[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Rules and Regulations]
[Pages 40609-40616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19550]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51, 52, 96, and 97

[FRL-7023-8]


Availability of Documents for the Response to the Remands in the 
Ozone Transport Cases Concerning the Method for Computing Growth for 
Electric Generating Units

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of data availability for the NOX SIP Call and 
the Section 126 Rule.

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SUMMARY: The EPA is providing notice that it has placed in the dockets 
for the two main rulemakings concerning ozone-smog transport in the 
eastern part of the United States-the Nitrogen Oxides State 
Implementation Plan Call ( NOX SIP Call) and the Section 126 
Rule-data relevant to the remands by the U.S. Court of Appeals for the 
District of Columbia Circuit (D.C. Circuit) concerning growth rates for 
seasonal heat input by electric generating units (EGUs). In both the 
NOX SIP Call and Section 126 rulemakings, EPA determined 
control obligations with respect to EGUs through the same computation, 
which included, as one component, estimates of growth in heat input by 
the EGUs from 1996 to 2007. In two cases decided earlier this year 
challenging the Section 126 rulemaking and a pair of rulemakings that 
made technical corrections to the NOX SIP Call, the D.C. 
Circuit considered challenges to EPA's calculation of the growth 
estimate and its use of growth factors. In virtually identical 
decisions, the Court remanded the growth component to EPA for a better 
response to certain data presented by the affected States and industry 
concerning actual heat input, and for a better explanation of EPA's 
methodology. The EPA is in the process of responding to those remands. 
The EPA's preliminary view is that its growth calculations were 
reasonable and can be supported with a more robust explanation, based 
on the existing record, that takes into account the Court's concerns. 
In addition, EPA is considering new data that have recently been placed 
in the dockets for the NOX SIP Call and Section 126 Rule. 
These new data appear to confirm the reasonableness of the growth 
calculations. The EPA is providing a 30-day period for the public to 
comment on these new data.

DATES: Documents were placed in the docket on or about July 27, 2001. 
The EPA is authorizing a 30-day comment period, ending on September 4, 
2001. Comments must be postmarked by the last day of the comment period 
and sent directly to the Docket Office listed in ADDRESSES below (in 
duplicate form, if possible). In addition, EPA encourages commenters to 
send copies of their comments directly to the contacts identified below 
under the section, FOR FURTHER INFORMATION CONTACT.

ADDRESSES: Comments may be submitted to the Office of Air and Radiation 
Docket and Information Center (6102), Attention: Docket No. A-96-56 for 
the NOX SIP Call and Docket No. A-97-43 for the Section 126 
Rule, U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue 
NW, Washington, DC 20460, telephone (202) 260-7548. The EPA encourages 
electronic submission of comments following the instructions under 
SUPPLEMENTARY INFORMATION of this document. The e-mail address is [email protected]. No confidential business information should be 
submitted through e-mail.
    Copies of all of the documents have been placed in the docket for 
the NOX SIP Call rule, Docket No. A-96-56, and have been 
incorporated by reference in the docket for the Section 126 Rule, 
Docket No. A-97-43. These new documents, and other documents relevant 
to these rulemakings, are available for inspection at the Docket 
Office, located at 401 M Street SW, Room M-1500, Washington, DC 20460, 
between 8 a.m. and 5:30 p.m., Monday through Friday, excluding legal 
holidays. A reasonable fee may be charged for copying. Some of the 
documents have also been made available in electronic form at the 
following EPA website: http://www.epa.gov/airmarkets/fednox/126noda/.

FOR FURTHER INFORMATION CONTACT: Questions concerning today's document 
should be directed to Kevin Culligan, Office of Atmospheric Programs, 
Clean Air Markets Division, 6204M, 1200 Pennsylvania Ave. NW, 
Washington, DC 20460, telephone (202) 564-9172, e-mail 
[email protected]; or Howard J. Hoffman, Office of General 
Counsel,

[[Page 40610]]

2344A, 1200 Pennsylvania Ave. NW, Washington, DC 20460, telephone (202) 
564-5582, e-mail [email protected]. General questions about the 
Section 126 Rule or the NOX SIP Call may be directed to 
Carla Oldham, Office of Air Quality Planning and Standards, Air Quality 
Strategies and Standards Division, MD-15, Research Triangle Park, NC, 
27711, telephone (919) 541-3347, e-mail [email protected].

SUPPLEMENTARY INFORMATION:

Submitting Electronic Comments

    Electronic comments are encouraged and can be sent directly to EPA 
at [email protected]. Electronic comments must be submitted as an 
ASCII file avoiding the use of special characters and any form of 
encryption. Comments will also be accepted on disks in WordPerfect 8.0 
or ASCII file format. All comments in electronic form must be 
identified by Docket No. A-96-56 for the NOX SIP Call and 
Docket No. A-97-43 for the Section 126 Rule. Electronic comments may be 
filed online at many Federal Depository Libraries.

