas & Electric Company, S.D. Ind. Civil Action No. 
IP99-1692-C-M/S. Accordingly, the most accurate statement of the 
position of the United States is contained in our briefs to the Court, 
and we stand by those briefs.

    Question 5. You also stated that this advance notice clarified that 
the exemption for routine maintenance is only for trivial or ``de 
minimis situations,'' and applies only on a case-by-case basis to 
activities that are routine for a typical unit. Is that still your 
position?
    Response. This is a matter is currently in litigation, United 
States v. Southern Indiana Gas & Electric Company, S.D. Ind. Civil 
Action No. IP99-1692-C-M/S. Accordingly, the most accurate statement of 
the position of the United States is contained in our briefs to the 
Court, and we stand by those briefs.

    Question 6. How many of the utility modifications which are 
currently subject to DOJ-EPA enforcement actions would not be required 
to install controls if they were allowed to take advantage of EPA's 
announced proposed and final rules for routine maintenance and repair, 
Plant Wide Applicability Limits, and the ``clean unit test''?
    Response. Although EPA has announced that it intends to propose a 
rule or issue a final rule regarding these issues, it has not announced 
what the specific language of the proposed or final rules will be. 
Proposed rules will also be subject to section 307(d) of the Clean Air 
Act which requires formal public notice and an opportunity to comment 
before they can become final. Accordingly, it is not possible to answer 
this question. In any event, as Assistant Administrator Holmstead 
testified at the July 16 hearing, the rule will be prospective in 
nature and is not intended to affect current litigation.

    Question 7. Has DOJ failed to pursue any new NSR enforcement cases 
in fiscal year 2001 or fiscal year 2002 due to lack of resources?
    Response. Within the budget restraints established by Congress, we 
have pursued all new NSR enforcement cases that have been referred to 
us in fiscal year 2001 and fiscal year 2002.
                                 ______
                                 
      Responses of Thomas Sansonetti to Additional Questions from 
                             Senator Leahy
    Question 1. Please provide us copies of the briefs filed over your 
signature, and referred to by Senator Lieberman in his opening 
statement in which the Department of Justice reportedly argued in 
Federal court that any exemption from the New Source Review 
requirements should be ``narrowly construed'' and that utilities 
``indisputably had notice of EPA's interpretation'' of those 
requirements. Also, if those representations are indeed accurate please 
explain why--if the interpretation has not varied and industry had fair 
notice--the NSR requirements need clarification.
    Response. Attached are representative briefs on the points 
identified. As I testified, the Department of Justice's Office of Legal 
Policy undertook a review of the existing enforcement actions regarding 
new source review to ensure that the existing enforcement actions were 
consistent with the Clean Air Act and its regulations. It determined 
that those actions had a reasonable basis in law and fact. However, 
that determination does not mean that EPA cannot revise NSR regulations 
in the future. Because EPA is the Agency responsible for implementing 
the Clean Air Act, it is charged with determining whether future PSD/
NSR reforms are necessary.

    Question 2. In answer to my questions in the joint hearing, you 
stated three times--and without caveat or qualification--that in none 
of the pending NSR cases were defendants backing away from settlement 
in light of the EPA's announcement of its proposed changes to the NSR 
program. How do you reconcile your absolute statement that these 
defendants are not retreating from possible settlements with those same 
defendants' statements that, for example, ``The thinking was, how can 
you do things that will influence NSR and the pending litigation? If 
the Administration recants NSR provisions, the lawsuits fall apart.''
    Response. I stand by my testimony that in the settlement 
negotiation context, we are not aware of defendants backing away from 
discussions in light of EPA's announcement of proposed changes. We have 
consistently stated both publicly and in the context of settlement 
discussions that we will vigorously litigate the NSR enforcement cases 
while welcoming settlement as the preferred method to meet the legal 
standards.

    Question 3. You did not, however, answer my question that preceded 
the discussion referred to in the question above--namely, whether you 
and your lawyers anticipated that defendants in the pending NSR cases 
would begin brandishing the EPA's proposals as support for dismissing 
the suits against them. Did you, and if you did, how did you plan to 
counter those efforts, and how, successful have those counter-efforts 
been? And if you did not, why not, and what are you and your lawyers 
doing in response to these tactics? How have they affected the conduct 
of the on-going discovery, litigation, or settlement discussions, as 
the case may be?
    Response. Based on years of bringing enforcement actions, it is our 
experience that defendants will raise a wide variety of issues in their 
defense. Although we generally can anticipate such issues, e.g. 
potential use of EPA's June 13 announcement, how we respond to them 
depends, among other things, on the context in which they are raised. 
At the time of my testimony, no defendant in any of our NSR cases had 
raised EPA's June 13 announcement of its proposals as a basis for 
dismissal, and that continues to be the case. Since then, one company 
has raised the announcement in a brief, but not in the context of 
requesting a dismissal.

    Question 4. At one point in your testimony, you told me that 
whether announced changes to a Clean Air Act regulation--namely NSR--
midstream in litigation would effect the pending cases would depend 
upon the judge in the individual case. A moment later, you declared 
that you believed that judges would look at existing law at the time 
the issues came before them, and that the proposed changes to NSR would 
not be final at the time of the NSR trials. I would appreciate a clear 
answer: do you believe, as the nations' head environmental litigator, 
that a court could properly consider the proposed changes to NSR 
regulations and practices in determining the outcome, by trial or 
settlement, of the pending cases?
    Response. EPA has not announced what the specific language of the 
proposed rule will be. Once proposed, EPA will follow section 307(d) of 
the Clean Air Act, which requires formal public notice and an 
opportunity to comment before the rule becomes final. As to rules that 
become final in the future, what a particular judge makes of a 
provision in the final rule will be in the context of a particular 
case. However, EPA testified at the July 16 hearing that the changes 
that it makes to the NSR program will be prospective in nature, and are 
not intended to be used in, or have any impact on, current litigation, 
including negotiations. Thus, for purposes of determining liability, 
the existing enforcement actions should continue to be subject to the 
law in place at the time of the violations at issue.

    Question 5a. Mr. Holmstead testified regarding the development of 
the Environmental Protection Agency's New Source Review Recommendations 
and Report to the President. He stated that the Recommendations and 
Report had been the product of ``extensive consultation'' between EPA 
and the Department of Justice. You, however, testified that you are 
``in the litigation business, not policy formation.'' Please answer 
this basic question: How did the Justice Department (leadership and/or 
staff) and the EPA (leadership and/or staff) work together on the 
development of the policy behind, or the actual text of, the 
Recommendations and Report?
    Response. My staff have discussed PSD/NSR issues primarily with 
representatives of EPA's Office of Enforcement and Compliance Assurance 
(OECA) and Office of General Counsel (OGC). In addition, we have 
carefully reviewed with EPA each brief filed on their behalf to ensure 
that the brief was consistent with their position. Over time, my staff 
has also answered specific questions on several occasions that were 
posed by EPA staff concerning PSD/NSR issues. My deputy discussed the 
NSR Report and accompanying list of recommendations with Mr. Holmstead, 
but most of the staff discussions concerning PSD/NSR issues have been 
with representatives of OECA and OGC. However, we did not work on the 
particulars of the policy behind the Recommendations and Report.

    Question 5b. Mr. Holmstead also testified that one of the ``primary 
issues'' discussed in the ``extensive consultation'' between DOJ and 
EPA was what impact the proposed NSR revisions would have on NSR 
enforcement cases, and that his understanding from DOJ was that there 
would be no effect on the cases. Who actually gave that advice?
    Response. ENRD attorneys (have discussed PSD/NSR issues primarily 
with representatives of EPA's Office of Enforcement and Compliance 
Assurance and Office of General Counsel. However, our contact has 
largely occurred in the context of ongoing litigation, including the 
case brought by the Tennessee Valley Authority which was argued this 
year before the 11th Circuit Court of Appeals. For instance, EPA 
reviewed each brief for legal and factual accuracy in that case, and 
attended moot courts and the oral arguments before the Court of 
Appeals. Some of the EPA staff participating in this review were also 
working internally in EPA on PSD/NSR reform. There were also informal 
discussions about PSD/NSR reform between Assistant Administrator 
Holmstead and other EPA officials with my Deputy on several occasions. 
Prior to the announcement being made, the Department did not perform a 
legal analysis of the potential impact of the June 13 announcement on 
the pending enforcement actions.

    Question 6. Mr. Holmstead testified, in answer to one of Senator 
Carper's questions, that EPA had never defined ``routine maintenance, 
repair, and replacement'' by regulation. What is your understanding of 
what that term means?
    Response. Please see the attached brief in which we discuss that 
term.

    Question 7. In answer to a question from Senator Sessions, you 
declared that ``a significant issue'' in the TVA v. EPA case was 
whether the EPA should be estopped from pursuing the case because the 
Agency had been long aware of the alterations made to the power plants 
at issue, and that you would inquire into whether the DOJ attorney 
representing the EPA before the Eleventh Circuit was ethically obliged 
to confess error on that point. What is the result of your inquiry on 
this specific point? More generally, under what circumstances do you 
believe the EPA would be ethically constrained from bringing an NSR 
enforcement action based on the temporal concerns described by Senator 
Sessions?
    Response. Please see the attached letter to Senator Sessions 
addressing this question.

    Question 8. In this hearing, and certainly in the press, 
Administration officials frequently seek to bolster their arguments for 
acceptance of the announced proposed changes to NSR by referring to a 
set of Clinton Administration proposals that are purportedly the basis 
for the Bush Administration changes. Please explain precisely how the 
two proposals differ.
    Response. This appears to be a reference to statements in Assistant 
Administrator Holmstead's testimony, and would be more appropriately 
answered by EPA, the Agency that is responsible for the proposals.
                                 ______
                                 
    Responses of Thomas L. Sansonetti to Additional Questions from 
                           Senator Lieberman
    Question 1. Your Department argued in the Southern Indiana Gas and 
Electric Company case--in a brief to which you were counsel--that ``the 
[routine maintenance] exemption is narrowly construed, in keeping with 
its status as a de minimis exemption.'' Is it your reading of the law 
that the ``routine maintenance'' exemption--which has no basis in 
statute--must be narrowly construed?
    This is a matter currently in litigation, United States v. Southern 
Indiana Gas & Electric Company, S.D. Ind. Civil Action No. IP99-1692-C-
M/S. Accordingly, the most accurate statement of the position of the 
United States is contained in our briefs to the Court, and we stand by 
those briefs.

    Question 2. Your Department also argued in the same brief that 
``EPA [was] not seeking to apply a new interpretation to the 
defendant's conduct. As described above, EPA's interpretation is the 
same one upheld in WEPCO more than a decade ago, before the defendant 
modified its plant.'' Is it your understanding that EPA's 
interpretation of the NSR rules has not changed for more than 10 years?
    This is a matter currently in litigation, United States v. Southern 
Indiana Gas & Electric Company, S.D. Ind. Civil Action No. IP99-1692-C-
M/S. Accordingly, the most accurate statement of the position of the 
United States is contained in our briefs to the Court, and we stand by 
those briefs. It is our understanding that the EPA interpretation at 
issue in the quoted sentence has not changed, and is the same 
interpretation that was upheld in Wisconsin Electric Power Company v. 
Reilly (``WEPCO''), 893 F.2d 901 (7th Cir. 1990).

    Question 3. New York Attorney General Spitzer informs us that the 
Federal judge handling his NSR lawsuit has asked for briefing on the 
effect of these proposed rule changes on the case. Has any judge asked 
for similar briefing in a case to which the United States is a party? 
Is it the position of the United States that this package of final and 
proposed rules should have no effect on the NSR lawsuits?
    Response. No judge has asked for similar briefing in any of the NSR 
enforcement actions in which the United States is a party. Although we 
have not reviewed the proposed rules, Assistant Administrator Holmstead 
stated in his testimony that the proposed rules will be prospective in 
nature and that EPA does not intend for its future rulemaking or 
proposed changes to be used in, or have any impact on, current 
litigation. We note that this position is consistent with the position 
taken by Attorney General Spitzer in response to the Federal judge's 
request in the New York litigation.

    Question 4. When Administrator Whitman testified before the 
Government Affairs Committee on this issue last March, she contended 
that you were ``vigorously enforcing'' these cases, but she was not 
able to point to any enforcement action that did not have its roots in 
the Clinton Administration. Have you initiated any New Source review 
enforcement action, the investigation for which was started in the Bush 
Administration?
    Response. We are continuing to vigorously enforce NSR cases. As I 
testified, the report by the Department of Justice in January 
specifically indicated that we have been, and ``will continue . . . to 
prosecute vigorously the FPA's civil actions to enforce the new source 
review provisions.'' Office of Legal Policy New Source Review Report, 
January 2002. As discussed in greater detail in my testimony, we have 
brought numerous Clean Air Act enforcement cases involving PSD/NSR 
violations. For example, in March of this year, we filed a complaint 
and lodged a consent decree with wood products industry giant Boise 
Cascade Corporation that will require reductions of up to 95 percent of 
the emissions from the company's eight plywood and particle board 
plants, located in Oregon, Washington, Louisiana and Idaho. Boise 
Cascade will also pay $4.35 million in civil penalties and has agreed 
to spend another $2.9 million in supplemental controls to reduce 
emissions at various plants. Also, in January, the State of New Jersey 
joined us in filing an action against and reaching a settlement with 
PSEG Fossil LLC under which PSEG will spend over $337 million to 
install state-of-the-art pollution controls to eliminate 90 percent of 
its sulfur dioxide and more than 80 percent of its nitrogen oxide 
emissions from two New Jersey coal-fired power plants. In addition to 
these pollution reductions, PSEG will pay a $1.4 million civil penalty 
and spend at least $6 million on three pollution reduction projects 
that will partially offset the impact of past emissions. As the 
Attorney General stated in connection with this case, ``This important 
settlement reflects our continuing commitment to enforce vigorously the 
Clean Air Act to protect public health and the environment.''

    Question 5. Attorney General Spitzer also has informed us that he 
has not been able to finalize settlements with VEPCO and Cinergy, 
whereas he previously would have been able to. Has your department 
found a greater reluctance on the part of NSR defendants to settle 
lawsuits?
    Response. As you know, the Department has reached agreements in 
principle with VEPCO and Cinergy to settle NSR claims. Those agreements 
have not yet been successfully translated into final consent decrees 
because of substantive differences that pre-dated EPA's announcement of 
proposed NSR changes. Accordingly, we do not believe that EPA's June 13 
announcement is preventing settlements in the NSR cases. We remain 
willing to settle any case on terms that would meet all legal 
requirements while protecting human health and the environment.
                                 ______
                                 
    Responses of Thomas L. Sansonetti to Additional Questions from 
                           Senator Voinovich
    Question 1. As I questioned during the hearing, I am very 
interested in finding out what preceded the Department of Justice's 
lawsuits. Overnight many companies had become the subject of lawsuits 
under NSR for things that they had been doing for years. Specifically, 
what action caused DOJ to file these lawsuits? Please list and describe 
the details surrounding the 1998 filings.
    Response. With regard to the NSR enforcement actions, as I stated 
in my testimony and as noted in the Department's Office of Legal 
Policy's report on these actions, we began bringing enforcement actions 
under the Clean Air Act's PSD/NSR provisions in the late 1980's. The 
first industry on which we focused our NSR enforcement efforts was the 
wood products industry. See U.S. v. Louisiana-Pacific Corp., 682 F. 
Supp. 1141 (D. Colo. 1988) (action focused on a single facility). We 
subsequently filed another action against Louisiana Pacific, which was 
resolved in 1993 by a consent decree that required the company to 
install pollution controls at its facilities nationwide and to pay a 
civil penalty of $11 million. These actions, and our civil cases more 
generally, are based on analysis and inspections by EPA and state 
agencies. EPA reviews industry and company compliance with the law and 
recommends enforcement actions based on research identifying particular 
industrial sectors as significant sources of air pollution and on 
investigations identifying particular plants as being in violation of 
the Clean Air Act. The wood products, and pulp and paper industries 
were the subject of major enforcement efforts before the actions 
against the utilities were commenced, and the utility and oil refining 
sectors are more recent industrial sectors identified in this way. In 
accordance with the process that we have followed in all of our PSD/NSR 
cases, the current lawsuits against the utility companies were the 
result of an extensive investigation and analysis by EPA and an 
extensive legal and factual review by the Department's attorneys.

    Question 2. How did the Department of Justice choose which 
industries and plants to bring enforcement actions against? Is the 
Department planning more action?
    Response. Please see the response to the preceding question. The 
Department of Justice will continue to evaluate and analyze referrals 
by the Environmental Protection Agency that involve violations of the 
law to determine whether the case is appropriate for filing.
                                 ______
                                 
    Responses of Thomas L. Sansonetti to Additional Questions from 
                             Senator Graham
    Question 1. Given the Administration's proposed NSR changes, how 
will EPA and DOJ interpret the application of NSR to existing lawsuits 
and signed consent decrees, which have been based on previous NSR 
policy?
    Response. As Assistant Administrator Holmstead testified on EPA's 
behalf, ``the changes that [EPA] make[s] to the NSR program will be 
prospective in nature, and EPA will continue to vigorously pursue its 
current enforcement actions. Accordingly, EPA does not intend for its 
future rulemaking or proposed changes to be used in, or have any impact 
on, current litigation.'' The existing lawsuits and signed consent 
decrees will continue to be subject to the law in place at the time of 
the violations at issue.

    Question 2. If the proposed NSR changes permit sulfur dioxide and 
nitrogen oxide trading and these changes are included in the final rule 
how will this affect existing consent decrees and/or negotiations where 
limitations on emissions trading is planned?
    Response. We have been advised by EPA that it does not intend to 
include such provisions as part of the proposed NSR changes.
                                 ______
                                 
      Response of Thomas Sansonetti to Additional Questions from 
                            Senator Cantwell
    Question 1. During your testimony, you said that you did not 
believe the behavior and public comments of Administration officials 
has done any harm to enforcement actions and current trials. But 
Secretary Whitman previously told this committee that ``if I were a 
plaintiff's attorney, I wouldn't settle anything until I knew what 
happened to the case [TVA].'' Do you think that discouraging settlement 
of Federal cases in the hopes of new, weaker regulations interferes 
with your enforcement abilities?
    Response. I was not present at the hearing in question and do not 
know the context of the Administrator's response. In Tennessee Valley 
Authority v. EPA, currently pending in the 11th Circuit Court of 
Appeals (No. 00-15936), the Department of Justice has argued on behalf 
of EPA in significant briefs during this Administration, and in oral 
argument before the Court on May 21, 2002, that TVA has violated the 
Clean Air Act PSD/NSR requirements. The Administrator has clearly 
stated on other occasions her firm support for enforcement of all laws, 
her support for the ongoing litigation, and her continued emphasis that 
a prompt settlement would be in the best interest of all parties. In 
support of this view, a utility, PSEG Fossil LLC, has settled a case 
this year. In that case, PSEG will spend over $337 million to install 
state-of-the-art pollution controls to eliminate 90 percent of its 
sulfur dioxide and more than 80 percent of its nitrogen oxide emissions 
from two New Jersey coal-fired power plants. In addition to these 
pollution reductions, PSEG will pay a $1.4 million civil penalty and 
spend at least $6 million on three pollution reduction projects that 
will partially offset the impact of past emissions. Further, as I 
stated at my hearing and elsewhere, we will continue to vigorously 
prosecute the NSR enforcement actions, which are moving forward to 
trial on schedules established by the courts independent of any hopes 
that defendants might harbor about potential new regulations. We stand 
ready to resolve those actions by settlement as appropriate.
                                 ______
                                 
                                U.S. Department of Justice,
                                   Washington, DC., August 9, 2002.
Hon. Jeff Sessions,
U.S. Senate,
Washington, DC.
    Dear Senator Sessions: Thank you for your July 17, 2002 letter to 
Assistant Attorney General for Environment and Natural Resources Tom 
Sansonetti regarding the recent Eleventh Circuit Court of Appeals oral 
agument in the case of Tennessee Valley Authority, et al. v. 
Environmental Protection Agency. During Mr. Sansonetti's recent 
testimony before the Senate Judiciary Committee, and in your letter, 
you asked that he confirm the accuracy of certain statements attributed 
to Department of Justice (DOJ) attorneys during the oral argument on 
May 21, 2002.
    Your letter does not contain a specific quote, but indicates a 
comment was made during oral argument regarding the Environmental 
Protection Agency's (EPA) knowledge of the Tennessee Valley Authority's 
(TVA) projects that are at issue in the litigation. We have discussed 
this matter with the attorneys who handled the oral argument, as well 
as with DOJ and EPA attorneys who attended the argument. The issue you 
describe was the subject of a very short colloquy between a DOJ 
attorney and the Court regarding EPA's enforcement activities during 
the 1990's, and why the administrative action against TVA was not 
initiated earlier.
    At Mr. Sansoneti's request, the Section Chief with responsibility 
for the TVA matter, reviewed this statement and the briefs submitted by 
the United States concerning this specific issue. After reviewing this 
matter with her, he is convinced that the very limited statements made 
by DOJ attorneys to the Court on this matter were consistent with the 
arguments on this point set forth in the briefs filed in the case, and 
are accurate. For your convenience, I am enclosing a copy of the brief 
filed on behalf of EPA (see pages 79-86).
    Because the New Source Review (NSR) program is a preconstruction 
permitting program, a pollution source is required to provide 
information to EPA before the source undertakes a proposed major 
modification--either through a permit application, a request for an 
applicability determination, or other inquiry to the Agency--so that 
EPA and State authorities can assess the information and determine if 
emissions will be increased and if the NSR requirements apply. Our 
brief describes how EPA was generally aware of some improvement 
projects like TVA's in the utility industry in the late 1980's; 
however, the administrative record demonstrates that the utility 
industry (including TVA) did very little to provide EPA or State 
authorities with critical information about the nature and extent, 
purpose, frequency, and cost of those projects, especially with regard 
to the projected emissions from those projects. Such information is not 
typically obtained through general permit compliance inspection by the 
Agency or State authorities. The Agency only obtained the necessary 
information about these large-scale projects after specifically 
requesting it from several utility companies and TVA; the current 
enforcement actions were commenced thereafter.
    During the oral argument colloquy noted above, our attorneys 
explained that EPA turned its NSR enforcement resources to coal-fired 
power plants in the mid-to-late 1990s after first pursuing a series of 
NSR enforcement actions in other industry sectors, including wood 
products, pulp and paper, steel mini-mills, and refineries beginning in 
the late 1980s. For your convenience, I am enclosing the relevant 
portion of the Attorney General's January 2002, Report to the President 
that addresses EPA's past industry-by-industry NSR enforcement 
efforts\1\. Of course, regardless of EPA's level of knowledge about 
utility industry projects at a particular point in time, the law is 
clear that, except in extremely limited circumstances typically 
involving affirmative misconduct of a government employee, the 
doctrines of estoppel and laches do not prevent the government from 
taking enforcement actions to protect human health and the environment.
---------------------------------------------------------------------------
    \1\ See ``New Source Review: An Analysis of the Consistency of the 
Enforcement Actions with the Clean Air Act and Implementing 
Regulations,'' at 10-14.
---------------------------------------------------------------------------
    I appreciate your interest in these matters, and am happy to be of 
further assistance if you have any additional questions.
            Sincerely,
                                          Daniel J. Bryant.
                                        Assistant Attorney General.
                               __________
           U.S. Department of Justice, Office of Legal Policy
   New Source Review: An Analysis of the Consistency of Enforcement 
 Actions with the Clean Air Act and Implementing Regulations, January 
                                  2002
                           executive summary
    The Clean Air Act Amendments of 1970 required major stationary 
sources of air pollution to install devices to reduce pollution. 
Sources existing at the time were not required to retrofit pollution 
controls, but would be required to install such controls if and when 
they modified their facilities. In 1977, Congress amended the Clean Air 
Act to establish the new source review program, which requires 
preconstruction review and a permit for almost any major new source or 
modification of an existing source (if air pollution.
    The current controversy over the new source review program centers 
on what constitutes a ``modification.'' If a facility's construction 
project is a modification, then it is subject to the new source review 
process and the requirement that pollution controls be installed. If 
the project is not a modification, then there is no need for a permit 
or new pollution controls. The Clean Air Act defines ``modification'' 
to be ``any physical change in, or change in the method of operation 
of, a stationary source which increases the amount of any air pollutant 
emitted by such source or which results in the emission of any air 
pollution not previously emitted.''\1\
---------------------------------------------------------------------------
    \1\ 42 U.S.C. Sec. 7411(a)(4)(1994).
---------------------------------------------------------------------------
    Between 1975 and 1980, the Environmental Protection Agency 
(``EPA'') promulgated regulations which elaborate on the meaning of 
``modification'' under the Clean Air Act. Together, the various 
statutory and regulatory requirements provide that physical changes 
that constitute routine maintenance, repair, or replacement are not 
modifications subject to the new source review permitting process. In 
addition, even physical changes considered to be modifications do not 
trigger new source review requirements if they do not result in a 
significant emissions increase.
    [copy missing]
    enforcement actions that a particular plant modification is 
``major,'' or encompasses more than ``routine maintenance.''
    In light of this review's conclusions, the Department's Environment 
and Natural Resources Division (``ENRD'') will continue, as it has 
during the pendency of this review, to prosecute vigorously the EPA's 
civil actions to enforce the new source review provisions. And it will 
continue, as it has during the pendency of this review, to pursue talks 
to settle those actions where appropriate on mutually acceptable terms. 
Because the existing enforcement actions are supported by a reasonable 
basis in law and fact, any decision to withdraw, terminate, or 
otherwise circumscribe them would rest in the discretion of ENRD, which 
must assess the relative strengths and weaknesses of a given case.

                      Frequently Used Abbreviations
------------------------------------------------------------------------

------------------------------------------------------------------------
AAR.......................................  Association of American
                                             Railroads
APA.......................................  Administrative Procedure Act
CAA.......................................  Clean Air Act
ENRD......................................  Environment and Natural
                                             Resources Division
EPA.......................................  Environmental Protection
                                             Agency
FERC......................................  Federal Energy Regulatory
                                             Commission
FRA.......................................  Federal Railroad
                                             Administration
NAAQS.....................................  National Ambient Air Quality
                                             Standards
NSPS......................................  New Source Performance
                                             Standards
NSR.......................................  New Source Review PSD
                                             Prevention of Significant
                                             Deterioration
PSD.......................................  Prevention of Significant
                                             Deterioration
TECO......................................  Tampa Electric Company
TRAC......................................  Telecommunications Research
                                             Action Center
TVA.......................................  Tennessee Valley Authority
VEPCO.....................................  Virginia Electric Power
                                             Company
WEPCO.....................................  Wisconsin Electric Power
                                             Company
------------------------------------------------------------------------

    The CAA of 1977 also established a program for major emitting 
facilities located in nonattainment areas of the country (known as the 
``nonattainment NSR'' program).\42\ The nonattainment NSR requirements 
parallel the PSD requirements described above, but require more 
stringent pollution controls for major emitting facilities in 
nonattainment areas.\43\ In 1980, EPA promulgated regulations to 
implement the nonattainment NSR requirements regarding major 
modifications.\44\ These regulations also provided an exception for 
``routine maintenance, repair, and replacement.''\45\
---------------------------------------------------------------------------
    \42\ See 42 U.S.C. Sec. Sec. 7501-15 (1994).
    \43\ See generally 40 C..F.R. Sec. 52.24 (2001).
    \44\See 45 Fed. Reg. 52,676, 52,747 (Aug. 7, 1980).
    \45\ 40 C.F.R. Sec. 52.24(f)(5)(2001). This regulation states, in 
pertinent part: Major modification means any physical change in 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. . . . A physical change or change 
in the method of operation shall not include: (a) Routine maintenance, 
repair, and replacement . . .
---------------------------------------------------------------------------
    EPA has not promulgated any regulations specifying what types of 
projects should be considered routine, and therefore exempt from the 
new source review process. In 1994, EPA staff circulated an informal 
draft proposal that would have equated ``routine'' with ``minor'' 
modifications.\46\ This draft stated that ``routine activities would 
generally include . . . minor maintenance or repair of parts or 
components and the replacement of minor parts or components with 
identical or functionally equivalent items.\47\ Industry participants, 
however, apparently objected to this suggested definition, and EPA 
chose not to propose this language in any subsequent rulemakings.
---------------------------------------------------------------------------
    \46\ See New Source Review Reform 106-09 (EPA, Preliminary Staff 
Draft 1994).
    \47\ Id.
---------------------------------------------------------------------------
B. Previous Enforcement Actions
    The CAA's basic enforcement provisions are found in section 
113,\48\ which provides for both administrative and judicial 
enforcement proceedings. EPA has the authority to issue administrative 
compliance and penalty orders for violations of, among other things, 
the CAA, its implementing regulations, or a permit. In addition, EPA 
can seek injunctive relief and civil monetary penalties by referring 
matters to the Department for filing in the appropriate U.S. District 
Court. Courts may impose penalties of up to $27,500 per day for each 
violation. CAA Sec. 113(e) specifies the criteria to be used by EPA and 
the courts in determining the appropriate amounts of penalties, 
including ``the economic benefit of noncompliance, and the seriousness 
of the violation.''\49\
---------------------------------------------------------------------------
    \48\ See 42 U.S.C. Sec. 7413 (1994).
    \49\ Id. Sec.  7413(e)(1).
---------------------------------------------------------------------------
    EPA's enforcement of the new source review program through judicial 
proceedings began in the late 1980's. The earliest cases involved 
violations at individual facilities. For example, an enforcement action 
was filed against the Louisiana Pacific Co., which constructed a new 
wood-products manufacturing facility, because it neither applied for a 
PSD permit nor installed pollution control technology. In United States 
v. Louisiana-Pacific Corp.,\50\ the court ruled that the company had 
violated the applicable PSD requirements.
---------------------------------------------------------------------------
    \50\ 682 F. Supp. 1141 (D. Colo. 1988).
---------------------------------------------------------------------------
    EPA then investigated other wood-products manufacturers and 
concluded that some had committed similar PSD violations. As a result, 
enforcement actions were brought and settlements were reached that 
required multiple facilities owned and operated by Louisiana Pacific, 
Georgia Pacific, and Willamette Industries to obtain PSD permits and 
install pollution controls in 1993,\51\ 1996,\52\ and in 2000.\53\ 
Further, in 2000, EPA issued a Notice of Violation for alleged new 
source review violations to Boise Cascade, and entered into settlement 
negotiations.
---------------------------------------------------------------------------
    \51\ See United States v. Louisiana Pacific, No. CV 93-0869 (W.D. 
La. 1993).
    \52\ See United States v. Georgia Pacific, 960 F. Supp. 298 (N.D. 
Ga. 1996).
    \53\ See United States v. Willamette, No. CV 00-1001 HA (D. Or. 
2001).
---------------------------------------------------------------------------
    The seminal decision on the issue of PSD applicability to 
modifications by electric utilities, however, is the Seventh Circuit's 
1990 ruling in Wisconsin Electric Power Company v. Reilly 
(``WEPCO'').\54\ The WEPCO petitioners challenged the EPA's position 
that modifications intended to restore lost capacity at a coal-fired 
steam generating facility triggered new permitting requirements. The 
company wanted to renovate the plant so it could operate beyond its 
planned retirement date of 1992.\55\ To that end, the company needed to 
repair or replace the turbine-generators, boilers, rear steam drums, 
air heaters, mechanical and electrical auxiliaries, and common plant 
support facilities. To make these repairs, the facility would have to 
take various units out of service for 9-month periods.\56\ The court 
found that EPA was not arbitrary and capricious in considering the 
cost, magnitude, frequency, and nature of these repairs and upheld 
EPA's determination that these changes were not routine.\57\
---------------------------------------------------------------------------
    \54\ 893 F.2d 901 (7th Cir. 1990).
    \55\ See id. at 906.
    \56\ See id. at 906-08.
    \57\ See id. at 913.
---------------------------------------------------------------------------
    One of the key disagreements between EPA and certain electric 
utilities relates to the Agency's enforcement of the CAA between the 
time of the WEPCO decision and the filing of the recent enforcement 
actions in 1999. In the early 1990's, EPA began to evaluate sources of 
significant pollution in a number of major industrial sectors. The EPA 
issued ``Sector Notebooks'' describing these industries and their 
various sources of pollution. In particular, Sector Notebooks were 
issued for the refinery industry in 1995 and for the fossil-fuel fired 
electric generating industry in 1997.\58\
---------------------------------------------------------------------------
    \58\ These notebooks are available via the internet at http://
es.epa.gov/oeca/sector.
---------------------------------------------------------------------------
    In the mid- to late-1990's, EPA began investigations of several 
industrial sectors that were emitting high levels of pollution and that 
were suspected of possible new source review violations. These 
investigations focused on coal-fired power plants, refineries, steel 
mini-mills, wood products manufacturers, and pulp and paper 
manufacturers. As a result of these investigations, a number of 
referrals for judicial enforcement action were sent to the Department 
for consideration.
    EPA began its investigation of the coal-fired electric utility 
industry in 1996. The Sgency sent information requests under CAA 
Sec. 114\59\ to a number of utilities, particularly in the Midwest and 
Southeast, seeking access to the power plants' facilities and their 
documents. EPA believed that the documents were necessary to ascertain 
the facilities' modification histories and to provide information that 
would allow EPA to conduct an emission increase analysis. After 
considering the utilities' records, EPA concluded that a large number 
of facilities had made modifications that triggered the new source 
review permit and pollution control requirements, but had failed to 
seek PSD permits or install pollution controls. EPA notified the 
companies and asked them to enter into settlements to cure these: 
violations without litigation. The facilities, however, strongly 
disputed EPA's allegations.
---------------------------------------------------------------------------
    \59\ 42 U.S.C. Sec. 7414 (1994).
---------------------------------------------------------------------------
    Beginning in 1999, EPA sent a number of referrals to the Department 
for civil judicial enforcement action against the owners and operators 
of some of the largest coal-fired power plants in the country, alleging 
widespread violations of new source review, NSPS, and ``minor source'' 
permitting and pollution control requirements. EPA had made no 
referrals pertaining to the electric utility industry prior to that 
time. The Department's Environmental and Natural Resources Division 
(``ENRD'') reviewed and evaluated the information provided by EPA, 
conducted legal research into the basis for the proposed allegations, 
consulted with EPA and independent experts regarding the proposed legal 
and factual allegations, and concluded that the referrals should be 
filed as enforcement actions.
    After ENRD's review, the Department in November 1999 filed seven 
enforcement actions in U.S. District Courts against: (1) American 
Electric Power Co. (S.D. Ohio); (2) Ohio Edison and First Energy (S.D. 
Ohio); (3) Cinergy Corp. (S.D. Ind.); (4) Southern Indiana Gas & 
Electric Co. (S.D. Ill.); (5) Illinois Power Co. (S.D. Ind.); (6) 
Southern Company affiliates including Alabama Power Co. and Georgia 
Power Co. (N.D. Ga.); and (7) Tampa Electric Co. (M.D. Fla.). The 
complaints alleged that defendants made major modifications to their 
coal-fired power plants without applying for required new source review 
permits and installing required pollution controls. The complaints 
alleged violations at more than 25 power plants located in Ohio, 
Indiana, Illinois, West Virginia, Georgia, Alabama, and Florida. The 
complaints seek both injunctive relief and civil monetary penalties. 
The injunctive relief sought would require the facilities to remedy 
alleged past new source review violations by installing appropriate 
pollution control technology and by applying for permits.
     Due to an adverse jurisdictional decision, Alabama Power Co. was 
dismissed from the case brought against subsidiaries of the Southern 
Company in United States v. Alabama Power Co.
                                 ______
                                 
                       TVA, et al. v. EPA. et al.
    Consolidated Docket Nos. 00-12310-E, 00-12459-E, 00-12311-E, 00-
12458-E, 00-12349-E, 00-12457-E, 00-15936-E, 00-16234-E, 00-16235-E, 
00-16236-E (consolidated under lead Docket No. 0012310-E)
                   certificate of interested persons
    Pursuant to 11th Cir. Rules 26.1-1 through 1-3, 27-1(a)(9), and 28-
1(b), Respondents Christine Todd Whitman, Administrator, United States 
Environmental Protection Agency, and the United States Environmental 
Protection Agency hereby list the following persons and entities that 
Respondents believe, based upon Respondents' knowledge or 
representations by such person or entity, may have an interest in the 
outcome of this case. Respondents have not listed persons or entities 
with regard to which Respondent has no direct indication of potential 
interest other than such person or entity having been listed on the 
Certificate of Interested Persons and Corporate Disclosure Statement of 
another party.
    Alabama Power Company, Petitioner
    American Chemistry Council, Amicii
    John Ashcroft, U.S. Attorney General
    Balch & Bingham LLP, Counsel for Alabama Power Company
    R. Bruce Barze, Jr., Counsel for Alabama Power Company
    Angelia Souder Blackwell, Counsel for Respondents
    F. William Brownell, Counsel for the Tennessee Valley Authority
    Margaret C. Campbell, Counsel for Georgia Power Company
    Harriet A. Cooper, Counsel for the Tennessee Valley Authority
    James C. Cope, Counsel for Petitioner TVPPA
                   statement regarding oral argument
    Respondent United States Environmental Protection Agency (``EPA'') 
has raised substantial jurisdictional arguments both in its merits 
briefs and in its pending Motions to Dismiss, which were carried with 
the case for resolution by the merits panel. Given that the Court must 
satisfy itself of its jurisdiction as a prerequisite to review on the 
merits,\1\ EPA has proposed that argument be structured to hear, first, 
full argument by the parties on the multiple jurisdictional issues, and 
to then hear full argument by the parties on the merits of this matter. 
See EPA Response and Cross Motion Regarding Format for Oral Argument, 
filed. Dec. 20, 2000.
---------------------------------------------------------------------------
    \1\ See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 93-
94 (1998) (courts must resolve jurisdictional issues before considering 
the merits of a dispute); Region 8 Forest Service Timber Purchaser's 
Council v. Alcock, 993 F.2d 800, 807 n.9 (11th Cir. 1993) (same).
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                               __________
Statement of Jeffrey Holmstead, Assistant Administrator, Office of Air 
          and Radiation, U.S. Environmental Protection Agency
    Good morning Chairmen and members of the committees. Thank you for 
the opportunity to talk with you about the New Source Review (NSR) 
program under the Clean Air Act and the proposed improvements we have 
announced.
    There has been longstanding agreement among virtually all 
interested parties that the NSR program can and should be improved. For 
well over 10 years, representatives of industry, State and local 
agencies, and environmental groups have worked closely with EPA to find 
ways to make the program work better. In 1996, EPA proposed rules to 
amend several key elements of the program. In 1998, EPA sought 
additional public input on related issues. Since 1996, EPA has had 
countless discussions with stakeholders and has invested substantial 
resources in an effort to develop final revisions to the program. 
Between the 1996 proposal and January 2001, EPA held two public 
hearings and more than 50 stakeholder meetings. Environmental groups, 
industry, and State, local and Federal agency representatives 
participated in these many discussions. Over 600 detailed comments were 
submitted to EPA between 1992 and 2001.
    In 2001, the National Energy Policy Development Group asked EPA to 
investigate the impact of NSR on investment in new utility and refinery 
generation capacity, energy efficiency and environmental protection. 
During this review, the Agency met with more than 100 groups, held four 
public meetings around the country, and received more than 130,000 
written comments. EPA issued a report to President Bush on June 13 in 
which we concluded that the NSR program does, in fact, adversely affect 
or discourage some projects at existing facilities that would maintain 
or improve reliability, efficiency, and safety of existing energy 
capacity. This report lends strong support to the decade-long effort to 
improve the NSR program.
    We now believe that it is time to finish the task of improving and 
reforming the NSR program. At the same time that we submitted our 
report to the President, we published a set of recommended reforms that 
we intend to make to the NSR program. These reforms are designed to 
remove barriers to environmentally beneficial projects, provide 
incentives for companies to install good controls and reduce actual 
emissions, specify when NSR applies, and streamline and simplify 
several key NSR provisions. We plan to move ahead with this rulemaking 
effort in the very near future. We look forward to working with you 
during this important effort.
                               background
    The NSR program is by no means the primary regulatory tool to 
address air pollution from existing sources. The Clean Air Act provides 
authority for several other public health-driven and visibility-related 
control efforts: for example, the National Ambient Air Quality 
Standards (NAAQS) Program implemented through enforceable State 
Implementation Plans, the NOx SIP Call, the Acid Rain Program, the 
Regional Haze Program, the National Emissions Standards for Hazardous 
Air Pollutants (NESHAP) program, etc. Thus, while NSR was designed by 
Congress to focus particularly on sources that are newly constructed or 
that make major modifications, Congress provided numerous other tools 
for assuring that emissions from existing sources are adequately 
controlled.
    The NSR provisions of the Clean Air Act combine air quality 
planning, air pollution technology requirements, and stakeholder 
participation. NSR is a preconstruction permitting program. If new 
construction or making a modification will increase emissions by an 
amount large enough to trigger NSR requirements, then the source must 
obtain a permit before it can begin construction. To obtain the permit, 
the owners must meet several requirements, including applying state-of-
the-art control technology. States are key partners in the program. 
Under the Act, States have the primary responsibility for issuing 
permits, and they can customize their NSR programs within the limits of 
EPA regulations. EPA's role has been approving State programs and 
assuring consistency with EPA rules, the State's implementation plan, 
and the Clean Air Act. EPA also issues permits where there is no 
approved NSR program, such as on some Tribal lands.
    The NSR permit program for major sources has two different 
components--one for areas with air quality problems, and the other for 
areas where the air is cleaner. Under the Clean Air Act, geographic 
areas, such as counties or metropolitan statistical areas, are 
designated as ``attainment'' or ``nonattainment'' for the NAAQS, which 
are the air quality standards used to protect human health and the 
environment. Preconstruction permits for sources located in attainment 
or unclassifiable areas are called Prevention of Significant 
Deterioration (PSD) permits and those for sources located in 
nonattainment areas are called nonattainment NSR permits.
    A major difference in the two programs is that the control 
technology requirement is more stringent in nonattainment areas and is 
called the Lowest Achievable Emission Rate (LAER). In attainment areas, 
a source must apply Best Available Control Technology (BACT). The 
statute allows consideration of cost in determining BACT.
    Also, in keeping with the goal of progress toward attaining the 
NAAQS, sources in nonattainment areas must always provide or purchase 
``offsets''--decreases in emissions which compensate for the increases 
from the new source or modification. In attainment areas, PSD sources 
typically do not need to obtain offsets. However, under the PSD 
provisions, facilities are required to undertake an air quality 
modeling analysis of the impact of the construction project. If the 
analysis finds that the project contributes to ambient air pollution 
that exceeds allowable levels, the facility must take steps to reduce 
emissions and mitigate this impact. In addition to ensuring compliance 
with the NAAQS, States track and control emissions of air pollution by 
calculating the maximum increase in concentration allowed to occur 
above an established background level--that change in concentration is 
known as a PSD increment.
    Another key requirement is the provision in the PSD program to 
protect pristine areas like national parks or wilderness areas, also 
referred to as Class I areas. If a source constructs or modifies in a 
way that could affect a Class I area, the law allows a Federal land 
manager, for example, a National Park Service superintendent, an 
opportunity to review the permit and the air quality analysis to assure 
that relevant factors associated with the protection of national parks 
and wilderness areas are taken into consideration, and, if necessary, 
that harmful effects are mitigated.
                   current status of the nsr program
    Let me give you a few statistics about the NSR program to put 
things in perspective. Estimates based on our most recent data indicate 
that typically more than 250 facilities apply for a PSD or 
nonattainment NSR permit annually. The nonattainment NSR and PSD 
programs are designed to focus on changes to facilities that have a 
major impact on air quality.
    EPA has worked for over 10 years to make changes to the NSR program 
to provide more flexibility and certainty for industry while ensuring 
environmental protection. In 1992, EPA issued a regulation addressing 
issues regarding NSR at electric utility steam generating units making 
major modifications. This is referred to as the ``WEPCO'' rule. And in 
1996, EPA proposed to make changes to the existing NSR program that 
would significantly streamline and simplify the program. In 1998, EPA 
issued a notice of availability where we asked for additional public 
comment on several issues.
    EPA held public hearings and more than 50 stakeholder meetings on 
the 1996 proposed rules and related issues. Environmental groups, 
industry, and State, local and Federal agency representatives variously 
participated in these discussions. Despite widespread acknowledgment of 
the need for reforms, EPA has not yet finalized these proposed 
regulations.
    In May 2001, the President issued the National Energy Policy. The 
Policy included numerous recommendations for action, including a 
recommendation that the EPA Administrator, in consultation with the 
Secretary of Energy and other relevant agencies, review New Source 
Review regulations, including administrative interpretation and 
implementation. The recommendation requested EPA to issue a report to 
the President on the impact of the regulations on investment in new 
utility and refinery generation capacity, energy efficiency, and 
environmental protection.
    In June 2001, EPA issued a background paper giving an overview of 
the NSR program. EPA solicited public comments on the background paper 
and other information relevant to New Source Review. In developing the 
final report responding to the National Energy Policy recommendation, 
EPA met with more than 100 industry, environmental, and consumer 
groups, and public officials, held public meetings around the country, 
and evaluated more than 130,000 written comments.
    On June 13, 2002, EPA submitted the final report on NSR to 
President Bush. At that time, EPA also released a set of recommended 
reforms to the program. With regard to the energy sector, EPA found 
that the NSR program has not significantly impeded investment in new 
power plants or refineries. For the utility industry, this is evidenced 
by significant recent and future planned investment in new power 
plants. Lack of construction of new greenfield refineries is generally 
attributed to economic reasons and environmental or other permitting 
restrictions unrelated to NSR.
    With respect to the maintenance and operation of existing utility 
generation capacity, there is more evidence of adverse impacts from 
NSR. EPA's review found that uncertainty about the exemption for 
routine activities has resulted in the delay or cancellation of some 
projects that would maintain or improve reliability, efficiency and 
safety of existing energy capacity. Reforms to NSR will remove barriers 
to pollution prevention projects, energy efficiency improvements, and 
investments in new technologies and modernization of facilities.
    EPA announced that it intends to take a series of actions to 
improve the NSR program, promote energy efficiency and pollution 
prevention, and enhance energy security while encouraging emissions 
reductions.
    These improvements include finalizing NSR rule changes that were 
proposed in 1996 and recommending some new changes to the rules. The 
1996 recommendations and subsequent notice of availability were subject 
to extensive technical review and public comment over the past 6 years. 
EPA will conduct notice-and-comment rulemaking for changes not proposed 
in 1996.
    Our actions are completely consistent with the strong public health 
protection provided by the Clean Air Act. The key provisions of the 
Clean Air Act include several programs designed to protect human health 
and the environment from the harmful effects of air pollution and all 
of them remain in place. Moreover, the changes that we make to the NSR 
program will be prospective in nature, and EPA will continue to 
vigorously pursue its current enforcement actions. Accordingly, EPA 
does not intend for its future rulemaking or proposed changes to be 
used in, or have any impact on, current litigation.
                        summary of improvements
    Congress established the New Source Review Program in order to 
maintain or improve air quality while still providing for economic 
growth. The reforms announced last month will improve the program to 
ensure that it is meeting these goals. These reforms will:
     Provide greater assurance about which activities are 
covered by the NSR program;
     Remove barriers to environmentally beneficial projects;
     Provide incentives for industries to improve environmental 
performance when they make changes to their facilities; and
     Maintain provisions of NSR and other Clean Air Act 
programs that protect air quality.
    The following NSR reforms, all of which were originally proposed in 
1996, have been subject to extensive technical review and public 
comment:
     Pollution Control and Prevention Projects.--To encourage 
pollution control and prevention, EPA will create a simplified process 
for companies that undertake environmentally beneficial projects. NSR 
can discourage investments in certain pollution control and prevention 
projects, even if they are environmentally beneficial.
     Plantwide Applicability Limits (PALs).--To provide 
facilities with greater flexibility to modernize their operations 
without increasing air pollution, a facility would agree to operate 
within strict sitenwide emissions caps called PALs. PALs provide 
clarity, certainty and superior environmental protection.
     Clean Unit Provision.--To encourage the installation of 
state-of-the-art air pollution controls, EPA will give plants that 
install ``clean units'' operational flexibility if they continue to 
operate within permitted limits. Clean units must have an NSR permit or 
other regulatory limit that requires the use of the best air pollution 
control technologies.
     Calculating Emissions Increases and Establishing Actual 
Emissions Baseline.--Currently, the NSR program estimates emissions 
increases based upon what a plant would emit if operated 24 hours a 
day, year-round. This can make it difficult to make certain modest 
changes in a facility without triggering NSR, even if those changes 
will not actually increase emissions. This common-sense reform will 
require an evaluation of how much a facility will actually emit after 
the proposed change. Also, to more accurately measure actual emissions, 
account for variations in business cycles, and clarify what may be a 
``more representative'' period, facilities will be allowed to use any 
consecutive 24-month period in the previous decade as a baseline, as 
long as all current control requirements are taken into account.
    EPA also intends to propose three new reforms that will go through 
the full rulemaking process, including public comment, before they are 
finalized. These include:
     Routine Maintenance, Repair and Replacement.--To increase 
environmental protection and promote the implementation of routine 
repair and replacement projects, EPA will propose a new definition of 
``routine'' repairs. NSR excludes repairs and maintenance activities 
that are ``routine'', but a multi-factored case-by-case determination 
must currently be made regarding what repairs meet that standard. This 
has deterred some companies from conducting certain repairs because 
they are not sure whether they would need to go through NSR. EPA is 
proposing guidelines for particular industries to more clearly 
establish what activities meet this standard.
     Debottlenecking.--EPA is proposing a rule to specify how 
NSR will apply when a company modifies one part of a facility in such a 
way that throughput in other parts of the facility increases (i.e., 
implements a ``debottlenecking'' project). Under the current rules, 
determining whether NSR applies to such complex projects is difficult 
and can be time consuming.
     Aggregation.--Currently, when multiple projects are 
implemented in a short period of time, a detailed analysis must be 
performed to determine whether the projects should be treated 
separately or together (i.e., ``aggregated'') under NSR. EPA's proposal 
will establish two criteria that will guide this determination.
    It is important to note that we are undertaking changes in the NSR 
program at the same time as we are moving forward on the President's 
historic Clear Skies Initiative. The Clear Skies Initiative is the most 
important new clean air initiative in a generation, and will cut power 
plant emissions of three of the worst air pollutants--nitrogen oxides, 
sulfur dioxide, and mercury--by 70 percent. The initiative will improve 
air quality and public health, protect wildlife, habitats and 
ecosystems. By using a proven, market-based approach, Clear Skies will 
make these reductions further, faster, cheaper, and with more certainty 
than the current Clear Air Act. In the next decade alone, Clear Skies 
will remove 35 million more tons of air pollution than the current 
Clean Air Act.
    In summary, the NSR reforms will remove the obstacles to 
environmentally beneficial projects, simplify NSR requirements, 
encourage emissions reductions, promote pollution prevention, provide 
incentives for energy efficient improvements, and help assure worker 
and plant safety. Overall, our reforms will improve the program so that 
industry will be able to make improvements to their plants that will 
result in greater environmental protection without needing to go 
through a lengthy permitting process. Our actions are completely 
consistent with key provisions of the Clean Air Act designed to protect 
human health and the environment from the harmful effects of air 
pollution.
                               __________
 Responses of Jeffrey Holmstead to Additional Questions from Senators 
                           Jeffords and Leahy
    Question 1. Please provide the Committee with an explanation of the 
differences between the regulatory proposals regarding New Source 
Review that were considered by the Clinton Administration and those 
that EPA is forwarding to the OMB for interagency review or plans to 
publish in final form.
    Response. In 1996, the Clinton Administration proposed numerous 
changes to the existing New Source Review (NSR) regulations. We will be 
acting to finalize five of these changes to the regulations at this 
time. All five of these provisions will be within the scope of the 1996 
proposal. In addition, we intend to propose, solicit public comment on, 
and eventually promulgate several other provisions, including a 
proposal to address ``routine maintenance, repair and replacement'' 
(RMRR). These provisions were not addressed in the 1996 proposal.

    Question 2. In a briefing for congressional staff, EPA OGC 
personnel said that a tremendous amount of time and money is being 
spent on the NSR enforcement cases. Approximately how much time and 
money has been spent since those enforcement actions were announced?
    Response. While EPA does not separately track enforcement 
expenditures for NSR, we have reviewed the level of effort involved in 
NSR enforcement since November 1999. We estimate that the Agency has 
invested more than 200 full-time equivalents (FTEs) in employee time, 
as well as over a million dollars in contract expenditures and over 
half a million dollars in travel expenditures to investigate, negotiate 
and prosecute all cases that have NSR components. This does not include 
the significant resources that DOJ expended on these cases.
    It is worth noting that a significant portion of EPA's effort on 
NSR cases has been devoted to addressing discovery requests from 
defendants pursuant to prosecution of filed cases in court. 
Furthermore, the filing of the power plant suits in 1999 was the 
culmination of 2 years of effort by dozens of EPA Headquarters and 
Regional personnel, who investigated and developed the cases.

    Question 3. In an interview on National Public Radio, Governor 
Whitman indicated that the announced NSR regulation changes ``. . . are 
intended to get at the pollution from those dirty old power plants or 
those `grandfathered' plants.'' Please explain how these changes will 
affect pollution, quantitatively and qualitatively, from these 
``grandfathered'' facilities.
    Response. In the Governor's interview with National Public Radio, 
she stated: ``What we're proposing gets precisely at those plants that 
have not been successfully dealt with under the current program.'' In 
this comment, the Governor was referring to the Administration's Clear 
Skies Initiative. The Clear Skies Initiative sets strict, mandatory 
emissions caps for three of the most harmful air pollutants--sulfur 
dioxide, oxides of nitrogen, and mercury. Clear Skies will cut power 
plant emissions of these pollutants by 70 percent, eliminating 35 
million more tons in the next decade than the current Clean Air Act.

    Question 4. How many facilities are potentially covered by NSR's 
major source category, and minor source category? Please specify 
industry sector, and the total emissions from those covered facilities.
    Response. EPA does not have comprehensive data regarding the number 
of major and minor NSR sources in the country or total emissions from 
these sources. We know that there are close to 19,000 sources subject 
to title V. These 19,000 sources include all major NSR sources and some 
minor NSR sources. In addition, there are many more minor sources that 
are not subject to title V.

    Question 5. How many utilities are not required currently to apply 
New Source Performance Standards to their facility by the Clean Air 
Act? Please provide their generation capacity and the tons of 
pollutants emitted for each in the latest year.
    Response. EPA is working to provide a data base listing units that 
were not subject to NSPS when they came on line. EPA does not maintain 
a data base that lists all utility units not subject to the NSPS. We 
will provide this information and any necessary followup information as 
soon as possible.

    Question 6. How many tons of pollution has the New Source Review 
program, including Prevention of Significant Deterioration, prevented, 
either through application of technology, process changes to avert 
major source category status, or other means, since it's inception?
    Response. Please see the response to question number 7.

    Question 7. How many tons of pollution do the NSR and PSD programs 
prevent or control annually?
    Response. EPA does not have a current official estimate of the 
number of tons of pollution prevented or controlled annually by the NSR 
and PSD programs.

    Question 8. EPA's 90-day report on NSR indicates that companies go 
to great lengths to avoid triggering NSR. If EPA believes the principle 
reason is potential cost of pollution controls, please provide a 
discussion of the control costs per ton of pollutant for various types 
of facilities where NSR might apply.
    Response. The 90-day NEP review found that NSR is having an adverse 
impact on investment in existing utility and refinery capacity for some 
of the following reasons. The cost of offsets and pollution control 
technology is certainly one factor. For example, in California, one 
facility incurred costs for offsets of more than $100,000 per ton of 
NOx when NSR was triggered. Facilities also try to avoid NSR because 
NSR permitting can delay the implementation of projects. It takes 
anywhere from a few months to, on occasion, a couple of years to get an 
NSR permit, and additional time is required to prepare the permit 
applications. Because a permit must be obtained before construction can 
commence, projects sometimes are delayed by the permit process. For 
example, in the semiconductor chip industry, entire generations of 
technology span periods of only a few months. In such circumstances, a 
permitting delay of a few months could serve as an insurmountable 
obstacle. Another important factor is certainty. It is often difficult 
to predict the specific control measures or other requirements that 
ultimately are imposed by an NSR permit and this uncertainty can impact 
project planning.

    Question 9. Please provide a table showing the performance 
standards for new stationary sources as required to be developed under 
section 111(b) of the Clean Air Act, and the relevant timetable for 
reviewing and revising, as appropriate, those standards.
    Response. The NSPS currently applicable to electric utility steam 
generating units are presented below. For each of the pollutants, there 
may be certain additional requirements for specific cases (e.g., 
anthracite coal, noncontinental area) but these limits are those that 
are most widely applicable. Section 111(b)(1)(B) provides that the 
``Administrator shall, at least every 8 years, review and, if 
applicable, revise such standards . . .'' The Administrator need not 
review any NSPS ``if the Administrator determines that such review is 
not appropriate in light of readily available information on the 
efficacy of such standard.'' The date of last review of each of the 
standards is also shown in the table.

       Electric Utility Steam Generating Units; 40 CFR Subpart Da
------------------------------------------------------------------------
            Pollutant               Emission limit       Last reviewed
------------------------------------------------------------------------
Particulate matter:

  Solid, liquid, or gaseous fuel  0.03 lb/MMBtu.....  June 11, 1979

Sulfur dioxide:

  Solid fuel....................  1.2 lb/MMBtu and    June 11, 1979
                                   90 percent
                                   reduction OR 0.6
                                   lb/MMBtu and 70
                                   percent reduction
                                   a.
  Liquid or gaseous fuel........  0.8 lb/MMBtu and    June 11, 1979
                                   90 percent
                                   reduction OR 0.6
                                   lb/MMBtua.

Nitrogen oxides:

  Solid, liquid, or gaseous fuel  0.15 lb/MMBtua....  September 16, 1998
------------------------------------------------------------------------
a30-day rolling average

    Question 10. If New Source Performance Standards were applied to 
all electric generating facilities above 25 MW, how many tons of 
pollutants (NOx, SOx, 
PM2.5) would be reduced? What would be the average cost per 
ton and most common control technologies?
    Response. Emissions of SO2 from coal-fired electric 
generating facilities in 2000 were estimated to total 10,708,692 tons. 
Estimated emissions if all units met the current NSPS are 3,397,662 
tons. Information is not readily available on emissions of NOx and fine 
particulate matter (PM2.5) should all electric generating 
facilities meet the applicable NSPS levels. The control technologies 
used to meet the NSPS would be flue gas desulfurization (FGD) units, 
both wet and dry, for coal-fired units and low-sulfur oil for oil-fired 
units. Control technologies used to meet NSPS levels for PM would be 
electrostatic precipitators (ESP) for oil- and coal-fired units and 
fabric filters for coal-fired units. Technologies used to meet NSPS 
levels for NOx would be low-NOx burners, selective catalytic reduction 
(SCR) and selective non-catalytic reduction (SNCR) for all types of 
units. Information is not readily available to determine the average 
cost of pollutant ton removed should every electric generating facility 
meet the applicable NSPS.

    Question 11. Connecticut's NSR program is currently more stringent 
than the Federal equivalent. What is EPA's position with respect to 
reconciling elements of their proposal with that program, and is EPA 
going to require states to revise their NSR programs to mirror the 
Federal program, even in cases where the state program remains more 
stringent?
    Response. EPA believes that its final rules will significantly 
improve the NSR program. We will include these rules in our base NSR 
programs and we will encourage States to adopt these changes into their 
own programs. We think that most States will want to make these 
changes. However, any State may depart from our base program as long as 
it demonstrates that its program is at least as effective as our base 
program.

    Question 12. In its 1996 proposal, EPA clearly indicated that the 
program elements (e.g. PALs and Clean Unit Exemption) would be in such 
a form that states could adopt none, some or all of the elements. The 
proposal did not imply that states would have to ``demonstrate'' their 
programs were equal to or more stringent without some or all of these 
new ``elements''. Is this still the case?
    Response. Over the past 10 years, we have been involved in an 
extensive stakeholder process in an effort to reform the existing NSR 
regulations. There has been general agreement among most of these 
stakeholders that the regulations can and should be improved. The final 
NSR rules that we hope to finalize in the near future are the product 
of this decade-long effort. We believe that these rules will, in fact, 
significantly improve the program. Thus, we will include these rules in 
our base NSR program and will be encouraging States to adopt these 
changes into their own programs. We think that most States will want to 
make these changes. However, any State may depart from our base program 
as long as it demonstrates that its program is at least as effective as 
our base program.

    Question 13. Given that the Administration considered changes will 
result in fewer modifications being subject to NSR, would State/locals 
have to submit SIP revisions at all?
    Response. We believe that our final rules will add new incentives 
for reducing emissions to States' NSR programs and eliminate existing 
disincentives to maintain higher levels of emissions. For example, 
under a plantwide applicability limit (PAL), a facility would accept 
strict plantwide emissions caps and then may choose where to apply the 
most cost effective controls (achieving the highest possible emission 
reductions for the lowest cost). Morever, facilities with PALs will 
have a strong incentive to keep actual emissions well below their caps 
in order to maximize operational flexibility under the cap. Under the 
Clean Unit Test, a facility is encouraged to install state-of-the-art 
emission controls. We believe many who would not otherwise be subject 
to the modification provisions will install controls to gain the added 
flexibility under PALs and the Clean Unit test. These examples show 
that the total benefits of the NSR program cannot be accurately 
measured solely by the number of modification permits that are issued; 
we must also consider others ways in which the program encourages 
emission reductions.

    Question 14a. EPA's proposed changes to the baseline calculation 
will allow for a baseline equal to a plant's highest usage in the last 
10 years. How will this improve air quality?
    Response. To begin, we believe that it is important to correct an 
apparent misconception that many stakeholders continue to hold about 
this option. The misconception is that the option would apply to all 
industry types. We do not currently intend to apply the 10-year 
baseline to the utility industry because an industry specific baseline 
was established for the utility industry in the 1992 ``WEPCO'' rule.
    The baseline calculation is an integral part of the procedure for 
determining whether a physical or operational change made to an 
existing emissions unit will result in a significant net emissions 
increase at the facility. We are currently considering an approach 
under which the 10-year baseline would allow a source to identify a 
level of operation that it has actually achieved during the course of 
its normal business cycle (within which emissions typically fluctuate), 
and to calculate an emissions baseline associated with that level of 
operation as long as the resulting emissions level continues to be 
allowed under currently enforceable emissions factors. If the emissions 
level, in tons per year, under the selected level of operation is not 
currently allowed (for example, a more stringent limit has been placed 
on the sulfur content of fuel or a control device has been installed), 
then a downward adjustment to the emissions must be made accordingly.
    While the existing regulations require that the preceding 2 years 
be used for calculating the baseline emissions, the permitting 
authority has the ability to determine that another period is more 
representative of normal operation. This could conceivably result in a 
look back of 10 years or more in certain cases. However, this approach 
typically involves case-by-case determinations that have resulted in 
confusion, inconsistent implementation and lengthy debates as to the 
most appropriate period of time to select in any particular case. EPA's 
new approach would provide a bright line for facility owners and 
operators to use to determine their baseline emissions.
    It is also worth noting that the new approach, involving the 
selection of a consecutive 24-month period within the preceding 10 
years, represents a more stringent approach than the 12-month period in 
the preceding 10 years proposed during the previous Administration. By 
averaging a source's annual emissions over a 24-month period, rather 
than a 12-month period, short-term peaks are less influential in 
calculating the baseline emissions rate.

    Question 14b. Should the baseline for emissions in nonattainment 
areas be designed to decline in future years to help provide 
attainment?
    Response. We think that baseline for emissions in nonattainment 
areas should not automatically be designed to decline in future years. 
Instead, States must have the discretion to determine where future 
emissions reductions will be required from one source to the next. This 
decision will be based on the nature and extent of the nonattainment 
problem in a particular area. State and local air pollution control 
authorities are in the best position to determine which sources need to 
be controlled and which control measures should be applied.

    Question 15. EPA's proposal will allow sources to establish an 
emissions baseline with a test that considers any 2 years out of the 
previous 10 as representative. As many sources have substantially 
reduced their emissions in the last 10 years, in cases where this 
mechanism is granted, how is EPA going to evaluate the effect on State 
SIPs where emissions increase as a result of these proposed baseline 
changes?
    Response. A source's emissions may have been reduced through the 
imposition of more stringent emissions limits (including new pollution 
control devices) or by specific operating restrictions (e.g., 
restrictions on fuel use, hours of operation, etc.) In either case, as 
mentioned in the response to question No. 14, the calculation of the 
source's baseline emissions, under the approach we are currently 
considering, must take into account these current factors. Thus, when a 
source selects a particular 24-month period within the last 10 years to 
define its representative operations, it must also factor in the most 
current emission limits and operating restrictions.

    Question 16. Why is it necessary to provide a 10-year window to 
establish actual emissions baselines? Why is it better than defaulting 
to the previous 2 years, and giving the States the discretion to adjust 
this period when it is demonstrated that it is not representative?
    Response. The typical industry business cycle involves recurrent 
ups and downs in level of economic activity over a period of several 
years. To determine the length of a reasonable look back period, we 
contracted a study to determine the length of a typical business cycle 
for a number of industry categories. Based on this study, we determined 
that a 10-year look back would adequately cover the business cycle for 
any industry in the study. Further, we determined that a consecutive 
24-month period (rather than the 12-month period originally proposed) 
within the 10-year look back would appropriately capture the source's 
average annual operating level and emissions rate. By averaging the 
source's operation over a 2-year period, rather than using just 12 
months of operating history, unusually high peaks occurring during a 
short period will not skew the result.
    We believe that the use of a uniform 10-year look back period will 
help simplify the process and eliminate questions that can occur when 
an applicant and the permitting authority have to determine on a case-
by-case basis what timeframe provides the period ``most representative 
of normal source operation.'' The new requirements also provide 
certainty to the look back period, since there is no opportunity to 
select another period of time outside this 10-year period. In addition, 
we have placed certain restrictions on when the full 10-year look back 
period may be used. That is, the source must have available in its 
records adequate data for the particular 24-month period that is 
selected. This data must be used for calculating the average annual 
emissions that form the basis for the baseline actual emissions. In 
addition, the baseline emissions rate must be adjusted downward to 
reflect emissions or operational limitations adopted in the interim.

    Question 17. With a non-declining PAL, how does air quality ever 
improve? Has EPA thought about ways to maintain the incentive for 
voluntary early reductions while not locking in current emission levels 
indefinitely?
    Response. Until such time as the NSR Reform rulemaking package is 
published, it would be premature to describe specific attributes of the 
new PAL system; however, we have received comments similar to your 
question and will be considering them as we move forward.

    Question 18. If each company can select whether to use a PAL or 
not, won't each company choose the option that minimizes the chances of 
triggering NSR? Won't that result in increased emissions as compared to 
the State choosing one approach or the other?
    Response. We do not believe that companies will not select an 
option solely based on the chances of triggering NSR under that option. 
In a study of sources with PALs, EPA found that those sources lowered 
their emissions.

    Question 19. For a State that decides to require all facilities to 
use a PAL, many of the other changes are not relevant. Will the rules 
make it clear which changes do not apply under the PAL?
    Response. We expect that few States will require all sources to use 
the PAL program. For States that decide to do so, EPA agrees that 
sources with PALs would generally not seek or be subject to any of the 
other changes. We intend to finalize all the changes identified in our 
Recommendations Report as part of our base program; however, States 
that require all sources to have a PAL will have the opportunity to 
depart from the base program upon a showing that their programs are 
equivalent to or more stringent than the base program.

    Question 20. Why is it necessary to add an ``operating margin'' up 
to the significance level (e.g., 25 TPY in a severe ozone nonattainment 
area) when setting a PAL?
    Response. Until such time as the NSR Reform rulemaking package is 
published, it would be premature to describe specific attributes of the 
new PAL system; however, we have received comments similar to your 
question and will be considering them as we move forward.

    Question 21. Why is it appropriate to make the Clean Unit test 
retroactive? If the argument for clean units is premised upon creating 
incentives to control, why are incentives needed for units that 
controlled up to 10 years ago and have already installed good controls?
    Response. We will not be applying the Clean Unit Test 
retroactively. Although emissions units that have applied state-of-the-
art controls in the past may qualify to use the test after the 
effective date of the final rules, the test will only be used to 
determine whether future changes at the unit will result in an 
emissions increase. Any changes that were made at such emissions units 
before the effective date of the final rules will be subject to the NSR 
requirements as they existed at the time of the change.
    Moreover, although the creation of incentives for sources to 
install controls is an important part of the clean unit test, it is not 
the sole basis for it. The clean unit provision also makes sense 
because it avoids the need for sources with state-of-the-art controls 
to engage in an NSR review that ultimately would not require the 
installation of better controls. Also, it reduces the burden on 
permitting authorities of having to process permit applications that we 
believe will result in no additional control.

    Question 22. Given that the purpose of the clean unit exclusion is 
to exempt from review units where current technology would not achieve 
reductions beyond existing technology, what is EPA's basis for allowing 
such a long exclusion period (i.e., up to 15 years)? Why is a look-back 
period necessary at all?
    Response. The clean unit duration is based on a combination of the 
average life expectancy of control equipment (as published in 
engineering journals) and the improvement in control equipment 
performance over a given period of time. For example, using existing 
information about the control efficiency of flue gas desulfurization 
(FGD), we can see that in a period of about 20 years, the removal 
efficiency of the device has only improved marginally. As a result, a 
FGD system that was installed 10 years ago, would still be achieving 
good reductions and it would not be justifiable to replace it with a 
very costly unit that would only improve pollutant removal efficiency 
by only a small amount.

    Question 23. Why does it make sense to define routine maintenance 
based on the percent of capital costs, as opposed to the function of 
the construction? How can EPA reconcile allowing a source to spend 
hundreds of millions of dollars over the course of 4-5 years, increase 
emissions significantly, and still not trigger NSR and the installation 
of controls?
    Response. EPA will be in a better position to address these issues 
after the rulemaking package has been published. At that time the 
Agency will also be seeking public comment on the proposal.

    Question 24. Why isn't the amount of emission increases considered 
in the Administration's development of a new definition of routine 
maintenance?
    Response. The Clean Air Act provides that, for existing sources, 
NSR applies only to projects that constitute a physical change or 
change in the method of operation. By definition, routine maintenance 
projects are not physical changes or changes in the method of 
operating, therefore, such projects are not subject to NSR.

    Question 25. According to EPA's proposed recommendations, ``the 
changes are intended to provide greater regulatory certainty, 
administrative flexibility and permit streamlining, while ensuring the 
current level of environmental protection and benefit derived from the 
program.'' This statement seems counter-intuitive in that with fewer 
new emission units installing state-of-the-art emissions controls, it 
seems logical that emissions will increase. What data are available to 
show that the proposed changes will indeed ensure the current level of 
environmental protection? How is less control better for the 
environment?
    Response. The data EPA has accumulated during the 10-year 
rulemaking effort will be placed in the docket.

    Question 26. A number of the proposed NSR changes will result in 
modifications that were previously subject to NSR no longer being 
subject. These include pollution control projects; projects on clean 
units; modifications on units with high emissions in the past but low 
actual emissions today; projects that don't plan to use all of their 
capacity initially; projects that are less than a certain percent of 
the cost of replacing the plant; projects that allow downstream units 
to increase production; and projects that are separated into 
independent parts. EPA claims that the changes remove disincentives in 
the NSR program, but has not produced hard evidence that the cumulative 
effect of the disincentives is greater than the cumulative effect of 
the exemptions. Is EPA prepared to present solid information to 
substantiate their claims?
    Response. The final rule will be fully supported by an extensive 
public record as a matter of fact, policy and law. The reforms we 
intend to finalize in the near future have been the subject of 10 years 
of analysis and public comment. These rulemakings are well-founded. The 
facts and information that have been accumulated during the 10-year 
rulemaking effort will be available in the rulemaking docket.

    Question 27. If these projects are exempted from NSR application 
through the proposed changes, does EPA plan to require the exempted 
sources to at least evaluate the air quality impact of the emission 
increases and address them if needed to ensure no impact on NAAQS, 
increments or visibility?
    Response. We do not agree that our planned changes will result in 
increased impacts on NAAQS, increments, or visibility as compared to 
the current program. The proposed changes do not alter existing 
requirements that provide States with ample authority to ensure 
protection of the NAAQS, increments and visibility.

    Question 28. How does EPA's plans to revise NSR ensure that 
reductions in stack heights or reductions in stack gas temperature will 
not cause adverse local impacts?
    Response. The existing NSR program contains only one provision 
specifically addressing stack height. We do not plan to change this 
requirement. The current program does not specifically address exit gas 
temperature. A project involving only a stack height change and/or an 
exit gas temperature change almost always will be regulated under State 
or local ``minor'' NSR programs. This will remain the case after our 
reforms are promulgated.

    Question 29. Will a modification that increases actual hourly or 
daily emissions be modeled and proven to cause no adverse air quality 
impacts before the modification is done?
    Response. Under the current NSR program, emissions increases are 
measured on a ton-per-year basis. We do not plan to change this aspect 
of the program.

    Question 30. How will States identify and correct air quality or 
public health problems that occur due to major modifications that have 
been exempted from NSR by the EPA proposed changes? Will this be more 
expensive and time-consuming than addressing these matters prior to 
modifications?
    Response. As explained in the response to question 13, we believe 
that the new NSR regulations will create additional incentives to 
reduce emissions and eliminate the disincentives under the current 
program that prevent facilities from undertaking emission reduction 
projects. We do not expect the new regulations to result in added air 
quality or public health problems.

    Question 31. Recently, experts have estimated that direct emissions 
of fine particulate matter from coal-fired power plants are being 
underestimated significantly, perhaps by a factor of 10. This is not 
surprising because there is so little testing of particulate emissions 
from coal-fired power plants and what testing there is reflects optimal 
operation of the plant. This is a public health concern because those 
particulate emissions are mostly fine particulates and because they 
contain heavy metals that are carcinogenic, as well as particulate 
organic matter, which is also carcinogenic. All these factors 
contribute to the adverse health effects of the fine particulates in 
our air.
    The major modification provisions of the New Source Review program 
currently address particulate emissions. If existing NSR rules are 
enforced, companies would improve the control of particulates to meet 
the best available control technology requirements of NSR. This was 
demonstrated in the EPA settlement with PSEG in New Jersey where a 
baghouse is being added to the Hudson Generating Station to improve 
particulate control. How does EPA plan to address direct emissions of 
particulates from coal-fired power plants through the regulatory 
process, if EPA's proposed changes eliminate or substantially reduce 
the applicability of NSR to existing power plants?
    Response. EPA will be in a better position to discuss specific NSR 
changes applicable to power plants when the NSR rulemaking packages 
have been published. We also note that we believe the President's Clear 
Skies proposal provides an efficient and effective mechanism for 
substantially reducing fine particle pollution from coal-fired power 
plants to levels far below those that NSR could ever currently 
accomplish. We encourage Congress to enact the Clear Skies Legislation 
expeditiously.

    Question 32. The preamble to Part 70 Title V Operating Permits 
states: ``Once a PAL is established, a change at a facility is exempt 
from major NSR and netting calculations, but could require a Title V 
permit modification, as could any other change. Whether a Title V 
permit modification would be required, and which permit modification 
process would be used, is governed by the current part 70 rule as 
implemented by the permitting authority.'' What is the effect of the 
proposed NSR changes on the Title V program? Is it possible for a plant 
to make changes exempted by the NSR reforms and yet be prohibited from 
operating the new or modified units until changes were made to the 
Title V permit?
    Response. The NSR reforms that we plan to implement will not result 
in any change to our Part 70 and Part 71 operating permits programs. If 
a particular activity in a plant does not trigger NSR, it may 
nevertheless be subject to other CAA applicable requirements, such as a 
Section 112 ``MACT'' standard. The applicability of other requirements 
could trigger the need for a Title V permit revision, even though NSR 
is not triggered.

    Question 33. To what extent will seasonal programs, like the NOx 
SIP Call, be considered in the proposed changed rules for baseline 
calculations, PAL's and clean units (where controls are not operated 
year round)?
    Response. The new requirements provide that the emissions baseline 
for calculating the emissions increase resulting from a modification 
cannot exceed the emissions level that would occur under currently 
enforceable emissions limitations. Thus, the new procedures require 
that the calculation of baseline emissions for a modification must 
consider current Federal and State restrictions, as well as enforceable 
limits resulting from voluntary reductions. Assuming that the 
utilization level selected from any consecutive 24-month period is 
still allowed, this level would be used along with current emissions 
limits and operational restrictions to calculate an adjusted emissions 
baseline.

    Question 34. EPA is proposing to provide a 10-year window to 
establish actual emission baselines, where a source can use the 2-year 
high value during that period. Yet, when a State performs its 
photochemical modeling as part of the SIP process, it uses current 
actual emission rates from existing sources. Such modeling would 
continue to use current actual emission rates even though for NSR 
purposes sources may now use the 2-year high over a 10-year past period 
to represent baseline. Has EPA considered requiring those States that 
elect to adopt the 10-year window in its regulations, to use the higher 
baseline values in its photochemical modeling to ensure consistency in 
its planning process?
    Response. We do not plan to change the emissions baseline for 
calculating source impacts. The purpose of selecting a different actual 
emissions baseline for NSR applicability purposes is to better 
determine the amount of any increase that will result only from the 
change itself.

