[Federal Register Volume 67, Number 84 (Wednesday, May 1, 2002)]
[Rules and Regulations]
[Pages 21868-21901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10404]



[[Page 21867]]

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Part IV





Environmental Protection Agency





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40 CFR Parts 51, 52, et al.



Response to Court Remand on NOX SIP Call and Section 126 
Rule; Final Rule

  Federal Register / Vol. 67, No. 84 / Wednesday, May 1, 2002 / Rules 
and Regulations  

[[Page 21868]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51, 52, 96, and 97

[FRL-7203-3]


Response to Court Remand on NOX SIP Call and Section 
126 Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Response to court remand of rules.

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SUMMARY: In today's document, EPA is responding to two court decisions 
directing EPA to reconsider heat input growth rates projected and used 
in setting nitrogen oxides (NOX) emission budgets in two 
rules designed to reduce interstate transport of ozone and 
NOX, an ozone precursor. After reviewing the heat input 
growth rates and considering the court decisions and additional 
comments, EPA has decided to continue to use the heat input growth 
rates developed in the rules. One rule, the NOX State 
Implementation Plan Call (NOX SIP Call) under Section 110 of 
the Clean Air Act (CAA), set ozone season NOX emission 
budgets based, in part, on emissions reductions calculated for large, 
fossil fuel-fired electric generating units (EGUs) in 22 States and the 
District of Columbia. The second rule, issued in response to petitions 
by northeastern States under Section 126 of the CAA (Section 126 Rule), 
included ozone season NOX emission budgets for EGUs in 12 
States and the District of Columbia. The U.S. Court of Appeals for the 
District of Columbia Circuit (the Court) remanded the heat input growth 
rates to EPA to either properly justify the growth rates currently used 
by EPA or to develop and justify new growth rates. After reviewing the 
matter, EPA believes that the methodology used in developing the heat 
input growth rates and the resulting growth rates are reasonable based 
on the information available at the time the rules were issued, 
confirmed by new information concerning activity to date.

ADDRESSES: Documents relevant to this action are available for 
inspection at the Docket Office, located at 401 M Street, SW., 
Waterside Mall, Room M-1500, Washington, DC 20460, between 8:00 a.m. 
and 5:30 p.m., Monday through Friday, excluding legal holidays. A 
reasonable fee may be charged for copying.

FOR FURTHER INFORMATION CONTACT: General questions, and questions on 
technical issues concerning today's notice should be addressed to Kevin 
Culligan, Office of Atmospheric Programs, Clean Air Markets Division, 
U.S. Environmental Protection Agency, 1200 Pennsylvania Ave., NW. 
(6204N), Washington, DC 20460, telephone (202) 564-9172, e-mail at 
[email protected]. Questions on legal issues concerning today's 
notice should be addressed to Howard J. Hoffman, Office of General 
Counsel, U.S. Environmental Protection Agency, 1200 Pennsylvania Ave., 
NW. (2344A), Washington, DC 20460, telephone (202) 564-5582, e-mail at 
[email protected] or Dwight C. Alpern, Clean Air Markets Division, 
U.S. Environmental Protection Agency, 1200 Pennsylvania Ave., NW. 
(6204N), Washington, DC 20460, telephone (202) 564-9151, e-mail at 
[email protected].

SUPPLEMENTARY INFORMATION: In today's notice, EPA is responding to two 
rulings by the Court directing EPA to reconsider growth rates for heat 
input (i.e., fossil fuel use) for the ozone season (May 1-September 30) 
projected and used in setting State NOX emission budgets in 
two rules designed to reduce interstate transport of ozone and 
NOX.\1\ On May 15, 2001, the Court issued a decision in 
Appalachian Power v. U.S. EPA, 249 F.3d 1032 (D.C. Cir. 2001) 
concerning the Section 126 Rule (``Section 126 Decision''). As part of 
that decision, the Court remanded the heat input growth rates that EPA 
used to calculate NOX emission budgets set in response to 
several petitions by northeastern States under Section 126 of the CAA. 
The Court remanded these growth rates to EPA to either properly justify 
the growth rates currently used by EPA or to develop and justify new 
growth rates. On June 8, 2001, the Court issued a similar decision in 
Appalachian Power v. U.S. EPA, 251 F.3d 1026 (D.C. Cir. 2001) 
concerning heat input growth rates used to develop NOX 
emission budgets used in the NOX SIP Call related to 
interstate transport of ozone (``Technical Amendments Decision''). The 
Court raised concerns about EPA's explanation of the methodology for 
developing projected heat input growth rates and about States for which 
heat input for EGUs had already exceeded the heat input that EPA 
projected for 2007.
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    \1\ Unless otherwise stated, all references in this notice to 
actual or projected ``heat input'' or ``heat input growth rates'' 
concern heat input during the ozone season for EGUs.
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    In response to the Court's decisions, EPA has reviewed the heat 
input growth rates for EGUs and the methodology used to develop those 
growth rates. Based on that review, EPA believes that the heat input 
growth rates and the methodology used to develop them were reasonable. 
Furthermore, in response to the Court's and commenters' concerns, EPA 
has also reviewed new information concerning current activity. This 
notice explains why EPA thinks that the growth rates were reasonable 
based on the information that EPA had available at the time of the 
original rulemakings, as confirmed by new information.

Availability of Related Information

    The official record for the Section 126 rulemaking has been 
established under docket number A-97-43. The official record for the 
NOX SIP Call rulemaking has been established under docket 
number A-96-56. The public version of both records, including printed, 
paper versions of electronic comments, which does not include any 
information claimed as confidential business information, is available 
for inspection from 8:00 a.m. to 5:30 p.m., Monday through Friday, 
excluding legal holidays. The rulemaking record is located at the U.S. 
Environmental Protection Agency, 401 M Street, SW, Waterside Mall, Room 
M-1500, Washington, DC 20460. In addition, the Federal Register 
rulemakings and associated documents are located at http://www.epa.gov/ttn/rto/, and certain documents are located at http://www.epa.gov/airmarkets/fednox/126noda2/index.html.

Outline

I. Background
    A. NOX SIP Call
    B. Section 126 Rule
    C. Technical Amendments
II. Court Decisions
    A. Section 126 Decision
    B. Technical Amendments Decision
III. Notices of Data Availability
IV. States Addressed in Today's Notice
    A. NOX SIP Call
    B. Section 126 Rule
V. EPA's Explanation of Heat Input Growth Rate Methodology and 
Response to Court Remand and Public Comments
    A. Overview
    B. Description of EPA's Methodology
    1. EPA's Methodology for Determining State NOX 
Emission Budgets and Heat Input Growth Rates
    2. Use of Consistent Heat Input Growth Rates for Different Parts 
of EPA's Analysis
    C. Justification for EPA's Methodology and Reasonableness of 
EPA's Underlying Assumptions
    1. Court's and Commenters' Concerns
    2. EPA Reasonably Decided to Develop State NOX 
Emission Budgets by Using Heat Input Growth Rates.
    3. State Heat Input Growth Rates Based on IPM Outputs for 2001-
2010 Were Reasonably Representative of 1997-2007 Heat Input Growth.
    4. EPA Did Not ``Double Count'' Electricity Demand Reductions 
Under CCAP.