Outline

I. Background
    A. Rulemakings
    1. NOX SIP Call
    2. Technical Amendments
    3. Section 126 Rulemaking
    B. Court Decisions; Remands
    1. Michigan v. EPA (NOX SIP Call)
    2. Appalachian Power v. EPA (Section 126 Rule)
    3. Appalachian Power v. EPA (Technical Amendments)
II. New Documents
III. EPA's Response to Remands
    A. Actual Heat Input; Reasons for State-by-State Fluctuations
    B. Reasons for Calculated Approach
    C. Growth Factor
    D. Consistency of Use of Heat Input Growth Factors for Budget 
Purposes and for Cost Purposes
    E. Utilities' Multi-State Operations
IV. Comments

I. Background

A. Rulemakings

1. NOX SIP Call
    In a final action published October 27, 1998, EPA promulgated, 
``Finding of Significant Contribution and Rulemaking for Certain States 
in the Ozone Transport Assessment Group Region for Purposes of Reducing 
Regional Transport of Ozone,'' 63 FR 57356 (the NOX SIP 
Call). This rulemaking was the culmination of a multi-year study--begun 
by a cooperative group of States, industry, and citizen groups called 
the Ozone Transport Assessment Group (OTAG)--of the causes and extent 
of ozone-smog transport in the eastern half of the United States. In 
the NOX SIP Call, EPA determined that NOX 
emissions from 22 States and the District of Columbia contributed 
significantly to ozone nonattainment problems downwind, under Clean Air 
Act (CAA) section 110(a)(2)(D). Accordingly, EPA promulgated a 
requirement that each of the 23 jurisdictions submit a SIP revision 
containing controls that would yield specified levels of NOX 
emissions reductions, and thereby eliminate that jurisdiction's 
significant contribution.
    Under the rulemaking, the appropriate level of NOX 
reductions is the amount of NOX emissions that could be 
eliminated through use of highly cost-effective controls. In the 
NOX SIP Call, EPA did not require States specifically to 
impose controls on any particular sources, but rather EPA determined 
the amount of emissions reductions that would correspond to the 
implementation of highly cost-effective controls, and required States 
to submit SIP revisions that provide for that amount of reduction. 
Although EPA determined the amount of required reduction by examining 
several categories of sources, EPA based most of its required emissions 
reductions on the availability of highly cost-effective controls for 
large EGUs.
    In studying EGU NOX emissions and associated issues, EPA 
relied heavily on a computerized simulation of the electric utility 
industry termed the Integrated Planning Model (IPM).\1\ The IPM used by 
EPA covers 48 contiguous U.S. States and incorporates information over 
a multi-year period as to expected demand for electricity, the physical 
characteristics of electricity generators, transmission grids, 
characteristics of the fuels used, amounts of NOX and other 
pollutant emissions, types of emissions controls, and the various costs 
involved. Based on these inputs, the IPM provides reasonable 
projections, over a multi-year period, of, among other things, the 
amount of electricity generation that will be needed in various areas, 
which sources will generate how much electricity, to which region that 
electricity will be transmitted, what amounts of heat input will be 
needed, the amount of pollution that will be emitted, what pollution 
controls will be required on which sources, what costs will be 
incurred, and how much new generation capacity will be built in various 
regions.
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    \1\ IPM and the manner in which EPA programmed it is discussed 
in ``Report on Analyzing Electric Power Generatin Under the CAAA,'' 
A-96-56, V-C-03 (March 1998).
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    For the NOX SIP Call, EPA conducted the IPM simulations 
for the years 2001 to 2020, inclusive. Further, EPA programmed the 
model to provide detailed data outputs for the years 2001, 2003, 2007, 
2010, and 2015. Of particular relevance for present purposes, IPM 
provided projections for heat input for 2001 and 2010, as well as 
projected NOX emissions for 2007.
    EPA determined the amount of reductions attributable to EGUs as 
highly cost effective in the following manner: For each of the 23 
jurisdictions, EPA determined the amount of actual heat input used by 
all large EGUs in the jurisdiction during the 1995 and 1996 ozone 
seasons. EPA selected the higher of the 1995 or 1996 amounts as the 
baseline heat input. EPA then applied a growth factor to this baseline 
amount, to grow it from the 1996 level (which, for some States, 
included the 1995 amount) to a 2007 base level. EPA determined the 
growth factor by determining the average annual growth rate in heat 
input projected by IPM between the years 2001 and 2010 inclusive.
    EPA then applied to the 2007 projected heat input, the control 
level that EPA determined to be highly cost effective. This calculation 
yielded an amount of NOX emissions, which may be referred to 
as the 2007 EGU Budget. EPA subtracted this amount from the amount of 
NOX emissions IPM had projected for 2007 without assuming 
NOX controls. The remainder constituted a portion of the 
amount of NOX emissions reductions--the portion attributable 
to EGUs--that each jurisdiction was required to achieve.
2. Technical Amendments
    When it promulgated the NOX SIP Call rule, EPA decided 
to reopen public comment on the source-specific data used to establish 
each State's 2007 EGU Budget (63 FR at 57427). EPA further extended 
this comment period by notice dated December 24, 1998 (63 FR 71220). 
EPA indicated that it would entertain requests to correct the 2007 EGU 
Budgets to take into account errors or updates in some of the 
underlying emissions inventory and certain other specified data (63 FR 
at 57427).
    Following its review of the comments received, EPA published a 
rulemaking providing Technical Amendments to, among other things, the 
2007 EGU Budgets. ``Final Rule; Technical Amendment to the Finding of 
Significant Contribution and Rulemaking for Certain States for Purposes 
of Reducing Regional Transport of Ozone,'' (64 FR 26298; May