    Question 35. For the Clean Unit Exemption, EPA is presuming that a 
control technology approved within 10 years will generally be the same 
as a current control technology determination. Yet 10 years ago 
combustion technologies could achieve 9 ppm NOx for large turbines and 
25 ppm NOx for small turbines. Today, catalytic combustion technologies 
have dropped these emissions down to approximately 3 ppm. Why is EPA 
making its presumption in the face of such contradictory evidence?
    Response. EPA is not presuming that the control technology 
determination made within the past 10 years will generally be the same 
as the current control technology determination. We expect the state-
of-the-art to continue to progress, but generally not at a rate that 
would require a source to upgrade its current controls if the source 
had initiated state-of-the-art controls within the prior 10 years 
(i.e., it is likely that no additional control requirements would be 
required in a PSD determination because the incremental and average 
cost effectiveness between the current level of control and 
retrofitting to achieve a greater level of control are likely to be 
determined to be too high compared to the added environmental benefit). 
In addition, we also based the timeframe for which an emissions unit is 
eligible to use the clean unit test on the average life expectancy of 
pollution control equipment. It is reasonable to allow the clean unit 
test for the average length of time it takes industry to recoup the 
capital investment in the controls.

    Question 36. Comments Opposing or Supporting Administration's NSR 
Changes.--In your announcement of the Administration's intended changes 
to the NSR regulations, you stated that the ``reforms'' being adopted 
by the Administration enjoyed ``broad-based support.'' EPA materials 
also implied that previous statements from Governors and State 
environmental commissioners offered support for the reforms being 
pursued by the Administration.
    For the following specific changes to the NSR regulations announced 
by the Administration, please identify all comments or statements 
supporting those specific changes submitted by Governors; State 
environmental commissioners; any other State officials or their 
representatives, especially State air program officials; and 
environmental and public health organizations. Please quote the 
specific passages supportive of each respective change below and 
identify the author(s) of those passages. Separately, please identify 
any comments or statements from these same parties opposing these 
changes or similar changes.
    Finally, please identify all comments or statements supporting 
those specific changes submitted by industry representatives, following 
the same format as above. If there are numerous industry comments that 
are responsive, you may provide a representative selection. However, if 
you do so, please provide information on the group from which the 
representative selection was taken (for example, ``These comments 
represent comments made by approximately 50 petroleum refining 
companies.'')
    A. Plantwide Applicability Limits (PALs):

          (ix) An actual emissions baseline based upon ``the highest 
        consecutive 24 month period within the immediately preceding 10 
        years, taking into account the current emissions factor (which 
        would reflect emissions limitations, other required emissions 
        reductions, and permanent shutdowns since the baseline period) 
        in combination with the utilization level from the 24-month 
        time period selected.''
          (x) A 10-year term for a PAL, in attainment or nonattainment 
        areas.
          (xi) A PAL that remains static during the 10-year term, i.e., 
        one whose plant-wide cap is not required to decline during its 
        term.
          (xii) A PAL that does not require installation of pollution 
        controls qualifying as BACT or LAER (or their equivalents) on 
        emissions units covered by the PAL.
          (xii) The ability to increase a PAL's cap levels provided 
        EPA's criteria are met.
          (xiv) Requiring States to provide for PALs in their State 
        implementation plans.

    B. Clean Unit Exclusion:

          (i) Eligibility for the exclusion based upon whether an 
        emissions unit has undergone ``a valid BACT/LAER process or 
        State minor source BACT since 1990.''
          (ii) Ability of significant emissions increases to escape new 
        source review and further control for a period of 10 years, or 
        a period of 15 years.
          (iii) Eligibility for the exclusion based upon whether an 
        emissions unit ``installed Maximum Achievable Control 
        Technology (MACT), Reasonably Available Control Technology 
        (RACT) or undertook pollution prevention that required capital 
        expenditures . . ., provided the results are determined to be 
        comparable to BACT or LAER that would have been employed at the 
        time the control measures or devices were originally 
        installed.''
          (iv) Eligibility for the exclusion based upon whether sources 
        ``invest capital to purchase equipment or implement processes 
        that are inherently clean or lower emitting and which achieve 
        emission reductions comparable to BACT or LAER at the time the 
        investment was made.''
          (v) Requiring States to include the Clean Unit Exclusion in 
        their State implementation plans.

    C. Pollution Control and Prevention Project Exclusion:
          (i) A source's ability to qualify for the exclusion merely by 
        providing notice to the permitting authority and ``maintaining 
        records supporting the source's determination onsite.''
          (ii) The ability of pollution prevention projects to qualify 
        for this exclusion.
          (iii) Requiring States to include the pollution control and 
        prevention project exclusion in their SIPs.

    D. Actual to Projected Future Actual Methodology:

          (vi) The concept of a demand growth exclusion, including 
        making this exclusion available for non-utilities and 
        continuing to make it available for utilities.
          (vii) Allowing sources owners or operators to determine 
        themselves whether an activity resulted in a significant net 
        increase in emissions, without requiring the permitting 
        authority to be involved.

    E. Emissions Baseline:
          For sources other than electric utility steam generating 
        units, an ``actual'' emissions baseline based upon ``the 
        highest consecutive 24-month period within the immediately 
        preceding 10 years, taking into account the current emissions 
        factor (which would reflect emissions limitations, other 
        required emissions reductions, and permanent shutdowns since 
        the baseline period) in combination with the utilization level 
        from the 24-month time period selected.''
    Response. There is nearly universal agreement among stakeholder 
groups that the NSR program should be reformed. Thus, the Administrator 
articulated that the NSR reform effort enjoys a ``broad-based 
support.'' This does not mean that all stakeholders agree with all 
aspects of the reform effort.
    A complete summary of all the comments we received and our 
responses to them will be available when we finalize the regulations. 
We currently are working to finish this ``response to comments'' 
document. We would be happy to provide you with a copy when it is 
finalized. In the meantime, please refer to the complete set of the 
comments we received on the NSR proposed rules provided to you 
previously.

    Question 37. Statutory Authority.--For the specific issues and 
measures listed below, please quote all words in the Clean Air Act that 
provide legal authority to EPA to adopt the announced changes to NSR 
regulations--final and proposed--implementing the statutory PSD and 
nonattainment NSR programs of the Act. Provide statutory citations for 
these quotations as well. Finally, explain any other legal authorities 
upon which EPA is relying to adopt the Administration's announced 
changes to NSR and PSD rules, policies, or interpretations. Please 
ensure that the responses follow the numbering system below.
    A. Plantwide Applicability Limits (PALs):

          (viii) The concept of PALs.
          (ix) An emissions baseline for PALs based upon ``the highest 
        consecutive 24 month period within the immediately preceding 10 
        years, taking into account the current emissions factor (which 
        would reflect emissions limitations, other required emissions 
        reductions, and permanent shutdowns since the baseline period) 
        in combination with the utilization level from the 24-month 
        time period selected.''
          (x) A 10-year term for a PAL, in attainment or nonattainment 
        areas.
          (xi) A PAL that remains static during the 10-year term, i.e., 
        one whose plant-wide cap is not required to decline during its 
        term, for example, to reflect installation of BACT and LAER 
        that otherwise would be required for modifications that occur 
        at the source.
          (xii) A PAL that does not require installation of pollution 
        controls qualifying as BACT or LAER (or their equivalents) on 
        emissions units covered by the PAL.
          (xiii) The ability to increase a PAL's cap levels provided 
        EPA's criteria are met.
          (xiv) Renewal of a PAL, and requirements governing that 
        process.
          (xv) The likelihood that a PAL could be renewed at the end of 
        10 years without being reevaluated, even if the level of the 
        PAL was based on actual emissions from up to 20 years 
        previously.
          (xvi) The likelihood that a facility located in a serious or 
        severe ozone non-attainment area could, with a PAL, increase 
        emissions of ozone precursors more than 25 tons over a 5-year 
        period.
          (xvii) Requiring State implementation plans to allow PALs.

    B. Clean Unit Exclusion:
          (i) The concept of the clean unit exclusion.
          (ii) Eligibility for the exclusion based upon whether an 
        emissions unit has undergone ``a valid BACT/LAER process or 
        State minor source BACT since 1990.''
          (xviii) Ability of significant emissions increases to escape 
        new source review and further control for a period of 10 years, 
        or a period of 15 years.
          (xiv) Eligibility for the exclusion based upon whether an 
        emissions unit ``installed Maximum Achievable Control 
        Technology (MACT), Reasonably Available Control Technology 
        (RACT) or undertook pollution prevention that required capital 
        expenditures . . . , provided the results are determined to be 
        comparable to BACT or LAER that would have been employed at the 
        time the control measures or devices were originally 
        installed.''
          (xx) Eligibility for the exclusion based upon whether sources 
        ``invest capital to purchase equipment or implement processes 
        that are inherently clean or lower emitting and which achieve 
        emission reductions comparable to BACT or LAER at the time the 
        investment was made.''
          (xxi) The apparently self-implementing nature of this 
        exclusion.
          (xxii) Requiring States to provide for the Clean Unit 
        Exclusion in their State implementation plans.

    C. Pollution Control and Prevention Project Exclusion:
          (i) The concept of the pollution control and prevention 
        project exclusion.
          (ii) The exemption from new source review of pollution 
        control and prevention project physical changes or changes in 
        the method of operation that result in emissions increases 
        above the significance threshold.
          (xxiii) A source's ability to qualify for the exclusion 
        merely by providing notice to the permitting authority and 
        ``maintaining records supporting the source's determination 
        onsite.''
          (xxiv) The eligibility of pollution prevention projects for 
        this exclusion.
          (vi) Requiring States to provide for the pollution control 
        and prevention project exclusion in their State implementation 
        plans.

    D. Actual to Projected Future Actual Methodology:
          (i) The concept of a demand growth exclusion, including 
        making this exclusion available for non-utilities and 
        continuing to make it available for utilities.
          (ii) Allowing sources owners or operators to determine 
        themselves whether an activity resulted in a significant net 
        increase in emissions, without requiring the permitting 
        authority to be involved.

    E. Emissions Baseline:
          For sources other than electric utility steam generating 
        units, an ``actual'' emissions baseline based upon ``the 
        highest consecutive 24 month period within the immediately 
        preceding 10 years, taking into account the current emissions 
        factor (which would reflect emissions limitations, other 
        required emissions reductions, and permanent shutdowns since 
        the baseline period) in combination with the utilization level 
        from the 24-month time period selected.''
    F. Routine Maintenance, Repair and Replacement Safe Harbor:
          (i) The concept of the routine maintenance, repair and 
        replacement exemption as it exists under current EPA 
        regulations, as an exemption from consideration as a 
        ``modification'' under the NSR program. Please reference in 
        your response any relevant documentation, including 
        applicability determinations, guidance documents, statements 
        made by Agency representatives in litigation, briefs or 
        memoranda of law filed with a court, etc.
          (ii) The concept of the routine maintenance, repair and 
        replacement safe harbor announced by the Administration, as a 
        threshold for exclusion from consideration as a 
        ``modification'' under the NSR program.
          (iii) The concept of the routine maintenance, repair and 
        replacement safe harbor as a threshold for exclusion from 
        consideration as a ``modification'' under the New Source 
        Performance Standard (NSPS) program.
          (iv) For the NSPS program, the ``capital replacement value of 
        an affected source [as] a relevant basis for determining the 
        need for installing modern pollution controls when a project is 
        implemented.''
          (v) For the NSPS program, an exclusion for projects that 
        ``increase utilization at an affected source if they come below 
        `annual asset guideline repair allowance' percentage thresholds 
        (defined by the IRS for specific industry categories) ranging 
        from 1.5 to 15 percent.''
          (vi) Whether ``the aggregate cost of maintenance expenses and 
        capital repair and replacement projects'' for relevant units 
        exceeding specified dollar thresholds is a basis for not 
        subjecting emissions increases from those activities to NSR.
          (vii) Whether such an NSR safe harbor may be based upon 
        ``annual dollar cost thresholds, averaged on a rolling basis 
        over a 5-year period (except where maintenance cycles in a 
        particular industry dictate a different period) established for 
        entire utility stationary sources and refinery and other 
        industry processing and production units . . . .''
          (viii) EPA's basis for excluding from this calculation costs 
        incurred for installing and maintaining pollution control 
        technology.

    Response. The legal basis for the final and proposed rules that EPA 
plans to issue in the next few months will be set forth in the 
preambles to the Federal Register notices for those rules.

    Question 38a. Internal EPA Disagreements Over Directions of 
Administration NSR Rule Changes.--In January of this year, EPA staff 
prepared several charts detailing a series of topics and elements 
associated with PALs; the clean unit exclusion; and a revised ``major 
modification'' test for existing emissions units. The charts set forth 
the initial directions by EPA's Office of Air and Radiation (OAR) 
concerning these topics or elements; identified ``Resolved and Non-
Elevation Issues''; and ``Issues That Need Resolution.'' This last 
category, in turn, set forth areas of serious disagreement among OAR, 
EPA's Office of Enforcement and Compliance Assurance (OECA), and EPA's 
Office of General Counsel (OGC) about the legality, validity and 
consequences of OAR's initial directions. In an alarming number of 
instances, OECA or OGC raised highly troubling objections to the legal 
basis for certain of those directions, or to the air quality harms that 
would result from those directions. Based upon a comparison between the 
issues and objections in these charts, on one hand, and the intended 
changes to the NSR rules recently announced by the Administration on 
the other, it appears that the Administration has ignored, overridden 
or otherwise rejected the objections reflected in these charts.
    In light of the very serious concerns reflected in these documents, 
which go the heart of whether EPA is correctly carrying out its 
statutory responsibilities, and implementing the NSR program 
requirements in a way that best protects the nation's air quality and 
public health, respond to the following questions. For ease of 
reference and where relevant, the questions are followed by page 
numbers on these charts where the issues are discussed.
    Identify all current or former EPA staff that participated in the 
meetings that resulted in the creation of these charts, including the 
offices for which these staff work or worked. Also identify the staff 
that contributed to the creation of these charts.
    Response. The following is a list of EPA staff (SES and political) 
who participated in the meetings resulting in the creation of the 
referenced NSR summary charts:
    William Harnett, division director, Information Transfer and 
Program Integration Division, Office of Air Quality Planning and 
Standards.
    Bruce Buckheit, director, Air Enforcement Division, Office of 
Enforcement and Compliance Assurance.
    Alan Eckert, principal associate general counsel, Office of General 
Counsel.
    William Wehrum, counsel to the assistant administrator, Office of 
Air and Radiation.

    Question 38b. Plantwide Applicability Limits (PALs). (i) Legal 
rationale:
          (a) Is the PAL approach planned for adoption by EPA 
        consistent with OGC's legal advice that ``Pals should work 
        within a netting frame work''? (1) What legal rationale has 
        been advanced by OAR that would not work within ``a netting 
        framework''? If PALs are not governed by a netting framework, 
        then what are PALs under the Clean Air Act and what legal 
        rationale justifies PALs?
          (b) Disagreeing with OAR, OGC states that ``A PAL with no 
        adjustments are not comparable to current system, citing 
        industry study showing that current system results in loss of 
        32 percent of allowable emissions every 10 years.'' (1) What 
        studies, analysis or other experience is OAR relying upon to 
        support the claim that PALs are comparable to the current 
        system? Attach the industry study referenced above, as well as 
        any studies or analysis relied upon by OAR.
          (c) Considering that PALs were first proposed by EPA in 1996, 
        that EPA has instituted or approved many PALs since then, and 
        that EPA now plans to move forward with adoption of a PAL 
        approach, how is it that ``no agreement'' existed on the 
        ``legal rationale'' for PALs as of the drafting of this chart 
        in January 2002? (d) Was the issue of the ``legal rationale'' 
        behind PALs elevated to EPA management, as suggested by this 
        chart, and what was the outcome of that elevation? (1)
    (ii) PAL in conflict with section 182(c)(6):
          (a) OGC states that a PAL ``is in conflict'' with Clean Air 
        Act section 182(c)(6), and notes that the ``[s]tatute requires 
        a 5-year rolling aggregation of net increases.'' (2) Did EPA 
        reject the legal advice of OGC in allowing 10-year PALs in 
        serious and severe ozone nonattainment areas and, if so, why? 
        What is the legal authority for 10-year PALs in serious and 
        severe ozone nonattainment areas? How does EPA reconcile a PAL 
        whose term exceeds 5 years in serious and severe ozone 
        nonattainment areas with section 182(c)(6)? Provide any 
        legislative history or quotes of statutory language to support 
        your responses.
          (b) The chart indicates that ``[t]here was no resolution of 
        this issue pending outcome of further legal discussions. May be 
        an elevation issue.'' (2) Was this issue elevated to EPA 
        management and how was it resolved?
    (iii) Basis for 10-year PAL:
          (a) Disagreeing with OAR that a 10-year PAL is reasonable, 
        OGC states that ``PAL must be based on reasonably 
        contemporaneous period, which is more consistent with a 5-year 
        period.'' (3) What evidence in the Clean Air Act, its 
        legislative history, court decisions, or English usage is EPA 
        relying upon to support the claim that 10 years is a 
        ``contemporaneous period'' within a netting framework? What 
        legal authority is EPA relying upon as the basis for a 10-year 
        PAL? Why was there ``no agreement on this issue'' as of January 
        2002? Was this issue elevated to EPA management, as suggested 
        by the chart, and how was the disagreement resolved?
          (b) How does EPA reconcile the Federal 5-year statute of 
        limitations governing Clean Air Act violations with EPA's 
        ability to enforce Clean Air Act requirements associated with a 
        10-year PAL? (3)
    (iv) PAL adjustments for newly applicable requirements:
          (a) OGC states that it will elevate to EPA management ``issue 
        of not considering future applicable rules that are known at 
        the time the PAL is set.'' (4) Was this issue elevated and what 
        was the resolution?
          (b) Will a PAL that is not adjusted for newly applicable 
        requirements be dirtier, that is allow more pollution, than one 
        that is? Why would OAR support the dirtier outcome of not 
        requiring the PAL to be adjusted downward to account for new 
        emissions limits that become effective during the PAL's 
        effective period?
          (c) If a new emissions limit becomes effective during a PAL 
        term, requiring emissions at a given unit to be reduced, does 
        that not allow other units at the facility to pollute more so 
        long as the PAL is not exceeded, thereby undermining the air 
        quality benefit of the new emissions limit? What is the legal 
        basis, and policy rationale, for not requiring downward 
        adjustment of the PAL for Reasonably Available Control 
        Technology (RACT) and Maximum Achievable Control Technology 
        (MACT) requirements? What evidence does EPA find in the statute 
        or its legislative history for the apparent belief that 
        Congress did not intend air quality to benefit by the emissions 
        reductions achieved by RACT and MACT requirements?
          (d) Under today's rules governing netting, may a source use 
        emissions reductions required by applicable requirements as 
        netting credits? [Check: Is the answer to this Yes? If so, then 
        drop this question.]

    (v) Control requirements for new and existing units under the PAL:

          (a) OAR expresses the intent to require no controls for new 
        and existing units under the PAL. (5) Identify all comments 
        from State and local officials, environmental groups, and 
        public health organizations supporting and, separately, 
        opposing, this approach. Identify all comments or statements 
        supporting this approach submitted by industry representatives. 
        If there are numerous industry comments that are responsive, 
        you may provide a representative selection.
          (b) The failure to require controls for new or existing units 
        under a PAL would appear to produces a dirtier outcome than 
        requiring such controls; if you disagree, please explain. In 
        light of this, what is the policy rationale for refusing to 
        require new or existing units under a PAL? What is the legal 
        rationale? By failing to require such controls, how does EPA 
        believe it is carrying out the statutory purpose of requiring 
        grand fathered existing facilities to clean up over time?
          (c) OGC disagrees with OAR's claim that a ``P4 study'' and 
        EPA's experience with PALs can be generalized given the ``self-
        selecting nature'' and ``limited number'' of the sources 
        covered. What evidence is OAR relying upon in support of its 
        apparent belief that all sources eligible for the PAL recently 
        announced by EPA will control new units when not required to do 
        so? What differences exist between the sources covered by EPA's 
        P4 study and the universe of sources eligible for the PAL 
        planned for adoption by EPA? Does EPA believe that sources 
        given a choice between a PAL and the traditional form of NSR 
        regulation for modifications will select the option with the 
        greater air quality benefits? What evidence is EPA relying upon 
        in support of its belief? What evidence is EPA aware of that 
        contradicts this belief?

    (vi) PAL renewal-setting level: The chart reveals OAR's intention 
to require no adjustment downward to the PAL upon renewal. OAR also 
intends to allow PALs to be renewed at the same level as the original 
level, and therefore not use the actual emissions baseline existing at 
the time of renewal. (7)

          (a) Would this approach allow a source with actual emissions 
        well below the PAL to increase its emissions at any time in the 
        future without control, consuming increment in an attainment 
        area, for example, so long as other applicable requirements 
        were not violated (e.g., no NAAQS violation)?

    Response. We believe that intra-agency discussions and 
correspondence are internal and non-discoverable. Our policy and legal 
justification for these rules will be set out in the final packages. 
The data and information accumulated during the 10-year rulemaking 
effort will be included in the public docket.

    Question 38c. Clean Unit Test:

          (i) What triggers NSR:
          (ii) Duration:
          (iii) Availability:
          (iv) Process to Qualify:
          (v) Application of Clean Unit designation to past 
        determinations:

    Response. We noted in our June 13th Report and Recommendations that 
EPA plans to finalize a 10-year duration for the Clean Unit provision, 
but also propose to later revise the duration to 15 years. We will not 
take final action on the 15-year proposal until after providing ample 
opportunities for public comment.

    Question 38d. Revised ``Major Modification'' Test For Existing 
Emissions Units

          (i) [Several categories of inquiries to include from chart]

    Response. This question makes reference to categories of inquiries 
from a chart. We did not receive a chart with such inquiries, so are 
not able to provide a response.

    Question 39a. Modification as Any Physical Change or Change in the 
Method of Operation.--For the NSPS and NSR programs, the Clean Air Act 
defines ``modification'' as ``any physical change in, or change in the 
method of operation of, a stationary source which increases the amount 
of any air pollutant emitted by such source or which results in the 
emission of any air pollutant not previously emitted.'' 42 U.S.C. 
Sec. 7411(a)(4) (emphasis supplied). As the United States Court of 
Appeals for the 7th Circuit noted in its decision, Wisconsin Electric 
Power Company v. EPA, 893 F.2d 901, 908-909 (Jan. 19, 1990), referring 
to the views of one of the congressional architects of the 1977 Clean 
Air Act amendments:
    The Supreme Court reported in Chevron that Senator Muskie, one of 
the principal supporters of the Clean Air Act, remarked: ``A source . . 
. is subject to all the nonattainment requirements as a modified source 
if it makes any physical change which increases the amount of any air 
pollutant. . . .'' 467 U.S. at 853, 104 S.Ct. at 2787 (quoting 123 
Cong. Rec. 26847 (1977)) (emphasis supplied). And other courts 
considering the modification provisions of NSPS and PSD have assumed 
that ``any physical change'' means precisely that 893 F.2d at 908. The 
court concluded that to adopt WEPCO's more narrow definition of 
``physical change'' would ``open vistas of indefinite immunity from the 
provisions of NSPS and PSD.'' Id. at 909.
    What evidence, if any, does EPA find in the Clean Air Act's 
language or legislative history to contradict the conclusion that the 
language ``any physical change in, or change in the method of operation 
of, a stationary source'' is meant to be read as broadly as this 
language reads on its face, as broadly as the 7th Circuit did in the 
WEPCO decision, and as broadly as numerous other courts have read this 
language?
    Response. Please see the response to Question 37.

    Question 39b. EPA has made the claim that Congress did not intend 
for pollution control projects to be a physical change or change in the 
method of operation subject to NSR, notwithstanding whether pollution 
increases, including significant or toxic pollution increases, resulted 
from such projects. See 57 Fed. Reg. 32319. The ``pollution control and 
prevention project'' exclusion announced by the Administration appears 
to rest on this same assertion. In addition, several other pollution-
increasing activities excluded from NSR under the Administration's 
announced plans also appear to rest on the claim that those activities 
are not physical changes or changes in the method of operation at a 
stationary source within the meaning of the Clean Air Act.
    For the following activities and measures, what evidence, if any, 
does EPA find in the Clean Air Act's language or legislative history to 
support the claim that these activities are not covered by the language 
``any physical change in, or change in the method of operation of, a 
stationary source''? Please quote that language and provide all 
necessary citations.

          (i) Pollution control and prevention projects, as defined by 
        EPA in its WEPCO rulemaking or June 13, 2002 announcements, 
        including those that ``increases the amount of any air 
        pollutant emitted by such source or which results in the 
        emission of any air pollutant not previously emitted.''
          (ii) Changes, investments or processes occurring at a ``clean 
        unit'' as defined by EPA in its June 13, 2002 announcement 
        about a ``clean unit exclusion,'' including any activity 
        associated with those units that ``increases the amount of any 
        air pollutant emitted by such source or which results in the 
        emission of any air pollutant not previously emitted.''
          (iii) ``Routine maintenance, repair, or replacement'' 
        activities as set forth in the Code of Federal Regulations, 
        including those that ``increase the amount of any air pollutant 
        emitted by such source or which result in the emission of any 
        air pollutant not previously emitted.''
          (iv) Activities covered or potentially covered by the 
        ``routine maintenance, repair, and replacement'' safe harbor 
        proposal described by EPA on June 13, 2002.
    Response. Please see the response to Question 37.

    Question 40a. Public Participation in Permit Actions for Pollution-
Increasing Activities in Their Communities
    The announced changes appear likely to drastically reduce the 
number of modifications to existing major sources that undergo NSR, 
particularly in nonattainment areas. By avoiding major NSR, these 
changes will also avoid the public scrutiny provided through NSR.
    Has EPA done any analysis to determine how many of those source 
activities--previously treated as modifications subject to NSR/PSD but 
now exempt from NSR/PSD as a result of EPA's planned changes will be 
subject to State minor NSR programs pursuant to Clean Air Act section 
110(a)(2)(C)? If so, please provide the Agency's best estimate; if not, 
please explain why.
    Response. EPA will be prepared to discuss these issues as they 
relate to the final rules upon publication. There may also be subjects 
we can appropriately explore on aspects of the proposed rule once a 
Notice of Proposed Rulemaking has been published.

    Question 40b. EPA regulations require Federal, federally delegated, 
and SIP-approved State minor NSR programs to provide opportunities for 
public comment and review for all new minor sources and ``minor 
modifications'' at existing sources. See 40 CFR Sec. Sec. 51.161 
51.164. How many State SIP-approved minor NSR programs, and federally 
delegated State minor NSR programs currently provide opportunities for 
public comment and review consistent with these Federal regulations? 
How many do not? How many ``SIP calls'' or other corrective actions has 
EPA undertaken with respect to State minor NSR programs that are 
inconsistent wit these Federal regulations? Does EPA plan to require 
States to take corrective actions to their State minor NSR programs 
that are inconsistent wit these Federal regulations, by the time EPA 
adopts final changes to its NSR regulations?
    Response. At the current time, most States have minor NSR programs 
that have been approved into the States' SIPs. We are aware that there 
are concerns that some of these SIPs (which we approved through notice 
and comment rulemaking) may not comport with the requirements in our 
regulations. However, we have not made any determination that any 
specific program is inadequate. We plan to review this issue in the 
future and, if appropriate, take the appropriate actions to ensure that 
all programs comport with our regulations.

    Question 41a. Federalism, State Preemption, and Criticisms by State 
Air Regulators.--In its 1996 NSR rulemaking proposal, EPA proposed to 
adopt the rule changes ``as a menu of options from which a State may 
pick and choose in order to customize a specific approach for its 
individual needs.'' 61 Fed. Reg. 38250, 38253 (July 23, 1996). EPA 
explained this approach as follows : ``For instance, if EPA adopts in 
its final rulemaking both the 'Clean Unit' exclusion and the PAL 
option, a State could retain its current federally approved 
applicability approach without making changes, retain its existing 
approach and add a Clean Unit Test, or retain its existing approach and 
add both a Clean Unit Test and an option for PAL.''
    How many comments from State or local officials did EPA receive 
opposing the proposal to allow States the option to adopt or decline to 
adopt the various rule changes? How many comments from State or local 
officials did EPA receive supporting this proposal? Please attach both 
supportive and non-supportive State and local comments.
    Response. EPA has already provided a complete set of all comments 
received on the NSR proposed rules. We are currently preparing a 
complete summary of these comments and our responses. This ``response 
to comment'' document will be available when the regulations are 
published.

    Question 41b. Will EPA reject the approach set forth in its 1996 
proposal and force States to adopt any or all of the changes to the NSR 
regulations, regardless of whether a State wishes to adopt those 
changes, regardless of whether a State believes the changes will weaken 
their current regulations, or regardless of whether a State believes 
one or more of the changes would degrade air quality or hamper State 
efforts to attain or maintain the NAAQS? If EPA has not reached a final 
decision on this question, is EPA considering forcing these changes 
upon States opposed to adopting them? If EPA has decided this or is 
considering doing this, how does EPA reconcile this position with Clean 
Air Act section 116, which (1) retains State authority to adopt or 
enforce ``any standard or limitation respecting emissions of air 
pollutants or any requirement respecting control or abatement of air 
pollution, and (2) prohibits States or political subdivisions from 
adopting or enforcing any emission standard or limitation which is less 
stringent than standards or limitations under an applicable 
implementation plan or sections 110, 111 or 112 of the Act?
    Response. Until such time as the NSR Reform rulemaking package is 
published, it would be premature to say what the Agency will reject or 
accept relating to State regulations.

    Question 41c. In a January 23, 2002 letter to Administrator Whitman 
from the State and Territorial Air Pollution Program Administrators 
(STAPPA) and Association of Local Air Pollution Control Officials 
(ALAPCO), the nation's State air regulators expressed deep concerns 
about the closed process conducted by EPA in the all-important months 
preceding announcement and adoption of changes to the NSR program 
regulations. These State officials also expressed serious concerns 
about the directions of EPA's changes and ``the impact that these 
changes will have on our nation's ability to achieve and sustain clean, 
healthful air.'' The serious concerns held by these officials were not 
assuaged by EPA's June 13, 2002 announcements, with a response 
statement released by STAPPA/ALAPCO on that date noting that 
``[n]othing in EPA's announcement today indicates that the Agency has 
revised its NSR reform plans to address our concerns.'' This statement 
reiterated the States' displeasure over EPA's refusal to ``convene a 
broad stakeholder meeting to allow for an open dialog on the reforms 
under consideration.'' The State air regulators' statement ended with 
this chilling conclusion: ``we believe the controversial reforms being 
pursued by EPA will not only result in unchecked emission increases 
that will degrade our air quality and endanger public health, they will 
also undermine the chances of any responsible changes to the NSR 
program ever taking effect.''
    Please explain why the Administration has failed to address the 
concerns of State regulators with respect to the issues identified 
below. In addition, provide a detailed response to the specific 
criticisms that STAPPA & ALAPCO levels at these issues; if you disagree 
with these criticisms, explain in detail why STAPPA & ALAPCO are wrong. 
Finally, explain all analysis undertaken by EPA with respect to these 
issues that contradicts the conclusion by STAPPA & ALAPCO that ``the 
controversial reforms being pursued by EPA will . . . result in 
unchecked emission increases that will degrade our air quality and 
endanger public health.'' Attach all documents reflecting or supporting 
that analysis.
    Response. In 1992, EPA empaneled a Federal advisory committee 
(FACA) for the sole purpose of investigating whether NSR could be 
improved and, if so, how. STAPPA and ALAPCO were charter members of 
this FACA. After nearly 4 years of extensive consultation and hard 
work, EPA published a proposed rule addressing many of the ideas 
developed during this multi-year effort. Between the 1996 proposal and 
January 2001, EPA held two public hearings and more than 50 meetings 
with a variety of stakeholders including environmental groups, 
industry, and State, local and Federal Agency representatives. Over 600 
detailed comments have been submitted to EPA between 1992 and 2001.
    In response to the President's recent request for EPA's review of 
the NSR program, the Agency met with more than 100 groups, held four 
public meetings around the country, and received more than 130,000 
written comments. Moreover, over the years, EPA has seldom turned down 
a request to meet with any stakeholder group that wishes to discuss 
improving NSR. STAPPA and ALAPCO have been long-time and active 
participants in this process. The claim that this has been a ``closed 
process'' are obviously baseless.
    We disagree that our NSR reforms will result in ``unchecked 
emissions increases.''

    Question 42a. Air Quality Impacts.--In the 1996 rulemaking 
proposal, EPA stated that it had prepared a draft Regulatory Impact 
Analysis (RIA) for the proposed regulations and included that draft RIA 
in the docket for the proposed regulations. 61 Fed. Reg. at 38318. With 
that document as background and context, please explain the bases for 
the following estimated impacts:
    (i) Revising the period for establishing the baseline for actual 
emissions from which to calculate emission increases to the highest 
consecutive 12 months in the previous 10 years would cause 20 percent 
fewer sources to be classified as major;
    (ii) Adding exemptions for pollution control projects and clean 
units would cause another 6 percent of sources to be classified as 
major;
    (iii) Allowing sources to use projected future actual emissions in 
calculating whether increases in emissions resulting from physical or 
operational changes trigger NSR would exclude an additional 25 percent 
of sources from major NSR.
    Please identify differences between the proposed regulations and 
the planned final regulations that could alter these estimated impacts 
(for example, if every permitting authority were required to adopt a 
pollution control project exclusion, the number of exempt sources would 
likely be higher than it would have been if the exclusion were 
optional).
    Response. (i) & (ii) In preparation of the 1996 RIA for the 
proposed NSR Reform package, the Agency had several choices for its 
analytical baseline. Since it was the most recent analysis of the NSR 
process at the time, the Agency chose to use the baseline from the ICR 
prepared in 1994. From that baseline, to determine the expected number 
of permits affected by the NSR Reform rule, EPA analyzed Standard 
Industrial Code (SIC) groups which tend to have the greatest number of 
NSR permits each year. Three major changes impacted the number of 
sources which must undergo major NSR in the 1996 RIA: a new 
applicability test for ``Clean Units'', a change in the netting 
baseline, and an exemption for Pollution Control Projects (PCPs). The 
number of sources not subject to permitting under the major NSR through 
these programs is not additive. However, the Agency expected the effect 
of this double-counting to be negligible and therefore double counting 
was ignored. Combining all the applicability changes above, the Agency 
estimated there are approximately 340 sources that would have been 
subject to major NSR and would not have needed an NSR permit as a 
result of the proposed changes. We note that the environmental benefits 
of the NSR programs are not necessarily tied to the number of permits 
actually issued or that on the basis of certain assumptions, might be 
required under the program.
    (iii) The 1996 RIA for the NSR Reform program also claimed an 
actual-to-future-actual applicability test, in conjunction with an 
extension to the actual emissions baseline, could reduce the number of 
affected sources (from the 1995 baseline) by 25 percent. As with the 
determination of the expected effect of the other programs addressed in 
this question, there are no data available upon which the Agency could 
rely for its initial assessment of that impact. EPA polled industry 
experts and State and local permitting experts on the potential impact 
of the actual-to-future-actual applicability test and included a 
representative (and conservative) estimate from that polling process in 
the 1996 RIA.

    Question 42b. Please explain how EPA has revised its RIA and 
provided an opportunity for permitting authorities, members of the 
public, and regulated entities to comment on the revised RIA.
    Response. The public was afforded an opportunity to comment on this 
RIA at the time of the 1996 proposal. Very few comments were received. 
The RIA for the final rule and additional analyses of the final rule 
will be placed in the docket when EPA publishes the rule.

    Question 42c. Please explain how EPA has responded to comments on 
the additional analysis conducted to assess the impacts of the 
regulations as the Agency plans to finalize them.
    Response. EPA considered the comments submitted on the 1996 
proposed rule. A complete summary of these comments and our responses 
will be available when we publish the rules.

    Question 42d. If the Agency does not plan to conduct further 
analysis relevant to the rules that the Agency has announced plans to 
finalize, on what basis would the Agency justify that decision?
    Response. Until we publish the proposed regulations, EPA continues 
to work on analyzing the impacts of different regulatory options. All 
analyses that are conducted will be available at the time the rules are 
published.

    Question 42e. Have any EPA offices, personnel, or contractors 
worked to estimate the impacts of changing the NSR regulations (either 
as proposed or in any other way) more recently than the draft RIA 
described in the proposal? If so, please describe those activities and 
their subject, scope, work product, conclusions, and outcome.
    Response. EPA continues to work on analyzing the impacts of 
different regulatory options. All analyses that are conducted by EPA 
offices, personnel, or contractors will be available at the time the 
rules are published.

    Question 43. The ``clean unit exclusion'' announced by the 
Administration would provide that emissions increases from a qualifying 
unit ``would only trigger NSR if permitted allowable emissions 
increase.'' The Administration claims that ``[t]he Clean Unit Exclusion 
would provide greater certainty and flexibility for changes at clean 
emission units without sacrificing the environmental benefit provided 
by the current program or meaningful public participation.'' In stark 
contrast, EPA previously has noted the following about NSR exemptions 
turning upon whether a source's potential to emit increases:
    An exclusion of projects that do not increase a source's potential 
to emit would create an exclusion that could considerably reduce the 
effectiveness of the NSR program. Almost any modernization that a 
source undertakes has the incidental effect of lowering emissions. A 
new emissions unit or modernization generally has fewer emissions than 
one built 40 years earlier. Since these types of changes would not 
likely increase a source's potential to emit, industry would claim this 
as a pollution prevention project--even though its pollution prevention 
aspects are likely to be negligible and actual emissions may increase 
dramatically due to increased utilization. ``Responses to Issues Raised 
by Industry on Clean Air Act Implementation Reform,'' (May 30, 1995), 
at 20 (Response to Issue 3: Pollution Prevention Exemption)
    On what basis does EPA now conclude that a clean unit exclusion, 
applied retroactively and prospectively, and turning upon whether the 
unit's permitted allowable emissions increase, would not ``considerably 
reduce the effectiveness of the NSR program.'' What analysis has EPA 
undertaken to support this conclusion and to contradict its earlier 
conclusion?
    Response. In 1996, EPA proposed and took comment on an alternative 
applicability test based on a ``potential-to-potential'' test. The 
Agency expressed many concerns with the environmental impact of such an 
approach. However, we also received many comments that support this 
approach based on the benefits such an approach provides. For example, 
commenters stated that it would reduce the complexity of the NSR 
applicability determination, reduce unnecessary costs and delays, 
prevent the confiscation of unused capacity, and improve compliance and 
enforcement. The Clean Unit test we are currently considering would 
capture the benefits of a potential-to-potential test but adds 
additional safeguards to ensure environmental protection because the 
installation of clean units represent state-of-the-art emissions 
controls that will have undergone public review and a review for 
impacts on air quality.

    Question 44. If the 1.5-15 percent capital investment threshold 
being contemplated for the changes to the definition of routine 
maintenance, repair and replacement safe harbor were in place at the 
time of the alleged NSR violations by utilities and refineries, how 
many, if any, of the alleged violations prosecuted since initiation of 
EPA's NSR enforcement initiative would have qualified for the safe 
harbor? For any activities qualifying for the safe harbor and avoiding 
NSR pollution controls, how many tons of pollution, on an annual and 
total basis, would have been allowed to increase potentially 
uncontrolled since the time of the modification?
    Response. The capital investment threshold concept is still in the 
pre-proposal stage. The issues presented in this question will be 
addressed in the proposal.
                                 ______
                                 
         New Source Review: Report to the President, June 2002
       Recommended Improvements to the New Source Review Program
    The President's National Energy Policy Report directed the U.S. 
Environmental Protection Agency (EPA), in consultation with the 
Department of Energy (DOE) and other relevant agencies, to review the 
New Source Review (NSR) program and to issue a report on the impact of 
the program on investment in new utility and refinery generation 
capacity, energy efficiency and environmental protection. Having 
carefully considered the comments received during this review and other 
relevant information, EPA has identified the following ways in which to 
reform existing rules and guidance to improve and streamline NSR 
applicability provisions. Also, with respect to electricity generators 
and refiners, these changes will help to address the extreme demands 
being placed on our nation's energy supply infrastructure. These 
changes would assure that the NSR program operates in a manner that 
provides greater regulatory certainty and flexibility for business 
investment decisions, while at the same time protecting the 
environment.
               (1) plantwide applicability limits (pals)
    EPA would finalize its 1996 NSR reform proposal for PALs by 
allowing source owners to make changes to their facilities without 
obtaining a major NSR permit, provided their emissions do not exceed 
the plantwide cap. A source could apply for and obtain a PAL based upon 
its actual emissions baseline. The actual emissions baseline would be 
determined according to the method described in Section 4, below. The 
framework of the actual PAL requirements is as follows: PALs would be 
valid for a term of 10 years. Once a PAL is established at a facility, 
the company may make any change without undergoing major NSR provided 
the emissions do not increase above the PAL level. Upon renewal of the 
PAL, the emissions levels set by the PAL may be reevaluated by the 
State or local permitting authority to determine the need for an 
adjustment based on air quality needs, advances in technology and 
control cost effectiveness considerations. A PAL may be increased 
provided certain criteria are met. If the area is nonattainment, the 
State must provide an opportunity for public participation, model the 
increase as appropriate, apply control technology to the changed or new 
emissions unit and secure the necessary offsets. If the area is in 
attainment, the State must provide an opportunity for public 
participation, model the increase, apply control technology to the 
changed or new emissions unit and undertake any mitigation measures 
that might be required. Using this approach, we also plan to develop an 
alternative that would give a source the option of obtaining a PAL 
based on allowable emissions.
    We believe that PALs offer a number of advantages for industry, 
permitting authorities and the environment. First, PALs provide 
certainty and operational flexibility. Source owners would be able to 
make any change to their facilities without obtaining a major NSR 
permit, provided their emissions do not exceed the plantwide cap. We 
believe the cap ensures environmental protection and that facility 
owners that use PALs will have the incentive to install good controls 
to maximize their flexibility and certainty. Finally, the public 
obtains a complete picture of the emissions profile of the source and 
is assured that there is an opportunity for public participation in the 
event emissions are increased in the future.
                        (2) clean unit exclusion
    EPA would finalize its 1996 proposal for the Clean Unit Exclusion. 
A unit would be considered to be ``clean'' if it underwent a review 
process that resulted in its achieving Federal Best Available Control 
Technology (BACT) or Lowest Achievable Emission Rate (LAER) control 
levels or comparable State minor source BACT. A clean unit would only 
trigger NSR if permitted allowable emissions increase. This exclusion 
would provide an incentive for source owners to install the best 
emission controls on new or modified emission units. Specifically, a 
source that underwent a valid BACT/LAER process or State minor source 
BACT since 1990 would be entitled to the exclusion. The exclusion would 
be valid for 10 to 15 years and would run from the date the control 
technology was installed or the project was implemented. Sources that 
installed Maximum Achievable Control Technology (MACT), Reasonably 
Available Control Technology (RACT) or undertook pollution prevention 
that required capital expenditures could also qualify for the 
exclusion, provided the results are determined to be comparable to BACT 
or LAER that would have been employed at the time the control measures 
or devices were originally installed. Finally, sources that invest 
capital to purchase equipment or implement processes that are 
inherently clean or lower emitting and which achieve emission 
reductions comparable to BACT or LAER at the time the investment was 
made would also qualify for the exclusion. The Clean Unit Exclusion 
would provide greater certainty and flexibility for changes at clean 
emission units without sacrificing the environmental benefit provided 
by the current program or meaningful public participation.
             (3) pollution control and prevention projects
    The EPA's policy is to promote pollution control and prevention 
approaches and to remove regulatory disincentives to companies seeking 
to develop and implement these solutions to the extent allowed under 
the Clean Air Act. As part of finalizing its 1996 NSR reform 
rulemaking, the Agency will revise its Prevention of Significant 
Deterioration (PSD) and nonattainment NSR regulations to exclude from 
NSR projects that will result in a net overall reduction of air 
pollutants, including where a source switches to a cleaner burning 
fuel, regardless of the primary purpose of the project. Specifically, 
the Agency will revise its PSD and nonattainment regulations to exclude 
from NSR the addition, replacement or use at an existing emissions unit 
of any system, process, control or device whose overall net impact on 
the environment is beneficial, subject to certain conditions. As an 
overarching safeguard, a project cannot result in an emissions increase 
that will cause a violation of a National Ambient Air Quality Standards 
(NAAQS) or PSD increment or result in an adverse impact on Class I 
areas. Moreover, the complete replacement or reconstruction of an 
existing emissions unit will not qualify under this exclusion. For 
example, replacement of a pulverized coal boiler with an atmospheric 
fluidized bed combustion unit, with inherent NOx and SO2 
reduction technology, would not be treated as a pollution control 
project for purposes of this exclusion. Projects qualifying for this 
exclusion will not be considered to be a ``physical or operational 
change'' within the definition of major modification under the Act.