[[Page 21869]]

    5. EPA's Assumptions Regarding the Location of New Units Were 
Reasonable.
    D. Actual Heat Input Compared to EPA's Projections of Heat Input
    1. Court's and Commenters' Concerns
    2. EPA's Heat Input Projections for the Region Are Consistent 
With Actual Heat Input Data.
    3. EPA's Heat Input Growth Rates and 2007 Projections for Most 
States are not Disputed by Commenters.
    4. Historical Data Show That a State's Heat Input Can Decrease 
Significantly Over Multi-Year Periods.
    5. Approach of Using Recent State Heat Input to Project Future 
State Heat Input is not Statistically Sound.
    6. EPA's Heat Input Projections do not Implicitly Assume 
Negative Growth in Electricity Generation.
    7. Even if There Were a Substantial Risk that EPA's State Heat 
Input Projection Would be Less Than a State's Actual 2007 Heat 
Input, This Would not Make EPA's Projection Unreasonable.
    8. Commenters Overstated the Impacts of Actual State Heat Input 
Exceeding Projected State Heat Input.
    9. Discussion of Individual States for Which EPA's Heat Input 
Growth Rates are Disputed by Commenters.
    10. No Heat Input Growth Methodology has Been Presented That 
Would Have Results That Better Comport With Actual Heat Input.
    E. Procedural Issues
    1. Notice-And-Comment Rulemaking
    2. Petition To Reconsider

I. Background

A. NOX SIP Call

    In October 1998, EPA issued the NOX SIP Call--a final 
rule under Section 110(k)(5) of the CAA, 42 U.S.C. 7410(k)(5)--
requiring 22 States and the District of Columbia (``upwind States'') to 
revise their SIPs to impose additional controls on NOX 
emissions.\2\ See 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 57,356 (Oct. 
27, 1998). EPA concluded that emissions from the upwind States 
``contribute significantly'' to ozone nonattainment in downwind States, 
in violation of section 110(a)(2)(D)(i). Under the NOX SIP 
Call, upwind States are required to reduce emissions by amounts that 
would allow meeting NOX emission budgets. EPA determined 
these budgets by projecting NOX emissions to 2007 for all 
source categories and then reducing those amounts by the emissions 
reductions achievable using the controls that EPA determined to be 
highly cost effective. EPA defined highly cost-effective controls as 
those controls capable of removing NOX at an average cost of 
$2,000 or less per ton. For EGUs, EPA determined that it was highly 
cost effective to achieve an average emission rate of 0.15 lb/mmBtu, 
based on projected 2007 fossil fuel use (i.e., heat input). Projected 
2007 heat input for each State was calculated by applying ozone season 
heat input growth rates developed by EPA for each State for EGUs 
(referred to as ``State heat input growth rates'') to baseline (the 
higher of 1995 or 1996) EGU heat input.
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    \2\ The States were: Alabama, Connecticut, Delaware, Georgia, 
Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, 
Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, 
Rhode Island, South Carolina, Tennessee, Virginia, West Virginia, 
and Wisconsin.
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    EPA recommended that a State could meet the State's NOX 
emission budget in part by establishing a cap-and-trade program for 
NOX emissions from EGUs. Covered sources would be required 
to hold NOX allowances at least equal to their 
NOX emissions and could either obtain additional allowances 
or reduce emissions, e.g., by installing additional controls. The total 
number of allowances distributed to EGUs would equal the EGU portion of 
the NOX emission budget, i.e., the projected 2007 heat input 
multiplied by a NOX emission rate of 0.15 lb/mmBtu. States 
had the option of adopting approaches other than a cap-and-trade 
program to meet the budgets.

B. Section 126 Rule

    On January 18, 2000, EPA issued a final rule to control emissions 
of NOX under Section 126 of the CAA, 42 U.S.C. 7426. In the 
rule, EPA made final its findings that stationary sources of 
NOX emissions in 12 upwind States and the District of 
Columbia contribute significantly to ozone nonattainment in 
northeastern States.\3\ This finding triggered direct Federal 
regulation of stationary sources of NOX in the upwind 
States. The Section 126 Rule further established a cap-and-trade 
program for NOX emissions within each upwind jurisdiction, 
including NOX emissions from EGUs. This program was 
essentially the same as that suggested by EPA for State implementation 
in the NOX SIP Call. EPA determined the total number of 
NOX allowances to be distributed to EGUs in each individual 
State based on the same methodology used in the NOX SIP Call 
(i.e., projected 2007 heat input multiplied by a NOX 
emission rate of 0.15 lb/mmBtu).
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    \3\ The States were: Delaware, Indiana, Kentucky, Maryland, 
Michigan, North Carolina, New Jersey, New York, Ohio, Pennsylvania, 
Virginia, and West Virginia.
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C. Technical Amendments

    When EPA promulgated the NOX SIP Call on October 27, 
1998, EPA reopened public comment on the accuracy of data upon which 
the emission inventories and budgets were based (63 FR 57,427). On 
December 24, 1998, EPA extended the comment period ``for emission 
inventory revisions to 2007 baseline sub-inventory information used to 
establish each State's budget in the NOX SIP Call'' and 
further explained that it was seeking comment on the relevant data and 
assumptions so the Agency could correct errors and update information 
used to compute the 2007 budgets. (Correction and Clarification to the 
Finding of Significant Contribution and Rulemaking for Purposes of 
Reducing Regional Transport of Ozone, 63 FR 71,220, Dec. 24, 1998). EPA 
also announced that it would reopen the comment period on equivalent 
inventory data for the section 126 rulemaking because the rules relied 
upon the same inventories. Id.
    Subsequently, EPA published two Technical Amendments revising the 
NOX SIP Call emission budgets. In the first Technical 
Amendment, EPA made some modifications to source-specific 1995 and 1996 
emissions data, which resulted in changes in the 2007 NOX 
emission budgets (Technical Amendment to the Finding of Significant 
Contribution and Rulemaking for Certain States for Purposes of Reducing 
Regional Transport of Ozone, 64 FR 26,298, May 14, 1999). In the second 
Technical Amendment, EPA made more corrections based upon additional 
public comments it received and EPA's own internal review of the 
accuracy of its data and calculations (Technical Amendment to the 
Finding of Significant Contribution and Rulemaking for Certain States 
for Purposes of Reducing Regional Transport of Ozone, 65 FR 11,222, 
Mar. 2, 2000). EPA also explained that the March 2000 Technical 
Amendment was ``necessary to make the NOX SIP Call inventory 
consistent with the inventory adopted'' by the EPA in the Section 126 
rule, as the two rules were to be based upon the same inventory. Id.

II. Court Decisions

A. Section 126 Decision

    On May 15, 2001, the Court ruled on a number of challenges to EPA's 
Section 126 Rule. See Appalachian Power v. EPA, 249 F.3d 1032. While 
the Court's decision largely upheld the Section 126 Rule, the Court 
remanded two issues to EPA. The Court remanded the Section 126 Rule to 
EPA to allow EPA to (1)

[[Page 21870]]

Properly justify either the current or new State heat input growth 
rates for EGUs used in calculating projected State heat input for 2007 
and (2) either properly justify or alter its categorization of 
cogenerators that sell electricity to the electricity grid as EGUs. 
With regard to heat input growth rates, the Court was concerned that 
EPA may have used inconsistent growth rates in different parts of the 
Agency's analysis and that some States already had heat input exceeding 
the levels projected by EPA for 2007. EPA is responding to the remand 
related to the categorization of cogenerators in a separate rulemaking 
(Interstate Ozone Transport: Response to Court Decisions in 
NOX SIP Call, NOX SIP Call Technical Amendments, 
and Section 126 Rules, 67 FR 8396, Feb. 22, 2002).

B. Technical Amendments Decision

    On June 8, 2001, the Court ruled on a number of challenges to EPA's 
Technical Amendments. See Appalachian Power v. EPA, 251 F.3d 1026. In 
its decision, the Court remanded to EPA the same issues as in the 
Section 126 Decision concerning (1) State heat input growth rates for 
EGUs and (2) cogenerators. The Court cited its decision in the Section 
126 Decision. Id., 251 F.3d at 1034.