[[Page 40611]]

14, 1999). In response to additional comments received, EPA published a 
second rulemaking, making additional Technical Amendments to the 2007 
EGU Budgets. ``Final Rule; Technical Amendment to the Finding of 
Significant Contribution and Rulemaking for Certain States for Purposes 
of Reducing Regional Transport of Ozone,'' (65 FR 11222; March 2, 
2000). (These two rulemakings may be referred to, together, as the 
Technical Amendments.) In promulgating the Technical Amendments, EPA 
kept intact its method for determining the 2007 EGU Budgets, including 
the method for determining growth to 2007. EPA simply made adjustments 
concerning whether particular sources were large EGUs, and made the 
appropriate adjustments in the 1996 baseline (which included 1995 heat 
input values for some States) for those sources.
3. Section 126 Rulemaking
    In a final action published January 18, 2000, EPA granted petitions 
from four Northeast States making findings that NOX 
emissions from large EGUs, among other sources, in 12 Midwest, 
Southeast, and Northeast States and the District of Columbia 
contributed significantly to ozone nonattainment in the petitioning 
Northeast States. ``Findings of Significant contribution and Rulemaking 
on Section 126 Petitions for Purposes of Reducing Interstate Ozone 
Transport,'' 65 FR 2674 (Section 126 Rule). As a remedy, EPA 
promulgated control requirements for the EGUs. These control 
requirements were based on the 2007 EGU Budgets from the NOX 
SIP Call (as revised by the Technical Amendments). Specifically, EPA 
established a 2007 EGU Budget for each affected State, and then 
allocated the State's 2007 EGU Budget to each of the large EGUs in the 
State, according to a formula.

B. Court Decisions; Remands

    All three sets of rulemakings--the NOX SIP Call, the 
Technical Amendments, and the Section 126 Rule--were challenged by 
various groups of States and industries in the U.S. Court of Appeals 
for the District of Columbia Circuit (the D.C. Circuit).
1. Michigan v. EPA (NOX SIP Call)
    On March 3, 2000, a panel of the D.C. Circuit largely upheld the 
NOX SIP Call in Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 
2000). Although partially vacating and remanding the SIP Call on 
certain specific issues, the Court generally upheld the regulatory 
approach adopted by EPA, including finding that EPA reasonably 
interpreted the CAA as ``providing it with the authority to determine a 
state's NOX significant contribution level,'' as reflected 
in each State's budget. Id. at 687. No party to that litigation 
specifically raised any issue concerning the EPA's method for computing 
the growth component for the EGU Budget.
2. Appalachian Power v. EPA (Section 126 Rule)
    On May 15, 2001, a panel of the D.C. Circuit largely upheld the 
Section 126 Rule in Appalachian Power v. EPA, 249 F.3d 1032 (D.C. Cir. 
2001). In response to a direct challenge by parties to EPA's method for 
determining EGU growth rates, the Court remanded that part of the rule 
to EPA.
    At the outset, the Court turned aside a challenge by the Midwest 
and Southeast States that EPA's emissions growth projections were 
arbitrary and capricious because they relied on IPM growth projections 
that were significantly lower than certain individual state 
projections. The Court upheld ``EPA's judgment [that] the IPM offered a 
more comprehensive and consistent means of allocating emission 
allowances than sorting through the various state-specific 
projections.'' Id. at 1053.
    However, the Court went on to remand EPA's EGU growth projections. 
The Court objected that EPA never articulated why it adopted its 
methodology for projecting growth. In addition, the Court noted 
information provided by the petitioners challenging the rule that--

    EPA's projections significantly underestimated growth rates in 
some States. In Michigan and West Virginia, for example, actual 
utilization in 1998 already exceeded the EPA's projected levels for 
2007.

    The Court stressed that ``future growth projections that implicitly 
assume a baseline of negative growth in electricity generation over the 
course of a decade appear arbitrary,'' and that EPA did not provide a 
record explanation of this disparity.\2\
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    \2\ EPA did observe that heat input may vary from year to year, 
but the Court found ``no plausible explanation for how interannual 
variation can explain utilization rates in 2007 substantially lower 
than those observed in 1998.''
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    The Court then observed that although EPA relied on IPM projections 
for the 2001-2010 period, EPA had admitted that it had IPM projections 
for 2007, as well as for the 1996-2001 period. The Court quoted 
statements in EPA's Response to Comments document indicating that EPA 
relied on the 2001-2010 IPM growth projections to grow emissions from 
1996 and thereby determine the 2007 EGU budgets, but then relied on IPM 
growth projections for 1996-2001 and 2001-2010 to analyze the costs of 
complying with those budgets. The Court concluded that EPA failed to 
explain why it used two sets of growth rates for different purposes.\3\ 
For these reasons, the Court remanded ``so that the agency may fulfill 
its obligation to engage in reasoned decisionmaking on how to set EGU 
growth factors and explain why results that appear arbitrary on their 
face are, in fact, reasonable determinations.'' Id. at 1053-55.
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    \3\ As described below, EPA's statements in the Response to 
Comments document that it relied on IPM growth proections for 1996-
2001 were misleading.
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3. Appalachian Power v. EPA (Technical Amendments)
    On June 8, 2001, a third panel of the D.C. Circuit decided 
challenges to the Technical Amendments. Appalachian Power Company v. 
EPA, 251 F.3d 1026 (D.C. Cir. 2001). Although largely upholding the 
Technical Amendments, the Court remanded the EGU growth rates. The 
Court recognized that it ``confronted nearly identical challenges to 
the EPA's use of growth factors to estimate baseline NOX 
emissions for 2007 in the section 126 litigation,'' and remanded for 
the same reasons. Id. at 1034-35.