    EPA will provide a list of environmentally beneficial technologies 
that will be presumptively eligible for the exclusion. This list shall 
include those technologies identified in the WEPCO pollution control 
exclusion (40 CAR Section 52.21(B)(32)) and those set forth in EPA's 
1996 proposed NCR reform rulemaking (61 far 38250, 38261 (1996)). 
Unless covered under another NCR exclusion, pollution prevention and 
control projects that are not on this list must be determined to be 
environmentally beneficial before such projects can qualify to be 
excluded from NCR. Furthermore, new pollution control and prevention 
technologies that are not on the list also can qualify for case-by-case 
approval for this exclusion if their effectiveness in reducing 
emissions is demonstrated in practice, they are determined to be 
environmentally beneficial and their application will not cause a 
violation of a NAAQS or PHD increment or result in an adverse impact on 
Class I areas. EPA will establish a process through rulemaking for 
adding pollution control and prevention technologies to the list of 
projects that will be presumed to be environmentally beneficial.
    A source may qualify for the exclusion by providing prior notice to 
the permitting authority and maintaining records supporting the 
source's determination onsite. A source would have the option of 
seeking a determination from its permitting authority prior to 
implementing the exclusion.
           (4) actual to projected future actual methodology
    EPA would finalize its 1996 NCR reform rulemaking by using an 
actual to projected future actual methodology for calculating emissions 
increases for all industrial sectors. Owners and operators of 
facilities would calculate emissions increases for a physical change or 
change in method of operation at an existing unit by comparing 
representative pre-change actual emissions with projected post-change 
actual emissions. The ``actual to future actual'' test would be applied 
to all physical or operational changes at existing sources, except 
those that are an addition of a new unit or constitute a complete 
replacement of an existing unit. Records supporting the source's 
determination and records of actual emissions for the following 5 years 
must be maintained on site.
    Causation.--Consistent with pre-existing statutory and regulatory 
requirements, only emissions increases caused by a given change are 
considered in measuring the emissions increase associated with the 
change. In particular, as part of the actual to projected future actual 
methodology, EPA will continue to apply the causation test incorporated 
into the WEPCO rule. EPA will exclude from the emissions increase 
calculation that portion of the post-change emissions that both: (1) 
could have been accommodated before the change within the 
representative baseline period; and (2) is attributable to an increase 
in projected capacity utilization at the unit that is unrelated to the 
particular change.
    Actual Emissions Baseline.--For sources other than electric utility 
steam generating units, the actual emissions baseline will be the 
highest consecutive 24-month-period within the immediately preceding 10 
years, taking into account the current emissions factor (which would 
reflect emissions limitations, other required emissions reductions, and 
permanent shutdowns since the baseline period) in combination with the 
utilization level from the 24-month time period selected.
        (5) routine maintenance, repair and replacement (rmr&r)
    Safe Harbor Test: Through notice and comment rulemaking, EPA will 
set forth cost-based thresholds using well-established precedents from 
the Agency's longstanding New Source Performance Standard (USPS) 
regulations. Projects whose aggregated costs are below the threshold 
would automatically be given RMR&R treatment. Projects whose costs 
exceed the threshold would remain eligible for RMR&R treatment if they 
otherwise qualify, without any presumption that they did not qualify by 
virtue of their being outside the safe harbor.
    In approaching this test, we have considered two different 
provisions in the USPS standards. First, the reconstruction provisions 
of 40 CAR Section 60.15 clearly provide that capital replacement value 
of an affected source is a relevant basis for determining the need for 
installing modem pollution controls when a project is implemented. 
Second, the USPS excludes projects that increase utilization at an 
affected source if they come below ``annual asset guideline repair 
allowance'' percentage thresholds (defined by the IRS for specific 
industry categories) ranging from 1.5 to 15 percent.
    These USPS provisions would be adapted to operate in the NSR 
context. For example, the NSPS limits operate on specific projects, but 
in the context of an RMR&R safe harbor, annual dollar cost thresholds, 
averaged on a rolling basis over a 5-year period (except where 
maintenance cycles in a particular industry dictate a different period) 
established for entire utility stationary sources and refinery and 
other industry processing and production units, might be more 
appropriate. These thresholds would be applied so that if the aggregate 
cost of maintenance expenses and capital repair and replacement 
projects for the relevant unit do not exceed the specified dollar 
threshold then the activities would be deemed to be ``routine 
maintenance'' and, thus, not subject to NSR.
    The cost threshold for the relevant source or unit would be set so 
as to cover RMR&R capital and non-capital costs incurred to facilitate 
the safety, efficiency, and reliability of the operation of the unit. 
In the context of the NSPS increase in production rate exclusion, these 
are set by reference to historical invested basis. In the context of 
establishing a safe harbor for routine maintenance, repair, and 
replacement, however, a more appropriate comparison point might be 
capital replacement cost or another measure that sets a consistent 
threshold for all facilities in a given industry.
    As noted above, under the NSPS exclusion for increases in 
production rate, the annual cost thresholds are set on an industry-by-
industry basis, with an ``annual asset guideline repair allowance'' 
percentage assigned to each industry. These percentages range from 1.5 
percent to 15 percent. There is good reason to think that the industry-
specific basis and the specific percentages are appropriate in the 
RMR&R context as well. EPA would also entertain comment, however, on 
the appropriateness of the industry-specific approach and the 
appropriateness of the particular thresholds for the various industries 
in this context.
    Excluded Costs: Costs incurred for installing and maintaining 
pollution control technology would not be included in calculating costs 
under the safe harbor threshold test. EPA also would consider excluding 
certain costs associated with forced outages involving the 
unanticipated failure of one or more major components.
    Expenses Beyond the Safe Harbor: If aggregate maintenance costs of 
work undertaken exceed the applicable cost threshold, that work would 
not thereby be presumed to be non-routine.
    Other Considerations: EPA also would take comment on particular 
safe harbor implementation issues. For example, as noted above, the 
Agency intends to set thresholds at levels that will cover the RMR&R 
costs needed to facilitate the safety, efficiency, and reliability of 
operations at industrial facilities. Because expenditures that fall 
below these thresholds would automatically be excluded from NSR, the 
Agency is concerned that, in some cases, such thresholds might allow a 
facility to undertake relatively low-cost projects (such as 
installation of new burners or painting equipment) that can increase 
emissions significantly and should not automatically be excluded from 
NSR. As part of the rulemaking for setting cost-based thresholds, EPA 
could identify specific types of projects that cannot be excluded from 
review by virtue of the thresholds. However, for some types of sources, 
such as electric utilities and refineries, the better approach may be 
to utilize maximum achievable hourly emissions rate as the mechanism 
for addressing this concern.
    Definitional Issues.--Through notice and comment rulemaking, EPA 
will propose that the replacement of existing equipment with equipment 
that serves the same function and that does not alter the basic design 
parameters of the unit (for example in the case of utilities this means 
maximum heat input and fuel consumption specifications) typically would 
be considered RMR&R. In addition, this rulemaking will provide clear 
guidelines for RMR&R activities undertaken to facilitate, restore, or 
improve efficiency, reliability, availability, or safety within normal 
facility operations. EPA also will consider provisions identifying the 
types of projects that are undertaken as RMR&R activities in particular 
industrial sectors. The absence of a project from such a list would not 
disqualify it from being considered RMR&R but would simply result in 
its being evaluated on a case-by-case basis as to whether it was 
routine.
    In the case of the utility sector, equipment that is maintained, 
repaired and replaced can be categorized along functional lines (for 
example, boiler tube assemblies, air heaters, coal handling equipment, 
pumps, fans, etc.) Using these categories, EPA could identify RMR&R 
activities undertaken to facilitate reliability, availability, 
efficiency, or safety within normal facility operations. In particular, 
the EPA would focus on projects where the consequences of delaying or 
foregoing the work could lead to lower availability or the failure of 
the generating unit and create or add to safety concerns. For example, 
DOE suggests that such a rule could be informed by maintenance, repair 
and replacement activities identified as common practice by the North 
American Electric Reliability Council.
    Along the same lines, EPA could identify routine maintenance, 
repair and replacement undertaken by refineries during ``turnarounds.''
    Also in the context of RMR&R, EPA will address energy efficiency 
projects. EPA will affirm that existing NSR rules are not intended to 
discourage activities that increase efficiency. The Agency will propose 
that energy efficiency improvements undertaken through routine 
maintenance, replacement and repair activities will be considered to be 
RMR&R. In this context, energy efficiency projects will be considered 
to be routine if the improvement results from the replacement of 
existing equipment with equipment that serves the same function and 
that does not alter the original design parameters of the unit (for 
example in the case of utilities this means maximum heat input and fuel 
consumption specifications).
    EPA will also take steps to provide additional certainty about 
RMR&R activities during the pendency of this rulemaking.
                          (6) debottlenecking
    Through notice and comment rulemaking, EPA will clarify that, when 
calculating actual emissions associated with a physical change or 
change in the method of operation, sources generally should look only 
at the unit undergoing the change. Emissions from units ``upstream'' or 
``downstream'' of the unit being changed should be considered only when 
the permitted emissions limit of the upstream or downstream unit would 
be exceeded or increased as a result of the change.
                            (7) aggregation
    Through notice and comment rulemaking, EPA would clarify its 
nonaggregation policy as follows. For purposes of determining NSR 
applicability, a project would be considered separate and independent 
from any other project at a major stationary source unless (1) the 
project is dependent upon another project to be economically or 
technically viable or (2) the project is intentionally split from other 
projects to avoid NSR. Also, EPA generally would defer to the States to 
implement the Agency's aggregation rule.
               NEW SOURCE REVIEW: REPORT TO THE PRESIDENT
                                Overview
    The New Source Review (NSR) program is one of many programs created 
by the Clean Air Act to reduce emissions of air pollutants--
particularly ``criteria pollutants'' that are emitted from a wide 
variety of sources and have an adverse impact on human health and the 
environment. Other key programs include the Title IV Acid Rain Program, 
``MACT'' standards and other air toxics standards, New Source 
Performance Standards, the 22-state NO, ``SIP Call,'' the Regional Haze 
Program, numerous mobile source programs, and other State and local 
SIP-based emissions standards. Government officials from both major 
political parties and industry groups have expressed the belief that 
the NSR program is unnecessarily complicated and often serves as an 
unnecessary obstacle to environmentally beneficial projects in the 
energy sector, such as those that improve energy reliability and 
efficiency and promote the use of renewable resources.
    The President's National Energy Policy Development Group asked EPA 
to investigate whether the NSR program does, in fact, have such 
impacts. The Agency's review of the NSR program was broad-based. EPA 
held four public hearings, had individual meetings with over 100 groups 
representing the public, industry and State and local agencies, and 
reviewed over 130,000 comments from private citizens, environmental 
groups, State officials and industry representatives.
    With regard to the energy sector, EPA finds that the NSR program 
has not significantly impeded investment in new power plants or 
refineries. For the utility industry, this is evidenced by significant 
recent and future planned investment in new power plants. Lack of 
construction of new greenfield refineries is generally attributed to 
economic reasons and environmental restrictions unrelated to NSR.
    As applied to existing power plants and refineries, EPA concludes 
that the NSR program has impeded or resulted in the cancellation of 
projects which would maintain and improve reliability, efficiency and 
safety of existing energy capacity. Such discouragement results in lost 
capacity, as well as lost opportunities to improve energy efficiency 
and reduce air pollution.
    For the refining and other industries, EPA concludes that NSR as 
applied to existing plants discourages projects that would have 
provided needed capacity or efficiency improvements and would not have 
increased air pollution--in fact in some cases air pollution may have 
decreased. EPA believes this can result in lost capacity or foregone 
opportunities to increase capacity without increasing emissions.
    Finally, with regard to environmental protection, EPA concludes 
that preventing emissions of pollutants covered by NSR does result in 
significant environmental and public health benefits. Specifically 
quantifying the NSR program's contribution to these benefits is very 
difficult because of the variety of Clean Air Act programs that address 
these pollutants and because there is no tracking by any government 
agency of the reductions in emissions that sources make due to the 
program. Moreover, EPA recognizes that the Agency does not currently 
have other information that would be necessary to quantify risk 
reduction benefits associated with the program. However, EPA believes 
that the inability to make exact estimates does not mean that the 
benefits of the NSR program are insignificant. EPA also believes, 
however, that for particular industry sectors the benefits currently 
attributed to NSR could be achieved much more efficiently and at much 
lower cost through the implementation of a multi-pollutant national cap 
and trade program. In particular the President's Clear Skies initiative 
is a much more certain and effective way of achieving emissions 
reductions from the power generation sector.
    For virtually the entire history of the NSR program, 
representatives of industry, State and local agencies, and 
environmental groups have worked with EPA on developing improvements to 
the NSR program. These efforts came to a head in 1996, when EPA 
proposed a rule to ``reform'' the NSR program. Even after the proposal, 
stakeholders have invested countless hours in trying to find ways to 
make the program better. Based on the conclusions of this study and the 
recommendations from the State Governors and Environmental 
Commissioners\1\ and other stakeholders, EPA now plans to finish the 
task of improving and reforming the NSR program.
---------------------------------------------------------------------------
    \1\ See, Resolution Number 01-12, Environmental Council of States 
on Reform of the New Source Review Regulations dated August 28, 2001, 
National Governors Association Policy Position, NR-18 Comprehensive 
National Energy Policy; Section 18.6.
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                          i. the charge to epa
    In its May 2001 National Energy Policy Report, the National Energy 
Policy Development (NEPD) Group recommended that the Administrator of 
the Environmental Protection Agency (EPA), in consultation with the 
Secretary of Energy and other Federal agencies, ``review New Source 
Review regulations, including administrative interpretations and 
implementation, and report to the President within 90 days on the 
impact of the regulations on investment in new utility and refinery 
generation capacity, energy efficiency, and environmental protection.'' 
Consistent with this recommendation, EPA conducted its examination and 
is now issuing this report. This report describes EPA's conclusions 
about the impacts of NSR on these three issues based on its review of 
the available information and comments.
                             ii. background
    EPA assembled an interagency team for this project, including 
representatives from the Department of Energy (DOE), Department of the 
Interior (DOI), Office of Management and Budget (OMB), White House 
Council on Environmental Quality (CEQ), and the National Economic 
Council (NEC). In consultation with this group, EPA prepared a 
background paper, which was released on June 22, 2001 (EPA Background 
Paper). This paper described available data relevant to the three 
issues EPA was charged with reporting on: investment in utility and 
refinery capacity, energy efficiency, and environmental protection. The 
background paper included EPA's own data, as well as data provided in a 
supporting report by ICF Consulting Inc. (ICF Report), which summarized 
ICF's survey of the available literature and public statements on NSR 
issues. The background paper presented the data to facilitate public 
comment, and to provide the opportunity for external reviewers to 
provide additional relevant data. The background paper did not draw 
conclusions or make recommendations.
    Following the background paper's release, EPA initiated an 
intensive public outreach effort, consisting of three components: (1) a 
30-day public comment period; (2) a series of four public hearings held 
in locations across the country; and (3) a series of meetings with more 
than 100 stakeholder groups, including environmental organizations, 
industry representatives, and. State and local governments. During this 
public outreach period, EPA received written comments from over 130,000 
individuals and organizations. A total of 255 people testified at the 
four hearings. All of the materials received during the public outreach 
period, including written comments, transcripts of the hearings, and 
attendance lists and written materials in connection with the 
stakeholder meetings, are available in public docket number A-2001-19 
at the EPA's Office of Air and Radiation Docket and Information Center.
    This report discusses the statutory and regulatory provisions of 
the New Source Review (NSR) pre-construction permitting program. While 
the report explains the views of many parties regarding the 
requirements of the NSR program, it is not intended to affect the NSR 
program or actions that EPA has taken to implement or enforce the NSR 
program\2\. This report does not substitute for statutory provisions or 
regulations, nor is it a guidance document reflecting EPA's 
interpretation of statutory or regulatory provisions. Its purpose is to 
summarize information that EPA has received relating to the NSR program 
and to report on EPA's findings concerning whether the NSR program has 
affected investment in new utility and refinery generation capacity, 
energy efficiency, and environmental protection.
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    \2\ Note that many parties submitted comments concerning issues 
unrelated to the NEPD's recommendation for EPA to review on the impact 
of the regulations on investment in new utility and refinery generation 
capacity, energy efficiency, and environmental protection. For example, 
numerous parties offered comments as to the merits of pending NSR 
enforcement cases. This report does not summarize issues unrelated to 
the NEPD's charge.
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New Source Review
    EPA is strongly supportive of the goals of the NSR permitting 
program, whose basic requirements are established in parts C and D of 
Title I of the Clean Air Act (CAA). The purpose of the NSR program is 
to protect public health and welfare, as well as national parks and 
wilderness areas, as new sources of air pollution are built and when 
existing sources are modified in a way that significantly increases air 
pollutant emissions. Specifically, NSR's purpose is to ensure that when 
new sources are built or existing sources undergo major modifications: 
(1) air quality improves if the change occurs where the air currently 
does not meet Federal air quality standards; and (2) air quality is not 
significantly degraded where the air currently meets Federal standards. 
The fundamental philosophy underlying the NSR program is that a source 
should install modern pollution control equipment when it is built (for 
new sources) or when it makes a major modification (for existing 
sources). Congress believed that incorporating pollution controls into 
the design and construction when new units are built, or when major 
modifications occur, is generally more efficient than adding on 
controls after construction.
    The NSR program is by no means the primary regulatory tool to 
address air pollution from existing sources. The Clean Air Act provides 
for several other public health-driven and visibility-related control 
efforts: for example, the National Ambient Air Quality Standards 
Program implemented through enforceable State Implementation Plans, the 
NOx SIP Call, the Acid Rain Program, the Regional Haze Program, etc. 
Thus, while NSR was designed by Congress to focus particularly on 
sources that are newly constructed or that make major modifications, 
Congress provided numerous other tools for assuring that emissions from 
existing sources are adequately controlled. For example, the national 
cap on SO2 emissions established under the Acid Rain Program 
applies to all existing electricity generating units, without regard to 
the date of construction or whether a given source has been modified.
    NSR operates by requiring a source to obtain a permit prior to 
construction or major modification. The permit establishes various 
actions that the source must undertake to control its emissions of air 
pollution. However, NSR only applies if the construction project will 
emit air pollution that exceeds threshold levels established in the NSR 
regulations. For a new source, NSR is triggered only if the potential 
emissions qualify as major. For an existing major source making a 
modification, NSR is only triggered if the modification will result in 
a significant net increase in emissions.
    The major NSR program comprises two separate parts: Nonattainment 
NSR and Prevention of Significant Deterioration (PSD).\3\ These two 
programs have separate requirements to address the differing air 
quality planning needs in the areas where they apply. Nonattainment NSR 
applies in areas where air is unhealthy to breathe--i.e. where the 
established national ambient air quality standards (NAAQS) for a CAA 
criteria pollutant are not being met. These areas are called 
nonattainment areas. Nonattainment NSR for major sources of certain 
pollutants also applies in the federally designated ozone transport 
region (OTR), which consists of 11 northeastern States and Washington, 
D.C.\4\ PSD applies to major sources located in areas where air quality 
is currently acceptable--i.e., where the NAAQS for CAA criteria 
pollutants are being met. These are called attainment areas. Because 
nonattainment areas have poorer air quality, nonattainment NSR 
requirements are generally more stringent than PSD requirements.
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    \3\ The term NSR usually refers to the overall program, but is 
sometimes also used as shorthand to refer to nonattainment NSR, which 
may be a source of confusion. In this document, we will use NSR to 
refer to the general program (both nonattainment NSR and PSD), and will 
use nonattainment NSR when referring specifically to NSR for 
nonattainment areas.
    \4\ Connecticut, Delaware, Maine, Maryland, Massachusetts, New 
Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, 
and Washington, DC.
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  iii. impact on investment in new and existing utility and refinery 
               generation capacity--and energy efficiency
    The EPA begins by examining the question of whether the NSR program 
has an impact on investment in projects that would increase or preserve 
utility and refinery generation capacity or that would improve energy 
efficiency. We received extensive comments on this issue, reflecting 
widely varying views on whether there is an impact and, if so, on its 
nature and extent.
    In general, comments made by both the electric utility industry and 
the petroleum refining industry consistently assert that the NSR 
program has a significant and adverse impact on investment in expanding 
and preserving capacity, as well as on energy efficiency.\5\ These 
commenters assert that the program is in need of fundamental reform. 
Other industries (as discussed in Section IV below) made similar 
assertions, as did some State permitting authorities. These commenters 
said that investment is hindered by (1) regulatory uncertainty and lack 
of flexibility resulting from alleged recent policy ``re-
interpretations'' related to the applicability of the program's 
requirements; and (2) the added costs and delays imposed by the NSR 
process.\6\ Other commenters, including environmental groups and some 
State and local permitting authorities, expressed the opposite view. 
They assert that NSR does not appear to be significantly hindering such 
investment, adding that NSR has resulted in large benefits to the 
environment while allowing for increased energy and/or fuel 
supplies.\7\ One environmental commenter does not believe that there is 
sufficient information to conclude that NSR is a primary factor driving 
decisions to invest or not to invest in capacity.\8\
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    \5\ These comments were consistently raised by companies 
representing virtually all types (e.g., coal-fired; oil-fired or gas-
fired) and sizes of electric generating facilities. See, e.g., Comments 
of the Clean Energy Group (CEG) [II-D-291]; Comments of the Utility Air 
Regulatory Group (UARG) [II-D-303]; Comments of Class of `85 Regulatory 
Response Group (Class of 1985 Group) [II-D-268]; Comments of National 
Rural Electric Cooperative Associations (NRECA) [II-D-322]. The members 
of these groups, as well as individual utilities that filed comments 
expressing the same conclusion, span the entire United States. See, 
e.g., Comments of Northeast Utilities Service Company (NUSCO) [II-D-
331]; Comments of Cinergy [II-D-270]; Comments of Sunflower Electric 
Power Corporation [II-D-292]; Comments of Tri-State Generation and 
Transmission Association [II-D-335]; Comments of West Associates [II-D-
216]; Comments of Salt River Project (SRP) [II-D-320]. Even waste-to-
energy facilities agreed with this conclusion. See e.g., Comments of 
American Ref-Fuel [II-D-214]. The refining industry offered similar 
comments. See NPRA Letter to Stephanie Daigle, EPA, 7/23/2001.
    \6\ See comments by Michigan Department of Environmental Quality, 
representing a workgroup including Alabama, Michigan, North Carolina, 
South Carolina, Virginia and West Virginia permitting staff. [II-E-09].
    \7\ For other State comments, see STAPPA/ALAPCO, [II-D-313], CARB 
[II-D-468], RAPCA [II-D-302], Wisconsin, Missouri, et. al. For 
environmental groups, see, Clean Air Task Force [II-D-236], NRDC, 
Sierra Club [II-D-437], et. al.
    \8\ See Natural Resources Defense Council (NRDC) comments [II-D-
267] at 1.
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    This section discusses our conclusions based on a review of the 
available data and comments received regarding investment in new 
capacity and energy efficiency. Because the issues associated with new 
and modified source permitting differ, this paper will discuss 
separately the impact on new sources and the impact on existing sources 
undergoing changes.
A. New Sources
    Focusing first on the impacts of NSR on investment in new capacity, 
the EPA finds that NSR does not appear to have a significant impact on 
investment in new utility or refinery plants. The discussion below 
indicates that, for utilities, significant new capacity has been 
permitted in recent years and substantial additional greenfield 
capacity is planned. For refiners, decisions about whether to construct 
new greenfield refineries are primarily driven by economic and 
environmental considerations. It does not appear that NSR has a 
significant impact on these considerations.
            1. Utilities
    For electric utilities, significant new sources were permitted in 
recent years (dominated by natural gas-fired systems) and more are 
planned. The background paper noted current plans of certain companies 
to bring into service units producing more than 120 Gigawatts (GW) in 
the coming years. An analysis by the NorthBridge group, prepared for 
the Clean Air Task Force, uses RDI's NewGen data base to estimate that 
it is likely that 214 GW--and possibly as much as 400 GW--of new 
generating capacity will come online before 2005, based on a survey of 
data on plants at various stages of development.\9\ Several State 
commenters presented similar data. For example, New Jersey stated that 
it had permitted over 2500 MW of new electric generation since July 
1999, and had proposed to approve another 1700 MW in July of 2001\10\. 
Another 5800 MW of applications were under review, and another 2000 MW 
of projects were in the pre-application meeting stage. These projects 
cover 22 facilities and 49 units. This 12,000 MW will result in a 60 
percent increase over the 18,000 MW of existing generating capacity in 
New Jersey.\11\ Other States and environmental group commenters 
presented similar data.\12\ Although most of these projects will be 
subject to NSR, the program does not appear to be hindering their 
development.
---------------------------------------------------------------------------
    \9\ This 214 GW increase would represent a 30 percent increase over 
the current installed capacity level, and would restore national 
reserve margins to about 25 percent, from a low of 8 percent in 1999.
    \10\ See New Jersey DEP comments [I1-D-310].
    \11\ The State of Kentucky, in fact, put a hold on any new permit 
applications for electrical generation sources until it can analyze the 
environmental impacts of the large volume of pending permit 
applications.
    \12\ See, e.g., California Air Resources Board (CARB) [II-D-468], 
Georgia Department of Natural Resources (DNR) [II-D-341], Wisconsin DNR 
[II-G-71], STAPPA/ALAPCO [II-D-303], Clean Air Task Force [II-D-236], 
NRDC [1I-D-267] and other similar comments.
---------------------------------------------------------------------------
    In general, the DOE's experience is that far more capacity is 
planned than is ever actually realized. As it related to the analysis 
by the NorthBridge group, the DOE projects in its 2001 Annual Energy 
Outlook that only a small fraction of the capacity estimates by 
NorthBridge will actually come on line by 2005. For the period of 1999 
to 2005, DOE estimates the following:
     Overall generation will increase from 3386 billion 
kilowatt-hours (BKWH) to 3810 BKWH.
     Overall capacity will increase by 74 GW (from 745 
gigawatts (GW) to 819 GW).
     For coal-fired power plants, capacity will decrease 
slightly (from 306 GW to 301 GW), while generation increases from 1833 
BKWH to 2085 BKWH, as existing units increase their hours of operation.
     For gas-fired plants, combined-cycle units will increase 
in capacity from 20 GW to 50 GW, while generation increases from 371 
BKWH to 584 BKWH.
    While these data indicate continued expansion in new generating 
capacity, some industry commenters assert that NSR can nevertheless 
introduce costs and delays to the process of bringing new generating 
units online, as well as have an impact on fuel supply flexibility. 
Utilities cited implementation of the requirements for preconstruction 
monitoring, modeling, and consultation with Federal Land Managers, 
saying that the processing time by Federal, State and local governments 
and potential permit appeals can result in significant costs and delays 
in obtaining a permit. In particular, industry commenters, as well as 
some State permitting authorities, attribute a significant portion of 
the delay in obtaining NSR permits to the large body of NSR guidance 
that has been issued over the course of many years, by both EPA and 
State agencies administering delegated programs. This guidance 
frequently is case-specific in nature. Many commenters consider the 
guidance to be ambiguous and, in some cases, inconsistent.
    Among the various aspects of the NSR program that industry 
commenters more specifically identified as concerns for new sources 
included the following:
     How to determine which emissions control technologies 
qualify as best available control technology (``BACT'') or lowest 
achievable emissions rate (``LAER'') technology using EPA's ``top 
down'' policy and the Agency's BACT/LAER clearinghouse.
     Procedural concerns about guidance issued by Federal Land 
Managers related to permitting near Class I areas.
     The limitation on construction activities prior to 
issuance of a permit, which is of particular concern when (1) the 
permit undergoes lengthy appeals processes, or (2) the climate is cold 
and the construction season is thus shorter.
     The cost and availability of offsets in nonattainment 
areas. Commenters, particularly in California and New York, noted that 
shortages in available offsets have the potential to significantly 
increase the cost of NSR permitting in certain limited areas. 
Permitting authority commenters noted that offsets represent from 1-6 
percent of the cost of a new power plant.\13\
---------------------------------------------------------------------------
    \13\ STAPPA/ALAPCO comments [II-D-313] at 6.
---------------------------------------------------------------------------
    Commenters further stated that NSR control requirements affect fuel 
supply choices for new installations. They point out that the cost of 
air pollution control represents a much greater proportion of the cost 
of construction at coal-fired facilities than at gas-fired plants.\14\ 
Operation and maintenance costs are also higher. They believe this 
discourages investment in new coalfired plants.
---------------------------------------------------------------------------
    \14\ The primary air pollution control requirement commonly imposed 
on natural gas combustion is selective catalytic reduction, which adds 
about $30 per kilowatt to the cost of a combined cycle generation 
system. New pulverized coal systems require electrostatic precipitators 
or fabric filters for particulate matter control, scrubbers for sulfur 
dioxide control, selective catalytic reduction for nitrogen oxide 
control, and perhaps additional control technology for air toxics. 
Cumulatively, the systems needed for coal-based generation cost over 
$200 per kilowatt, and add about 20 percent to the cost of a new coal-
fired system. For a 1000 MW unit, these translate into a cost of $200 
million.
---------------------------------------------------------------------------
    Other stakeholders offered a different view. Several State and 
local permitting authorities noted that the NSR process can generally 
be accomplished in a reasonable time, and within the same timeframe as 
the other elements involved in planning of a typical electric generator 
project.\15\ Some States reported acceleration of permitting times for 
new utility sources consistent with that reported in the EPA Background 
Paper.\16\ One State commenter suggested that the perception that NSR 
is lengthy, cost-intensive, and uncertain is really not the norm, 
though it can be true in exceptional cases.\17\
---------------------------------------------------------------------------
    \15\ See, e.g., STAPPA [II-D-313] at 3, New Jersey DEP [II-D-310] 
at 2.
    \16\ See CARB [II-D-468] at 4.
    \17\ Wisconsin DNR comments [II-G-71] at 1.
---------------------------------------------------------------------------
    In EPA's experience, NSR has, in some individual cases, impeded new 
power projects. However, as a general matter, available information 
indicates that NSR typically does not represent a significant barrier 
to the construction of new electricity plants. As for the impact of NSR 
on fuel choices for new facilities, EPA notes that NSR typically does 
not require significantly greater levels of control at new coal-fired 
plants than the recently updated NSPS for large electric generating 
units. Thus, NSR itself is not the only driver with regard to air 
pollution control costs at new coal-fired units and does not appear to 
significantly influence fuel choices at new facilities.
            2. Refineries
    As noted earlier, the construction of new ``greenfield'' petroleum 
refineries in the near future seems unlikely for various economic and 
regulatory reasons, primarily unattractive profit margins. Industry has 
reported that the rates of return for refineries have averaged about 5 
percent in the last decade, roughly equivalent to the return from a 
passbook savings account, but with much greater risk. As a result, 
building new plants at new sites is highly unlikely.\18\ The EPA agrees 
with this assessment. Moreover, while any new refinery would be 
required to obtain an NSR permit, the available information does not 
indicate that NSR permitting is among the most significant impediments 
to the construction of new refineries. Refinery commenters indicate 
that any additional U.S. refinery capacity must come from either 
efficiency improvements or expansion at existing refineries (discussed 
below).
---------------------------------------------------------------------------
    \18\ See, Testimony of the National Petrochemical and Refiners 
Association (NPRA) before the Senate Subcommittee on Clean Air, 
Wetlands, Private Property and Nuclear Safety on Apr. 5, 2001.
---------------------------------------------------------------------------
B. Existing Sources
    The vast majority of concerns about NSR raised during the review 
pertained to existing sources. As discussed below, the EPA believes 
that commenters have identified areas where NSR can discourage 
investment in both preserving and maintaining utility and refinery 
generating capacity as well as in improving energy efficiency and 
expanding capacity.
            1. Utilities
    With respect to existing sources, comments from across the spectrum 
of the utility industry consistently asserted that the NSR program 
imposes significant burdens on the utility practices necessary to 
maintain the safety, availability, efficiency and reliability of the 
electricity supply at existing sources. They further assert it can have 
a highly negative impact on the nation's power supply. The result, they 
conclude, is that the program hinders investment in projects intended 
to expand and preserve generating capacity at existing electric 
generation units. In addition, as discussed below, many utility 
commenters believe that the current NSR program has actively 
discouraged efficiency improvement projects, which they believe not 
only can have net environmental benefits, but also can provide an 
effective short-term response to tight reserve margins at many 
locations in the United States. On the other hand, environmental groups 
do not believe that there is sufficient information to conclude that 
NSR is the primary factor driving decisions to invest in new capacity 
at existing sources or that, absent NSR, significant investments would 
have been made that are presently not being made in recapturing lost 
existing capacity due to deterioration of equipment. This section 
examines more closely the capacity issues at electric utilities, 
followed by the energy efficiency issues.
      a. Impact on Utility Projects to Maintain the Availability, 
          Reliability, and Safety of the Electric Power Supply
    (i) NSR Applicability.--The utility industry comments predominantly 
focused on the exclusion from major NSR permitting requirements for 
activities that represent ``routine maintenance, repair and 
replacement.'' They asserted that, in recent years, EPA has narrowed 
its interpretation of this exclusion to the point where NSR potentially 
applies to repair and replacement activities that are customarily 
undertaken within the industry to assure the availability, reliability, 
and safety of power plant operations. Commenters believe that under 
such an interpretation NSR would be required whenever the work 
involved: (1) a component that is replaced infrequently in the life of 
an industrial facility; (2) a component that is large and expensive (in 
absolute terms); or (3) a replacement component that is better designed 
and will improve the availability or efficiency of the facility.
    Thus, according to the utility commenters, because electricity 
generation units are inherently large, complex, and expensive (in 
absolute terms), most power plant repair and replacement activity would 
not be covered by the exclusion. Because of the costs and potential 
delays associated with NSR, they believe that this has discouraged 
activities intended to maintain the reliability, availability, and 
safety of existing power plants; and/or has required generators to 
limit the output of their power plants to avoid triggering NSR, 
regardless of their capacity, in order to maintain the units during 
their normal useful lives. NSR costs and delays are of particular 
concern to commenters for such changes at existing units because (1) 
while certain projects might be relatively inexpensive absent NSR, they 
believe the cost of controls resulting from NSR can make them cost-
prohibitive to undertake, which, in turn, can adversely affect the 
availability and reliability of plant operations and discourage such 
projects, and (2) they believe that units may need to be offline until 
permitting can occur, so delays in permitting can have significant 
impacts on energy supply through lost generation during this time.
    Although utilities stated that NSR-required controls are expensive 
relative to the gains associated with projects that might trigger NSR, 
other commenters noted that these costs are small compared to the 
company's revenue. The Clean Air Task Force submitted a study by MSB 
Energy Associates performed on a sample of 51 existing coal-fired 
utility units. The study concludes that if these units triggered NSR 
and had to install BACT-level controls, the cost would be modest 
relative to the size and revenue level of the companies.\19\ In the 
commenters' view, this impact is exchanged for significant 
environmental benefits, estimated at 2.8 million tons per year of 
sulfur dioxide (SO2) (22 percent of all power plant 
SO2 emissions in the United States) and 1.0 million tons per 
year of NOx (19 percent of all power plant NOx emissions in the United 
States).
---------------------------------------------------------------------------
    \19\ See Clean Air Task Force Comments [II-D-236], Appendix D.
---------------------------------------------------------------------------
    According to industry, thousands of repair and replacement projects 
are undertaken by facilities each year and that, as a result, NSR 
permitting is potentially triggered early in the life of virtually 
every electric utility plant, and then repeatedly thereafter.\20\ The 
industry commenters submitted information about the types of projects 
they stated that they typically undertake, which they maintain are 
required to ensure reliability, availability, or safety of their 
facilities, but which they believe EPA would classify as non-routine 
and therefore would potentially be subject to NSR if they resulted in a 
significant net emissions increase.\21\
---------------------------------------------------------------------------
    \20\ UARG Comments [II-D-303] at 29-32.
    \21\ UARG Comments [II-D-303] Attachment C.
---------------------------------------------------------------------------
    For example, a survey undertaken by the Tennessee Valley Authority 
(TVA) reported the frequency with which particular repair and 
replacement projects are undertaken within the electric utility 
industry.\22\ The, TVA survey covered approximately 20 percent of the 
electric utility industry--219 units totaling about 80,000 MW--and 
included a review of case studies and statistics regarding cyclone 
replacement, balanced-draft conversion, reheater replacement, and 
economizer replacement. For example, their survey States that, at the 
190 units in the survey that had reheaters, there were 213 reheater 
replacement projects (some reheaters were replaced more than once). At 
the 202 units in the survey that had economizers, there were 98 
economizer replacement projects. For both components, replacements 
occurred as early as 5 years after initiation of a unit's commercial 
operation, or as late as 40 to 50 years. Similarly, at 151 boilers 
originally constructed as forced draft systems, utilities replaced 79 
systems with balanced draft systems, primarily to address ``equipment 
degradation, maintenance problems, health and safety concerns, and 
pollution control requirements.''\23\ Finally, the TVA survey reported 
that, since 1979, 300 cyclones out of 701 had been replaced at the 96 
electricity-generating stations in the United States powered by cyclone 
boilers. UARG similarly reported a more complete, recent census of the 
entire coal-fired steam electric generating industry.\24\ This census 
sought industrywide information regarding the frequency of maintenance, 
repair and replacement activities that they believe EPA considers non-
routine. The census results are reported to show:
---------------------------------------------------------------------------
    \22\ See Jerry Golden, TVA, Routine Maintenance of Electric 
Generating Stations (February 2000) (``TVA 2000 Report''), described in 
UARG Comments [II-D-303] at 29-31.
    \23\ TVA 2000 Report at 25.
    \24\ UARG Comments [II-D-303] at 31-32.
---------------------------------------------------------------------------
     The industry has undertaken tens of thousands of such 
maintenance, repair or replacement activities;
    Every unit in the industry has undertaken such activities;
     Approximately 50 percent of the units in the industry will 
have undertaken such activity within 5 years of the unit's in-service 
date;
     Each unit in the industry undertakes on average annually 
at least one such activity.
    In short, in the view of many industry commenters, an 
inappropriately narrow routine maintenance exclusion would not exclude 
many common maintenance projects. According to these commenters, this 
would leave nearly every coal-fired generating unit in a constant state 
of obligation to evaluate whether each of these numerous projects would 
trigger NSR, and if so, whether the costs associated with NSR 
(including, if applicable, the costs of add-on controls and potential 
downtime) would render such projects cost-prohibitive. As discussed 
below, if such projects are found to be cost prohibitive, commenters 
predict steady deterioration of existing capacity, and limited 
investment in the recovery of such capacity at existing sources. Many 
industry commenters echoed this conclusion and asserted that the 
situation is unacceptable and must be corrected to reflect the real 
environment surrounding routine maintenance within the electrical 
utility industry.''\25\
---------------------------------------------------------------------------
    \25\ NRECA Comments [II-D-322] It 14-15; see also Class of 1985 
Group Comments [II-D268] at 9 (``Electric generating plant personnel 
have been placed in the untenable position of not being able to correct 
and improve the reliability and efficiency of their plants, resulting 
in compromised safety to plant employees and the general public, 
without risking an enforcement action.''); Dairyland Comments (II-D-
324) at 4 (EPA's current ``interpretation may compromise the 
reliability and efficiency of existing plants and could undermine the 
preservation of a diverse energy supply.'').
---------------------------------------------------------------------------
    On the other hand, environmental group commenters and some 
permitting authorities felt that the routine maintenance exclusion is 
appropriate. They believed that a less narrow exclusion would allow the 
exception to swallow the rule. In this vein, commenters expressed 
concerns that large-scale capital projects, such as major life 
extension projects, should not qualify as routine.\26\ One of these 
commenters expressed concern that a facility could be virtually rebuilt 
without triggering NSR under industry's preferred interpretations of 
the routine maintenance exemption\27\.
---------------------------------------------------------------------------
    \26\ See, e.g., RAPCA [II-D-302], Adirondack Council [II-D-136], 
Public Citizen [II-D327].
    \27\ Public Citizen [II-D-327].
---------------------------------------------------------------------------
    After reviewing the comments, the EPA notes that there are 
differing opinions amongst the commenters about the appropriate scope 
of the routine maintenance exemption and the resulting NSR impacts. In 
determining whether an activity is ``routine'' for purposes of being 
excluded from NSR, EPA consistently has taken a case-by-case approach, 
weighing the nature, extent, purpose, frequency and cost of the work, 
as well as other relevant factors. Nevertheless, the Agency recognizes 
that many industry commenters expressed uncertainty about the scope of 
the routine exclusion and argued that this uncertainty will cause them 
to delay or forego projects critical to maintaining the availability, 
reliability and safety of their facilities. In light of the volume of 
anecdotal evidence presented, the EPA concludes that concern about the 
scope of the routine maintenance exclusion is having an adverse impact 
on projects that affect availability, reliability, efficiency, and 
safety. Changes to the NSR program that add to the clarity and 
certainty of the scope of the routine maintenance exclusion will 
improve the process by reducing the unintended consequences of 
discouraging worthwhile projects that are in fact outside the scope of 
NSR.
    (ii) Energy Impacts.--According to utility commenters, the energy 
impact of an inappropriately narrow NSR routine maintenance exclusion 
would be adverse and potentially quite significant. In addition, the 
industry commenters stated that an inappropriately narrow exclusion 
would leave many activities potentially subject to NSR. This 
circumstance, they believe, would result in limited alternatives for 
utility managers. They describe three alternatives.
    First, utilities could go through the NSR pre-construction 
permitting process. The principal complaints against this alternative 
were protracted processing delays and the attendant costs, including 
the costs of pollution control retrofits.\28\ In addition, commenters 
feared that, if the interpretation of routine were to be narrowed, 
thousands of projects would trigger NSR per year, and would result in 
even more substantial delays by flooding the permit process with more 
permit applications than it has the capacity to process quickly.
---------------------------------------------------------------------------
    \28\ See, e.g., Class of 1985 Group Comments [II-D-268] at 9-10.
---------------------------------------------------------------------------
    Second, a company could accept enforceable emissions limits 
(through a ``minor'' NSR permit) in the form of a cap on emissions from 
the affected units.\29\ Commenters stated, however, that acceptance of 
such a cap would require a utility to limit the affected unit's hours 
of operation and production rates to representative emission levels 
just prior to the change, which could restrict the electricity supply 
in a particular area.\30\ Commenters also could limit emissions by 
adding pollution control technology, but commenters felt this was also 
not a workable NSR avoidance strategy because it also could be 
infeasible, cost-prohibitive, and would only be a temporary 
solution.\31\ Moreover, commenters stated that the delays associated 
with the minor NSR process required to create the limit still severely 
impact a unit's ability to replace components necessary to get back 
online quickly after a forced outage.\32\ For example, when a turbine 
rotor shaft cracks or slag falls and destroys a boiler floor, the 
utility must repair the component as quickly as possible and restore 
the unit to service. Commenters claim that, if the necessary repairs 
were not considered routine maintenance, repair and replacement, the 
repair could not be made until the source obtained an NSR permit. In 
the meantime, the commenters believe that the utility could lose the 
entire capacity of the unit, which could endanger the stability of the 
electrical grid and create a risk of regional blackouts.\33\
---------------------------------------------------------------------------
    \29\ Commenters also complained of delays in the minor NSR 
permitting process (an average of 3-8 months in one utility's service 
area.) See Jerry L. Golden & Donald P. Houston, TVA, Impacts of EPA's 
Reinterpretation of New Source Review Requirements--Potential Loss of 
Generating Capability on the TVA System, at 8 (July 19, 2001) (``TVA 
2001 Report'') (Attachment E to UARG Comments [II-D-303]).
    \30\ See UARG Comments at 39-42; see also EPA Background Paper at 
7.
    \31\ See UARG comments at 39-42.
    \32\ See, e.g., Class of 1985 Group Comments [II-D-268] at 7, TVA 
2001 report at 7 (Attachment E to UARG Comments [II-D-303]).
    \33\ See, e.g., id.
---------------------------------------------------------------------------
    Commenters also argued that avoiding NSR by accepting caps on 
emissions through operational limits would constrain electrical system 
operators' flexibility to deliver necessary electricity at the least 
cost. In this regard, several utilities analyzed their systems to 
estimate the restrictions on their ability to produce electricity, had 
what they consider to be a narrow interpretation of the routine 
exclusion been applied over the last 20 years and had the utilities 
elected to obtain minor NSR permits limiting generation to recent 
levels in every instance they undertook certain replacement projects.
    For example, TVA (serving approximately 2.3 million homes in the 
Tennessee River Valley),\34\ reported that, over the last 20 years, it 
would have lost 32 percent of its coal system's energy capability, or 
34 million megawatt-hours (MW-hr) annually. In a similar analysis, the 
Southern Company found that, by the year 2000, it would have had an 
energy shortfall of 57.5 million MW-hr, and that it would not have been 
able to meet 38 percent of its customer demand.\35\ Similarly, First 
Energy estimated that it would have lost 39 percent of its coal-fired 
generating capacity between 1981 and 2000.\36\ West Associates (a 
western utility with a younger fleet of generating units) estimated a 
loss of 27 percent of generating capacity of one of its plants just in 
the next 6 years. West Associates also estimated that, after 10 years 
of operation under this ``cap system,'' the Western System Coordinating 
Council (WSCC) would have lost 65 million MW-hr of generating capacity, 
or the equivalent of 32 power plants with a net capacity of 250 MW 
each.\37\ The National Rural Electric Cooperative Association (NRECA) 
estimated that, in one maintenance cycle, the loss of capability for 
the approximately 21,000 MW of cooperative-owned plants would be 12 
percent to 24 percent.\38\ Nationally, using this analysis method, one 
commenter stated that it would take 200 new 500 megawatt power plants 
just to make up the lost capacity, that is, to stay at the current 
levels of available supply.\39\ Maximizing the utilization of existing 
generation capacity can be critical to ensuring the ability of 
utilities to meet consumer demand in peak periods.
---------------------------------------------------------------------------
    \34\ TVA 2001 report at 12-14.
    \35\ Southern Company, The Dismantling of Energy Supply Capacity 
Through New Source Review (Attachment D to UARG Comments [II-D-303]).
    \36\ First Energy Comments [II-D-261 ] at 1.
    \37\ West Associates Comments [II-D-216] at 7.
    \38\ NRECA Comments [II-D-322] at 7. Other commenters that 
submitted similar analyses include: Minnesota Power Comments [II-D-165] 
(25 percent lost production); Dairyland Comments [II-D-324] at 7 (41 
percent lost generating capacity); SRP Comments [II-D-320] at 6 (18.5 
percent loss).
    \39\ See UARG Comments [II-D-303] at 39.
---------------------------------------------------------------------------
    Third, according to industry commenters, a company could simply 
choose not to undertake the needed maintenance, repair and replacement 
projects in question, so as to avoid triggering NSR. They believe this 
would result in a loss of electricity generating capacity, because 
delayed and foregone maintenance leads to a decrease in availability 
and reliability.
    In addition, commenters suggest that such a decrease also could 
have a negative impact on the energy efficiency of the unit and the 
overall efficiency of a utility system. This is because, if a larger 
utility unit becomes unavailable during a period when it would have 
been utilized to meet consumer demand, then multiple smaller, less 
efficient units often must be utilized in its place.\40\ One utility 
commented that only through maintenance of highly efficient low-cost 
baseline generation is the retirement of more inefficient units 
possible.\41\ The commenter asserted that less efficient units are more 
costly to operate and generally produce more pollution per unit of 
electric output.
---------------------------------------------------------------------------
    \40\ See Ralph L. Roberson & Richard D. McRanie, Thoughts on Power 
Plant Efficiency, at 7 (Attachment F to UARG Comments [II-D-303]) (RMB 
Report); see also Class of 1985 Group Comments [II-D-268] at 5-6 
(noting that utilization of base-loaded units displaces less efficient, 
more polluting plants).
    \41\ First Energy Comments [II-D-261] at 1.
---------------------------------------------------------------------------
    EPA notes that the possible energy impacts predicted by industry 
commenters appear to flow from the industry's reported uncertainty 
regarding the scope of the routine maintenance exclusion. Consistent 
with our conclusion in the previous section of this report, we conclude 
that concern about the scope of the routine maintenance exclusion is 
having an adverse impact on projects that would improve the reliability 
and availability of existing electric generating facilities. We also 
note that, when catastrophic forced outages have occurred in the past, 
the Agency has consistently worked with industry and State and local 
permitting authorities to allow the facility to get the unit back and 
running quickly.
              b. Impact on Efficiency Improvement Projects
    (i) NSR Applicability.--With respect to the issue of energy 
efficiency, a significant number of industry commenters stated that an 
inappropriately narrow routine maintenance, repair and replacement 
exclusion would prevent electricity generators from taking advantage of 
opportunities to improve their generating efficiency. One measure of 
such efficiency is ``heat rate,'' or the amount of fuelbound energy 
required to produce a unit of electrical power (typically expressed in 
million BTU per kW-hr). Improving an electric unit's efficiency--e.g., 
its heat rate--means that less fuel is required to produce the same 
amount of electrical power, reducing pollution per unit of production 
output. Alternatively, improved efficiency may allow a unit to produce 
more electricity for the same amount of fuel burned (i.e., with no 
greater amount of emissions). New electric generation technologies 
often lead to energy efficiency improvements, but industry raised 
concerns that applying these new technologies (i.e., replacing boiler 
or turbine components with components of better design and materials) 
often could trigger NSR--in some cases even if the unit's emissions 
rate does not increase--because the source uses the more efficient unit 
more than it used the old one.
    These commenters stated that the turbine blade project that was the 
subject of the Detroit Edison applicability determination is a good 
example of such a project.\42\ Industry reports that, under a voluntary 
self-reporting program initiated by the Energy Information 
Administration (EIA), utilities have reported numerous projects that 
are expected to increase efficiency.\43\ Commenters cited as examples 
projects ranging from load optimization programs and improved boiler 
controls to replacing turbine blades and rotors, to upgrades or 
replacements of components like superheaters and condensers.\44\
---------------------------------------------------------------------------
    \42\ EPA Background Paper at 28.
    \43\ RMB Report at 6 (Attachment F to UARG Comments [II-D-303]).
    \44\ Industry commenters state that most energy efficiency 
improvements can be linked with tangible benefits to the environment 
and that unless the power source is in close proximity to the process 
in which energy efficiency is improved, the emissions benefits are not 
necessarily local. If the power source is a grid, it may not be 
possible to predict where all the benefits will occur, nor what their 
magnitude would be. Nevertheless, commenters believe that energy 
efficiency should be an important aspect of meeting national air 
pollution goals because the energy saved is energy that would have 
otherwise been generated.
---------------------------------------------------------------------------
    Industry commenters noted that EPA views such energy efficiency 
projects as the Detroit Edison turbine blade upgrade as ``markedly 
different from the frequent, inexpensive, necessary, and incremental 
maintenance and replacement'' of deteriorated components and, 
therefore, not within the scope of the routine maintenance 
exclusion.\45\ Industry commenters expressed concern that this could 
result in the discouragement of energy efficiency improvements because 
they could be subject to NSR. For utilities, this is a particular 
concern in any jurisdiction that has not incorporated the WEPCO rule 
emission increase methodology because the ``actual-to-potential'' test 
applies in these jurisdictions.\46\ In non-WEPCO jurisdictions, and in 
all jurisdictions for nonutility activities, industry commenters said 
that NSR could apply to any project that both corrects availability/
reliability problems and improves efficiency (because of the belief 
that any project that corrects availability/reliability problems could 
result in an emissions increase under the actual-to-potential test), 
and to any efficiency improvement project at a unit that is not at the 
very top of a system's loading order. Even for units that are at the 
top of the loading order of a particular system, like Detroit Edison's 
Monroe units, industry commenters expressed concern about whether any 
efficiency improvement could be shown not to increase emissions, 
because an efficiency improvement almost always makes the improved unit 
more attractive to run.
---------------------------------------------------------------------------
    \45\ EPA Background Paper at 28 (citing Detroit Edison 
Applicability Determination, May 23, 2000.
    \46\ Under EPA's ``WEPCO rule,'' NSR is not triggered for existing 
utility sources unless there is a significant net increase in actual 
emissions using an actual to predicted future actual methodology.
---------------------------------------------------------------------------
    Utility commenters stated that the Detroit Edison applicability 
determination discourages utilities from undertaking efficiency 
improvement projects.\47\ They suggested that utilities are likely to 
forego efficiency improvements in order to avoid the uncertainty, 
delays and potential costs associated with NSR applicability. One 
commenter sought to illustrate this point in responding to the EPA 
Background Paper's inquiry regarding whether NSR applicability alters 
the economics of efficiency improvement projects by evaluating a 
typical turbine efficiency improvement project. This evaluation showed 
that such a project would cost approximately $937,000 for a 250 MW 
unit, and would be expected to yield additional revenues of $21.5 
million (present value). For such a unit, however, the commenter 
determined that NSR applicability would result in expensive retrofits, 
with a capital cost (i.e., excluding operation and maintenance of the 
retrofits) approximating $68.4 million.\48\
---------------------------------------------------------------------------
    \47\ See, e.g., Class of 1985 Group Comments [11-D-268] at 5; UARG 
Comments [II-D-303] at 45.
    \48\ See Comments of Xcel Energy [II-D-213] at 6-7.
---------------------------------------------------------------------------
    Industry commenters said that discouraging efficiency improvement 
projects also results in more emissions than if the projects could go 
forward without NSR. They argue that, on a megawatt basis, efficiency 
improvements reduce pollution,\49\ and that, even if utilization 
increases at the unit with improved efficiency, the dynamics of 
economic dispatch of electric generating units mean that the increased 
utilization at that unit necessarily displaces less efficient, and 
therefore more-polluting, plants.\50\ Thus, the industry concludes that 
discouraging efficiency improvements almost always results in higher 
emissions than if these improvements had been made. As an example, the 
Detroit Edison case was again cited, where the use of the more 
efficient blades would have permitted each generating unit to produce 
the same amount of electricity as it had in 1994 while burning 112,635 
fewer tons of coal. The result, according to commenters, would have 
been a reduction of 1,826 tons per year (tpy) in SO2 
emissions, 1,402 tpy in NOx emissions, and 259,111 tpy in carbon 
dioxide (C02) emissions, assuming that input design 
parameters (maximum heat input and fuel consumption specifications) 
remained the same. Detroit Edison estimated that more than 1,000 other 
electric utility units in the United States have the capability to 
achieve similar reductions through similar turbine blade replacements 
and other projects; thus, extrapolating based upon these estimates, 
they predict that by encouraging the adoption of blading efficiency 
improvements, CO2 emissions would be reduced by 81 million 
tons per year or more, provided input design parameters (maximum heat 
input and fuel consumption specifications) remained the same. They 
predict that SO2 and NOx emissions would also be reduced 
significantly.
---------------------------------------------------------------------------
    \49\ EPA Background Paper at 28.
    \50\ See Class of 1985 Group Comments [II-D-268] at 5-6; see also 
FirstEnergy Comments [11-D-261] at 1-2.
---------------------------------------------------------------------------
    In contrast, commenters from environmental groups believe that NSR 
treats energy efficiency improvement projects appropriately. They 
stated that NSR only applies when a project results in an emissions 
increase and that the types of projects discussed above where 
significant reductions are achieved would not trigger NSR. However, if 
an energy efficiency project also results in a significant emissions 
increase, these commenters felt that it would be inappropriate to 
exempt the increase from review under NSR.\51\ One commenter also 
questioned whether NSR is the predominant factor in influencing a 
decision about whether to proceed with an efficiency project, noting 
that some analysts believe that the regulation of utility rates--and 
specifically their treatment of cost recovery--has lessened the 
incentive for heat rate improvements.\52\
---------------------------------------------------------------------------
    \51\ See, e.g., July 20 testimony of John Walke, NRDC.
    \52\ NRDC Comments [II-D-267].
---------------------------------------------------------------------------
    In reviewing the information regarding energy efficiency projects, 
the EPA concludes that NSR may discourage some energy efficiency 
improvements. EPA notes that as long as utilization remains constant, 
energy efficiency improvements can result in significant emissions 
reductions. Such projects would not trigger NSR if there were not a 
significant emissions increase.\53\ Because such projects are not 
subject to the NSR regulations, NSR generally has a negligible impact 
in such cases. However, as noted above, energy efficiency improvements 
are often associated with increases in utilization, because the more 
efficient generating units are dispatched more often. Efficiency 
improvements can also result in an increase in capacity or 
availability. In such cases, there can be local emissions increases 
that trigger NSR if the projects are not routine maintenance. For 
example, in Detroit Edison, if a 5 percent increase in operation were 
to result, actual increases on the order of 800 tons of NOx and 2000 
tons of SO2 would occur. Even if these emissions increases 
occur at the same time as emissions decrease somewhere else, some 
commenters expressed concerns about the localized impacts of 
potentially large emissions increases, and felt that review under NSR 
was needed to address them.
---------------------------------------------------------------------------
    \53\ This was the case in Detroit Edison, where there was no 
expected increase and therefore the proposed project did not trigger 
NSR. [See Detroit Edison Applicability Determination]
---------------------------------------------------------------------------
    Congress provided that where physical changes at a plant result in 
significant increases in air pollution, these plants should go through 
NSR and take steps to control emissions. Even if a physical change is 
relatively inexpensive when compared to the cost of the controls that 
are projected to result from NSR, the change could still result in 
emissions increases that Congress believed should undergo review. 
However, as noted in the example turbine efficiency improvement project 
above, and echoed throughout many comments, the costs associated with 
NSR, particularly the costs to retrofit pollution controls, can render 
these projects uneconomical. Thus, the EPA finds that NSR discourages 
some types of energy efficiency improvements when the benefit to the 
company of performing such improvements is outweighed by the costs to 
retrofit pollution controls or to take measures necessary to avoid a 
significant net emissions increase. The EPA recognizes the need to 
promote the development of efficient and more environmentally friendly 
designs.
    On the other hand, it is also clear that a wide range of activities 
at an electric utility can have energy efficiency benefits, from 
everyday maintenance to major capital projects. In general, the EPA 
encourages efficiency improvements wherever feasible. However, the 
scope and magnitude of some of the kinds of changes, their impact on 
recovering capacity that had been lost to deterioration of equipment, 
their impact on significantly extending the life of the boiler, 
turbine, etc., and the resulting significant emissions increase, 
necessitates that certain projects which may result in efficiency 
improvements, must be reviewed under NSR. Though projects of this 
magnitude still may go forward once their air quality impacts are 
addressed, the EPA finds that NSR can discourage companies from 
undertaking them.
    (ii) Energy Impacts.--The ICF report in support of the EPA 
Background Paper referred to various data, such as those of the 
National Coal Council (NCC) May 2001 report, which estimate that 
repairs and replacements that improve efficiency at existing coal-fired 
facilities could result in an increase in capacity of 5 percent to 10 
percent. Applied across the entire coal-fired electric generation 
capacity of the United States (over 300 GW) this would result in an 
additional capacity of 15,000-30,000 MW. This is the equivalent to 30-
60 new 500 MW plants or enough power for 10-20 million homes.
    Similarly, as noted in the EPA Background Paper, the NCC report 
found that coal-fired units over 20 years of age had been substantially 
derated, and concluded that: ``If all existing conditions resulting in 
a derating could be addressed, approximately 20,000 MWs of increased 
capacity could be obtained from regaining lost capacity due to unit 
deratings.'' Likewise, the NCC reported that 20,000 MW of additional 
capacity could be gained by ``increasing heat input and/or electrical 
output from [existing] generating equipment.'' Moreover, the NCC found 
that this restoration and increase of capacity from existing units 
could only be economically viably pursued by the facility owners if, 
among other factors, the increased availability and/or electrical 
output would clearly not trigger NSR. Other industry representatives 
supported this estimate.
    Conversely, environmental group commenters expressed the view that 
such investments are not as profitable as investments in completely new 
electric generation capacity and that this is why the industry is not 
pursuing them, as opposed to NSR being the major impediment.\54\ They 
also estimate that the emissions reductions from efficiency improvement 
projects would be small compared to the reductions that would be 
achieved if NSR applied.
---------------------------------------------------------------------------
    \54\ Clean Air Task Force comments [II-D-236] at 49 and App. C.
---------------------------------------------------------------------------
    In conclusion, for the utility industry, with respect to existing 
sources, and in contrast to new sources, the EPA finds that the 
available information indicates that the NSR program is having an 
adverse impact on investment in both electric generation capacity and 
energy efficiency. While there are only limited data that prove that 
NSR has resulted in the cancellation of otherwise economical projects 
of either type, a significant number of industry commenters presented a 
variety of projects at existing sources that could have increased 
capacity, improved reliability, or enhanced efficiency, but were made 
uneconomical due to delays and costs associated with NSR. The EPA finds 
many of these cases to be credible and based on real-world examples, 
and believes that they demonstrate that NSR has an adverse impact on 
such investment at existing sources. It is reasonable to conclude that 
the foregone investment has resulted in foregone capacity increases 
through decreased reliability and availability that are not recovered, 
and through foregone efficiency improvements.
            2. Refineries
    Turning to the question of NSR impacts on investment in capacity at 
existing refineries, the EPA finds that the comments again highlight 
areas where NSR may adversely impact investment in capacity and energy 
efficiency projects. These areas are examined further in this section 
in order to assess their nature and extent.
    Refinery commenters observe that the refining industry differs 
considerably from the electric utility industry in several respects. 
For example, it is operating much closer to full capacity than the 
utility industry, and it is not transitioning from an economically 
regulated basis to a market basis. Even while operating at very high 
utilization rates, commenters noted that the industry must be able to 
respond rapidly to changes in raw material availability, market 
demands, and environmental requirements. API explained that, 
``[r]efiners are required by law to make adjustments to fuel 
specifications from one season to another, produce fuels meeting 
multiple specifications in various regions of the country, and 
reconfigure to refine cleaner burning low sulfur diesel and gasoline, 
all while being able to supply fuels to meet constantly changing 
customer demand.''\55\ API suggested that these requirements 
necessitate frequent and rapid responses that may involve changes to a 
refinery's facilities and processes. Moreover, they note that, to meet 
demand for petroleum products and avoid market disruptions that can 
lead to shortages and price volatility, the refining industry must be 
able to maintain the availability, reliability, and safety of its 
facilities. NPRA's comments noted, ``Refining operations are continuous 
and complex. They depend on the simultaneous operation of many 
individual, but inter-related, pieces of equipment (``units''). A delay 
or inability to change or improve operations of a single unit can have 
a significant cumulative impact on the refinery's ability to produce 
the fuels that its customers, and the national economy, rely upon.\56\ 
To meet increasing demand without major construction of new refining 
facilities, commenters believe that the industry must improve the 
efficiency of its existing facilities, and it must engage in what one 
industry commenter described as a ``continuous incremental improvement 
in production capacity.''\57\ Finally, as noted in the Background 
Paper, and above, with no new refineries likely to be built in the near 
future, assessing the impact of NSR on existing sources is particularly 
critical.
---------------------------------------------------------------------------
    \55\ API Comments [II-D-134] at 1-2.
    \56\ See NPRA Comments [II-E-27] at 2.
    \57\ See BP America comments [II-D-307] at 2.
---------------------------------------------------------------------------
    As with utilities, refineries maintain that the exclusion for 
``routine maintenance repair and replacement'' has been narrowed by EPA 
in recent years and undercuts their ability to respond quickly to 
market changes and raw material availability. In addition, refinery 
industry commenters expressed concern about the test used to determine 
whether a change results in an emissions increase at non-utility source 
categories (i.e., the ``actual to potential'' test). In the view of 
many refinery commenters, the NSR program has the effect of 
constraining the industry's ability to (1) expand domestic refining 
capacity, (2) increase the supply of cleaner burning fuels, and (3) 
enhance energy efficiency.\58\ The commenters said that under the NSR 
program, numerous common activities at a refinery--whether required to 
respond to demand changes, to repair or replace a broken piece of 
equipment, to improve efficiency, to expand refining capacity, or even 
to respond to environmental requirements--are potentially subject to 
NSR permitting.\59\ One industry commenter states that hundreds of such 
activities are undertaken each year at existing U.S. refineries.\60\ 
According to commenters, the lengthy, costly, and uncertain nature of 
the current NSR permitting process discourages those activities to 
which it potentially applies, or at least introduces significant delays 
in and constraints on the ability of the operator to make the required 
changes in an efficient and timely manner.
---------------------------------------------------------------------------
    \58\ NPRA letter to Stephanie Daigle, EPA, 7/23/2001.
    \59\ See API Comments [II-D-134] at 2; ExxonMobil Comments [II-D-
418] at 2; NPRA Comments [II-E-27] at 3.
    \60\ See Marathon Ashland Petroleum LLC (MAP) Comments [II-D-253] 
at 2.
---------------------------------------------------------------------------
    Refining industry commenters also noted that, in their opinion, the 
NSR emissions increase test for non-utilities (the ``actual-to-
potential'' comparison) presumes that virtually any activity at a 
refinery increases emissions within the meaning of NSR, even if the 
activity were, in fact, to result in decreased actual emissions.\61\ 
Thus, these commenters stated that, of the activities undertaken at a 
given refinery, only those activities ultimately deemed to constitute 
``routine maintenance, repair or replacement'' might avoid NSR. 
However, according to industry commenters, few activities beyond the 
most mundane maintenance activities that may be undertaken each year at 
a given facility would be deemed ``routine'' under the NSR 
regulations.\62\ One commenter maintained that the NSR program would 
apply NSR to any change that: (a) results in an increase in capacity or 
capacity utilization of an existing process unit; or (b) increases the 
efficiency or lowers the unit operating costs; or (c) extends the 
useful life of that unit . . .''[or (d)] increase[s] unit 
reliability.''\63\ According to industry, these are precisely the types 
of activities that U.S. refineries must constantly undertake to meet 
demand and minimize fuel supply disruptions and price volatility. 
Moreover, commenters suggest that the use of an actual-to-potential 
test encourages industry to maximize current actual emissions within 
permit limits, rather than providing incentives for emissions 
reductions.\64\
---------------------------------------------------------------------------
    \61\ See, e.g., ExxonMobil Comments [II-D-418] at 11 (commenting 
that actual-to-potential test ``fabricate[s] emission increases'' where 
no increases actually occur).
    \62\ See ExxonMobil Comments [II-D-418] at 12; BP America Comments 
[II-D-307] at 2; MAP Comments [II-D-253] at 2.
    \63\ See BP America Comments [II-D-307] at 2.
    \64\ NPRA Comments [II-E-27] at Attachment 1, No. 1.
---------------------------------------------------------------------------
    Industry commenters provided a list of activities that they 
reportedly undertake to maintain reliability, improve efficiency, and 
expand capacity that, in their view, are typically undertaken in the 
industry but, nevertheless, are potentially subject to NSR under the 
current program.\65\ According to industry, the potential applicability 
of NSR, which they believe could encompass virtually any given project, 
tends to discourage operators from undertaking particular projects 
because NSR would add significant delays and costs.\66\ Industry 
commenters observed that the EPA Background Paper's estimate for the 
length of time typically necessary to obtain an NSR permit did not 
include the time spent prior to submittal of a complete application. If 
such time is included, the length of the NSR permitting process in the 
experience of refinery commenters is at least 7 to 22 months, excluding 
any post-issuance appeals and challenges.\67\ An industry commenter 
further predicted that, if the listed activities are viewed as non-
routine, the refining industry, as well as other U.S. industries, would 
experience much longer lead times in obtaining NSR permits than already 
occur.\68\
---------------------------------------------------------------------------
    \65\ See, e.g., NPRA comments [II-D-400] and API comments [II-D-
134].
    \66\ NPRA Comments [II-E-27] at 2.
    \67\ See API comments [II-D-134] at 8.
    \68\ See ExxonMobil Comments [II-D-418] at 16.
---------------------------------------------------------------------------
    Like utilities, refiners also raised the concern that there would 
be limited options for projects that are potentially subject to 
NSR.\69\ They described three options. First, the operator could seek 
to obtain an NSR permit, accepting the delays, uncertainties, and 
potentially significant costs that commenters say are associated with 
such permits.\70\ Alternatively, an operator could seek to ``avoid'' 
NSR by limiting emissions to past, actual levels through a minor NSR 
permit (a permit which, according to industry, can take 3-12 months to 
obtain), thus giving up refinery capacity and ``deprive[ing] the source 
of the `headspace' between actual and allowable emissions that is 
crucial to long-term operating flexibility and the ability to respond 
quickly to changes in demand.''\71\ A third option would be to simply 
cancel the project, and forego the projected benefit that was the 
reason for the project in the first place.
---------------------------------------------------------------------------
    \69\ See BP America Comments [II-D-307] at 2.
    \70\ See id.; see also ExxonMobil Comments [II-D-418] at 18 (noting 
both the cost and scheduling impacts of NSR on project economics).
    \71\ See BP America Comments [II-D-307] at 2-3.
---------------------------------------------------------------------------
    Overall, the comments submitted by refinery and other commenters 
during this review process emphasize their belief that by imposing 
significant costs and delays, the NSR program discourages investment in 
projects that are necessary to maintain the reliability of existing 
refineries, improve their efficiency, expand capacity, and respond 
flexibly to rapidly changing consumer demand for petroleum products. 
According to one commenter, what the industry most needs is certainty 
and flexibility in its efforts to meet both the energy needs of the 
Nation and environmental requirements.\72\
---------------------------------------------------------------------------
    \72\ See API Comments [II-D-134] at 2.
---------------------------------------------------------------------------
    In contrast, NRDC's comments suggest that poor return on investment 
is more important than environmental considerations (of which NSR is 
only a small part, and is not specifically named by sources examined in 
the EPA Background Paper) in any decisions not to invest in new 
capacity.\73\ They point to information presented in the Background 
Paper showing that, in recent years, there has been significant 
investment in refinery capacity at existing sources.
---------------------------------------------------------------------------
    \73\ NRDC comments [II-D-267] at 5.
---------------------------------------------------------------------------
    As discussed above for utilities, the EPA notes that for refineries 
there are also differences of opinion amongst the commenters about the 
scope of the routine maintenance exclusion and the resulting impacts. 
In determining whether an activity is ``routine'' for purposes of being 
excluded from NSR, EPA consistently has taken a case-by-case approach, 
weighing the nature, extent, purpose, frequency and cost of the work, 
as well as other relevant factors. However, EPA acknowledges, as it did 
for utilities, that the comments report significant uncertainty about 
the scope of the ``routine'' exemption. Such uncertainty can result in 
the delay or cancellation of projects. Changes to the NSR program that 
add to the clarity and certainty of the scope of the routine 
maintenance exclusion will improve the process by reducing the 
unintended consequences of discouraging worthwhile projects that are in 
fact outside the scope of NSR.
    A key difference between utilities and refineries is the fact that 
refineries use the ``actual-to-potential test'' for determining NSR 
applicability, while utilities generally do not. The EPA has reviewed a 
number of examples where projects could have provided capacity 
increases or energy efficiency improvements, and likely could have done 
so without increasing actual emissions, and in some cases the projects 
appear likely to decrease actual emissions. Such projects, if they 
occur at units operating below capacity, could trigger NSR or, at 
least, trigger a need to cap the units below capacity or install 
pollution controls to avoid NSR. Again, the determination of whether a 
change results in an emissions increase is a case-by-case 
determination, but the EPA believes that the commenters' examples make 
a credible case that some capacity or efficiency projects that do not 
increase actual emissions are not undertaken because they trigger NSR 
under the actual-to-potential test. Although the information is mostly 
anecdotal in nature, the EPA believes that the information presented is 
based on real world experience, and makes a credible case that some 
projects are not going forward in part because of NSR. The EPA believes 
that this results in lost refining capacity, or foregone opportunities 
to increase capacity without increasing emissions.
 iv. impact on industries other than electric utilities and petroleum 
                               refineries
    In addition to the information supplied to EPA by utility and 
refinery commenters, the Agency received numerous comments from other 
industries regarding the NSR program's impact on energy use, 
efficiency, and capacity. These comments came principally from a 
variety of industry associations and coalitions of manufacturers 
representing the automobile, aerospace, chemical, electronics, food, 
aluminum and steel, packaging, paper, printing, pharmaceutical, and 
other manufacturing sectors. Like the utility and refining industries, 
these commenters were primarily concerned with the current application 
of the NSR program to existing sources. They noted many anecdotal 
instances where projects would have reduced energy demand and/or 
increased energy efficiency, but were abandoned because of NSR 
permitting delays and/or costs associated with the retrofit of existing 
equipment with the BACT or LAER emissions controls mandated by NSR 
rules. Other commenters presented similar examples of pollution control 
and pollution prevention projects abandoned because of potential NSR 
applicability. According to the commenters, the cancellation of 
projects that would have improved energy efficiency or decreased 
pollution means that NSR is having an adverse impact on investment in 
both energy efficiency and environmental protection.
    Among the general concerns voiced by commenters in addition to 
pollution control costs were claims that (1) the NSR program is complex 
and gives rise to uncertainty and associated delays, (2) it hinders 
flexibility for industry to quickly make needed changes, and (3) that 
it results in the loss of production capacity where NSR is triggered 
based on the application of the actual-to-potential test, even if 
emissions will not actually increase. Furthermore, commenters argued 
that if a source wants to avoid NSR, it faces the undesirable outcome 
of accepting new emissions limits in the NSR permit that, according to 
commenters, effectively reduce a plant or unit's productive 
capacity.\74\
---------------------------------------------------------------------------
    \74\ See, e.g., Comments of NEDA/CARP [II-D-272] at 9-10.
---------------------------------------------------------------------------
A. NSR Applicability
            1. Routine Maintenance, Repair & Replacement
    As with utilities and refineries, many commenters from other 
industry sectors focused on the NSR ``routine maintenance, repair and 
replacement'' exclusion. Like the industries discussed above, they 
believe that EPA has narrowed the exclusion in recent years. Thus, they 
stated this was the day-to-day largest problem in maintaining the 
availability, reliability, and safety of production equipment.\75\ In 
particular, commenters asserted that projects involving repair or 
replacement components incorporating ``state-of-the-art'' improvements 
in materials or design may be subject to NSR since they may not qualify 
as routine maintenance, or may result in more efficient utilization of 
fuel and/or raw materials that may potentially increase a facility's 
emissions. For instance, at one plant, a company states that it elected 
not to replace spray nozzles in a process dryer, even though it 
determined that significant energy savings could result, because it 
concluded that the new Teflon coated nozzles would not be equivalent 
parts and, therefore, the project would not be exempt from NSR as 
routine. According to the commenter, the new nozzles would have 
resolved the repeated need to replace the existing equipment, and may 
have provided a safer and more reliable operating environment.\76\
---------------------------------------------------------------------------
    \75\ See, e.g., FPA Comments [II-D-271] at 2-3.
    \76\ NEDA/CARP Comments [II-D-272] Attachment A, Example #1.
---------------------------------------------------------------------------
    Similarly, commenters complained that NSR application discouraged 
engineering design innovations that provide better quality and control 
assurances during sometimes-dangerous production processes. One 
example, provided by the chemical industry, was the installation of a 
temperature regulating system on a thermal jacket around a dryer that 
is equipped with a heated jacket that uses a temperature control system 
in the jacket. The temperature control system works by regulating the 
flow of steam or hot liquids similar to radiator fluids in the jacket 
that surrounds the dryer. The current system uses an older design and 
is relatively ineffective because of the system's wide temperature 
variation, which causes risks of explosion and lengthens the drying 
process time. Both problems could be eliminated with the installation 
of a temperature regulating system, which would also reduce energy 
demands on the process by 20 percent. Although work is often performed 
on the jacket regulating system, the company suggested that it did not 
go forward with the change because work on the temperature regulating 
system, utilizing a unique new system, would not be considered 
``routine.\77\
---------------------------------------------------------------------------
    \77\ NEDA/CARP Comments [II-D-272] Attachment A, Example #4. 
According to this example, only 2 tons per year of regulated emissions 
would have resulted from the change, but potential emissions could have 
increased over 100 TPY of VOC because operation of an incinerator with 
a 98 percent control efficiency voluntarily installed by the company is 
not considered to be ``federally enforceable.''
---------------------------------------------------------------------------
    It was also suggested that application of the NSR program impeded 
the ability of companies to undertake projects to ensure the 
reliability of their equipment that might also result in significant 
energy efficiency gains. Commenters presented a number of examples of 
such projects, including examples from the chemical, packaging, 
aluminum and general manufacturing sectors. One illustration from the 
American Forest and Paper Association described replacement of outdated 
analog controllers at a series of six batch digesters. The original 
controllers were no longer manufactured, although new digital 
controllers, costing approximately $50,000, are capable of receiving 
inputs from the digester vessel temperature, pressure and chemical/
steam flow. The new controllers would have more precisely filled and 
pressurized digesters with chips, chemicals and steam (whereas the old 
controllers added materials in timed sequence), thus bringing a batch 
digester on line faster. However, the source determined that under the 
NSR program this project would not be considered to be routine because, 
although repairs to the analog system might have been frequent at the 
company involved, replacement of the system with a digitalized, 
computerized system would not qualify as ``routine.''\78\
---------------------------------------------------------------------------
    \78\ AFPA Comments [II-E-15], Tab 3, Case in Point #4.
---------------------------------------------------------------------------
    As with utilities and refineries, EPA notes that there are widely 
differing views on the scope of the routine maintenance exclusion on 
other industries. As before, we therefore conclude that concern about 
the scope of the routine maintenance exclusion is having an adverse 
impact for industries outside the energy sector. It also is credible to 
conclude that projects have been discouraged that might have been 
economically and/or environmentally beneficial without increasing 
actual emissions. Changes to the NSR program that add to the clarity 
and certainty of the scope of the routine maintenance exclusion will 
improve the process by reducing the unintended consequences of 
discouraging worthwhile projects that are in fact outside the scope of 
NSR.
            2. Pollution Prevention Projects
    Another series of examples provided by commenters from the 
manufacturing sector involved pollution prevention projects, many with 
significant energy savings potential. Pollution prevention projects at 
manufacturing facilities may qualify for exemption under the NSR 
program. This determination is made on a case-by-case basis under EPA's 
1994 guidance which addresses pollution control projects and NSR 
applicability. Although this guidance was intended to create incentives 
for industry to undertake such projects, some comments suggested that 
it might actually discourage such projects. One example comes from the 
chemical industry. In that case, a chemical facility considered 
installation of a new, more efficient CFC refrigeration system. 
Completion of this project, according to the commenter, would have 
resulted in decreased CFC emissions and less electricity demand, 
reducing overall emissions from the facility's power generating plant. 
However, this project would not have qualified for the pollution 
control project exclusion because the primary purpose of the project 
was not to reduce emissions. Therefore, because the project otherwise 
would have triggered NSR, the company elected not to undertake it.\79\
---------------------------------------------------------------------------
    \79\ Comments of American Chemistry Council [II-D-416] example 1.
---------------------------------------------------------------------------
    In a second example, an aerospace company suggested that it was 
unable to avoid NSR, using EPA's 1994 pollution control project policy, 
because the purpose of a particular project was to improve energy 
efficiency, although significant pollution control benefits would also 
have resulted. The company had proposed to speed up its manufacturing 
process (for parts and subassemblies) by using a new adhesive that 
would dry (or cure) faster. The company stated that the project would 
have resulted in pollution prevention both because the new adhesive had 
a lower volatile organic compound (VOC) content than the one in use and 
because more parts could be processed in less time, consuming less 
energy overall. However, this project could not qualify for the 
pollution control project exclusion because its purpose was to improve 
efficiency, rather than to abate pollution and because the new adhesive 
system would have increased the utilization of production equipment at 
the plant. Because the project otherwise would have triggered NSR 
applicability, the company declined to make the change.\80\
---------------------------------------------------------------------------
    \80\ NEDA/CARP Comments [II-D-272] Attachment A, Example #14.
---------------------------------------------------------------------------
    EPA believes that these examples indicate that NSR is having an 
adverse impact on some pollution control and prevention projects.
B. Energy Efficiency
    The Agency also received a number of industry comments explaining 
the NSR program's effect on energy efficiency and demand. These 
comments suggest that the delays and costs associated with NSR have 
discouraged the adoption or implementation of various energy 
conservation and efficiency measures. Examples provided by commenters 
included efforts to conserve fuel and programs that will result in 
energy demand reductions at major industrial plants. The commenters 
allege that, in many cases, the projects would ultimately reduce actual 
emissions, but nonetheless trigger NSR under the actual-to-potential 
test.
    For instance, NSR was cited as a principal reason for not 
undertaking energy efficiency projects for the installation of heat 
exchangers and overfire air by various manufacturing sectors including 
the electronics and appliance industries, plastics, and paper 
industries. Heat exchangers recover heat from boiler flue gas streams 
to heat water used in the system's deaerator units. By preheating the 
water used in the deaerator units, the heat exchanger reduces the steam 
needed to run the deaerators. This increases the overall efficiency of 
the boiler house and reduces fuel usage. It also reduces annual boiler 
emissions. At a plastics plant, a commenter pointed out that 
installation of a heat exchanger would be expected to reduce natural 
gas consumption by 7.5 percent, NOx emissions by 7.5 percent, 
SO2 emissions by 5.8 percent and carbon monoxide (CO) 
emissions by 7.6 percent, particulate matter (PM) emissions by 9 
percent, and VOC emissions by 9.3 percent. The project achieves these 
benefits through pollution prevention rather than add-on controls.\81\ 
In this case, the industry applicant sought exclusion from NSR 
applicability under the pollution control project exclusion. However, 
this project did not qualify as a pollution control project because its 
primary purpose was not pollution control or prevention. Moreover, 
because the boilers required back-up firing with oil during the winter 
to ensure operation, the ``actual to potential'' emission test would 
have caused the project to trigger NSR. To avoid the installation of 
new controls that would be mandated as the result of NSR applicability, 
the source states that it is considering burning more fuel oil over the 
next 2 years to increase base level of emissions (actual emissions).
---------------------------------------------------------------------------
    \81\ NEDA/CARP Comments [II-D-272] Attachment A, Example #15.
---------------------------------------------------------------------------
    Another example from a boiler at a pulp and paper mill illustrates 
a similar problem. According to the comment, the mill's industrial 
boiler currently experiences extensive, internal erosion as a result of 
the carryover of solids such as sand and wire from the burning of tire-
derived fuel, and burned bark particles, which have led to decreased 
boiler efficiency. As a result, the mill proposed to install a new 
overfire air system to allow for more complete combustion of the bark 
fuel. By getting more heating value from the same amount of bark 
burned, less natural gas would be required to provide supplemental heat 
at an annual natural gas savings of about $1 million (in July, 2001 
dollars). According to the comment, future actual emissions of NO, CO 
and VOCs would decrease after completion of this project. However, 
because the boiler is currently operating below its rated capacity, the 
potential emissions after completion of the project would increase over 
past actual emissions, triggering NSR. The commenter estimates that the 
cost of NSR controls would be $17 million.\82\ At the time this project 
was under consideration, the relevant company estimated that the annual 
savings in natural gas usage equated to roughly 200 million cubic feet 
of natural gas. This amount of gas has a heating value of approximately 
0.2 trillion Btu.
---------------------------------------------------------------------------
    \82\ AFPA Comments [II-E-15], Tab 3, Case in Point #1.
---------------------------------------------------------------------------
    The Department of Energy has estimated that overfire systems could 
be installed on 20 percent of the 200 coal fired boilers in the 
industry, resulting in 680,000 MW-hr in energy savings annually. 
Additional energy savings reportedly are possible if overfire air 
provides similar benefits in wood-fired systems. Potential reductions 
in NON, SO2, CO, PM, VOCs and other pollutants such as 
mercury would accompany such energy savings.
    Commenters also expressed a need for operational flexibility, and 
asserted that NSR delays can limit such flexibility, with the result 
that if changes are projected to trigger NSR, even changes that improve 
energy efficiency, they are no longer economically viable. Because some 
industries must make rapid changes in their product lines it is very 
difficult for them to manage NSR compliance. One such example was 
provided by the flexible packaging industry. In that case, the industry 
has been moving steadily toward the replacement of solvent-based inks 
and coatings with water-based inks and coatings in the production of 
packaging for foods, drugs, cosmetics, and other household goods. 
However, certain product orders reportedly require, from time-to-time, 
solvent-based inks or coatings, and these operations are required to 
operate large thermal oxidizers by their permits. In addition many of 
the low VOC coatings contain materials that can poison a thermal 
oxidizer's catalyst. Therefore, the plant asked its permitting agency 
to change its permit to run the oxidizer only when it runs VOC-based 
coatings.\83\
---------------------------------------------------------------------------
    \83\ FPA Comments [II-D-2711 at 6-7.
---------------------------------------------------------------------------
    In this instance, the operator calculated that the change could 
save approximately 15,000 cubic feet of gas and 650 kWh of electricity 
each day. However, the commenter felt that the change would probably be 
a change in the plant's method of operation, triggering NSR, even 
though actual emissions were expected to be reduced by the change. 
Because of the nature of its operations, involving product batches 
sometimes constituting only hours of a day's run, the company did not 
feel it could accept limits on its hours of operation. Therefore, the 
project, which according to the commenter was conceived as a way to 
create large energy savings, did not go forward.\84\
---------------------------------------------------------------------------
    \84\ Id.
---------------------------------------------------------------------------
    A number of commenters claimed to have abandoned energy 
conservation projects because they determined that NSR would apply and 
make the project cost-prohibitive. For instance, at one commenter's 
automobile assembly plant, the company wanted to eliminate one shift of 
a two-shift operation due to downward market fluctuations. This would 
have resulted in a reduction of roughly 30 percent (0.4 billion cubic 
feet) of annual natural gas usage in the plant's boilers, ovens, 
thermal oxidizers and other fuel combustion equipment at a cost savings 
of greater than $2 million annually. In addition, electrical power 
consumption would have been reduced by roughly 10 percent, at a cost 
savings of greater than $700,000 annually. In order to accommodate this 
change, however, the facility needed to install certain pieces of 
equipment, consisting mostly of assembly motors to increase the 
production capability of a single shift by two automobiles per hour. 
According to the comment, because of the actual-to-potential test, and 
the source's reluctance to take a cap limiting it to one-shift 
operation, the project would have triggered NSR and the project would 
no longer have been economically viable.\85\
---------------------------------------------------------------------------
    \85\ NEDA/CARP Comments [II-D-272] Attachment A, Example #12.
---------------------------------------------------------------------------
    Overall, the comments received from industries other than utilities 
and refineries also provide additional evidence suggesting that the 
current NSR program is having an adverse impact on energy efficiency by 
discouraging projects that may improve energy efficiency, or may 
increase capacity and reliability without actually increasing pollutant 
emissions. In some cases it may even be discouraging projects that 
decrease emissions, because of the ``actual-to-potential'' test used 
for these industries.
                 v. impact on environmental protection
    Overall, EPA believes that preventing emissions of pollutants 
covered by NSR does result in significant environmental and public 
health benefits. Attempting to specifically quantify the NSR program's 
contribution to these benefits is very difficult because of the variety 
of Clean Air Act programs that address these pollutants and because 
there is no tracking by any government agency of the reductions in 
emissions that sources make due to the NSR program. Moreover, EPA 
recognizes that measuring risk reduction benefits associated with any 
given reduction in emissions requires complex risk assessments that 
would, in turn, require more specific information than has been 
gathered in the context of this review.
    We note that NSR is implemented in the context of several other 
significant Clean Air Act programs. Available information indicates 
that these other programs result in substantial emissions reductions. 
For example, the Title IV Acid Rain Program has reduced SO2 
emissions from the electric utility industry by more than 7 million 
tons per year. The Tier 2 motor vehicle emissions standards and 
gasoline sulfur control requirements will ultimately achieve NO, 
reductions of 2.8 million tons per year. Standards for highway heavy-
duty vehicles and engines will reduce NO, emissions by 2.6 million tons 
per year. Standards for non-road diesel engines are anticipated to 
reduce NO, emissions by about 1.5 million tons per year. The NO, ``SIP 
Call'' will reduce NO, emissions by over 1 million tons per year. 
Altogether, these and other similar programs achieve emissions 
reductions that far exceed those attributable to the NSR program. 
Moreover, most of these other programs are much more efficient, 
streamlined, and simple than NSR because they do not entail the same 
resource-intensive, case-by-case review that is required under NSR.
    It would be very difficult to estimate or quantify the benefits of 
the NSR program. However, EPA believes that the inability to make exact 
estimates does not mean that these benefits are insignificant or 
nonexistent. Notably, industry concerns about NSR focused almost 
exclusively on problems associated with applying the program to 
existing sources. These comments illustrated a potential dichotomy in 
that the benefits of the NSR program are largely attributable to new 
sources while the existing sources reportedly are more burdened by the 
program.
    Electric utilities and petroleum refineries are significant sources 
of air emissions. The major regulated air pollutants emitted from power 
plants are SO2, NOx, PM, and mercury. Refineries primarily 
emit SO2 and NOx, as well as VOCs. Based on 2000 emissions, 
the electric utility industry is the single largest source of 
SO2 emissions and the second largest source of NOx emissions 
(on road mobile sources are the largest). In 2000, the electric utility 
industry emitted 11.2 million tons of SO2, 5.1 million tons 
of NOx, and 302,000 tons of PM. In 1999, refineries emitted 479,000 
tons of SO2, 299,000 tons of NOx and 161,200 of volatile 
organic compounds. Emissions of these pollutants from all sectors in 
1999 totaled 18.9 million tons SO2, 25.4 million tons NOx, 
18.1 million tons VOC, and 23.7 million tons PM.
    There is a significant body of scientific literature linking air 
pollution to several health effects. These include: premature 
mortality, chronic asthma and increased asthma attacks, chronic and 
acute bronchitis, other chronic respiratory diseases and damage, 
increased airway responsiveness to stimuli, inflammation in the lung, 
respiratory cell damage, premature aging of the lungs, increased 
susceptibility to respiratory infection, decreased lung function, 
developmental effects, infant mortality, low birth weight, cancer, 
decreased time to onset of angina, other cardiovascular effects. 
Additional effects include decreased worker productivity; increased 
emergency room visits for respiratory and cardiovascular effects, and 
more hospital admissions for respiratory and cardiac diseases.\86\
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    \86\ In response to public requests for more such information, the 
Agency has added to the docket some general benefits information about 
reductions in emissions of pollutants likely to be impacted by the NSR 
regulations. (A) U.S. Environmental Protection Agency, Office of Air 
Quality Planning and Standards. Regulatory Impact Analysis for the NOx 
SIP call, FIP, and Section 126 Petitions: Volume 1, Cost and Economic 
Impacts. September, 1998. Located on the Internet at www.epa.gov/ttn/
oarpg/otag/sipriavl.zip; (B) U.S. Environmental Protection Agency, 
Office of Air Quality Planning and Standards. Regulatory Impact 
Analysis for the NOx SIP call, FIP, and Section 126 Petitions: Volume 
2, Health and Welfare Benefits. December, 1998. Located on the Internet 
at www.epa.gov/ttn/oarpg/otag/sipriav2.zip; (C) U.S. Environmental 
Protection Agency, Office of Air Quality Planning and Standards. 
Regulatory Impact Analysis for the Final Regional Haze Rule. April, 
1999. Located on the Internet at www.epa.vov/ttnioarpv/tl/reports/
riaes.pdf; and (D) U.S. Environmental Protection Agency, Office of Air 
Quality Planning and Standards. Regulatory Impact Analysis for the 
Final Section 126 Petition Rule. December, 1999. Located on the 
Internet at www.epa.gov/ttn/oarpg/t1 /reports/riaes.pdf.
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    Potential effects beyond human health effects include direct damage 
to plants and forests, decreased yields for crops and forest products, 
damage to ecosystem functions, decreased visibility, corrosion and 
soiling of buildings and monuments, eutrophication (i.e., explosive 
algae growth leading to a depletion of oxygen in the water), acidic 
deposition and acidification of water bodies, and impacts on 
recreational demand from damaged aesthetics and decreased visibility.
    The EPA Background Paper provided some preliminary estimates of the 
amount of emissions prevented by the NSR program for all industries in 
``clean'' areas (e.g., emissions that would have otherwise occurred 
from construction/modification). The NSR program in such clean areas is 
known as the PSD program. The Paper stated that for the period 1997 
through 1999, new or modified source compliance with PSD for all 
industries prevented approximately 1.4 million tons of air pollution 
from being emitted per year. The vast majority of these reductions are 
attributable to the application of NSR to new gas fired electric 
generating units. The Background Paper also reported that this number 
underestimates total emission. reductions because it does not include 
estimates of emissions prevented in nonattainment areas through 
nonattainment NSR permitting requirements during that same time period.
    Several commenters reiterated this position and noted that as a 
general rule these reductions would be greater because the control 
requirements are more stringent and the offset requirements essentially 
result in a net emissions decrease. Although EPA agrees that there are 
additional emission reductions that result from compliance with the 
offsets requirements of nonattainment NSR program, at this time the 
Agency does not have information quantifying those emissions 
reductions. Finally, other commenters noted that the EPA Background 
Paper failed to address the emission reductions of SO2 and 
NOx that occur as a result of sources reducing their emissions so as to 
avoid the applicability of NSR altogether. On the other hand, since 
SO2 emissions from the utility industry are capped by the 
Title IV acid rain program, NSR does not produce overall net reduction 
in SO2 emissions from the industry. Similarly, in 
nonattainment areas, Title I effectively caps emissions of the 
nonattainment pollutant. To a degree, the same is true for seasonally 
or geographically limited cap and trade programs, such as the ``NOx SIP 
call.'' Furthermore, as noted below, industry commenters note that 
these estimates of emission reductions attributed to NSR do not account 
for foregone emissions reductions that they allege would have occurred 
in the absence of NSR's disincentives to proceed with projects that 
increase efficiency.\87\
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    \87\ First Energy Corporation testimony on NSR, 7/10/2001, stated 
that current interpretations of NSR would have prevented projects now 
resulting in a reduction of 40,000 TPY of SO2 and NOx 
emissions.
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    A large number of commenters, primarily citizens and environmental 
groups, expressed strong support for the benefits that derive from 
reducing emissions from these industrial sectors, either by installing 
pollution reduction controls on new sources as they are built, or on 
existing sources as they are modified. Many groups argued that the 
public health threat from the air emissions of power plants and 
refineries is urgent and further reductions are needed. Noting 
environmental justice concerns, one commenter stated that 80 percent of 
the refineries in the Texas oil refinery communities are either 
populated by minority citizens or contain significant minority 
representation and reported that approximately three million minority 
citizens live in these Texas communities.
    The EPA Background Paper also presented previous estimates of the 
health benefits per ton of pollutant reduced for SO2 and NOx 
emissions based on a study of emissions at utilities. The work cited in 
the EPA Background Paper is based on the benefits of reducing premature 
mortality associated with long-term exposure to PM. However, many 
citizen and environmental group commenters requested a more detailed 
discussion of additional health benefits like the avoidance of reduced 
lung function, asthma attacks, lost work days and premature death, 
which have been linked to these air pollutants. For example, one 
commenter representing 43 environmental groups cited a study by Abt 
Associates presenting their estimate that national power plant 
emissions accounted for more than 6,000 asthma attacks, 30,000 
premature deaths, and 5 million lost work days per year, noting that 
elderly people with respiratory disease and children are at the 
greatest risk.
    Commenters requested that EPA present information on the benefits 
due to avoided emissions of other pollutants, including pollutants that 
are reduced collaterally when criteria pollutants are controlled (e.g., 
mercury). One commenter notes that EPA documents identify coal-fired 
power plants as the largest industrial emitters of mercury, another 
pollutant with well-documented health and environmental effects. Thus, 
without addressing the benefits that derive from reductions of these 
pollutants as well, several commenters argue that the EPA Background 
Paper significantly underestimates public health and environmental 
benefits of NSR.
    Many commenters also mentioned numerous other benefits that result 
from lower emissions from power plants and refineries. They presented 
information about impacts primarily of power plant emissions on the 
environment, particularly in National Parks. For example, several 
groups provided information regarding the adverse impact of power plant 
emissions in particular on visibility in National Parks. Some 
commenters also note that ground level ozone (smog) not only impacts 
vegetation (more than 50 species of plants and trees allegedly harmed 
by ozone), but also the health of visitors to National Parks. 
Additionally, commenters note the impact of SO2 and NOx 
emissions on the formation of acid rain and its impact on ecosystems 
(e.g., red spruce decline, fish killed). Finally, many commenters were 
also concerned about CO2 emissions and their potential to 
affect climate, and believed that NSR plays a role in preventing these 
emissions as well. Commenters urged EPA to discuss the benefits 
generally of reduced emissions in all these areas more explicitly, and 
quantify them as they relate to the NSR program.
    In addition, several commenters noted that in nonattainment areas, 
a source's failure to reduce emissions through NSR places the burden on 
other sources to reduce emissions. In other words, because the State 
has to reduce emissions somewhere in order to attain air quality 
standards, it will target other sources (e.g., construction 
activities), or even consumers in order to create those reductions. 
Even in attainment areas, compliance with PSD requirements can help 
maintain the area's ability to continue to grow.
    Some state and local governments supported the role NSR plays in 
preventing emissions from new and modified sources.\88\ They believe, 
based on their experience, that without NSR, emissions from new and 
modified sources would severely interfere with their efforts to attain 
and maintain air quality standards. While there are several important 
programs that reduce emissions from existing sources, they felt NSR was 
a critical complementary program because it minimized emissions from 
new sources.
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    \88\ See, e.g. STAPPA/ALAPCO comments.
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    Some commenters also expressed support for the technology-forcing 
aspect of the NSR program, arguing that it is the only CAA program that 
automatically mirrors improvements in control technology over time, and 
therefore encourages continued development of cleaner technology. 
Commenters urged EPA to estimate the benefits of this effect as well.
    Industry commenters felt that the current NSR program actually acts 
as a barrier to improved environmental protection in certain instances. 
Although NSR is only triggered when emissions increase, these 
commenters argued that the way EPA calculates an increase in emissions 
can actually have the effect of subjecting a project to NSR that would 
decrease actual emissions. Because of the delay and costs associated 
with applying NSR to a project, NSR renders these environmentally 
beneficial projects uneconomical, and they may be rejected. Similarly, 
again because of the way that NSR calculates emissions increases, 
several industry commenters noted an incentive to keep actual emissions 
high because the closer actual emissions are to a source's maximum 
capacity to emit, the less likely it is to trigger NSR.
                             vi. conclusion
    Based upon the information examined during this review of the NSR 
program, there appears to be little incremental impact of the program 
on the construction of new electricity generation and refinery 
facilities but a more dramatic impact on investment in utility and 
refinery generating capacity and energy efficiency at existing utility 
and refinery plants. Looking at industry as a whole, there also is 
clear evidence of NSR's benefits for environmental protection.
    With respect to environmental protection, the EPA finds that NSR is 
not designed to play the primary role in reducing emissions from 
existing sources. In fact, for pollutants covered by a national cap and 
trade program (such as the Title IV acid rain program), the NSR program 
does not necessarily produce any overall emissions reductions. 
Furthermore, EPA believes that in particular industry sectors--
especially the utility sector--the benefits currently attributed to NSR 
could be achieved much more efficiently and at much lower cost through 
the implementation of a multi-pollutant national cap and trade program.
    Nevertheless, the NSR program plays a role in attainment and 
maintenance of the NAAQS, particularly with regard to new sources. It 
helps ensure that as industry continues to grow and expand, air quality 
is managed appropriately (i.e., by helping assure that clean areas do 
not worsen and that dirty areas get cleaner). It also helps to protect 
sensitive areas like national parks and wilderness areas, and promotes 
new and more effective pollution controls. As described in this report, 
and thoroughly detailed in the comments and other references provided, 
NSR also provides health and ecological benefits.
    With respect to new facilities, the NSR program's principal impacts 
are in the form of delays and additional costs, but there is little 
evidence that these delays and costs are preventing new source 
construction in the utility industry. Indeed there is substantial 
evidence that significant new generating capacity is being brought 
online within normal timeframes for planning such projects.
    With respect to the maintenance and operation of existing utility 
generation capacity, there is more evidence of adverse impacts from 
NSR. Credible examples were presented of cases in which uncertainty 
about the exemption for routine activities has resulted in delay or 
cancellation of projects which sources say are done for the purposes of 
maintaining and improving the reliability, efficiency and safety of 
existing energy capacity.\89\ Such discouragement results in lost 
capacity, as well as lost opportunities to improve energy efficiency 
and reduce air pollution.
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    \89\ Very few commenters provided sufficiently detailed examples 
for EPA to make definitive judgments as to whether the given projects 
would have been considered nonroutine or ultimately triggered NSR. As a 
result, EPA cannot quantify the number of projects affected or the 
corresponding impacts on capacity, reliability, efficiency, safety, or 
other relevant factors. Based on the information presented, it appears 
unlikely that many of the examples discussed would trigger NSR either 
because they would qualify for the routine exclusion or they would not 
increase emissions significantly. Nevertheless, the anecdotal 
information was sufficient to support our conclusions with regard to 
the overall impact of the NSR program.
---------------------------------------------------------------------------
    There appeared to be little impact of NSR on planning for new 
greenfield refineries, because new refineries are not being built for 
economic and environmental reasons unrelated to NSR. For existing 
refineries, the points raised above about the routine maintenance 
exclusion apply equally well to refineries as they do for utilities--
the EPA observed that commenters expressed uncertainty about the 
application of the exclusion to any particular project. Existing 
refineries, however, face an additional issue: the actual-to-potential 
emissions test. The EPA found credible examples of projects at existing 
units that would have provided needed capacity or efficiency 
improvements and would likely not have increased and in some cases may 
have decreased--actual emissions. Due to the actual-to-potential test, 
such projects, if they occur at units operating below capacity, could 
trigger NSR unless the company committed to continue operating the 
units below capacity or installed pollution controls. The EPA believes 
that this potentially results in lost refining capacity, or foregone 
opportunities to increase capacity without increasing emissions, which 
could contribute to price volatility and shortages in fuel supply.\90\
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    \90\ The EPA notes that its conclusions for refiners are equally 
valid for the numerous nonutility/non-refinery sources that commented 
during the review.
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    With respect to energy efficiency, the EPA recognizes that the NSR 
program applies to certain projects that have the effect of increasing 
efficiency (e.g., projects that increase electricity output for a given 
fuel input). The ordinary costs and permitting times associated with 
NSR may, in the EPA's judgment, result in the delay or cancellation of 
certain projects that could, improve energy efficiency. EPA encourages 
energy efficiency improvements wherever feasible. However, the EPA 
notes that some changes that improve energy efficiency also can result 
in significant emissions increases that have adverse air quality 
impacts that must be reviewed, even though the proposed project could 
reduce regional or national emissions. Thus, of the universe of 
possible efficiency improvements, the appropriate focus of the NSR 
program is on those that are non-routine and that significantly 
increase emissions. At non-utility source categories, the ``actual to 
potential'' emissions test can discourage efficiency improvement 
projects even where there would not be an increase in actual emissions. 
It is clear that some of these efficiency improvements can still go 
forward (by going through NSR or taking steps to avoid NSR); however, 
it also is clear that others are in fact canceled due to the costs and 
delays associated with NSR.
    As noted at the beginning of this report, representatives of 
industry, state and local agencies, and environmental groups have 
worked with EPA for over a decade on developing improvements to the NSR 
program. Our findings in this report ratify a longstanding and broadly-
held belief that parts of the NSR program can and should be improved. 
For example, we conclude above that changes to NSR that add to the 
clarity and certainty of the scope of the routine maintenance exclusion 
will improve the program by reducing the unintended consequences of 
discouraging worthwhile projects that are in fact outside the scope of 
NSR. For these reasons, EPA is recommending a number of changes to the 
NSR program that will address the concerns raised during this NSR 
review as well as many other concerns presented to EPA about NSR over 
the past decade.     
             United States Environmental Protection Agency,
                         Research Triangle Park, NC, June 20, 2001.
MEMORANDUM

SUBJECT: Benefits Associated with Electricity Generating Emissions 
Reductions Realized Under the NSR Program

TO: File

FROM: Bryan Hubbell, Senior Economist, Innovative Strategies and 
Economics Group

    As part of the EPA analysis of the impact of the NSR program on 
energy investment and supply, I did a calculation of the monetized 
benefits of the NSR program. The details of this calculation are 
contained in the attachment to this memo. Based on the estimated 
emissions avoided due to PSD BACT permitting, I estimated the magnitude 
of the benefits associated with this program. This estimate is lower 
than the actual benefits of the NSR program because I do not quantify 
all the health and environmental benefits, nor do I capture the 
benefits of the nonattainment NSR program. Also, my estimate does not 
capture the benefits of the reductions in emissions of pollutants other 
than SO2 or NOx. However, my calculation does show that the 
benefits of this program are substantial.
    Based on the information provided to me, there are roughly 400,000 
tons of SO2 and 822,000 tons of NOx emission reductions 
avoided annually as a result of the PSD program. Ninety percent of 
these reductions are thought to be from electricity-generating 
facilities. Based on previous EPA analyses, the average mortality-
related benefits per ton of NOx reduced are around $1,300 and the 
average benefits per ton of SO2 reduced are around $7,300 
for electricity-generating units. For simplicity, I provided estimates 
only for mortality impacts which generally account for over 90 percent 
of monetary benefits in previous analyses. Using these estimates as the 
basis for my calculation, total mortality-related benefits of these 
avoided emissions of SO2 and NOx are around $3.6 billion 
(1999$). This is due to an estimated reduction of 586 incidences of 
premature mortality from reduced exposure to these electricity-
generating unit emissions.