III. Notices of Data Availability

    A Notice of Data Availability (NODA) of documents that EPA was 
considering in response to the remand concerning heat input growth 
rates was published on August 3, 2001, 66 FR 40609). These documents 
were placed in the NOX SIP Call and section 126 Rule 
dockets. The new documents contain, among other things, information and 
data on more recent electricity sales and generation. The information 
and data were not available when the two rules were promulgated. Table 
1 of the NODA contains actual heat input values for the 1995-2000 ozone 
seasons for the District of Columbia and 21 States, which are subject 
to the NOX SIP Call and include the States subject to the 
Section 126 Rule. Comments on the new information and data were 
requested. Thirty-four comments were received.
    The NODA explains that there are substantial fluctuations in State 
heat input for EGUs on a year-by-year basis. Some of the reasons 
mentioned for these fluctuations are forced outages, variations in 
energy costs, weather, and economic conditions. A discussion of the 
growth rate methodology used by EPA to develop State heat input growth 
rates for EGUs and of the rationale for different components of the 
methodology is included in the NODA. EPA states in the NODA that the 
Agency's preliminary view is that the new data and the existing record 
in the NOX SIP Call and Section 126 rulemakings appear to 
confirm the reasonableness of the heat input growth rates used by EPA 
in developing NOX emission budgets for EGUs.
    A second NODA was published on March 11, 2002, 67 FR 10844. 
Documents referenced in this NODA include, among other things, 2001 
ozone season heat input data and 1960-2000 annual heat input data and 
1970-1998 ozone season heat input data for the District of Columbia and 
21 States, which are subject to the NOX SIP Call. One 
comment was received on this notice. In the March 11, 2002 NODA, EPA 
stated that it might place additional documents in the docket, with 
notice thereof provided on a particular website. EPA did so at various 
times after March 11, 2002. EPA also stated that if the Agency decided 
to confirm its previously adopted heat input growth rates, it intended 
to issue its response to the remand by March 29, 2002.
    EPA received a comment on the March 11, 2002 NODA stating that 
there was no reason to expect that EPA would take additional comments 
into consideration since the Agency would be issuing its response by 
March 29, 2002. The commenter also asserted that both NODA's failed to 
explain the relevance of the documents that were added to the docket.
    On March 29, 2002, EPA informed the commenter in writing that the 
Agency's response to the remand would be issued on or about April 17, 
2002 and that the Agency would consider comments submitted sufficiently 
in advance. In addition, EPA noted that additional documents would be 
placed in the docket. EPA also identified the purposes for which the 
data referenced in the March 11, 2002 NODA had been added to the 
docket. (Docket # A-96-54, Item # XV-E-2.) Copies of all these 
documents and information were placed in the docket. EPA subsequently 
received a second comment that was similar to the first comment, and 
EPA referred the commenter to the relevant documents and information in 
the docket. Finally, EPA received a third comment stating that the data 
referenced in the March 29, 2002 NODA were highly germane and supported 
EPA's heat input growth rate methodology.

IV. States Addressed in Today's Notice

    At the outset, it should be established which States should be 
addressed in today's notice on the heat input growth rate issue, in 
light of the Court's decisions vacating EPA's rules with respect to 
certain States and EPA's response to those vacaturs.

A. NOX SIP Call

    As noted above, the NOX SIP Call covered 22 States and 
the District of Columbia. In reviewing the NOX SIP Call, the 
Court vacated the NOX SIP Call for Georgia and Missouri on 
the ground that there was insufficient record evidence concerning 
portions of those States. Michigan v. EPA, 213 F.3d 663, 685 (D.C. 
Cir., 2000). The record included modeling by the Ozone Transport 
Assessment Group (OTAG)-- a partnership among EPA, 37 eastern States 
and the District of Columbia, industry, and environmental groups--that 
divided the eastern U.S. into two grids, the ``fine grid'' and the 
``coarse grid.'' The grids did not track State boundaries, and Georgia 
and Missouri were split between the fine and coarse grids. OTAG stated 
that, based on air quality impacts, it was recommending NOX 
emission controls for the fine grid area but not the coarse grid area. 
In light of OTAG's recommendations, the Court concluded that EPA had 
not sufficiently explained the basis for including the entire States of 
Georgia and Missouri, rather than simply the fine grid portions. The 
Court vacated and remanded the NOX SIP Call for these States 
for agency reconsideration. The Court also vacated the rule for 
Wisconsin on grounds not relevant here. Id. at 681.
    On February 22, 2002, EPA issued a notice of proposed rulemaking in 
response to the Court's remand, (67 FR 8396). In that notice, EPA 
stated that the Agency does not intend to proceed at this time with 
further action evaluating whether NOX emissions should be 
reduced for ozone transport reasons in Wisconsin or the coarse grid 
portions of Georgia and Missouri. In addition, EPA noted that, while 
not addressed by the Court, Alabama and Michigan also are divided 
between the fine grid and the coarse grid in OTAG's modeling. EPA 
stated that it would therefore treat all four States the same and 
include in the NOX SIP Call only counties that are fully 
within the fine grid portions of the four States. EPA proposed partial 
State NOX emission budgets for Alabama, Georgia, Michigan, 
and Missouri using the State heat input growth rates established for 
the whole States.
    EPA has taken the position that a single heat input growth 
methodology should be consistently applied to each State, and EPA 
received numerous comments disputing the application of EPA's heat 
input growth methodology to these four States, as well as to three

[[Page 21871]]

other States (i.e., Illinois, Virginia, and West Virginia). 
Consequently, in the context of responding to the remand on the heat 
input growth issue in today's notice, EPA's analysis of the 
reasonableness of that methodology and the resulting heat input growth 
rates includes Alabama, Georgia, Michigan, and Missouri. As noted 
below, for Alabama, Georgia, and Missouri, EPA has evaluated the 
reasonableness of the methodology with respect to both the entire State 
and the fine grid portion alone. For Michigan, EPA evaluated the 
methodology for the entire State and not for the fine grid portion 
alone because the amount of NOX emissions in the coarse grid 
portion was trivial for present purposes.\4\
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    \4\ EPA is not analyzing the reasonableness of the growth 
methodology with respect to Wisconsin because the Court vacated the 
NOX SIP Call for that State and EPA does not intend, at 
present, to further evaluate Wisconsin in the context of ozone 
transport.
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B. Section 126 Rule

    As noted above, the Section 126 Rule covered 12 States and the 
District of Columbia. Of the four States that EPA proposed to include 
only partially in the NOX SIP Call, only Michigan is subject 
to the Section 126 Rule. As discussed above, the NOX 
emission budget for Michigan changes very little when the coarse grid 
portion of the State is excluded, and EPA has therefore analyzed the 
heat input growth only for the entire State. In addition, with regard 
to the three other States concerning which EPA received adverse 
comments on its heat input projections, the Section 126 Rule covers 
Virginia and West Virginia, but not Illinois. As a result, strictly 
speaking, the validity of EPA's growth rate methodology for the Section 
126 Rule should not depend on its application to Alabama, Georgia, 
Missouri, Illinois, or any other State covered under the NOX 
SIP Call, but not the Section 126 Rule.