II. New Documents

    EPA is placing the information described below in the docket. This 
information is being placed in the NOX SIP Call rulemaking 
docket, A-96-46; and incorporated by reference into the Section 126 
rulemaking docket, A-97-43, II-L-01.
    1. 1995 through 2000 ozone season heat input values for EGUs, at 
the unit level, in the SIP Call Region. For units subject to the Acid 
Rain Program, these values were calculated based on hourly data 
reported to EPA for compliance with the Acid Rain Programs. For other 
units not subject to the Acid Rain Program, these values were based on 
monthly data reported to the Energy Information Administration (EIA). 
The 1995 and 1996 unit level data is the same data used during the SIP 
Call rulemaking. Most of the 1997 and 1998 data was placed in the 
docket as part of the Section 126 rulemaking, but data for some 
additional units for those years has been added. In addition, post-1998 
data has been added. Docket no. A-96-56, XIV-C-01. Table 1 summarizes 
1995-2000 ozone season heat input values for EGUs on a State-by-State.
BILLING CODE 6560-50-P

[[Page 40612]]

[GRAPHIC] [TIFF OMITTED] TR03AU01.000

BILLING CODE 6560-50-C

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    2. Ozone season utility sales data for the years 1995--2000, as 
reported to EIA. Docket no. A-96-56, XIV-C-02.
    3. Generation data for various sources for 1995-2000, as reported 
to EIA:
    a. Generation data-utility ozone season fossil-fuel net generation. 
Docket no. A-96-56, XIV-C-03.
    b. Generation data-utility ozone season hydroelectric net 
generation. Docket no. A-96-56, XIV-C-04.
    c. Generation data-utility ozone season nuclear net generation. 
Docket no. A-96-56, XIV-C-05.
    4. EIA State summaries of information related to electrical 
generation and use (1988, 1993, and 1998)
    a. Historic annual power generation and sales. Docket no. A-96-56, 
XIV-C-06.
    b. Historic fossil-fuel-fired generation and all generation. Docket 
no. A-96-56, XIV-C-15.
    5. ``Power Companies Efforts to Comply with the NOX SIP 
Call and Section 126,'' NESCAUM (May 31, 2001). This document 
summarizes published reports regarding power companies' intentions to 
install selective catalytic reduction (SCR) to meet the requirements of 
the NOX SIP Call. Docket no. A-96-56, XIV-C-07.
    6. Information as to the geographic location of units owned by 
particular utility companies. Docket no. A-96-56, XIV-C-08.
    7. Information concerning effectiveness of SCR in achieving 
emissions reductions greater than 90 percent.
    a. Press release from American Electric Power (AEP) announcing 
plans to install SCR at the John E. Amos Plant and the Mountaineer 
Plant (Jan. 29, 2000). Docket no. A-96-56, XIV-C-09.
    b. Press release from AEP announcing plants to install SCR at the 
Big Sandy Plant (April 6, 2000). Docket no. A-96-56, XIV-C-10.
    c. ``Commissioning Experience on the SCR Retrofit at Pennsylvania 
Power and Light's 775 MW Montour Station Unit 2, ``Tom Robinson, 
Babcock Borsig Power Inc., presented at 2001 Conference on Selective 
Catalytic Reduction and Non-Catalytic Reduction for NOX 
Control, May 16-18, 2001. Docket no. A-96-56, XIV-C-11.
    d. ``First Year's Operating Experience with SCR on 600 MW PRB-Fired 
Boiler,'' Dave Harris, Black and Veatch, presented at 2001 Conference 
on Selective Catalytic Reduction and Non-Catalytic Reduction for 
NOX Control, May 16-18, 2001. Docket no. A-96-56, XIV-C-12.
    8.a. ``Review of Potential Efficiency Improvements at Coal Fired 
Power Plants,'' April 17, 2000. Docket no. A-96-56, XIV-C-13.
    b. ``Increasing Electricity Availability from Coal-Fired Generation 
in the Near Term,'' National Coal Council, May 2001. Docket no. A-96-
56, XIV-C-14.
    9. ``The Changing Structure of the Electric Power Industry--2000; 
An Update'', Energy Information Administration (October 2000). Docket 
no. A-96-56, XIV-C-16.
    EPA may place additional documents in the docket, and if EPA does 
so, EPA will announce their availability by posting a notice on the 
http://www.epa.gov/airmarkets/fed NOx/126noda/. web site.