Attachment
                                 ______
                                 
    Benefits Associated with Electricity Generating Unit Emissions 
               Reductions Realized Under the NSR Program
    There is a well-established body of evidence on the harmful health 
and environmental effects of SO2, NOx (as primary pollutant 
emissions) and their related atmospheric transformation products, 
termed ``secondary pollutants'' (such as sulfates, nitrates, fine 
particles, and ozone). The scientific studies on health and 
environmental effects of sulfur dioxide, nitrogen dioxide, particulate 
matter and ozone have been amply documented and peer reviewed in the 
comprehensive Criteria Documents and Staff Papers prepared for recent 
National Ambient Air Quality Standards reviews (EPA 1982a, 1982b, 
1986a, 1986b, 1993, 1994a, 1994b, 1995, 1996a, 1996b, 1996c, 1996d).
    Sulfur dioxide and nitrogen oxides act as precursors in the 
development of fine particles and acid rain; nitrogen oxides also 
contribute to the production of ozone. This discussion first summarizes 
the general nature of health and certain environmental effects expected 
from the presence of such emissions, and then outlines existing 
quantitative estimates associated with large-scale regional emissions 
reductions from multiple sources, as well as relevant material on 
potential benefits of reductions at individual power plants. Finally, 
annual benefits of the NSR program over the period from 1997 to 1999 
are calculated by applying benefit-per-ton estimates obtained from 
previous analyses of the benefits of emission reductions from 
electricity-generating utilities.
                              human health
    Fine particle exposure has been associated with health effects such 
as decreased lung function, increased hospital admissions and emergency 
room visits, increased respiratory symptoms and disease, and premature 
mortality at a number of locations throughout the United States as well 
as in other countries (EPA, 1996a). A number of the locations where 
such associations have been observed are included in the eastern part 
of the Nation, which is subject to regionally-elevated concentrations 
of fine particles that are in large measure derived from utility 
emissions (EPA, 1996d). While there are well-recognized uncertainties 
in any such studies, EPA has concluded, with the concurrence of its 
scientific advisors, that the associations seen even at the lower 
concentrations that occur in the eastern United States are ``likely 
causal'' (EPA, 1996a). Increased hospital admissions and emergency room 
visits for respiratory causes have been associated with ambient ozone 
exposures, which also are elevated on a regional scale in the eastern 
United States (EPA, 1996b). Exposures to ozone can make people more 
susceptible to respiratory infection, result in lung inflammation, and 
aggravate preexisting respiratory diseases such as asthma. Other health 
effects attributed to short-term and prolonged exposures to ozone, 
generally while individuals are engaged in moderate or heavy exertion, 
include significant decreases in lung function and increased 
respiratory symptoms such as chest pain and cough (EPA, 1996b).
    Short-term exposure to high levels of sulfur dioxide while at 
moderate exertion may result in reduced lung function that may be 
accompanied by symptoms such as wheezing, chest tightness, or shortness 
of breath. People with asthma are more sensitive than the general 
population to this effect. Other effects that have been associated with 
longer-term exposures to higher concentrations of SO2, in 
conjunction with high levels of PM, include respiratory illness, 
alterations in the lungs' defenses, and aggravation of existing 
cardiovascular disease (EPA, 1982a,b, 1986a,b, EPA 1994a,b). Health 
effects associated with exposure to nitrogen oxides include increases 
in airway responsiveness and decreases in pulmonary function in 
individuals with preexisting respiratory illness and increases in 
respiratory illness in children (EPA, 1993, 1995).
                       animal life and vegetation
    Nitrogen oxides and SO2 contribute to a wide range of 
harmful effects on public welfare and the environment. This section 
focuses on the harmful effects to animal life and vegetation of NOx and 
SO2 separately, in combination, and as precursors to other 
secondary pollutants (i.e., ozone and particles).
    Nitrogen oxides are important precursors of ozone. Ozone is 
considered to be the most toxic of the ambient air pollutants to 
vegetation. Specifically, ozone has been shown to reduce agricultural 
and commercial forest yields, reduce survivability of sensitive tree 
seedlings, and increase plant susceptibility to disease, pests, and 
other environmental stresses such as harsh weather. In long-lived 
species, these effects may become evident only after several years or 
even decades. As ozone-sensitive species are out-competed by more 
tolerant ones, long-term changes to forest ecosystems and habitat 
quality for wildlife occurs. Additionally, ozone injury to the foliage 
of trees and other plants decreases the aesthetic value of ornamental 
species as well as the natural beauty of national parks and recreation 
areas.
    Deposition of nitrogen to terrestrial, wetland and aquatic (e.g., 
fresh, estuarine, and/or coastal) systems can lead to harmful effects 
on vegetation and animal populations from fertilization, 
eutrophication, or acidification. For example, fertilization of 
nitrogen-limited terrestrial systems alters competition between 
existing plant species, leading to. changes in the number and type of 
species (composition) present within a community. Species specifically 
adapted for nitrogen-poor environments (e.g., insectivorous plants 
found in wetlands) may be replaced by species better adapted to take 
advantage of the higher nitrogen levels. Since the animal population in 
a community is closely tied to the type of vegetation present, this in 
turn, affects which animals can successfully thrive in that habitat. As 
a result, the overall nutrient cycles of the system may change. 
Additionally, eutrophication of some aquatic systems can produce 
explosive algae growth leading to low oxygen levels in the water and/or 
an increase in levels of toxins harmful to fish and other aquatic life, 
leading to large fish and shellfish kills. Nitric acid 
(HNO3) is also a contributor to the acidification of soils 
and both chronic and episodic or acute acidification of water bodies in 
the United States. Acidification of soils can alter the availability of 
plant nutrients and expose tree roots to toxic levels of aluminum and 
manganese. If sufficient levels of aluminum are mobilized and leached 
from the system into waterways, it can be toxic to fish. Many species 
of aquatic animal and plant are adapted to live within a narrow range 
of water conditions, including acidity. As waters become more acid, 
many species of aquatic animals and plants can no longer survive in 
them and so are displaced by more acid-tolerant species.
    SO2 and its derivatives have also been implicated in the 
acidification of terrestrial and aquatic ecosystems, so many of the 
harmful impacts described for NOx above apply for SO2 as 
well. In addition, SO2 emissions contribute to the formation 
of acid rain, clouds and fog. In some high elevation sites, acid clouds 
or fog (which can be more acidic than acid rain) have been shown to 
damage trees. Sulfur dioxide exposure to vegetation can increase foliar 
injury, decrease plant growth and yield, and decrease the number and 
variety of plant species in a given community.
  recent estimates of the health benefits of reducing emissions from 
                           electric utilities
    Power plant emissions contribute to ambient air concentrations of 
the primary pollutants SO2, NOx, as well as secondary 
pollutants such as sulfates, nitrates, ozone and fine particles. 
Further, the characteristic transport distances for fine particle and 
acid rain-related pollutants can range as high as 500 to 1000 km (300 
to 600 mi) or more, meaning--that emissions from plants in States such 
as Indiana and Illinois can reach a large part of the East. Therefore, 
it is reasonable to expect that emissions from power plants in the NSR 
program would contribute significantly to regional air pollutant 
problems associated with the elevated SOx and NOx emissions in the 
eastern United States.
    Substantial quantitative evidence do the regional effects of power 
plant emissions impacts in the United States is available from the 
Regulatory Impact Analyses (RIA) that have been prepared for a number 
of recent rules or EPA actions. In each case, the RIA was intended to 
generally inform the public about the potential costs and benefits that 
may result using an illustrative State implementation scenario, 
recognizing that specific State actions would ultimately determine the 
actual costs and benefits of the rule. It is essential to recognize the 
uncertainties as documented in the RIM that are inherent in any such 
assessments. Also, the health and environmental impacts outlined in an 
RIA represent only those endpoints that can be quantified or monetized; 
thus, the findings may well represent an underestimate of the total 
health and environmental impacts.
    A regional analysis was conducted to estimate the benefits 
associated with reducing SO2 and NOx emissions from all 
coal-fired electricity-generating units (Abt Associates, Inc., 1996). 
Very substantial health and environmental impacts were estimated to 
result from a scenario that called for significant reductions beyond 
that required by the acid rain provisions of the Clean Air Act 
Amendments of 1990. National emissions reductions of about 3 million 
tons of SO2 and 900 thousand tons of NOx were modeled to 
predict consequent reductions in ambient concentrations of those 
pollutants and related secondary pollutants, ozone and particulate 
matter. These annual health benefits include 11 thousand lives 
prolonged, 3,700 avoided hospital admissions for heart or lung 
diseases, and 161 thousand occurrences of respiratory symptoms. The 
environmental benefits of these SO2 and NOx emissions 
reductions were estimated on a monetary basis, and included $160 
million per year in reduced household soiling and $1,700 million per 
year in improved visibility (Abt Associates, Inc., 1996).
    A second recent analysis estimated (the benefits of reduced ambient 
ozone and PM concentrations that would result from similar regional 
reductions in summertime NOx emissions; as stated previously, nitrogen 
oxides serve as a precursor for both ozone and fine particles. This 
analysis is based on an estimated emission reduction from 1.1 million 
tons of NOx, including over 900 thousand tons of NOx emissions from 
electricity-generating units. Resulting decreases in ambient 
particulate matter concentrations were estimated to result in annual 
benefits of 370 lives prolonged. Decreased ozone and particulate 
concentrations resulted in an estimated 1,200 avoided hospital 
admissions for heart or lung diseases per year and over 62 thousand 
avoided incidences of chronic or acute bronchitis or respiratory 
symptoms per year. In addition, environmental benefits of reducing NOx 
emissions, expressed as monetary benefits, were estimated to include 
$280 million commodity crop benefits, and $210 million in commercial 
forest benefits, and $7 million in household soiling benefits. In 
addition, a number of benefit categories were discussed as potentially 
significant, but unquantifiable, including residential and recreational 
visibility impairment, materials damage, and damage to ecosystems, 
nitrates in drinking water (EPA 1998).
    Another recent analysis was based on emissions reductions estimates 
of 659,000 tons of NOx, including 611,000 tons of NOx emissions 
reductions from electricity-generating units. Annual health benefits 
associated with ambient particulate matter concentration changes 
expected to result from this rule include 200 avoided premature deaths, 
400 avoided cases of acute bronchitis in children, 3800 avoided lower 
respiratory symptoms in children, 3900 avoided upper respiratory 
symptoms in children, and 29,000 avoided work loss days (EPA, 1999b). 
Annual health benefits associated with the ambient ozone concentration 
changes expected to result from the final rule were estimated to 
include 371 avoided cases of chronic asthma, 529 avoided hospital 
admissions for respiratory causes, 136 avoided hospital admissions for 
dysrhythmias, and 165 emergency room visits for asthma. Reductions in 
both ozone and particulate matter concentrations resulting from this 
rule were estimated to result in nearly 2 million avoided minor 
restricted activity days for acute respiratory symptoms. An estimated 
$51 million/year in welfare benefits, on a monetary basis, was 
estimated on the basis of improved visibility and decreased commercial 
agricultural losses, with recognition of many welfare and ecosystem 
effects (e.g., commercial forestry benefits, decreased worker 
productivity, residential visibility, household soiling and materials 
damage, nitrogen deposition) that could not be quantified on a monetary 
basis (EPA, 2000a).
    Finally, a recent analysis of emission reductions associated with 
the provisions of Senate Bill 172 (S. 172) calculated the benefits of 
reducing emissions of SO2 and NOx from electricity-
generating units by 3,740 thousand tons and 3,192 thousand tons, 
respectively (EPA, 2000). This analysis projected annual health 
benefits of 10,600 avoided premature deaths, 5,400 avoided new 
incidences of chronic bronchitis, over 5,000 avoided hospital and 
emergency room visits, hundreds of thousands of avoided respiratory 
symptoms in children, 1.5 million avoided lost work days, and over 8 
million minor restricted activity days. Most of these benefits (89 
percent) occur in the Eastern United States. In addition to health 
benefits, reductions in SO2 and NOx emissions were also 
projected to provide over $1.2 billion in benefits from improved 
visibility in Eastern Class I national parks.
Analyses of the Health Impacts of Individual Power Plants
    In addition to the national or regional analyses discussed above, 
several recent studies have assessed public health impacts associated 
with changes in emissions from specific power plants. Substantial 
public health impacts were also found in these analyses, as described 
below:
     Levy et al. (2000) evaluated public health impacts of 
emissions from two power plants in Massachusetts, Salem Harbor (805 MW) 
and Brayton Point (1611 MW), for the surrounding population of 
approximately 32 million people. According to EPA Emissions Trends data 
for 1996, emissions from the Salem Harbor plant in 1996 included 4,900 
tons NOx and 24,000 tons SO2, and emissions from the Brayton 
Point plant included 14,000 tons NOx and 44,000 tons SO2. 
The authors estimated that reductions in emissions of SO2, 
NO2 and PM10, from actual emissions to emissions 
estimated from application of Best Available Control Technology, would 
result in substantial public health benefits, including 124 avoided 
premature deaths per year, 1330 avoided emergency room visits per year, 
and 33,600 avoided asthma attacks per year. (Average actual and target 
emission rates are presented by the authors for each unit of each 
plant, and the reductions range from about 60 percent to over 90 
percent).
     A similar analysis was cited by Levy et al. (2000), on the 
public health impacts of emissions from the Centralia power plant (1340 
MW capacity) in Washington State. The same general methodology was 
used, with some differences in air quality model and dose-response 
coefficients. Levy et al (2000) cite an estimate of 34 annual deaths 
due to particulate matter exposure resulting from the power plant 
emissions, based on estimates of the effect of long-term pollutant 
exposure on mortality.
     An earlier analysis by Levy and colleagues (1999) 
evaluated risks associated with emissions from a 62MW co-generation 
plant in Massachusetts. Annual emissions for 1994 were 2,100 tons of 
NOx and 330 tons of SO2, and risks were calculated based on 
ambient pollutant concentration changes between areas near to and 
distant from the plant. The increased mortality risk was calculated to 
be 0.3 deaths per year, based on short-term pollutant exposures, and 
0.9 deaths per year, based on estimates of risk with long-term 
exposure.
    EPA has not conducted, nor are we aware of any studies or 
publications that have quantified health or environmental risks 
associated specifically with emissions reductions from the set of power 
plants covered by the NSR program. Nevertheless, the scale of the 
potential benefits can be approximated by making reasonable 
interpolations from previous regional and local scale assessments. As 
discussed above, power plant emissions have been associated with 
substantial health and environmental effects. For discussion purposes, 
the results of these analyses discussed above are summarized in the 
following table. It must be noted that these analyses were done for 
differing purposes, to answer different questions, and often using 
differing models or analytical methodologies, so the results cannot be 
directly compared but are illustrative of the health and environmental 
effects that might be associated with power plant emissions.
                                 ______
                                 


----------------------------------------------------------------------------------------------------------------
                                                                   Examples of Annual
                                        Study Population Size/         Health and
     Estimated Emissions Changes           Geographic Area       Environmental Benefits         Reference
                                                                       Estimates
----------------------------------------------------------------------------------------------------------------
2,965,000 tons of SO2, 938,000 tons    nationwide.............  11,00 premature deaths   Abt Associates, Inc.,
 of NOx.                                                         3700 hospital            1996)
                                                                 admissions  160,000
                                                                 respiratory symptoms
                                                                 $160 million household
                                                                 soiling  $1,700
                                                                 million visibility.
1,141,000 tons NOx (938,000 from       22 Eastern United        370 premature deaths     EPA 1998
 utilities).                            States.                  (long-term)  150
                                                                 premature deaths
                                                                 (short-term)  1200
                                                                 hospital admissions
                                                                 for heart or lung
                                                                 disease  >62,000
                                                                 incidences of acute or
                                                                 chronic bronchitis
                                                                 $280 million commodity
                                                                 crop benefits  $210
                                                                 million commercial
                                                                 forest benefits.
659,000 tons NOx (611,000 from         12 Eastern United        200 premature deaths     EPA 1999b, 2000a
 utilities.                             States.                  400 cases of acute
                                                                 bronchitis  530
                                                                 hospital admissions
                                                                 for respiratory
                                                                 diseases  2 million
                                                                 minor restricted
                                                                 activity days  $40
                                                                 million improved
                                                                 visibility  $11
                                                                 million commercial
                                                                 agricultural losses.
3,740,000 tons of SO2, 3,192 tons of   nationwide.............  10,600 premature deaths  EPA, 2000b
 NOx.                                                             5,400 incidences of
                                                                 chronic bronchitis
                                                                 5,100 hospital/
                                                                 emergency room visits
                                                                 475,000 respiratory
                                                                 symptom days  1.5
                                                                 million work loss days
                                                                  8 million minor
                                                                 restricted activity
                                                                 days  $1.2 billion
                                                                 improved visibility.
Reductions up to 90 percent from 2     32 million people......  124 premature deaths     Levy et al., 2000
 plants with combined 1996 emissions                             1330 ER visits  33,600
 of 19,000 tons NOx and 68,000 tons                              asthma attacks.
 SO2.
Reductions from emissions of 2095      9.5 million people.....  0.3 deaths (short-term   Levy et al., 1999
 tons NOx and 333 tons SO2, (amount                              exposure)  0.9 deaths
 reduced not clear).                                             (long-term exposure).
----------------------------------------------------------------------------------------------------------------

 quantified health benefits of reduced emissions of so2 and 
             nox from utilities affected by the nsr program
    As shown above, the health and environmental effects associated 
with power plant emissions reductions are indeed substantial. In order 
to provide an idea of the magnitude of health benefits that might be 
associated with emissions reduced by the NSR program, average benefits 
per ton, of precursor pollutant can be derived from previous analyses 
and applied to the NOx SO2 emission reductions from the NSR 
program. For the purpose of this calculation, the Analysis of the Acid 
Deposition and Ozone Control Act (S. 172), completed in July 2000 will 
be used to derive the benefit per ton estimates. For simplicity, we are 
providing estimates only for PM2.5 related mortality 
impacts, which account for over 90 percent of monetized benefits.
    The analysis of S. 172 examined the impacts of reducing 
SO2 emissions by 3,740 thousand tons and NOx emissions by 
3,192 thousand tons. Based on, an earlier analysis of the NOx SIP call 
rule, we expect that NOx emission reductions will have only \1/10\ the 
impact on PM2.5 concentrations as SO2 emission 
reductions. As such, we multiply the 10,600 estimated premature 
mortalities by 0.9 to get the 9,540 attributable premature mortalities 
for the SO2 emission reductions. Adjusting the estimated 
mortality to account for the change in C-R function from the Pope et 
al. (1995) estimate to the HEI/Krewski (2000) estimate results in an 
updated estimate of 7,100 attributable incidences of premature 
mortality. Dividing updated attributable incidences by tons results in 
an estimated 1.90 incidences of premature mortality per thousand tons 
of SO2 reduced in 2010. On a per-person basis, this is 
0.0064 mortality incidences per thousand tons per million people.
    To obtain a similar estimate for NOx reductions, we multiply the 
10,600 estimated premature mortalities by 0.1 to get the 1,060 
attributable premature mortalities for the NOx emission reductions (319 
thousand tons) used to derive the benefit/ton estimates. Adjusting the 
estimated mortality to account for the change in C-R function to the 
HEI/Krewski (2000) estimate results in an updated estimate of 773 
attributable incidences of premature mortality. Dividing updated 
attributable incidences by tons results in an estimated 0.33 incidences 
of premature mortality per thousand tons of NOx reduced in 2010. On a 
per-person basis, this is 0.0011 mortality incidences per thousand tons 
per million people.
    In order to calculate the potential benefits of the NSR program, 
three pieces of information are needed: (1) population expected to 
benefit from reductions in ambient PM2.5 concentrations, (2) 
tons of NOx and SO2 reduced, and (3) benefits per ton per 
million population for NOx and SO2 There were 400,000 tons 
of SO2 reductions, and 822,000 tons of NOx reductions that 
occurred annually from 1997 to 1999 as a result of NSR activities in 
States in the Eastern United States. Most of these reductions occurred 
at utility plants; however, some portion of these emission reductions 
occurred at refineries and other non-utility sources. However, it is 
likely that at least 90 percent of the SO2 and NOx 
reductions come from utilities nationwide. For illustrative purposes, 
it is assumed that there were 0.9*400,000=360,000 tons of 
SO2 reduced and 0.9*822,000=740,000 tons of NOx reduced at 
utilities due to the NSR program. Based on a population of around 188 
million in the Eastern United States (east of Minnesota, Iowa, 
Missouri, Arkansas, and Louisiana, inclusive), the average mortality-
related benefits per ton of NOx reduced are around $1,300 and the 
average benefits per ton of SO2 reduced are around $7,300. 
Applying these estimates to the reductions in utility emissions due to 
the NSR program yields total mortality-related benefits of $2,628 
million (1999$) for SO2 emission reductions and 962 million 
(1999$) for NOx emission reductions. Thus, total mortality-related 
benefits of utility emission reductions of SO2 and NOx could 
potentially be around $3.6 billion (1999$). This is due to an estimated 
reduction of 586 incidences of premature mortality related to 
PM2.5 exposure. It is important to keep in mind the 
uncertainties that are inherent in these estimates. The estimates are 
intended to provide an order of magnitude approximation to the benefits 
rather than a precise estimate. There are many factors which may cause 
actual benefits to deviate from these estimates. These factors include 
whether the sources of emissions, meteorology, transport of emissions, 
initial PM concentrations, population density, and population 
demographics are reasonably consistent with those used in generating 
the benefit transfer values. A general rule is that as these factors 
diverge, the likelihood of significant error in the estimated benefits 
values will increase.
    References:
    Abt Associates, Inc. 1996. Clean Air Power Initiative (CAPI) 
Benefits Analysis. Memorandum from Leland Deck and John Voyzey to 
Allyson Siwik, November 22, 1996. Abt Associates, Inc., Bethesda, MD 
[included in PM NAAQS review docket, A-95-54, II-F-26]
    EPA. 1982a. Air Quality Criteria for Particulate Matter and Sulfur 
Oxides. U.S. Environmental Protection Agency, Office of Research and 
Development, Washington, DC 20460. EPA/600/882-029
    EPA. 1982b. Review of National Ambient Air Quality Standards for 
Sulfur Oxides; Assessment of Scientific and Technical Information. U.S. 
Environmental Protection Agency, Office of Air Quality Planning and 
Standards, Research Triangle Park, NC 27711, EPA-450/5-82-007
    EPA. 1986a. Second Addendum to Air Quality Criteria for Particulate 
Matter and Sulfur Oxides. U.S. Environmental Protection Agency, Office 
of Research and Development, Washington, DC 20460. EPA/600/8-86-020F
    EPA. 1986b. Review of National Ambient Air Quality Standards for 
Sulfur Oxides; Updated Assessment of Scientific and Technical 
Information; Addendum to the 1982 OAQPS Staff Paper. U.S. Environmental 
Protection Agency, Office of Air Quality Planning and Standards, 
Research Triangle Park, NC 27711, EPA-450/05-86-013
    EPA. 1993. Air Quality Criteria for Oxides of Nitrogen. U.S. 
Environmental Protection Agency, Office of Research and Development, 
Washington, DC 20460. EPA/600/8-91/049cF
    EPA. 1994a. Supplement to the Second Addendum (1986) to Air Quality 
Criteria for Particulate Matter and Sulfur Oxides (1982): Assessment of 
New Findings on Sulfur Dioxide Acute Exposure Health Effects in 
Asthmatic Individuals. Environmental Criteria and Assessment Office, 
Research Triangle Park, NC. EPA/600/FP-93-002
    EPA. 1994b. Review of National Ambient Air Quality Standards for 
Sulfur Oxides; Updated Assessment of Scientific and Technical 
Information; Supplement to the 1986 OAQPS Staff Paper. U.S. 
Environmental Protection Agency, Office of Air Quality Planning and 
Standards, Research Triangle Park, NC 27711, EPA-452/R-94-013
    EPA. 1995. Review of National Ambient Air Quality Standards for 
Nitrogen Dioxide; Assessment of Scientific and Technical Information; 
OAQPS Staff Paper. U.S. Environmental Protection Agency, Office; of Air 
Quality Planning and Standards, Research Triangle Park, NC 27711, EPA-
452/R-95-005
    EPA. 1996a. Air Quality Criteria for Particulate Matter. U.S. 
Environmental Protection Agency, Office of Research and Development, 
Washington, DC 20460. EPA/600/P-95/001cF
    EPA. 1996b. Air Quality Criteria for Ozone and Related 
Photochemical Oxidants. U.S. Environmental Protection Agency, Office of 
Research and Development, Washington, DC 20460. EPA/600/P-93/004cF
    EPA. 1996c. Review of National Ambient Air Quality Standards for 
Ozone; Assessment of Scientific and Technical Information; OAQPS Staff 
Paper. U.S. Environmental Protection Agency, Office of Air Quality 
Planning and Standards, Research Triangle Park, NC 27711, EPA452/R-96-
007
    EPA. 1996d. Review of National Ambient Air Quality Standards for 
Particulate Matter; Assessment of Scientific and Technical Information; 
OAQPS Staff Paper. U.S. Environmental Protection Agency, Office of Air 
Quality Planning and Standards, Research Triangle Park, NC 27711, EPA-
452/R-96-013
    EPA. 1997. National air pollutant emission trends, 1900-1996. U.S. 
Environmental Protection Agency. Office of Air Quality Planning and 
Standards, Research Triangle Park, NC 27711. EPA-454/R-97-011
    EPA. 1998. Regulatory impact analysis for the NOx SIP call, FIP and 
Section 126 petitions; Volume 2: Health and welfare benefits. U.S. 
Environmental Protection Agency, Office of Air and Radiation, 
Washington, DC 20460. EPA-452/R-98-003
    EPA. 1999b. Regulatory impact analysis for the final Section 126 
petition rule. U.S. Environmental Protection Agency, Office of Air and 
Radiation, Washington, DC 20460
    EPA. 2000a. Regulatory impact analysis for the final Section 126 
petition rule: supplementary volume--ozone-related benefits of regional 
NOx emission reductions. U.S. Environmental Protection Agency, Office 
of Air and Radiation, Washington, DC 20460
    EPA. 2000b. Analysis of the Acid Deposition and Ozone Control Act 
(S. 172). Prepared for the Senate Subcommittee on Clean Air, Wetlands, 
Private Property, and Nuclear Safety. U.S. Environmental Protection 
Agency, Office of Air and Radiation, Washington, DC 20460
    Flagler RB., editor. 1998. Recognition of Air Pollution Injury to 
Vegetation: A Pictorial Atlas (second ed.) Air and Waste Management 
Association, Pittsburgh, PA.
    Hubbell B. 1999. Estimated NOx and SO2 emissions 
damages--incidences and monetary benefits; Memorandum from Bryan 
Hubbell to Bill Harnett, October 30, 1999.
    Levy J., Spengler JD, Hlinka D, Sullivan D. 2000. Estimated public 
health impacts of criteria pollutant air emissions from the Salem 
Harbor and Brayton Point Power Plants. Harvard School of Public Health, 
May 2000.
    Levy JI, Hammitt JK, Yanagizawa Y, Spengler JD. 1999. Development 
of a new damage function model for power plants: methodology and 
applications. Environ Sci Technol 33:4364-4372.
        
        
       Statement of William H. Sorrell, Attorney General of the 
                            State of Vermont
    Chairman Jeffords, Chairman Leahy, and members of the Committees: 
Thank you very much for allowing me this opportunity to share my 
thoughts regarding the New Source Review program.
    The quality of our nation's air is of critical importance--not just 
to those of us living in the northeastern United States, but also to 
everyone in this great Nation and most especially our children, the 
elderly, and those among us who suffer from respiratory illness.
    We have worked hard in Vermont to attain the quality of life that 
is so important to us. We value our natural resources and do our best 
to be sure we are not soiling our own backyard. I believe it is fair to 
say that we join the dialog regarding air pollution with clean hands.
    To give you an idea of the scope of the pollution caused by old, 
dirty coal-fired power plants, I want to impress upon you that in 1998, 
all Vermont sources of sulphur dioxide emitted a total of approximately 
17,000 tons of SO2. Just one of the plants at issue in the 
New Source Review enforcement case that Vermont has joined, the 
Cardinal Plant in Brilliant, Ohio operated by American Electric Power 
and its affiliated companies, emitted more than 152,000 tons of 
SO2 in the same year--and this plant is not even the largest 
of the American Electric Power plants.
    We have good reason to be deeply concerned about massive amounts of 
air pollution carried into our State by the prevailing winds. The 
impacts attributable to this wind-borne pollution, in Vermont and 
regionally, are sobering and bear repeating:
     In Vermont, 20 percent of lakes are moderately to 
extremely sensitive to acid deposition and several lakes are critically 
acidic and, thus, unable to support fish and/or other aquatic life.
     Federal studies conclude that the percentage of acidified 
lakes is expected to increase or even double over the next four decades 
unless upwind emissions of NOx and SO2 are reduced 
extensively.
     Acid deposition is a major cause of the widespread decline 
of red spruce in high elevation forests throughout the Northeast. Since 
the 1960's, more than half of large canopy trees in the Adirondack 
Mountains of New York and the Green Mountains of Vermont and 
approximately one quarter of large canopy trees in the White Mountains 
of New Hampshire have died. There is also growing evidence that sugar 
maple decline is linked to acid deposition.
     According to one analysis, even with an 80 percent 
reduction in electric utility emissions beyond that required under the 
1990 CAA, chemical recovery of certain watersheds to non-acidic levels 
will take 20-25 years and recovery of the acid--neutralizing compounds 
in soils will not occur until the year 2050. Biological recovery will 
take decades if not generations beyond that.
    Our children and grandchildren and generations to come will know 
only of the devastating impacts resulting from decades of air pollution 
and will not see the recovery of the forests and lakes. Is this to be 
our legacy?
    As a Nation, we must take swift and decisive action to improve the 
quality of the air. We applaud the efforts of EPA and the Department of 
Justice in working cooperatively with States to protect air quality. 
Our shared successes have included important victories affirming 
certain aspects of regulatory programs and the Agency's determinations 
regarding the long-range transport of ozone-forming pollutants.
    We also appreciate the ongoing efforts by the Agency and DOJ in 
seeking full implementation of EPA's regional haze rule, which will 
help to protect and improve visibility in our nation's pristine 
wilderness areas, including Shenandoah, the Great Smokey Mountains, 
Yosemite and the Grand Canyon. New Hampshire, Maine and Vermont, joined 
by Utah and New Mexico, the National Tribal Environmental Council and 
national advocacy groups have been actively involved in supporting this 
effort. We are hopeful that these efforts will lead to real 
improvements in the quality of our nation's air in years to come.
    The State of Vermont also is working cooperatively and productively 
with the Environmental Protection Agency, the Department of Justice, 
other States and national public interest advocacy groups to enforce 
the existing New Source Review program against big corporations 
operating numerous old, dirty coal-fired power plants. There is no 
question that implementation by EPA of the reform package will 
seriously undercut these efforts.
    Now is not the time to water down the laws needed to protect air 
quality. The announced reforms of the New Source Review program will 
take us 180 degrees in the wrong direction. As one State regulator has 
put it, these reforms will assure longer lives for old, dirty coal-
fired power plants and shorter lives for Americans.
    We very much hope that the Administration will change course and 
not backtrack on existing environmental protections. However, if it 
chooses to go forward with its announced changes, we encourage Congress 
to reject such efforts to weaken the New Source Review program.
    Thank you again for the opportunity to meet with you and to provide 
these comments.
                                 ______
                                 
      Supplemental Comments by Attorney General William H. Sorrell
    The New Source Review program has been the Act's most effective 
tool for reducing air pollution. However, the Administration's proposed 
changes announced June 13, 2002, will change this. These changes will 
amount to the largest and most significant weakening of clean air 
regulations in the history of the Act.
    The weakening of these regulations is a major public health and 
environmental mistake. A rollback in the NSR program will result in 
increased respiratory disease, premature death, smog, acid rain, and 
degradation of our waters and forests. Pollution from power plants in 
the form of nitrogen oxides, sulfur dioxide, carbon dioxide and mercury 
costs Americans thousands of lives and billions of dollars each year. 
We need to reduce power plant emissions, not allow them to increase in 
the way proposed by the Administration.
    When it originally established the program, Congress recognized 
that the most cost-efficient time to install new controls was when a 
power plant was being built or modified. Congress also recognized that 
many power plants were nearing the end of their useful lives and that 
requiring new pollution controls on these plants would not be effective 
or efficient. However, Congress declared that new or modified plants 
should be as clean as technologically feasible. The Administration's 
decision departs from this bedrock principle and will have grave 
consequences for each and every American.
                         power plant pollution
    In terms of the volume and variety of pollutants emitted, and the 
resulting adverse impacts, no source can compare to coal-burning power 
plants. These facilities emit the ``worst'' of our air pollutants--
carbon dioxide, sulfur dioxide, nitrogen oxides, particulate matter and 
mercury. Coal-fired power plants collectively account for about 70 
percent of annual sulfur dioxide (SO2) emissions and 30 
percent of nitrogen oxide (NOx) emissions in the United States. 
SO2 interacts in the atmosphere to form sulfate aerosols. 
These aerosols often travel long distances in the air and contribute to 
acid rain and haze. NOx also is carried long distances and is a major 
contributing factor to the formation of ground level ozone, or smog. 
Coal-burning power plants are also a major source of particulate 
matter. All of these pollutants cause serious health and environmental 
impacts.
        adverse human health effects from power plant pollution
    The health effects caused by these pollutants are well known and 
bear repeating:
    Premature Death.--Fine particulate matter pollution in the eastern 
United States is composed primarily of sulfate aerosols. Because these 
fine particles can be inhaled more deeply into the lungs than larger 
particles, they are associated with certain types of respiratory 
diseases and premature death. Particulate pollution claims the lives of 
over 30,000 Americans per year.\1\
---------------------------------------------------------------------------
    \1\ The Particulate-Related Health Benefits of Reducing Power Plant 
Emissions (``Particulate Report''), Abt Associates Inc., October 2000, 
at 5.1.
---------------------------------------------------------------------------
    Asthma.--Ozone or ``smog'' pollution, formed from nitrogen oxides, 
is increasing at an alarming rate. Smog pollution severely affects this 
country's 15 million asthmatics. A recent study found that coal-fired 
power plant emissions trigger 600,000 asthma attacks per year and are 
responsible for sending 20,000 Americans to the emergency room.\2\ 
Power plant pollution results in 5 million lost workdays.\3\
---------------------------------------------------------------------------
    \2\ Particulate Report, at 5.3.
    \3\ Id.
---------------------------------------------------------------------------
    Neurological and Developmental Damages from Mercury 
Contamination.--Americans should not have to worry about eating fish 
from rivers, lakes and oceans. Yet, over 40 States have advised their 
citizens to reduce their consumption of fish from contaminated 
waterways. Mercury contamination can cause serious neurological and 
developmental damages in children and infants, including subtle loss of 
sensory or cognitive ability, delays in developmental milestones, such 
as walking and talking, and even birth defects.\4\
---------------------------------------------------------------------------
    \4\ Power Plants, Your Health and the Environment (``Power 
Plants''), Clean the Air, Washington, DC, at 1.
---------------------------------------------------------------------------
    The most troublesome aspect of power plant pollution is that our 
children are the most vulnerable to its effects. Many factors increase 
the risk of children to air pollution as compared to adults. Due to the 
higher activity level of children, ``pound for pound'' they breathe 
more air for their size than adults do. In addition, their increased 
time spent playing outdoors further increases their exposure to outdoor 
air pollution. Studies suggest that children suffer a higher prevalence 
of asthma than adults, and, thus, asthma makes our children far more 
susceptible to impacts of air pollution. The lung's defense systems in 
children are still developing, and are unable to defend against the 
effects of pollutants as effectively as the lungs in adults.\5\
---------------------------------------------------------------------------
    \5\ Children at Risk; How Air Pollution for Power Plants Threatens 
the Health of America's Children, Clean Air Task Force, April 2002, at 
1.
---------------------------------------------------------------------------
     human health effects attributed to power plants charged with 
                             nsr violations
    A recent report delivered the sobering reality regarding the human 
health effects that are caused by the power plants that have been 
charged with NSR violations.\6\ The key findings of this report 
include:
---------------------------------------------------------------------------
    \6\ Power to Kill, Clean Air Task Force, July 2001, at 4; 
Preliminary Analysis of the Benefits and Costs of Current New Source 
Review Litigation, Clean Air Task Force, June 2002.
---------------------------------------------------------------------------
     Pollution from the 51 plants that are targets of the NSR 
enforcement actions shortens the lives of between 5,500 and 9,000 
Americans each year;
     Requiring these plants to meet standards required by law 
would avoid 4,300 to 7,000 of these deaths;
     Pollution from the 51 NSR plants leads to between 107,000 
and 170,000 asthma attacks each year;
     Between 80,000 and 120,000 of these asthma attacks could 
be avoided by requiring these plants to meet pollution standards as 
required by law;
     Although all of the plants that are current targets of NSR 
enforcement are located in the Midwest or Southeast, there is a 
``transport of death and disease.'' Pollution from these plants affects 
downwind Northeastern States resulting in 1,500 to 2,100 premature 
deaths and 30,000 to 39,000 asthma attacks per year in those States;
     Between 1,200 and 1,700 of the deaths, and between 23,000 
and 31,000 of the asthma attacks in downwind Northeastern States would 
be avoided if the plants met standards required for new plants;
     Requiring the 51 NSR plants to meet pollution standards 
required by law would yield total estimated monetary benefits of $27 to 
$45 billion per year.
                       harm to natural resources
    Emissions of NOx and SO2 from power plants also cause 
extensive harm to natural resources. In the atmosphere, the NOx and 
SO2 are converted into acids, including nitric and sulfuric 
acids, and other acidifying compounds. These compounds fall to the 
ground as wet deposition (acid rain, fog, cloud water, sleet and snow) 
and dry deposition (gases, aerosols and particles). These acids and 
acidifying compounds are cycled through the soil, vegetation, and 
surface waters setting off a cascade of adverse ecological impacts.
    Acid deposition has altered, and continues to alter, soils in areas 
of the Northeast in a number of ways. First, acid deposition has 
leached base cations, including calcium and magnesium, out of the soil, 
thereby reducing the soil's acid-neutralizing capacity and 
fundamentally altering soil processes. The depletion of these compounds 
has, in turn, resulted in the accumulation of sulfur and nitrogen in 
the soils. When leached out of the soil, sulfur and nitrogen contribute 
to the acidification and nitrogen loading of streams and lakes. 
Additionally, acid deposition facilitates the mobilization of dissolved 
inorganic aluminum, an ecologically harmful form of aluminum, into soil 
waters, vegetation, lakes and streams. High concentrations of aluminum 
can be toxic to fish, plants and other organisms.
    Acid deposition also continues to impair the quality of water in 
lakes and steams throughout the Northeast by lowering pH levels, 
decreasing acid-neutralizing capacity and increasing aluminum 
concentrations. Power plant emissions are largely responsible for the 
fact that 20 percent of the lakes in New York's Adirondack Park region 
are too acidic to support fish life. In Vermont, 20 percent of lakes 
are moderately too extremely sensitive to acid deposition and several 
lakes are critically acidic and, thus, unable to support fish and/or 
other aquatic life. Similarly, in New Hampshire, nearly half of the 
lakes have been acidified with some so acidic that they do not support 
naturally reproducing fish populations. Federal studies conclude that 
that percentage of acidified lakes is expected to increase or even 
double over the next four decades unless upwind emissions of NOx and 
SO2 are reduced extensively. Similar impacts are seen in the 
lakes and streams of other northeastern States that lie downwind of the 
defendants' power plants.
    Decreases in pH and elevated concentrations of aluminum have 
reduced the species diversity and abundance of plankton, invertebrates, 
fish and other aquatic life in many streams and lakes in acid sensitive 
areas of the Northeast. Although chronically high acid levels stress 
aquatic life, acid episodes are particularly harmful. Spring runoff 
from snowmelt creates an annual pulse of acidified water, which enters 
lakes and streams in huge volumes. This phenomenon, known as acid 
shock, is particularly harmful to aquatic communities because it occurs 
during spawning or the early life-cycle stages of many species. Studies 
have shown that high acidity and aluminum levels disrupt the salt and 
water balances in a fish's blood, causing red blood cells to rupture 
and increasing blood viscosity, thereby resulting in a lethal heart 
attack.
    In addition, acid deposition is a major cause of the widespread 
decline of red spruce in high elevation forests throughout the 
northeast. Since the 1960's, more than half of large canopy trees in 
the Adirondack Mountains of New York and the Green Mountains of Vermont 
and approximately one quarter of large canopy trees in the White 
Mountains of New Hampshire have died. Recent research suggests that 
acid deposition leaches calcium directly from cell membranes in spruce 
needles. This renders the needles more susceptible to freezing damage, 
thereby reducing a tree's cold tolerance and increasing the occurrence 
of winter injury. In addition, elevated aluminum levels in the soil, 
discussed above, limits the ability of red spruce to take up water and 
nutrients through its roots, leading to reduced tolerance for 
environmental stress.
    There is also growing evidence that sugar maple decline is linked 
to acid deposition. Extensive mortality among sugar maples in 
Pennsylvania appears to result from deficiencies of base cations, 
together with other stresses such as insect defoliation or drought. 
Acid deposition, and its effect on soil chemistry is a predisposing 
factor in sugar maple decline.
    Total power plant emissions of sulfur dioxide, and consequent 
deposition in the northeast of sulfuric acid and other sulfur 
particles, has declined since 1990. However, emissions of nitrogen 
oxides have remained essentially unchanged. Because of this and given 
the extensive loss of acid-neutralizing base cations, the mobilization 
of aluminum, and the accumulation of sulfur and nitrogen in the soil, 
the chemical and, in turn, biological recovery of forest and aquatic 
ecosystems will require extensive reductions of emissions. According to 
one analysis, even with an 80 percent reduction in electric utility 
emissions beyond that required under the 1990 CAA , recovery of certain 
watersheds to non-acidic levels will take 20-25 years and recovery of 
soil base cation and aluminum levels will not occur until the year 
2050. Many ecosystems are more sensitive to the additional input of 
acids and acid forming compounds.
    Nitrate deposition also contributes to the eutrophication of 
coastal bays and estuaries, which occurs when an excess of nitrogen 
causes algae growth that threatens the survival of other aquatic 
species.
    Another significant effect of power plant pollution is the 
impairment of visibility throughout the Nation, including in our 
national parks and wilderness areas. Electric utility boilers are the 
predominant source of sulfur dioxide and a principal cause of reduced 
visibility.\7\ Power plants annually release about 13 million tons of 
sulfur dioxide into the atmosphere, more than 60 percent of the 
national total. Data show that ``visibility impairment caused by air 
pollution occurs virtually all the time at most national park and 
wilderness area monitoring stations.''\8\ States are impacted by the 
problem of impaired visibility not only because it affects their 
residents' quality of life, but also in more concrete economic terms 
due to lowered tourism, diminished appeal for new business activity, 
and adverse affects on businesses dependent on visitors to national 
parks and wilderness areas.
---------------------------------------------------------------------------
    \7\ Protecting Visibility in National Parks and Wilderness Areas, 
National Academy of Science's National Research Council (National 
Academy Press, 1993) at 2.
    \8\ 62 Federal Register 41,138-41,139 (July 31, 1997).
---------------------------------------------------------------------------
                             climate change
    Coal-burning power plants also emit CO2 which 
contributes to global climate change. This is the most pressing 
environmental challenge of the 21st century. The global nature of the 
climate change problem would be most efficiently addressed by 
comprehensive regulatory action at the national level.
    The Administration's recent report, U.S. Climate Action Report 
2002, projects that emissions of greenhouse gases--primarily carbon 
dioxide produced from the combustion of fossil fuels--will increase by 
43 percent by 2020. The Report also makes it clear that the question of 
whether global climate change is occurring is no longer in doubt, only 
the precise rate of change and the specific impacts of that change.
    Some States are now initiating measures to achieve reductions in 
greenhouse gas emissions. For example, Massachusetts last year adopted 
State regulations requiring carbon dioxide reductions by power plants, 
and New Hampshire recently enacted ``cap and trade'' legislation. 
California's legislature has just passed a bill that will lead to the 
``maximum feasible'' reductions of carbon dioxide emissions from 
vehicles. New York is also considering a carbon cap. While individual 
States are prepared to lead the way, a strong national approach will 
allow for more efficient solutions that will better protect the 
American economy in the long run.
                               conclusion
    In sum, I urge the respected members of these Committees to review 
critically the Administration's actions on environmental issues, 
especially the New Source Review program. Congress intended the NSR 
program to protect and improve air quality and to encourage the 
installation of cleaner plants. Congress should reaffirm these goals 
and reject efforts to weaken the New Source Review program.
                               __________
 Statement of Eliot Spitzer, Attorney General of the State of New York
    Chairman Leahy and Chairman Jeffords, Senator Schumer and Senator 
Clinton, and distinguished members of the committees: Thank you for 
convening this hearing and thank you for providing me with the 
opportunity to testify about the need to maintain and enforce the New 
Source Review (NSR) provisions of the Federal Clean Air Act.
    New York State has been hard hit by air pollution from coal-burning 
power plants. Hundreds of lakes and ponds in the Adirondack and 
Catskill Mountains have been ravaged by acid rain. Ground level ozone 
has triggered asthma attacks and other respiratory diseases in every 
corner of our State, particularly in New York City. In addition, 
nitrate and sulfate particulates cause respiratory and cardiac illness, 
lung cancer and thousands of deaths in the regions downwind from 
polluting plants.
    The New Source Review provisions of the Clean Air Act constitute a 
powerful tool to reign in this harmful pollution. For years, power 
plants have been exploiting an exemption, added to the Clean Air Act in 
1977, which temporarily excused existing power plants from having to 
install modern pollution control devices. This exemption, however, was 
not intended to be permanent. Congress understood in 1977--25 years 
ago--that existing plants could not operate indefinitely without having 
to undertake expensive life extension projects. At that time, Congress 
mandated, power plants would have to install state-of-the-art pollution 
controls. But now, decades later, many of these power plants continue 
to spew huge quantities of air contaminants and operate with no 
pollution controls, in blatant violation of the Clean Air Act.
    The aim of the Clean Air Act litigation brought by New York, other 
northeast States, the Federal Environmental Protection Agency (EPA) and 
various environmental organizations is to address these harms by going 
to their source. In 1999, working in partnership with EPA and other 
Attorneys General from the northeast, my office identified various 
power plants that were in violation of the New Source Review 
requirements. These coal-burning power plants had undergone major 
multi-million dollar improvements without installing NSR-dictated 
pollution controls. To date, I have filed lawsuits with respect to 17 
of these power plants--which are located in Ohio, West Virginia, 
Virginia and Indiana--under the citizen suit provision of the Clean Air 
Act. Each of these cases has been joined by EPA and other States. The 
plants involved emit tons of nitrogen oxides and sulfur dioxide every 
day, harming New York's air quality and damaging its natural resources.
    My office also has taken enforcement action against several power 
plants located in New York State even though they are generally 
responsible for much less pollution than their counterparts in the 
Midwestern and southern States. Working with the New York State 
Department of Environmental Conservation, we have identified seven 
power plants that were in violation within New York, and we have filed 
a lawsuit against the owner of the two largest plants. The Commissioner 
of the State Department of Environmental Conservation and I are 
currently in negotiations with the owners of the other five plants.\1\
---------------------------------------------------------------------------
    \1\ Attached to my testimony (Exhibit 1) is a list of the 24 
plants, within and outside of New York, against which we have taken 
action, along with the amounts of air pollution they emit.
---------------------------------------------------------------------------
    Unfortunately, however, our efforts to enforce the Clean Air Act 
have prompted the Bush Administration to propose a set of illegal 
regulatory changes that would essentially neutralize New Source Review 
as an enforcement mechanism and deprive the public of the benefits of 
this laudably farsighted legislation. The Administration's efforts to 
dismantle NSR must be defeated, and I will go to court, if necessary, 
to stop them. I also urge Congress to ensure that the proposed changes 
do not come to fruition. In the meantime, however, the Administration's 
retrenchment on clean air already has jeopardized all of the existing 
NSR cases brought by the States and the Federal Government, and 
threatens to thwart any future NSR enforcement efforts.
    My testimony today addresses four points. First, I explain how the 
Administration's proposed changes would, if enacted, illegally 
contravene the Clean Air Act. I intend to go to court to challenge 
these illegal changes if the Administration puts them into effect. And 
I intend to win. Second, I demonstrate that the Administration's plans 
to gut the NSR provisions are already--before the changes even become 
effective--jeopardizing our existing enforcement cases and depriving us 
of the millions of tons in pollution reductions that those cases would 
yield. Third, I refute both the Administration's claim that the NSR 
program needs ``clarification'' and industry's contention that it was 
``unfairly surprised'' by our enforcement cases. Finally, I offer my 
recommendations as to how Congress should respond to the 
Administration's assault on the Clean Air Act.
          i. the administration's proposed changes are illegal
    The Administration's proposed changes--so far as we know them 
through EPA's press statements--are illegal because they purport to 
amend the Clean Air Act. I will first explain the existing law, as 
enacted and enforced under the prior Reagan and Bush Administrations. I 
will then review the changes and explain why they are illegal.
A. New Source Review Law and Regulations
    In 1977, Congress created the Prevention of Significant 
Deterioration (PSD) program to ensure that increased pollution from the 
construction of new emissions sources or the modification of existing 
emission sources would be minimized, and to ensure that construction 
activities would be consistent with air quality planning requirements. 
This program only applied to areas of the country where the air quality 
met or exceeded the national ambient air quality standards. The non-
attainment New Source Review program, also created in 1977 contains 
virtually identical requirements applicable to facilities in non-
attainment areas. (I refer to both programs together as the NSR 
program.)
    Generally, the NSR program requires such sources to obtain permits 
from the permitting authority before the sources undertake construction 
projects if those projects will result in an increase in pollution 
above a de minimis amount. In addition, the NSR regulations usually 
require that sources install state-of-the-art controls to limit or 
eliminate pollution. Congress required and fully expected that those 
older existing sources would either incorporate the required controls 
as they underwent ``modifications,'' or would instead be allowed to 
``die'' and be replaced with new, state-of-the-art units that fully 
complied with pollution control requirements.
    The Clean Air Act defines ``modification'' as any physical change 
or change in the method of operation that increases the amount of an 
air pollutant emitted by the source. 42 U.S.C. Sec. 7411(a). Courts for 
many years have interpreted the Clean Air Act term ``modification'' 
broadly. Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir. 
1979) (the term `` `modification' is nowhere limited to physical 
changes exceeding a certain magnitude''); Wisconsin Electric Power Co. 
v. Reilly, 893 F.2d 901, 905 (7th Cir. 1990) (``WEPCO'' (``[e]ven at 
first blush, the potential reach of these modification provisions is 
apparent: the most trivial activities--the replacement of leaky pipes, 
for example--may trigger the modification provisions if the change 
results in an increase in the emissions of a facility.'') The WEPCO 
court noted that Congress did not intend to provide ``indefinite 
immunity [to grandfathered facilities] from the provisions of [the 
Clean Air Act],'' id. at 909, and that ``courts considering the 
modification provisions of [the Clean Air Act] have assumed that `any 
physical change' means precisely that.'' Id. at 908 (emphasis added) 
(citations omitted).
    EPA recognized, however, that interpreting ``modification'' to 
include literally ``any physical change'' could become administratively 
unworkable (``the definition of physical or operational change in 
Section 111(a)(4) could, standing alone, encompass the most mundane 
activities at an industrial facility (even the repair or replacement of 
a single leaky pipe, or a change in the way that pipe is utilized)''). 
57 Fed. Reg. 32,314, 32,316 (July 21, 1992). To exclude these trivial 
activities from the scope of the NSR provisions, EPA regulations have 
exempted routine maintenance, repair, and replacement from the 
definition of modification since 1977. 40 C.F.R. Sec. 52.21(b)(2)(iii).
    EPA historically has analyzed and applied the ``routine 
maintenance'' exemption to modification by using a common sense test 
that assesses four primary factors, the (1) nature and extent, (2) 
purpose, (3) frequency, and (4) cost of the proposed work. See, e.g., 
Memorandum from Don R. Clay, EPA Acting Assistant Administrator for Air 
and Radiation, to David A. Kee, Air and Radiation Division, EPA Region 
V (Sept. 9, 1988). This approach was upheld by the U.S. Court of 
Appeals for the Seventh Circuit in WEPCO, a case brought under the 
first President Bush. Our cases follow these standards.
    Although Congress did not authorize EPA to create this ``routine 
maintenance'' exemption, the Court of Appeals for the D.C. Circuit 
ruled, in a challenge to the exemption in the PSD regulations for minor 
emission increases, recognized that EPA may exempt de minimis activity 
from the scope of the modification provisions. Alabama Power Co. v. 
Costle, 636 F.2d at 360-61. See also Natural Resources Defense Council 
v. Costle, 568 F.2d 1369 (D.C. Cir. 1977) (similar holding regarding 
the Clean Water Act). Thus, as long as it is construed narrowly, the 
routine maintenance exemption is legal.
    Another change EPA made over a decade ago was to limit the scope of 
the modification provisions to those modifications that generate a 
significant increase in pollution. This requirement is essential when 
one considers the justifications offered by the present Administration 
for its NSR ``reforms.'' In announcing the NSR changes, EPA has claimed 
repeatedly that NSR requirements have deterred emissions-reducing 
projects. In offering this justification, EPA appears to have bought 
into one of the power industry's favorite arguments against the NSR 
program--that the program somehow prevents companies from making 
efficiency improvements that would benefit the environment. However, 
efficiency improvements that are environmentally beneficial and reduce 
emissions do not trigger NSR: if emissions decrease--or even increase 
only slightly--existing NSR requirements are inapplicable.\2\
---------------------------------------------------------------------------
    \2\ That NSR applies only when both a modification is large enough 
and the emission increase is significant was clearly demonstrated in 
EPA's May 23, 2000 applicability determination concerning a proposal by 
the Detroit Edison Company to replace and reconfigure the high pressure 
section of two steam turbines at its Monroe Power Plant. There, EPA 
determined that, although the modification was significant enough to 
trigger the NSR provisions, because the project would not lead to an 
increase in emissions, it was not subject to the pollution control 
requirements of the PSD program. Applicability Determination, p. 20. 
Indeed, as Detroit Edison explained to EPA, ``because the change would 
increase efficiency, it would allow increased electricity generation 
using the same amount of coal, boiler heat input and steam flow while 
producing the same level of emissions as currently emitted.'' Id. Thus, 
contrary to the Administration's rhetoric, EPA's existing 
implementation of the NSR program does not weaken the utility 
industry's incentive to undertake efficiency programs (or any other 
projects for that matter) that do not involve increased pollution.
---------------------------------------------------------------------------
B. The Bush Administration's Proposals
    The Bush Administration proposed changes would sanction plant 
modifications that are far from de minimis. For example, EPA proposes 
to allow large facilities to operate under a single plant-wide 
emissions cap (plant-wide applicability limit or PAL) for a period of 
10-15 years. Unlike what some who support plant-wide caps would 
require--that the caps decline over time--the Administration would 
allow the caps to remain high. Emissions at such a plant would remain 
the same throughout the 10-15-year period, regardless of changes in air 
quality, technology, or air quality standards. Because the plant's 
emissions are set for the duration of the PAL, States likely would be 
prohibited from imposing emission reduction requirements beyond what 
the PAL required, regardless of air quality needs.
    Similarly, EPA proposes that any unit that has installed ``Best 
Available Control Technology'' (BACT) or BACT equivalent since 1990 
would not be required to undergo NSR review for a period of 10-15 
years, unless ``allowable'' emissions increase. Again, this limit on 
review of the source's emissions fails to consider evolving air quality 
needs, and may prevent a State from imposing more stringent emission 
reduction requirements, even if air quality considerations would 
justify such measures. Congress's clear intention to have the Clean Air 
Act stimulate technology improvement will be frustrated.
    EPA also proposes several significant revisions in the method by 
which NSR-triggering emissions increases are calculated. For example, 
EPA proposes that the baseline for measuring emissions (for facilities 
other than power plants) become the highest emission level achieved 
over any 2 year period during the last 10 years. By allowing a source 
to use a baseline that extends back 10 years, EPA is proposing to 
permit inflation of the source's baseline, because many regulations in 
the last 10 years have forced sources to reduce emissions. These 
required emission reductions, however, may not be reflected in the 
source's baseline generated under the Administration's proposal. Thus, 
a source would actually be allowed to increase emissions from current 
levels without any attendant pollution control upgrade.
    The most alarming revision proposed by EPA is the wholesale 
expansion of the Routine Repair and Maintenance (RRM) exception. 
Specifically, EPA is proposing to allow companies to treat multi-
million dollar once-in-a-lifetime projects as ``routine maintenance,'' 
even though, as industry documents establish, power plant staff never 
considered the projects routine. EPA is planning to forego pollution 
control requirements for virtually limitless ``like-kind'' replacements 
that would restore and perhaps expand an old plant's capacity and 
dramatically prolong its life. To accomplish this, EPA proposes to 
include in the definition of RRM projects that are below a specified 
cost threshold (inflated to reflect facility replacement cost, not 
original cost), and that involve installation of replacement equipment 
that serves the same function and does not alter basic design 
parameters. The cost threshold test fails to consider air quality and 
places no limit on any emissions increase the project might produce. 
Thus, significant increases in emissions could occur with no attendant 
pollution control requirement. Similarly, the equipment replacement 
exemption could essentially allow a company to rebuild a source without 
undergoing any governmental review and without meeting pollution 
control requirements. Significant emission increases could result.
    These impacts have severe consequences for the American public and 
particularly for the States. EPA's proposal would severely blunt one of 
the States' most important anti-pollution tools, placing the States in 
an extraordinarily difficult position regarding their responsibilities 
under the Clean Air Act. It is the States--not EPA, not the Federal 
Government--that have the responsibility for insuring that National 
Ambient Air Quality Standards (NAAQS) are met. 42 U.S.C. 
Sec. Sec. 7404; 7410. Under EPA's proposed revisions, the States stand 
to lose flexibility in determining how best to achieve or maintain air 
quality because the largest sources of pollution--which generally are 
the most efficient to control--will essentially be exempted from 
regulation.
C. States Will Sue to Prevent this Illegal Rollback of Clean Air 
        Protections
    I will do all in my power to prevent the Administration from 
unilaterally gutting the Clean Air Act. The Administration cannot 
change the law retroactively as it is seeking to do,\3\ it cannot 
change regulations without adequate notice and comment. And, most 
importantly, the Administration cannot eviscerate the Clean Air Act 
without getting Congress to pass legislation allowing such a rollback. 
As explained above, the CAA itself contains no exemption for routine 
maintenance. Nor does it exempt like-kind replacement activities, no 
matter how massive or infrequent, from the definition of modification. 
With the statute so clear, the permissible scope for agency-created 
exemptions is very narrow. When in the Alabama Power case the D.C. 
Circuit held, following ample Supreme Court and D.C. Circuit precedent, 
that EPA can exempt de minimis activity, it emphasized that EPA could 
only exempt the most minor of activities so that the program would be 
workable administratively. Indeed, the court stated in very strong 
terms that ``there exists no general administrative power to create 
exemptions to statutory requirements based upon the Agency's 
perceptions of costs and benefits.'' Alabama Power, 636 F.2d at 357. 
The court also held that the power to create exceptions ``is not an 
ability to depart from the statute, but rather a tool to be used 
implementing the legislative design.'' Id. at 359.
---------------------------------------------------------------------------
    \3\ To the extent EPA has indicated it will make retroactive 
changes to the Act, any such changes would be of questionable validity. 
The D.C. Circuit, which would have exclusive jurisdiction of such 
changes under 42 U.S.C. Sec. 7607(b)(1), prohibits retroactive 
application of interpretive rules absent authority delegated by 
Congress, see Health Ins. Ass'n of America v. Shalala, 23 F.3d 412, 423 
(D.C. Cir. 1994) (``[I]nterpretive rules, no less than legislative 
rules, are subject to Georgetown Hospital's ban on retroactivity.''), 
and such authority is entirely lacking here.
---------------------------------------------------------------------------
    That is not what the Administration proposes to do. The 
Administration's proposed changes are far from de minimis. EPA's 
changes would have the effect of essentially eliminating the 
applicability of New Source Review to modifications, contrary to the 
express language of the statute. EPA's announced changes will confer on 
existing, dirty power plants indefinite immunity from the requirements 
of the Clean Air Act, contrary to Congress's clear intention when it 
enacted the NSR provisions 25 years ago. This is illegal and for that 
reason, I--and I expect to be joined by may other States--intend to sue 
EPA if it carries out its plans.
ii. the proposed changes and the administration's hostility to nsr are 
               already jeopardizing the enforcement cases
    If enacted, the Administration's proposed changes would 
impermissibly undercut existing law and reduce the scope of the Clean 
Air Act. Simply by signaling its hostility to the NSR program, however, 
the Administration already has compromised our existing enforcement 
cases. Indeed, from the day Administrations in Washington changed, 
industry has sought to avail itself of its enhanced bargaining 
position.
A. The Administration is Overtly Hostile to NSR
    Fifteen months ago, the Administration released President Cheney's 
``National Energy Policy: A Report of the National Energy Policy 
Development Group.'' The report directed Attorney General Ashcroft to 
``review existing enforcement actions regarding NSR to ensure that the 
enforcement actions are consistent with the Clean Air Act and its 
regulations.'' That directive immediately undercut the Department of 
Justice's lawyers; yet, on January 15, 2002, DOJ concluded that the NSR 
cases were legally sound.
    The Vice President also directed the EPA ``in consultation with the 
Secretary of Energy and other relevant agencies, to review NSR 
regulations, including administrative interpretations and 
implementation, and report to the President within 90 days on the 
impact of the regulations on investment in new utility and refinery 
generation capacity, energy efficiency, and environmental protection.'' 
Over a year later, EPA finally announced its illegal, wholesale 
administrative rollback of NSR.
    In its press statements, EPA claims to be simply ``clarifying'' the 
existing regulations and maintains that its proposed rewriting of the 
law will not affect the filed cases. Indeed, on the day of EPA's 
announcement, Administrator Whitman explained that EPA would continue 
its enforcement efforts against past violations, ``because you can't 
get away with violating the law just because the law gets changed.'' 
See June 14, 2002 Atlanta Journal and Constitution article ``Air 
Proposals Irk Environmentalists; Bush Plan a `Massive Gift' to Energy 
Industry, Critics Say.''
    Earlier, on March 27, 2002, the Justice Department's environmental 
chief, Thomas Sansonetti, said that pursuing NSR cases was one of his 
top priorities. Quoted in the ``Daily Environment Report,'' Mr. 
Sansonetti stated: ``We're going full steam ahead. We're actively 
pursuing all cases. When companies refuse to settle, DOJ will take them 
to trial.'' He predicted that DOJ would prosecute two or three NSR 
cases in court in the coming year. He also said that DOJ had budgeted 
$3 million in the current fiscal year to pursue such cases. I'd like to 
believe Mr. Sansonetti; his attorneys at the Justice Department have 
done excellent work on the pending cases and I want to continue our 
partnership. But his statements were made before EPA announced its 
retrenchment. Since then, DOJ has been silent as to its future 
intentions regarding NSR.
B. The Existing NSR Cases are in Jeopardy
    Although we agree with the Administration that any new regulations 
should not be retroactive, it would be naive to believe that industry 
will not try to use the ``NSR reforms'' in court to justify their past 
conduct. We are already seeing the effects of this Administration's 
misguided and illegal policy changes: settlements are stalled, judges 
are wondering about the impact of the reforms on their cases, and 
industry lawyers are already arguing in court that the cases should not 
go forward. Whether or not the rollback will affect the existing cases 
is an issue of first impression for the courts because of the 
unprecedented nature of EPA's action. Never before has EPA--or 
Congress, for that matter--undertaken such a clear retreat on 
environmental protection. Conducting such a rollback while enforcement 
cases under the old rules are pending is not only unprecedented but was 
unimaginable, at least before this Administration came to power. Simply 
put, the existing NSR cases are in jeopardy and we are fooling 
ourselves if we believe that the Federal Government will be filing more 
cases after rewriting the regulations to legalize the conduct at issue.
    I would like to focus my comments now on three concrete examples of 
how the Administration's policies are adversely affecting our pending 
enforcement cases.
            1. Cinergy and VEPCO
    On November 16, 2000, my office and the EPA reached a $1.2 billion 
settlement in principle covering eight coal-fired power plants run by 
the Virginia Electric Power Company (VEPCO)--one subject to New York's 
pending lawsuit and seven others that VEPCO brought into the 
settlement. The settlement would have reduced air pollution by more 
than 270,000 tons annually. VEPCO was to spend $1.2 billion over 12 
years to reduce its sulfur dioxide emissions by 70 percent and its 
nitrous oxides emissions by 71 percent from pre-existing levels. 
Further, VEPCO was to pay $5.3 million in penalties to the Federal 
Government and an additional $13.9 million to fund environmental 
benefit projects, with a portion going to New York State. The intent at 
the time was to finalize the agreement within 60-90 days. Eighteen 
months later, this agreement remains unexecuted. My staff has spent 
countless hours in meetings with VEPCO and the Federal Government, but 
the regulatory uncertainty has prevented any final agreement. This is a 
terrible loss for the people of this Nation, who expect, and deserve, 
cleaner air.
    Similar delay has beset our effort to reach a final agreement with 
the Ohio-based utility Cinergy. In December 2000, I joined the Federal 
Government and the States of Connecticut and New Jersey in reaching a 
settlement in principle covering ten of Cinergy's coal-fired power 
plants (one subject to New York's lawsuit and nine others). We were to 
see over 300,000 tons in emission reductions, and $30 million in 
penalties and environmental projects. Like VEPCO, the Cinergy agreement 
remains in limbo. After tolerating 2 years of settlement discussions, 
the Cinergy court has placed the case back on the litigation track. 
Although DOJ advised the court that it intended to file an amended 
complaint by July 10, it has not yet done so, raising questions about 
DOJ's willingness to pursue NSR enforcement cases when its client, EPA, 
is in the process of changing the rules.
    Although Cinergy and VEPCO have continued to express their interest 
in settlement, their actions speak louder than words. As might be 
expected, the softening of EPA's regulatory posture has only hardened 
Cinergy's and VEPCO's positions on the remaining issues to be worked 
out. I now see no way for these settlements to become final unless the 
States and DOJ capitulate on the remaining issues, something that I am 
not prepared to do.
            2. Tennessee Valley Authority case
    In 2000, EPA issued a final determination that TVA had violated the 
NSR requirements of the Act by undertaking enormous and expensive 
modification projects at several of its power plants. TVA appealed to 
the Eleventh Circuit, briefs were submitted and oral argument was held 
this past May. Like many others involved in these cases, I was hopeful 
that the Eleventh Circuit would issue a quick decision, affirming EPA's 
determinations. A decision from the Eleventh Circuit would be an 
extremely important precedent for the other NSR cases.
    Instead, in the wake of EPA's recent announcement on NSR 
``reform,'' the Eleventh Circuit took the extraordinary step of 
ordering the parties to mediation. Although we cannot be certain that 
this order was issued in direct response to the EPA announcement, it is 
unlikely that the timing of the two events is coincidental.
            3. Niagara Mohawk case
    On January 10, 2002, Governor Pataki and I filed a lawsuit in 
Federal court against Niagara Mohawk Power Corporation and NRG (the 
current owner of the power plants) for violating NSR at two power 
plants in western New York. The Dunkirk and Huntley coal-burning power 
plants account for more than 20 percent of the nitrogen oxide emissions 
and 38 percent of the sulfur dioxide emissions released by all power 
plants in New York State.
    The defendants filed a motion to dismiss all or portions of the 
case on jurisdictional grounds. Briefing was completed and my attorneys 
were preparing to argue the case. But shortly after EPA's announcement, 
the judge called us in to explain how the Administration's announced 
intention to change the NSR rules would affect the existing case. In 
its brief on this issue (see Exhibit 2), Niagara Mohawk has described 
EPA as ``reconsidering'' its position on NSR and recommended that the 
Court put the case on hold until EPA takes final action on the NSR 
changes:

          In order to consider the merits of the case, the Court would 
        ultimately have to decide whether EPA's interpretation of the 
        Act and regulations, as applied by DEC, is reasonable and in 
        accordance with law. The Court cannot properly make that 
        decision until the EPA decides finally what its interpretation 
        is.
          In short, EPA has said that its recommendations involve 
        clarification of existing law and policy, and definition of a 
        regulatory concept (routine maintenance, repair and 
        replacement) that derives from EPA's interpretation of the 
        Clean Air Act. Accordingly, to the extent that EPA's final 
        action follows its recommendations, its action may affect not 
        only the State's request for prospective injunctive relief, but 
        also its request for penalties for alleged past violations.

    Niagara Mohawk also contends that even if the new rules were purely 
prospective, ``they would still affect the State's request for 
injunctive relief.'' We think this argument is wrong. When a business 
breaks the law--no matter how much influence it may now have in 
Washington--the rule of law requires courts to order compliance. 
However, Niagara Mohawk's argument evidences a practical problem that 
judges will face if the Administration succeeds in implementing its 
``reforms.'' We expect the courts to find with relative ease that the 
utilities violated the law. But when it comes time to select a remedy, 
will they require substantial emission reductions even though the 
Administration's proposed policy would not require such reductions? 
Will a practical judge require a company to spend millions of dollars 
on pollution controls for actions that EPA is now saying do not require 
such controls? Indeed, now can EPA even ask for that relief with a 
straight face? If any of these cases go to trial, we might see the 
payment of some fines for past wrongdoing, but we may be deprived of 
the emission reductions we so desperately need. More money in the State 
and Federal coffers, while welcomed, will not help us reverse the 
ravages of acid rain and respiratory disease in New York State and 
elsewhere.
    I intend to continue to press forward on this important case. 
Niagara Mohawk violated the law and we need the remedy of dramatic 
emission reductions. Unless EPA tries to take away the States' 
authority to reject the regulatory changes--something I hear may be in 
the works--New York can continue to implement the law as it has existed 
for 25 years within New York. But we enjoy no such comfort in our out-
of-state cases, where it will be difficult to proceed if EPA pulls the 
rug out from under us.
                  iii. nsr needs no ``clarification''
    The power industry has always understood the scope of NSR and has 
never considered the modifications at issue to be routine maintenance. 
These modifications were large-scale capital projects that required 
significant advance planning and typically cost millions of dollars; 
they were intended to fix problems that routine repair or replacement 
had been unable to address. By contrast, activities considered by 
industry to be ``routine'' include relatively mundane actions, such as 
the day-to-day repair of leaky or broken pipes. In short, the record 
supplies no basis for the Administration's claims that the law was 
somehow unclear and that industry was somehow ambushed by our 
enforcement cases.
A. Industry Officials Originally Distinguished Routine Activities from 
        Upgrades
    Industry documents establish that industry officials appreciated 
the potential applicability of the NSR provisions to their power plant 
life extension projects. Because of protective orders entered in our 
various cases, I am unable to quote from most of these documents in my 
testimony. However, despite the utilities' attempt to cloak their plant 
life extension projects in secrecy, publicly available industry 
documents amply demonstrate industry's acknowledgment of the routine 
maintenance exemption's limited scope. For example, the Babcock and 
Wilcox company, in its definitive power plant treatise, Steam, Its 
Generation and Use, distinguished some of the very plant life extension 
activities at issue in our NSR cases from routine maintenance 
activities as follows: ``Older boilers represent important resources in 
meeting energy production needs. A strategic approach is required to 
optimize and extend the life of these units. Initially, routine 
maintenance is sufficient to maintain high availability. However, as 
the unit matures and components wear, more significant steps become 
necessary to extend equipment life.'' Id. at 46-1 (Exhibit 3). Our 
cases involve such ``more significant,'' as opposed to the routine 
maintenance activities that the plants conduct on a day-to-day basis.
    Similarly, the American Electric Power Company (AEP) explained to 
the Ohio Public Utilities Commission that life extension activities go 
beyond routine maintenance: ``As time goes on, the cumulative effects 
of operation affect more components, and affect those components more 
severely. Finally, the major subsystems and components reach a stage at 
which ``normal'' maintenance and repair become inadequate to support 
satisfactory continued operation.'' Direct Testimony of Myron Adams, 
AEP's Manager of Integrated Resource Planning, filed with the Public 
Utilities Commission of Ohio on July 20, 1994 at 20 (Exhibit 4).
    Publicly available information likewise demonstrates the magnitude 
of the projects we have cited in our cases. For example, modifications 
performed by TVA include projects costing $57 million, $23 million, and 
$29 million. These modifications required that the affected units be 
shut down for 13 months, 3 months and 6 months respectively. Another 
TVA project costing $11 million required construction of a railroad 
track and a monorail to facilitate the replacement of 44 percent of the 
234,000 square feet of total boiler surface area. At Ohio Edison, the 
NSR violations include installation of an entirely new and redesigned 
furnace and burner system--the core of any power plant--at the W.H. 
Sammis plant, as described in the accompanying article (Exhibit 5).
    Documents produced by Niagara Mohawk show that the company 
originally used the term ``routine maintenance'' to apply to only a 
narrow category of work done at the plant. (Exhibit 6A). In another 
company document, Niagara Mohawk made clear that work done at the plant 
for the purpose of extending the life of an electric generating unit 
concerned ``components that are not routinely replaced.'' (Exhibit 6B). 
Indeed, Niagara Mohawk requested that its contractor not include 
``maintenance'' type recommendations in a life extension report for one 
of the generating units. (Exhibit 6C).
    Industry's complaint that EPA suddenly changed its interpretation 
of the NSR requirements during the Clinton Administration is similarly 
contradicted by industry documents dating from the 1980's, which cite 
particular plant life extension projects as exceeding routine 
maintenance and therefore triggering the NSR requirements. Thus, in 
1984--seven years after the enactment of the NSR requirements--the 
Electric Power Research Institute (EPRI) held a conference that 
included the topic of extending the lives of old power plants The 
conference literature explicitly recognized that ``a fossil fuel power 
plant is designed for a 30-year life,'' meaning that all plants 
existing when the NSR/PSD requirements were enacted would reach the end 
of their useful lives by 2007. (Exhibit 7). Conference attendees then 
discussed the life extension activities that would be needed. A Duke 
Power representative stated that keeping the old plants running 
``necessitated us developing a different approach than routine 
maintenance'' which only keep ``the plant in service until the end of 
its design life.'' (Exhibit 8).
    Similarly, at 1985 and 1986 EPRI conferences, industry 
representatives recognized that life extension activities transcend 
routine maintenance:

          If plant life extension serves the balanced interests of 
        stockholders and ratepayers, capital improvements and increased 
        attention to equipment above and beyond routine maintenance may 
        be warranted. . . .

    It is of primary importance to define the distinction between plant 
life extension work and routine maintenance.
    (Exhibit 9).
B. Industry was Fully Aware that its Activities were not Exempt from 
        NSR
    Not only did industry recognize that plant life extension 
activities failed to qualify as ``routine maintenance,'' industry also 
understood that NSR requirements would likely be applicable. For 
example, an article entitled ``Regulatory Aspects of Power Plant Life 
Extension''--which was presented at a 1985 industry conference--
expressly discussed the circumstances under which life extension 
projects could require NSR permits. (Exhibit 10). As a result, EPRI 
recommended ``that corporate counsel be consulted as a part of life 
extension planning activities, particularly for the interpretation of 
regulatory and environmental issues when such activities are clearly 
beyond the scope of what might be considered typical maintenance.'' 
(Exhibit 11)
    Rather than seeking EPA's guidance, however, industry simply 
attempted to conceal its activities. For example, a 1984 EPRI workshop 
on life extension recommended that life extension projects be described 
as maintenance activities in order to avoid triggering NSR 
requirements:

          [T]here are a number of issues which require clarification. 
        Several of these are: What is considered `routine' repair, 
        replacement, or maintenance for the purpose of qualifying for 
        an exemption to the NSPS modification provisions? Some aspects 
        of life extension projects may not be considered routine 
        repair/maintenance/replacement. To the extent possible these 
        projects should be identified as upgraded maintenance programs. 
        . . .
          Life extension projects will result in increased regulatory 
        agency sensitivity to facility retirement dates. . . . 
        Regulatory agencies may contend that since life extension 
        projects will defer the need for new generation, additional 
        pollution control should be required for the older, higher 
        emitting affected plants.
          It may be appropriate to downplay the life extension aspects 
        of these projects (and extended retirement dates) by referring 
        to them as plant restoration (reliability/availability 
        improvement) projects. To the extent possible, air quality 
        regulatory issues associated with these projects should be 
        dealt with at the State and local level and not elevated to the 
        status of a national environmental issue.
          To the extent possible, project elements should be stressed 
        as maintenance related activities to maximize chances for NSPS 
        exemptions. Utility accounting practices play a significant 
        role here.

    (Exhibit 12).
    In 1988, EPA issued an applicability determination to the Wisconsin 
Electric Power Company, or WEPCO, in which EPA determined that WEPCO's 
multi-million dollar life extension projects were not covered by the 
routine maintenance exemption. The issuance of the WEPCO interpretation 
conclusively disabused industry of any notion that it might avoid 
compliance with NSR requirements. Shortly after EPA issued its WEPCO 
applicability determination concerning the life extension projects at 
issue there, the Utility Air Regulatory Group (UARG), a leading 
industry group, advised its members that ``Life Extension is [now] an 
unpopular term in the wake of WEPCO.'' (Exhibit 13, p. 2.). Consistent 
with other industry missives at the time, the memo further recommended 
against using ``the term `life extension' to describe any project.'' 
Id., at 5. The same industry memorandum demonstrates that UARG and its 
members fully understood EPA's interpretation limiting the routine 
maintenance exception:
    According to UARG, EPA equates `routine' with `frequent' . . . . 
UARG believes that under present EPA policy, in order to qualify for 
the routine maintenance exemption, the activity would have to be:

          frequent,
          inexpensive,
          able to be accomplished at a scheduled outage,
          will not extend the normal economic life of the unit,
          be of standard industry design.

Id., at 4. UARG also advised its members that if the WEPCO 
applicability determination were upheld by the courts, it ``will set a 
serious precedent if it is adverse.'' Id., at 5.
    After the WEPCO determination, one of Ohio Edison's in house 
attorneys and one of the lawyers at the law firm representing Ohio 
Edison wrote an article explaining that, under the EPA interpretation 
reflected in WEPCO, Ohio Edison's own plant improvements would be 
subject to NSR, since: ``[a]fter WEPCo, virtually any physical change 
to an existing facility, even pollution abatement activities and an 
unpredictable array of repair, replacement, and maintenance projects, 
can trigger new source control obligations.'' See June 18, 1990 letter 
from David Feltner, Senior Attorney for Ohio Edison, to Ms. Cheryl 
Romo, with enclosed draft article entitled ``Is There Life Extension 
After WEPCo?.'' (Exhibit 14). (I note that the authors of this article 
overstate the reach of the NSR requirements by overlooking that the 
requirements apply only if an emissions increase is projected.) Despite 
the opinions of its attorneys, Ohio Edison continued to undertake 
expensive life extension activities at its plants without applying for 
an NSR permit or otherwise notifying the permitting authorities.\4\
---------------------------------------------------------------------------
    \4\ Likewise, a decade ago, one of the attorneys at Porter, Wright, 
Morris & Arthur, counsel for AEP and Ohio Edison, wrote:
    The ``Routine maintenance, repair, and replacement'' exclusion may 
be available only if: (1) the repair/replacement is immediate after 
discovery of deterioration; (2) the replaced equipment is standard in 
the industry and fails frequently; (3) the repair/replacement is 
inexpensive; and (4) the repair/replacement does not appreciably 
prolong the life of the unit.
---------------------------------------------------------------------------
    ``What You need to Know About Modifications/Major Modifications'' 
by Robert Meyer at p. 28. (Exhibit 15).
                        iv. the role of congress
    Congress need not sit idly while the Administration unilaterally 
ignores its earlier mandates and jeopardizes public health and the 
environment. As I've said, I will fight these changes; I urge you to do 
so as well.
    First, while I can go to the courts, you have a greater ability to 
ensure this rollback does not occur. Any litigation I bring may take 
years to be resolved. You can act strongly and quickly. I urge you to 
pass specific legislation, this session, that would expressly prohibit 
the Administration from proposing or finalizing any new exemptions from 
NSR, including those that EPA has announced.
    Second, I urge you not to be seduced by the Administration's claim 
that NSR can be replaced by the Administration's so-called ``Clear 
Skies'' initiative. That plan is an inadequate substitute for existing 
law and a wholly unsatisfactory alternative to Senator Jeffords's 
``Clean Power Act.'' At the outset, I note that ``Clear Skies'' is 
still no more than a press release. Although months have elapsed since 
the ``Clear Skies'' replacement for NSR was announced, no plan has even 
been introduced in Congress. Many of us took note of Administrator 
Whitman's criticism of the ``Clean Power Act,'' which she dismissed on 
the grounds that it is unlikely win congressional approval. I would 
point out that Senator Jeffords's legislation has been introduced, and 
has passed the Senate Environment and Public Works Committee--so it is 
at least two steps ahead of ``Clear Skies.''
    Even if the Administration were serious about ``Clear Skies,'' the 
pollution reductions that program would offer are too little, too late: 
the caps are too high and would not take affect until the distant 
future.
    To be blunt, the ``Clear Skies'' caps are based on little more than 
politics. They do not guarantee compliance with air quality standards. 
The caps certainly are not based on sound science. Every month, another 
study shows the need to reduce pollution more aggressively. For 
example, a recent study finds new links between fine particulate matter 
(PM) and cancer. Nor does technical feasibility stand in the way of 
higher caps. More aggressive SO2 and NOx cuts are clearly 
technically feasible even with existing technology. Nor is it a 
question of rates that consumers must pay for power. The Department of 
Energy itself determined that the country could cut NOx and 
SO2 by 60-80 percent by 2010 with virtually no rate impact. 
See Energy Information Administration, Analysis of Strategies for 
Reducing Multiple Emissions from Power Plants: Sulfur Dioxide, Nitrogen 
Oxides, and Carbon Dioxide (December 2000).
    The Administration tries to sell its plan by using faulty 
comparisons to current emissions. Don't be deceived. Even at their end 
point, the Bush pollution caps would be 50 percent higher than, for 
example S. 556, the Clean Power Act, or EPA's own initial proposal. 
This 50 percent is roughly equivalent to all emissions produced within 
the State of Ohio, a leading producer of emissions. This difference 
alone could lead to hundreds, and perhaps thousands, of additional 
deaths each year. Under the Administration's program, States will find 
it far more difficult, if not impossible, to attain their mandated air 
quality standards.
    Under the Administration's program, many dirty old plants will 
remain uncontrolled. In 1977, when it enacted the NSR provisions, 
Congress clearly expected that all plants would be controlled by 2018--
over 40 years after the 1977 amendments made the NSR requirements 
applicable to plant modifications. However, if all plants were 
controlled with ``best available control technology'' by 2018, the 
SO2 cap would be below 2 million tons, not 3 million tons as 
contemplated by ``Clear Skies.''
    Moreover, the ``Clear Skies'' caps would not be fully phased in 
until the 2020's. Even EPA's own graphs acknowledge that pollution 
levels will not reach the cap level by the Administration's announced 
target dates. While EPA speaks instead of incentives for early 
reductions, the flip side of early reductions is late compliance. Under 
the Administration's program, any cuts now can be banked, ton-for-ton, 
to offset subsequent emissions. We should insist on early reduction and 
caps that are lower and take effect sooner.
    Finally, the Administration's claim that the President's plan 
achieves more reductions than current law is directly contrary to what 
EPA and the Department of Energy found when they included the emission 
reductions attributable to full enforcement of the New Source Review 
provisions. See, e.g., Energy information Administration, Analysis of 
Strategies for Reducing Multiple Emissions from Power Plants: Sulfur 
Dioxide, Nitrogen Oxides, and Carbon Dioxide (December 2000). 
Furthermore, in its analysis, EPA ignores the emission reductions that 
will result under current law from other programs, such as the regional 
haze rule, the mercury Maximum Available Control Technology (MACT) 
requirements and the new ozone and particulate matter standards. Thus, 
the Administration is not comparing its proposal to the Clean Air Act 
as it is now written and as it should be implemented and enforced. 
Comparing Clear Skies to a Clean Air Act that is ignored or eviscerated 
is WorldCom-style math at best.
    I support the ``Clean Power Act'' because we need swift and 
significant reductions in sulfur dioxide, nitrous oxides, mercury and 
carbon emissions. I am especially supportive of including carbon in the 
four pollutant legislation and commend Senator Jeffords for working so 
hard on this legislation. The Administration finally admits that global 
climate change is happening. Unlike the Administration, however, 
Senator Jeffords has a plan of action. I urge you to pass the Jeffords 
``Clean Power Act.''
                               conclusion
    Allow me, and others who are serious about environmental law 
enforcement, to continue to use the Clean Air Act to reduce pollution. 
That is what Congress intended when it adopted New Source Review 25 
years ago. Don't allow the most serious attack on the Clean Air Act 
since it was adopted to succeed. Don't allow the product of 30-plus 
years of bi-partisan cooperation on clean air to be cast aside.
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    Responses of Eliot Spitzer to Additional Questions from Senator 
                               Voinovich
    Question 1. On July 12, 2002, the New York Times published an 
article entitled ``In a Switch, Utilities Say Power Is Low'' that 
describes the summer power shortages that New York is experiencing. 
Reportedly, there have been brownouts on Long Island and in 
Connecticut, and mobile gas-turbine generators have had to be installed 
in Chelsea and Long Island. The article cited several causes of the 
shortages including aging equipment, maintenance delays, and the 
difficulties that power-generating companies have had in obtaining 
permits for new plants and substations in the affected areas. Due to 
the maintenance delays and aging equipment, do you think NSR is a 
problem in providing the needed electricity to New York?
    Response. I do not believe that NSR inhibits the ability of 
generators to provide a reliable supply of electricity in New York. 
Indeed, the referenced article does not suggest such a link, or even 
mention NSR. Utilities may lawfully undertake ``routine maintenance'' 
to keep their plants running without having to go through the NSR 
process. Moreover, utilities may make even major efficiency 
improvements that increase the amount of electricity generated by the 
same amount of fuel consumed without undergoing NSR review as this 
would not increase emissions. Finally, although utilities may also make 
major modifications that do increase emissions, if they choose to do 
so, they must--and should be required to--obtain a preconstruction 
permit and install state-of-the-art pollution controls. The requirement 
not to increase pollution is not a barrier to electricity generation.
    I note in addition that according to the New York Public Service 
Commission's compilation of applications for new power plants in New 
York (revised 7/30/02), 3630 MW of new electricity generation has been 
approved in New York and applications for another 5377 MW are pending.