V. EPA's Explanation of Heat Input Growth Rate Methodology and 
Response to Court Remand and Public Comments

A. Overview

    After a thorough review, EPA has concluded that its methodology for 
developing State heat input growth rates, and the resulting growth 
rates themselves, were reasonable in light of the record developed for 
the NOX SIP Call and Section 126 Rule, and remain reasonable 
in light of new information concerning current activity that has since 
become available. The reasons are summarized below and explained more 
fully in the remainder of this notice.
    1. EPA believes that its methodology was reasonable in light of the 
record for the NOX SIP Call and the Section 126 Rule, based 
on the following considerations: a. EPA's methodology for projecting 
future heat input was logical and was consistently applied to all 
NOX SIP Call States. EPA used an actual State heat input 
baseline (the higher of 1995 or 1996 levels) in view of year-to-year 
variability of State heat input. EPA applied to each State's baseline a 
heat input growth rate estimated using the Integrated Planning Model 
(the IPM), a state-of-the-art model for analyzing future electricity 
markets. EPA's use of the IPM was upheld by the Court.
    b. Contrary to the Court's understanding, EPA used consistent State 
heat input growth rates (i.e., growth rates based on 2001-2010 heat 
input growth determined using IPM projections for 2001 and 2010) 
throughout the analysis for the NOX SIP Call and the Section 
126 Rule. EPA did not use, or even have available, 1996-2000 heat input 
growth rates determined using IPM projections for 1996 and 2000. EPA 
acknowledges that the Court's misunderstanding on this point stemmed 
from inadvertently confusing statements EPA made in the record.
    c. The specific assumptions that EPA made in using the IPM to 
develop State heat input growth rates were reasonable. These included 
assumptions that: (i) Heat input growth rates during 2001-2010 are 
reasonably representative of heat input growth during 1996-2007; (ii) 
electricity demand projections should be reduced to take account of 
demand reductions under the Climate Challenge Action Program (CCAP); 
and (iii) the use of available data on new units and the historical 
distribution of generating capacity among States could be used to 
project the location of new units.
    2. The State heat input growth rates and projections were generated 
using a reasoned methodology and reasonable assumptions, along with 
data that went through full public review (and were not at issue in the 
Court remands), and this suggests that the resulting heat input 
projections are reasonable. To confirm this, and to respond to concerns 
expressed by the Court and commenters about the plausibility of EPA's 
projections based on recent, actual heat input data, EPA has examined 
the projections in light of historical heat input data and new heat 
input data that have become available since the Agency developed the 
projections. EPA believes that its heat input projections remain 
plausible and reasonable based on the following considerations:
    a. The State heat input amounts projected by EPA are reasonably 
consistent with the actual heat input data that have become available 
since the projections were made. On a regionwide basis, EPA's projected 
heat input for 2000 and 2001 are 0.1% lower and 2.0% higher 
respectively than actual regional heat input. Further, for most States, 
EPA's heat input growth rates have not been specifically challenged. 
Commenters have disputed EPA's heat input growth rates for seven out of 
the 22 jurisdictions under the NOX SIP Call on the ground 
that the States involved had recent heat input amounts exceeding, or 
close to, EPA's 2007 heat input projections. However, recently, heat 
input for several of these States declined significantly. Moreover, 
State heat input is quite variable from year-to-year and so, in one 
year or over several years, may increase and then decrease. Indeed, 
there have been many instances in the past when State heat input has 
decreased significantly for the last year of a multi-year period as 
compared to the first year of such period. Consequently, the fact that 
a State's recent heat input exceeds, or is close to, EPA's 2007 heat 
input projection does not by itself demonstrate that the projection, or 
the underlying heat input growth rate, is unreasonable.
    b. Commenters who argue that EPA's 2007 projection is unreasonable 
based on recent heat input data are in effect asserting that predicting 
a State's 2007 heat input based on trends in recent, short-term heat 
input data is a better methodology than the one employed by EPA. Some 
commenters explicitly recommended this approach. In response, EPA 
examined this approach using historical annual heat input data and 
found that in most States, recent, short-term data is an unreliable 
predictor of a State's heat input in the future. Therefore, EPA 
believes that its methodology, using a state-of-the-art model that 
takes into account many factors, including the dynamics of regional 
electricity markets, is more rational.
    c. Contrary to the Court's understanding, EPA's 2007 heat input 
projections do not assume negative growth in electricity generation. 
State heat input (i.e., fossil fuel use for generation) can decrease 
while electricity generation increases in the State or in the region as 
a whole. Within a State, electricity generation does not necessarily 
vary with heat input because: (i) Significant amounts of

[[Page 21872]]

electricity are produced using non-fossil fuel generation; and (ii) 
efficiency improvements (e.g., from replacement of old units with new, 
more efficient units) make it possible to produce more electricity with 
less heat input. Further, electricity is generated and sold on a 
regional, not on a State-by-State basis. Heat input and electricity 
generation may decrease in one State because that State is importing 
more electricity generated in another State in the region. This is 
consistent with increased electricity generation in the region as a 
whole.
    d. EPA's heat input projections are simply required to be 
reasonable, not to match perfectly actual heat input. This is because 
the Courts recognize that predictions of the results of complex 
activities (in this case, future State heat input, which will result 
from operation of the regional electricity market) will not necessarily 
match actual, future results exactly. To require such perfection would 
be to preclude the use of projections or of a model to develop such 
projections. EPA's heat input projections thus should not be considered 
unreasonable even if there were a substantial risk that they would turn 
out to be less than States' actual 2007 heat input, in light of all the 
other circumstances. In this case, unavoidable limitations on the 
accuracy of heat input projections result from: (i) The complexity of 
the electricity marketing system, which cannot be modeled perfectly 
because of the necessity to use simplifying assumptions about factors 
(e.g., fuel prices and electricity demand in the future) affecting 
future heat input; (ii) the necessity to make State-by-State 
projections of heat input even though electricity is generated and sold 
on a regional basis; and (iii) significant variability--on a year-to-
year and several year basis--inherent in State heat input. Therefore, 
EPA's heat input projections should not be considered unreasonable in 
the current context, even if there were a substantial risk that they 
would turn out to be less than States' actual 2007 heat input.
    e. Commenters overstated the impacts of a State's 2007 heat input 
exceeding EPA's 2007 heat input projection for that State. The 
NOX SIP Call and the Section 126 Rule limit NOX 
emissions, not heat input. Even if a State's actual heat input for 2007 
turns out to exceed the projected heat input, NOX emissions 
would increase at a much lower rate than heat input because the vast 
majority of new units are, and will continue to be, gas-fired with very 
low NOX emission rates and high efficiency. The impact on 
the stringency of the NOX emission budget and on the State 
economy therefore would be much less than claimed by commenters. 
Further, the NOX SIP Call and the Section 126 Rule are being 
implemented through a NOX cap-and-trade program that further 
mitigates the cost impact of any differences between projected and 
actual State heat input.
    f. No commenter has identified an alternative methodology for 
developing State heat input growth rates that would be likely to yield 
growth rates that would comport better with actual heat input data than 
the growth rates under EPA's methodology. In light of the variability 
of State heat input, it is quite possible that any alternative 
methodology for predicting State heat input will result in projected 
values for some States that will not match actual heat input in some 
future year.
    g. Commenters failed to show that EPA's heat input growth rate for 
any of the seven individual States for which adverse comments were 
received (Alabama, Georgia, Illinois, Michigan, Missouri, Virginia, and 
West Virginia) are unreasonable. The heat input for several of the 
States has already decreased to levels below or only slightly above 
EPA's projection. In addition, the comments failed to address the fact 
that, in the past, each State has had many multi-year periods when heat 
input has declined significantly for the last year, as compared to the 
first year of such periods. Further, in arguing that economic growth or 
planned new capacity prove that heat input will increase substantially 
for particular States, the commenters limited the information they 
provided to statewide data and failed to provide regional data. As a 
result, these comments are not persuasive because any particular 
State's heat input is determined by regional, not just that individual 
State's, demand and supply.