III. EPA's Response to Remands

    EPA is considering its response to all issues raised by the Court 
in its remand of the EGU growth issue. Our preliminary view, based on 
the record in the NOX SIP Call and Section 126 rulemakings, 
is that EPA's growth rate methodology was reasonable. As a result, we 
intend to provide a more robust rationale for that methodology, taking 
into account the concerns expressed by the Court. We are also examining 
additional data. Our preliminary review of that data indicates that 
they appear to confirm the reasonableness of the growth rate 
methodology. We invite comment on the new data.
    As described above, to determine each State's 2007 EGU Budget, EPA 
began with each State's heat input, expressed in million Btu (per ozone 
season for large fossil-fuel-fired units), for 1995 and 1996, and chose 
the higher of those two amounts as the 1996 baseline for that State. 
EPA then computed a growth factor equal to the average annual increase 
in heat input predicted by IPM for that State from 2001 to 2010. EPA 
applied each State's growth factor to each State's baseline, to grow 
the baseline from 1996 to 2007. EPA then applied the emission rate of 
0.15 pounds of NOX per million Btu to each State's predicted 
2007 heat input. The result is each State's 2007 EGU Budget, expressed 
in tons of NOX emissions per ozone season.
    As described above, the Court expressed several concerns with EPA's 
growth rate methodology. In particular, the Court was concerned that 
some States had higher levels of heat input in 1998 than EPA had 
projected for 2007. More broadly, the Court was concerned that EPA did 
not adequately explain why it used its method, rather than another 
method, including the direct use of IPM's projected 2007 heat input. 
The Court was also concerned with EPA's explanation of why the accuracy 
of its projections on a regional level offset possible inaccuracies in 
individual State projections. Finally, the Court was also troubled by 
EPA's apparent use of two different sets of growth rates for different 
purposes (the establishment of the budgets and the analysis of the 
costs of the control measures).

A. Actual Heat Input; Reasons for State-by-State Fluctuations

    To begin to address the Court's concerns that some States' actual 
heat input levels already exceed EPA's projections for 2007, we are 
examining available data concerning actual heat input for the affected 
States. These include the amounts of actual heat input for each state 
affected by the SIP Call and Section 126 rulemakings for the years 
1995-2000. A summary table of these amounts is included in Table 1 
above.
    In the Section 126 Case, some litigants identified two States, 
Michigan and West Virginia, as having actual heat input in 1998 higher 
than EPA's 2007 projection, which led the Court to express concern 
about the accuracy of EPA's method of projecting growth. We note, 
however, that both States had actual heat input in 2000 that was more 
consistent with what EPA projected for the year 2007. Michigan's 2000 
heat input was substantially lower than its heat input in 1998 as well 
as the 2007 projection. West Virginia's heat input for 2000 was also 
lower than in 1998 or 1999. This indicates that there can be 
considerable variability in the year-by-year heat input amounts for 
individual States.
    Indeed, a review of the State-by-state heat input amounts for the 
years 1995 to 2000 in Table 1 does indicate that many States 
experienced substantial fluctuations on a year-by-year basis as well as 
sharply differing multi-year patterns from each other. To return to 
Michigan, that State's heat input fell between 1995 to 1997, rose 
substantially in 1998, and fell again during 1999 and 2000. Indiana's 
heat input rose steadily from 1995 to 1999, but in 2000, fell to 1996 
levels. New Jersey's pattern was almost the opposite of Indiana's.
    Many factors may combine to cause heat input amounts for any 
particular State for any particular year to vary widely over a short-
term period. These factors include, among others,
     Forced outages (generating units may be required to shut 
down for unexpected reasons, which would shift heat input to another 
State);
     Variations in energy costs (e.g., a drop in natural gas 
prices may attract generation to natural gas fired units in

[[Page 40614]]