    Question 2. From this article, it seems that routine maintenance is 
a major issue. If it is not a problem, what are the short and long term 
solutions for New York?
    Response. I do not see any indication in the article or elsewhere 
that ``routine maintenance is a major issue.'' It is only those 
companies that have evaded the law for years and wish to continue doing 
so that have cited the NSR provision as a stumbling block to achieving 
an adequate energy supply.
    Nonetheless, I appreciate your interest in New York's short term 
and long term electricity needs. It is a very important issue, one that 
my staff and I have spent considerable time considering. Let me briefly 
respond to your question, and, by separate cover letter, forward to you 
a copy of my Action Plan for a Balanced Electric Power Policy in New 
York State (March 20, 2001). Briefly, we must ensure that we have 
sufficient electricity supply in the New York City area (where demand 
is greatest and transmission constraints the worst) by increasing clean 
sources of electricity generation and by reducing the growth of demand 
through aggressive conservation and efficiency measures. To achieve 
these objectives, we will need to develop and pursue policies that (1) 
expedite the siting process for new power generation, (2) upgrade the 
transmission and distribution system, (3) increase renewable energy and 
clean distributed generation sources, (4) protect the consumer, and (5) 
protect the environment. I firmly believe that each of these objectives 
is reconcilable with the others, and that all can be pursued 
simultaneously.
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ATTORNEY GENERAL'S ACTION PLAN FOR A BALANCED ELECTRIC POWER POLICY IN 
                             NEW YORK STATE
                              Introduction
    Electric power is in the news and on everyone's mind these days, 
with good reason. While we usually take for granted this invisible but 
vital force that permeates our daily lives and provides the power 
without which our modern society could not exist, recent events in New 
York and elsewhere demand our close attention and immediate action.
    As the economy has grown rapidly in New York over the last decade, 
so has the demand for electricity. Demand has risen so dramatically 
over the past several years that it is now outstripping available 
supply in New York, particularly in New York City and Long Island where 
transmission constraints require most power to be generated locally. 
Moreover, in New York's restructured market--where the price of power 
no longer reflects a regulated price, but rather a market price--the 
current supply/demand imbalance has caused dramatic price spikes in 
electricity bills. For example, Con Edison's customers saw their bills 
increase an average 30 percent last summer, even though it was the 
coolest summer in years. California's forced rolling blackouts, soaring 
energy prices, and threatened bankruptcy of several major utilities' 
have also heightened New Yorkers' concerns.
    At the same time as New York confronts price spikes and potential 
shortages, we are faced with continuing reports of the impacts of 
electricity generation. Power plant emissions contribute greatly to 
acid rain and urban smog, which, in turn, cause tremendous damage to 
our health and our environment. Urban smog exacerbates asthma, which is 
increasing rapidly in New York City and other urban areas--especially 
among children. Acid rain is killing entire ecosystems in the 
Adirondacks and other treasured natural areas. Mercury emitted by coal-
fired plants contaminates fish, and greenhouse gases such as carbon 
dioxide change the climate. Power plant cooling water intake systems 
injure fisheries upon which many New Yorkers depend.
    Clearly, New York needs to find better ways to meet its electricity 
demands at a reasonable cost while also protecting its citizens' health 
and the State's natural resources. To meet growing electricity demand, 
the State has had to rely largely on existing power plants, many of 
which are old, inefficient, highly polluting, and insufficient to meet 
projected demand. New York policymakers would be foolhardy to ignore 
the lessons of California, and our own experience, in developing energy 
policy.
    We must move now on two fronts to develop a sustainable, balanced 
energy policy that ensures customers a reliable and reasonably priced 
power supply and that preserves our environment and protects our 
health. We must meet our immediate short-term needs by increasing clean 
supply and reducing the growth in demand through conservation and 
efficiency. We must also secure the longer term by using electricity 
more efficiently and shifting our dependence on fossil fuel toward 
renewable sources of electricity.
    For the short term, New York must plan for the summer of 2001. 
Summer is when the demand for power is the greatest in our region, as 
more air conditioning is used in response to hot weather. We must have 
enough power supply available downstate to meet expected demand without 
skyrocketing prices. The power generators the New York Power Authority 
(``NYPA'') is placing downstate--among the cleanest and most efficient 
available--are a sound approach to accomplish those goals. At the same 
time, investments in energy efficiency must be significantly increased. 
The New York Independent System Operator (``NYISO'') must enhance the 
design and operation of the state's electricity markets to avoid price 
spikes based on abusive market power, and to ensure the integrity of 
the wholesale power market. Unless these markets work competitively, 
deregulation cannot achieve its goals, and consumers, the economy, and 
the environment will suffer as windfalls are reaped by the few at the 
expense of the many.
    For the longer term, we must address not only how much power we 
have available, but how that power is generated. To protect our health 
and natural resources, the State must move to a cleaner electricity 
supply and contain the ever-expanding growth of demand. Relying more on 
renewable energy and using electricity efficiently should also lower 
bills for consumers.
    To assure reliable electricity at steady prices we must build new 
sources of electric power, expand transmission capacity to reach more 
existing sources of power, and create more flexible demand during peak 
demand periodsthrough demand-side management, conservation and more 
efficient consumption. We can achieve this new, balanced energy 
portfolio by improving the plant siting process, by enacting policies 
that promote clean distributed generation and the use of renewable 
energy sources, and by increasing transmission capacity to allow market 
sited plants to serve the entire state. We must also ensure that new 
clean generating capacity displaces older, dirtier, and less efficient 
power plants.
    These goals are achievable if we work together and act with care 
and speed. New York is one of the largest energy users in the United 
States, which is the largest energy user in the world. Thus, our 
choices can have a major influence on global as well as local energy 
policies and environmental impacts. The following recommendations are a 
first step toward a balanced strategy on electric power.
                           Executive Summary
    The demand for electricity in New York has grown dramatically over 
the past several years, primarily due to a rising economy. Supply 
however, has not kept up, raising reliability concerns for the future. 
New York has also recently restructured its electric power markets, and 
the current supply/demand imbalance has been reflected in the price of 
power, sometimes leading to dramatic price volatility in electricity 
bills downstate. As we confront our energy needs, we must recognize the 
impacts of electricity generation. Power plant emissions contribute to 
acid rain, smog, toxic pollution and climate change, all of which have 
a serious deleterious impact on our health and environment. These facts 
raise both short-term and long-term concerns for New York about the 
price, reliability, and impacts of electric power. New York needs to 
find better ways to meet its electricity demands at a reasonable cost 
while also protecting its citizens' health and the State's natural 
resources.
                            Recommendations
    The Attorney General's Bureaus of Telecommunications & Energy and 
Environmental Protection recommend the following measures:
                         a. short-term measures
    Currently, New York's growing imbalance in supply and demand is 
greater downstate than upstate, due to the nature of transmission 
constraints, which make it difficult for significant power to be sent 
downstate. We must be sure we have enough electric power supply this 
summer to meet the anticipated peak demand downstate by increasing 
clean sources of electricity generation and by reducing demand through 
aggressive conservation and efficiency measures. Not only must we make 
sure that the lights stay on this summer, but also that there is enough 
supply so that electricity prices do not skyrocket.
    2. New supply is needed, particularly in downstate areas.--
Estimates of peak supply shortfall downstate in the summer of 2001 
require the additional generation proposed by the New York Power 
Authority (``NYPA'') and others.
    3. Immediate efforts to reduce demand will improve reliability, 
lower price and reduce the need for more supply.--Funding for the three 
existing State programs that promote energy efficiency, conservation 
and renewable energy must be increased. The Attorney General is 
directing a portion of its future power plant settlement funds--
totaling approximately $20 million--to the New York State Energy 
Research and Development Authority (``NYSERDA'') for efficiency, 
conservation and renewable energy programs. Funding for NYPA efficiency 
programs should be increased immediately from its current level of $60 
million annually to $160 million per year, with an emphasis on projects 
to reduce peak demand in New York City and Long Island. Funding for 
Long Island Power Authority (``LIPA'') efficiency programs should be 
increased this spring from $32 million per year to $50 million per 
year. With increased funding for these demand-reducing programs, it is 
estimated that over 600 MW of generation capacity needs could be 
avoided statewide over the next 2 years.
                         b. long-term measures
    In the longer term, we must address not only how much power we have 
available, but how that power is generated and used. To ensure 
environmental protection, a reliable electricity system, and reasonable 
prices for electricity, we must develop policies today that (1) improve 
the siting process for new power generation, (2) upgrade the 
transmission and distribution system, (3) increase renewable energy and 
clean distributed generation sources, (4) protect the consumer, and (5) 
contain the growth of demand and protect the environment.
    1. We must increase our supply for the long term.--The State needs 
to recognize that an increase in supply is necessary to keep up with 
demand. We need to be innovative and forward-looking in considering how 
to increase supply while protecting our environment.
    a. The siting process must be improved.--The Siting Process must be 
improved to ensure that necessary new generating facilities come on 
line expeditiously, with the least possible impact on the environment 
and public health:
     The Legislature should require the Siting Board and New 
York State Department of Environmental Conservation (``DEC'') to decide 
which siting applications merit a preference for earlier review.
     The Siting Board should designate a project manager for 
each application.
     The Siting Board should require applicants to file 
environmental permit applications with DEC before filing a siting 
application.
     The Siting Board should establish a 30-day time limit to 
negotiate voluntary stipulations.
     The Siting Board should appoint an ombudsman for each 
project to be a focal point of contact for community groups and to 
mediate disputes.
     The New York State Independent System Operator (``NYISO'') 
should set deadlines for Transmission and Distribution Owners to 
contribute to system reliability impact studies.
     The PSC and the NYISO should assign responsibility for 
transmission system upgrades necessary for new generating capacity.
    b. New and upgraded transmission lines are needed.--New York needs 
additional high voltage transmission capacity to move large quantities 
of power from places with surplus power to areas that currently contain 
limited generating capacity. For decades, transmission bottlenecks have 
restricted the efficient use of New York's overall existing generating 
capacity as well as access to supplies from out-of-state. Despite these 
infrastructure flaws, investment in transmission has declined 
significantly since 1988. Steps have been taken to establish a 
federally sanctioned regional transmission organization (``RTO'') to 
address New York's transmission needs. However, whether or when such an 
RTO will begin operations remains uncertain. The PSC and the NYISO have 
the authority to begin the work needed to relieve New York's 
transmission bottlenecks, and should begin immediately.
    c. Renewable generation and clean distributed generation sources 
should be increased.--Until recently, solar and wind generation were 
not economically competitive with fossil fuel power generation. New 
technologies for solar and wind generation, combined with increased 
fossil fuel costs, have narrowed the cost gap considerably. The 
Legislature should join New Jersey, Massachusetts, Connecticut, Texas, 
and many other states by adopting a Renewable Portfolio Standard 
(``RPS'') requiring retailers of electricity to include in their 
portfolio of supply an increasing percentage of renewable generation.
    Policies are also needed to increase clean distributed energy 
sources. The need for large power plants and the strain on the 
transmission system could be lessened by distributing small-scale 
generation units (i.e. fuel cells, wind generators, small-scale hydro, 
solar cells, and cogeneration facilities) that use minimally polluting 
technologies directly on the site where the electricity is to be used. 
The Legislature should (i) expand tax credits for the purchase of clean 
distributed generation technologies, and (ii) expand the Solar Net 
Metering Law to include wind and small hydro power--allowing owners of 
such generation to sell excess power generated back to the grid. In 
addition, NYPA should work with local governments across the State to 
install fuel cells at landfills and wastewater treatment facilities, 
which produce large quantities of methane that can be used to power 
fuel cells.
    2. The consumer must be protected during the transition to 
competitive markets.
    a. The NYISO must enhance its market monitoring and price 
mitigation functions.--Electricity prices must not be permitted to soar 
during the transition to competitive markets for this vital service. 
The NYISO has made significant progress toward developing competitive 
power markets and in monitoring the markets for potential abuses of 
market power. However, more needs to be done to ensure stable prices 
for the summer of 2001 and beyond, whenever supply and demand are 
severely out of balance. The NYISO must implement its proposed 
``automatic'' mitigation, which seeks to ensure that prices reflecting 
potential abusive exercise of market power do not set the market-
clearing price. The NYISO must also strengthen its current forward-
looking market mitigation, by obtaining approval from the Federal 
Energy Regulatory Commission (``FERC'') to order retroactive refunds 
when abuses of market power are timely identified. The current $1,000 
per megawatt-hour cap on the price of wholesale power should be 
retained, and should be kept in line with any price caps in adjoining 
markets, until a judgment is made that New York's markets are 
reasonably competitive, especially during times of peak demand.
    b. Consumers must be protected from extremely volatile electricity 
prices while receiving necessary market price signals.--During the 
transition to deregulation, utilities should bear some of the risk of 
high wholesale market prices with customers, rather than completely 
passing through such prices to consumers. This will incentivize 
utilities to better manage their risk, while affording consumers price 
signals upon which to make decisions about electricity use.
    3. Demand must be contained over the long term and the environment 
must be protected.--As the economy and population grows, so will 
demand. We must meet growth without increasing degradation. Aggressive 
measures to reduce demand, together with construction of clean and 
renewable power plants, will greatly increase the probability that 
older, highly polluting power plants will be displaced.
    The NYSERDA, NYPA and LIPA programs that fund efficiency and 
renewable projects are not required by law. NYSERDA's funding expires 
in 2006, NYPA's funding is year-to-year, and LIPA's funding expires in 
2004. The Legislature should mandate that these programs be funded at a 
higher level for at least the next 10 years. In addition, the 
Legislature should enact other financial incentives to reduce demand, 
such as exempting the most energy efficient products from sales tax.
    The PSC should improve pricing and revenue signals to encourage 
flexible demand and conservation. Utilities should promote offers for 
different time-of-day rates to residential customers to encourage load 
shifting, and master-metered buildings in New York State should be 
converted to direct metering or submetering. The PSC should also 
consider changing the way it regulates the price of electricity 
distribution. If the rate structure rewarded retailers for reductions 
in demand, energy conservation would more likely become a priority.
    State government can bring utilities into the State's energy 
efficiency efforts by enacting an Efficiency Portfolio Standard, 
requiring retail sellers of electricity to achieve certain levels of 
demand reductions in their service area. The Federal Government can 
similarly act to implement stringent minimum energy efficiency 
standards for appliances and other electrical products to reduce demand 
for electricity nationwide.
    No one proposal within this report stands alone. This package of 
proposals recognizes the need to address both supply and demand. In so 
doing, the State will best promote the growth of competitive electric 
power markets while also protecting both consumers and the environment. 
Taken together, these recommendations are a balanced approach to 
address the State's short-term and long-term electric power needs and 
to lay the foundation for a sustainable energy policy for the future.
   i. new york must address its growing imbalance in electric supply 
                               and demand
A. Electricity Supply and Demand are Out of Balance
    The recent rapid and welcome growth in New York's economy has 
spurred a dramatic increase in demand for electricity. Statewide, peak 
demand for electricity is estimated to be increasing at an annual rate 
of 1.4 percent, with demand increasing in some regions at more than 
twice the state-wide rate.\1\ Growth in generating capacity and 
investments in efficiency have not kept pace. Indeed, addition of new 
electric power sources in New York State has slowed dramatically over 
the last 5 years, even compared to the limited amount of capacity built 
between 1990 and 1995,\2\ and state-mandated demand-side management 
investments (and their associated savings in needed generating 
capacity) have declined from a high of $330 million in 1993\3\ to 
approximately $170 million in 2000.\4\ This growing imbalance between 
supply and demand, if unaddressed, can lead only to ever-soaring 
electric power prices and eventual blackouts. However, increasing 
capacity without regard to environmental considerations, will 
exacerbate our state's air pollution problems.
---------------------------------------------------------------------------
    \1\ See, NYISO Installed Capacity Load Forecast Study for Summer 
2001. Http: //www.nyiso.com/markets/icapinfo.html#summer--2001.
    \2\ Only 308 MW of power were added between 1996-2000, compared 
with 3,410.7 MW added between 1990 and 1995. This data is based on 
NYISO registration dates for New York power plants currently operating.
    \3\ New York State Energy Planning Board (``NYSEPB''), New York 
State Energy Plan and Final Environmental Impact Statement. November 
1998. p. 3-60, 3-62.
    \4\ State-mandated DSM Funding in 2000 came from three sources: (1) 
SBC; See Order Continuing and Expanding the System Benefits Charge for 
Public Benefit Programs, Case NO. 94-E-0952, et. al., (January 26, 
2001); (2) NYPA, see NYPA press release, November 30, 2000; and (3) 
LIPA, see LIPA Clean Energy Initiative, May 3, 1999.
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    The present facts are stark. New York State has a geographical 
mismatch between generating capacity and where electricity is used.\5\ 
Physical limitations on the amount of electricity that can be 
transported from one part of the state to another over the existing 
high voltage transmission system mean that western New York has 
surpluses of power whereas eastern New York, particularly downstate in 
New York City and Long Island, are short. Moreover, additional capacity 
is required to ensure that the lights can be kept on even if a major 
generating unit or transmission line fails. These reserve levels are 
required to be 18 percent above the projected peak demand for 
electricity statewide and in given areas.
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    \5\ New York State's total summer electric generation capacity is 
35,098 MW. NYISO 2000 Load And Capacity Data Report, July 1, 2000, 
Table 111-2, p. 55. Seasonal effects change capacity levels for certain 
generators, resulting in a state-wide winter capacity of 36,649.8 MW. 
One megawatt is the amount of power required to light 10,000 100-watt 
light bulbs. Because demand for electricity peaks in the summer, the 
winter capacity has less significance for system reliability concerns. 
The summer peak electricity demand for New York State in 2001 is 
projected to be 30,620 MW. See, NYISO Installed Capacity Load Forecast 
Study for Summer 2001. Http://www.nyiso.com/markets/icapinfo. 
html#summer 2001.
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    New York City is projected to have a summer 2001 peak demand of 
10,535 MW,\6\ up 4.6 percent from the record peak demand of 10,076 MW 
during the July 1999 heat wave.\7\ The NYISO estimates that New York 
City will be a glaring 397 MW short of required capacity during the 
upcoming summer. Electricity supply on Long Island is only slightly 
better. For Long Island, the NYISO projects a summer 2001 peak demand 
of 4,733 MW and a capacity shortfall of 131 MW.\8\
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    \6\ NYISO February 15, 2001 Locational Installed Capacity 
Requirements Study.
    \7\ The power outages experienced in parts of New York City and 
Westchester County that began on July 6, 1999 were caused by failures 
in Con Edison's distribution network, not insufficiency in supply. See, 
New York State Attorney General's report, Con Edison's July 1999 
Electric Service Outages, March 9, 2000.
    \8\ These estimates do not take into account the proposed NYPA 
generating units or additional projected capacity increases on Long 
Island. NYISO February 15, 2001 Locational Installed Capacity 
Requirements Study. See also, NYISO, Power Alert: New York's Energy 
Crossroads, March 2001, p. 19, and NYISO March 14, 2001 press release, 
Expedited Power Plant Development & More Customer Choices Needed To 
Avoid California-Type Energy Crisis, Says NYISO Report.
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    For 2001 NYISO forecasts a 1.7 percent annual increase for New York 
City and a 2.3 percent annual increase for Long Island.\9\ Thus, 
projected summer peak demand in 2002 and 2003 for both New York City 
and Long Island may well exceed available generating capacity unless 
supply and demand are quickly aligned.\10\ As shown in Table 1, if 
current demand growth continues unchanged for the next 2 years, no more 
generation capacity is added, and efficiency and conservation are not 
improved, both New York City and Long Island risk being unable to 
supply sufficient power.\11\
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    \9\ See, NYISO Installed Capacity Load Forecast Study for Summer 
2001. Http://www.nyiso.com/markets/icapinfo.html#summer--2001.
    \10\ See, NYISO Press Release, New York Independent System Operator 
Finds That New York City Faces Electricity Shortage, February 14, 2001. 
See also, NYISO, Power Alert: New York's Energy Crossroads, March 2001, 
p. 19.
    \11\ Source: NYISO, Power Alert: New York's Energy Crossroads, 
March 2001, p. 19.

                                    Table 1.--Downstate New York Shortage Without More Generation Or Reduced Demand*
                                                                       (MegaWatts)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                2001 Zone       2001         2001      2002 Zone       2002      2003 Zone       2003
                             Zone                                Capacity     Current      Current      Capacity    Projected     Capacity    Projected
                                                                 Required     Capacity     Deficit      Required     Deficit      Required     Deficit
--------------------------------------------------------------------------------------------------------------------------------------------------------
NYC..........................................................         8428         8031         -397         8560         -529         8680         -649
LI...........................................................         4638         4507         -131         4709         -202         4776         -269
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Source: NYISO, Power Alert: New York's Energy Crossroads, March 2001, p. 19.

    In addition to these estimates, the Public Service Commission 
(``PSC'') has identified a ``statewide need for 600 MW plus per year of 
capacity additions to satisfy the demands of a growing economy'' and 
``an immediate need for 300 MW [of added capacity now in New York 
City], and an additional 200 MW each year thereafter.''\12\ PSC 
Chairman Helmer has also stressed that New York must use effective 
strategies to cut demand, comparing building power plants alone to 
trying to clap with one hand.\13\
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    \12\ See, August 2, 2000 testimony of PSC Chairman Maureen Helmer 
before the Assembly Standing Committee on Energy, Http://www.dps.state. 
ny.us/testimony--8--2--2000.htm, p.3.
    \13\ See, Albany Times Union, Demand the Key to Power Supply, March 
6, 2001, p. E1.
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    While electricity conservation and demand management programs could 
substantially reduce the amount of additional generation needed, it is 
clearly imperative that clean supply be increased, both for the short-
term downstate, and for the long-term throughout the state. Indeed, new 
clean and efficient power plants, combined with aggressive demand-side 
management and renewable energy investments, should displace older, 
dirtier power plants and yield reduced emissions and increased 
generating capacity.
B. Supply Must be Greater than Demand to Avoid Power Outages, and Keep 
        Electricity Prices from Skyrocketing
    In competitive markets, when demand is inflexible and approaches 
the limits of available supply, the price paid for a product will climb 
dramatically. This characteristic is especially salient in the case of 
wholesale electricity markets, where demand currently is relatively 
inflexible, and where the physical properties of electrical generation 
and flow are such that electricity cannot be stored in any significant 
quantity, but is generated, transmitted, and used virtually 
instantaneously.\14\ The amount generated and put into the transmission 
grid must be balanced with the amount consumed second by second, or the 
entire system could break down.\15\ When demand threatens to outstrip 
supply during periods of peak use, price spikes will occur. Electricity 
will be less expensive if surplus capacity is sufficient not simply to 
keep the lights on, but to keep wholesale prices competitive.
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    \14\ Buyers in other power markets, including natural gas, can ride 
out peak demand periods by drawing down storage supplies and avoid 
paying volatile spot prices.
    \15\ Different generation plants have vastly differing production 
costs, according to their size, design, operation, and fuel source. 
Large steam powered generators and nuclear power plants (in the 500-
1,000 MW range--called ``base load'' units), cannot be activated 
quickly, nor can they rapidly adjust electricity output. Therefore, 
owners of such units normally offer their power into the market at 
relatively low prices, to ensure that it will be dispatched and they 
will not have to dump excess output. At the other end of the spectrum, 
small gas turbines (ranging from 20 to 60 MW) are designed to allow for 
quick startup and output adjustment and, due to their high operating 
costs, are most often used during peak hours. Peaking units, including 
gas turbines, experience greater wear and maintenance costs if run for 
extended periods. To recover their investment and operating expenses 
over a relatively limited number of unpredictable hours of use, owners 
of such units usually offer power at high prices.
---------------------------------------------------------------------------
    Once a sufficient number of private sector new generation projects 
are approved to be brought on line, market forces can be expected to 
bring supply into better balance with demand, yielding greater 
wholesale market price stability.
    Until we have more experience with market participant behavior, it 
is difficult to ascertain what specific amount of capacity would 
provide sufficient surplus to not only assure reliability but also 
stabilize market prices during peak demand periods. As much as 10-20 
percent surplus during peak demand may be required to avoid the steep 
end of the price curve. The NYISO projects that by 2005, if no new 
generation is added in New York, ``statewide prices could be expected 
to increase by about 14 percent from present levels'', but ``[i]f 
supply is allowed to grow . . . Statewide prices should actually 
decrease and could be 20-25 percent lower than if no new generation is 
added,'' resulting in statewide ``savings of over $1.4 billion annually 
in 2005.''\16\ Because the mix of generator types and sizes varies in 
each of the 11 zones where NYISO administers market prices, the surplus 
capacity needed to avoid volatile prices will necessarily differ for 
each zone.
---------------------------------------------------------------------------
    \16\ See, NYISO, Power Alert: New York's Energy Crossroads, March 
2001, p. 9. This NYISO projection assumes that 8,600 MW would be added 
to New York's supply, and does not include inflation or fuel cost 
increases.
---------------------------------------------------------------------------
C. NYPA's Proposed Generators for New York City are Necessary to Meet 
        Peak Demand for Summer 2001
    For the immediate term, by the summer of 2001, we have no choice 
but to increase the available power downstate by at least 528 MW, i.e., 
397 in New York City and 131 MW in Long Island. The NYPA has received 
approval to construct 11 new gas turbines in New York City with a 
combined output of 443.5 MW, most of which are expected to be 
operational at the start of the upcoming summer cooling season. In 
addition, the Astoria No. 2 plant (a former Con Edison generator fueled 
by natural gas) is expected to be repowered by Orion Power Holdings, 
Inc. and available sometime during summer 2001, which would add 170 MW. 
Another 60 MW to the generating capacity in New York City is 
anticipated from Con Edison's planned reactivation of the Hudson Avenue 
No. 10 plant (Brooklyn).\17\ These new NYPA and repowered units, if 
completed in time, should address the risk that New York City might 
otherwise have insufficient power supply if demand peaks at forecast 
levels.\18\
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    \17\ While a number of other small-scale potential capacity 
additions to existing units in New York City are being pursued at 
various sites, it is difficult to determine with certainty which 
efforts will be brought on line and whether they will meet the need 
when demand peaks.
    \18\ The Attorney General supports this effort, but takes no 
position on the particular sites selected for the NYPA generators.
---------------------------------------------------------------------------
    The NYPA units, which burn natural gas as a fuel, are considered 
relatively clean in terms of emissions\19\--they emit virtually no 
sulfur dioxide (``SO2'') and less nitrogen oxide (``NOx'') 
than oil or coal-fired plants. Thus, the potential air quality impact 
of this supplemental generation capacity should be limited.\20\ In 
addition, the NYPA has committed to reducing air emissions at other New 
York City plants so overall air emissions will not increase.\21\ Each 
new unit is comparatively small' in scale, which should minimize impact 
on local communities.\22\
---------------------------------------------------------------------------
    \19\ Power plants emit significant quantities of pollutants, 
especially sulfur dioxide, nitrogen oxides, particulate matter, carbon 
dioxide, and mercury. These emissions contribute to acid rain and 
regional haze, and are dangerous to human health as well as to the 
health of fish and wildlife.
    \20\ The NYPA has stated that they will use the best available 
emission control technology to reduce NOx, particulate matter, sulphur 
dioxide and carbon monoxide emissions. In addition, the NYPA performed 
an analysis of the turbines' fine particulate (PM2.5) 
pollution and determined the increase to be insignificant. The DEC has 
issued air pollution control and acid rain permits limiting emissions 
for each of the sites.
    \21\ DEC Press Release, dated January 12, 2001. The State's 
Department of Environmental Conservation (``DEC'') and the NYPA should 
formalize an agreement on reduction of overall area emissions.
    \22\ The NYPA has also committed to noise mitigation measures at 
some of the new sites.
---------------------------------------------------------------------------
    On Long Island, the NYPA is installing one 44 MW capacity gas 
turbine at the former site of Pilgrim State Hospital. In addition, 
Keyspan is upgrading its Holtsville unit to increase output by 5 MW, 
and other gas turbines that will add 35 MW more generating capacity on 
Long Island. A merchant generator turbine is slated for Far Rockaway 
with 44-50 MW of capacity. Together, these planned additions will 
barely satisfy the 131 MW capacity needed for Long Island reliably to 
meet forecast demand. Some of these new units are not expected to be 
operational by the May 1, 2001 start of the peak season, but instead 
may not be available until July 1. Even with the anticipated new 
generating unit upgrades and additions, Long Island electric power 
resources are likely to be stretched to their limit during peak demand 
periods this summer.
D. Current State Programs that Promote Energy Efficiency and Renewable 
        Energy Should be Expanded
    Several programs in New York State currently encourage energy 
efficiency and renewable energy. Most are implemented by the New York 
State Energy Research and Development Authority (``NYSERDA''), the 
NYPA, and the Long Island Power Authority (``LIPA'').\23\ They have 
proven to be highly successful and offer a good starting point for an 
expanded state efficiency effort.
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    \23\ The NYPA and LIPA are publicly owned not-for-profit utilities, 
whose programs are funded by rates charged their customers.
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1. The Attorney General is Directing Power Plant Settlement Funds to 
        Supplement NYSERDA Programs
    The Attorney General, through his authority to enforce Federal and 
state environmental protection laws, has embarked on a number of clean 
air initiatives. The Attorney General sued out-of-state coal-fired 
power plants that upgraded or expanded their old power plants without 
installing the pollution controls required by the Clean Air Act. The 
Attorney General, with the DEC, is also pursuing legal action against 
similar plants in New York. Recognizing the priority the people of New 
York have assigned to clean air and a balanced energy policy, the 
Attorney General is negotiating to ensure that settlements are directed 
to enhancing renewable energy development and efficiency.
    The Attorney General is working with the NYSERDA and DEC to ensure 
settlement funds are spent most effectively to promote energy 
efficiency and renewables. The settlement funds may also be used to 
fund some of the transmission infrastructure needed to make available 
additional wind resources. While agreements-in-principal have not been 
finalized--and other cases are in negotiation or litigation--the 
lawsuits are likely to yield $20 million or more that can provide the 
catalyst for an additional 10-30 MW of renewable energy and perhaps 10 
MW of savings through efficiency.
The Legislature Should Ensure Funding for NYSERDA Programs by Extending 
        the System Benefits Charge
    The NYSERDA's programs, under the umbrella of the New York Energy 
Smart program, are designed to improve energy efficiency through 
education, improved operations, purchases and use of energy efficiency 
equipment and services, and technology development and demonstration. 
The 38 New York Energy Smart programs, range from market transformation 
(e.g. ensuring retail stores offer efficient products to their 
customers) to low-income assistance (e.g. direct installation of 
efficiency measures in low-income households) and renewable energy 
development (e.g. production incentives to wind farm developers).
    The NYSERDA's programs are funded by the System Benefits Charge 
(``SBC'').\24\ The SBC is a small, non-bypassable charge per kilowatt-
hour to all customers buying electricity transmitted and distributed by 
the State's investor-owned utilities. Currently, the SBC rate is just 
over one-tenth of one cent per kilowatt-hour and collects $150 million 
per year.\25\ The existence of the SBC derives from a PSC Order that 
expires in 2006.\26\ The Legislature should codify the SBC and extend 
it 5 years to ensure a long-term, reliable source of funding for energy 
efficiency and renewables. In addition, the Legislature should make 
permanent programs funded by the SBC that improve efficiency in low-
income households.
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    \24\ In Opinion and Order Regarding Competitive Opportunities for 
Electric Service, Case NO. 94-E-0952, et. al., (May 20, 1996), the PSC 
created the SBC to mitigate the potential adverse environmental impact 
of restructuring the electric industry.
    \25\ See, Order Continuing and Expanding the System Benefits Charge 
for Public Benefit Programs, Case NO. 94-E-0952, et. al., (January 26, 
2001), p. 12. A small percentage of the funding is administered by the 
utilities.
    \26\ Ibid.
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    The NYSERDA has used over $71.8 million SBC funds since 1998 to 
encourage efficiency and renewable power investments. These investments 
have resulted in estimated electric savings of 486,000 MWh annually; 
demand reduction of at least 125 MW; reductions to electric, fuel oil, 
and natural gas bills of $54 million annually; reductions to annual air 
emissions of 464 tons of NOx, 774 tons of SO2, and nearly 
335,000 tons of CO2; and the creation of over one thousand 
jobs.\27\ While the $71.8 million was paid out once, the savings are 
annual. Based on this experience, a one-time investment of $100 million 
in energy efficiency reduces consumer bills by about $75 million per 
year. This annual savings accumulates over the lifetime of the 
efficiency measure, yielding a net savings of $375 million over the 
first 5 years for just the first year's investment.
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    \27\ NYSERDA, New York State Energy Smart Program Evaluation and 
Status Report, Report to the System Benefits Charge Advisory Group. 
Interim Report, September 2000.
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    The NYSERDA estimates that the total effect of SBC expenditures 
through the summer of 2002 will reduce peak demand between 600 and 660 
MW and between 1,200 and 1,300 MW through 2006.\28\ These programs, so 
critical to New York's energy and environmental future, should be 
codified.
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    \28\ NYSERDA, Proposed Operating Plan for New York Energy Smart 
Programs (2001-2006), February 15, 2001, pp. 2,3.
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3. NYPA Should Work With its Customers to Reduce Demand by an 
        Additional 200 MW Over the Next Two Years Beyond Its Current 
        Goals
    The NYPA currently provides about $60 million annually to its 
customers for demand-side management projects and recovers its costs by 
sharing in the electric bill savings. These projects cost taxpayers 
nothing to implement, but realize approximately $65 million annually in 
energy bill savings, and save enough energy each year to service 
300,000 people, and avoid 360,000 tons of CO2 emissions.\29\ 
While the NYPA's demand-side management initiatives currently achieve 
capacity savings of between 20 and 60 MW per year,\30\ significant 
opportunities exist for greater savings.\31\ The NYPA's customers, many 
of which are public entities, consume over 20 percent of the State's 
electricity, making this Agency well situated to advance the State's 
need for more aggressive energy efficiency efforts. By reducing the 
government's demand for electricity, The NYPA can save taxpayers 
hundreds of millions of dollars in electricity costs. The NYPA should 
work with its governmental and business customers to reduce demand and 
increase clean distributed generation and renewable energy by at least 
an additional 100 MW per year over the next 2 years and commit to fund 
its demand-side management programs at an increased level over the next 
10 years.
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    \29\ The NYPA's efficiency programs have successfully reduced 
electricity use and electricity bills. For example, the NYPA is working 
with the New York City Housing Authority (NYCHA) to replace 180,000 
refrigerators with more efficient varieties over 8 years. After this 
project is completed in 2003, NYCHA will reduce energy consumption by 
103,000 MWh per year and save over $7 million annually in energy costs. 
Similarly, its High Efficiency Lighting Program provides energy-
efficiency improvements such as new lighting and upgrades to heating, 
ventilation and air-conditioning systems with no up-front costs to 
government and educational institutions. These measures can cut up to 
25 percent on electric consumption. See, Http://www.nypa.gov/html/
es.htm. See also NYPA press release, November 30, 2000.
    \30\ The NYPA currently spends approximately $60 million per year 
on demand-side management (``DSM''), but information regarding the 
amount of generating capacity saved is unavailable. Capacity savings 
were estimated based on past DSM investments. Between 1990 and 1996, 
the NYPA spent $255 million on demand-side management programs and 
reported saving 84 MW (0.33 MW per million dollars spent). Between 1990 
and 1997, Investor-Owned utilities spent $1,277 million on DSM and 
reported saving 1,377 MW (1.08 MW per million dollars spent). Thus, an 
annual $60 million investment could result in a capacity savings of 
between 20 and 60 MW per year.
    \31\ For example, one of the NYPA's largest customers, the 
Metropolitan Transportation Authority, uses approximately 1,800,000 MWh 
per year. By updating its lighting and signal systems and other 
efficiency/conservation projects, it is conservatively estimated that 
the MTA could reduce its electricity use by 2 percent. (The NYPA 
reports that they can achieve up to a 25 percent reduction in energy 
consumption for each efficiency project they undertake. Thus a 2 
percent overall reduction is a conservative target.) This project alone 
could reduce peak demand in New York City--a load pocket--by at least 4 
MW, saving 36,000 MWh per year and $2,520,000 in annual energy costs 
(based on a rate of 7 cents per kWh--the NYPA's rates vary). See NYPA 
1998 Annual Report.
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    Because of the dual benefit of reducing demand and reducing the 
electricity bills of public entities, the Governor should direct all 
State agencies to report on energy use and recommend how to reduce both 
base and peak demand within 6 months. The NYPA should work closely with 
the State agencies to develop and implement those recommendations, 
including providing the financing necessary to obtain technical 
assistance, conducting energy audits, and purchasing and installing 
more efficient motors, lights, and other appliances or devices.
    The NYPA should also expand its existing efficiency programs to 
include more local governments and school districts statewide, further 
reducing electricity costs for taxpayers. The Legislature should direct 
the NYPA to provide funding for local governments to assess their 
energy efficiency opportunities within 6 months (for New York City and 
Long Island) or 12 months (for upstate areas) and reach agreements for 
their implementation.
    The NYPA sells approximately 40,000,000 MWh of electricity per 
year, much of it to government and educational institutions.\32\ For 
the NYPA to achieve 200 MW in additional savings beyond its current 
program, it will need to reduce energy consumption from all of its 
customers by 7 percent over 2 years.\33\ This would save the NYPA's 
government customers (i. e. taxpayers) and business customers 
$196,224,000 in energy costs annually.\34\ The environmental gains 
would be commensurately large--an estimated 2.7 million tons of 
C02, 14,280 tons of SO2, and 5,320 tons of NOx, 
would be avoided.\35\ Finally, energy savings of this magnitude would 
reduce stress on the existing system, improving reliability.
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    \32\ New York Power Authority 1998 Annual Report, p. 19.
    \33\ The NYPA would need to achieve 320 MW savings over 2 years to 
meet the Attorney General's proposal, assuming the NYPA already 
achieves 60 MW savings per year through its existing $60 million per 
year program. A 7 percent reduction in electricity use = 5,600,000 MWh. 
320 MW x 17,520 hours per 2 years = 5,600,000 MWh.
    \34\ Based on a rate of 7 cents per kWh. The NYPA's rates vary.
    \35\ Based on average statewide emission rates according to PSC 
Historical Fuel Mix and Emissions Data. Http://www.dps.state.ny.us/
fuelmix.htm.
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4. The Legislature Should Direct LIPA to Increase Its Investments in 
        Demand Side Management
    Shortly after the LIPA acquired the Long Island Lighting Company, 
its Board of Trustees issued a Clean Energy Policy Statement that 
declared the LIPA would establish a Clean Energy Initiative to support 
energy efficiency, clean distributed generation and renewable 
technologies. The LIPA funded the Clean Energy Initiative at $32 
million per year for 5 years and began implementation in mid-1999.\36\ 
In light of the current demand/supply imbalance on Long Island, the 
Legislature should direct the LIPA to increase its funding for the 
Clean Energy Initiative from $32 million to at least $50 million per 
year for 10 years.
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    \36\ The LIPA's Clean Energy Initiative offers many programs, 
including rebates for energy efficient products in their ``EnergyWise'' 
catalog. More than 37,000 lighting products have been ordered through 
the program and an additional 170,000 compact fluorescent lights have 
been sold in home improvement stores. Together, they represent 
potential electric savings of nearly $9 million and over 2,970 MWh of 
electricity. The LIPA's Residential Energy Affordability Partnership, a 
low-income energy efficiency program much like the NYSERDA's, directly 
installs energy efficiency measures, such as compact fluorescent 
lighting, refrigerators, wall and attic insulation, and programmable 
thermostats. The Solar Pioneer Program offers direct consumer 
incentives toward the installation of qualified photovoltaic systems 
between 250 and 10,000 watts, as well as a $3 per watt rebate for 
installing approved solar equipment.
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    The LIPA's existing Clean Energy Initiative--projected to obtain 
144 MW of demand-side energy capacity savings by the time it expires in 
2004\37\--will not realize all of the potential for capacity savings on 
Long Island. A 1999 study that examined opportunities to meet expected 
increases in demand on Long Island found that expanded energy 
efficiency, distributed generation, wind power, fuel cells, and 
photovoltaics could yield 690 MW by 2010, including 465 MW from energy 
efficiency alone.\38\
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    \37\ Estimated peak load reductions during the first year of the 
Clean Energy Initiative, totaled approximately 39 MW. Energy reductions 
resulting from the Clean Energy Initiative during 1999 were estimated 
to total approximately 16,000 MWh. These savings were achieved within 1 
year of the LIPA's approval of the Clean Energy Initiative, 
demonstrating how quickly efficiency measures can be effective. At the 
end of the 5-year, $160 million program, the LIPA estimates that it 
will save 191,000 MWh of energy per year and avoid the need for 144 MW 
of capacity. See, LIPA, Clean Energy Initiative, May 3, 1999.
    \38\ Pace Law School Energy Project and Long Island Citizens 
Advisory Panel, Power Choices: 21st Century Energy Alternatives for 
Long Island, October 1999, p. 3.
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    If the Clean Energy Initiative were expanded to $50 million per 
year until 2010, as recommended, capacity savings over the next 10 
years could be greater than 450 MW.\39\ If the funding were increased 
immediately, and programs were expanded this year, an additional 30 MW 
could be avoided over the next 2 years and an additional 45 MW savings 
over the remaining 3 years of the LIPA program. Given the cost savings 
from efficiency programs in the past, the investment of $50 million per 
year would save Long Island ratepayers approximately $35 million in 
each succeeding year, leading to dramatic cumulative savings (perhaps 
$60 million after 3 years). Again, significant environmental and 
reliability gains can also be expected.
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    \39\ Estimate based on LIPA's current projections of 144 MW per 
$160 million spent over 5 years (0.9 MW per million dollars spent).
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II. The Review Process for the Siting of New Generation Facilities Must 
        be Streamlined
    The need for new supply underscores the importance of the power 
plant siting process, yet significant problems in that process affect 
the ability to respond quickly to increased demand with increased 
supply. Power plants cannot simply be built whenever and wherever 
someone decides they would like to do so. Rather, because of their size 
and environmental impacts, plans to build power plants are subject to 
an extensive and careful state approval process. This state-mandated 
review has been fraught with delay and uncertainty, impeding the 
ability of aspiring generators to proceed as expeditiously as would be 
optimal. Oddly, no process exists by which to rank the relative 
environmental impact of the proposed power plants. To increase the 
supply of electrical power to meet our economy's needs while protecting 
human health and the environment, the process must be dramatically 
improved.
    Ideally, the siting process should provide one-stop shopping for 
generators. Indeed, when the Legislature enacted Article X of the 
Public Service Law (``PSL'') in 1992, the goal was for one entity, the 
New York State Board On Electric Generation Siting And the Environment 
(``Siting Board''), to have authority over the entire review 
process.\40\ However, the U.S. Environmental Protection Agency 
(``EPA'') authorizes the state DEC to issue permits under the Clean 
Water Act and the Clean Air Act. Since such permits are necessary 
before a generating facility may be built, the process does not readily 
fit the one-stop shopping model. Additionally, the siting of a power 
plant is often controversial, so the review process appropriately 
provides an opportunity for extensive input by interested parties. For 
these reasons, siting a new plant is neither easy nor quick .\41\ 
Nevertheless, more can and must be done to coordinate and expedite the 
process if New York is going to meet the expected increase in demand 
with sufficient increase in supply, while at the same time ensuring 
that the added capacity results in a cleaner environment. Toward that 
end, the Attorney General urges the following:
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    \40\ Under Article X, any utility, public authority or merchant 
generator wishing to build a new generator in New York State with a 
capacity of 80 MW or more must comply with and obtain a Certificate of 
Environmental Compatibility and Public Need (``Certificate'') from the 
Siting Board approving the plant's construction and operation. See 
also, 16 NYCRR Chapter X, Subchapter A, Sec. 1000 et seq., which sets 
forth the Board's rules and procedures. The five permanent members of 
the Siting Board are the PSC chairman, who serves as the Siting Board 
chairman, the Commissioner of Environmental Conservation, Commissioner 
of Health, chairman of NYSERDA and the Commissioner of Economic 
Development. The Governor appoints two members of the public as ``ad 
hoc members'' for each generator application: one must reside within 
the judicial district and the other must be from the county where the 
proposed plant is to be located.
    \41\ Article X requires an entity seeking approval for a generating 
facility to file an application with the Siting Board. At least sixty 
(60) days before filing its application, an applicant must file a 
preliminary statement with the Siting Board and various offices within 
the PSC. An applicant must also obtain environmental air and water 
permits from the DEC and acceptance of its interconnection study from 
the NYISO. The PSC and DEC assign staff members to review the 
application, and each also assigns a project manager to coordinate 
review within their agencies.
    Before filing the application, the applicant, the PSC, DEC, and 
others may voluntarily engage in negotiations regarding environmental 
and other studies needed. Once theapplicant files its Article X 
application with the Siting Board, the chairman of the PSC has 60 days 
to determine if the application is complete, or needs to be 
supplemented. Once the application is deemed complete, the Siting Board 
has 12 (12) months to decide whether to approve it, during which time 
the DEC and PSC jointly conduct public hearings in which expert 
witnesses are examined and evidence submitted. The hearing officers 
make specific statutory findings and recommend a decision to the Siting 
Board, which has the ultimate decisionmaking authority.
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            A. Decide Which Siting Applications Merit A Preference for 
                    Earlier Review
    Currently, the Siting Board reviews each application in the order 
received, on a first-come first-served basis. The Siting Board does not 
now give a reviewing priority based on relative need for generation at 
the location of the proposed site or on environmental attributes. The 
Legislature, however, could and should direct the Siting Board and DEC 
to give a preference in the review process to applications for plants 
that:
     Are located in areas that have an acute need for new 
generating capacity, and thus would have the greatest incremental 
impact on New York's structural supply deficit;
     Repower existing plants so overall emissions are reduced 
and community impacts minimized, or otherwise displace electrical 
generation that produces greater air emissions in the same air basin;
     Achieve a lower emission rate for particulate matter, NOR, 
and SO2 than legally mandated or than other proposed plants, 
in addition to obtaining the largest offsets (proportional to the plant 
size);
     Are the most efficient generators, producing the least 
CO2 per MWH generated;
     Include active controls for mercury emissions;
     Are sited on former industrial ``brownfields,'' which thus 
would be redeveloped, cleaned and put to use; or
     Utilize dry-cooling techniques to minimize water impacts.
    Since the Siting Board reviews applications as they come in, all 
other things being equal the first applications will be reviewed, 
approved and built first. As new supply comes on line, later proposals 
for plants may be withdrawn. However, the later proposed plants may, in 
fact, be preferable from the perspective of the State's energy needs or 
the environment.
    To ensure that the State's needs are best served by proposed 
plants, and to encourage the private sector to propose such plants, the 
Legislature should require the Siting Board to give both procedural and 
substantive preference to plants that meet the above criteria. A 
preliminary review of any application should establish whether the 
plant is located in an existing electricity load pocket, repowers an 
existing plant, and what its emissions rates are.\42\ The Siting Board 
and DEC staff could be preferentially allocated to plants that meet the 
criteria listed. That alone would speed the review and approval of such 
plants given existing staff constraints. Similarly, the Siting Board 
could, in making approval decisions, give a substantive preference to 
plants that meet these criteria.
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    \42\ To ease the initial screening process, the application form 
could require a cover page that indicates which, if any, of the 
preference criteria are met by the proposed plant.
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            B. Designate a Project Manager for Each Application
    The time to review a siting application could be sharply reduced if 
the Siting Board designated a central Project Manager to be responsible 
for monitoring and ensuring the progress of an application's review at 
all agencies, rather than relying on separate agency project managers.
    The lack of coordination among the state agencies, especially the 
DEC and PSC, has often made it difficult for applicants to get clear 
direction to move forward. A central project manager for each 
application would keep the process from getting bogged down through 
conflicting or confusing directions.
            C. Require Applicants to File Environmental Permit 
                    Applications with the DEC Before Filing a Siting 
                    Application
    Initially, applicants filed siting applications and the DEC permit 
requests at the same time. This led to delays because DEC, subject to 
EPA requirements in its permit process, cannot generally decide within 
the Siting Board's 60-day period whether the environmental permit 
applications are complete. As a result, many applications were rejected 
by the Siting Board at the 60-day deadline as incomplete, and the 
process had to be restarted.
    Applicants should be required to submit their DEC permit requests 
well ahead of their siting application.\43\ The aforementioned Project 
Manager could coordinate this ``front-loading'' of the approval process 
so that an applicant will have negotiated with the PSC and DEC, secured 
the required environmental permits, and performed the necessary studies 
prior to filing the siting application.
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    \43\ Underscoring the necessity for a formal rule, the Siting Board 
recently adopted an informal policy that it will not consider a siting 
application to be complete unless the DEC has proposed a draft permit.
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            D. Establish a 30-Day Time Limit to Negotiate Voluntary 
                    Stipulations
    The Siting Board encourages, but does not require, applicants to 
negotiate voluntary stipulations with state agencies and interested 
parties to identify the issues of public concern and the studies or 
analyses appropriate for the project under review.\44\ This ``scoping 
process'' is intended to speed review by enabling parties to reach 
early agreement on which issues need to be addressed in the 
application, thereby reducing later objections or litigation. With no 
current timeframe for completion, these negotiations are often 
protracted--causing unnecessary delay and uncertainty. To address this 
problem, the scoping process should be made mandatory and should be 
overseen by the Project Manager, who should establish a 30-day 
timeframe for the parties, the DEC and PSC to negotiate stipulations. 
The Project Manager should clarify the details of the environmental and 
other reviews required by the Siting Board and DEC. Adherence to well-
established and understood descriptions of the detailed studies 
necessary for permitting under the State Environmental Quality Review 
Act (SEQRA) will also result in greater clarity and expedite the 
process.
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    \44\ See, PSL Sec. 163. These studies include those describing the 
expected environmental impact and safety of the facility, both during 
its construction and its operation, that identify ``(i) the anticipated 
gaseous, liquid and solid wastes to be produced at the facility 
including their source, anticipated volumes, composition and 
temperature, and such other attributes as the board may specify and the 
probable level of noise during construction and operation of the 
facility; (ii) the treatment processes to reduce wastes to be released 
to the environment, the manner of disposal for wastes retained and 
measures for noise abatement; (iii) the anticipated volumes of wastes 
to be released to the environment under any operating condition of the 
facility, including such meteorological, hydrological and other 
information needed to support such estimates; (iv) conceptual 
architectural and engineering plans indicating compatibility of the 
facility with the environment; and (v) how the construction and 
operation of the facility, including transportation and disposal of 
wastes would comply with environmental health and safety standards, 
requirements, regulations and rules under state and municipal laws, and 
a statement why any variances or exceptions should be granted. . . .'' 
PSL Sec. 164(c).
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            E. Appoint An Ombudsman For Each Project
    The Siting Board should appoint an ombudsman to be a focal point of 
contact for community groups seeking to be involved in the siting 
process and to work with the Project Manager to mediate issues 
concerning the scope of necessary studies. Citizens often identify 
community and environmental concerns about which the DEC and Siting 
Board members are unaware. Earlier identification and mediation of the 
issues could speed the permitting process by avoiding the need for 
amended applications, supplemental hearings, and subsequent litigation.
            F. Set Deadlines for Transmission and Distribution Owners 
                    to Contribute to System Reliability Impact Studies
    A siting applicant must submit to the NYISO a System Reliability 
Impact Study (``SRIS'') that identifies both the impact a new or 
modified plant would have on existing transmission and distribution 
systems, and the changes needed to accommodate the proposed additional 
generating capacity. NYISO approval of an SRIS is necessary.
    To prepare an SRIS, an applicant needs essential technical 
information that only the owners of transmission and distribution 
systems can supply. Currently, these entities are not required to 
provide the information within any particular deadline. The PSC and 
NYISO should quickly correct this deficiency. New York transmission and 
distribution owners are either subject to PSC jurisdiction or are 
members of the NYISO. The PSC and NYISO should establish an efficient 
process for SRIS applicants to obtain information from transmission and 
distribution system owners, including the deadline by which a system 
owner must comply with an applicant's request for information. 
Additionally, formal deadlines for the NYISO to complete its required 
review should be set.
            G. Assign Responsibility for Transmission System Upgrades 
                    Necessary for New Generating Capacity
    New generators may require costly upgrades or modifications of 
transmission system facilities to carry the increased power. 
Transmission facility owners and generators often disagree as to 
whether a transmission system reinforcement is needed to serve new 
capacity and which of them should bear an expense. Disputes have the 
potential to delay or restrict the availability of new capacity. 
Currently, no clear rule governs as to who should bear this 
responsibility.
    However, between them, the PSC and NYISO have jurisdiction over all 
possible parties. To ensure expeditious resolution of such disputes, 
the PSC and NYISO should quickly decide disputes over transmission 
reinforcement obligations.
III. Additional High Voltage Transmission Capacity is Needed
    New York must augment the network of high voltage transmission 
lines used to move bulk power from places with surpluses to areas where 
the power is needed. Major transmission bottlenecks in central New York 
(``Central East bottleneck''), around New York City (``In-City 
bottleneck'') and at our borders with other states and Canada limit the 
amount of power that can be moved.\45\ While minimizing the 
environmental and aesthetic impact of transmission lines, these 
bottlenecks must be opened.
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    \45\ See generally, New York State Energy Planing Board, Report on 
the Reliability of New York's Electric Transmission and Distribution 
Systems (November 2000) (hereinafter ``Planning Board Report'') and New 
York State Department of Public Service, Analysis Of Load Pockets And 
Market Power In New York State, Final Report (October 1, 1996) 
(hereinafter ``PSC Analysis'').
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    High-voltage transmission lines enable large amounts of power to 
move over long distances, provide flexibility in the location of 
plants, and increase access to diverse sources of electricity, 
including sources hundreds of miles away.\46\ Long distance access is 
especially important in New York, which has cheap hydroelectric and 
Canadian power sources at the extreme western and northern borders of 
the state.
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    \46\ Dependence on power plants fueled by natural gas has 
contributed to the recent increase in the price of natural gas, which 
in turn has increased the wholesale price of electric power. Augmenting 
transmission capabilities would facilitate access to electricity 
generated by other sources.
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            A. Bottlenecks in New York Transmission Cut Off Access to 
                    Cheap Power
    New York's transmission network contains segments that are not able 
at all times to carry the optimum amount of power. Each such inadequate 
segment forms a ``bottleneck.''\47\ Near Utica, the transmission lines 
from western New York and Ontario converge with the transmission lines 
from the north and Quebec to form the Central East bottleneck. Whatever 
power is available to the west or north, Central East can pass along 
only 5,995 megawatts.\48\ When the demand for power soars in 
southeastern New York during the summer, the Central East bottleneck 
may limit access to surplus power west and north of this bottleneck. 
The In-City bottleneck works similarly to set an even lower limit 
(4,979 megawatts)\49\ on the amount of power New York City and Long 
Island can import from western and northern New York, Canada and plants 
in the Hudson Valley.
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    \47\ A transmission bottleneck resembles a section of highway 
carrying traffic merging from two or more other highways with the same 
number of lanes. As long as the traffic is light, the merge flows 
smoothly. But if the merging traffic is heavy, all lanes slow and 
movement can cease.
    \48\ PSC Analysis, p. 235. This description of power flows in the 
New York transmission system is highly simplified and is not intended 
to take into consideration numerous technical factors that make the 
movement of bulk power difficult.
    \49\ Id., p. 123.
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            B. New York's Transmission System has been Neglected
    Despite the potential for transmission upgrades to lower our 
electricity costs and avoid having to build new power plants, 
fundamental infrastructure is sorely lacking in New York. Measured in 
constant dollars, between 1988 and 1998 capital improvements to New 
York's transmission system dropped from $307.7 million per year to 
$90.0 million per year.''\50\ The Central East and In-City bottlenecks 
have existed for at least 20 years. Today only one major project to 
ease a New York transmission bottleneck is under active regulatory 
considerations.\51\
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    \50\ Planning Board Report, p. 26.
    \51\ The LIPA has applied to the PSC for approval of two 
transmission lines under Long Island Sound to Connecticut. If 
constructed, these new lines would ease but not eliminate both the In-
City bottleneck and the constraints on importing power from New 
England. The PSC reviews transmission construction proposals under 
Article VII of the Public Service Law.
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    Building a transmission upgrade, such as a new high voltage line, 
is complex and expensive. Once the PSC approves a project, an applicant 
may then have to negotiate or litigate with possibly hundreds of 
landowners for rights of way, and obtain dozens of local building 
permits. Uncertainty about who is responsible for transmission under 
deregulation and how the cost of transmission construction is to be 
recovered in a deregulated marketplace has undoubtedly affected 
decisionmaking on transmission upgrades.
            C. Upgrades to New York Transmission Capacity Should not 
                    Await Approval of a Regional Transmission 
                    Organization
    The Federal Energy Regulatory Commission (``FERC'') has proposed 
the creation of disinterested Regional Transmission Organizations 
(``RTOs'') to improve transmission capability\52\ and has asked 
electric utilities to submit proposals for RTOs that would, inter alia, 
have authority to prepare and enforce plans for optimizing transmission 
systems. A disinterested RTO could weigh the interest of all, decide 
what transmission network upgrades are in the public interest and then 
enforce its decisions by ordering appropriate utilities and others to 
construct improvements. On January 16, 2001, the NYISO and the six 
private New York electric utilities submitted a joint RTO proposal 
requesting that the FERC designate the NYISO the RTO for New York.\53\
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    \52\ Regional Transmission Organizations, Order No. 2000, III FERC 
Stats. & Regs. para.31,089 (1999); Order No. 2000-A, III FERC Stats. & 
Regs. para.31,092 (2000).
    \53\ FERC, Docket No. RT01- ---- 000, Order No. 2000 Compliance 
Filing (January 16, 2001). The NYPA and the LIPA supported the filing 
but did not join as applicants. Id.; p. 2, fn 3.
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    While an RTO is welcome, we should not wait for an RTO to be up and 
running before addressing New York's transmission needs. The PSC and 
the NYISO must immediately begin working with the transmission facility 
owners to assess what transmission upgrades are warranted. In 
particular, this joint effort should examine what can be done within 
the next 2 years to ease the Central East and In-City bottlenecks, and 
increase our ability to import power from other states and Canada. If 
the FERC approves the application to designate the NYISO an RTO or 
brings New York under another RTO, the new RTO could take over this 
work and not have to start from scratch.
IV. New York Should Encourage New Sources of Generation
    While our electricity supply brings innumerable benefits and drives 
our economy, electricity generation also significantly impacts public 
health and the environment. Existing electricity generation in the 
United States produces: one-third of the nitrous oxide emissions that 
cause urban smog; two-thirds of the sulfur dioxide emissions that cause 
acid rain; one-third of the mercury emissions that poison fish and 
wildlife; and one-third of the greenhouse gas emissions, particularly 
C02, that are warming the planet.
    The impacts of these problems are very severe in New York State, 
which is characterized by an asthma rate 2-5 times the national 
average, and 20 percent of Adirondack lakes too acidic to support life. 
Though up to 40 percent of New York's air pollution comes from sources 
out of state, it is essential that New York lead by example in creating 
a sustainable electricity policy.
    Not all conventional power plants pose the same level of health and 
environmental hazards. Modern combined-cycle gas-fired generators, 
which are most of the units proposed for new generation in New York, 
are far more efficient than power plants built in the past, and are 
equipped with controls that greatly reduce emissions. To the extent 
that more efficient units come on line and displace older, less 
efficient and dirtier units, air emissions problems in New York will 
decrease.\54\ To minimize the adverse impacts of even the cleanest 
fossil generation plants, alternatives such as enhanced transmission, 
renewable source generation, clean distributed generation, conservation 
and increased efficiency must have a major role in a balanced package.
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    \54\ In the short run, even the most modern gas units will likely 
increase total air pollutants, until the older units become too 
uneconomical to operate.
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            A. Renewable Generation Sources Should Provide at Least an 
                    Additional 10 Percent of New York's Electricity
    For many decades, New York has benefited from hydro power, a 
renewable source that does not release air emissions and uses no 
imported fossil fuels. Hydro power currently produces up to one-fifth 
of the electricity needs of the State. While ecological and 
sociological impacts limit the usefulness of further expansion of hydro 
power, recent developments in solar and wind power generation promise 
new means of clean electricity generation.\55\
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    \55\ Large scale hydropower can adversely affect fish and other 
aquatic life and can displace indigenous populations. While solar and 
wind power cause no air or water emissions problems, wind power can 
raise aesthetic concerns.
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    Commercial scale electricity generation from wind and solar 
(photovoltaic) sources are unlikely to come on line in significant 
amounts (over 100 MW) by this summer, however they can meet a 
significant portion of New York's electricity needs in the medium to 
long term, while reducing air emissions and reliance on imported fossil 
fuels.\56\ Indeed, some argue that renewables could satisfy virtually 
all of New York's need for increased capacity.
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    \56\ Electric generators in New York State rely on fuels that 
originate elsewhere in the U.S. or abroad. Increasing renewable 
generation sources in New York State will produce jobs in-state and 
keep electricity expenditures in-state.
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    New York is particularly well-suited for renewable generation. A 
study by the State University of New York Atmospheric Sciences Research 
Center concluded that solar power could significantly reduce sharp 
demand peaks because the state gets most of its sunlight during the 
same time as electricity demand peaks--hot summer days.\57\ Similarly, 
many areas across the State have strong wind resources. It is estimated 
that up to 5,000 MW of electric capacity could be produced from large 
scale wind generation sites in New York, enough to generate about 13 
million MWh, or 10 percent of the State's electricity consumption.\58\
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    \57\ New York Times, New York Ranks Near the Top For Efficient Use 
of Energy, October 21, 2000, pp. B1, B6.
    \58\ Bailey, B. and Marcus, M., AWS Scientific, Wind Power 
Potential in New York State: Wind Resource and New Technology 
Assessment, May 1996. ESEERCO Project EP 91-32, p. 36.
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    In the past, solar and wind generation were not economically 
competitive with fossil fuel power generation. However, new 
technologies for solar and wind generation combined with increased 
fossil fuel costs narrow the cost gap considerably.\59\ During most of 
the 1990's, wind energy was the world's fastest-growing energy source, 
expanding by 20-30 percent per year; in the last 24 months, nearly 
1,000 MW of wind have been installed in the United States.\60\
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    \59\ According the U.S. Department Of Energy (``DOE''), today's 
cost of generating electricity from wind is about $0.05 or less per 
kilowatt-hour, which represents an 85 percent drop over the past 15 
years. Http://www.eren.doe.gov/wind/fags.html.
    \60\ American Wind Energy Association, The Global Wind Energy 
Market Report, February 2001.
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    The following steps should enhance use of solar and wind power to 
produce clean electricity for New York:
            7. The Attorney General Will Use Settlement Funds to 
                    Develop Wind Power
    The Attorney General's Office sued a number of out-of-state coal-
fired power plants that upgraded or expanded their old power plants 
without installing the pollution controls required by the Clean Air Act 
and whose pollution significantly harmed New York State. The Attorney 
General has directed that a major portion of the settlement money 
arising from the Clean Air Act power plant enforcement cases be used as 
incentives to develop 10-30 MW of renewable wind generation. The Office 
is also pursuing legal action against similar plants in New York. These 
cases will likely generate tens of millions of dollars in payments in 
lieu of penalties that the State can use for clean air and efficiency 
projects.
            8. The Legislature Should Enact a Renewable Portfolio 
                    Standard
    The Legislature should join New Jersey, Massachusetts, Connecticut, 
Texas, and many other states by adopting a Renewable Portfolio Standard 
(``RPS''). The RPS would require retailers of electricity to include in 
their portfolio of supply an increasing percentage of renewable 
generation. This would increase demand for renewables such as wind and 
solar, that would, in turn, create a competitive market for supplies of 
renewable generation.
    A bill to create an RPS has been introduced in the State 
Assembly.\61\ The Legislature should pass, and the Governor should 
sign, the Assembly proposal to require 0.5 percent of all retail 
electric sales to come from non-hydro renewables (650,000 MWh; 
equivalent to about 300 MW of installed capacity, or enough to power 
90,000 homes) by 2003. The percentage grows by a half-percent per year 
until renewables reach 6 percent of sales. Thereafter it grows by 1 
percent per year until it reaches 10 percent. The bill includes a cost 
cap of 2.5 cents/kWh. If renewables at this price cannot be found, 
retailers have the option of making payments into a ``Clean Electricity 
Fund,'' calculated as 2.5 cents times their RPS obligation. This fund 
would incentivize the development of renewable generation.
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    \61\ See, A. 8506-Englebright.
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    An aggressive RPS could create well over 3,000 MW of renewable 
generation at little to no additional cost to consumers. For example, a 
recent study of Massachusetts' RPS (similar to what the Attorney 
General recommends for New York) found that it would add only 0.4 
percent to consumer bills by 2003, rising to 2.2 percent in 2012.\62\ 
An Iowa study--which assumed that the cost of fossil fuels would rise, 
while wind's costs would decline--showed customers could save $300 
million over a 25-year period if the state met 10 percent of its 
electric demand through wind generation.\63\
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    \62\ Massachusetts Division of Energy Resources., Massachusetts 
Renewable Portfolio Standard Cost Analysis Report. December 21, 2000, 
p. 37.
    \63\ Wind, Thomas, Wind Utility Consulting, The Electric Price 
Impact of an RPS in Iowa, May 1, 2000.
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    Much of the renewable supply needs in New York could be met with 
wind power, providing significant environmental and economic benefits. 
It is estimated that for every 100 MW of wind development about $1 
million is generated in property tax revenue. New York could see 2,000 
MW of wind power by 2010 with an aggressive RPS and financial 
incentives, generating $20 million annually in tax revenues to rural 
communities. In addition, since wind farms are generally located on 
privately owned land, the development of 2,000 MW in New York means 
annual payments of approximately $4 million to farm and forest 
landowners.\64\
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    \64\ Estimated benefits according to American Wind Energy 
Association RPS Fact Sheet, Http://www. awea.org/pubs/factsheets/
nyrps001.pdf.
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    The reduced emissions of pollution and greenhouse gases resulting 
from wind power is significant. A single 1.65 MW wind turbine will each 
year displace emissions of 2,161 tons of CO2, 11 tons of 
SO2, and 4 tons of NON, based on the New York State average 
utility fuel mix.\65\
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    \65\ Assumes wind turbine generates electricity 30 percent of the 
year. Historical fuel mix data and emission rates according to the DPS 
at Http://www.dps.state.ny.us/fuelmix.htm.
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            B. Policies are Needed to Increase Clean Distributed Energy 
                    Sources
    The need for large power plants could be lessened by distributing 
small-scale generation units that use minimally polluting technologies 
directly on the site where the electricity is to be used. Electric 
power can be efficiently generated at small-scale facilities located on 
or near the consumer's property. Generation options include fuel cells, 
wind generators, small-scale hydro, solar cells, and cogeneration 
facilities that combine heating and cooling with electric generation. 
Because distributed generation facilities may not always provide the 
exact amount of power needed, the facility is usually connected to the 
electric power grid. The grid can provide additional power if the 
facilities run short, or can take the excess power generated. To the 
extent that local sources of electricity reduce the demand placed on 
traditional generating plants, they can reduce both (i) the need to 
build new power plants, and (ii) the wholesale market scarcity 
conditions that produce price volatility.
    Distributed generation's smaller scale often enables new sources of 
power to be obtained in less time than with conventional power plants. 
Another advantage is the greater diversity of generation sources, 
including renewables such as sunlight and wind, decreasing dependency 
on fossil fuels. As demonstrated by the current rise in natural gas and 
oil prices, excessive reliance on fossil fuels subjects New York to 
risk of fuel shortages and cost volatility. Distributed generation also 
avoids further strain on the transmission and distribution system.
    Many forms of distributed generation are also environmentally 
cleaner than conventional power plants.\66\ Moreover, their smaller 
scale can minimize the impact on neighborhoods and open space. However, 
uncontrolled diesel generators--sometimes used for distributed peak 
supply--emit many times the pollution of modern, large-scale power 
plants or any form of renewable generation. Thus, public policies 
encouraging distributed generation must not include incentives for 
environmentally detrimental onsite generation facilities.\67\
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    \66\ Wind and solar power are cleaner. Fuel cells that operate on 
hydrogen fuel emit only water vapor. Other fuel cells use natural gas, 
and thus emit carbon dioxide.
    \67\ For example, LIPA's recent action to promote the use of onsite 
back-up generation does not differentiate between clean onsite 
generation and diesel generators. This action should be revisited to 
ensure that financial incentives to use diesel generators are removed. 
See, LIPA Supplemental Service Tariff. Http://www.lipower.ore/
supservtalkvoints.html.
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    If more commercial, industrial and multi-family residential 
buildings installed modern onsite generation facilities, the balance 
between supply and demand in tight regions such as downstate New York 
could be improved, reducing the need to construct large new power 
plants or transmission lines. In the past, many onsite generators did 
not economically compete with traditional sources of electricity. 
However, recent technological advances have lowered the costs of 
distributed generation. In addition, the transition to wholesale market 
pricing and the ability of distributed generation to shave peak demand 
levels (thereby relieving all power buyers from prices set at the 
steepest part of the supply/demand curve) further increase the relative 
economic benefit of distributed generation.\68\
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    \68\ When customers are billed on a real-time basis, such that 
their bills reflect the power used during peak and off-peak hours, the 
economic value of solar generation will be maximized, as it is most 
productive during periods when demand and market prices are highest.
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    The following policies should reduce barriers to, and promote 
additional distributed generation:
    1. The Legislature Should Offer Financial Incentives to Develop 
Clean Distributed Generation. The NYSERDA should provide low-cost loans 
to finance the investment necessary to install onsite facilities, and 
the Legislature should expand New York State's tax credit for 
residential solar power systems to clean distributed technologies such 
as fuel cells, wind, and small hydro power projects.\69\ Government 
incentives are necessary to jump-start development of supplemental 
electricity generation in New York. If the initial investment barriers 
are reduced, many distributed generation units could be installed in 
time to help meet New York's electricity needs for 2002.
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    \69\ New York State residents can claim a state income tax credit 
of 25 percent on the cost of their Photovoltaic system, up to a maximum 
credit of $3,750.
---------------------------------------------------------------------------
    2. The Legislature Should Expand the Solar Net Metering Law to 
Include Wind and Small Hydro Power.--The Legislature should expand the 
Solar Net Metering Law (Public Service Law Section 66-j) to include 
wind and hydro power. The New York State Legislature enacted the net 
metering law in 1997, allowing customers who install solar power to use 
excess electricity produced by the solar panels to spin the electricity 
meter backwards, effectively banking the electricity until it is needed 
by the customer. This provides the customer with full retail value for 
all electricity produced. In its current form, the net metering law 
applies only to facilities powered by solar generation. Of the thirty 
states with net metering opportunities, New York is the only state 
where small wind generation systems are ineligible.\70\
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    \70\ American Wind Energy Association. Http://www.awea.org/
smallwind/newyork.html.
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    3. The PSC Should Eliminate Unjustifiable Barriers to Clean 
Distributed Generation.--Distributed generation facilities typically 
require connection to the utility grid. Utilities therefore need to 
maintain technical safeguards to prevent distributed generation from 
adversely affecting the transmission system. Formerly, utilities 
imposed burdensome insurance requirements on independent generators 
seeking to connect to the power grid. The PSC recently reviewed such 
tariff conditions, and adopted improved interconnection standards 
designed to lower this and similar barriers.\71\ However, insurance is 
still required for solar power systems that are netmetered. The PSC 
should removes this existing barrier and the NYSERDA should provide 
low-cost insurance or bond coverage to meet utility interconnection 
requirements. Furthermore, the PSC should review utility policies and 
practices to ensure that any unjustifiable barriers to distributed 
generation are eliminated.
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    \71\ See, New York State Standardized Interconnection Requirements, 
Application Process, Contract & Application Forms For New Distributed 
Generators, 300 Kilo Volt-Amperes Or Less, Connected In Parallel With 
Radial Distribution Lines, issued November 9, 2000.
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    4. NYPA Should Work With Local Governments to Install Fuel Cells at 
Landfills and Wastewater Treatment Facilities.--The NYPA should build 
on its success with fuel cells and work more aggressively with local 
governments to install them, particularly local governments in load 
pockets such as New York City and Long Island. Landfills and wastewater 
treatment plants produce large quantities of methane, which can be used 
to power fuel ells to generate electricity. If not used to generate 
power, the gas is either flared or released, significantly contributing 
to climate change.
    In 1998, the NYPA and the EPA installed the world's first 
commercial fuel cell powered by waste gas, located at the Westchester 
County Wastewater Treatment Plant in Yonkers. In its first year, the 
200 kilowatt fuel cell converted over 20 tons of waste gas into over 
1.2 million kWh of electricity.\72\ The NYPA has also installed fuel 
cells at NYPD's Central Park Station and North Central Bronx Hospital, 
both of which run on natural gas.
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    \72\ March 23, 1999 EPA press release. Http://www.epa.gov/nheerl/
ordpr/1999/pr032399.pdf.
---------------------------------------------------------------------------
    Other prospects for fuel cells have not materialized. The New York 
City Department of Environmental Protection (``DEP'') has estimated 
that it flares or releases enough anaerobic digester gas at its 14 
wastewater treatment facilities to fuel between 15 and 25 fuel 
cells.\73\ But a proposal to install two NYPA fuel cells at one of 
DEP's wastewater facilities did not move forward largely because of the 
high cost of fuel cells, which are not yet commercially available.\74\ 
The myriad environmental benefits of fuel cells, and the improved 
reliability to the grid resulting from distributed generation, must not 
be overlooked in cost/benefit analyses. To fully realize the potential 
of fuel cells, the NYPA should seek new opportunities for fuel cell 
installation across the State, and offer attractive financing to its 
local government partners to ensure the projects are implemented.\75\
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    \73\ February 15, 2001 conversation between OAG Policy Analyst Tom 
Congdon and Energy, Air and Laboratory Services Division Chief Fred 
Sachs, DEP Bureau of Wastewater Treatment.
    \74\ Ibid. DEP 's electric bill would have increased significantly 
to repay the NYPA for the cost of the fuel cells. The fuel cells 
installed at Yonkers Wastewater Treatment Plant and the North Bronx 
Hospital were subsidized by the DOE.
    \75\ As with other NYPA efficiency and renewable programs, these 
fuel cells would be financed from the NYPA's existing rate revenue.
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V. Power Prices Must Not Be Permitted To Skyrocket During the 
        Transition to Competitive Markets
            A. New York Wholesale Power Markets Must be Significantly 
                    Reformed
    Since New York's wholesale power markets began operating in 
November 1999, significant flaws in the design of these markets have 
been identified. The markets are not fully competitive at all times in 
all locations, and thus the opportunity to exercise abusive market 
power often arises. When improper market power is exercised, 
electricity prices can suddenly rise to noncompetitive and, indeed, 
stratospheric, levels. This creates windfalls for generators, as well 
as unreasonably high bills for energy purchasers. It also impedes the 
development of truly competitive markets. All possible means must be 
used to ensure competitive pricing in the NYISO's markets, thwart the 
abusive exercise of market power, and provide redress for purchasers 
when market power leads to noncompetitive pricing.
                          1. NYISO Background
    In January 1999, independent power generators, utilities, public 
authorities and others interested in competitive electricity markets 
and open access to power transmission requested from the FERC authority 
to create an ``independent system operator'' to manage New York's high-
voltage transmission grid, operate competitive short-term markets for 
power, and undertake other tasks essential to establishing a 
competitive wholesale market for electricity.\76\ The NYISO began 
operations in November 1999.
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    \76\ FERC approval was required because the FERC regulates 
interstate transmission of power and has mandated open access to 
transmission services.
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    Today the NYISO manages the transmission grid that moves bulk power 
around New York, and operates the short-term Day Ahead (``DAM'') and 
Real Time (``RTM'') markets that together supply half the power used 
each day in the state. (The other half is supplied through bilateral 
contracts between generators and users.) On a typical day, the DAM 
accounts for about 45 percent of the total power used in New York, 
while the RTM typically accounts for 5 percent of the power. The DAM 
and RTM determine the price per megawatt-hour to be paid for wholesale 
power and the order in which generating plants will be scheduled to 
run. In highly simplified terms, the NYISO accepts confidential bids 
stating how much power each utility or other electricity retailer\77\ 
wishes to purchase during each hour of the next day (in the DAM). 
Simultaneously, each power supplier submits confidential offers stating 
for each generating plant it owns how much power at a given price it is 
willing to provide. The NYISO, using complex software, totals the bids 
and ranks the offers in ascending price order. The most expensive offer 
that must be scheduled to run to provide the total amount of power 
requested for a given hour sets the price per megawatt-hour paid to all 
suppliers for power delivered during that time (referred to as ``the 
market clearing price'').\78\ The RTM operates similarly.''\79\
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    \77\ In New York, independent electricity supply businesses, termed 
``energy service companies'' or ``ESCOs,'' may compete with traditional 
utilities for customers.
    \78\ Alternatives to market clearing prices to set wholesale 
electricity prices have been proposed. One approach is to pay each 
seller its asking price, rather than pay all sellers the highest offer 
taken. Other proposals would peg each offer price to actual costs.
    \79\ The NYISO also operates competitive markets for generating 
reserves and other services related to supplying electricity, and 
monitors the power markets to ensure that they operate competitively.
---------------------------------------------------------------------------
    NYISO membership today consists of private generators, utilities, 
public authorities, power marketers, representatives of commercial and 
industrial customers, consumer advocates and others, as well as a paid 
professional staff. A 10-member Board of Directors sets policy for the 
professional staff and determines the actions the NYISO will take in 
its relations with the FERC and other government agencies. By NYISO 
rule, Board members must be disinterested and may not have a financial 
interest in any aspect of the electric power industry.
    A NYISO Management Committee and two other NYISO committees discuss 
issues and propose actions to the NYISO Board of Directors. The FERC 
exercises regulatory authority over the NYISO and other independent 
system operators. The NYISO has sought the FERC's approval of numerous 
proposed changes in the way NYISO operates and exercises its authority. 
While many of the changes involve technical and ``housekeeping'' 
matters, several have addressed competition problems identified by the 
NYISO staffs Market Monitoring Unit (``MMU''). Most notable are the 
NYISO's June 30, 2000 petition for a $1,000 per megawatt-hour cap on 
the price of power in the short term markets, and its March 27, 2000 
petition for a cap on the price of reserve generation capacity. The 
FERC approved the power price cap petition on July 26, 2000 and the 
reserves price cap petition on May 31, 2000. These and other FERC-
approved changes in NYISO operations have moderated but not eliminated 
the potential for exercise of market power.\80\
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    \80\ The NYISO professional staff has taken the position that the 
NYISO Board does not need to seek the FERC's approval of every 
operational change intended to strengthen the NYISO's efforts to deter 
uncompetitive actions. Not all NYISO members agree.
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 2. The NYISO Must Ensure That Energy Sellers Cannot Unfairly Exercise 
                Market Power to Raise Electricity Prices
    At least two instances have been identified in which the NYISO 
markets were not competitive in 2000. During certain hours of high 
demand on June 26, 2000, the price of power in the Day Ahead Market 
spiked to $1,000 per megawatt-hour due to bidding practices leading to 
excessively high prices. This behavior cost energy buyers an estimated 
$100 million in excessive power prices that day. The NYISO has also 
identified instances of market power in the sale of generating capacity 
reserves from January to March 2000. The Attorney General has urged the 
FERC, which has jurisdiction over power transmission and independent 
system operators, to provide the NYISO the authority it needs to 
address such exercises of market power.\81\
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    \81\ October 31, 2000 Letter from Attorney General Eliot Spitzer to 
FERC Chairman James J. Hoecker.
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    The NYISO must ensure that design and operational flaws are 
addressed quickly, before the demand for electricity rises with the 
start of the summer cooling season in May 2001. In particular, the 
NYISO must enhance its ability to identify and correct noncompetitive 
prices and practices. The Attorney General supports a three part 
approach: (1) ``automatic mitigation'' of DAM prices as soon as 
possible; (2) strengthening after-the-fact market monitoring, including 
retroactive mitigation of noncompetitive prices; and (3) retaining the 
$1,000 cap on power prices.
    Finally, the NYISO should follow through on plans to open its 
markets to increased participation by non-generators and non-load 
serving entities, so as to enhance competition and liquidity in the 
power markets.
          a. Automatic Mitigation Must be Implemented Quickly
    On February 20, 2001, the NYISO Board voted to extend its current 
forward looking market mitigation to the DAM in a way that is intended 
to prevent the exercise of market power until competition fully takes 
hold.\82\ To effect this mitigation, also referred to as a ``circuit 
breaker,'' the NYISO will reprogram the software it uses to operate its 
power markets so that the software automatically analyzes bids before 
they set the market-clearing price. If the analysis indicates a 
potential exercise of market power in the DAM, the suspect power prices 
will be replaced with competitive prices. The NYISO expects to 
implement the software changes before the 2001 summer cooling season, 
i.e., by May 2001.\83\
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    \82\ New York Independent System Operator Approves Automated 
Process For Reviewing Supply Bids--Measure Enhances NYISO's Ability To 
Prevent Market Abuse--, NYISO press release (February 22, 2001).
    \83\ Automatic mitigation will use as triggering levels the price 
threshold values in the NYISO's current forward-looking market 
monitoring procedures. Each day NYISO software will automatically 
review Day Ahead offers for evidence of market power and recompute 
excessive offers before they can set the market clearing price. In 
grossly simplified form, automatic mitigation works as follows: if upon 
matching offers with bids, the Day Ahead Market in any zone would yield 
a market clearing price that exceeded $150 per megawatt-hour, a price 
analysis will be triggered. Depending on where in New York the over-
$150 market clearing price appeared, the NYISO software would examine 
every offer in any zone in the state deemed competitively relevant to 
the affected zone, and compare it to a predetermined ``reference 
price'' associated with the generating facility whose output is 
represented by each offer. If the difference between any offer and its 
associated reference price exceeds $100, the NYISO software would 
substitute the reference price for each offer and recompute a 
``reference market clearing price'' for each affected zone. This 
recomputed reference market clearing price hen would be compared to the 
initial ``unanalyzed'' market clearing price in each affected zone. If 
the difference between the two market clearing prices is more than $100 
in any zone, the NYISO software would then automatically set aside any 
offer in the affected zone that was initially greater than $100 above 
its reference price and replace that offer's price with the reference 
price. These recomputed offers would then be used in the calculation of 
the official market clearing price for that zone.
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    While agreeing with the general framework, some have objected that 
the NYISO automatic mitigation would still allow considerable exercise 
of market power, primarily because the triggering levels in the NYISO 
proposal are too high. Among other changes, the objectors would lower 
the initial trigger to $100 per megawatt-hour and the market comparison 
triggers to $50 per megawatt-hour. Lowering the triggers could more 
accurately capture the times and places in which market power may be 
exercised. For this reason, the Attorney General supports lower 
thresholds for automatic mitigation.
    While lowering the triggers would make automatic mitigation more 
effective, such a refinement would likely constitute a material change 
from the current NYISO market monitoring standards and thus might 
require the FERC's authorization before it could be implemented, with 
the concomitant risk of delay or denial.\84\
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    \84\ Others object to the idea of automatic mitigation as an 
unnecessary tampering with competitive markets. The markets, however, 
are not always competitive. Automatic mitigation should prevent 
excessive prices from occurring in the first instance.
---------------------------------------------------------------------------
    Another objection to the current automatic mitigation is that it 
does not apply to the RTM. The NYISO staff's explanation is that the 
logistics of the RTM operate on such a short timeframe that it is not 
practical to design an automatic mitigation mechanism for the RTM. 
Experience with Day Ahead mitigation may suggest ways to make automatic 
mitigation of the RTM practical. Deployment of Day Ahead automatic 
mitigation should not be delayed, but the NYISO should continue to 
evaluate capability for automatic mitigation of the RTM as well.
   b. Existing Forward-Looking Market Monitoring Must be Strengthened
    i. The NYISO's Market Monitoring Triggers Must be Refined.--The 
NYISO staff has a 14-member Market Monitoring Unit (``MMU'') that 
examines the offers, bids and market clearing prices in the various 
electricity markets to determine whether noncompetitive prices or 
practices have occurred. Once it identifies such a price or practice, 
the MMU takes actions to prevent a repetition. The major difference 
between automatic mitigation and the current MMU efforts is that the 
MMU addresses prices and practices after the market has cleared; it 
does not prevent the initial exaction of noncompetitive prices. As part 
of its effort, the MMU compares the market clearing prices in the DAM 
and RTM to numerical triggers. If a market clearing price exceeds a 
trigger, the MMU then employs procedures to identify potential 
noncompetitive behavior and fashion forward-looking means for 
preventing its repetition.
    Because the current MMU threshold values may not identify 
accurately enough all situations in which competition is impaired, the 
NYISO should seek from the FERC, and the FERC should grant, authority 
for the NYISO to lower these triggers. This refinement would increase 
the NYISO's ability to discern noncompetitive market behavior leading 
to noncompetitive prices. It could also lead to the identification of 
loopholes in NYISO rules that the current market monitoring protocol 
does not detect.
    ii. Authority for Retroactive Mitigation Must be Obtained.--The 
FERC has not authorized the NYISO to recapture excess profits obtained 
through the exercise of market power. When the MMU identifies a 
noncompetitive pricing or practice, the NYISO can at most order the 
offending act or practice to cease prospectively. Thus, currently, one 
exercising market power in a NYISO market gets at least ``one bite at 
the apple,'' risking nothing more than being admonished not to do it 
again. Such limited enforcement capability is inadequate. 
Noncompetitive market conditions for even a few hours on a single day 
can exact large sums in excessive prices.
    Adding automatic mitigation to the MMU's tools and tightening the 
MMU's surveillance triggers will reduce the likelihood of 
noncompetitive prices, but no preventive system is perfect. The NYISO 
needs the authority to recover excessive noncompetitive profits if and 
when market power slips past the NYISO's preventive measures.
    As the Attorney General urged in the October 31 letter to FERC 
Chairman Hoecker, the NYISO should request from the FERC, and the FERC 
should grant, authority retroactively to mitigate noncompetitive prices 
identified in the course of its forward-looking market monitoring. The 
window for identification of possible exercises of market power and for 
retroactive refunds should be short, both to maximize the value of 
refunds as a deterrent and to provide the wholesale power market with 
certainty. Both consumers and wholesale market participants have an 
interest in the speedy resolution of market monitoring inquiries, as 
well as in not being forced to pay noncompetitive prices for electric 
power.
    iii. The Current $1,000 Per Megawatt Hour Price Cap Must be 
Retained.--A $1,000 per megawatt-hour cap on the price of wholesale 
power currently exists in the NYISO's Day Ahead Market and Real Time 
Market, as well as in relevant markets in the adjacent New England and 
PJM power pools.\85\ The NYISO should ask the FERC, and the FERC should 
agree, to retain this cap until the wholesale electric market in New 
York is fully competitive. While NYISO market monitoring can be the 
first line of defense against market power, and retroactive mitigation 
may recover excess profits exacted by market power, there may be 
circumstances in which neither is able to prevent extreme wholesale 
power price spikes. The current NYISO price cap thus provides a crucial 
final safeguard against extreme price spikes. It should be retained 
until a change in circumstances justifies modifying or retiring it.
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    \85\ The current price cap is set to expire on April 30, 2001 
unless extended by the FERC upon request.
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    To be effective, a price cap must be compatible with conditions in 
neighboring power pools. Otherwise, power suppliers may have a 
financial incentive to sell preferentially into the power pool with the 
highest price cap. Today, both power pools neighboring New York have a 
$1,000 per megawatt-hour price cap. This, compatibility of price caps 
should be maintained.
    iv. The NYISO Should Implement Virtual Bidding to Expand 
Competition.--Today the only parties that may buy or sell electricity 
through the NYISO are utilities and other entities that provide retail 
service to end users, and those who own or control generating plants. 
This limits the number of participants in the NYISO markets. 
Competition would be enhanced if power marketers, brokers and others 
not directly involved in generating or retailing electricity could buy 
and sell power through the NYISO markets. In addition to increasing 
competition, market participation by new types of parties would add 
liquidity to these markets by increasing the number of ways that power 
purchases can be contracted for and financed. The downside of opening 
the NYISO markets to new classes of participants is the increased 
potential for gaming the markets, especially during times of tight 
electricity supply.
    The NYISO currently plans to implement power trading by parties 
other than generators and retailers, participation termed ``virtual 
bidding,'' by November 1, 2001.\86\ The NYISO's explanation for the 
delay in instituting virtual bidding is that it needs to correct flaws 
in its current operating procedures and to develop appropriate software 
before adding virtual bidding to an already complex system.\87\ FERC 
has accepted the NYISO's explanation.\88\ The NYISO should develop the 
necessary software and make the operational improvements needed to 
implement virtual bidding as soon as practicable. At the same time, the 
NYISO should address the increased complexity that virtual bidding will 
add to its markets and strengthen its market monitoring capability to 
accommodate the additional market surveillance that will be needed.
---------------------------------------------------------------------------
    \86\ See, e.g., NYISO, New York Independent System Operator, Inc.'s 
Report on the Implementation of Virtual Bidding and Zonal Price-Capped 
Load Bidding in Docket No. EL00-90-000,----FERC para.-------- (February 
2, 2001), p. 6.
    \87\ Id., p. 4.
    \88\ Some have protested to FERC that the NYISO's implementation of 
virtual bidding is taking too long. FERC rejected the initial protests 
as inconsistent with the prudent development of the NYISO's operations. 
FERC Docket No. EL00-90-000, Order On Complaint, Morgan Stanley Capital 
Group, Inc. v. New York Independent System Operator, Inc., 93 FERC 
para. 61,107 (October 5, 2000). Certain parties have renewed their 
protests. See, e.g., Morgan Stanley Capital Group, Inc., Motion For 
Immediate Commission Action Regarding Virtual Bidding Implementation 
Schedule, Docket No. E100-90-000 (March 5, 2001).
---------------------------------------------------------------------------
  c. Exposure to Volatile Prices Must be Minimized Without Shielding 
                  Customers From Market Price Signals
    We have seen in New York that highly volatile wholesale electricity 
prices can accompany the transition from regulated monopoly to 
competitive commodity markets, especially during times when supply is 
limited and demand irreducible. During the summer of 2000, Con Edison's 
customers experienced electricity rates 30 percent higher than during 
the comparable period in 1999, despite cooler weather in 2000 resulting 
in lower peak usage levels than usual. In addition to the increased 
cost of oil and natural gas, an almost 12-month outage at Con Edison's 
Indian Point 2 nuclear plant tightened supply in the downstate markets 
significantly, leading to higher wholesale prices in times of high 
demand\89\ If New York's summer weather in 2001 or 2002 is normal or 
hotter, wholesale price spikes remain a threat.
---------------------------------------------------------------------------
    \89\ The Attorney General has taken NYISO analyses and examined the 
impact of the Indian Point 2 outage on the price of power in the 
wholesale markets. The unavailability of Indian Point 2's 941 MW 
capacity output from February 16, 2000 through early January 2001 
required the NYISO to rely upon more expensive generators during times 
of greater demand, and thus increased the market clearing price for 
peak-hour power purchased by Con Edison. Indeed, it increased the 
market price throughout the state. The Attorney General, in a motion 
filed with the PSC has estimated that the outage cost Con Edison's 
customers $176.5 million and urged that Con Edison be required to 
reimburse customers for this increase in wholesale power costs. See, 
PSC Case 00-E-0612--Proceeding on Motion of the Commission to 
Investigate the Forced Outage at Consolidated Edison Company of New 
York, Inc.'s Indian Point No. 2 Nuclear Generating Facility, December 
4, 2000 Motion by New York State Attorney General Eliot Spitzer For 
Complete Quantification Of Consolidated Edison's Liability For Alleged 
Imprudent Management Of Its Indian Point 2 Nuclear Plant.
---------------------------------------------------------------------------
    Con Edison's and Orange & Rockland's current rate structures permit 
them to pass through to their customers nearly all of the commodity 
cost of electricity, no matter how high.\90\ Con Edison is a multi-
billion dollar company serving over three million customers, and 
therefore has much more bargaining power than any of its residential or 
small business customers to control price volatility through 
negotiation of long-term contracts with generators, and through other 
hedges that manage risk.\91\ To give an electric utility like Con 
Edison an incentive to hedge its risks in the wholesale market, the 
company must pay the price for bad market decisions.
---------------------------------------------------------------------------
    \90\ Con Edison passes through to its electric customers 90 percent 
of the difference between the company's forecasted and actual purchased 
power costs. (Con Edison, P.S.C. No. 9 Electricity, Leaf No. 163, 
Effective September 11, 2000) Central Hudson Gas & Electric's rates 
permit an automatic pass-through, but this is ameliorated by the 
utility's long term supply contracts with the companies that purchased 
their former generation units. Rochester Gas & Electric has not yet 
progressed as far as the other utilities toward restructuring, and 
currently retains most of its own generating plants. LIPA, as a public 
authority, is not regulated, but instead sets its own rates. LIPA thus 
ultimately recovers from its customers any increased cost of power it 
purchases from generators, although the lack of automatic pass-through 
likely delays the impact.
    \91\ Other New York utilities, such as Niagara Mohawk Power 
Corporation and New York State Electric & Gas Corp. currently operate 
under fixed consumer retail rates, and have been able to obtain long-
term supply contracts.
---------------------------------------------------------------------------
    Recent experience in California demonstrates that completely 
insulating consumers from wholesale electricity prices can financially 
devastate the affected utilities, especially if, as in California, they 
must buy all their energy requirements in the spot market. While the 
New York market rules permit and encourage bilateral contracts and 
other hedging strategies, we cannot ignore the warning of the 
California experience.
    As electric power supplies increase, customers ought gradually to 
receive more complete price signals to encourage more flexible and 
efficient demand.\92\ Until we reach that point, however, we must 
ensure price stability for customers during volatile markets. The 
complete pass-through of energy costs, such as Con Edison and Orange & 
Rockland currently enjoy, must be modified. The PSC should cap Con 
Edison's rates once power prices reach a certain per kilowatt hour 
level. Below that level, customers would pay the passed-through market 
price. Above that level, Con Edison would swallow a substantial portion 
of the difference. Such billing would limit customers' exposure to 
market volatility extremes while sending them appropriate price signals 
reflecting the market price of the electricity they use. At the same 
time, Con Edison would have an incentive to employ long-term supply 
contracts and other hedges to moderate the cost of power should market 
prices exceed the rate ceiling established.\93\
---------------------------------------------------------------------------
    \92\ Evidence shows that customers react to price signals by 
reducing demand, and often do so relatively quickly. For example, 
according to Hal R. Varian, economics professor and Dean at the 
University of California at Berkeley, when the electric bills of San 
Diego residents more than doubled last summer, power consumption 
dropped 5 percent within a few weeks. See, The New York Times, January 
11, 2001, p. C2.
    \93\ The Attorney General opposes alternative bill mitigation 
proposals that would not accomplish these goals. One. proposal would 
permit customers to postpone payment of that portion of their electric 
bills representing extremely high levels, and make up the difference 
during months when prices are below a certain threshold. This proposal 
would still expose customers to the full cost of power, albeit leveled 
over a year's bills. Others have proposed to keep rates at or below a 
certain pre-determined level throughout the year by offsetting higher 
summer peak market price levels with a variety of customer credits 
otherwise owed by Con Edison. Since customers are entitled to these 
rate offsets whether or not power prices rise, this approach to rate 
mitigation is unsatisfactory, and would conceal from customers what is 
occurring in the power market.
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VI. Demand for Electricity Must be Reduced to Minimize the 
        Environmental and, Public Health Impacts of Generation and to 
        Assure Market Competition and Stable Prices
    Aggressive measures to reduce demand, together with construction of 
clean and renewable power plants, will greatly reduce the environmental 
and public health impacts of electricity generation and foster 
competitive markets and lower electricity bills. Reducing electricity 
use avoids the need for existing power plants to produce that amount of 
electricity, and the corresponding emissions. Over the long-term, an 
energy policy is sustainable only if it includes environmental factors 
among its objectives. When new, more efficient power plants start 
supplying electricity to the grid, the need for existing, dirtier power 
plants should be reduced. But only if demand is simultaneously reduced 
while clean supply is increased will the State ensure a net gain for 
the environment and for the consumer.''\94\
---------------------------------------------------------------------------
    \94\ If the growth in demand is not reduced, there will be a need 
for both the existing power supply and new capacity. The addition of 
even the cleanest natural gas plant will result in a net addition of 
emissions if the State does not ensure that older, dirtier plants are 
displaced by cleaner new ones.
---------------------------------------------------------------------------
    What appears like a small action to reduce demand can have a large 
impact. For example, replacing just one incandescent light bulb with a 
compact fluorescent bulb (which uses 70 percent less energy to produce 
the same amount of light) can save a consumer over $38, save 337 kWh of 
electricity, and avoid over 300 pounds of the greenhouse gas 
CO2 in 3 years. If all 6,766,000 households in New York 
State replaced just one bulb, over $260 million would be saved, 2.2 
billion kWh would be saved (more than the electricity generated at an 
100 MW power plant), and over one million tons of CO2 
emissions would be avoided in 3 years. (See Appendix.)
    New York already ranks as the second most efficient state in per 
capita energy use nationwide (in large part due to the natural 
efficiency of apartment living).\95\ Nonetheless, opportunities for 
improved efficiency and conservation abound. A 1997 study claims that 
cost-effective investments in energy-efficient technologies could 
reduce New York's electricity use by 34 percent.\96\
---------------------------------------------------------------------------
    \95\ American Council for an Energy Efficient Economy. National and 
State Energy Use and Carbon Emissions Trends. September 2000, Http://
www.aceee.org/pubs/e001.pdf.
    \96\ American Council for an Energy Efficient Economy. Energy 
Efficiency and Economic Development in New York, New Jersey and 
Pennsylvania. February 1997.
---------------------------------------------------------------------------
    New York State has several programs to compensate for market 
barriers that discourage energy efficiency. But existing programs are 
not sufficient to create the environmentally sound, reliable, and 
balanced energy portfolio that is in the State's best interests. The 
Attorney General recommends significantly expanding these programs (see 
Section I.D.). The Attorney General is similarly using his legal 
authority to direct litigation settlement funds to energy efficiency 
and renewable power investments. In addition, utility portfolio 
standards would over the long-term lead to significant savings--perhaps 
1,000 MW through efficiency and 3,000 MW through renewable energy--that 
will shift New York's energy policy to a more sustainable framework.
    Together, the funding proposals below would direct approximately an 
additional $120 million per year (on top of existing programs) to 
energy efficiency, conservation, and renewable energy programs in New 
York State. (See table 2.) This expansion could result in a savings of 
over 600 MW over the next 2 years--an amount sufficient to avoid 
capacity shortfalls--and a necessity if New York State's electric grid 
is to maintain reliability and to minimize price spikes. At the same 
time, these energy savings will avoid enormous quantities of harmful 
pollutants--millions of tons of NOx, SO2, and CO2 
lead to substantial consumer savings.
    If New York's funding levels for efficiency and renewables were 
increased from the current level of $242 million per year to $360 
million per year, as recommended, New York will still spend less per 
capita than many other states in the Northeast. (See Table 3.)