B. Description of EPA's Methodology

1. EPA's Methodology for Determining State NOX Emission 
Budgets and Heat Input Growth Rates
    EPA used a multi-step procedure to determine for each State the 
portion of the NOX SIP Call emissions budget attributable to 
EGUs. In brief, EPA started with the State's baseline of the higher of 
EGU heat input for 1995 and 1996 and grew that amount to the 2007 level 
using the projected heat input growth rate for that State based on the 
IPM. Then, EPA determined the appropriate level of NOX 
emissions control (which was the same level for each State) and applied 
this level to each State's projected 2007 heat input. The result was 
each State's NOX emissions budget for EGUs.
    Throughout the methodology, EPA relied on the IPM. The IPM 
simulates the operation of the electricity market in the continental 
U.S. by using inputs (such as electricity demand and fuel and emission 
control costs) and by modeling electricity generation, transmission, 
and distribution on a subregional basis. The IPM projects the least 
cost scenario for the region for generating electricity consistent with 
this set of inputs. This scenario includes projections of which units 
operate at what levels, which units install emission controls, and what 
type, when, and where new units are built.
    To develop the State heat input growth rates, EPA first conducted 
an IPM run (the ``base case run''). This base case run was designed to 
yield, as outputs, projections of the heat input necessary to generate 
electricity sufficient to meet projected electricity demand in the 2001 
and 2010 ozone seasons. To conduct this run, EPA used, as model inputs, 
assumptions regarding, among many other things: (i) electricity demand 
in 2001-2020, which EPA calculated by determining actual electricity 
demand in 1997 and applying growth rates in electricity demand for 
1997-2020; (ii) reductions in electricity demand based on the CCAP, 
discussed below; (iii) NOX emission control requirements and 
associated costs; (iv) location and costs of projected new units; and 
(v) fuel costs. For this base case run, EPA assumed no additional 
NOX emission controls would be required for ozone transport 
purposes (62 FR 60318, 60347, Nov. 7, 1997).
    With these inputs, the base case run produced, as outputs, the 
sources of electricity generation for years selected by EPA, including 
2001, 2007, 2010, and 2020. In addition, the outputs included the 
amounts of heat input used by the fossil-fuel-fired sources in those 
years, the projected NOX emissions for the 2007 ozone 
season, and the total cost for generating electricity for the 2007 
ozone season.
    EPA used the 2001 and 2010 heat input to generate heat input growth 
rates for each State. For example, the base case run projected that 
Virginia's base case 2001 and 2010 heat input would be 194,000,000 
mmBtu and 243,000,000 mmBtu, respectively. An annual heat input growth 
rate was then mathematically determined. For Virginia, this annual 
growth rate is 1.025.
    Then, EPA applied each State's annual heat input growth rate to the 
baseline heat input for the State (the higher of the 1995 or 1996 
actual heat input for EGUs) to develop the State's

[[Page 21873]]

emission budget for 2007 (63 FR 57406-57408). For example, for 
Virginia, the 1995 heat input was 154,233,310 mmBtu, the 1996 heat 
input was 172,633,028 mmBtu, and so EPA used the 1996 heat input as the 
baseline heat input. For West Virginia the opposite occurred. The 1995 
heat input was 347,687,307 mmBtu, and the 1996 heat input was 
341,738,426 mmBtu, and so EPA used the 1995 heat input as the baseline 
heat input.
    Then, EPA applied to each State's baseline amount--which EPA 
treated as the 1996 value even if the higher heat input amount actually 
occurred in 1995--that State's annual heat input growth rate to 
determine the projected 2007 heat input. For Virginia, this computation 
(172,633,028 mmBtu multiplied by 1.025 over an 11-year period) yielded 
227,875,597 mmBtu.
    Next, EPA used projected 2007 heat input to test the cost 
effectiveness of various NOX emission control levels. First, 
EPA selected a set of NOX emissions control levels as 
candidates to be tested for appropriateness. The levels tested were, 
0.12 pounds of NOX per mmBtu of heat input (lbs/mmBtu), 0.15 
lb/Btu, 0.2 lb/Btu, and 0.25 lb/Btu. Then, EPA applied one of the 
control levels to each State's projected 2007 heat input. For example, 
for Virginia the 2007 projected heat input of 227,875,597 mmBtu was 
multiplied by 0.15 lb/mmBtu to obtain an EGU NOX emission 
budget of 34,181,340 pounds or 17,091 tons. In this manner, EPA 
calculated the NOX emission budget for each State based on 
the level of NOX emissions control to be tested. Then, EPA 
summed each State's NOX emissions budget to determine the 
regionwide NOX emissions budget for the NOX 
control level tested.
    Then, EPA conducted another IPM run (the ``cost-effectiveness 
run'') to determine the cost effectiveness of meeting the regionwide 
NOX emission budget for the control level tested. For this 
run, EPA included in the model each of the assumptions that were used 
in the base case run. However, EPA added one additional assumption, 
i.e., the requirement that total NOX emissions for EGUs in 
the NOX SIP Call region could not exceed the regionwide 
NOX emission budget (i.e., the sum of the State 
NOX emission budgets for EGUs developed using the 2001-2010 
heat input growth rates from the base case run and the specified level 
of NOX emission controls being tested). This cost-
effectiveness run yielded, as an output, the total cost of generating 
electricity for the 2007 ozone season for the control level. EPA 
repeated this process for each control level tested.
    EPA then performed, for each NOX emission control level, 
three calculations to determine the cost per ton of NOX 
emissions reduced, of meeting the regionwide NOX emission 
budget associated with that control level. First, EPA subtracted the 
total NOX emissions in the cost-effectiveness run from the 
total NOX emissions in the base case run to calculate the 
tons of NOX reduced due to the imposition of the control 
level. Second, EPA subtracted the total cost of generating electricity 
in the base case run from the total cost in the cost-effectiveness run 
to calculate the total cost of meeting the regionwide budget. Third, 
EPA divided the total cost of meeting the budget by the total tons 
reduced due to the imposition of the control level to calculate the 
cost effectiveness of meeting the budget associated with the control 
level (in dollars per ton). For example, the cost effectiveness of 
meeting the 0.15 lb/mmBtu control level was $1,440 per ton of 
NOX emissions reduced in 2007 (Regulatory Impact Analysis 
for the NOX SIP Call, FIP, and Section 126 Petitions, Volume 
1: Costs and Economic Impacts, September 1998, at p. ADD-2). Of course, 
the cost effectiveness was a higher dollar amount for more restrictive 
control levels (e.g., 0.08 lb/mmBtu) and a lower dollar amount for less 
restrictive control levels (e.g., 0.2 lb/mmBtu).
    Finally, EPA evaluated the cost-effectiveness level for each 
control level against certain criteria and selected 0.15 lb/mmBtu as 
the highly cost effective level for EGUs. The basis for this selection, 
which is not at issue in today's notice, is discussed at 63 FR 57401-2.
    Having selected 0.15 lb/mmBtu, EPA set, as the NOX 
emission budget for EGUs for each State in the NOX SIP Call, 
the State's budget associated with that control level. For example, for 
Virginia, the NOX emission budget for EGUs was 17,091 tons.
    For the Section 126 Rule, which imposed requirements on individual 
EGUs in certain States, but did not impose statewide control 
limitations, EPA used the same State NOX emission budgets 
that were developed for the NOX SIP Call. For the individual 
EGUs in a given State, EPA allocated a total amount of allowances equal 
to the amount of tons of NOX in the State NOX 
emission budget for EGUs. Individual EGUs were allocated a 
proportionate share of the State NOX emission budget based 
on its share of the total heat input for EGUs in that State.
2. Use of Consistent Heat Input Growth Rates for Different Parts of 
EPA's Analysis
    One concern that the Court had about the reasonableness of EPA's 
approach was the belief that EPA ``utilized one set of growth-rate 
projections to set allowance budgets, [and] another to assess emission 
reduction costs.'' Appalachian Power v. EPA, 249 F.3d at 1054. The 
Court therefore believed that ``EPA had other ways of generating 2007 
utilization projections.'' Id. The above description of EPA's multi-
step procedure makes clear that, in fact, EPA utilized only IPM heat 
input growth rate projections for 2001-2010. The methodology required 
(i) developing many inputs in the IPM, including assumptions about 
growth in electricity demand during 1997-2020; (ii) conducting an IPM 
base case run and a set of cost effectiveness runs; and (iii) using IPM 
outputs to make various computations. However, at any step that 
required IPM generated heat-input growth rate projections--whether for 
purposes of determining a budget or for purposes of determining the 
cost effectiveness of control levels--EPA used only the projections for 
2001-2010, and not any other period.
    EPA respectfully observes that the Court's views to the contrary 
are misperceptions that resulted from what EPA now realizes was EPA's 
own inadvertently confusing statement by EPA in the Response to Comment 
document for the Section 126 Rule. The Response to Comment document 
states, in relevant part:

    The budgets were constructed using growth rates for 1996-2007 
that were consistent with the growth rates in IPM for 2001-2010, 
which may be higher or lower than the growth rates for the years 
1996-2001. EPA's analysis of the costs of complying with these 
budgets, however, was conducted using IPM, which incorporates 
internally consistent growth assumptions--i.e., the growth for 1996 
through 2001 is based on IPM assumptions for 1996 through 2001, and 
the growth for 2001 through 2010 is based on IPM assumptions for 
2001 through 2010. These IPM growth forecasts are consistent with 
the NERC forecasts.