one State and away from coal fired units in another State);
     The implementation of environmental controls by the 
sources in one State (which may shift heat input to another State);
     The start-up of new units that are more efficient (and 
thereby take up more generation and reduce overall heat input);
     Electricity transmission problems (which may require a 
State that imports electricity to do so from a different geographic 
area, which may, in turn, result in heat input shifts);
     Weather patterns;
     Economic variability (industry in one region may 
experience a boom and require more electricity);
     Variations in availability of non-fossil-fuel-fired units, 
including nuclear or hydropower.
    It should be noted that fossil fuel heat input growth and decreases 
do not directly correlate to growth and decreases in electricity 
generation.\4\ Indeed, from 1998-2000, electricity generation in the 
SIP Call area increased, but heat input decreased. These results seem 
to be attributable in part to some of the factors noted above, 
including the greater efficiency in 2000 of some units, and greater 
reliance in 2000 on nuclear or other non-fossil-fuel fired units. 
Short-term swings in fuel costs and electricity demand (either of which 
could be related to the weather, among many other factors) could also 
result in significant year-by-year, and State-by-state, variations in 
heat input. To further analyze the difference between heat input and 
electricity generation, EPA is reviewing electrical generation and 
electrical sales data compiled by EIA.
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    \4\ In the Section 126 Case, the Court noted that EPA's method 
implicitly assumed negative growth in ``electricity generation'' 
over the course of a decade. The Court appears to have confused 
electricity generation with heat input. 249 F.3d at 1053.
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    It should be emphasized that EPA's method for projecting heat input 
for the year 2007 was not designed to predict accurately heat input on 
a state-by-state basis for years before 2001. This is because some of 
the assumptions built into the IPM model for the later years in the 
2001-2010 period may differ from what exists in the pre-2001 period. 
For example, in 1998, utility boilers subject to Phase II of Title IV 
of the Clean Air Act (the Acid Rain Program), were not constrained by 
any emission limitations under the Acid Rain Program. By 2007, these 
units will be subject to both SO2 and NOX 
limitations. These limits are likely to increase operating costs. As a 
result, the state-by-state pattern of heat input projected by the IPM 
model once these limits are in place would differ from the pattern of 
heat input that would occur during the pre-2001 period.
    In particular, the different schedules for implementation of 
NOX emission controls required by individual States appear 
to have been a factor contributing to the significant fluctuations in 
heat input levels seen during the 1998-2000 period. During these years, 
EGUs in the Northeast States were implementing controls at levels that 
generally are more stringent than those required in the rest of the SIP 
Call region. For the most part, sources in the Midwest and Southeast 
were not yet implementing the Section 126 Rule-level controls. In some 
instances, sources in these three regions compete against each in the 
same transmission grids. This difference in timing of control costs 
could be expected to give EGUs in the Midwest and Southeast a 
competitive advantage over their Northeast counterparts, which would 
constitute one factor leading towards higher heat input levels in those 
States, and lower levels in the Northeast, during this time. 
Implementation by the Midwest and Southeast utilities of the section 
126 or NOX SIP Call controls in the coming years would be a 
factor leading towards lower heat input in those States, and higher 
heat input in the Northeast States.
    Although these differences in control assumptions would lead to 
different patterns of heat input on a state-by-state basis in 2000 than 
in 2007, they would not have as significant an impact on regionwide 
heat input. For this reason, EPA continues to believe that regionwide 
heat input figures are a better measure of the accuracy of EPA's 
methodology for growth calculations than state-by-state figures.
    Most importantly, we note that if our method were applied to the 
year 2000, that is, if our growth factor were applied to grow the 1996 
baseline out to 2000, our prediction of regionwide heat input would be 
6,250,350,677 mmBtu. Compared to the actual heat input of 6,228,694,532 
mmBtu, our projection differed by less than 0.5 percent. EPA fully 
realizes that regionwide heat input may vary significantly year-to-year 
due to various factors that are difficult to predict. For example, 
regionwide heat input was higher in 1998 and 1999 than in 2000, a 
phenomenon that we believe may have been due in part to unseasonably 
hot summer weather in 1998 and 1999 in significant portions of the 
NOX SIP Call region, strong economic conditions, and the 
temporary shut-down of large non-fossil-fuel powered generation 
resources such as the Cook Nuclear Power Plant in Michigan. Even so, we 
believe that the match-up of the 2000 actual heat input figure and the 
figure that our growth rate would have projected does suggest that our 
method is within the range of reasonable accuracy.

B. Reasons for Calculated Approach

    Our method constitutes a calculated method, which relies on both a 
baseline amount and a growth factor. EPA selected this approach, 
instead of others, such as directly using IPM's projected 2007 heat 
input, for several reasons. In particular, the baseline component of 
this method offers several advantages. First, because EPA chose for the 
baseline actual heat input for the 1995 or 1996 year, the baseline is 
reality based. As a result, this baseline necessarily gives the EPA 
method a more accurate beginning point than any model could provide.
    Moreover, using a calculation method with a baseline based on 
actual heat input in a given year created the opportunity to mitigate a 
significant problem inherent in heat projection methodology: large, 
year-to-year swings in projected heat input on an individual state 
basis. That is, the amount of heat input for any given year could 
fluctuate widely from the year before or the year after due to an 
unusual confluence of factors. This phenomenon gives rise to risk that 
in 2007, an individual State might have an unusually high heat input. 
Mindful of this risk, EPA, in selecting the baseline for each State, 
selected the higher of 1995 or 1996 actual heat input. By giving States 
an artificially higher baseline, the EPA method allowed a cushion to 
protect States and sources against undue fluctuations in heat input.
    Finally, the EPA method readily allowed for updates of the baseline 
when revised or more detailed information for individual sources became 
available during the rulemaking. At the outset of the rulemaking 
process for the NOX SIP Call, EPA gathered the most accurate 
information available concerning the heat input of EGUs as of 1995. 
However, EPA was aware that this information would be subject to 
updating and refinement. Indeed, States and sources provided EPA with a 
steady stream of revisions to this baseline data, which resulted in the 
publication of a supplemental notice of proposed rulemaking for the SIP 
Call, extensions of the comment periods, and two rulemakings providing 
Technical Amendments. EPA found it much more practical to accommodate 
these updates by periodically updating the baseline

[[Page 40615]]

number (and thereby moving it up or down) and arithmetically 
recomputing the 2007 EGU budget for the State, rather than to input 
revised data into the IPM and re-run the model, which would be 
expensive and time-consuming.