    Table 2.--Summary of Attorney General's Proposals to Expand Funding for Current Efficiency and Renewable
                                                    Programs
----------------------------------------------------------------------------------------------------------------
                                                       Estimated Annual                        Estimated Annual
                                    Current Funding    Capacity Savings    Proposed Funding    Capacity Savings
            Programs                (in millions of      from Current            Level           from Proposed
                                       dollars)             Funding                                 Funding
----------------------------------------------------------------------------------------------------------------
System Benefits Charge            $150 million per    200 MW............  $150 million per    200 MW
 (NYSERDA's EnergySmart            year until 2005.                        year until 2010.
 Program)\1\.
NYPA Energy Services\2\.........  $60 million per     20-60 MW..........  $160 million per    53-160 MW
                                   year.                                   year until 2010.
LIPA Clean Energy Initiative\3\.  $32 million per     28 MW.............  $50 million per     45 MW
                                   year until 2004.                        year until 2010.
Power Plant Settlements.........  $0................  0 MW..............  Approximately $20   20-40 MW
                                                                           million.
                                 -------------------------------------------------------------------------------
  TOTAL.........................  $242 million per    248-288 MW........  $360 million per    318-445 MW
                                   year.                                   year plus
                                                                           settlement funds.
----------------------------------------------------------------------------------------------------------------
1 Estimated savings from the funding proposals are based upon NYSERDA projections, see SBC Proposed Operating
  Plan For New York EnergySmart Programs (2001-2006) February 15, 2001, p. 2.
2 Estimated savings are based upon the past experience in New York and other states. Between 1990 and 1997, the
  State's investor-owned utilities spent $1.2 billion on efficiency or demandside management (DSM) programs,
  avoiding the need for over 1,300 MW of capacity. These programs included rebates for efficient appliances and
  lighting, consumer education, and low-income weatherization projects. The NYPA spent $255 million on DSM
  investments between 1990 and 1996, avoiding the need for 84 MW of capacity. See, NYSEPB, New York State Energy
  Plan and Final Environmental Impact Statement. November 1998. p. 3-60, 3-62.
3 Estimated savings based on LIPA's current projections of 144 MW per $160 million spent over 5 years. See,
  LIPA, Clean Energy Initiative, May 3, 1999, p. 21.



   Table 3.--Comparison of Demand Side Management and Renewable Energy
                     Spending Per Capita By State\1\
------------------------------------------------------------------------
                State                   Annual DSM Spending Per Capita
------------------------------------------------------------------------
Connecticut.........................                              $35.95
Massachusetts.......................                              $25.91
New Jersey..........................                              $28.85
New York............................                              $13.30
------------------------------------------------------------------------
1 American Council for an Energy-Efficient Economy. A Review and Early
  Assessment of Public Benefit Policies Under Electric Restructuring,
  Volume 2. Summary Table of Public Benefit Programs and Electric
  Utility Restructuring. Http://www.aceee.org/briefs/mktabl.htm. See
  also, U.S. Census 1999 population estimates, Http://
  quickfacts.census.gov/qfd/index.html.



                Attorney General's Proposed Funding Level
------------------------------------------------------------------------

------------------------------------------------------------------------
New York.......................................                   $19.78
------------------------------------------------------------------------

E. Market Barriers to Energy, Efficiency
    Despite the financial and environmental benefits of efficiency, 
many opportunities are not taken due to the numerous market barriers to 
energy efficiency investments. Efficiency often requires a higher 
capital outlay (e.g. to better insulate a home, get a more efficient 
refrigerator or motor) and many consumers look only to the up-front 
cost rather than to the lifetime cost when making purchasing 
decisions.\97\ Within companies, purchasing agents may be responsible 
only for initial costs while another person is responsible for utility 
bills. In home or office building and renovations, the person making 
the capital outlay (e.g. the builder) rarely pays the monthly energy 
bills, and thus has no incentive to build in efficiency. Stores with 
limited shelf space often do not offer more efficient products because 
they are usually more expensive, and thus take longer to sell.
---------------------------------------------------------------------------
    \97\ Most consumers lack information on the energy, cost, and 
environmental savings that would enable them to comparison shop for 
more efficient appliances.
---------------------------------------------------------------------------
    Efficiency investments are also diffuse. Unlike a power plant, 
which can generate 100 or 500 MW, efficiency savings come in small 
increments of a few kilowatts or less. Thus, to ``generate'' efficiency 
savings of 100 or 1,000 MW, many actors must be involved, and each must 
reject the incorrect assumption that his/her actions won't make a 
difference. For these reasons, most programs to stimulate efficiency 
focus on information disclosure and subsidies (such as tax credits, 
mail-back rebates to consumers, or payments to sellers) to lower the 
initial cost, as well as efforts to encourage retailers to sell 
efficient products.
            B. The Legislature Should Enact Tax Incentives to Purchase 
                    Efficient Appliances
    Since major home appliances account for approximately one-third of 
residential energy consumption, the Legislature should pass a sales tax 
exemption\98\ for all major home appliances having the EnergyStar 
label.\99\ Past experience with short-term sales tax exemptions 
suggests that retailers could show significant interest in this 
initiative.\100\ During last year's sales tax exemption on clothing, 
for example, many stores offered a matching 8 percent-off sale.
---------------------------------------------------------------------------
    \98\ The Senate Majority Leader has introduced legislation that 
includes a sales tax exemption for efficient products and other 
products that promote conservation. See, S.0002-Bruno.
    \99\ EnergyStar is a voluntary partnership between the EPA, DOE, 
manufacturers, utilities and retailers. Partners promote energy 
efficiency by labeling qualifying products with the EnergyStar logo. 
EnergyStar-approved products are 10-75 percent more efficient than the 
Federal efficiency standard. The NYSERDA is an EnergyStar partner and 
promotes EnergyStar products.
    \100\ The sales tax exemption could also encourage consumers in 
neighboring states to buy appliances from New York State businesses.
---------------------------------------------------------------------------
    If implemented before the coming summer, this incentive could 
impact air conditioner sales and thus summer peak demand. Other major 
appliances and products (i.e. refrigerators, clothes washers, dish 
washers, furnaces, efficient windows, and lighting) also use 
significant amounts of energy. While not purchased by any individual 
very often, the cumulative annual sales of these appliances in New York 
are significant. For example, according to the Association of Home 
Appliance Manufacturers, 440,700 room air conditioners, 481,800 
refrigerators, 297,700 clothes washers, and 133,400 electric clothes 
dryers were sold in New York State in 1996.\101\
---------------------------------------------------------------------------
    \101\ Association of Home Appliance Manufacturers, Major 
Appliances--Estimated Distributor Sales by State. See http://
www.aham.org/indextrade.htm.
---------------------------------------------------------------------------
    While it is nearly impossible to predict with precision the cost or 
impact of the sales tax exemption on efficient products, conservative 
estimates suggest a positive outcome. If, for example, an exemption 
steered only 10 percent of air conditioner purchases to more efficient 
models, it could save 8,814 MWh per year and would cost the state (in 
lost tax revenue) perhaps $1,762,800 per year, while saving ratepayers 
$1,181,076 per year.
    The sales tax exemption would additionally draw attention to 
efficient products and show the environmental and economic benefit of 
purchasing such products. Consumer education on the impacts of energy 
conservation and each individual's ability to contribute is critical to 
implementation of energy efficiency programs.
            C. The Legislature Should Create an Efficiency Portfolio 
                    Standard
    Electricity retailers, unlike electricity generators, have direct 
contact with electricity consumers through monthly bills . This contact 
provides an opportunity to educate consumers. However, absent a 
legislative mandate, retailers lack incentive to conserve energy 
because the more they sell, the greater they profit.\102\ The 
Legislature should bring retailers into the State's energy efficiency 
efforts by enacting an Efficiency Portfolio Standard, requiring retail 
sellers of electricity to achieve certain levels of efficiency 
improvements in their service area.
---------------------------------------------------------------------------
    \106\ Since distribution costs are essentially fixed, higher sales 
lead to both higher revenue and proportionately higher profits. See 
also Section VI.E.3. for proposal to correct these existing market 
disincentives against efficiency.
---------------------------------------------------------------------------
    Retailers could achieve these gains through direct installation of 
efficiency measures and include the cost of the installation in their 
prices. They could also provide rebates, promotions, or education. For 
example, using bill inserts and instructing employees (such as those 
answering telephone inquiries or installing equipment) to highlight 
efficiency and conservation opportunities, retailers could accomplish 
significant savings. A re-institution of the utility compact 
fluorescent bulb rebate program could be an important promotion.\103\
---------------------------------------------------------------------------
    \103\ Replacement of incandescent bulbs with energy efficient 
compact fluorescents has the potential to significantly reduce energy 
consumption and consumer costs. See Appendix A-1.
---------------------------------------------------------------------------
    While an EPS is a new concept, it has two strong antecedents. Many 
states have implemented a Renewable Portfolio Standard that requires 
utilities to buy a minimum percentage of electricity from renewable 
sources. In addition, before restructuring, utilities were required to 
achieve certain energy savings through rate conditions that effectively 
acted like an EPS. Indeed, before restructuring, utilities were able to 
reduce electrical usage through efficiency measures by over 1,300 MW 
over 7 years when State regulations granted utilities incentives to 
accomplish that result.\104\ (A further precedent is provided by New 
York City's program to install--at its expense--water conservation 
devices in hundreds of thousands of homes and apartments. This program 
successfully reduced water use significantly.)
---------------------------------------------------------------------------
    \104\ NYSEPB, New York State Energy Plan and Final Environmental 
Impact Statement, November 1998, p. 3-62. The demand-side management 
programs cost the utilities $1.277 billion between 1990 and 1997.
---------------------------------------------------------------------------
            D. The Comptroller Should Report Annually on Energy 
                    Efficiency and Renewable Energy Programs
    Both to enhance public support for and understanding of efficiency 
and renewable programs, as well as to ensure that the money in these 
programs is spent most effectively, the Legislature should direct the 
Comptroller to prepare an annual report on the implementation of 
efficiency and renewable programs. As noted above, three major State 
programs currently operate: the NYSERDA's EnergySmart program (using 
SBC funds), the NYPA's Energy Services programs, and LIPA's Clean 
Energy Initiative. While the PSC requires the NYSERDA to report on the 
implementation of EnergySmart, the NYPA and LIPA have no reporting 
requirement. In addition, there should be verification of progress on 
the Renewable and Efficiency Portfolio Standards.
    The Comptroller's annual report, prepared in coordination with the 
NYSERDA, NYPA, LIPA, PSC and retailers, should include:
     total funds expended on efficiency, conservation and 
renewable energy;
     total MWh and MW saved as a result of the programs;
     a running list of all completed projects and a list of all 
planned projects;
     total energy cost savings to consumers;
     comparative effectiveness of programs; and
     remaining barriers to additional efficiency, conservation 
and renewable energy projects.
    Accurate accounting of efficiency and renewable energy projects is 
essential to understanding how future energy needs should be met. The 
Attorney General would commit to assisting the Comptroller with this 
report and in investigating opportunities to remove remaining legal 
barriers to a sound energy policy.
            E. The PSC Should Improve Pricing and Revenue Signals to 
                    Encourage Flexible Demand and Conservation
    In addition to tax incentives, Portfolio Standards, and direct 
subsidies through the NYSERDA, NYPA and LIPA, significant opportunities 
exist to amend pricing mechanisms to foster efficiency and 
conservation:
 1. Utilities Should Widely Advertise Offers for Different Time-of-Day 
       Rates to Residential Customers to Encourage Load Shifting
    The Public Service Law requires large electric utilities to offer 
residential customers the option of paying different rates for 
different times of day of instead of paying one rate for all 
electricity used.\105\ For example, instead of paying 13 cents per 
kilowatt-hour 24 hours a day, a customer could pay 6 cents during the 
night and 15 cents during the day. Despite this law, it appears that 
few utilities effectively offer this service to customers.\106\ Since 
this pricing could shift demand away from peak times, the PSC should 
require utilities to advertise its availability.
---------------------------------------------------------------------------
    \105\ See, PSL Sec. 66(27). This law applies only to corporations 
with annual gross revenues in excess of $200 million.
    \106\ In a December 20, 2000 Order, the PSC required electric 
utilities to file a report identifying measures that could be taken to 
reduce peak demand. While several of the utilities indicated that 
``real time pricing'' for their very large users of electricity (i.e. 
commercial and industrial) might be included in their portfolio of 
strategies to reduce demand, very few identified programs that could 
reduce peak demand from residential customers. Only New York State 
Electric and Gas (NYSEG) offers residential customers both time of use 
pricing (to customers who use 35,000 kWh or more annually) and day-
night pricing (to customers who use 1,000 kWh or more per month). ConEd 
indicated that residential customers would be eligible to participate 
in its Direct Load Program which would reward customers who voluntarily 
allow ConEd remotely to control their central air conditioning units 
during peak.
---------------------------------------------------------------------------
    Time of use pricing reduces electricity bills for customers who 
have the flexibility to use certain appliances, such as the clothes 
washer and dryer, dishwasher, or water heater, at times when the price 
is cheapest. This pricing also sends truer price signals to the 
customer, as it is far more expensive for the utilities to buy 
electricity during peak periods than in off-peak periods.
    Given the failure of utilities to offer or advertise time of use 
pricing, significant peak demand reductions may be achievable if the 
PSC requires more aggressive efforts. The PSC should ensure that each 
retailer offer reasonable time-of-day (or at least day-night) pricing 
to all customers, and provide consumers an analysis of the possible 
savings from such pricing. Appropriate means of financing time-of-day 
meters will need to be analyzed.
          2. Direct Metering or Submetering Should be Expanded
    While time-of-day meters would enable direct metered customers to 
shift some power use to off-peak periods, consumption is not measured 
individually in many apartments, but rather through the building's 
``master'' meter. Studies have indicated that residents in master-
metered buildings tend to consume significantly more electricity than 
residents with direct meters or submeters. Consideration should be 
given to the possibility of converting master-metered buildings in New 
York State to direct metering or submetering.\107\ In master-metered 
buildings, individual residents do not pay for their electricity 
directly. Rather, electricity charges are included in the rent. These 
tenants thus have no direct price signal associated with their 
electricity consumption.
---------------------------------------------------------------------------
    \107\ Current Energy Code requires all residential new construction 
to have separate meters for each dwelling (See, 9 NYCRR 
Sec. 7813.52(b)). Between 1951 and 1979, however, the PSC banned 
submetering. Thus, much of the housing built during this time--
including most public housing and other publicly assisted co-ops--have 
master meters. The Energy Code states that whenever more than 50 
percent of a residential building's electrical system is replaced in a 
12 month period, each dwelling unit is to be provided with a separate 
meter. See, 9 NYCRR Sec. 7810.6.
---------------------------------------------------------------------------
    Direct metering and submetering use direct market forces to 
encourage conservation. For example, a NYSERDA pilot project in 1981 
showed an energy savings potential of 18-26 percent from 
submetering.\108\ If comparable energy savings were achieved in the 
approximately 400,000 apartments in 1,800 master-metered buildings in 
the Con Ed service area,\109\ demand in the New York City load pocket 
would be reduced significantly. The considerable costs involved when 
converting to direct metering or submetering can be offset by the 
savings in the electricity bills over time.
---------------------------------------------------------------------------
    \108\ NYSERDA, Facilitating Submetering Implementation, Report 96-
7, May 1996, p. A-2.
    \109\ Ibid., p. S-1.
---------------------------------------------------------------------------
    Efforts to expand direct metering and submetering are ongoing, and 
should continue. For example, as part of its Residential Innovative 
Opportunities program, the NYSERDA has pilot projects to enhance 
submetering of cooperative apartment buildings, and has provided 
technical advice to building operators interested in converting to 
submetering.
3. Utilities Should be Given Incentives to Encourage Energy Efficiency 
                    and Clean Distributed Generation
    While generators of electricity are allowed to sell their power at 
market value in the current restructured environment, the transmission 
and distribution retailers--the utilities--have remained regulated 
monopolies. That is, the rates received by the utilities from their 
customers for the transmission and distribution of electricity is still 
set through rate agreements with the PSC. Among the most central issues 
raised by the restructured marketplace is whether the utilities' 
profits should be linked directly to sales.
    Under the current rate structure there is a rate cap, which means 
the more electricity a retailer sells, the greater the retailer's 
profits. But, a retailer's fixed costs for distribution do not increase 
substantially when marginally more electricity is sold, and thus the 
rate of profit increases for each additional kilowatt-hour of 
electricity sold. As a consequence, clean distributed generation, 
energy conservation or efficiency--all of which reduce a retailer's 
sales--is usually not in a retailer's best interests despite its 
significant benefits to consumers and the public.
    If the rate structure rewarded retailers for reductions in demand, 
energy conservation would more likely become a priority for retailers 
and consumers. The PSC should develop a formula for the distribution 
charge that rewards (or at least does not discourage) efficiency, 
distributed generation, and similar efforts.
            F. The Federal Government Should Implement New Appliance 
                    Efficiency Standards
    The DOE should implement the new appliance energy efficiency 
standards\110\ to reduce energy use in an important sector. Not only 
would this help New York's energy efficiency efforts, but since New 
York receives significant pollution from upwind states, efficiency 
efforts elsewhere can improve New York's air.
---------------------------------------------------------------------------
    \110\ See, 66 Fed. Reg. 3313-33, January 12, 2001 (clothes 
washers); 66 Fed. Reg. 3335-56, January 12, 2001 (commercial heating 
and cooling equipment); 66 Fed. Reg. 4473-97, January 17, 2001 (water 
heaters); and 66 Fed. Reg. 7169-7200, January 22, 2001 (residential air 
conditioners).
---------------------------------------------------------------------------
    In 1977, the DOE promulgated efficiency standards for residential 
refrigerators, residential room air conditioners, and fluorescent lamp 
ballasts. These standards have been very successful in leading 
manufacturers to produce far more efficient products, often 25 percent 
or more efficient than previous models. The DOE estimates that the 
standards already promulgated will save enough energy to eliminate the 
need for over 13,000 MW of generation capacity nationwide.
    In early 2001, the DOE announced the adoption of new energy 
efficiency standards for four additional types of appliances--
residential central air conditioners and heat pumps, residential 
clothes washers, residential water heaters, and commercial heating and 
cooling equipment. These new standards are projected to save consumers 
and businesses more than $19 billion through the year 2030 and to 
alleviate the need to build 91 new 400-megawatt power plants. The 
residential central air conditioner standard alone is estimated to 
avoid the need for 53 of these plants.\111\ It is critical that these 
standards be adopted by the new Administration and fully implemented.
---------------------------------------------------------------------------
    \111\ See, New Efficiency Rules Cut Need for 91 New Power Plants, 
Environment News Service, Washington, DC, January 19, 2001. A more 
complete description of the standards can be found at Http://
www.eren.doe.gov/buildings/codes--standards/stkappl.htm.
---------------------------------------------------------------------------
VII. Challenge and Encourage New Yorkers to Assist in Reducing Demand
    Every New Yorker can help to save energy, clean the air, and 
prevent climate change. By implementing these measures, consumers will 
also save on their electricity bills. State officials should use 
available opportunities to educate the public on efficiency, renewable 
power and conservation options.
    An average U.S. family spends close to $1,500 a year on its home 
utility bills (both heating fuel and electricity bills). Businesses 
spend much more. Unfortunately, not even including inefficient 
appliances, a large portion of that energy is wasted through actions 
such as running an almost empty dish or clothes washer, or uninsulated 
attics, walls, floors, and basements. Lights left on when no one is 
around, at home or in stores or offices after hours, consume 
electricity needlessly. The DOE estimates that the amount of energy 
wasted nationwide is about the same amount of energy that we get from 
the Alaskan pipeline each year.\112\
---------------------------------------------------------------------------
    \112\ DOE, www.eren.doe.gov/comsumerinfo/energy--savers/
introbody.html. Electricity generated by fossil fuels for one home plus 
the energy that is generated in the home (for example, a boiler) emits 
twice as much carbon dioxide as does one typical car in 1 year. Every 
kilowatt hour of electricity avoided in New York State saves almost one 
pound of CO2 from entering the atmosphere.
---------------------------------------------------------------------------
    Individual consumers can do many things at home to save 
electricity, reduce air pollutants, and reduce their energy bills. 
Table A-2 in the Appendix illustrates ways, many of which are free and 
available immediately, to save electricity. For example, if a household 
increases the air conditioner thermostat in summer by merely three 
degrees, it would save 937 kWh/yr., and $126 annually. If all New York 
households did the same, then 6.3 million MWh of energy would be 
avoided, along with over 3 million tons of carbon dioxide. Avoiding 
this amount of carbon dioxide is tantamount to removing 600,000 cars in 
1 year.
                                 ______
                                 

                                                    APPENDIX
                  Table A-1.--Electricity Savings: Incandescent vs. Compact Fluorescent Lights
 Savings show result of replacing one incandescent bulb with a compact fluorescent bulb in one household and in
                                    each of the 6,766,000 households in NYS.
----------------------------------------------------------------------------------------------------------------
                                                                    23 watt compact      Savings Over 3 Years by
              Bulb Type                 100 watt incandescent         fluorescent             Replacing Bulb
----------------------------------------------------------------------------------------------------------------
Purchase Price.......................  $0.75..................  $11.00.................
Life of the Bulb.....................  750 hours..............  10,000 hours...........
Number of Hours Burned per Day.......  4 hours................  4 hours................
Number of Bulbs Needed...............  about 6 over 3 years...  1 over 6.8 years.......
Lumens...............................  1,690..................  1,500..................
Total Cost of Bulbs..................  $4.50..................  $11.00.................
Total energy used over 3 years.......  438 kWh per household..  100.74 kWh per           337.26 kWh per
                                                                 household.               household
                                       2.964 billion kWh if     682 million kWh if all   2.282 billion kWh if
                                        all households.          households.              all households
                                       100 w (4 hrs/day) (365   23 w (4 hrs/day) (365    (equivalent to the
                                        days/year)  (3 years)    days/year)  (3 years)    power generated from
                                        = 438000 watt-hours or   = 100740 watts-hours     an 86.8 MW power
                                        438 kWh.                 or 100.74 kWh.           plant, 24 hours every
                                                                                          day.)
                                       438 kWh (6,766,000) =    100.74 kWh (6,766,000)
                                        2.964 billion kWh.       = 682 million kWh.
Total Cost of Electricity for 3 years  $58.69.................  $13.50.................
 (avg price in 1999: 13.4 cents/kWh).

Total Cost over 3 years  (cost of      $63.19 per household     $24.50 per household     $38.69 per household
 energy + cost of bulbs).               $427,543,540 if all      $165,767,000 if all      $261,776,540 if all
                                        households.              households.              households

Total CO2 emissions over 3 yrs (avg    436.56 lbs per           100.41 lbs per           336.15 lbs. per
 emission rate:  996.7 lbs/MWh or       household  1,476,882     household  339,687       household  1,137,195
 0.9967 lbs/kWh).                       tons if all households   tons if all households   tons if all households
                                         438 kWh (.9967 lbs/      100.74 kWh (.9967 lbs/
                                        kWh) = 436.56 lbs        kWh) = 100.41 lbs
                                        436.56 lbs (6,766,000)/  100.41 lbs (6,766,000)/
                                        2000 = 1,476,882 tons.   2000 = 339,687 tons.

Total S02, emissions over 3 yrs (avg   22.38 lbs per household  0.52 lbs per household   21.86 lbs. per
 emission rate:  5.1 lbs/MWh or          75,711 tons if all      1,759 tons if all        household  73,952 tons
 0.00511 lbs/kWh).                      households  438 kWh      households  100.74 kWh   if all households
                                        (.00511 lbs/kWh) =       (.00511 lbs/kWh) =
                                        22.38 lbs.               0.52 lbs.

Total NOx emissions over 3 years (avg  0.83 lbs per household   0.19 lbs per household   0.64 lbs. per household
 emission rate:  1.9 lbs/MWh or         2,807 tons if all        643 tons if all           2,164 tons if all
 0.0019 lbs/kWh).                       households  438 kWh      households  100.74 kWh   households
                                        (.0019 lbs/kWh) = 0.83   (.0019 lbs/kWh) = 0.19
                                        lbs.                     lbs.
----------------------------------------------------------------------------------------------------------------



 Table A-2.--Electricity Savings, Electricity Cost Savings, and Carbon Dioxide Emissions Avoided By Implementing
              Efficiency and Conservation Measures in One Household and in All New York Households
----------------------------------------------------------------------------------------------------------------
                                                 Electricity  Electricity
                                                  saved for    saved for   Money saved  CO2 avoided  CO2 avoided
               Household Measure                     one         all NY      for one      for one     for all NY
                                                  household    households   household    household    households
                                                   (kWh/yr)    (MWh/year)                 (lbs/yr)    (tons/yr)
----------------------------------------------------------------------------------------------------------------
Replace a 1970's refrigerator w/a new                  2,197         14.9         $294        2,190    7,408,770
 EnergyStar refrigerator.......................                   million
Increase AC thermostat by 3F degrees for                 937  6.3 million         $126          934    3,159,410
 cooling.......................................
Replace 5 incandescent light bulbs with compact          562  3.8 million          $75          560    1,894,480
 fluorescent...................................
----------------------------------------------------------------------------------------------------------------
Source: U.S. Energy Information Administration, Household Energy Consumption and Expenditures 1993, and Rocky
  Mountain Institute's calculations at www.rmi.org (1999)

                                 ______
                                 
   Response of Eliot Spitzer to an Additional Question from Senator 
                                Cantwell
    Question 1. Would you expand on the de minimis arguments that you 
made on pages eight through 12 of your testimony? Specifically, which 
parts of the Clean Skies Initiative go beyond acceptable executive 
changes, and what do you believe is the best way to make such a 
judgment?
    Response. As a general rule, administrative agencies are expected 
to promulgate regulations that implement congressional intent as 
reflected in the statute. As explained below, in implementing the 
statutory design, agencies may exempt de minimis activity but only when 
doing so is consistent with congressional intent and would not reduce 
the benefits of the legislation being implemented. Because the NSR 
provisions of the Clean Air Act are triggered by ``any physical 
change'' that results in increased emissions, the existing exemption 
for ``routine maintenance'' must be read narrowly and EPA cannot 
greatly expand that exemption or create other exemptions that reduce 
the air quality benefits to be achieved by the NSR requirements.
    The de minimis doctrine is reflected in numerous Federal court 
decisions. In Alabama Power Co. v. Costle, 636 F.2d 323 (D.C. 
Cir.1979), the U.S. Court of Appeals for the D.C. Circuit held the EPA 
did not adequately justify the exclusion from the PSD requirements of 
modifications that resulted in relatively low emission increases. The 
Court stated that the Agency has the authority to exempt de minimis 
activity when applying the literal terms of a statute would result in 
pointless expenditures of time and effort. Id. In other words, agencies 
are entitled to craft exemptions from the scope of a statute when 
literal application of the statute would lead to ``absurd or futile 
results.'' Id at 360. The Agency will bear a heavy burden to prove that 
the exempted matters are of a de minimis nature. Id at 360.
    Other Clean Air Act cases decided after Alabama Power confirm the 
limited scope of EPA's authority to depart from the reach of the 
statute. Most recently, in Environmental Defense Fund v. EPA, 82 F.3d 
45.1, 466 (D.C. Cir. 1996), the D.C. Circuit explained that de minimis 
exemptions are derived from the commonplace idea that ``the law does 
not concern itself with trifling matters.'' The power to craft de 
minimis exemptions does not create the ability to depart from the 
statute, but rather is a tool used to implement legislative intent. Id. 
De minimis authority should be used when the burdens of the regulation 
greatly outweigh the value of enforcing it, not merely when the Agency 
concludes the costs exceed the benefit. Id.
    Exemptions not found in a statute can also be based on 
``administrative necessity.'' Sierra Club v. Environmental Protection 
Agency, 719 F.2d 436, 462 (D.C. Cir. 1983). In Environmental Defense 
Fund, the Court listed examples of such de minimis or administrative 
exemptions available under the Clean Air Act: ``judicial and 
legislative proceedings, recurring activities such as permit renewal 
where the activities to be conducted will be similar in scope and 
operation to activities already being conducted, rulemaking and policy 
development and issuance, routine maintenance and repair activities, 
civil and criminal enforcement activities, actions related to foreign 
affairs, and so on.'' 82 F. 3d at 465.
    In light of this case law, EPA's authority to depart from the plain 
language of the statute is very limited. The statutory reach of the NSR 
provisions covers any modifications that increase emissions. To the 
extent that EPA's regulations have the effect of exempting any activity 
that does result in increased emissions, EPA must be able to establish 
that the exemption is called for by administrative necessity or that 
the burdens of applying the requirements greatly exceed the benefits 
under those circumstances.
    Many aspects of EPA's rulemaking proposals appear to exceed this 
authority. Most significantly, its proposal greatly to expand the scope 
of the routine maintenance exemption cannot be justified. Indeed, the 
current exemption for routine activity must be construed narrowly to 
exempt only the routine maintenance activities of a plant, such as 
replacement of valves and flanges and patching of leaking pipes. It 
appears that EPA's NSR ``reforms'' will significantly expand the 
current exemption to exclude once-in-a-lifetime projects costing 
millions of dollars. Such projects are not de minimis within any plain 
understanding of the term. Moreover, EPA cannot demonstrate that the 
burdens of regulation greatly outweigh the benefits. In fact, the 
benefit of applying the NSR requirements to the activities that EPA 
hopes to exclude is very significant: it will lead to substantial 
decreases in air pollution--pollution that, as I and others have 
stated, is causing people to get sick and die and is harming the 
environment. All studies that have been done show that the benefits of 
this pollution reduction greatly exceed the costs.
    Other aspects of EPA's ``reform'' proposal may fall outside of 
EPA's authority to craft de minimis exemptions, at least under some 
circumstances. For example, the clean unit exemption would satisfy a de 
minimis analysis only when control technologies applicable to the clean 
unit have not improved significantly since the plant was equipped with 
the controls. If control technologies do improve significantly, 
benefits can still be achieved by subjecting the unit to more effective 
controls when a modification that would otherwise trigger the NSR 
requirements is made. It is only when the burdens of upgrading the 
existing controls greatly exceed the benefits that an exemption is 
appropriate. Under those circumstances, however, there is no need for 
the clean unit exemption under the PSD program because the cost-
effectiveness of controls is already figured into the determination of 
Best Available Control Technology.
    If EPA proceeds to create broad exemptions that will plainly reduce 
or postpone the air quality benefits to be achieved by the NSR program, 
EPA will have exceeded its authority. Based on what we have seen, it 
appears that EPA is rewriting the scope of the statutory provisions 
rather than effectuating congressional intent. This EPA may not do.
                               __________
   Statement of Attorney General Bill Pryor, Attorney General of the 
                            State of Alabama
    Chairman Jeffords, Chairman Leahy, and distinguished members of the 
Committees, my name is Bill Pryor, and I am the Attorney General of the 
State of Alabama. It is my pleasure to be here today to discuss the 
important issue of Clean Air Act New Source Review.
    I support the thrust of the report submitted to President Bush by 
the EPA Administrator to revitalize the New Source Review Program and 
in so doing to restore the delicate balance of ``cooperative 
federalism'' embodied in the Clean Air Act Amendments of 1970.
                         cooperative federalism
    Until the 1970's, the maintenance of clean air was viewed as 
predominantly a State and local concern. In 1970, after a series of 
smaller experiments, Congress adopted a new blueprint for the battle 
against air pollution. The new plan--set forth in the Clean Air Act 
Amendments of that year (42 U.S.C. Sec. Sec. 7401-7671 (1994 & Supp. V 
1999))--created a model of ``cooperative federalism.''
    This new model gave the Federal Government responsibility for 
establishing national air quality standards, along with a variety of 
enforcement tools for ensuring that those standards are met. It 
reserved to each State, however, ``the primary responsibility for 
assuring air quality within the entire geographic region comprising 
such State by submitting an implementation plan for such State which 
will specify the manner in which national primary and secondary ambient 
air quality standards will be achieved and maintained within each air 
quality control region in such State.''

    Clean Air Act Sec. 107(a), 42 U.S.C. Sec. 7407(a). Underlying this 
provision was the congressional finding that ``air pollution prevention 
. . . is the primary responsibility of States and local governments.'' 
Clean Air Act Sec. 101(a)(3), 42 U.S.C. Sec. 7101(a)(3).
    In a series of decisions in the mid-1970's interpreting the then-
new statute, the Supreme Court laid out and clarified the Act's 
division of responsibilities between the Federal Government and the 
States. Train v. National Resource Defense Council, 421 U.S. 60, 79 
(1975); Union Electric Co. v. EPA, 427 U.S. 246 (1976); EPA v. Brown, 
431 U.S. 99 (1977) (per curiam). In the quarter century since these 
cases, the Federal courts have staunchly protected the Federalist 
design of the Clean Air Act.
    For example, in 1984, the Seventh Circuit struck down an attempt by 
EPA to strengthen a State Implementation Plan (or ``SIP'') through a 
partial approval that was more akin to an amendment. Bethlehem Steel 
Corp. v. Gorsuch, 742 F.2d 1028, 1036 (7th Cir. 1984). As Judge Posner 
eloquently explained, ``The Clean Air Act is an experiment in 
federalism, and EPA may not run roughshod over the procedural 
prerogatives that the Act has reserved to the States, especially when, 
as in this case, the Agency is overriding State policy.''
Id. at 1036-37 (citations omitted).
    Similarly, and more recently, the D.C. Circuit relied on the same 
principles and precedents to vacate an EPA rule that purported to 
require 12 States and the District of Columbia to amend their SIN to 
adopt a particular method of controlling pollution. In so holding, the 
court emphasized that Section 110 of the Clean Air Act ``does not 
enable EPA to force particular control measures on the States . . . .'' 
Virginia v. EPA, 108 F.3d 1397, 1410, amended on other grounds, 116 
F.3d 499 (D.C. Cir. 1997).
    As these and other courts have acknowledged, the delegation of 
implementation decisions to the States reflects not only a spirit of 
comity but also a recognition that State regulators--well-versed in 
local needs and circumstances--are best able to craft detailed programs 
to improve air quality while ensuring the continued availability of 
energy and maintaining economic prosperity.
                  the clinton epa enforcement campaign
    In the late 1990's, the United States Environmental Protection 
Agency upset this sound design. EPA commenced enforcement actions 
against a variety of companies, including a cross-section of the 
nation's electric utilities, claiming that certain plant activities 
triggered the extensive New Source Review pre-construction permitting 
requirements under the Clean Air Act.
    For two decades, EPA, frontline State regulators, and regulated 
sources had all interpreted these activities as falling within an 
exclusion for routine maintenance, repair, and replacement. Their 
common understanding was that New Source Review applied only to major 
modification activities that are akin to new construction. During the 
Clinton Administration, EPA advanced a novel interpretation that would 
require the adoption of state-of-the-art pollution controls at existing 
sources for activities that State regulators had considered routine 
maintenance, repair, and replacement activities.
    The Clinton EPA's new interpretation conflicted with prior Federal 
and State guidance. In several instances, State and local regulators 
inspected the facilities that are the subject of EPA's enforcement 
actions--before or immediately after the maintenance activities upon 
which EPA has based its actions--without suggesting that a permit was 
necessary. Indeed, EPA's enforcement net was so broad as to encompass 
certain plants that sought out and received explicit determinations 
from State regulators that a particular maintenance activity did not 
trigger the New Source Review requirements.
    The Clinton-era EPA undertook this abrupt reversal of course 
without notice-and-comment rulemaking and without consulting the 
States, which have had the primary responsibility to implement New 
Source Review standards for over 20 years. EPA's course eviscerated the 
cooperative Federalist approach that is the heart of Congress's design, 
in which the Federal Government has the authority to set national air 
quality objectives and standards but the States have the authority and 
the responsibility to implement them. EPA invaded the province of the 
States and threw their respective air pollution control programs into 
upheaval by reversing--with the blunt tool of enforcement instead of a 
collaborative rulemaking process--interpretations that are central to 
the day-to-day activities of State regulators.
    I urge these committees to work with the President and the EPA in a 
bipartisan spirit to develop better-defined standards of New Source 
Review, consistent with the original design of cooperative federalism 
in the enforcement of the Clean Air Act.
                                 ______
                                 
 Responses of Bill Pryor to Additional Questions from Senator Voinovich
    Question 1. How would you recommend that NSR be reformed to ensure 
that the ``cooperative federalism'' that you described in your 
testimony remains the cornerstone of the Clean Air Act?
    Response. I should note that my testimony was devoted to the 
subject of routine maintenance, repair, and replacement (``RMR&R'') 
activities, and the problems that have been caused by the decision of 
EPA during the Clinton Administration to ignore roughly a quarter-
century of established practice with regard to state regulators' 
responsibility for oversight of these activities. We should return to 
the maximum extent possible to the situation that existed before the 
Clinton Administration's reversal of policy. The long-standing approach 
that the EPA abandoned in the 1990's was consistent with the Clean Air 
Act, and that approach preserved a sensible division of labor among 
state and Federal enforcement authorities. As I understand the 
recommended improvements to the NSR program, as announced in June of 
this year, EPA wishes to conduct rulemaking proceedings that will set 
cost-based safe harbor thresholds for RMR&R activities, and the new 
rules will provide a clearer definition of what activities fit within 
RMR&R--and thus do not trigger NSR--and what activities do not fit. 
These EPA recommendations are consistent with both the original 
understanding of the Clean Air Act that I outlined in my testimony and 
the long-standing enforcement practice before the 1990's. I believe 
that clearer rules would protect the states' role in the regulation of 
air pollution and, as a consequence, lead to better enforcement 
outcomes.

    Question 2. In your testimony, you call for the President and the 
EPA to develop better defined standards of the NSR program. Can you 
comment on the announcement by EPA to finalize several NSR rulemakings 
and to propose other rules?
    Response. In the course of answering the first question, I have 
answered the second question to the extent of my endorsement of the 
RMR&R recommendations. Because I do not claim any expertise in the 
other areas of policy that are covered by the EPA's June 2002 
recommendations, I do not wish to offer an opinion, either positive or 
negative, with respect to the other elements of the Agency's proposed 
course of action. I know that the air quality regulators of my state 
are prepared to enforce and abide by the final NSR rulemakings, which 
were initiated by the Clinton Administration.
 Statement of Eric Schaeffer Director, Environmental Integrity Project/
                        Rockefeller Family Fund
    Thank you, Mr. Chairman and members of the Senate Environment and 
Judiciary Committees, for the opportunity to testify today. I am 
presently director of the Environmental Integrity Project at the 
Rockefeller Family Fund, a nonprofit organization dedicated to fair 
enforcement of our nation's environmental laws. Until this February, I 
was director of EPA's Office of Regulatory Enforcement, a position I 
held for 5 years.
    Last month, the Administration unveiled its program to effectively 
repeal the New Source Review (NSR) provisions of the Clean Air Act. I 
would like to briefly highlight why the Administration's proposal is 
unlawful, threatens public health, is premised on an energy shortage 
that does not exist, and undermines enforcement of the Clean Air Act.
    Twenty-five years ago, Congress exempted existing coal-fired power 
plants, refineries, and other facilities from the strict permit and 
pollution control requirements all new operations had to meet. Under 
the law, the exemption for these so-called ``grandfathered plants'' 
ends whenever a facility is physically modified in a way that increases 
its potential to emit above a minimal amount. EPA has recognized an 
exemption for routine repairs to prevent ordinary maintenance 
activities from triggering permit review. Because this exception was 
created by EPA and does not appear in the law itself, it must be read 
narrowly under the Federal rules of statutory construction.
    Federal courts have taken this law much more seriously than the 
Bush Administration, beginning with the landmark Alabama Power decision 
by the D.C. Circuit Court of Appeals more than 20 years ago. That 
decision rejected EPA's effort to carve out an exemption for certain 
sources, holding:

          Implementation of the statute's definition of 
        ``modification'' will undoubtedly prove inconvenient and costly 
        to affected industries; but the clear language of the statute 
        unavoidably imposes these costs except for de minimis 
        increases. The statutory scheme intends to ``grandfather'' 
        existing industries; but the provisions concerning 
        modifications indicate that this is not to constitute a 
        perpetual immunity from all standards under the PSD program. If 
        these plants increase pollution, they will generally need a 
        permit.

    The 7th Circuit Court of Appeals adopted the same broad reading of 
the law in finding that Wisconsin Electric Power Company had violated 
New Source Review. And the Justice Department, when enforcing the 
rules, reminds defendants that their exemption is temporary and ends 
when a physical modification increases pollution.
    Why does New Source Review matter? Because older plants still 
claiming to be exempt from the law after 25 years are responsible for 
the lion's share of some of our worst pollution. For example, coal 
fired power plants, almost all built before 1977, are responsible for 2 
out of 3 tons of sulfur dioxide and a quarter of the nitrogen oxide 
from all sources. According to national epidemiological studies by the 
American Cancer Society, the Health Effects Institute, the Harvard 
School of Public Health and others, these pollutants form fine 
particles now associated with high levels of premature death among 
exposed populations.
    In 1999, the Justice Department filed lawsuits against eight power 
companies responsible for over 20 percent of the sulfur dioxide 
emissions in the United States for violating NSR requirements. An Abt 
Associates study, using EPA models and the most conservative of a range 
of choices, estimates 5,900 premature deaths a year from power plants 
owned by just these eight companies. That analysis has recently been 
validated by Jonathan Levy of the Harvard School of Public Health. 
EPA's expert witness, Professor Morton Lippman of the New York 
University School of Medicine, estimates more than 420 premature deaths 
a year are caused by the Illinois Power Baldwin plant alone--then 
cautions that this is likely an underestimate. The steady drumbeat of 
bad news from public health experts should push the EPA to treat this 
matter with some urgency by stepping up its enforcement against big 
polluters responsible for this problem.
    What has the Bush Administration done instead? It has announced 
changes to New Source Review last month to carve new loopholes, turn 
the law on its head, and promise eternal life to some of the worst 
polluters in the country. For example, the Agency proposes to treat as 
routine repair, ``replacement of existing equipment with equipment that 
serves the same function and does not alter the basic design parameters 
of a unit.'' In other words, you can rip out and replace all the major 
components of a utility boiler--over and over--no matter how expensive, 
complex, or time consuming these modifications are. And if that's not 
enough, you'll also get an exemption for any project to, ``facilitate, 
restore or improve efficiency, reliability, availability or safety 
within normal facility operations.'' Contrary to the plain meaning of 
the law, almost every project would be exempt from the definition of a 
physical modification that requires permit review and pollution 
control. These changes take an administrative exception for routine 
repair not found in the law that courts insist must be read narrowly, 
and expands it until it swallows the law whole.
    Almost as bad, the Administration has turned back the clock by 
allowing companies to look back 10 years, pick the 24 months in which 
their pollution peaked, then keep polluting at those levels for the 
next decade and beyond. Rather than ratcheting pollution down, this 
proposal creates a kind of property right in pollution that can be used 
to avoid permit review and pollution control. Given what we know about 
the damage to human health, why create a new entitlement to actually 
increase pollution above current levels?
    EPA offers several half-hearted explanations for this gutting of 
the Clean Air Act. My personal favorite is that NSR gets in the way of 
energy growth, and keeps power companies from maintaining their 
capacity. But according to the Department of Energy, 2001 set a new 
record for power plant growth, and we have so much capacity that new 
plants are being delayed or canceled. Another Department of Energy 
Report, prepared for Congress in 2000, found that electricity prices 
would not increase even if all coal-fired plants above 20 megawatts had 
to put on modern pollution controls within 5 years. Power companies 
keep telling us that they will lose generating capacity because NSR 
makes them afraid to keep their plants in repair. But even the 43 power 
plants targeted by EPA in its complaints show no real decrease in 
capacity between 1998 and 2002, according to information available on 
the companies' own websites.
    What about refineries? Again, the Department of Energy tells us 
that distillation capacity in U.S. refineries has increased from less 
than 16 million barrels a day in the mid 1980's to nearly 18 million 
barrels today. And U.S. refineries have expanded 50 percent over the 
same period, from an average capacity of 46,000 barrels a day to 73,000 
barrels. In other words, the greatest periods of growth in our capacity 
to generate electricity and refine oil have occurred exactly when 
enforcement of New Source Review requirements was at its peak. So much 
for the argument that NSR inhibits energy supply.
    Another argument you'll hear is that New Source Review gets in the 
way of projects that decrease emissions. But the law doesn't even apply 
unless your project is expected to increase emissions, which is why the 
Agency doesn't offer much more than innuendo and a couple of anecdotes 
to support this red herring. EPA's enforcement cases demonstrate that 
many of these projects increased emissions many times above the minimal 
amounts allowed by law. And the Administration's proposals--by 
exempting every project as routine no matter how much emissions 
increase, and by allowing refineries to ratchet pollution back up to 
their highest levels in 10 years--hardly provide an incentive to reduce 
pollution.
    The Administration would have us believe that New Source Review 
does little for the environment. But the reductions in sulfur dioxide 
from refinery enforcement cases, and from just two power plant 
settlements (TECO and PSE&G) come to 220 thousand tons a year, as much 
as the emissions from all power plants in the State of New York. Add 
the Dominion and Cinergy agreements, on track until derailed by the 
Bush Administration, and you get another 400,000 tons of sulfur dioxide 
a year. That's more than 600,000 tons from just a handful of cases in 
less than a 2-year period. So much more could be accomplished if the 
Administration weren't so determined to stop enforcing the law.
    The Bush Administration and the energy lobby argue that New Source 
Review is just too confusing to comply with. I invite you to read the 
transcript of the TVA trial, as well as the many documents that EPA has 
gathered in the course of its investigations. When asked if the some of 
the gigantic projects targeted by EPA's enforcement qualified as 
routine repair or ordinary maintenance, TVA's own plant supervisors 
admitted they did not. Read the court's decision in the Murphy Oil 
case, in which the judge blasted refinery managers for hiding emissions 
increases to avoid NSR requirements. The evidence shows that these 
companies knew full well the risks they were taking. They gambled with 
the law and lost. Now they have the arrogance to demand that the 
government cover their losses by changing the rules to their liking.
    Finally, there's the Bush ``Clear Skies'' proposal, featuring a 
snazzy website and colorful charts, but no actual legislative language. 
Clear Skies, of course, applies only to power plants and asks nothing 
of refineries, pulp mills, and other factories that will benefit from 
EPA's new, polluter-friendly interpretation of the Clean Air Act. For 
power plants and refineries, EPA enforcement actions would cut sulfur 
dioxide emissions about 70 percent over the next 10 years, as does 
North Carolina's new State law. The Bush Administration thinks we 
should take about 20 years to get that much from power plants, and 
proposes nothing but Clean Air rollbacks for refineries and other 
polluters. The Administration is free to make its case, but ought not 
to blackmail Congress and the public by refusing to enforce the law 
until it is changed to the energy industry's liking.
    Given the Administration's policy changes and vague and conflicting 
statements by the Administrator of EPA, what is to become of the cases 
filed by the Justice Department? Mr. Sansonetti, the Assistant Attorney 
General for Environment and Natural Resources at the Justice 
Department, has argued that the Clean Air Act is broad and the 
exemptions narrow, but the Bush Administration now suggests exactly the 
reverse. Mr. Sansonetti and the Justice Department have argued that 
industry understood well the requirements of the law, while his own 
Administration is insisting the law is too complex to understand. Mr. 
Sansonetti and the Justice Department have argued that New Source 
Review is fundamental to environmental protection, while the Bush White 
House pretends it doesn't matter at all.
    At you can tell from my testimony, I don't think much of the 
Administration's proposals or the arguments its offers to support them. 
President Bush has the right to recommend that Congress weaken the 
Clean Air Act. What is most disturbing is the spectacle of large 
companies--some of the biggest and wealthiest in America--avoiding 
enforcement of the law by getting their friends in power to change it 
in their favor. By all means, let's have an honest debate on the future 
of the Clean Air Act. But in the meantime, I hope you will insist that 
the environmental laws you have written be enforced when they are not 
obeyed.
                                 ______
                                 

   Tennessee Valley Authority Actual Emission Increases Resulting From
    Modifications at Power Plants Located in Alabama, Tennessee, and
                                Kentucky
------------------------------------------------------------------------
                     Plants                             NOx (tpy)
------------------------------------------------------------------------
Allen Unit 3...................................                    1,732
Colbert Unit 5.................................                    1,774
Cumberland Unit 1..............................                   21,187
Cumberland Unit 2..............................                    4,192
John Sevier Unit 3.............................                      298
Paradise Unit 1................................                    1,007
Paradise Unit 2................................                      421
Paradise Unit 3................................                   10,674
Shawnee Unit 1.................................                      720
                                                ------------------------
  Total........................................                   42,005
------------------------------------------------------------------------
Source: Final Order of the Environmental Appeals Board, United States
  Environmental Protection Agency, Washington, DC, In re: Tennessee
  Valley Authority, Docket No. CAA-2000-04-008, Decided September 15,
  2000.


                    Capacity of Power Plants Identified in NRS Lawsuits 1998-2001 (Megawatts)
----------------------------------------------------------------------------------------------------------------
                                          Combined Winter Capacity of Power Plants Identified in NSR Lawsuits
----------------------------------------------------------------------------------------------------------------
           Utility Company              Capacity 1998      Capacity 1999      Capacity 2000      Capacity 2001
----------------------------------------------------------------------------------------------------------------
Alabama Power (Southern)............             9027.1             9027.1             9846.4               N/A*
Cinergy/PSI.........................             3888.8             3634.8             3649.8               N/A*
Georgia Power (Southern)............             7103.4             6953.4             7068.7               N/A*
Edison..............................               2233               2233               2233               2233
SIGECO..............................                406                406                406                406
AEP.................................              13480              13480              13480               N/A*
Duke................................               8087               8087               8087               N/A*
TVA.................................            12280.8              12262              11931            11176**
----------------------------------------------------------------------------------------------------------------
*Not Available
**Reflects Units not in use due to decline in demand
Source: Energy Information Administration


   Selected State-Level Estimates of PM-Related Health Effects Attributable to Eight Electric  Utility Systems
----------------------------------------------------------------------------------------------------------------
                                                              Chronic
                State                     Mortality          Bronchitis      Acute Bronchitis    Asthma Attacks
----------------------------------------------------------------------------------------------------------------
Alabama.............................                240                160                540              5,400
Florida.............................                230                160                410              4,700
Georgia.............................                360                300              1,000             10,000
Illinois............................                290                210                690              6,800
Indiana.............................                250                180                610              5,900
Maryland............................                170                140                410              4,400
Michigan............................                250                190                660              6,400
New York............................                340                260                750              8,200
North Carolina......................                400                310                890             10,000
Ohio................................                480                340              1,100             11,000
Pennsylvania........................                550                360              1,000             11,000
Tennessee...........................                340                240                720              7,700
Virginia............................                230                180                550              6,000
----------------------------------------------------------------------------------------------------------------
Source: Abt Associates, Particulate-Related Health Impacts of Eight Electric Utility Systems (April 2002).


          National Estimates of PM-Related Health Effects Associated with Eight Electric Utility System
----------------------------------------------------------------------------------------------------------------
                                                              Chronic
       Electric Utility System            Mortality          Bronchitis      Acute Bronchitis    Asthma Attacks
----------------------------------------------------------------------------------------------------------------
AEP.................................              1,400              1,000              3,200             32,000
Cinergy.............................                730                530              1,700             17,000
Duke................................                550                420              1,300             14,000
Dynergy.............................                450                330              1,100             10,000
First Energy........................                610                450              1,400             14,000
SIGECO..............................                 50                 36                120              1,200
Southern............................              1,200                900              3,000             29,000
TVA.................................                780                590              1,800             20,000
                                     ---------------------------------------------------------------------------
  Total.............................              5,900              4,300             14,000            140,000
----------------------------------------------------------------------------------------------------------------
Source: Abt Associates, Particulate-Related Health Impacts of Eight Electric Utility Systems (April 2002).