    Docket # A-97-43, Item # VI-C-01, ``Response to Significant 
Comments on the Proposed Findings of Significant Contribution and 
Rulemaking on Section 126 Petitions for Purposes of Reducing Interstate 
Ozone Transport,'' April 1999 at p. 112.
    The first two sentences in the response refer to ``growth rates,'' 
``growth assumptions,'' or ``growth,'' but unfortunately fail to 
provide further clarification as to what type of ``growth'' is being 
referenced. The first sentence

[[Page 21874]]

indicates that, for budget purposes, EPA determined the ``growth 
rates'' for 1996-2007 based on ``the growth rates in IPM for 2001-
2010.'' The second sentence indicates that, for cost analysis purposes, 
EPA used ``growth'' for 1996-2001 ``based on IPM assumptions for 1996 
through 2001'' and ``growth'' for 2001 through 2010 ``based on IPM 
assumptions for 2001 through 2010.'' However, the response fails to 
explain that the references in the first sentence to ``growth rates'' 
are to growth in heat input, which is an output from IPM runs for the 
years 2001 and 2010, while the references in the second sentence to the 
``growth assumptions'' and ``growth'' for 1996-2001 and 2001-2010 are 
to growth in electricity demand, which is an input into the IPM. The 
third sentence confirms that the ``growth assumptions'' in the second 
sentence are--like the ``North American Electric Reliability Council 
(NERC) forecasts''--for electricity demand.
    The second sentence of the Response to Comment document should not 
be read to indicate that EPA had available IPM-generated growth rates 
in heat input for the 1996-2001 period. It is simply not true that EPA 
had that data available. Rather, EPA had available IPM-generated heat 
input data for only 2001-2010, and EPA developed the budgets and cost 
analyses in the manner described in section V.B.1 of this notice. 
Therefore, of course, EPA did not use such data ``to assess emission 
reduction costs'' and could not have used such data as another way ``of 
generating 2007 utilization projections.'' Appalachian Power v. EPA, 
249 F.3d at 2054.\5\
---------------------------------------------------------------------------

    \5\ The portion of EPA's brief on the growth rate issue in 
Appalachian Power v. EPA reflects the confusing response to 
comments. As discussed above and contrary to the suggestion in the 
brief (at 71-2), the cost-effectiveness run and EPA's cost-
effectiveness analysis did not use ``1996-2001 growth rates'' for 
heat input.
---------------------------------------------------------------------------

C. Justification for EPA's Methodology and Reasonableness of EPA's 
Underlying Assumptions

1. Court's and Commenters' Concerns
    While upholding in general EPA's use of the IPM and not finding 
that any specific assumptions or other aspects of EPA's methodology 
were unreasonable, the Court stated that ``even in the face of evidence 
[i.e., actual State heat input in excess of EPA's projection] 
suggesting the EPA's projections were erroneous, EPA never explained 
why it adopted this particular methodology.'' Appalachian Power v. EPA, 
249 F.3d at 1053.
    Moreover, commenters raised concerns about certain assumptions that 
EPA made in the IPM, or in using the results from the IPM, to develop 
heat input growth rates. In particular, commenters were concerned 
about:
    (1) The assumption that State-by-State heat input growth rates, 
derived from the IPM outputs for 2001 and 2010, were reasonably 
representative of, and reasonably used to calculate, heat input growth 
rates for 1996 to 2007.
    (2) The assumption that electricity demand projections were 
reasonably reduced by reductions under the CCAP; and
    (3) The assumption that the locations of new units were reasonably 
projected using currently available data on new units and the 
historical distribution of generating capacity.
    As discussed below, EPA believes that its methodology and, in 
particular, all of the challenged assumptions had a reasonable basis.
2. EPA Reasonably Decided To Develop State NOX Emission 
Budgets by Using Heat Input Growth Rates
    As noted above, EPA's methodology for projecting 2007 heat input 
was based, in essence, on establishing a baseline based on actual heat 
input, and then applying an IPM-determined growth rate to that 
baseline. The overall approach of using an actual baseline and applying 
a growth rate was reasonable and consistent with the way EPA projected 
utilization for other stationary source categories. (Docket # A-96-56, 
Item # X-B-09, ``Development of Emission Budget Inventories for 
Regional Transport NOX SIP Call'', U.S. EPA, Office of Air 
Quality Planning and Standards, May 1999.)
    Starting with an actual baseline obviously constitutes a reasonably 
accurate starting point for the calculation. Because of the year-to-
year variability in heat input, as discussed below, EPA decided to 
allow each State to use the higher of two years as the baseline. EPA 
initiated the NOX SIP Call rulemaking in 1997, and so EPA 
selected as the two years 1995 and 1996. EPA's approach overstated 
total actual heat input for the region. Since some States had higher 
heat input in one year and other States had higher heat input in the 
second year, the total of the States' baselines exceeded the total heat 
input for the States in either of the years.
    Applying to that baseline an IPM-generated heat input growth rate 
is also reasonable because the IPM provides a reasonably accurate 
method of predicting growth in heat input. The model has been 
thoroughly vetted through public comment in several rulemakings and 
generally has been upheld by the Court in both the NOX SIP 
Call Decision and an earlier decision. Appalachian Power v. EPA, 247 
F.3d at 1052-53; Appalachian Power v. EPA, 135 F.3d 791, 814-15 (D.C. 
Cir., 1998). As discussed below, EPA's approach of determining the 
growth rate of State heat input from one modeled year (here, 2001) to a 
later modeled year (here, 2010) minimized the effect of necessary, 
simplifying assumptions used by the IPM and thereby increased the 
accuracy of the determination.
    EPA considered alternative ways to handle heat input growth in 
determining State NOX emission budgets. For example, EPA 
considered not allowing for heat input growth at all. Under this 
method, EPA would base each State's NOX emission budget on 
heat input as of a selected year for which historical data was 
available, without accounting for changes in future heat input. In the 
NOX SIP Call, EPA rejected this method, explaining that 
although it would have been simpler, it ``may be viewed as less 
equitable for States with significantly higher projected utilization,'' 
(62 FR 60318, 60351, Nov. 7, 1997).
    EPA also considered using, as the State NOX emission 
budget for each State, the amount of NOX emissions that the 
IPM projected for the State in 2007 in the cost-effectiveness run.\6\ 
EPA did not use this approach for several reasons. First, this approach 
would have made it difficult to accommodate changes in the State 
inventory of EGUs as EPA received better information regarding existing 
units. EPA undertook multiple notice-and-comment rulemakings to obtain 
the most accurate data possible about existing units and received new 
data through each rulemaking. It was relatively simple for EPA to use 
this new information to adjust the State's 1995 and 1996 emission 
inventories, and thus the State's baseline, and then apply projected 
future growth from the IPM to adjust the State's NOX 
emission budget. If instead EPA had used the IPM 2007 projected heat 
input, then, each time new data were received, EPA would have had to 
rerun the IPM for 2007 with the State inventory of EGUs revised to 
include the new information. It would have taken significant resources 
and time to change the IPM on several occasions to reflect this new 
information.
---------------------------------------------------------------------------

    \6\ In addition, EPA considered, but rejected, the approach of 
using a single, uniform heat input growth rate in developing all of 
the State NOX emission budgets. (See section D.IV.10 of 
this notice.)
---------------------------------------------------------------------------