C. Growth Factor

    To the baseline, EPA applied a growth factor based on IPM 
projections for heat input from 2001 to 2010. Specifically, as noted 
above, for each State, EPA divided the heat input projected for the 
year 2010 by the heat input for the year 2001. EPA then arithmetically 
converted this 9-year growth factor to an 11-year growth factor, and 
used it to grow the 1996 baseline (including, if higher, the 1995 heat 
input) to 2007.
    At the outset, it should be noted that EPA considered a growth rate 
based entirely on modeled projections for both beginning point (in this 
case, 2001) and end point (in this case, 2010) to be the most accurate 
method possible. EPA chose not to develop a growth rate based on a 
State's actual 1996 baseline heat input as the beginning point and a 
modeled heat input projection (for example, the IPM projection for 2007 
heat input) as the end point. The reason is simply that either method 
would need to rely on the modeled endpoint; and the modeled endpoint 
would necessarily include some degree of systemic inaccuracy due to the 
need to make simplifying assumptions in a model that may vary from the 
real world, or due to unavoidable inaccuracies of the model. EPA 
believed that these limitations may be mitigated to some extent if both 
a modeled beginning point and end point were used. On the other hand, 
if an actual beginning point and a modeled end point are used, the 
limitations of the model could be exaggerated.
    For example, in many cases, EPA depended on information from 
various sources concerning the electricity generating capacity of the 
EGUs. If the information provided to EPA concerning a particular source 
were incorrectly high, IPM would project incorrectly higher electricity 
generation from the EGU, which, in turn, would lead IPM to project 
incorrectly high heat input for the State in which the EGU is located. 
With a modeled beginning point (2001 heat input projection) and end 
point (2010 heat input projection), the effect of this error would, as 
a matter of arithmetic, be minimized. By comparison, with an actual 
beginning point (e.g., a 1996 actual baseline), the incorrectly higher 
heat input in the modeled endpoint would be a factor tending towards 
greater inaccuracy.
    In understanding why EPA selected the years 2001 to 2010, it is 
important to recognize that in promulgating the NOX SIP 
Call, EPA programmed IPM to project heat input and other output for 
certain years between 2000 and 2021, but not for any years prior to 
2001.\5\ IPM's projections, which included heat input, NOX 
emissions, control costs, and other outputs, were important for 
regulatory purposes in and after the year 2001, but not before. To have 
generated outputs, such as heat input, for years prior to 2001 would 
have required a large number of inputs for those years, such as 
availabilities of various types of generation units (fossil-fuel fired, 
nuclear, hydropower, or renewable), fuel costs, costs to build new 
units, and performance characteristics of new units. Developing those 
inputs for the earlier years would have been costly. Furthermore, 
increasing the length of the model's projection period increases the 
complexity of the programming for the model. To run the model, EPA must 
make certain simplifying assumptions (such as combining units, as noted 
above). Adding run years may have required making more simplifying 
assumptions, such as the number of control options available to plants. 
More simplifying assumptions would reduce the accuracy of the modeled 
projections. EPA did not believe that reprogramming the model to 
calculate heat input for earlier years was worth these tradeoffs. 
Accordingly, EPA programmed IPM to provide outputs for only during and 
after 2001.
---------------------------------------------------------------------------

    \5\ EPA stated in a Response to Comments document that it had 
relied on IPM ``growth rates'' for 1996-2001 for purposes of 
determining cost effectiveness. Upon further review, EPA realizes 
that those statements were ambiguous and confusing. ``Responses to 
Significant Comments on the Proposed Findings of Significant 
Contribution and Rulemaking on Section 126 Petitions for Purposes of 
Reducing Interstate Ozone Transport,'' A-97-43, VI-C-01, at 112-13. 
EPA intended to refer to IPM projections for growth in demand for 
electricity, not growth in heat input.
---------------------------------------------------------------------------

    In selecting the post-2000 period upon which to rely for the growth 
factor, EPA decided to rely on the 2001 to 2010 period, instead of, for 
example, the 2001 to 2007 period. Cognizant that its task was to 
project average annual growth over an 11-year period, from 1996 to 
2007, EPA believed that relying on a projection over a 9-year period, 
2001-2010, was a reasonably accurate way to do so. The nine-year period 
for projecting growth seemed to be a reasonably close approximation to 
the 11-year period, 1996-2007, for which the growth projection was 
required. Although relying on the 2001-2007 period would have had the 
advantage of leaving the end-point of the projection period (2007) the 
same as the year for which the projection was being made, this shorter, 
six-year period would have been further afield from the 11-year period 
for which the growth projection was required.