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       Responses of Eric Schaeffer to Additional Questions from 
                           Senator Voinovich
    Question 1. Did you support the NSR reforms that the Clinton 
Administration proposed?
    Response. I was not directly involved in the development of the 
Clinton Administration's proposed reforms to the New Source Review 
program. I was, however, encouraged by the Administration's interest in 
conditioning increased flexibility for industry upon serious and long-
term reductions in emissions from old ``grandfathered'' power plants 
and other facilities that continue to claim an exemption from the 
pollution control requirements that have long been in place for new 
facilities. The Bush Administration's June announcement seems instead 
to widen the loophole while sacrificing the emission reductions the 
Clinton proposals sought to obtain.
    Under the Clean Air Act, electric utilities, refineries, and other 
industries must apply for a permit and install state-of-the-art 
controls when their plants are modified in a way that increases 
emissions above a de minimus amount. The Clinton Administration asked 
for comment on a number of proposals in 1996 and 1998 Federal Register 
Notices designed to simplify the program and encourage innovative 
approaches to emission reductions. The Bush Administration announced in 
June this year that it would shortly publish final regulations to 
``reform'' New Source Review, and has claimed that it is merely 
implementing proposals made by the Clinton Administration. A closer 
review of the proposals reveals striking differences between the 
Clinton proposals and the final actions the Bush Administration has 
announced. Here are three of the most important:
    Elimination of Enforceable Permit Limits.--Companies can avoid New 
Source review so long as physical improvements to their plants do not 
increase emissions, so the method used to calculate emissions is 
important. Electric generators may estimate future emissions based on 
the projected actual use of the specific unit where a modification has 
occurred. For example, it may determine that a boiler will only be used 
a limited number of hours to meet peak demand for electricity, and 
adjust emissions downward to the point where NSR no longer applies. 
Refineries and other industries may also adjust emissions downward 
based on similar operational restrictions (e.g., by assuming that a 
unit will only operate at 75 percent of capacity).
    Unlike utilities, refineries and other industries can lower 
emission estimates based on operational restrictions only if those 
estimates are reflected in enforceable emission limits. In other words, 
you are not allowed to exceed the emission levels that you calculate 
assuming unused capacity or reduced hours of operation. This 
requirement for enforceable limits does not apply to utilities under 
today's rules. When a utility's emissions rise above its original 
estimates, EPA and State agencies must look back in time to determine 
if those estimates were in good faith and based on sound engineering 
judgment.
    Because this is confusing for both industry and the government, the 
Clinton Administration's 1998 Federal Register Notice proposed 
requiring utilities to accept the same enforceable permit limit to 
reflect expected capacity or operational restrictions. The Bush 
Administration reverses this by eliminating the requirement that 
refineries and other factories accept enforceable emission limits based 
on operating restrictions that such companies claim will keep emissions 
below the NSR radar. Allowing companies to avoid permit review by 
operating without enforceable emissions limitations, then forcing 
government and citizens to undertake an after-the-fact analysis to 
determine whether original estimates were reasonable, hardly provides 
the kind of ``bright line'' the Administration claims to be seeking. It 
also encourages companies to continue to lowball emissions in the hope 
that they won't get caught (or see below) or if they are, to fall back 
on arguments that their earlier estimates were reasonable.
    Out of Sight, Out of Mind.--Under today's law, a company can ``net 
out of'' (or avoid) NSR permit and control requirements if emissions 
increases associated with one project are offset by reductions 
elsewhere in the plant. Companies are supposed to submit their 
calculations to the permitting authority for review. EPA investigations 
and a recent court decisions (Murphy Oil) found that some companies did 
not make these submissions and deliberately underestimated emission 
increases.
    The Bush Administration proposal eliminates the requirement that 
companies that ``net out'' of NSR submit their emission estimates to 
the appropriate Federal or State agency. While records would have to be 
kept on the plant site, they would not be accessible to the public. 
This restriction, which does not appear at all in the Clinton proposal, 
would make it much harder for a community group to find the information 
needed to review the impact of a proposed plant expansion on the 
environment. It would also block access to evidence needed to file 
citizen suits, and make it harder for States like New York and 
Connecticut to file Federal lawsuits against out-of-State polluters, 
since such cases rely on citizen suit authority.
    Pollution as a property right.--Properly designed, a plant-wide 
emission limit (PAL) can give industry the room it needs to make 
operational changes by providing one overall emission target. The 
Clinton Administration's 1998 proposal made clear that EPA was 
considering making such flexibility depend on a company's commitment to 
reduce its emissions over the lifetime of the permit. The Bush 
announcement, in contrast, would allow a company to avoid NSR pollution 
control restrictions for 10 years (or longer) so long as it did not 
exceed its worst levels of pollution in the previous decade. As with so 
many other of the Bush Administration ``reforms,'' the industry gets to 
keep its flexibility, but public health benefits from lower emissions 
get sacrificed. The 25-year loophole from state-of-the-art pollution 
controls for old, ``grandfathered'' plants would be automatically 
extended for at least another decade, and even beyond based upon other 
provisions allowing extension of these inflated PALS, without requiring 
any reductions in air pollution.

    Question 2.--Under the Clean Air Act and apart from NSR, what 
permit and pollution control requirements must all existing coal-fired 
plants, refineries and other facilities meet?
    Response. Absent NSR, plants built before 1977 are exempt from one 
of the most fundamental requirements of the Clean Air Act: to install 
the best available control technology to control pollution. That is why 
25 years after the Clean Air Act became law, a plant built before 1977 
can still emit over 100,000 tons of sulfur dioxide a year, while a new 
plant of comparable size and burning the same type of coal, is limited 
to less than 5,000 tons, or under 5 percent of that amount. The other 
permit requirements that do exist have been relatively ineffective in 
limiting this gross disparity, or curbing the kind of pollution that 
the American Cancer Society, the Harvard School of Public Health, and 
the Health Effects Institute estimate leads to tens of thousands of 
premature deaths every year.
    There are three basic requirements that grandfathered power plants 
may be subject to, in addition to the New Source Review requirements 
the Administration has proposed eliminating. Some facilities are 
subject to emission rates, e.g., allowing a certain level of pollution 
per unit of energy created. While useful, these allow utilities, 
refineries and other old plants to increase total emissions 
proportionately when demand grows or capacity is increased. In short, 
they do not set a ceiling (as NSR does) on the amount by which 
grandfathered plants can increase their production as a result of plant 
modifications.
    Title IV of the Clean Air Act does require modest annual reductions 
in the amount of sulfur dioxide that can be released nationwide by 
power plants, on average about 2 percent a year. But it does not apply 
at all to refineries or other industries that would benefit from the 
Bush Administration rollback of New Source Review. Nor does it compel 
the kind of reductions (85 percent for NOx and 95 percent for SOx) 
required of the biggest emitters subject to NSR. Finally, it allows 
power plants to continue to run at high levels of pollution if they 
have been able to by credits from cleaner facilities that may operate a 
thousand miles a way. That is small comfort to the citizens living near 
the dirty plant.
    EPA or the States can force changes based on tighter air quality 
rules, but these changes are fought by industry at the Federal, State 
and local level. It seems particularly unfair to take away one of the 
most important tools for requiring the dirtiest, oldest plants to 
upgrade pollution controls right at the moment that States and counties 
must begin preparing to meet tough new, health-based standards for fine 
particle pollution. And the Administration's Clear Skies proposals 
compounds the problem by erecting extreme and unnecessary hurdles to 
prevent a State from petitioning EPA to take action against polluters 
outside its boundaries when those polluters are jeopardizing that 
State's air quality.
                               __________
   Statement of Bob Slaughter, President, on Behalf of the National 
                  Petrochemical & Refiners Association
    Chairman Jeffords, Chairman Leahy, Senators Smith and Hatch and 
other members of the committees, I am Bob Slaughter, president of the 
National Petrochemical & Refiners Association (NPRA). NPRA thanks you 
for asking us to appear before you today on the subject of reform of 
the New Source Review (NSR) program. NPRA is a national trade 
association which represents nearly all owners or operators of U.S. 
refining capacity, as well as petrochemical manufacturers with 
processes similar to refiners. The petroleum and chemical products made 
by our members are vital to continued U.S. economic health and national 
security, and we welcome the opportunity to underscore the importance 
of NSR reform to maintaining a secure and adequate supply of those 
products.
                  nsr review has been a public process
    This is our third appearance before the Senate Environment and 
Public Works Committee on this subject. On February 28, 2000, I 
appeared before a hearing of the Subcommittee on Clean Air, Wetlands, 
Private Property and Nuclear Safety to explain many of the problems 
that our members were experiencing under the NSR program. On April 5, 
2001, I appeared before the same subcommittee to stress our members' 
continued need for NSR reform and our hope that this matter would be 
reviewed as part of the Administration's forthcoming recommendations 
for changes in national energy policy. The problems with and concerns 
about the NSR program we expressed at those times are already on the 
record, but we have included them as an appendix to this statement for 
ease of access by committee members and staff.
    In May 2001, the National Energy Policy Development Group, in its 
National Energy Policy report, recommended that ``the Administrator of 
the Environmental Protection Agency, in consultation with the Secretary 
of Energy and other relevant agencies, review New Source Review (NSR) 
regulations, including administrative interpretation and 
implementation, and report to the President on the impact of the 
regulations on investment in new utility and refinery generation 
capacity, energy efficiency and environmental protection.'' That review 
was to be concluded by August 15, 2001.
    On July 10, 2001, NPRA appeared at one of the four public hearings 
held by EPA across the country. The hearings were held to accept 
comments on industry experience with the NSR program in general, and 
specifically on the EPA paper (published June 22, 2001) providing 
background and a preliminary overview of NSR performance and related 
issues. Some of our member companies also appeared during these EPA 
public hearings. We have attached the statement delivered on behalf of 
NPRA in Cincinnati as part of the appendix to this testimony.
    On June 27, 2001, NPRA and representatives of 12-member companies 
met with the Environmental Protection Agency Office of Policy, 
Economics and Innovation. This meeting was held to discuss specific 
problems with the NSR program and our suggestions for ways in which the 
program could be improved in order to maintain environmental progress 
while promoting energy efficiency, the production of cleaner fuels and 
the installation of improved technology. On July 23, 2001 NPRA sent EPA 
a written summary of the points brought forward at that meeting. This 
material is a part of EPA's docket of the review process, but we are 
attaching a copy as part of the appendix to today's testimony.
    On June 13, 2002, EPA Administrator Whitman sent a letter to the 
President transmitting EPA's report to the President and a separate New 
Source Review Recommendations document summarizing actions to improve 
the NSR program. It should be noted that the Administration took 10 
months beyond the originally anticipated August 15, 2001 date to 
receive and review input and to formulate its recommendations. NPRA 
issued a press release supporting the Administration's decision to move 
forward with NSR reform; a copy is attached as part of the appendix.
                        nsr reform is necessary
    NPRA continues its strong support for reform of the New Source 
Review program. Our members need both increased certainty as to the 
application of that program and greater flexibility in meeting its 
requirements. Considerable uncertainty still exists about the NSR 
program, and our members tell us that State regulators who actually 
administer most of the program's requirements have expressed their 
concern about its many complexities and shifting interpretations.
                refiners have a heavy regulatory agenda
    Refiners in particular are in urgent need of NSR reform. The 
industry is facing a blizzard of new regulatory requirements in this 
decade, all of which are environmental in nature. The number and 
compressed timing of these requirements are compellingly demonstrated 
on the attached chart which we call the Regulatory Blizzard.
    To mention only the most significant of these programs: refiners 
must implement a greater than 90 percent reduction in gasoline sulfur 
content outside of California in the 2004-2006 timeframe, at an 
estimated cost of $8 billion. By mid-2006 the industry must achieve a 
97 percent reduction in the sulfur content of 80 percent of highway 
diesel fuel, at an additional cost approaching that of the gasoline 
sulfur reduction. EPA is currently considering severe sulfur reductions 
in the off-road diesel pools, which will also be quite expensive and, 
which will be partially implemented in this decade as well.
    Additional and expensive gasoline specification changes involving 
the use of MTBE in reformulated gasoline must be implemented in the 
same timeframe. At the same time, stationary source programs such as 
the MACT hammer and compliance with the new 8-hour ozone standard will 
require additional environmentally related investments at refineries 
and petrochemical facilities.
    Many industry experts have told us that they believe that the 
refining industry faces a total of $20-25 billion in additional 
investments before 2010. The vast majority of these requirements are 
related to mandatory environmental programs. Other experts think that 
the $20-25 billion price tag may be underestimated.
    The unfortunate fact is that most, if not all of these regulatory 
requirements were imposed in relative isolation and with little 
attention paid to their cumulative effect on the domestic refining 
industry. In 1999 a study done by the National Petroleum Council (NPC), 
a joint government-industry body co-chaired by the then Secretary of 
Energy, warned about the impact of these uncoordinated investment 
requirements on the refining industry. In its Report, the NPC 
recommended more reasonable timing and better sequencing of these 
requirements to avoid domestic refinery closures and reduced supply of 
petroleum products. The NPC's recommendation has been largely ignored 
to date.
          nsr reform is needed to meet this regulatory agenda
    Confusion and controversy over NSR requirements and applicability 
contribute to the problems facing our industry. Assuming their ability 
to secure sufficient investment capital to meet these regulatory 
requirements, refiners still face many logistic challenges in meeting 
the ambitious goals and deadlines of these new regulations. Refiners 
must make infrastructure and process changes to comply with these 
regulations. The current NSR program makes it extremely difficult for 
refiners to determine just what the legal requirements are as they do 
so. This situation illustrates why the unreformed NSR program hinders 
our industry's efforts to produce the cleaner fuels that consumers want 
and which are needed for continual environmental progress.
    Current disarray in the NSR program has had an even more direct, 
negative effect on refiners. Enforcement actions against the refining 
industry based upon unanticipated and shifting NSR interpretations have 
sought to add significant and uncoordinated new investment requirements 
to those already mandated in this decade. Given the magnitude of the 
tasks facing the refining industry, and the cost of contesting these 
claims, some of our members have decided to settle these enforcement 
actions rather than to contest them. Other members are still discussing 
these matters with agency personnel.
    It is NPRA's position that the enforcement activity against 
refiners is inappropriate and should cease. We believe that the NSR 
program's application and requirements must be clarified and the 
industry allowed to proceed with the many challenges it faces in 
complying with its vast suite of new regulatory requirements with the 
help of a reformed NSR. Regulatory improvements resulting from NSR 
reform should be made available to those companies which have already 
settled at their option. Given the immense job ahead of the industry it 
is inconceivable that this would have anything but a positive effect on 
the environment.
     the u.s. refining industry is essential, but faces challenges
    Domestic refining is an essential industry. It is also a tough 
business. Refining is a heavily regulated, capital-intensive industry 
that requires huge amounts of capital to continue its significant 
environmental progress and to maintain and expand production capacity. 
Thus, it is very important to provide clear and efficient means to 
comply with environmental regulation. Unnecessary costs mean reduced 
domestic production of crucial energy supplies and further reductions 
in the number of U.S. refineries.
    No new refinery has been built in the United States since 1976. It 
is unlikely that any new grassroots refinery will be built in the 
United States in the foreseeable future. This is due to the industry's 
relatively low return on capital invested (which is in part 
attributable to the costs of environmental compliance) and to the NIMBY 
factor, which makes it difficult to site new heavy industry facilities.
                 petroleum product demand is increasing
    No new U.S. refineries have been built, but our demand for 
petroleum products continues to increase. The Energy Information 
Administration (EIA) projects continued growth in demand for petroleum 
products at roughly 1.5 percent per year through 2020. As the number of 
U.S. refineries declines, overall U.S. capacity has increased at 
existing sites just enough to offset the reduction in capacity. But 
this is not enough to keep pace with the growing demand for petroleum 
products, which must be met through more product imports. In order to 
maintain--and hopefully increase--domestic production of basic fuels, 
NSR reform is needed to continue capacity additions and other 
efficiencies at existing sites. Otherwise, we will gradually but 
inexorably become more dependent on imports of key petroleum products 
like gasoline, diesel fuel, home heating oil, and jet fuel, with a 
significant impact on national security. Currently, the United States 
imports large quantities of crude oil, but the useful petroleum 
products are largely made in the United States at domestic refineries.
    NSR reform will not remove all the challenges facing domestic 
refiners, but it will eliminate unnecessary and counterproductive costs 
of unnecessary regulation and uncertainty that can make the difference 
between life and death for many facilities.
    This is not an idle concern. The Oil Price Information Service 
(OPIS) recently reported that at least 15 U.S. refineries that 
represent more than 10 percent of U.S. production may change hands or 
be closed down by January 2003. The facilities identified by OPIS are 
in every region of the country other than the West Coast, which already 
suffers from a sharply reduced refinery population. OPIS adds ``It's 
the rare unit these days that is sought after by qualified buyers.''
    EIA is projecting that U.S. refineries capacity will continue under 
pressure, even with capacity utilization at levels of 94-95 percent 
which is far more than in other industries, where maximum utilization 
is considered to be 75-85 percent of capacity. EIA forecasts: ``Imports 
of light products are expected to nearly triple by 2020, to 4.5 million 
barrels per day. Most of the projected increase is from refiners in the 
Caribbean basin and in the Middle East, where refining capacity is 
expected to expand significantly.''
    Given such warnings, and the impact on U.S. national security, it 
is hard to argue that NSR reform should not proceed expeditiously. And 
U.S. petrochemical production, also directly linked to U.S. economic 
progress and national security, confronts challenges equal in magnitude 
to those of the refining industry and could also operate more 
efficiently and economically with NSR Reform.
         many other regulatory programs control plant emissions
    Opponents of NSR reform attempt to leave the impression that the 
current NSR program is the source of all industry environmental 
regulation; this is not the case. The refining industry, for example, 
is heavily regulated through many other programs. (A compilation of 
those programs is included in the appendix. It was prepared by the 
American Petroleum Institute.) NSR, on the other hand, was intended to 
require the use of up-to-date emission control technology on new or 
substantially rebuilt facilities; and routine maintenance, repair and 
replacement activities were specifically exempted from NSR 
requirements.
    NSR reform will also help enable the refining industry continue its 
strong record of environmental progress. The industry has dramatically 
reduced its direct and indirect emissions since Clean Air Act 
regulation began. According to EPA's figures, between 1980 and 1996 the 
refining industry reduced its criteria pollutant air emissions by 74 
percent. Congress and the EPA have required the industry to attain 
additional dramatic emission reductions in the next few years, largely 
through rulemaking activities taken under the authority of the 1990 
Clean Air Act amendments.
    The refining industry's contributions to improved air quality 
reflect the progress made by the Nation as a whole. On June 26, 2001 
the EPA announced that between 1970 and 1999 total emissions of the 
Clean Air Act's six criteria pollutants decreased 31 percent at a time 
of considerable growth in both the economy and population. The Agency 
attributed the improved air quality to effective implementation of 
clean air laws and regulations and improved efficiency of industrial 
technologies. Updating and improving the NSR program should be viewed 
in the context of improving air quality and considered as a way to 
maintain its environmental progress.
                nsr reform has been a bipartisan effort
    Finally, NSR reform has been urged by a bipartisan group of 
executive branch and congressional policymakers over the past several 
years. In 1996 during the previous Administration, EPA initiated a 
rulemaking to revise NSR, proposing what appear to be the same changes 
that are the core of the present Administration's recommendations. 
Former EPA Air Administrator Bob Perciasepe, who served until the end 
of the previous Administration, publicly stated his support for NSR 
changes which are similar to those recommended by this Administration. 
A memo expressing Mr. Perciasepe's opinions is attached in the 
appendix. Also, in May 2002 a bipartisan group of U.S. Senators wrote 
to the Administration strongly urging NSR reform.
    In closing, NPRA urges Congress to continue its support for this 
bipartisan effort to modernize and reform the NSR program. Additional 
regulatory flexibility in the form of plant wide applicability limits 
(PALS), clean-unit treatment, and clarification of the definition of 
routine maintenance will help our members improve energy efficiency, 
produce cleaner fuels, and install the latest technology. NSR in its 
current form impedes, rather than advances, achievement of these goals. 
We hope that we can count on continued congressional support for 
reforming NSR, so that our members can meet the growing need for 
environmentally sensitive products and procedures in ways that are both 
effective and efficient. I look forward to responding to your 
questions.
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        Responses of Bob Slaughter to Additional Questions from 
                           Senator Voinovich
    Question 1. Could you provide some examples that illustrate the 
impact of the current NSR program on the domestic refining industry's 
ability to perform maintenance?
    Response. On July 23, 2001, NPRA submitted the attached letter to 
the Environmental Protection Agency as a followup to an earlier meeting 
held with EPA during its ongoing NSR review. As part of that 
submission, NPRA stated: ``Uncertainties about the program's 
interpretations have often placed our members in a state of retroactive 
'enforcement jeopardy' while adding considerable delay and cost to 
refinery projects. The ultimate effect has been to constrain the 
industry's ability to (1) expand domestic refining capacity, (2) 
increase the supply of cleaner burning fuels, and (3) enhance energy 
efficiency. The unavoidable conclusion is that recent Administration of 
the NSR program has had an adverse impact on the nation's fuel supplies 
and that the program merits careful review and reform.''
    Uncertainty resulting from shifting interpretation of the ``routine 
maintenance, repair and replacement'' exemption has been an important 
contributor to the problems cited in the paragraph cited above.
    The July 23, 2001 letter to EPA cited numerous examples in which 
NSR reinterpretation has adversely affected industry operations and 
improvements. The relevant section of the transmittal letter reads as 
follows:
    ``To demonstrate NSR's `real' world'' impact, we have collected 
from our members some concrete examples of refining projects affected 
by NSR-related uncertainties. Attachment 1 contains more than 30 
examples showing how NSR reinterpretations in the recent past have had 
a chilling effect on desirable investments or added considerable delay 
and cost.'' We are attaching Attachment 1 to that letter, for your 
complete information. In summary, the impact of the examples contained 
therein is as follows: Example # Impact:
    1. Restrictions place an artificial limit on the refinery's 
capacity to produce clean fuels.
    2. The permitting uncertainty created by EPA's current 
interpretation of NSR, and the threat of EPA overfilling resulted in 
delay and the use of extraordinary measures and resources by the 
refinery to obtain a permit for clean fuels.
    3. Foregone production of clean fuels.
    4. Regulatory uncertainty may cause a reliability project to be 
abandoned. Fuel supply could be impacted.
    5. These steps would increase fuel production and improve 
environmental compliance (delayed by NSR reinterpretation and costs 
increased).
    6. Foregone increase in refinery capacity and fuel supply.
    7. Foregone production of clean fuels. 10,000-12,000 B/D of RFG 
supply lost or delayed.
    8. Foregone increase in refinery capacity.
    9. Additional gasoline and diesel fuel would have resulted if the 
investment were made. Propane deasphalting yields FCCU and coker feed, 
which is converted in part to gasoline and diesel fuel.
    10. Forgone increase in refinery capacity.
    11. Forgone increase in refinery capacity.
    12. Forgone increase in refinery capacity.
    13. Forgone increase in refinery capacity and fuel supply.
    14. Additional gasoline production was foregone. Alkylate is a key 
blendstock for cleaner, lower sulfur gasoline.
    15. If PSD review had been undertaken, gasoline production would 
have been curtailed.
    16. If PSD review had been undertaken, gasoline production would 
have been curtailed.
    17. Enforcement action by EPA on an existing permit. This permit 
meets the goal of PSD--it prevents deterioration of air quality. EPA 
has included a similar provision in its recent consent decree with 
Marathon Ashland.
    18. Loss of 50,000 BPD of refining capacity because of EPA's 
reinterpretation of NSR.
    19. If PSD review had been undertaken, gasoline production would 
have been curtailed. If the project had not been done, an energy 
efficiency gain and NOx reduction would not have been realized.
    20. Refinery capacity increase delayed.
    21. Project delayed by 4 months.
    22. The difficulties in determining debottlenecking and aggregation 
issues have resulted in the long delay of a project that could have put 
more gasoline into the marketplace during the summers of 2001, 2002 and 
2003. Since the actual emission increases would have been negligible, 
there was no benefit to the environment associated with delaying this 
project.
    23. Gasoline supply foregone.
    24. Supply of clean fuels delayed.
    25. Capacity increase foregone.
    26. Gasoline production increase foregone.
    27. Gasoline production and energy efficiency improvements 
foregone.
    28. Air quality improvement delayed or foregone.
    29. Gasoline production increase and air quality improvement 
delayed or foregone.
    30. Energy efficiency and air quality improvement foregone.
    31. Gasoline production increase delayed or foregone.
    32. Gasoline production increase foregone.

    Question 2. Could you share with the Committee some of the concerns 
that state program's many complexities and shifting interpretations?
    Response. Several NPRA member companies have told us that state 
regulators have expressed concern over shifting interpretations of NSR 
requirements. These regulators have cited EPA reinterpretations as a 
reason for some delay in what would have otherwise been routine 
requests for review and approval under formerly longstanding NSR 
interpretation. This situation is doubly problematic. State regulators 
are integral to the NSR oversight and permitting process, and the 
refining industry is facing an unprecedented number of new regulatory 
requirements which will in many instances require changes to 
facilities. Many of these regulatory changes must be implemented by 
early 2006. Because of the nature of the NSR process, our information 
on these expressions of state regulators' misgivings is anecdotal, but 
we can assure you that several of our refining members have told us of 
these experiences.
                               __________
 Response of Bob Slaughter to an Additional Question from Senator Wyden
    Question. Mr. Slaughter, you have testified that refiners are in 
``urgent need'' of NSR reform and refer to the requirement to reduce 90 
percent of sulfur in gasoline and that the program hinders your 
industry's efforts to produce the cleaner fuels needed. But in April at 
a hearing on gasoline pricing, we heard testimony from Mr. Reeves from 
Chevron Texaco that they have made and are making significant 
expansions at their Pascagoula, Mississippi refinery. He also states 
that ``it will be one of the first refineries in the Nation capable of 
producing both low sulfur gasoline and on-highway diesel fuel outside 
of California. The project will be completed in advance of national 
deadlines for these requirements.'' It doesn't sound as if the Chevron 
Texaco refinery was hindered by NSR. Please clarify your statement in 
light of Mr. Reeves' testimony.
    Response. Because this question refers specifically to Chevron 
Texaco's experience at its Pascagoula, Mississippi refinery, Mr. Reeves 
has sent a letter to the Committee and Senator Wyden in response to 
this question. That letter supports and explains the continued need for 
NSR reform, and I have attached a copy for your easy reference.
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    Statement of Hilton Kelley, Community In-Power and Development 
              Association and the Refinery Reform Campaign
    My name is Hilton Kelley, Port Arthur, TX. Community In-Power and 
Development Association and the Refinery Reform Campaign.
    I am grateful for the opportunity to speak out on behalf of 
refinery communities across the Nation and tell the Senate the truth 
about what pollution is doing to us and how much worse it would be 
under the new EPA proposal to rollback New Source Review. For example, 
by allowing refineries to go backward 10 years to pick their baseline, 
pollution will increase. It makes no sense to go backward; we need to 
move forward and keep working to reducing pollution by enforcing NSR 
fully.
    Everyone needs to know that the Clean Air Act, as it now stands, 
must be preserved and the new EPA proposal is really a death sentence 
for already sick industrial neighborhoods. The Clear Skies Proposal of 
the Bush Administration will do nothing for us because it deals only 
with power plants. It doesn't cover refineries and chemical plants.
    Refineries are located in 36 States, 125 cities and up to 67 
million people breathe air polluted by oil refineries. This is a 
national problem and the only solution we see is strict enforcement of 
the New Source Review, not a relaxation.
    I grew up in Port Arthur's Westside in the Carver Terrace housing 
project right next to the cluster of refineries. I moved away, but in 
2000, I returned. I am on a crusade to empower local citizens to fight 
for their health and a key element of that crusade is to protect the 
Clean Air Act's New Source Review.
    The rest of the country needs what Port Arthur makes, just like 
other refinery communities. The neighbors live with the fallout, 
pollution and health problems. Texas is home to America's largest oil 
refineries and chemical plants. While the State produces the energy the 
Nation needs, it also produces more industrial pollution than any other 
State according to the latest Right To Know data. Our neighborhoods pay 
the highest price for the rest of the nation's ``cheap gasoline''. 
Sometimes it can take your breath away. We benefit the least in this 
bargain as we have high unemployment. Although the plants get tax 
breaks by being in an ``Empowerment Zones'', our people don't see the 
benefits.
    It seems that these heavy industries concentrate in low income 
communities and communities of color where there is the least 
resistance. They operate 24 hours a day, 365 days a year and expand 
constantly. Right now we are challenging another expansion of the 
Premcor refinery that wants to dump 525 more tons of pollution on us so 
that they can make low sulfur gasoline. It seems we never have a chance 
to get cleaner air.
    This problem has a human face. In Port Arthur, almost every day, 
10-year-old Cullen Como gets a breathing treatment for asthma. The 
illness causes him to miss school often. His mother and sister also 
have trouble breathing. The family lives right across the street from 
the refineries. Cullen's sister, Kendra Prince, says, ``It's dangerous, 
and everybody around here is sick, everybody. It's just killing off 
people.''
    The plants emit a toxic soup of chemicals. These chemicals are 
known to cause cancer, affect brain functions, and hurt organ 
development and reproduction. We, like other refinery communities, have 
teamed up with Denny Larson, of the Refinery Reform Campaign to form a 
local ``Bucket Brigade'' for Port Arthur. The bucket is a simple, but 
effective air sampler. It uses a special bag and vacuum pump. Air 
samples taken during toxic releases have shown unhealthy levels of 
hydrogen sulfide, benzene and other dangerous chemicals. We were forced 
to do this because there are no real air monitors in our community.
    Annie Edwards, who suffers from breathing problems, has two 
breathing machines and has a terrible reaction to the neighborhood 
atmosphere. ``Like I panic and I can't catch enough air, and if I go 
outside, it's worse. I have to strap on my breathing machine at night 
so I don't pass on while I sleep.''
    I know from walking door to door that these problems are 
widespread. Too many people are dying from cancer. Too many people have 
thyroid problems. We have two dialysis clinics in this small town, and 
it's time for the citizens to say, `Enough is enough,' and it's time to 
do something about it.
    We want to work with industry. We want them to put the necessary 
controls on their stacks, put the necessary controls on their valves, 
so they will quit emitting so much tons of pollution in the community.
    We also have a huge pollution problem with accidents, fires, 
explosions and upset emissions releasing thousands of pounds of 
chemicals into our air through flares, relief valves and dump stacks.
    Some Examples are:
    March 2002, Premcor Refining, Port Arthur.--80,000 pounds of 
propane/butane mix, 7,704 pounds of VOCs per hour, 207,112 pounds of 
sulfur dioxide, 2,218 pounds of hydrogen sulfide, 163 pounds of 
nitrogen oxides.
    February 2002, Premcor Refining, Port Arthur, February 19, 2002.--
About 5,650 pounds of propane and 143 pounds of hydrogen sulfide were 
released during the 219-hour upset.
    January 2002, BASF Corp., Port Arthur, January 21, 2002.--The plant 
experienced an upset, during a 14-hour period, about 57,000 pounds of 
benzene, 1,055,000 pounds of ethylene, 675,000 pounds of propylene, 
462,000 pounds of butylene, 2,200 pounds of butadiene and 2,200 pounds 
of toluene were released.
    January 2002, Premcor Refining, Port Arthur, January 2, 2002.--
Upset, about 26 pounds of hydrogen sulfide per hour, 2,479 pounds of 
sulfur dioxide per hour, 295 pounds of VOCs per hour and 6 pounds of 
nitrogen oxides per hour were released. The upset lasted 168 hours.
    A recent health survey done by University of Texas toxicologist 
Marvin Legator compared people living in housing projects in refinery 
communities like Port Arthur and Beaumont to a non-industrial similar 
population. Preliminary results show a vast difference between the 
health symptoms these communities report.
     Seventy-five percent of the people from Port Arthur 
complained of headaches and muscle aches compared to twenty percent in 
the control group.
     Eighty percent of Port Arthur people had ear, nose and 
throat conditions compared to twenty percent in the control area.
     Eighty percent of those questioned had heart conditions 
and respiratory problems in refinery neighborhoods compared to thirty 
percent in non-refinery areas.
    Dr. Legator has made a strong correlation between the known health 
effects from the emissions from the refineries and the health symptoms 
we experience.
    Another study conducted by MacArthur Genius Award winning 
Scientist, Wilma Subra, showed that health symptoms and emergency room 
visits increase when there is a spill or unexpected release from the 
plants.
    Glenn Alexander, a pediatric nurse practitioner, has been treating 
local children for 10 years. His waiting room is nearly always full. He 
sees an unusually large number of upper respiratory infections, 
allergies, skin rashes and asthma. ``I do see things because I am a 
health care provider. The air is not always clear here. Sometimes it's 
hard for children to breathe.'' Some of the effects are irreversible 
and a life long problem.
    Alfred Dominic was born in Port Arthur in 1928: ``Many of my 
friends have died of cancer, and many of them are sick at the present 
time, because of the emissions.''
    Mabel Mallard a SUNOCO refinery neighbor of South Philadelphia, PA, 
States: ``How can we live in constant fear not knowing what we will be 
forced to breathe next from these refineries? Don't tread on our New 
Source Review, we need the protection.''
                              conclusions
    1. New Source Review should be preserved and fully enforced. It is 
a grave matter of environmental justice to people who need the help of 
the U.S. Senate to protect their health and the health of innocent 
children. Going backward to allow refineries to pick a baseline from 
the last 10 years is unthinkable to people living on the fenceline 
suffering from current levels of pollution.
    2. The Clear Skies Plan won't help us. We need the Federal 
protection and right to know of the New Source Review.
    Thank you. I would be happy to answer any of your questions.
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       Response of by Hilton Kelley to Additional Question from 
                           Senator Voinovich
    Question. Like you, I care deeply about the impact of these 
programs on disadvantaged people. As you may know, two researchers from 
the University of North Texas issued a report in May on ``The EPA's 
Reinterpretation of New Source Review Rules: Implications for Economic 
Development in Rural America.''
    The report concludes that the changes in EPA's interpretation of 
NSR in 1998 have had a greater negative impact on rural America. Among 
their findings are:
     Population, job growth, and average earnings have all 
decreased in rural areas as compared to urban areas.
     While overall our Nation depends on coal for 55 percent of 
its electricity generation, electric cooperatives serving rural areas 
are 76 percent dependent on coal for electricity.
    Businesses operating in non-metropolitan areas already spend more 
for electricity than businesses operating in metropolitan areas. As a 
representative of part of Appalachia, which is one of the most 
economically distressed areas in this country, I am concerned about how 
the study's findings apply to my region and to other portions of the 
country like Texas. Would you support any kind of reform to NSR to help 
these people?
    Response. Pollution from power plants cuts short the lives of 
thousands of Americans every year, according to EPA studies through 
heart disease, lung cancer and other illnesses. In my out community of 
Port Arthur, Texas--where you won't find any of the industry's 
lawyers--I have seen first hand how the pollution from refineries and 
chemical plants has damaged the health of my neighbors, with high rates 
of cancer, asthma and other diseases. These illnesses hurt poorer 
people the most, since they are much less likely to have adequate 
health insurance or the money to afford long-term care. I do not 
understand why, in the richest society in history, we should ask low-
income families to sacrifice their health to make a living.
    Also, materials available on the Department of Energy's own website 
show that is a false choice. Apparently, last year was the biggest year 
ever for power plant expansion, and we have so many new plants that 
some of them are being canceled. In North Carolina, State law will 
require Duke Power to cut its emissions 70 percent in 10 years, with no 
increase in electric rates for consumers. That seems to fit with 
another study by the Department of Energy in 2000 (also on the 
website), which shows that requiring companies to put on modern 
pollution controls will not raise rates for consumers, because it will 
make it more economical to build plants that are not only cleaner, but 
much more efficient. And I don't understand how allowing old power 
plants to keep running without good pollution control equipment helps 
rural communities--doesn't that just discourage companies from 
replacing old plants with more modern (and cleaner) power plants that 
would bring construction and operating jobs to rural areas?
    Refineries are experiencing record growth, and in Port Arthur the 
Premcor plant wants to grow to 475 million barrels a day, making it one 
of the largest in the world. And that's on top of the recent expansion 
of the BASF plant. Unfortunately, both these plants have plagued the 
community with high levels of pollution and a series of accidents. It 
doesn't seem unfair to ask companies to clean up their act, and not to 
expand in a way that makes the air even harder to breathe.
                               __________
 Statement of Stephen Harper, Director of Environment, Health, Safety 
                  and Energy Policy, INTEL Corporation
    Thank you, Chairman Jeffords and Chairman Leahy, for the 
opportunity to address this joint hearing regarding New Source Review 
policy issues. My name is Stephen Harper. I serve as the director of 
Environment, Health, Safety, and Energy Policy for the Intel 
Corporation. I am here to address the committees today about one 
specific aspect of New Source Review (NSR), namely Plantwide 
Applicability Limit (PAL) permitting approaches. Intel has been part of 
an informal coalition of companies from the pharmaceutical, chemical, 
automotive, and electronics industries that have been advocating 
promulgation of a PAL rule by the U.S. Environmental Protection Agency 
(EPA) for several years now. Many of our coalition members have 
experience with PAL-type permits at their facilities and believe 
strongly that EPA should promulgate a PAL rule as a logical next step 
in a long process of piloting, perfecting, and proliferating flexible 
permitting approaches that protect the environment and provide 
operational flexibility to facilities.
    Much effort has been expended over the last 10 years by industry, 
States, EPA, and the public--under both Democrat and Republican 
Administrations--to ``reinvent'' or innovate new approaches to 
environmental protection. Intel has participated in many of these 
efforts and is intimately familiar with the mixed result of successes 
and failures from these endeavors. We feel strongly that PAL-type 
permits are one of the most successful innovations to emerge from these 
many reinvention efforts. The time has come to build on this success 
and take PALs into the mainstream of NSR permitting.
        semiconductor manufacturing requires flexible permitting
    Why does Intel care about PALs and other forms of flexible 
permitting under the Clean Air Act? In simplest terms because of the 
importance of operational flexibility in being able to innovate new 
products and processes and quickly respond to market conditions. As in 
many other industries, there are only two types of semiconductor 
companies--``the quick and the dead.'' We feel strongly, therefore, 
about being quick.
    Intel operates 10 semiconductor ``fabs'' or fabrication facilities 
in the United States, producing Pentium processors and other 
semiconductor products. These facilities employ many thousands of 
highly skilled US workers. The capital investment required to bring a 
new fab into full production is in the $2-3 billion range. The life-
cycle of a semiconductor fab involves numerous upgrades and innovations 
in production technology, chemicals, and processes. A ``typical'' Intel 
fab, for example, experiences two or more technology generations over a 
5-year period; as many as 75 upgrades and innovations each year in 
process steps, methods, and chemicals; and the installation of between 
175 and 500 new process tools over a 2-year technology transition.
    Once a fab has commenced production, profitability depends upon 
reaching and maintaining high levels of production as quickly as 
possible. Traditional air quality permitting approaches, under NSR and 
other EPA and State programs, would require potentially hundreds of 
permit revisions to implement the upgrades and innovations that are 
critical to successful startup and ramp-up of a fab. The potential 
delays attendant to such revisions are--simply put--incompatible with 
the profitable operation of U.S.-based semiconductor fab that must 
compete in a global marketplace where success hinges upon being quick-
to-market. Traditional permitting approaches would require numerous 
permit modifications and threaten significant delays for companies like 
Intel as we install new manufacturing tools, convert to new 
manufacturing processes, change chemicals, and expand production 
capacity to respond to market conditions.
    Driven by the incompatibility of traditional permitting approaches 
with semiconductor manufacturing requirements, Intel has long pursued 
an objective of minimizing our permitting burden. We have done this in 
two ways. The first is to reduce our emissions of all pollutants as 
much as we can so as to achieve ``minor source'' status under the Clean 
Air Act. The second priority has been to work with EPA and the States 
to pilot and prove new, innovative, and more flexible permitting 
approaches.
                             what is a pal?
    A PAL permit provides an emissions cap or caps for an industrial 
facility. The cap provides a clear method for determining whether 
changes at a PAL-covered facility trigger NSR permitting requirements. 
The need to obtain an NSR permit revision only applies when a 
facility's emissions increase beyond the PAL cap. In addition to the 
cap, a PAL or PAL-type permit typically specifies certain kinds of 
facility changes that are ``pre-approved.'' A facility with a PAL can 
undertake a pre-approved change without becoming subject to NSR as long 
as the facility's emissions remain below the cap(s).
    It is important to clarify the difference between a PAL permit 
under the NSR program and what I am terming a ``PAL-type'' permit. PALs 
per se relate only to facilities that qualify as ``major'' under the 
Clean Air Act by virtue of the magnitude of their emissions. I am using 
the term ``PAL-type'' permits to refer to minor source permits 
involving both an emissions cap and pre-approval of certain operational 
changes. As I will make clear shortly, Intel has experience with both 
types of permit.
               what are the benefits of pal-type permits?
    There are three categories of benefits provided by PAL and PAL-type 
permits. Most importantly, PALs provide significant environmental 
benefits. PAL emissions caps provide certainty regarding the emissions 
impact of a facility. Moreover, since these emissions caps are set at 
levels that reflect the air quality improvement needs of an airshed, 
PAL caps typically entail emission reductions compared to traditional 
permitting approaches. Emissions caps, moreover, provide a very 
powerful incentive for pollution prevention. The only way a facility 
can increase its production and still stay under its cap is to reduce 
its emissions per unit of production. PALs allow facility environmental 
engineers to spend less time dealing with the burdens of permitting 
paperwork and free them up to concentrate on reducing emissions through 
pollution prevention.
    A second benefit PALs provide is enhanced public participation. 
Under traditional approaches, air quality permitting authorities notify 
the public of numerous changes, big or small, at facilities, providing 
opportunities for public input into whether or not permit modifications 
should be granted. At best, what the public sees in the traditional 
case is a series of incremental changes and piecemeal information about 
facility operations that provide little understanding regarding the 
overall impact of a facility on local air quality. Under a PAL, 
however, the public has the opportunity to be involved in the initial 
process of establishing the PAL permit and emissions caps. In this 
setting the public can gain a much better sense of the overall 
operations of a facility, the kinds of operational changes that are 
contemplated, and the likely air quality impacts of the facility over 
the term of the permit. The public has a much enhanced opportunity to 
view the facility holistically, rather than in a fragmented way.
    A third type of PAL benefit accrues to the permitted facility in 
the form of operational flexibility. For major sources concerned about 
NSR applicability, PALs provide a ``bright line'' that eliminates 
ambiguity about whether or not operational changes trigger NSR 
requirements. PAL-type permits provide minor sources the same type of 
flexibility regarding State minor source NSR requirements.
                intel's experience with pal-type permits
    A major part of our corporate commitment to innovating new 
permitting approaches has involved partnership with EPA, the States, 
and members of the public to pilot the basic concepts underlying the 
PAL rule that EPA currently is finalizing. The first of these 
partnership commitments came in the 1992-1995 timeframe where Intel, 
EPA, and Oregon developed a PAL permit for Intel's Aloha, Oregon fab as 
part of EPA's ``Pollution Prevention in Permitting Program'' (P4). The 
second major partnership involved Intel, EPA, and Maricopa County, 
Arizona jointly undertaking one of the first pilot projects under EPA's 
``Project XL'' program at its Ocotillo campus in Chandler, Arizona.
    Intel's P4 permit was a PAL permit under the Federal NSR program 
because our Aloha fab was a major source at the time the permit was 
issued. Our XL permit for the Ocotillo fab is not, strictly speaking, a 
PAL, because that facility is a minor source under the Clean Air Act 
and, thus, no NSR ``applicability'' issues arose. Nonetheless, our 
Ocotillo permit functionally is the same as the Aloha permit and has 
provided another valid test of the emissions cap and pre-approved 
changes features of a PAL.
    I previously described the environmental benefits of PAL permits. 
Let me now show how those benefits were realized in practice in our 
Oregon and Arizona pilot projects. The environmental benefits at our 
Aloha, Oregon fab are very dramatic. The attached exhibit provides a 
graphic demonstration of the powerful incentive PALs provide for 
aggressive pollution prevention programs. This chart shows facility VOC 
emissions per production unit and total production units. Motivated by 
the need to find room for growth under our PAL cap, our Aloha fab 
reduced emissions of VOCs by over 90 percent per unit of production 
since 1990. Some of this reduction occurred prior to 1995 under an 
Oregon PAL-like permitting program. Even more dramatic reductions 
occurred after our NSR PAL came into effect in 1995.
    The combination of the pressure of an emissions cap and the 
operational flexibility under our Aloha PAL fueled an aggressive 
pollution prevention program. The success of that program allowed Intel 
to add an additional fab at our Aloha campus without the need to 
increase our cap. Indeed, we reduced overall VOC emissions and 
voluntarily lowered our VOC cap from 160 tons per year to 130 tons per 
year. This was done to support the successful efforts of Oregon and the 
Portland region to reduce overall regional emissions and qualify 
Portland for re-designation as an Ozone Attainment area in 1997. 
Intel's consistent reductions over time, combined with this area 
redesignation, allowed our Aloha fab to itself achieve minor source 
status under the Clean Air Act in 1999.
    The environmental results under our PAL-type permit at our Ocotillo 
campus have been equally dramatic. Through our aggressive pollution 
prevention program, the Ocotillo facility--which sits on 720 acres, 
employs approximately 5,000 people, and produces a high volume of 
semiconductor devices--emits approximately 25 tons of VOCs annually. 
This emissions level is in the neighborhood of what several large gas 
stations would produce. Our emissions reductions at Ocotillo have been 
so dramatic that we have constructed and are now operating a second fab 
on this campus--all under the XL cap.
                pals are proven and ready for prime time
    As I have shown, Intel's experience piloting PALs and PAL-type 
permits with EPA and State and local permitting authorities has been 
dramatically successful. Other companies that have worked with EPA and 
the States to test the PAL approach also can tell similar success 
stories. Several of the other companies in our informal ``PAL 
coalition''--including DaimlerChrysler, DuPont, and Merck--have 
successfully piloted the PAL approach at one or more of their 
facilities. Other companies in other industries are applying the PAL 
approach as we meet today, including BMW, GM/Saturn, and several oil 
refineries. At this point, PALs have been demonstrated successfully in 
a number of very different industrial sectors.
    Intel believes, as I mentioned at the outset of my testimony, that 
PALs are one of the most significant regulatory innovations to emerge 
from the last 10 years of regulatory reinvention activities at the 
Federal and State level. Indeed, PALs are an example of the right way 
for a regulatory agency like EPA to innovate. First you try some pilot 
projects. You evaluate your experience and, where success has been 
demonstrated, you build on that success by mainstreaming the innovation 
in your regulatory program.
    ``Mainstreaming'' the PAL success story will be aided greatly by 
EPA promulgation of practical PAL provisions either discretely or as 
part of a larger NSR rule. Regulatory action is not necessary as a 
legal matter. The successful PAL pilot projects at Intel and other 
companies have utilized existing legal authority. On the other hand, 
regulatory action by EPA will promote the PAL concept by providing 
greater guidance to permitting authorities and sources regarding the 
benefits of PALs and PAL-type approaches. With the promulgation of 
clear ``rules of the road,'' sources and States will be better able to 
craft PAL permits that realize the environmental, public participation, 
and operational flexibility benefits I have cited.
    In sum, Congress should be encouraging flexible permitting 
approaches like PALs. I will be glad to answer any questions the 
committee members might have.
[GRAPHIC] [TIFF OMITTED] T3717.369

   Responses by Stephen Harper to Additional Questions from Senator 
                               Voinovich
    Question 1. How important is ``operational flexibility'' to a 
company that must compete in a global marketplace? Can you provide 
examples of how NSR has affected your company's ability to compete? 
What would be the economic impact and loss of jobs if Intel could no 
longer compete due to these cumbersome regulations?
    Response. Operational flexibility is critical to the ability of 
Intel, and companies like Intel, in fast changing international 
markets, to compete. Traditional NSR permitting requires permit 
modifications for many of the hundreds of production changes Intel 
makes at each of its fabs during the several year cycle of a process or 
product generation. The application process alone can threaten delays 
that hinder the ability of a facility to respond to changes in market 
demand or install improvements that reduce cost or increase output. 
Intel has been able to avoid these effects of NSR because we have 
rigorously employed pollution prevention to become a Clean Air Act 
``minor'' source at all of our facilities. Our interest is preventive: 
We seek to codify, as part of the Federal NSR program, the type of 
flexible plantwide applicability limit (PAL) permits we operate under 
through State minor source programs. We want to make sure that, should 
we become a major source at any of our sites--through growth and/or 
reclassification of an area under the Clean Air Act--we can continue to 
enjoy this type of flexibility under major source NSR. At the present 
time, PALs are legal under NSR, but clear ``rules of the road'' are 
necessary to make it easier for sources and States to know how best to 
craft major source PAL permits. The threat of becoming a major source, 
and not being able to enjoy PAL flexibility, would influence our future 
decisions re siting of new facilities here in the United States.

    Question 2. In your testimony, you detail Intel's experience with 
PAL-type permits. What was the timeline and process that has led up to 
the Administration's announcement to finalize the PAL rule?
    Response. I cannot speak definitively to the Administration's 
timeline. I can say only what I know from Intel's direct participation 
in a long multi-stakeholder process to reform NSR. What has become the 
current version of the PAL concept was proposed in EPA's 1996 NSR 
rulemaking. Although we have not seen the Administration's specific 
rulemaking language, we believe that everything the Administration 
currently seeks to finalize/propose with respect to PALs was 
foreshadowed in that proposal, or is a logical outgrowth of the 1996 
proposal and the comments received on that proposal. Subsequent to the 
1996 proposal, the Clinton EPA held a lengthy series of consultations, 
both formal and informal, with a wide variety of stakeholders to refine 
the PAL concept. Part of this early process included Intel's project 
piloting the PAL concept at our Ocotillo fab in Arizona, as part of the 
Administration's flagship reinvention effort, Project XL. The process 
picked up in February 1999, when EPA held a formal NSR reform workshop 
in Washington, where PALs and many other NSR reform ideas were 
discussed. Following that workshop, and leading right up to the final 
days of the Clinton Administration, numerous more informal meetings 
were held by EPA with various stakeholders to discuss PALs. In sum, the 
process was extensive and deliberative. Upon leaving office, Assistant 
Administrator Perciasepe recommended to the incoming Bush 
Administration taking action to finalize PALs among other NSR reforms.
                               __________
   Statement of John D. Walke, Director, Clean Air Program, Natural 
                       Resources Defense Council
                            i. introduction
    I would like to thank the chairmen of these committees for inviting 
me to testify on behalf of NRDC's 500,000 members. As an organization 
dedicated to safeguarding public health and the natural environment, 
NRDC has for over 30 years promoted actions to implement the Clean Air 
Act. For just as long, NRDC has opposed efforts to turn the government 
away from fulfilling Congress's commitment to protect Americans from 
harmful air pollution.
    The chairmen have convened these hearings to investigate the 
changes that the Environmental Protection Agency has announced it will 
make to the regulations that implement the Clean Air Act. This 
investigation will reveal that the attempted changes represent the most 
sweeping and aggressive attack that the Clean Air Act has faced in its 
thirty-year history. Through the mechanism of administrative 
rulemaking, EPA is attempting, in effect, to repeal an act of Congress. 
These changes are not only unlawful, but also deadly. They will result 
in tens of thousands of premature deaths, asthma attacks, and 
hospitalizations that would have been prevented had EPA elected to obey 
the law rather than break it.
    This testimony will summarize the data that the public health 
community has presented to EPA showing that the impending rollbacks 
will result in illness and death on a massive scale. The agency has not 
even attempted to rebut this evidence; its staff has performed no 
analysis of the impact that the announced changes will have on air 
quality and public health. But EPA is going forward with the changes 
anyway.
    Why is EPA doing this? The agency's top officials admit that it is 
making these changes because industry has called for them. The owners 
of the country's dirtiest power plants claim that the portion of the 
Clean Air Act known as New Source Review prevents them from undertaking 
routine maintenance at their plants and from upgrading their facilities 
to generate more electricity with less fuel. But when asked for facts 
showing that the operation of New Source Review has had this negative 
effect, industry offers only undocumented anecdotes and sketchy 
hypotheticals. This testimony will summarize the evidence demonstrating 
that the New Source Review provisions of the Clean Air Act do not 
hinder industry from carrying out routine maintenance or from meeting 
the country's energy needs. The only thing New Source Review prevents a 
company from doing is evading its duty to install pollution controls 
when it modifies its plants in ways that increase pollution. The 
nation's worst polluters resent the lawsuits that the Federal 
Government and the States have brought to enforce this statutory 
obligation, so they have instructed the current Administration to 
eliminate it.
    EPA has blindly adopted the polluters' self-serving, 
unsubstantiated claims about New Source Review and initiated an 
unprecedented rollback without any analysis of the public health 
impacts. Because the rollback will violate an act of Congress and 
adversely impact the health of tens of thousands of Americans, I ask 
that these committees do everything in their power to prevent the 
changes from taking effect.
                             ii. background
A. What NSR Is\1\
---------------------------------------------------------------------------
    \1\ The description of the New Source Review program provided in 
this section derives largely from the U.S. Department of Justice's 
January 2002 report entitled ``New Source Review: An Analysis of the 
Consistency of Enforcement Actions with the Clean Air Act and 
Implementing Regulations'' (``OLP Report'').
---------------------------------------------------------------------------
    In 1970, Congress amended the Clean Air Act to require that new 
industrial sources of air pollution be built with state-of-the-art 
pollution controls.\2\ The amendments did not require existing sources 
to install modern controls immediately. Instead, they required existing 
plants to install controls when and if the sources underwent 
modification.\3\ Congress believed that the most efficient time to 
retrofit a facility was when the plant was already undergoing 
construction activity,\4\ and it assumed that many existing sources 
would soon be retired and replaced anyway.\5\
---------------------------------------------------------------------------
    \2\ See Pub. L. No. 91-604, 84 Stat. 1676, Section 111 (codified at 
42 U.S.C. Sec. 7411).
    \3\ See id., Section 111(a)(2) (codified at 42 U.S.C. 
Sec. 7411(a)(2)).
    \4\ See H.R. Rep. No. 95-294, at 185-86 (1977), reprinted in 1977 
U.S.C.C.A.N. 1077, 1264-65 (``Building control technology into new 
plants at time of construction will plainly be less costly than 
requiring retrofit when pollution ceilings are reached.''). See also 
Wisconsin Electric Power Co. v. Reilly (``WEPCO''), 893 F.2d 901, 909 
(7th Cir. 1990) (finding that the purpose of the ``modification'' rule 
is to ensure that pollution control measures are undertaken when they 
can be most effective, at the time of new or modified construction).
    \5\ See H.R. Rep. No. 95-294, at 186 (``For some of the older and 
smaller sources, it is not physically or economically feasible to 
retrofit sulfur oxide control technology.'').
---------------------------------------------------------------------------
    The 1970 amendments failed to achieve the Act's goal of healthy air 
in all areas of the country by 1975. In response to this failure, 
Congress passed a new set of amendments in 1977.\6\ These amendments 
established the New Source Review (``NSR'') program, which requires a 
preconstruction review and the issuance of a permit for the 
construction of any new ``major emitting facility,'' or the 
modification of any existing facility.\7\ The program is designed to 
prevent modified or new facilities from causing increased emissions 
that could cause or contribute to violations of applicable air quality 
standards.\8\ Before a company can receive a permit to commence 
``construction,'' it must show that the proposed project would not 
result in the violation of an air quality standard or any other 
applicable limit in any local or downwind area, and that the resulting 
facility would be ``subject to the best available control technology 
for each pollutant subject to regulation under this chapter emitted 
from, or which results from, such facility.''\9\
---------------------------------------------------------------------------
    \6\ Pub. L. No. 95-95, 91 Stat. 685 (codified at 42 U.S.C. 
Sec. Sec. 7401-7642).
    \7\ See 42 U.S.C. Sec. Sec. 7475, 7501-7503.
    \8\ See id. Sec. 7470(5).
    \9\ Id. Sec. 7475(a).
---------------------------------------------------------------------------
    The Act defines ``construction'' to include ``modification.''\10\ 
The term ``modification'' is in turn defined as ``any physical change 
in, or change in the method of operation of, a stationary source which 
increases the amount of any air pollutant emitted by such source or 
which results in the emission of any air pollutant not previously 
emitted.''\11\ The statute does not further limit the definition of 
``modification''; however, EPA regulations promulgated after 1977 
exclude ``routine maintenance, repair, and replacement'' from the 
term's scope.\12\
---------------------------------------------------------------------------
    \10\ Id. Sec. 7479(2)(C).
    \11\ Id. Sec. 7411(a)(4). In the words of Senator Edmund Muskie, 
one of the principal supporters of the 1977 amendments, ``A source . . 
. is subject to all the nonattainment requirements as a modified source 
if it makes any physical change which increases the amount of any air 
pollutant . . . .'' 123 Cong. Rec. 26,847 (1977).
    \12\ 40 C.F.R. Sec. Sec. 51.166(b)(2)(I); 52.21(b)(2)(iii)(a); 
52.24(f)(5)(iii)(a); 60.14(e)(1).
---------------------------------------------------------------------------
    Industry representatives often complain of difficulty determining 
what kinds of activity qualify as ``routine.'' Although EPA has issued 
guidance in the form of individual applicability determinations, it has 
not promulgated any regulations specifying what types of projects are 
always ``routine'' and thus exempt from New Source Review. In 
evaluating industry's complaints about lack of clarity, it is important 
to keep in mind the fact that, as early as 1994, EPA staff circulated 
draft regulatory language that would have equated ``routine'' with 
``minor.''\13\ The draft stated that ``routine activities would 
generally include . . . minor maintenance or repair of parts or 
components and the replacement of minor parts or components with 
identical or functionally equivalent items.''\14\ In response to 
industry comments, including a recommendation that ``routine'' be 
defined as ``undertaken in an industrial category,''\15\ EPA abandoned 
the effort to craft a regulatory definition of the term.
---------------------------------------------------------------------------
    \13\ See New Source Review Reform 106-09 (EPA, Preliminary Staff 
Draft 1994).
    \14\ Id.
    \15\ Letter from Mary Nichols to Bill Lewis, May 30, 1995, at 19.
---------------------------------------------------------------------------
    EPA thus continues to determine what is ``routine'' on a case-by-
case basis. In making these determinations, the agency weighs several 
factors, including ``the nature, extent, purpose, frequency and cost of 
the work.''\16\
---------------------------------------------------------------------------
    \16\ WEPCO, 893 F.2d at 910.
---------------------------------------------------------------------------
    The U.S. Court of Appeals for the D.C. Circuit has observed that 
``[i]mplementation of the statute's definition of ``modification'' will 
undoubtedly prove inconvenient and costly to affected industries.'' The 
court nevertheless held that ``the clear language of the statute 
unavoidably imposes these costs except for de minimis increases.'' 
While ``[t]he statutory scheme intends to `grandfather' existing 
industries[,] the provisions concerning modifications indicate that 
this is not to constitute perpetual immunity . . . .''\17\
---------------------------------------------------------------------------
    \17\ Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir. 
1980). See also Legislative History of the Clean Air Act Amendments of 
1990, 6675-76, Senate Debate on S. 1630, Remarks of Senator Baucus 
(``The issue is whether old facilities that are substantially renovated 
and refurbished should continue to be allowed to emit at much higher 
rates or to emit more pollution, and with little or no pollution 
control equipment, compared to new sources. The obvious answer is that 
they should not, so long as common sense exceptions to the rules de 
minimus exceptions and exceptions for pollution control equipment] 
continue to apply . . . .'').
---------------------------------------------------------------------------
B. The History of NSR Enforcement
    The regulations implementing the 1977 New Source Review provisions 
were not fully in effect until the early 1980's, after several rounds 
of judicial review and re-promulgation. Thereafter followed a period, 
coinciding with the Reagan Administration, in which EPA did little 
enforcement of any kind. During this period of non-enforcement, the 
utility industry essentially ignored the New Source Review 
requirements.
    One company, Wisconsin Electric Power (``WEPCO''), did approach EPA 
in 1988 to ask whether the construction planned at one of its coal-
fired power plants could be considered ``routine maintenance, repair, 
and replacement.'' WEPCO wanted to undertake renovations so that its 
plant could operate beyond its planned retirement date of 1992. To that 
end, the company wanted to repair or replace the turbine-generators, 
boilers, rear steam drums, air heaters, mechanical and electrical 
auxiliaries, and common plant support facilities. These refurbishments 
would require the company to take various units of the plant out of 
service for 9 months.\18\
---------------------------------------------------------------------------
    \18\ WEPCO, 893 F.2d at 906-08.
---------------------------------------------------------------------------
    When EPA told WEPCO that the planned renovations could not be 
considered routine, the company petitioned for review by the U.S. Court 
of Appeals for the Seventh Circuit. In court, WEPCO argued that 
``Congress did not intend for simple equipment replacement to 
constitute a physical change for purposes of the Clean Air Act's 
modification provisions.''\19\ The Seventh Circuit held, however, that 
``to adopt WEPCO's definition of `physical change' would open vistas of 
indefinite immunity from the provisions of NSPS and PSD [the latter 
being the version of New Source Review that applies in areas that are 
in attainment of air quality standards].''\20\ The court found that EPA 
had not acted arbitrarily or capriciously in determining that the 
proposed changes were not routine.\21\
---------------------------------------------------------------------------
    \19\ Id. at 908.
    \20\ Id. at 909. See also id. (``The legislative history suggests 
and courts have recognized that in passing the Clean Air Act 
Amendments, Congress intended to stimulate the advancement of pollution 
control technology. . . . The development of emission control systems 
is not furthered if operators could, without exposure to the standards 
of the 1977 Amendments, increase production (and pollution) through the 
extensive replacement of deteriorated generating systems.'') (citations 
omitted).
    \21\ Id. at 913.
---------------------------------------------------------------------------
    The electric power industry's response to the WEPCO decision was to 
stop seeking applicability determinations from EPA. The power companies 
did not, for the most part, apply for NSR permits before undergoing 
construction at their existing plants, nor did they report the 
resulting emissions increases.
    At the same time, the industry prevailed upon the Office of 
Management and Budget to kill a broader examination of industry 
practices initiated by EPA. The industry also pressured Congress to 
amend the Clean Air Act to create broad new exemptions for modification 
projects at power plants. When they did not get new statutory 
exemptions, the power companies lobbied the first Bush Administration 
for regulatory loopholes. In 1992, the Administration amended the NSR 
rules to give the electric utilities a more generous formula for 
calculating whether an emission increase had occurred. The rule did not 
change the definition of routine maintenance, however. When EPA 
initiated a new investigation to determine why so few NSR applications 
had been filed, industry again sought intervention by OMB, using the 
Paperwork Reduction Act as a pretext. While this effort succeeded in 
delaying EPA's investigation, OMB ultimately dismissed the industry's 
claims.
    In the mid 1990's, EPA focused its NSR enforcement efforts on 
refineries and pulp and paper mills.\22\ Budget cuts and congressional 
attacks associated with the 104th Congress limited EPA's ability to 
mount serious enforcement efforts against the power industry. Moreover, 
efforts to revise the national ambient air quality standards for ozone 
and particulate matter, to address interstate ozone transport problems, 
and to strengthen mobile source controls dominated EPA's air pollution 
control activity.
---------------------------------------------------------------------------
    \22\ OLP Report at 17-19, 31, Appendix II.
---------------------------------------------------------------------------
    Finally, in 1996, EPA began to investigate the electric power 
industry in earnest.\23\ That investigation uncovered a capital 
investment strategy, starting in the 1980's, to upgrade existing coal-
fired power plants to run longer and harder rather than letting them 
retire and be replaced by new, cleaner facilities (as Congress had 
anticipated). Not only was the utility industry deliberate in pursuing 
this strategy, but industry representatives were even candid about it, 
or at least they were in non-environmental proceedings. For instance, 
in January 1995, a plant manager for Ohio Power (``OPCo''), a 
subsidiary of American Electric Power (``AEP''), testified about his 
company's ``life-optimization programs'' to the Public Utilities 
Commission of Ohio:
---------------------------------------------------------------------------
    \23\ Id. at 13.

          The company has recognized for some years the benefits of 
        extending or optimizing the lifetimes of several of its older 
        coal-fired generating units . . . and has developed and begun 
        to implement life-optimizations programs to accomplish that 
        objective. The life-optimization programs extend over several 
        years, and require significant capital expenditures during 
        those years. Without those expenditures, the units' lives could 
        not be extended, and they would most likely achieve more 
        traditional lifetimes, on the order of 35-40 years. As a direct 
        result of the life-optimization programs, the company expects 
        those units to achieve, instead, lifetimes on the order of 50 
        years for certain of those units and of 60 years for others . . 
        . .\24\
---------------------------------------------------------------------------
    \24\ Public Utilities Commission of Ohio, Case No. 94-996-EL-AIR, 
Supplemental Testimony of Myron D. Adams on behalf of Ohio Power 
Company, July 20, 1994, at 6-7.
---------------------------------------------------------------------------
          Utilities today, including OPCo, have much greater incentives 
        than in the past to keep existing generating units operating as 
        long as possible beyond their nominal lifetimes, even at 
        considerable expense, so as to put off the need for incurring 
        the even greater expense of adding costly new replacement 
        capacity.\25\
---------------------------------------------------------------------------
    \25\ Id. at 23.
---------------------------------------------------------------------------
          [T]he achievement of lifetimes in excess of 40 years is 
        directly dependent on carrying out the life optimization 
        program; such lifetimes simply could not be achieved without 
        the unit modernization program, and without incurring the 
        program's considerable capital cost.\26\
---------------------------------------------------------------------------
    \26\ Id. at 25.

    In light of the industry's ``life-optimization'' strategy, it is 
not surprising that EPA's investigation of coal-fired power plants 
---------------------------------------------------------------------------
uncovered myriad construction projects that were anything but routine:

          At the Tennessee Valley Authority's Allen plant, the 
        replacement of a reheater and other large components involved 
        cutting a twenty-five-foot hole in the boiler wall at a 
        location 10 stories off the ground and constructing a mono-rail 
        line and trolley system to transport the old components out of 
        the boiler. The project required a work force of over 70 
        people.\27\
---------------------------------------------------------------------------
    \27\ In re: Tennessee Valley Authority: Transcript of Proceedings 
at 240-242; Direct Testimony of Plant Manager Alan Heckking at 17.
---------------------------------------------------------------------------
          AEP modified its Big Sandy plant in Kentucky in ways 
        that allegedly led to an annual increase in sulfur dioxide 
        emissions of 18,000 tons--more than the total emissions from a 
        new coal-fired plant.\28\
---------------------------------------------------------------------------
    \28\ September 15, 1999 letter from Eliot Spitzer, Attorney General 
of New York, to William J. Lhota, president of Kentucky Power Company.
---------------------------------------------------------------------------
          At its Tanners Creek plant in Indiana, AEP replaced 
        11 furnaces.\29\
---------------------------------------------------------------------------
    \29\ United States v. AEP, Complaint.
---------------------------------------------------------------------------
          At its Scherer plant in Georgia and its Miller plant 
        in Alabama, the Southern Company constructed entirely new 
        units.\30\
---------------------------------------------------------------------------
    \30\ United States v. Alabama Power Co. and Georgia Power Co., 
Complaint.

    The companies did not apply for NSR permits before undertaking any 
of these upgrades and reconstruction projects.
    Beginning in 1999, EPA sent a number of referrals to the Department 
of Justice for civil enforcement actions against the owners and 
operators of some of the largest coal-fired power plants in the 
country, including those identified above, alleging widespread 
violations of the New Source Review provisions. After reviewing the 
referrals, the DOJ in November 1999 filed seven enforcement actions in 
U.S. District Courts against nine companies. That same month, EPA 
issued an administrative compliance order to the Tennessee Valley 
Authority alleging multiple NSR violations at nine of TVA's 11 coal-
fired power plants located in Alabama, Kentucky, and Tennessee. The 
following May, TVA petitioned for review of the EPA order by the U.S. 
Court of Appeals for the Eleventh Circuit. In December 2000, the DOJ 
filed an additional NSR enforcement action against Duke Energy alleging 
major modifications at the company's coal-fired power plants in the 
Carolinas.\31\
---------------------------------------------------------------------------
    \31\ OLP Report at 13-17.
---------------------------------------------------------------------------
    One of these enforcement actions--against Tampa Electric--has been 
resolved with a consent decree. The rest are still in litigation.\32\
---------------------------------------------------------------------------
    \32\ Id. at 15, 17.
---------------------------------------------------------------------------
C. The Backlash Against NSR
    In response to the enforcement actions, industry renewed its 
political assault on New Source Review. Lawyers and lobbyists for the 
coal and oil companies descended once again on Washington with claims 
that NSR was having a host of pernicious effects. A review of the facts 
reveals each of these industry claims to be specious.
    t, the lobbyists have asserted that NSR subjects companies to an 
expensive and interminable permitting process whenever they seek to 
undertake even the most minor maintenance at their facilities. A 
popular claim is that NSR could potentially apply to the replacement of 
a single light bulb at a plant.
    The reality is that NSR's permitting requirements are only 
triggered by modifications that significantly increase air pollution 
emissions. What is more, EPA's regulations already calculate the 
baseline against which increases are measured in a way that is generous 
to industry. Only if emissions increase significantly above these 
generous levels does a facility trigger NSR.
    The Department of Justice has not filed enforcement actions against 
companies for replacing light bulbs. As the examples presented above 
demonstrate, the instances in which the government has asserted that 
NSR applied are ones in which companies undertook large-scale 
construction projects at their plants, refurbishing, replacing, and 
upgrading equipment in ways that greatly increased the amount of air 
pollution emitted from those facilities.
    The second claim the lobbyists make is that NSR's onerous 
requirements prevent industry from meeting the country's power needs. 
Nothing could be farther from the truth.
    First of all, energy market analysts do not see environmental 
regulation as a driver of recent trends in electricity capacity 
expansion and utilization relative to other factors.\33\
---------------------------------------------------------------------------
    \33\ See, e.g., Economists Tell Senate Committee that FERC May Need 
More Economic Expertise to Monitor Power Markets Effectively, Foster 
Electric Report, June 20, 2001 (comments by Severin Borenstein); Power 
Companies and Regulators Must Take Steps to Avoid Spread of California 
Power Virus, Business Wise, April 24, 2001; Charles J. Cicchetti and 
Colin M. Long, Politics as Usual: A Roadmap to Backlash. Backtracking 
and Re-Regulation, Public Utilities Fortnightly, October 1, 2000, at 
34.
---------------------------------------------------------------------------
    Moreover, all signs indicate that this country will produce more 
than enough electricity to satisfy its needs. PA Consulting has 
estimated that more that 245 GW of new capacity is under development; 
and that it is likely that 175 GW to 230 GW of that planned capacity 
will come on line by 2006. To put that growth in perspective, the group 
states that 215 GW of capacity additions would be equivalent to ``what 
the entire rest of the world built in 3 years.'' PA Consulting 
emphasizes that the total includes 11 GW of coal-fired generation 
capacity under development and that 20,000 MW of new coal-fired 
capacity had been announced in the 6 months preceding the report alone. 
Finally, the group observes:

          With the current wave of new plant announcements, it is even 
        likely that the industry will overbuild, as players seek to 
        increase market share by displacing older capacity. By 2006, 
        some 30-50 GW of `excess' capacity might become operational and 
        some regional markets might experience excess capacity and very 
        low prices in the next 3-4 years.\34\
---------------------------------------------------------------------------
    \34\ PA Consulting Group, The President's 2001 US Energy Blueprint: 
What Does It Mean For the Utility Industry? (May 25, 2001) (emphasis in 
original).

    Likewise, the Cato Institute has estimated that 150 to 200 GW of 
new capacity is scheduled to come on line by 2004, threatening an 
``electricity glut.''\35\ Clearly, the current NSR regulations have not 
hindered the construction of new generating capacity.
---------------------------------------------------------------------------
    \35\ Jerry Taylor, Just Say ``No'' to the Energy Plan, May 19, 
2001, at http://www/cato.org/dailys/05-19-01.html.
---------------------------------------------------------------------------
    The fact is that a great deal of new capacity is being built, even 
with NSR requirements in place. According to the North American 
Electric Reliability Council,\36\ ``Near term generation adequacy is 
deemed satisfactory.'' The NERC expects reserve margins in the 15-27 
percent range, with 15 percent generally considered adequate.\37\ These 
estimates may need to be adjusted to account for recent investor 
reluctance owing not to NSR, but rather to disclosures of corporate 
fraud in the energy industry and elsewhere.
---------------------------------------------------------------------------
    \36\ ``Reliability Assessment 2000-2009'', North American Electric 
Reliability Council, October 2000.
    \37\ Clean Air Task Force, et al., Comments on Review of 
Interpretation, Implementation, & Enforcement of Clean Air Act New 
Source Review Programs, EPA Docket No. A-2001-19, July 24, 2001 
(``Environmental Comments on NSR Background Paper''), at 47.
---------------------------------------------------------------------------
    With respect to oil production, refiners have affirmed that the 
reason they did not build new refineries in the 1990's is that the low 
profitability of the business simply did not justify the investment. 
Valero's senior vice president has emphasized that it was ``the poor 
margins that had the biggest impact, not the environmental rules.''\38\ 
Refiners and analysts also point to low profitability--not to NSR or 
other environmental requirements--when explaining why companies are not 
investing in new refineries. For example, Exxon Mobil's chairman and 
chief executive recently stated that no oil company is prepared to 
build a new refinery because they cannot make money from doing so.\39\ 
Finally, environmental requirements cannot be blamed for the low 
profitability of the industry and the resulting reluctance to invest in 
new refineries. The EIA has concluded that environmental requirements 
accounted for only a very small share of the refining industry's 
decline in profitability in the early 1990's.\40\
---------------------------------------------------------------------------
    \38\ Nelson Schwartz, Is Dick Cheney the New Hillary? Fortune, June 
11, 2001, at 37.
    \39\ Alexei Barrionuevo, Exxon-Mobil CEO Doubts Anyone Would Build 
US Refinery, Dow Jones News Service (May 30, 2001).
    \40\ ICF Consulting, Review of Data on the Impact of New Source 
Review on Investment Decisions: Power Generation and Refinery Sectors, 
Draft Report (June 22, 2001), at 53. See also Energy Information 
Administration, The Impact of Environmental Compliance Costs on US 
Refining Profitability.
---------------------------------------------------------------------------
    The third industry claim is that requiring older power plants meet 
modern pollution standards will mean higher electricity prices for 
consumers. An analysis by MSB Energy Associates analysis demonstrates 
that the cost of requiring best available control technology on the 
fifty-one plants that have been charged with NSR violations is quite 
modest relative to industry revenues. The annual cost (including the 
amortization of the capital cost) would be about $4 billion. This 
amounts to about 8 percent of the revenues for the companies involved. 
On average, the cost impact would be 0.5 cents per kWh based on year 
2000 reported sales for the companies involved. This must be compared 
to the health benefits, which are four-to-five times the cost of 
controls.\41\
---------------------------------------------------------------------------
    \41\ Environmental Comments on NSR Background Paper, Appendix D.
---------------------------------------------------------------------------
    The other important point to take away from MSB's analysis is that 
the lion's share of the cost of the clean up will be eaten by the plant 
owners, who in a competitive power market cannot automatically pass-
through those costs to consumers. In fact, the Energy Information 
Administration in its recent Analysis of Strategies for Reducing 
Multiple Emissions from Power Plants found that requiring best 
available control technology at all of the nation's grandfathered power 
plants would not increase electricity prices appreciably. Indeed, EIA 
found that relative to 1998 prices, even requiring modern controls at 
all power plants, electricity prices will fall. This is the so-called 
``McIntosh Report'' that President Bush used as justification to 
reverse his pledge to control carbon dioxide from power plants.\42\
---------------------------------------------------------------------------
    \42\ See id., Appendix K.
---------------------------------------------------------------------------
    The fourth claim that the power companies make is that NSR prevents 
them from making improvements to increase the efficiency of their 
plants. Specifically, they argue that fear of triggering NSR keeps 
power plant owners from making investments in heat rate improvement 
that would reduce emissions from those plants.
    To check this claim, environmental groups calculated the potential 
impact of heat rate improvements at coal-fired power plants on 
emissions and compared that to the potential emission reductions from 
enforcement of New Source Review standards.\43\
---------------------------------------------------------------------------
    \43\ Id. at 49-50.
---------------------------------------------------------------------------
    The comparison is striking. The actual potential for heat rate 
improvement is small. The Electric Power Research Institute 
investigated this a number of years ago and reported its findings in a 
1986 report, ``Heat-Rate Improvement Guidelines for Existing Fossil 
Plants.'' In this report EPRI found that, if cost were no object, there 
could be, on average, an improvement in heat rate of about 400 BTUs per 
kWh (about 4 percent). Cost, however, is very much an important 
consideration. Work done by a major northeast utility in the early to 
mid-1990's found that a fair amount of the heat rate improvement 
potential at their plants had already been tapped, and that any further 
improvements were extremely non-cost-effective.\44\
---------------------------------------------------------------------------
    \44\ Id. at 49.
---------------------------------------------------------------------------
    Nevertheless, to give heat rate improvement the benefit of the 
doubt, the environmental groups assumed that half of the average heat 
rate improvement potential could actually be achieved in a cost-
effective manner at every major coal-fired generating unit (over 1,000 
generating units with a total installed capacity of almost 300,000 
MW).\45\
---------------------------------------------------------------------------
    \45\ Id.
---------------------------------------------------------------------------
    Even under these generous assumptions, heat rate improvement at 
coal-fired power plants would only reduce SO2 emissions by 
about 218,000 tons out of a total of 11.2 million tons (about 2 
percent). NOx emission would be reduced by 88,000 tons out of a total 
of 5.1 million tons (less than 2 percent).\46\
---------------------------------------------------------------------------
    \46\ Id. at 50.
---------------------------------------------------------------------------
    In contrast, NSR enforcement at the 51 plants currently subject to 
enforcement actions under Federal law would reduce SO2 by 
2.8 million tons--over 12 times as much as the heat rate improvements, 
and NOx by one million tons--over 11 times as much as the heat rate 
improvements. NSR enforcement at all coal-fired power plants would 
reduce SO2 by 8.8 million tons and NOx by 3.3 million 
tons.\47\
---------------------------------------------------------------------------
    \47\ Id.
---------------------------------------------------------------------------
    Heat rate improvements would reduce CO2 emissions by 
about thirty-eight million tons out of 2,454 million tons (1.5 
percent). It is more difficult to compare this to CO2 
reductions from NSR enforcement, because those would be a byproduct of 
other actions taken. However, we have estimated that NSR enforcement at 
all coal-fired power plants would reduce CO2 by 95 million 
tons, and NSR enforcement at the 32 plants initially charged with 
violations would reduce CO2 by 40 million tons.\48\
---------------------------------------------------------------------------
    \48\ Id.
---------------------------------------------------------------------------
    In a speech before the National Association of Manufacturers on 
June 12, 2001, EPA Administrator Whitman said, ``I have heard too many 
instances where we interpreted [NSR] so literally in the field that we, 
in fact, are hindering environmental progress . . . .''\49\ When NRDC 
submitted a Freedom of Information Act request seeking all 
documentation of those ``instances,'' EPA responded that 
``Administrator Whitman was referring to oral statements that had been 
made to her by various industry stakeholders'' and that the agency did 
not have any information to substantiate the oral statements.\50\ In 
light of the analysis presented above, it is not surprising that 
industry has not been able to provided EPA with documentary evidence to 
support its claim that NSR undermines efficiency.
---------------------------------------------------------------------------
    \49\ Remarks by Christine Todd-Whitman, Administrator of the U.S. 
Environmental Protection Agency, at the National Association of 
Manufacturers, June 12, 2001.
    \50\ Letter from William T. Harnett, director, EPA Information 
Transfer and Program Integration Division, to NRDC, October 1, 2001.
---------------------------------------------------------------------------
    Finally, the industry lobbyists assert that the operation of NSR 
means higher electricity prices for consumers, and that those costs 
overwhelm the environmental benefits of the law. The facts explode this 
specious claim as well.
    First, an analysis by MSB Energy Associates demonstrates that the 
cost of requiring best available control technology on the 51 plants 
that have been charged with NSR violations is modest relative to 
industry revenues. The annual cost (including the amortization of the 
capital cost) would be about $4 billion. That is approximately 8 
percent of the revenues for the companies involved. On average, the 
cost impact would have been 0.5 cents per kWh based on year 2000 
reported sales for those companies.\51\
---------------------------------------------------------------------------
    \51\ See Environmental Comments on NSR Background Paper, Appendix 
D.
---------------------------------------------------------------------------
    The lion's share of this cost is borne by the plant owners, who in 
a competitive power market cannot automatically pass those costs 
through to consumers. In fact, the Energy Information Administration 
found in its Analysis of Strategies for Reducing Multiple Emissions 
from Power Plants that requiring state-of-the-art control technology at 
all of the nation's grandfathered power plants would not increase 
electricity prices appreciably. Indeed, EIA concluded that even if 
best-available controls are required at all power plants, electricity 
prices will fall.\52\
---------------------------------------------------------------------------
    \52\ See id., Appendix K.
---------------------------------------------------------------------------
    Although money is not the measure of everything, monetized value 
provides one metric of the efficacy of these actions. Data collected by 
Abt Associates on the 51 plants charged with NSR violations shows $27 
billion to $45 billion in annual benefits from requiring those plants 
to implement best available control technology.\53\ That figure dwarfs 
the $4 billion estimated by MSB Energy Associates as the annual cost of 
clean up.
---------------------------------------------------------------------------
    \53\ See id. at 49.
---------------------------------------------------------------------------
    The lack of support for industry's claims about New Source Review 
has not stopped the nation's worst polluters from making them. With the 
election of President Bush and the convening of Vice President Cheney's 
Energy Task Force, the polluters found themselves with a friendly 
audience and a forum in which to make their pitch for the effective 
elimination of NSR.
    Documents that NRDC has obtained from the Department of Energy, the 
lead agency on the Cheney Task Force, reveal that the companies and 
industry groups who most sought the demise of New Source Review enjoyed 
extraordinary access to the task force:\54\
---------------------------------------------------------------------------
    \54\ See http://www.nrdc.org//media/pressreleases/020521.asp.