    Further, the IPM is likely to be more accurate in projecting State-
by-State

[[Page 21875]]

rates of change of an output from one year in an IPM run to another 
year in that IPM run (here, growth in State heat input from 2001-2010) 
than in predicting an actual output State-by-State in a particular year 
(here, actual heat input in 2007). This is because modeling of complex 
activities requires the use of simplifying assumptions in order to make 
the model feasible--from the standpoint of resources and time--to run. 
This is particularly true here, where EPA must develop State-by-State 
projections of heat input that results from complex activities (i.e., 
the operation of the regional electricity market). (See sections V.C.3 
and V.D.7 of this notice.) Because the same assumptions were made for 
every year modeled, calculating differences between two model years 
reduces any inaccuracies caused by these assumptions. Therefore, EPA 
believes that, on a State-by-State basis, the IPM is likely to be more 
accurate in projecting rates of change between modeled years.
    For these reasons, EPA decided that the approach of applying an 
IPM-generated heat input growth rate for each State to a baseline State 
heat input based on historical data would be a reasonably accurate 
predictor of the State's actual heat input in 2007 and a more accurate 
predictor, and significantly simpler and less costly from an 
administrative standpoint, than IPM's projection of the State's 2007 
heat input.
3. State Heat Input Growth Rates Based on IPM Outputs for 2001-2010 
Were Reasonably Representative of 1996-2007 Heat Input Growth
    a. EPA's Methodology. A number of commenters suggested that instead 
of using heat input growth rates based on 2001 to 2010 projections, EPA 
should have used State heat input growth rates based on 1996 data and 
2007 projections. EPA believes that relying on the IPM projections for 
2001 to 2010 is reasonably accurate.
    Although EPA had information on, and projections of, annual growth 
rates in regionwide electricity demand from 1995 or 1996 to 2007 (which 
EPA used as inputs to the IPM), EPA was not aware of any projected heat 
input growth rates for that period for each State in the NOX 
SIP Call region that were developed using a consistent set of 
assumptions. See, e.g., 63 FR 57409. Since, as discussed in section 
V.D.6 of this notice, electricity is generated, transmitted, and 
distributed on a regional basis, consistent assumptions about regional 
and subregional factors (e.g., demand for electricity, fuel costs, and 
cost of new units) must be used to develop the heat input growth rates 
for all States. The Court has already upheld EPA's decision to rely on 
an internally consistent methodology for determining heat input, as 
opposed to recommendations by various commenters favoring State-
specific growth rates that would have been inconsistent with each 
other. Appalachian Power v. EPA, 249 F.3d at 1052-53.
    Since EPA was not aware of any available consistent set of heat 
input growth rate projections, EPA developed its own projections. EPA 
decided to use the heat input values from IPM runs for 2001 and 2010 to 
calculate a long term heat input growth rate for each State. Because, 
as discussed above, the IPM is a comprehensive model of the electricity 
market, EPA believes that it provides reasonable heat input growth rate 
projections. Further, EPA believes that heat input growth rates for the 
nine-year period 2001-2010 were reasonably representative of the 
eleven-year period 1996-2007 because, among other things, the periods 
overlap and are of similar length. In addition, EPA believes that the 
assumptions used in the IPM runs for 2001 and 2010 are reasonably 
applicable to the 1996-2001 period as well as 2001-2007. (See section 
V.D.7 of this notice discussing assumptions in the IPM.) In fact, out 
of the many assumptions in the IPM, commenters have pointed to only a 
few that they believe differ pre- and post-2001. As discussed below, 
EPA examined the assumptions discussed by commenters and maintains that 
these assumptions do not differ in any way that would affect the 
reasonableness of the heat input growth rates.
    EPA considered developing heat input growth rates based on data 
developed by OTAG. OTAG developed a heat input growth projection 
separately for each individual State for the years 1990 to 2007 without 
considering the interactions among the individual States. EPA chose to 
use the IPM growth rates because, unlike the OTAG growth projections, 
the IPM's were not developed separately for each State, but were 
developed by analyzing performance of the electric industry as a 
regionwide system. Therefore, the IPM growth rates are a more 
internally consistent set of growth rates than the OTAG growth rates, 
(62 FR 60353).
    b. Cost of adding run years. Some commenters questioned why EPA did 
not program the IPM to provide outputs for 1996 in order to generate 
1996-2007 heat input growth rates (in lieu of 2001-2010 growth rates) 
using the IPM. EPA believes that its decision to program the IPM 
beginning with 2001 was reasonable.
    As explained by the Court in the Section 126 Decision:

    [T]he EPA has ``undoubted power to use predictive models'' so 
long as it ``explain[s] the assumptions and methodology used in 
preparing the model'' and ``provide[s] a complete analytic defense'' 
should the model be challenged. Small Refiner Lead Phase-Down Task 
Force v. EPA, 705 F.2d 506, 535 (D.C. Cir. 1983) * * * (citations 
and internal quotation marks omitted). That a model is limited or 
imperfect is not, in itself, a reason to remand agency decisions 
based upon it.
    Ultimately * * * we must defer to the agency's decision on how 
to balance the cost and complexity of a more elaborate model against 
the oversimplification of a simpler model. We can reverse only if 
the model is so oversimplified that the agency's conclusions from it 
are unreasonable. Id.

Appalachian Power v. EPA, 294 F.3d at 1052.
    The IPM was programed to model specified years starting with 2001. 
EPA selected these run years to provide information not just for the 
NOX SIP Call and Section 126 Rule, but also for several 
other programs over the next few years, including implementation 
programs for the recently revised National Ambient Air Quality 
Standards for ozone and fine particles. (Regulatory Impact Analysis for 
the NoX SIP Call, FIP and Section 126 Petitions, Volume 1: 
Costs and Economic Impacts, September 1998, at p.4-2., http://www.epa.gov/ttn/rto/sip/related.html#doc.) Adding more run years (e.g., 
1996) would not have provided information useful for those other 
programs, but would have added significant complexity and costs to the 
modeling.
    The model consists of model plants that represent individual 
generating units (e.g., fossil-fuel-fired boilers, nuclear units and 
hydro-electric units) that comprise the inventory of electricity 
producers. Duplicating precisely each of the boilers and generators 
would be impracticable; accordingly, the model aggregates the fossil-
fuel fired units into a series of model plants and aggregates the non-
fossil-fuel fired units into separate model plants. (Docket # A-96-56, 
Item # V-C-03, Report on Analyzing Electric Power Generation Under the 
Clean Air Act Amendments, at p. 5.)
    For each run year, EPA provides various inputs (i.e., constraints), 
such as the requirement to meet a certain electricity demand for each 
season and each geographic subregion modeled. In addition, for each run 
year, the model provides variables, which are values based on the 
inputs, such as the level of electricity generation from each model