D. Consistency of Use of Heat Input Growth Factors for Budget Purposes 
and for Cost Purposes

    In the Section 126 Case, the Court expressed concern that EPA had 
used the EPA Growth Method to determine 2007 levels of heat input for 
purposes of establishing State budgets, but EPA had relied on IPM 
projections for 2007 heat input for purposes of developing EPA's cost 
estimates. The Court based this view on statements EPA made in the 
Response to Comments document, noted above. The Court concluded that 
EPA offered no cogent explanation for using different sets of growth 
rates for different purposes. 249 F.3d at 1054.
    EPA's statements in the Response to Comment document are discussed 
above, and EPA acknowledges that those statements are ambiguous and 
confusing. In fact, however, EPA did not use IPM 2007 heat input 
projections as an input for purposes of determining cost estimates. 
Rather, EPA relied on its own projections for 2007 heat input for 
calculating the budget, and then used IPM to test the cost 
effectiveness of that budget. The following summarizes EPA's 
procedure.\6\
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    \6\ EPA discussed its procedure in the proposal for the 
NOX SIP Call rulemaking, 62 FR 60318, 60350-60353 
(November 7, 1997).
---------------------------------------------------------------------------

    First, EPA computed its projection for each State's 2007 heat 
input, using the EPA Growth Method. Then, to determine the emission 
rate that was highly cost effective and, at the same time, to determine 
the costs of that emission rate, EPA applied, one at a time, different 
emissions rate limits to each State's 2007 heat input. For example, EPA 
applied the emission rates of 0.12 lbs/mmBtu (that is, 0.12 pounds of 
NOX emitted per million British thermal units), 0.15 lbs/
mmBtu, 0.2 lbs/mmBtu, and others. Application of each emission rate 
yielded, for each State, a different amount of emissions (the ``2007 
Control Case Emissions''). EPA added the 2007 Control Case Emissions 
for each State for each emission rate applied, which resulted in 
amounts of regionwide NOX emissions that varied with the 
different emission rates applied. Thus, EPA determined the amount of 
regionwide NOX emissions that would result from a 0.12 lbs/
mmBtu emission rate, the amount of regionwide NOX emissions 
that would result from a 0.15 lbs/mmBtu emission

[[Page 40616]]

rate, and so on. EPA input into IPM the amount of regionwide 
NOX emissions that corresponded to each emission rate-which 
amounted to a constraint on NOX emissions--and then EPA ran 
IPM for each amount of the regionwide NOX emissions 
constraint. This determined the cost of generating electricity with the 
constraint of the regionwide NOX emissions level being 
tested. Then, EPA subtracted that cost from the cost of generating 
electricity in 2007 that IPM projected without any NOX 
emissions constraints. In this manner, EPA was able to compute a cost 
figure for the controls necessary to assure that regionwide, no more 
than the specified amount of NOX would be emitted. EPA 
compared the cost figures for each of the IPM runs, and selected the 
figure that EPA considered to be highly cost effective. This figure was 
the emission rate of 0.15 lbs/mmBtu. EPA assigned to each State an EGU 
budget based on the same methodology--the use of an 0.15 lbs/mmBtu 
emission rate and the EPA 2007 growth projection for heat input. Thus, 
EPA used the same determination of each State's 2007 heat input for the 
purpose of determining both costs and each State's budget.

E. Utilities' Multi-State Operations

    EPA is aware that many utilities have operating units in several 
States that are linked to the same transmission grid. As a result, 
utilities are able to alter dispatches from one unit to another, and 
thereby minimize costs while maintaining the same level of electricity 
generation. According to the Energy Information Administration (EIA), 
``By the end of 2000, the number of electric holding companies will 
decrease to 53 and the generation capacity they own will increase to 
about 86 percent of the total investor owned utility capacity, 
primarily because of mergers and acquisitions. This statistic suggests 
that relatively large companies are becoming even larger.'' The 
Changing Structure of the Electric Power Industry--2000; An Update, EIA 
(October 2000). http://www.eia.doe.gov/cneaf/electricity/chg_stru_update/update2000.pdf p. 91. This statement indicates that an 
increasing amount of the generation capacity is owned by companies with 
multistate operations. EPA's preliminary review indicates that over 60 
percent of the capacity in the SIP Call Region is owned by companies 
that operate generating units in two or more States. The American 
Electric Power Company, for example, owns units in numerous States, 
including six in the SIP Call region. The fact that many utilities 
operate units in different States appears to soften the adverse impact 
if EPA's projected heat input for 2007 for individual States are not 
completely accurate.

IV. Comments

    EPA is soliciting comments on the new data placed in the docket and 
set out in Table 1 above. EPA asks that commenters provide us with 
their comments by September 4, 2001. EPA intends to complete its 
response to the Court's remands by or about mid-November, 2001.
    The EPA is not soliciting comment on IPM itself or on state-
specific approaches for determining 2007 heat input levels. EPA 
understands the Court's opinion to have held as reasonable EPA's 
reliance on IPM as a regionally uniform methodology for determining 
each States 2007 EGU Budget. In addition, EPA is reviewing the actual 
heat input data in Table 1 solely in the context of the growth rate 
issue, and EPA is not re-opening any issues related to allowances 
allocated under the Section 126 Rule or the amount of the 1996 baseline 
determined under the NOX SIP Call Rule.

    Dated: July 27, 2001.
John Seitz,
Director, Office of Air Quality Planning and Standards.
[FR Doc. 01-19550 Filed 8-2-01; 8:45 am]
BILLING CODE 6560-50-P