          Edison Electric Institute had contact with the task 
        force at least 14 times (EEI contributed $598,169 to Republican 
        candidates and the GOP from 1999 to 2002).
          North American Electric Reliability Council had 
        contact with the task force at least 11 times.
          National Mining Association had contact with the task 
        force at least nine times (NMA contributed $575,496 to 
        Republican candidates and the GOP from 1999 to 2002).
          Westinghouse had contact with the task force at least 
        nine times (Westinghouse Electric Company contributed $65,060 
        to Republican candidates and the GOP from 1999 to 2002).
          Electric Power Research Institute had contact with 
        the task force at least eight times.
          Southern Company had contact with the task force at 
        least seven times (Southern contributed $1,626,507 to 
        Republican candidates and the GOP from 1999 to 2002).
          American Petroleum Institute had contact with the 
        task force at least six times (API contributed $44,301 to 
        Republican candidates and the GOP from 1999 to 2002).\55\

    \55\ Industry's intimate access to the Cheney Task Force stands in 
stark contrast to the limited access afforded environmental groups. See 
http://www.nrdc.org/air/energy/taskforce/bkgrd2.asp.

    These firms made the most of their access. On March 23, 2001, an 
executive of the coal giant, Southern Company, sent the task force 
coordinator at the Energy Department a memorandum arguing that ``EPA 
has re-interpreted [the NSR] regulations in extreme ways that not only 
places [sic] in legal jeopardy past work conducted at facilities but 
also threatens the safe, reliable and efficient operation of energy 
production facilities across the country.'' The paper urged the 
Administration to undertake a ``reaffirmation of historical 
interpretations'' of the New Source Review provisions.\56\
---------------------------------------------------------------------------
    \56\ See http://www.nrdc.org/air/energy/taskforce/doc150.html.
---------------------------------------------------------------------------
    The previous day, an official with the National Petroleum Refiners 
Association had written in a message to the same Energy Department 
official that ``[t]he EPA's enforcement campaign against U.S. 
refineries should be halted and reexamined.'' He characterized EPA's 
enforcement actions as ``nothing more than an attempt to discredit the 
industry and collect tribute in the form of fines on order to allow 
refiners to get on with their business.'' In concluding, he wrote that 
``this activity goes far beyond the pale of reasonable enforcement 
action and should cease.''\57\
---------------------------------------------------------------------------
    \57\ See http://www.nrdc.org/air/energy/taskforce/doc6368.html.
---------------------------------------------------------------------------
    This heavy-handed lobbying bore fruit in the form of two final 
recommendations issued by Vice President Cheney on May 16, 2001:
     The NEPD Group [the task force] recommends that the 
President to [sic] direct the Administrator of the Environmental 
Protection Agency, in consultation with the Secretary of Energy and 
other relevant agencies, to review New Source Review regulations, 
including administrative interpretation and implementation, and report 
to the President within 90 days on the impact of the regulations on 
investment in new utility and refinery generation capacity, energy 
efficiency, and environmental protection.\58\
---------------------------------------------------------------------------
    \58\ Report of the National Energy Policy Development Group, ch. 7, 
at 14 (May 16, 2001).
---------------------------------------------------------------------------
     The NEPD Group recommends that the President direct the 
Attorney General to review existing enforcement actions regarding New 
Source Review to ensure that the enforcement actions are consistent 
with the Clean Air Act and its regulations.\59\
---------------------------------------------------------------------------
    \59\ Id.
---------------------------------------------------------------------------
    President Bush issued both of the recommended directions. In 
January 2002, the Department of Justice responded to the second one 
with a report concluding that ``EPA may reasonably argue that the new 
source review enforcement actions against coal-fired power plants are 
consistent with the C[lean]A[ir]A[ct], as well as with the 
A[dministrative]P[rocedure]A[act].''\60\
---------------------------------------------------------------------------
    \60\ OLP Report at 4.
---------------------------------------------------------------------------
    EPA issued its report 6 months later. The report concluded that the 
NSR program has not significantly impeded investment in new power 
plants or refineries. For the utility industry, this is evidenced by 
significant recent and future planned investment in new power plants. 
Lack of construction of new Greenfield refineries is generally 
attributed to economic reasons and environmental restrictions unrelated 
to NSR.\61\
---------------------------------------------------------------------------
    \61\ EPA, New Source Review: Report to the President, at 1 (June 
13, 2002).
---------------------------------------------------------------------------
    EPA also found that ``preventing emissions of pollutants covered by 
NSR does result in significant environmental and public health 
benefits.''\62\ At the same time, however, it concluded that, with 
respect to existing power plants and refineries, the NSR program has 
impeded or resulted in the cancellation of projects which would 
maintain and improve reliability, efficiency and safety of existing 
energy capacity. Such discouragement results in lost capacity, as well 
as lost opportunities to improve energy efficiency and reduce air 
pollution.\63\
---------------------------------------------------------------------------
    \62\ Id. at 2.
    \63\ Id. at 1.
---------------------------------------------------------------------------
    This conclusion is based largely on self-serving, anecdotal 
evidence submitted by industry commenters. For example, EPA relies on 
one company's complaint that it did not install new Teflon-coated 
nozzles in a process dryer for fear of triggering NSR. EPA blindly 
accepts as true the company's claims that the change it forwent would 
have actually triggered NSR, that the desire to avoid NSR was really 
the motivation for abandoning the change, and that the change would 
have improved the reliability, efficiency, and safety of the facility 
in question.\64\
---------------------------------------------------------------------------
    \64\ Id. at 34.
---------------------------------------------------------------------------
    EPA concedes that industry has offered little more than 
undocumented anecdotes and sketchy hypotheticals to support its 
critique of NSR. The agency nevertheless takes the position that such 
material can substitute for verifiable data if industry shovels enough 
of it into the administrative record:

          In light of the volume of anecdotal evidence presented, the 
        EPA concludes that concern about the scope of the routine 
        maintenance exclusion is having an adverse impact.\65\

    \65\ Id. at 17.
---------------------------------------------------------------------------
    Under the leadership of John Graham, the Office of Regulatory and 
Information Affairs at the Office of Management and Budget has 
repeatedly returned to agencies for reconsideration regulations that, 
in OIRA's view, lacked adequate data to substantiate the purported 
grounds for the rulemaking. For example, the office returned one 
regulation to the Office of Veteran Affairs because, ``[w]hile VA staff 
have argued that there are currently inconsistencies in billing 
practices, OMB has not been presented with evidence of this problem or 
evidence of how this rule would reduce, rather than increase 
inconsistency.''\66\ It returned to the Department of Transportation a 
rule requiring the retrofitting of exterior piping on tanker trucks 
carrying hazardous substances, because while the Department presented 
an estimate of what the retrofitting would cost, the estimate was 
itself based upon ``anecdotal evidence.''\67\ To date, OIRA has only 
returned rules that the private sector finds too onerous. Dr. Graham 
insists, however, that he will apply the same standards to regulations 
that are criticized as not providing adequate protection to the public. 
If this is in fact the case, then he will return EPA's proposed changes 
to New Source Review, for EPA has failed to present adequate data to 
substantiate the purported problems that supposedly justify 
eviscerating the program.\68\
---------------------------------------------------------------------------
    \66\ Letter from OIRA Administrator John Graham to VA General 
Counsel Tim McClain, October 3, 2001 (posted at http://
www.whitehouse.gov/omb/inforeg/va--medical--care--rtnltr.html).
    \67\ Letter from OIRA Administrator John Graham to DOT General 
Counsel Rosalind Knapp, August 8, 2001 (posted at http://
www.whitehouse.gov/omb/inforeg/wetlines--return--letter3.html).
    \68\ See Exec. Ord. 12866, Section 1(b)(7) (Sep. 30, 1993) (``Each 
agency shall base its decisions on the best reasonably obtainable 
scientific, technical, economic, and other information concerning the 
need for, and consequences of, the intended regulation.'').
---------------------------------------------------------------------------
                      iii. the announced rollbacks
    On June 13, the day that EPA released its report on NSR, the agency 
announced that it would be making eight regulatory changes. If these 
changes are allowed to take effect notwithstanding their 
incompatibility with the Clean Air Act, the New Source Review 
requirements will in effect no longer apply to the modification of 
existing facilities.
A. Dirtiest Two Years in Ten Baseline
    The New Source Review requirements are only triggered by changes 
that cause air pollution emissions to increase significantly, i.e., by 
at least 40 tons per year. To determine whether pollution will increase 
significantly, it is necessary to compare a source's pre-change 
emissions, known as its ``baseline,'' with its post-change emissions. 
With respect to the approximately 15,500 major industrial facilities in 
this country that are not electric utilities, EPA currently interprets 
the Clean Air Act to require that the baseline be calculated as the 
average of the source's last 2 years of emissions, unless the source 
can demonstrate that another period is more representative of its pre-
change emissions.
    On June 13, EPA announced that it will promulgate a final rule 
allowing the baseline to be calculated as the average of the source's 
emissions during any 2-year period that the company chooses from the 
last 10 years.\69\ If this rule takes effect, a plant that currently 
emits 1,000 tons-per-year of an air pollutant could institute a change 
causing its emissions to go up to 1,640 tons-per-year without 
triggering NSR, provided that its emissions nine and 10 years ago 
averaged 1,600 tons-per-year. Under EPA's new rule, in other words, a 
change that causes a source's emissions to go from 1,000 tons-per-year 
to 1,640 tons-per-year will not be deemed a ``modification,'' even 
though the Clean Air Act defines that term to mean ``any physical 
change in, or change in the method of operation of, a stationary source 
which increases the amount of any air pollutant emitted by such 
source.''\70\
---------------------------------------------------------------------------
    \69\ EPA, New Source Review: Recommendations (June 13, 2002), at 4.
    \70\ 42 U.S.C. Sec. 7411(a)(4).
---------------------------------------------------------------------------
    During internal EPA discussions leading up to the June 13 
announcement, officials within the agency included this change to the 
baseline calculation among the ``proposals present[ing] a risk of 
significantly diminished program benefits.'' The officials elaborated 
on what they meant by ``significantly diminished'':

          Based on our review . . . , moving to a ``high 2 in 5'' from 
        a ``last 2 years'' as the pre-change baseline will have some 
        reduction (perhaps 20 percent) on the scope of the NSR program 
        as it impacts non-utility sources . . . . A 10-yr baseline 
        would substantially diminish the scope of the program. Our best 
        estimate is that it would reduce the number of facilities 
        subject to NSR by 50 percent or more compared to a high 2 in 5 
        baseline.\71\

    \71\ Internal EPA document provided to NRDC.
---------------------------------------------------------------------------
B. Using Accounting Gimmicks to Low-Ball Projected Future Emissions
    As noted above, one must compare a source's pre-change emissions 
with its post-change emissions to determine whether the change is 
causing a significant increase in emissions. EPA's change to the 
baseline calculation will exaggerate pre-change emission levels. The 
agency has also announced that it will take final action on a rule that 
will under-represent the post-change emissions attributable to the 
change. Specifically, the new rule will allow a company to exclude from 
the calculation of post-change levels those emissions that can be 
attributed to old capacity, even if the source would not be able to 
continue using that capacity without making the proposed change.\72\ In 
essence, this rule will enable companies to cook the books in order to 
hide significant emissions increases that should trigger the New Source 
Review requirements.
---------------------------------------------------------------------------
    \72\ New Source Review: Recommendations at 3-4.
---------------------------------------------------------------------------
C. Exemption for Units That May Once Have Been Considered Clean
    EPA also announced on June 13 that it would promulgate a final 
rulemaking any source that goes through an NSR review for best 
available control technology exempt from having to go through the 
review again for a period of 15 years--regardless of what changes the 
source undergoes and how much its emissions increase. What is more, the 
exemption would apply retroactively, meaning that if, 10 years ago, a 
source installed pollution controls that have long since been rendered 
obsolete by more effective technology, the source could nevertheless 
undergo dramatic renovations today that significantly increase 
emissions without installing new controls, and it could continue making 
such changes with impunity for 5 years into the future.\73\
---------------------------------------------------------------------------
    \73\ Id. at 2.
---------------------------------------------------------------------------
    In the pre-announcement internal agency discussions, EPA's 
attorneys noted the lack of a ``solid legal rationale'' for this 
change.\74\ Indeed, there is no authority whatsoever in the Clean Air 
Act for allowing a company to ignore the New Source Review 
requirements--when it undertakes radical changes that significantly 
increase emissions--just because the company long ago installed control 
equipment that may now be obsolete.
---------------------------------------------------------------------------
    \74\ Internal EPA document provided to NRDC.
---------------------------------------------------------------------------
D. Exemption for Plantwide Applicability Limits
    In Alabama Power Co. v. Costle, the U.S. Court of Appeals for the 
D.C. Circuit concluded that ``EPA ha[d] properly exempted from best 
available control technology (BACT) and ambient air quality review 
those `modifications' of a source that do not produce a net increase in 
any pollutant.\75\ The court noted that, under the Clean Air Act, ``any 
offset changes claimed by industry'' to demonstrate the lack of a net 
increase ``must be substantially contemporaneous.''\76\
---------------------------------------------------------------------------
    \75\ 636 F.2d at 401.
    \76\ Id. at 402.
---------------------------------------------------------------------------
    In response to the ruling in Alabama Power, EPA solicited public 
comment on whether the agency should ``specify that no emission 
reductions which occurred more than 3 years before the date a [pre-
construction] application was complete may offset the increase that 
would result from the change proposed in the application.''\77\ After 
reviewing the voluminous industry comments submitted on this proposal, 
EPA selected 5 years as the outer limit of contemporaneity.\78\
---------------------------------------------------------------------------
    \77\ 45 Fed. Reg. 6802, 6803 (January 30, 1980).
    \78\ 45 Fed. Reg. 52676, 52701 (August 7, 1980).
---------------------------------------------------------------------------
    In 1996, EPA proposed a rule pursuant to which ``a source, if 
authorized by a State in a SIP, may base its NSR applicability on a 
plantwide emissions cap, termed a plantwide applicability limit 
(``PAL''). So long as source activities do not result in emissions 
above the cap level, the source will not be subject to NSR.''\79\ 
Although EPA never finalized this proposal, further analysis brought 
recognition that a PAL could not be a means for escaping the 
contemporaneity requirement enunciated in Alabama Power and quantified 
in the agency's 1980 netting rule. This recognition is reflected in a 
1998 Federal Register notice, in which EPA renewed its proposed to 
authorize PALs:
---------------------------------------------------------------------------
    \79\ 61 Fed. Reg. 38249, 38264 (July 23, 1996).

          Having again reviewed Alabama Power and the Agency's 
        subsequent interpretation 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.\80\
---------------------------------------------------------------------------
    \80\ 63 Fed. Reg. 39857, 39863 (July 24, 1998).

    Although the Clinton Administration never finalized its 1998 PAL 
proposal, the Bush Administration has now, 4 years later, decided to 
promulgate a final PAL rule. Despite the 5-year netting limit 
promulgated in 1980 and EPA's 1998 recognition that PALs are subject to 
the same legal requirement of contemporaneity that governs netting, the 
agency is now planning to finalize a rule under which a PAL could 
remain unchanged for 10 years or more.\81\ This stretches the meaning 
of ``contemporaneity'' past the breaking point. What is more, EPA's 
rule would allow the plant-wide limit to be renewed at higher levels 
under certain circumstances.\82\
---------------------------------------------------------------------------
    \81\ New Source Review: Recommendations at 1.
    \82\ Id.
---------------------------------------------------------------------------
    Internal EPA documents reveal that as late as January 2002, EPA 
lawyers still did not have a legal rationale for the Administration's 
new PAL rule. In fact, during a 2-day meeting held that month at EPA 
headquarters, the agency's lawyers informed their clients that the new 
PAL proposal was ``in conflict'' with the Clean Air Act. The attorneys 
argued that any PAL approach must adhere to the legal framework of 
netting, a stricture which the political appointees refused to accept. 
According to a memorandum memorializing the meeting, the lawyers also 
insisted that a ``PAL must be based on [a] reasonably contemporaneous 
period, which is more consistent with a 5-year period.'' Again, the 
political appointees resisted. The final PAL rule announced June 13 
reveals that, in the end, the political appointees at EPA elected to 
ignore the law.
    If the change takes effect, a company will be allowed to pretend 
that a significant pollution increase at its facility in, say, 2010 is 
not occurring on account of a decrease that happened at the plant in 
2001. What is more, EPA has announced that its new method of 
calculating baselines will apply to PALs, meaning that the limits will 
be set so high as to allow massive pollution increases over current 
levels.
E. Exemption for ``Pollution Control and Prevention Projects''
    The last of the final rules that EPA announced on June 13 would 
exempt a proposed change to a source from the New Source Review 
requirements even if the change would cause a significant increase in 
the emissions of an air pollutant, so long as EPA deemed the change 
environmentally beneficial in the aggregate. EPA has announced, 
moreover, that it will consider as environmentally beneficial a project 
that reduces emissions per unit of energy output, even if the project 
causes the source's emissions to increase.\83\ In a recent 
applicability determination, EPA itself recognized the flaw in this 
type of exemption:
---------------------------------------------------------------------------
    \83\ Id. at 2-3.

          [V]irtually any major capital improvement project at an 
        existing source is designed in part to increase efficiency of 
        production, and this will in turn almost always have the 
        collateral effect of reducing emissions per unit of production, 
        even though it may provide an economic incentive to increase 
        total production, with the net result that actual emissions of 
        air pollution to the atmosphere could increase significantly. 
        There is nothing in the statutory terms or structure or in 
        EPA's regulations which suggests that such major changes should 
        be accorded exempt status under the NSR program. To the 
        contrary, major capital investments in industrial equipment, 
        where they could result in an increase in emissions, appear to 
        be precisely the type of change at an existing source that 
        Congress intended should be subject to PSD and nonattainment 
        area NSR permitting.\84\
---------------------------------------------------------------------------
    \84\ Detroit Edison Applicability Determination, at 5-6, n.1 (May 
23, 2000). See also Puerto Rican Cement Co. v. EPA, 889 F.2d 292, 297-
98 (1st Cir. 1989) (modification of emissions unit that decreases 
emissions per unit of output, but may result in sufficient production 
increase such that actual emissions will increase, is subject to the 
New Source Review requirements).

    The Clean Air Act has not changed in the 2 years since EPA made the 
above determination. The exemption for improved heat rate projects 
announced June 13 is as unsound and unlawful now as it was in 2000.
F. Defining ``Routine Maintenance, Repair, and Replacement''
    In addition to announcing final rules on June 13, EPA announced 
that it would be submitting proposed rules for notice and comment. Most 
significantly, the agency announced that it would propose to define 
certain parameters that industry will be able to follow safe in the 
knowledge that its activities will be deemed ``routine maintenance, 
repair, and replacement.''\85\
---------------------------------------------------------------------------
    \85\ New Source Review: Recommendations at 4-6.
---------------------------------------------------------------------------
    Under the first set of proposed parameters, any changes that a 
company makes at a facility--irrespective of how much increased 
pollution results--will be per se ``routine'' as long as the annual 
cost of the changes does not exceed 15 percent of the cost of the 
entire plant. Costs attributable to the installation of pollution 
control equipment and the remedying of unanticipated equipment failures 
would be excluded from the annual cap.\86\ The upshot would be that a 
company could replace every single part of its facility over the course 
of five or 6 years and never trigger NSR, regardless of the amount by 
which the plant's emissions increased.
---------------------------------------------------------------------------
    \86\ Id. at 4-5.
---------------------------------------------------------------------------
    Under the second set of parameters, the replacement of existing 
equipment with new equipment that serves the same function and does not 
alter the heat input and fuel consumption specifications of the unit 
would never trigger New Source Review. In other words, a power plant 
could replace all of its deteriorating boilers with new ones, and as 
long as the new ones had the same specifications as the old ones when 
they were new, the plant would not need to install state-of-the-art 
pollution controls.\87\ This rule would thus open the ``vistas of 
indefinite immunity'' that the WEPCO court found to be impermissible 
under the Clean Air Act.\88\
---------------------------------------------------------------------------
    \87\ Id. at 5-6.
    \88\ WEPCO, 893 F.2d at 909.
---------------------------------------------------------------------------
    Under the third set of parameters, any change that fell within a 
set of categories identified by EPA would automatically be deemed 
``routine,'' no matter how much new pollution the change caused. EPA 
has announced that it is considering allowing its list of per se 
routine activities to be informed by ones that industry itself 
identifies as common practice.\89\
---------------------------------------------------------------------------
    \89\ New Source Review: Recommendations at 6.
---------------------------------------------------------------------------
    In its June 13 announcement, EPA took pains to emphasize that 
changes falling outside the proposed parameters would not be 
disqualified as ``routine.'' All of the other announced limitations on 
NSR's applicability (dirtiest 2 years in 10 baseline calculation, new 
method of calculating post-change emissions, etc.) would still be 
available to industry.\90\
---------------------------------------------------------------------------
    \90\ Id. at 4.
---------------------------------------------------------------------------
    It is impossible to miss the fact that if this proposed rule were 
allowed to become final, the New Source Review requirements would never 
apply in the case of modifications at existing facilities.
G. Exemption for ``Debottlenecking''
    EPA also announced that it would propose a new rule that would 
provide a company with additional leeway to under-represent the 
emissions increase caused by a change to a source. Specifically, if a 
change to one emissions unit at a plant caused emissions to increase at 
an ``upstream'' or ``downstream'' unit at the same plant, that increase 
would not be considered in determining whether the change had caused a 
significant emissions increase such to trigger the NSR 
requirements.\91\
---------------------------------------------------------------------------
    \91\ Id. at 6.
---------------------------------------------------------------------------
    During the deliberations of the Cheney Task Force, EPA enforcement 
officials estimated that the ``debottlenecking'' proposal would reduce 
the effectiveness of New Source Review by approximately 5 percent.\92\
---------------------------------------------------------------------------
    \92\ Internal EPA document provided to NRDC.
---------------------------------------------------------------------------
H. Allowing Dis-aggregation of Modifications
    Finally, EPA announced that it would propose a new rule that would 
make it easier for a company to evade NSR by taking a change that does 
cause a significant pollution increase, and treating it as a collection 
of sub-changes, no one of which causes a significant increase.\93\
---------------------------------------------------------------------------
    \93\ New Source Review: Recommendations at 7.
---------------------------------------------------------------------------
             iv. what the effects of the rollbacks will be
    After some details of EPA's regulatory plans became public in 
January 2002, the State and Territorial Air Pollution Program 
Administrators and the Association of Local Air Pollution Control 
Officials (``STAPPA/ALAPCO'') wrote to Administrator Whitman expressing 
``considerable trepidations regarding what we understand the reforms 
will allow and the impact that these changes will have on our nation's 
ability to achieve and sustain clean, healthful air.'' STAPPA/ALAPCO 
pointed out that, ``when taken in combination, these reforms will allow 
most source modifications to avoid NSR, resulting in unchecked emission 
increases that will degrade our air quality and endanger public 
health.''\94\
---------------------------------------------------------------------------
    \94\ Letter from STAPPA President Lloyd Eagan and ALAPCO President 
Arthur Williams to EPA Administrator Christine Todd-Whitman, January 
23, 2002.
---------------------------------------------------------------------------
    EPA has ignored STAPPA/ALAPCO's request for ``a broad stakeholder 
meeting to allow for an open dialog on the reforms under 
consideration''\95\ and announced rollbacks every bit as extreme as the 
ones rumored to be under consideration in January. The announced 
changes threaten, by operation of ``no more stringent than'' provisions 
in State statutes, to force States to weaken their air quality measures 
at a time when they will be struggling to achieve attainment of 
stricter national ambient air quality standards for ozone and 
particulate matter. Indeed, EPA has indicated that it will require 
State implementation plans to include the announced changes to NSR 
program. As a result, even States that do not want to adopt the changes 
will be forced to in order to retain control of their permitting 
programs.
---------------------------------------------------------------------------
    \95\ Id.
---------------------------------------------------------------------------
    EPA has long been on notice of the devastating impact that the 
changes the agency has now announced would have on public health and 
the environment. In his February 2002 resignation letter, former 
director of EPA's Office of Regulatory Enforcement Eric Schaeffer 
reminded Administrator Whitman that the agency stood to keep more than 
five million tons per year of combined SO2 and NOx pollution 
out of the air by means of the compliance orders and enforcement 
actions it had brought under the New Source Review provisions.\96\ 
Since all of those cases involve modifications, and the announced rules 
would effectively end NSR for modifications, it follows that the new 
rules would allow millions of tons more pollution to be emitted into 
the air every year than the proper application and enforcement of NSR 
as it exists today.
---------------------------------------------------------------------------
    \96\ Letter from Office of Regulatory Enforcement Director Eric V. 
Schaeffer to Administrator Christine Todd-Whitman, February 27, 2002.
---------------------------------------------------------------------------
    A report by the Clean Air Task Force reveals the stakes, in terms 
of public health, of the NSR enforcement cases alone.\97\ Key findings 
of this report include:
---------------------------------------------------------------------------
    \97\ Power to Kill, Clean Air Task Force, July 2001. The report 
draws upon data from Abt Associates, Inc., The Particulate-Related 
Health Benefits of Reducing Power Plant Emissions (October 2000). See 
also, Clean Air Task Force, Death, Disease, and Dirty Power: Mortality 
and Health Damage Due to Air Pollution from Power Plants (October 2000) 
(posted at www.cleartheair.org).
---------------------------------------------------------------------------
     Pollution from the 51 plants that are targets of NSR 
enforcement actions shortens the lives of between 5,500 and 9,000 
people every year.
     Requiring these plants to meet modern pollution standards 
as required by law would avoid between 4,300 and 7,000 of these deaths.
     Pollution from the 51 NSR plants leads to between 107,000 
and 170,000 asthma attacks each year.
     Between 80,000 and 120,000 of these asthma attacks could 
be avoided by requiring the plants to meet modern pollution standards 
as required by law.
     Although all of the plants that are currently targets of 
NSR enforcement are located in the Midwest or Southeast, there is a 
``transport of death and disease.'' The pollution from these plants 
affects downwind States resulting in 1,500 to 2,100 premature deaths 
and 30,000 to 39,000 asthma attacks per year in the Northeast.
     1,200 to 1,700 of the deaths and 23,000 to 31,000 of the 
asthma attacks in downwind Northeastern States would be avoided if the 
plants met modern pollution standards.
      The pollution reductions from the announced settlements 
with Tampa Electric, Cinergy, Inc., and Dominion Power alone would 
result in avoiding between 780 and 1,150 premature deaths every year.
    If NSR did not apply to the modification of existing units--a 
result EPA hopes to achieve with the rules announced on June 13--then 
the prevention of death and disease outlined above would not be 
achieved.
    On June 24, the Clean Air Task Force released another study. It 
shows that prosecution of power plants charged with violating the New 
Source Review provisions is a highly cost effective way to clean up the 
air. Using methodologies approved by EPA, the study demonstrates that 
the benefits of the NSR enforcement cases outweigh the costs by as much 
as 10 to 1. Specifically, it shows that using New Source Review to 
force the 51 sued coal plants to reduce their soot and smog emissions 
would produce annual public health benefits valued at $24-38 billion in 
avoided deaths and avoided asthma attacks while costing utilities only 
about $3.5 billion per year in control costs.\98\
---------------------------------------------------------------------------
    \98\ L. Bruce Hill, A Preliminary Analysis of the Benefits and 
Costs of Current New Source Review Litigation, June 24, 2002 (posted at 
http://www.clnatf.org/press--room/index.html).

    When EPA proposed to reform the New Source Review program in 1996, 
it prepared a Final Draft Regulatory and Economic Impact Analysis. The 
agency characterized the results of that analysis in its notice of 
---------------------------------------------------------------------------
proposed rulemaking:

          The EPA estimates that 20 percent fewer sources will be 
        classified as major as a result of revising the period for 
        establishing the baseline for actual emissions from which to 
        calculate emissions increases to the highest 12 consecutive 
        months operation by the source. Another 6 percent reduction is 
        anticipated from the ``clean unit'' and ``clean facility'' 
        tests and the exclusion for pollution control and pollution 
        prevention projects. The EPA estimates still another 25 percent 
        of modifications, which would otherwise be subject to major 
        NSR, would be excluded due to allowing sources to use projected 
        future actual emissions to calculate emissions increases rather 
        than requiring the calculation to be based on the source's 
        potential to emit in each case.\99\
---------------------------------------------------------------------------
    \99\ 61 Fed. Reg. 38,250 38,319 (July 23, 1996).

    EPA concluded, in other words, that only forty-nine percent of the 
sources that would otherwise be subject to NSR would be subject to 
those provisions in the event that the proposed rules entered into 
effect. Those proposed rule changes were, in virtually every aspect, 
less extreme than the ones EPA announced on June 13. One can only 
conclude, then, that the announced changes will have an effect on NSR 
applicability far more dramatic than the one EPA quantified in 1996.
    Executive Order 12866 states in part:

          Each agency shall assess both the costs and the benefits of 
        the intended regulations and, recognizing that some costs and 
        benefits are difficult to quantify, propose or adopt a 
        regulation only upon a reasoned determination that the benefits 
        of the intended regulation justify its costs.\100\
---------------------------------------------------------------------------
    \100\ Exec. Ord. No. 12866, Section 1(b)(6) (Sept. 30, 1993).

    Where a regulatory action is likely to result in a rule that may 
``[h]ave an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments of 
communities,''\101\ the same executive order requires the agency to 
provide OIRA, ``as part of the agency's decisionmaking process,''
---------------------------------------------------------------------------
    \101\ Id., Section 3(f)(1) (Sept. 30, 1993).

          An assessment, including the underlying analysis, of costs 
        anticipated from the regulatory action (such as, but not 
        limited to, the direct cost both to the government in 
        administering the regulation and to businesses and others in 
        complying with the regulation, and any adverse effects on the 
        efficient functioning of the economy, private markets 
        (including productivity, employment, and competitiveness), 
        health, safety, and the natural environment), together with, to 
        the extent feasible, a quantification of those costs.\102\
---------------------------------------------------------------------------
    \102\ Id., Section 6(a)(3)(C)(ii).
---------------------------------------------------------------------------
    As indicated above, EPA is in possession of evidence indicating 
that the announced changes to New Source Review will result in tens of 
thousands of premature deaths, asthma attacks, and hospitalizations, 
tens of billions of dollars' worth of forfeited public health benefits 
each year, and--on account of increased haze in national parks and acid 
deposition across the Northeast--serious detriment to the nation's 
tourism industry. EPA has nevertheless refused to perform an analysis 
of the impacts that the announced rules will have on public health, the 
environment, and the economy. That refusal flies in the face of 
Executive Order 12866. I am thus compelled to call upon OIRA 
Administrator Graham--again--to return any NSR rulemaking package to 
EPA pending the agency's submission of the required analysis.
    Whenever political appointees at EPA are confronted with the 
devastating effects that the announced NSR rollbacks will have on 
public health and the environment, they assert that President Bush's 
Clear Skies Initiative will obviate New Source Review.\103\ This 
assertion ignores a key fact: whereas the announced NSR rollbacks will 
apply to all of the approximately 17,000 large industrial facilities in 
this country, the caps proposed for the CSI would only apply to the 
nation's approximately 1,500 power plants. CSI would actually allow 50 
percent more sulfur emissions than current law, and delay safer 
standards by 8 years. It would also permit three times more toxic 
mercury emissions than existing law, and it would allow hundreds of 
thousands of tons of additional nitrogen oxide pollution. And of 
course, whereas EPA has announced final rules eviscerating New Source 
Review, the Clear Skies initiative has not even been introduced as 
legislation yet.
---------------------------------------------------------------------------
    \103\ See, e.g., BNA Daily Environment Report, ``Whitman Says Clear 
Skies Proposal Will Reduce Emissions Faster Than Clean Air Act,'' April 
8, 2002.
---------------------------------------------------------------------------
    The Administration thus fails to offer any effective rebuttal to 
the evidence indicating that rules announced on June 13 will impose a 
staggering cost on this country--in the form of premature deaths, 
asthma attacks, birth defects, heart attacks, haze, acid rain, and all 
the attendant horrors of climate change. For that reason, and because 
the announced rules purport to repeal a vital portion of the Clean Air 
Act, I respectfully ask that these Committees do everything in their 
power to prevent these rollbacks from ever taking effect.
                               __________
 Statement of Donald Elliott, Co-Chair, Environmental Practice Group, 
    Paul, Hastings, Janofsky and Walker, Professor of Law, Yale and 
                       Georgetown Law Schools\1\
---------------------------------------------------------------------------
    \1\ Co-Chair Environmental Practice Group, Paul, Hastings, Janofsky 
& Walker; Professor (adj) of Law, Yale and Georgetown Law Schools; 
Former General Counsel, Environmental Protection Agency.
---------------------------------------------------------------------------
    Mr. Chairman and distinguished members of the committee: It is a 
great pleasure to be testifying again before these two distinguished 
Committees in a rare joint session on the very important legal and 
policy issues raised by the Administration of the ``new source review'' 
(NSR) provisions of the Clean Air Act.
    EPA's many changing interpretations of NSR over the years have 
created a legal mess of baffling complexity that raises a host of 
separation of powers and administrative law issues that only a law 
professor could love. The good news is that the NSR controversy makes a 
great hypothetical for a law school exam (and I have used it as such at 
least twice in my administrative law courses at Yale and Georgetown). 
Unfortunately, the bad news, which is much more important, is that 
major parts of our country's economic infrastructure--including but not 
limited to the electric power industry--are now threatened with great 
legal uncertainties and huge penalties. As a result, as documented by 
EPA's recent NSR report, plants are delaying making needed repairs and 
changes to equipment. In the long run this threatens the reliability of 
our electricity supply and keeps inefficient equipment on line when it 
would benefit our economy to replace it with more modern equipment.
    The ultimate solution in my view is to replace the antiquated, 
inefficient NSR program for existing plants with a modern trading 
system. But in the meantime, I applaud the Administration's recent 
attempt to do what it can to resolve the huge uncertainties about what 
is legal and what is illegal under the NSR program by creating safe 
harbors through the rulemaking process. It took great courage to touch 
the issue at all, because NSR is rapidly becoming the proverbial 
``third rail'' of U.S. environmental politics. Any action--no matter 
how modest and reasonable--will immediately be denounced as a rollback 
of historic proportions in an election year. It is very easy for us no 
longer in the political arena to criticize. I must admit that I was 
General Counsel of EPA at the time of the 7th Circuit's WEPCO decision 
in 1990, which helped to create the current NSR controversies.\2\ Urged 
on by majorities in both houses of Congress during the 1990 Clean Air 
Act Amendments to ``fix the WEPCO problem,'' the first Bush 
Administration came out with an NSR interpretative rule in 1992,\3\ 
which I thought had resolved the WEPCO problem, at least for the 
electric utility industry. However, as a prelude to the current NSR 
enforcement initiative, the Clinton Administration attempted to 
renounce our interpretation of NSR--without any notice and comment--by 
renouncing it in a proposed rule in 1998.\4\
---------------------------------------------------------------------------
    \2\ WEPCO v. Reilly, 893 F.2d 901 (7th Cir. 1990).
    \3\ WEPCO Interpretative Rule, 57 Fed. Reg. 32314 (July, 1992).
    \4\ 63 Fed. Reg. 39860 (July 24, 1998).
---------------------------------------------------------------------------
    So I have to admit that I was unsuccessful in getting the problem 
resolved when I was in the government, so perhaps it is churlish of me 
to criticize others. But nevertheless, I do feel that the current Bush 
Administration did not go far enough in two ways. First, in my opinion, 
the safe harbor portions of the proposed NSR rule should have been made 
immediately effective as an ``interim final'' rule under the ``good 
cause'' provisions of the Administrative Procedure Act.\5\ Massive 
uncertainty has been created by vague caselaw (which is almost 
certainly wrongly decided under more recent Supreme Court 
precedents\6\) and by EPA's misguided NSR enforcement initiative. While 
notice and comment is important, it is simply untenable to wait another 
3-5 years or more for a resolution of this controversy in the courts 
and through the rulemaking process. Administrative law specifically 
recognizes the power of agencies to put rules into immediate effect for 
good cause in the meantime while taking comments. EPA has often used 
this power in the past when court decisions have created undesirable 
uncertainty, such as following the invalidation of the mixture-and-
derived from rule under RCRA in 1991.\7\
---------------------------------------------------------------------------
    \5\ 5 U.S.C. Sec. 553(b)(3)(B).
    \6\ The WEPCO court gave ``substantial deference'' to EPA's 
interpretations of the statutory terms and ``even more'' to EPA's 
interpretations of its NSR regulations under the Chevron doctrine. 893 
F.2d at 906-907. However, under more recent Supreme Court precedent, 
Chevron deference is not appropriate for lower level agency 
interpretations that did not go through rulemaking or adjudication or 
for positions first advanced in litigation. See U.S. v. Mead Corp., 533 
U.S. 218 (2001).
    \7\ Shell Oil Co. v. EPA, 950 F.2d 741 (D.C. Cir. 1991)(per 
curiam).
---------------------------------------------------------------------------
    Second, I believe that the Administration should immediately 
conform its litigating position in the pending NSR enforcement cases to 
the policy position that the Administration has taken in the proposed 
rules. I disagree with my good friend Assistant Attorney General Thom 
Sansonetti that it is going to be viable for the U.S. Government to 
pursue multi-billion dollar cases based on the premise that the same 
words in the law meant one thing in 1985, another thing in 1992, still 
another in 1996, yet another in 1998 and will someday mean something 
still different in the future.
    I also disagree strongly with those who imply that the pending 
enforcement cases brought in a previous Administration should somehow 
disable a new Administration from implementing its views of good public 
policy. As I indicated in my testimony before Government Affairs last 
March, I see this as a fundamental Constitutional question of who is 
running the government--the President and the Officers of the United 
States confirmed by this Senate, or the career enforcement staff at 
EPA. Just as the Clinton Administration was free to walk away from the 
first Bush Administration's NSR interpretation in 1998--provided of 
course that proper procedural formalities were observed\8\--so too the 
second Bush Administration should be free to reinstate its own NSR 
interpretations and policies.
---------------------------------------------------------------------------
    \8\ Motor Vehicle Manufacturers Assn. v. State Farm Mutual Auto. 
Ins. Co., 463 U.S. 29 (1983).
---------------------------------------------------------------------------
    Of course, the Congress can make the Administration pay a price 
politically for its actions. But, in my opinion, NSR is the wrong issue 
to make the touchstone for good environmental policy. The NSR program 
is the greatest failure in the Administration of our environmental laws 
in my professional lifetime. It has failed to work for 25 years, and 
now it badly needs to be replaced with something that does work. Case-
by-case, plant-by-plant litigation to force individual plants to 
install best available control technology is at best an antiquated 
regulatory technology. It is slow, expensive and uncertain. There has 
to be a better way. The better way is clear. It is a modern, efficient 
cap and trade system--a concept that has proven remarkably successful 
in the Acid Rain Trading system under the 1990 Amendments,\9\ and which 
now has tri-partisan support in both the Administration's ``Clear Skies 
Initiative'' and Senator Jeffords' S. 556, which was recently reported 
out by this Committee. A modern, efficient trading system will achieve 
far greater pollution reductions in far less time and at far less 
expense--not to mention the side-benefit of putting lots of pesky 
environmental lawyers out of business! In my view, we should move 
promptly on a tri-partisan basis as quickly as possible to replace the 
antiquated, dysfunctional NSR system for existing plants by legislating 
a modern efficient trading system.
---------------------------------------------------------------------------
    \9\ The White House, Executive Summary--The Clear Skies Initiative 
February 14, 2002 (``The acid rain cap and trade program created by 
Congress in 1990 reduced more pollution in the last decade than all 
other Clean Air Act command-and-control programs combined, and achieved 
significant reductions at two-thirds of the cost to accomplish those 
reductions using a ``command-and-control'' system. . . . The Acid Rain 
program enjoys nearly 100 percent compliance and only takes 75 EPA 
employees to run--a track record no command-and-control program can 
meet.'')
---------------------------------------------------------------------------
    What has caused the great NSR debacle? There is plenty of blame to 
go around--and I probably share some of it. I had been nominated as 
General Counsel of EPA but not yet confirmed when the WEPCO case was 
argued, and I failed to properly supervise my staff and did not know 
the position on NSR issues that EPA was advocating until after the 
decision came down. The courts are partially to blame, because the 
cases to date have temporized by promulgating vague, multi-factor tests 
that fail to give clear guidance to industry as to what is and is not 
permitted. EPA has issued multiple and inconsistent interpretations 
over the years. There have been so many of them that I doubt that any 
of them will ultimately receive much deference from the courts. When 
invited by the Administration to review the legal situation, the 
Department of Justice in its recent report ducked the key issues, and 
said merely that EPA's latest interpretation was not so clearly wrong 
that it would be unethical to continue to argue it.\10\ DOJ then ducked 
entirely the key issue of whether industry had been given fair notice 
of EPA's newest interpretation of NSR requirements, punting that 
central issue entirely to the courts. Unless Congress steps in, I fear 
that we are now embarked on a decade-long process of litigation that 
will require several Supreme Court decisions to clarify the law.
---------------------------------------------------------------------------
    \10\ United States Department of Justice Office of Legal Policy, 
New Source Review: An Analysis Of The Consistency Of Enforcement 
Actions With The Clean Air Act And Implementing Regulations (January 
2002).
---------------------------------------------------------------------------
    Much of the blame for the current NSR mess must also be laid 
squarely at the doorstep of Congress. In the text of the 1970 Clean Air 
Act, Congress created a basic distinction between the pollution 
requirements applicable to ``new'' as opposed to existing plants. Then, 
in so-called ``technical amendments'' in 1977--which were never debated 
or properly vetted in Committee hearings--Congress extended the concept 
of ``new'' plants to included ``modifications'' of existing plants.\11\ 
But in its wisdom, Congress failed to adequately define the key 
operative concept of a ``modification'' in the statute.\12\ That 
statutory ambiguity over how to define the nature of the 
``modifications'' that convert an existing plant into the equivalent of 
a ``new'' plant for purposes of installing state-of-the-art pollution 
controls has been at the root of a great deal of unproductive and 
unnecessary NSR legal controversy over the years.
---------------------------------------------------------------------------
    \11\ 123 Cong. Rec. H36327-36334, S36250-36259 (Nov. 1, 1977).
    \12\ The Clean Air Act has only one statutory definition of 
``modification'' and it is in a different section: ``The term 
``modification'' means any physical change in, or change in the method 
of operation of, a stationary source which increases the amount of any 
air pollutant emitted by such source or which results in the emission 
of any air pollutant not previously emitted.'' CAA Sec. 111(a)(4).
---------------------------------------------------------------------------
    It simply cannot be that literally any modification--no matter how 
trivial--triggers NSR and converts every existing plant into a new 
plant. Somehow someone has to distinguish between those physical and 
operational changes that trigger new source review and those that 
don't. To date, it has proved impossible for the legal system to come 
up with any clear dividing line that will stand the test of time. EPA 
has repeatedly tried to resolve this controversy through a variety of 
changing rules and interpretations over the years. By rule, EPA has 
exempted certain activities such as ``routine repair and replacement of 
equipment,''\13\ and required an increase in emissions for a 
modification to trigger NSR. But how to define what repairs and 
replacements of equipment are ``routine''? At one point, EPA even 
officially defined ``routine'' in the Federal Register as what is 
``routine . . . within the relevant industrial category''\14\--which 
brings to mind Churchill's line about a question wrapped in a riddle 
wrapped in an enigma. EPA's legal staff also developed the fascinating 
theory of ``potential emissions,'' so that a plant was considered to 
have ``increased'' its emissions even though its actual emissions went 
down! Over the years, EPA has come out with many shifting 
interpretations of what constitutes a ``routine'' repair and 
replacement, and now in its enforcement cases, EPA is arguing for yet a 
different definition than the ones that it advanced in the past or the 
ones that it is now proposing to implement through the rulemaking 
process. I do applaud the Administration's courageous attempt to bring 
some clarity to the legal chaos that is the NSR program today through 
its proposed safe harbor rule. There have already been so many varied 
and shifting interpretations by EPA in the past, however, that I 
seriously doubt that the courts will ultimately give much deference to 
whatever construction EPA now attempts to place on the statutory 
terms.\15\
---------------------------------------------------------------------------
    \13\ 40 C.F.R. Sec. 52.21(b)(2)(iii)(a).
    \14\ 57 Fed. Reg. 32326 (July 21, 1992).
    \15\ Compare city of Chicago v. Environmental Defense Fund, 511 
U.S. 328 (1994).
---------------------------------------------------------------------------
    That unpleasant fact leaves us with only two real options going 
forward--either slug it out in many more years of unproductive 
litigation, probably going to the Supreme Court several times, before 
we finally find out what the term ``modification'' really means in the 
NSR provisions of the Clean Air Act. Or alternatively, as I prefer, 
Congress should act to put a merciful end to the NSR controversy by 
legislating a modern, more efficient replacement, such as the trading 
system advocated by the Administration in its Clear Skies Initiative 
and also endorsed in Senator Jeffords' proposal.
    Realistically, I don't think there can be any serious question that 
slugging it out in continuing litigation is bad environmental policy 
that will really only benefit the lawyers--and law professors--and 
maybe a few politicians who can claim to be taking decisive action to 
fight polluters, if not actually to benefit the environment. NSR 
litigation makes those who participate in it feel good, because they 
can imagine that they are taking tough action to benefit the 
environment. But in reality, the NSR approach of case-by-case 
litigation to force each individual plant to install best available 
control technology is not going to produce anything approaching the 
environmental benefits that will come from legislating a trading system 
to replace the antiquated and dysfunctional NSR program for existing 
sources.
                                 ______
                                 
      Responses of E. Donald Elliott to Additional Questions from 
                           Senator Voinovich
    Question 1. During the hearing and in your testimony, you advocate 
for the replacement of the NSR program with a cap and trade system. How 
does a cap and trade system meet the goals that the NSR program is 
directed toward?
    Response. The NSR program for existing plants can require the 
installation of pollution control technology on a unit-by-unit basis if 
a major ``modification'' occurs. This requirement to install pollution 
control technology is not an end in itself, but rather is a means to 
the ultimate end of achieving air quality goals. A well-designed cap 
and trade program will achieve air quality goals much more quickly, 
efficiently, fairly and effectively with less expenditure of private 
and government resources than a litigation-driven, unit-by-unit 
command-and-control system such as NSR. The fundamental insight behind 
a cap-and-trade program is to use the market to allocate control 
requirements and to achieve the most efficient mix of controls system-
wide. This approach is fundamentally inconsistent with the idea behind 
NSR, which is for government to decide what pollution control system is 
the ``best available control technology'' (BACT) for each individual 
unit on a case-by-case basis. The ultimate goal is the same, but cap-
and-trade uses market trading to allocate the control burden, whereas 
NSR uses case-by-case bureaucratic decisions and litigation (with their 
inherent uncertainties, delays, expense and unintended consequences). 
NSR as envisioned in EPA's recent NSR litigation position loses sight 
of the big picture goals, and diverts enormous resources to micro-
manage constantly moving unit-by-unit targets for every change that EPA 
deems to be a ``modification.''

    Question 2. What effect does a program like NSR have on the 
effectiveness of a cap and trade system?
    Response. Maintaining the present NSR program for existing sources 
could eviscerate a trading program. There would be nothing left to 
trade under EPA's recent litigation-driven interpretation of NSR that 
essentially deems all units ``modified'' and subject to stringent, 
technology-based controls under NSR. As indicated above, trading and 
NSR are fundamentally incompatible and mutually redundant. Because of 
its high transaction costs, NSR cannot be implemented effectively, but 
if somehow it could be, and all plants magically already had BACT 
controls, there would be nothing left to trade. The whole philosophy 
behind trading is that some plants will control more stringently than 
others, creating the most efficient system-wide mix. EPA's recent NSR 
litigation position, on the other hand, imagines that government can 
specify the ``best'' control system for each individual plant every 
time that it has a scheduled outage. In practice, however, government 
is not able to design a system-wide mix of controls that is as 
efficient as that which will emerge from market trading. We can have a 
litigation-driven approach to NSR or trading, but not both.

    Question 3. If abolishing the NSR program was not an option, how 
would you recommend that Congress clarify or reform NSR?
    Response. If it is not possible to abolish NSR outright, the 
program should be amended to limit NSR to truly ``new'' plants and to 
exempt ``modified'' plants that are covered by an effective cap-and-
trade program. Requiring retrofit of additional control technology for 
simply using a unit up to its fully capacity makes no sense. If this is 
also not possible, and NSR must be maintained for existing plants as 
well, it should be clarified to have clear triggers for installing 
technology. For example, modest minimum technology requirements could 
become applicable to a plant after a specified number of years of 
operation. This compromise approach would essentially combine section 
481 of the Administration's Clear Skies Initiative S. 2815 with section 
711(a) of Senator Jeffords' S. 556. A two-tiered system is possible in 
which an NSR program is maintained to impose minimum technology 
requirements on existing plants automatically after a period of years 
of operation. This would maintain an NSR program and would not be too 
damaging to a cap-and-trade program, provided that the minimum 
technology requirements are modest and not too constraining on trading.
                               __________
      Responses of E. Donald Elliott to Additional Questions from 
                             Senator Wyden
    Question 1. You have testified that the Clinton Administration 
attempted to renounce EPA's previous interpretation of NSR without any 
notice and comment, but you say they did this by doing so in a proposed 
rule. Isn't a proposed rule just that? I believe the Agency by 
publishing it as a proposed rule satisfied the notice and comment 
requirement, is that correct?
    Response. No. With all due respect, the situation is not that 
simple. Both your question and my testimony are not sufficiently clear 
about the difference between legislative and interpretative rules. 
Interpretative rules state the agency's interpretation of law, and they 
can become immediately effective without notice and comment (provided 
that affected parties receive appropriate notice). See Administrative 
Procedure Act, 5 U.S.C. Sec. 553(b)(3)(A) and Sec. 552(a)(1)(D) and 
(E). In the course of a preamble to a proposed legislative rule, EPA 
may promulgate new interpretations of existing law or statutory terms. 
Those interpretations then become immediately effective as the agency's 
current view of the law even if the proposed legislative rule is never 
finalized. That is exactly what happened in the case of the Clinton 
Administration's 1998 renunciation of the 1992 Bush Administration NSR 
interpretations. In the course of the preamble to the 1998 legislative 
rule that was cited in my testimony, EPA disavowed and renounced its 
1992 legal interpretations, claiming that the 1992 legal 
interpretations were an unwarranted deviation. Not only is this 
``revisionist history,'' but it was a major change in policy that was 
not preceded by any public input. In direct contradiction to its own 
1992 WEPCO-Fix rulemaking, EPA's 1998 preamble states:

          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 same 
        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. . . . 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.
          [T]here 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. 63 Federal Register 39860 (July 24, 1998, emphasis 
        added).

    These statements are legally significant and immediately effective 
in that courts give little or no deference to agency interpretations 
that are inconsistent and shifting. See, e.g. City of Chicago v. 
Environmental Defense Fund, 511 U.S. 328 (1994). My discussions with 
EPA legal staff persuade me that EPA knew exactly what it was doing and 
was renouncing prior legal interpretations that could prove troublesome 
for EPA in the NSR enforcement cases that were about to be brought. 
This major change in NSR policy was not preceded by notice and comment, 
nor any other form of public participation.
    I do not contend that these major changes in NSR legal 
interpretations were technically illegal because they were not preceded 
by notice and comment. As noted above, interpretative rules are exempt 
from notice and comment requirements by statute. Similarly, much of 
what the current Bush Administration is proposing to do regarding NSR 
is also in my view an interpretation of statutory terminology that is 
technically an interpretative rule that does not require notice and 
comment for a legalistic perspective. However, notice and comment can 
be provided in the agency's discretion. Much of the discussion within 
this Committee about the desirability of notice and comment is not 
based on the technical requirements of the Administrative Procedure 
Act, but rather proceeds from the sensible notion, which I share, that 
as a matter of good public policy, major changes in important policies 
should be preceded by public participation and input. My point was that 
this norm, which is now being invoked so strongly by the Committee 
against the Bush Administration, was clearly breached by the Clinton 
Administration in 1998. The current Bush Administration has already 
provided far more opportunity for public participation, scrutiny and 
comment on its contemplated changes in NSR policy than was provided by 
the Clinton Administration in reversing its predecessor's policies and 
putting the new NSR policies into effect in 1998.

    Question 2. In your testimony you refer to EPA's definition of 
``potential emissions'' and attribute this definition to resulting in a 
plant being considered to increase its emissions even though there is a 
decrease in actual emissions. Do you have any actual examples that you 
can quantify? Are you aware of (or can you provide) any estimates that 
have been made of the decrease in actual emissions that have been 
reported as increases in potential emissions?
    Response. Yes, I am aware of a number of actual cases in which 
actual emissions have decreased but hypothetical ``potential'' 
emissions increased, but I have not done a quantitative study to 
collect all of these cases and add up the total tons involved. (If a 
comprehensive quantification is really desired, this might be a good 
project for GAO, which has the resources to conduct such studies, which 
I do not.) Increases in ``potential emissions'' were the essence of 
EPA's legal position in both the Puerto Rican Cement case (which 
involved construction of an entirely new emission unit never before 
operated) and WEPCO (which rejected the actual-to-potential test for 
already existing units) cases. A major controversy over EPA's 
``potential emissions'' theory then erupted as a result during the 
first Bush Administration. In the 1992 Interpretative Rule, EPA 
partially backed off from its potential emissions theory by committing 
to using instead an ``actual to projected actual'' approach for 
existing electric utility plants in the future, but the actual to 
potential test was maintained in effect for all other industry 
segments. Thus, contrary to the implication of the question, the 
``potential emissions'' theory is definitely still very much alive and 
still being applied today by EPA as a matter of stated agency policy to 
most industries.
    EPA's official Background Paper for the Administration's NSR Review 
explains the current status of the potential emissions theory as 
follows: ``Current emissions are measured using actual emissions over 
the recent past, usually designated as the last 2 years. Future 
increases are generally determined using potential to emit (which, as 
described above, is the maximum capacity to emit, except as limited by 
a permit). The difference between the future potential and the past 
actual emissions is compared to the relevant significance level. An 
exception is the electric utility industry, which estimates future 
emissions using a special calculation that resulted from a Federal 
rulemaking following a Federal court opinion. The utility calculation 
is established in a rule, commonly known as the ``WEPCO rule'', which 
EPA finalized on July 21, 1992. This rule provides that utilities 
compare past actual emissions to projected future actual emissions.'' 
EPA, NSR 90-Day Review Background Paper (June 22, 2001)(Docket A-2001-
19 Document II-A-01) http://www.epa.gov/air/nsr-review/nsr-review.pdf 
at p. 7 (emphasis supplied; footnotes omitted).
    The actual-to-potential test makes no attempt to correlate a causal 
link between a particular ``physical change or change in the method of 
operations'' and a resulting ``increase in the amount of emissions.'' 
Historically, EPA had required a real increase in emissions to trigger 
NSR. The wording of Section 111(a)(4) of the Clean Air Act on its face, 
as well as it has been interpreted by EPA historically and in the 1992 
Federal Register preamble, clearly requires a real increase in 
emissions to trigger NSR. You need only look at EPA's annually 
published air quality and emissions trends reports to confirm that in 
the aggregate, actual tons per year of emissions of SO2, 
NOx, and PM/PM10 are decreasing, despite increases in 
population, GNP, energy production, and vehicle miles traveled. See 
http:www.epa.gov/airtrends and related links.

    Question 3. You compare the Clear Skies Initiative to Senator 
Jeffords' S. 556 recently reported out by the EPW Committee. You praise 
them both, in fact. S. 556 requires that new or modified power plants 
still go through New Source Review, and some people are opposed to 
that. Are you saying you are in favor of that?
    Response. No. When an effective cap-and-trade program is put in 
place, I believe that it should replace NSR for existing sources, for 
all the reasons that are indicated above in my answers to Senator 
Voinovich above. As it presently exists, NSR for modified plants is not 
only redundant but destructive of trading.
        
        
 Statement of Joseph Bast, President of The Heartland Institute on New 
                          Source Review Reform
    Gentlemen, I respectfully add my voice to those of many who believe 
the New Source Review Program requires substantial and immediate 
reform.
    The Heartland Institute is a national nonprofit research and 
education organization based in Chicago. Since our founding in 1984, we 
have produced research and commentary on a wide range of public policy 
issues, including environmental policy. Since 1998, Heartland has 
published Environment & Climate News, a monthly newspaper devoted to 
covering environmental news.
    Because of the importance of New Source Review reform, I assembled 
a three-person team to study the Environmental Protection Agency's June 
13, 2002, New Source Review: Report to the President, and to produce a 
Heartland Policy Study evaluating its findings and recommendations. The 
team consisted of Heartland's Science Director, Dr. Jay H. Lehr, editor 
of McGraw-Hill's Standard Handbook of Environmental Science, Health, 
and Technology (2000); the managing editor of Environment & Climate 
News, James Taylor; and myself. My bio and Dr. Lehr's appear at the end 
of these comments; past issues of Environment & Climate News featuring 
Mr. Taylor's reporting can be found on Heartland's Web site at 
www.heartland.org.
    Our complete evaluation runs to some 23 pages and can also be 
viewed on The Heartland Institute's Web site at www.heartland.org. 
Printed copies are available by calling 312/377-4000. We found:
     EPA accurately described instances where current NSR 
policy has discouraged investments needed to improve productivity and 
plant safety, even when those investments would reduce emissions of 
pollutants.
     EPA's recommended reforms would remove counterproductive 
policies without harming air quality.
     EPA's recommendations and some of the ideas that 
apparently will be part of President Bush's ``Clear Skies Initiative'' 
represent progress in bringing one of the nation's least effective 
environmental regulations up-to-date.
    Following is a more complete summary of our evaluation.
                 what the report to the president says
    EPA's Report to the President summarizes extensive public comments 
and previous EPA reviews of NSR enforcement policies, along with case 
studies showing how current NSR enforcement policies have had negative 
effects on businesses, workers, consumers, and the environment. EPA 
identified three areas where reform is needed:
      EPA's uncertain and increasingly narrow interpretation of 
the ``routine maintenance, repair and replacement'' exclusion.
    Consistent with Congress's intent, EPA until 1999 generally 
excluded ``routine maintenance, repair and replacement'' (RMR&R) 
activities from the NSR permitting process. As early as 1988, though, 
EPA began to challenge the meaning of ``routine,'' subjecting or 
threatening to subject more activities to NSR than before.
    The Report to the President concludes that ``concern about the 
scope of the routine maintenance exclusion is having an adverse impact 
on [utility] projects that affect availability, reliability, 
efficiency, and safety.'' Concerning nonutility companies, EPA says 
``concern about the scope of the routine maintenance exclusion is 
having an adverse impact on industries outside the energy sector. It 
also is credible to conclude that projects have been discouraged that 
might have been economically and/or environmentally beneficial without 
increasing actual emissions.''
      EPA's substitution of ``actual-to-future-potential'' for 
``actual-to-future-actual'' in estimating likely changes in emissions.
    In 1996, EPA changed the way it estimates the effect of facility 
modifications on emissions for nonutility emitters from ``actual-to-
future-actual'' to ``actual-to-future-potential,'' which means the 
decision to apply NSR is determined by the emitter's ``potential to 
emit'' rather than the actual change in emissions likely to occur.
    In its Report to the President, EPA concluded ``the current NSR 
program is having an adverse impact on energy efficiency by 
discouraging projects that may improve energy efficiency, or may 
increase capacity and reliability without actually increasing pollutant 
emissions. In some cases it may be discouraging projects that decrease 
emissions because of the `actual-to-potential' test used for these 
industries.''
      Emissions from de-bottlenecking and aggregation
    Originally, EPA ruled that only the direct effect on emissions from 
the unit being modified would be considered in determining whether an 
NSR permit was required. More recently, EPA has moved to a more 
expansive definition under which ancillary increases in emissions from 
unmodified but ``de-bottlenecked'' units must be included. EPA is also 
combining separate projects and claiming the aggregate effect on 
emissions is sufficient to trigger NSR.
                      epa's reform recommendations
    When it released its Report to the President, EPA also issued seven 
recommendations for NSR reform. The first four were proposed by the 
Clinton Administration in 1996 but never implemented:
      Plantwide Applicability Limits (PALs).--Regulated 
emitters would be allowed to modify their plants without obtaining a 
major NSR permit provided their emissions do not exceed a plantwide cap 
based on an actual emissions baseline. Such ``Plantwide applicability 
limits'' (PALs) would effectively expand the RMR&R exclusion and 
resolve conflicts over de-bottlenecking.
      ``Clean unit'' exclusion.--Regulated emitters who 
achieved Federal BACT or LAER control levels or comparable State minor 
source BACT since 1990 would be entitled to a ``clean unit exclusion'' 
from NSR. A clean unit would trigger NSR only if permitted allowable 
emissions increase.
      Exclusion for pollution control and prevention 
projects.--Modifications that result in a net overall reduction in air 
pollutants, including when an emitter switches to a cleaner-burning 
fuel, would be excluded from NSR, subject to certain conditions. Caps 
on emissions under the National Ambient Air Quality Standards program 
and other programs would remain in place.
      Return to actual-to-future-actual methodology.--The 
``actual-to-future-potential'' emissions test would be replaced with 
the previously used (and still used for utilities) ``actual-to-future-
actual'' test, which is a more realistic calculation of future 
emissions. Only emission increases caused by a given modification would 
be considered. The baseline for calculating current actual emissions 
would be the highest consecutive 24-month period within the immediately 
preceding 10 years.
    Three additional reforms of NSR recommended by EPA would need to go 
through the formal rulemaking procedure (including public comment) 
before being implemented. They are:
      More objective definition of the RMR&R exclusion.--EPA 
proposes to set cost-based thresholds below which projects would 
automatically qualify for the RMR&R exclusion. The thresholds would be 
set on an industry-by-industry basis and would exclude costs incurred 
for installing and maintaining pollution control technology.
      De-bottlenecking.--EPA proposes to clarify that, when 
calculating actual emissions associated with a modification, emitters 
generally will need to look only at the unit undergoing the change. 
Emissions from units ``upstream'' or ``downstream'' of the unit being 
changed would be considered only when the permitted emissions limit of 
the upstream or downstream unit would be exceeded or increased.
      Aggregation.--EPA proposes to consider modifications to 
be separate and independent projects unless they are dependent upon 
another project to be economically or technically viable or the project 
has been intentionally split from other projects to avoid NSR. EPA says 
it ``generally would defer to the States to implement the Agency's 
aggregation rule.''
                  evaluation of epa's recommendations
    Since 1980, EPA has released some 4,000 pages of ``guidance'' and 
produced many (often conflicting) letters and several proposals for NSR 
revision, none of them finalized. Testimony to EPA contains many 
reports by industry spokespersons alleging that EPA has frequently and 
substantially changed its enforcement policies without going through 
the formal (and legally required) rulemaking procedure, causing 
considerable uncertainty within the regulated community.
    We found these reports to be credible and uncertainty to be 
justified. Current policies plainly have the unintended consequences of 
discouraging worthwhile investments and maintenance activities that 
would benefit companies and consumers as well as the environment. Many 
of these investments and activities were once correctly understood to 
be outside the scope of NSR, and ought once again be put beyond NSR's 
reach.
    EPA's recent enforcement of policy reinterpretations has forced 
companies to count imaginary emissions from previously unused capacity 
in determining whether a repair or other moderation would cause a 
significant increase in emissions. As a result, under current rules 
most repair projects would trigger a full New Source Review, even if 
actual emissions decrease as a result of the modification. Given the 
cost of complying with the NSR permitting process, many companies 
choose not to upgrade and modernize plants or even make routine changes 
and repairs. Efficiency improvements that would have reduced emissions 
and energy consumption or improved worker or community safety have been 
foregone.
    The NSR policy changes recommended by EPA, if put into practice, 
would not compromise air quality. We are skeptical that NSR has had a 
major positive effect on air quality since 1977, since air quality was 
improving prior to that year and other air quality regulations were 
responsible for much larger emission reductions than can be traced to 
the NSR program. Predictions that NSR reform would result in 
substantial increases in emissions strike us as partisan rhetoric, not 
analysis. The air quality goals and standards for protecting public 
health and the environment remain intact, and those aspects of the 
current program that unintentionally increase emissions by discouraging 
investments in energy efficiency would be avoided.
    EPA's proposals would fix some of the biggest problems encountered 
by an aging, inefficient, and expensive environmental regulatory 
program. Replacing the program outright as it affects utilities with 
the ``Clear Skies Initiative,'' as also proposed by the Bush 
Administration, would be a further step in the right direction, though 
judgment must be reserved until legislation for the Initiative is made 
public.
    The country would be better served if NSR were changed to clarify 
and make more certain the scope of the routine maintenance exclusion 
and the method used to measure future emissions. Even better would be a 
move away from the costly and often counterproductive style of end-of-
the-pipe regulation represented by NSR.
                               conclusion
    Everyone agrees that clean air is one of the most important rights 
of American citizens and goals of national environmental policy. The 
failure to apply common sense to the New Source Review program, though, 
has burdened American consumers and American industry with higher 
economic costs and higher levels of pollution than were envisioned by 
Congress when it wrote the Clean Air Act amendments of 1977. As EPA 
itself now admits on pages 31-32 of its Report to the President:

          Our findings in this report ratify a longstanding and 
        broadly-held belief that parts of the NSR program can and 
        should be improved. For example, we conclude above that changes 
        to NSR that add to the clarity and certainty of the scope of 
        the routine maintenance exclusion will improve the program by 
        reducing the unintended consequences of discouraging worthwhile 
        projects that are in fact outside the scope of NSR.

    NSR was adopted at a time when forecasts of a ``post-industrial 
era'' were naively thought to justify anti-manufacturing policies. 
Balancing costs against benefits was thought to be unnecessary, and the 
effects of regulations on the incentives of regulators and members of 
the regulated community alike were poorly understood and often 
dismissed as unimportant.
    Since 1977, air quality, technology, and regulatory theory have 
improved dramatically, creating new opportunities to more cost-
effectively protect air quality. Investors, too, have rediscovered the 
inherent value of companies that manufacture real goods and services, 
and the negative impact that defective regulations can have on global 
competitiveness.
    It is entirely appropriate, at this time in U.S. history, to re-
examine the rules and regulations known to be ineffective or damaging 
to the manufacturing sector of the country's economy. EPA's 
recommendations and the Bush Administration's Clear Skies Initiative 
are good places to start, but they do not mark the end of the need for 
reform.
    Thank you for this opportunity to submit my comments to the record. 
Please do not hesitate to contact me or members of my staff if I can be 
of any assistance to your Committees or to you and your staffs.
                               __________
                        State Attorneys General
a communication from the chief legal officers of the following states: 
 alaska, california, connecticut, maine, maryland, massachusetts, new 
         hampshire, new jersey, new york, rhode island, vermont
                                                     July 17, 2002.
Hon. George W. Bush,
The White House,
Washington, DC.

Re: Climate Change

    Dear President Bush: Climate change presents the most pressing 
environmental challenge of the 21st century. We applaud the efforts of 
your Administration in the release this May of a formal, comprehensive 
report that details the seriousness of this problem. U.S. Climate 
Action Report 2002, U.S. Dept. of State, Washington, DC, May 2002 
(``Report''). Unfortunately, however, the Administration's current 
policy is inconsistent with the import of the Report's findings by 
failing to mandate reductions of greenhouse gas emissions. To fill this 
regulatory void, States and others are being forced to rely on their 
available legal mechanisms. The resulting combination of State-by-State 
regulations and litigation will necessarily lessen regulatory certainty 
and increase the ultimate costs of addressing climate change, thereby 
making the purported goals of the Administration's current policy 
illusory. For these reasons, we write today to urge you to reconsider 
your position on the regulation of greenhouse gases and to adopt a 
comprehensive policy that will protect both our citizens and our 
economy.
The Report Documents the Need for Dramatic Action
    The Report documents ongoing climate change that will cause 
significant impacts on virtually every aspect of our planet and way of 
life. We already see the signs of such change everywhere. Some are 
dramatic, such as the recent collapse of a portion of the Antarctic ice 
shelf the size of Rhode Island, the open water at the North Pole, or 
millions of acres of spruce trees in Alaska killed by insects. Others 
are less overt, but are also powerful statements of the enormity and 
pervasiveness of the problem. The Report is replete with examples. For 
instance, the Report documents that average temperatures have already 
increased 1 degree Fahrenheit over the past century, and it projects 
that over the next century, average temperatures will likely increase 
5-9 degrees Fahrenheit. Increased temperatures will dramatically change 
climates in every State and destroy some fragile ecosystems. The Report 
also documents that sea levels have already risen 4-8 inches over the 
last century, and it projects that they will likely rise another 4-35 
inches over the next. Rising sea levels will cause more flooding along 
the coast and it will obliterate vital estuaries, coastal wetlands and 
barrier islands. While some areas will face increased storms and storm 
damage, other areas--such as California and other parts of the West--
will face dwindling supplies of water. Of perhaps the most concern, the 
Report documents potential health-related impacts of climate change, 
and a just-published study in the journal Science warns of increased 
risks from insect-borne diseases such as malaria and yellow fever.
    The Report makes it clear that the question of whether global 
climate change is occurring is no longer in doubt, only the precise 
rate of change and the specific impacts of that change. It also 
repeatedly acknowledges that the dominant cause of climate change is 
carbon dioxide produced from the combustion of fossil fuels. Notably, 
the Report projects that greenhouse gas emissions will increase by 43 
percent by 2020. Report at 6. It also notes ``the long lifetimes of 
greenhouse gases already in the atmosphere and the momentum of the 
climate system.'' Report at 82. According to the Report, this means 
that impacts of climate change will continue to be felt for several 
centuries, ``even after achieving significant limitation in emissions 
of CO2 and other greenhouse gases.'' See Report at 103. The 
evidence marshaled in the Report refutes its own counsel of inaction 
and delivers a different message: an effective response to the 
confirmed dangers of global climate change must include immediate 
action to limit greenhouse gas emissions.
The Existing Administration Proposal is Inadequate and Increases 
        Uncertainty
    While we are certainly heartened that the United States has now 
officially recognized the existence and scope of the climate change 
problem, the Administration has yet to propose a credible plan that is 
consistent with the dire findings and conclusions being reported. The 
Administration's one proposal calls for a voluntary reduction of 
greenhouse gas ``intensity'' at roughly the same pace such reductions 
have occurred over the last 20 years. The Report itself strongly 
suggests that such voluntary reductions will be grossly overshadowed by 
existing atmospheric gases and, combined with ongoing and increasing 
emissions, will actually allow the problem to continue to worsen. In 
light of this, the Report implicitly calls this policy approach into 
question. See Report, at 50-51 (stating that there is ``a need to re-
evaluate existing climate change programs to ensure they effectively 
meet future economic, climate, and other environmental goals'').
    Despite conceding that our consumption of fossil fuels is causing 
serious damage and despite implying that current policy is inadequate, 
the Report fails to take the next step and recommend serious 
alternatives. Rather, it suggests that we simply need to accommodate to 
the coming changes. For example, reminiscent of former Interior 
Secretary Hodel's proposal that the Government address the hole in the 
ozone layer by encouraging Americans to make better use of sunglasses, 
suntan lotion and broad-brimmed hats, the Report suggests that we can 
deal with heat-related health impacts by increased use of air-
conditioning. Report at 82. Far from proposing solutions to the climate 
change problem, the Administration has been adopting energy policies 
that would actually increase greenhouse gas emissions. Notably, even as 
the Report identifies increased air conditioner use as one of the 
``solutions'' to climate change impacts, the Department of Energy has 
decided to roll back energy efficiency standards for air conditioners.
    To fill the void left by Federal inaction on this issue, some 
States are now initiating measures, within their borders, to reduce 
greenhouse gas emissions. For example, Massachusetts last year adopted 
State regulations requiring carbon dioxide reductions by power plants, 
and New Hampshire recently enacted ``cap and trade'' legislation. 
California's legislature has just passed a bill that will lead to the 
``maximum feasible'' reductions of carbon dioxide emissions from 
vehicles. New York is also considering a carbon cap. Continued Federal 
inaction will inevitably lead to a wider range of State regulatory 
efforts. In addition, States and others are beginning to review their 
litigation options.
Only Mandatory Federal Carbon Caps of Appropriate Levels Can Provide 
        Regulatory Certainty
    We obviously support our States' regulatory and litigation efforts 
on this issue. At the same time, however, we want to make it clear that 
State-by-State action is not our preferred option. We believe that such 
regulation or litigation will increase the uncertainty facing the 
business community, thus potentially making the most cost-effective 
solutions more difficult. Moreover, we agree that the global nature of 
the climate change problem would be most efficiently addressed by 
comprehensive regulatory action at the national level. A recent 
Department of Energy Report concluded that the United States could 
address carbon dioxide emissions issues with minimal disruption of 
energy supply and at modest cost, but only with fully integrated 
planning. See Energy Information Administration, Office of Integrated 
Analysis and Forecasting, U.S. Department of Energy, ``Analysis of 
Strategies for Reducing Multiple Emissions from Electric Power Plants 
with Advanced Technology Scenarios,'' SR/OIAF/2001-05 (October 2001). 
This integrated planning can only come with regulatory certainty.
    In particular, we believe that a market-based program that would 
cap greenhouse gases holds great promise. Such an approach has a proven 
track record as one effective tool in the regulatory toolbox, as you 
have noted in other contexts. We strongly believe that prompt 
implementation of a market-based approach that caps greenhouse gas 
emissions would promote significant benefits for public health, welfare 
and the environment in a manner that would be consistent with strong 
economic policies.
Conclusion
    We very much appreciate your Administration's formally 
acknowledging the magnitude and nature of the climate change problem. 
In light of the Report's findings, however, we urge you now to rethink 
the Administration's policy response to the problem. While individual 
States are prepared to lead the way, we believe that a strong national 
approach will allow for more efficient solutions that will better 
protect the American economy in the long run. Please do not hesitate to 
contact us on this critical issue.
            Very truly yours,
                    Thomas F. Reilly, Massachusetts Attorney General; 
                            Bruce M. Botelho, Alaska Attorney General; 
                            Bill Lockyer, California Attorney General; 
                            Richard Blumenthal, Connecticut Attorney 
                            General; G. Steven Rowe, Maine Attorney 
                            General; Philip T. McLaughlin, New 
                            Hampshire Attorney General; David Samson, 
                            New Jersey Attorney General; Eliot Spitzer, 
                            New York Attorney General; Sheldon 
                            Whitehouse, Rhode Island Attorney General; 
                            J. Joseph Curran, Jr., Maryland Attorney 
                            General; William H. Sorrell, Vermont 
                            Attorney General.
  

                                
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