[[Page 21876]]

plant and the level of emission controls at a model plant. For each 
year the model is run, the model must optimize (i.e., determine the 
least cost scenario, including fuel mix, emission controls, and amount 
of operation) for every model plant to reach each constraint in the 
model. The IPM includes thousands of constraints and variables.
    The complexity of the model--its simulations, inputs, and 
variables--means that each additional run year adds many more 
calculations to the model, a task that requires time and resources. To 
keep the model manageable, meet time schedules, and conserve resources, 
adding an additional run year would have meant simplifying other 
assumptions within the model. In other words, because the number of 
equations would be increased by adding constraints and variables 
associated with a new run year, other ways would have had to be found 
to reduce the number of equations. This would have meant either 
reducing the number of (i) model plants; (ii) constraints, such as the 
number of subregions, which determines the number of electricity demand 
constraints; or (iii) variables, such as NOX emission 
control technology options.
    When developing the model, EPA had to decide ``how to balance the 
cost and complexity of a more elaborate model against the 
oversimplification of a simpler model.'' Small Refiner Lead Phase-Down 
Task Force v. EPA, 705 F. 2d 506, 535 (D.C. Cir., 1983). Balancing 
these factors, EPA decided to develop the IPM to start in 2001. Under 
these circumstances, the model adequately served the needs of several 
programs--the NOX SIP Call, the Section 126 Rule, and other 
programs. Moreover, EPA believed that heat input growth rates for the 
years 2001 to 2010 were reasonably representative of growth during the 
period 1996 through 2007. In EPA's judgment, any further refinement in 
the heat input growth rate that may have resulted from adding a 1996 
run year would not have merited the additional time and cost and may 
have been offset by the increase in model inaccuracy that may have 
resulted from the consequent need to further simplify or otherwise 
limit the model. Therefore, EPA decided, on balance, that it was 
reasonable to use 2001-2010 heat input growth rates to develop the 2007 
State NOX emission budgets.
    c. Consistency of assumptions. Some commenters questioned whether 
the 2001-2010 heat input growth rate was representative of growth 
during 1996-2007, alleging that specific assumptions in the IPM were 
different for those two time periods and would result in different heat 
input growth rates for those periods.
    As noted above, one of the inputs for the base case and cost-
effectiveness IPM runs for 2001 and 2010 was projected electricity 
demand. To determine electricity demand, EPA began with available 
information for actual annual electricity demand for 1997, projected 
the increases out to the IPM run years, and then reduced those 
projections to take account of reductions in electricity demand 
expected to result from CCAP. CCAP is a Federal program started in 1993 
to significantly reduce emissions of carbon dioxide (CO2) 
and thereby address concerns about global climate change. Since 
consumption of fossil fuel to generate electricity is a significant 
contributor to CO2 emissions, a major component of CCAP was 
a broad set of voluntary programs designed to reduce electricity demand 
and generation.
    Commenters claimed that the assumptions for electricity demand 
reductions due to CCAP for the years 2001-2010 differed from what would 
have been used for the years 1996-2001. According to a commenter:

    [b]ecause EPA's assumed CCAP reductions increased by almost 300% 
from 2001 to 2010 . . . the electricity demand growth rate that EPA 
used in its analysis decreased substantially from 2001 to 2010. Thus 
the record establishes that EPA itself assumed vastly different 
electricity demand growth rates for the 1996-2000 period than the 
2001-2010 period * * *

    In fact, however, the commenter's conclusion is contradicted by the 
record. The data in the record supporting IPM runs shows that EPA 
assumed electricity demand growth rates of 1.6% for 1997-2000 and 1.8% 
for 2001-2010. Actual electricity demand in 1996 was 3,305 billion 
KWh.\7\ EPA's projected electricity demand without accounting for CCAP 
was 3,575 billion KWh for 2001 and 4,198 billion KWh for 2010. EPA 
projected that CCAP would result in electricity demand reductions of 
100 billion KWh for 2001, and 389 billion KWh for 2010 (Analyzing 
Electric Power, Appendix 2 at A2-2). After subtracting projected CCAP 
electricity demand reductions from assumed electricity demand, EPA 
projected electricity demand of 3,475 billion KWh for 2001,and 3,809 
billion KWh for 2010. This resulted in an annual growth rate for 
adjusted electricity demand of 1.03% for 1996-2001 and 1.07%, for 2001-
2010. (Docket # A-96-56, Item # XV-C-22.) In short, while EPA assumed 
somewhat lower CCAP reductions in 1996-2001 than in 2001-2010, the 
Agency also assumed lower electricity demand growth without CCAP 
adjustments in 1996-2001 than in 2001-2010. The net result was that 
EPA's projected electricity demand growth rates after CCAP adjustments 
were very similar for 1996-2001 and 2001-2010.\8\
---------------------------------------------------------------------------

    \7\ Note that while EPA started its electric demand forecasts 
using NERC forecasts for the year 1997, EPA used here the actual 
electricity demand for 1996 in order to demonstrate the effective 
growth rate for 1996-2001, which is referenced by the commenters.
    \8\ In addition, EPA notes that since the CCAP reductions are 
assumed to occur on a nationwide basis, any assumptions regarding 
CCAP would not have been the cause of State-by-State variation in 
heat input growth rates.
---------------------------------------------------------------------------

4. EPA Did Not ``Double Count'' Electricity Demand Reductions Under 
CCAP
    As noted above, one input into the IPM was electricity demand. EPA 
projected electricity demand by starting with certain industry-
sponsored forecasts for demand and then reducing them by projected CCAP 
demand reductions in accordance with a multi-agency task force's 
projections, made for purposes of a U.S. Department of State report on 
the subject.
    EPA received comments on the August 3, 2001 NODA alleging that EPA 
failed to explain, and, indeed, double counted the projected 
electricity demand reductions under CCAP. According to commenters, the 
double counting led EPA to underestimate projected heat input for 2007. 
The EPA believes that its CCAP assumptions are well supported by the 
record and that no double counting occurred.
    a. EPA's Methodology for Determining Electricity Demand. EPA 
started with electricity demand forecasts from the NERC, which is a 
voluntary association of most of the large electricity generators and 
sellers in the U.S. and whose purpose is to promote the reliability and 
security of the electricity system. NERC divides the continental U.S. 
into regions, each of which has its own council comprised of 
representatives of the utilities generating and selling electricity in 
the region. Each utility makes forecasts of electricity demand by its 
end-use customers and of electricity supply available to that utility 
and submits these forecasts to the appropriate NERC region. NERC 
compiles the individual utilities' demand and supply projections by 
region and reports the compiled projections to the Energy Information 
Agency (EIA).\9\ Since NERC forecasted

[[Page 21877]]

electricity demand out to only 2006 at the time that EPA was developing 
the IPM for the NOX SIP Call, EPA used the NERC electricity 
demand projections for 1996 to 2006 and extended them to 2010 using a 
1995 forecast by DRI, a private consulting group. (Analyzing Electric 
Power, Appendix 2 at A2-3.)
---------------------------------------------------------------------------

    \9\ EIA is an independent agency within the U.S. Department of 
Energy (DOE) that is responsible for, among other things, 
collecting, compiling, and reporting information on the U.S. 
electricity industry.
---------------------------------------------------------------------------

    Then, EPA reduced these electricity demand projections by the 
amounts of demand reductions expected to occur as a result of CCAP. As 
described above, CCAP, a Federal program established in 1993, includes 
a broad collection of voluntary programs designed to reduce electricity 
demand and generation to reduce CO2 emissions. Some of these 
programs were in existence before CCAP's establishment in 1993 and were 
incorporated into CCAP, along with a new set of programs. CCAP was 
updated in 1995, a process that included revised estimates of the 
effectiveness of its programs, based on public input solicited through 
a Federal Register notice (60 FR 44022, Aug. 24, 1995) and a public 
hearing held on September 22, 1995. See Review of Climate Change Action 
Plan: Request for Public Comment; Notice of Meeting, 60 FR 44022, 
August 24, 1995 (Council on Environmental Quality solicitation of 
public comment).
    In 1997, the U.S. Department of State (``State Department'') 
developed and issued a report, Climate Action Report, setting forth the 
expected results from CCAP. The report was developed to fulfill an 
obligation under the 1992 United Nations Framework Convention on 
Climate Change.\10\ The State Department first issued a draft report 
and requested public comment on two occasions, in December 1996 and May 
1997. (See Preparation of Second U.S. Climate Action Report: Request 
for Public Comments, 62 FR 25988, May 12, 1997). After considering the 
comments received, the State Department issued the final report in 
1997. The report presented a consensus view of the Federal agencies 
involved, including EPA, the U.S. DOE, and the State Department.
---------------------------------------------------------------------------

    \10\ Parties to the 1992 United Nations Framework Convention on 
Climate Change (including the U.S.) agreed to submit reports 
detailing their emissions of greenhouse gases (such as 
CO2) and any strategies to reduce those emissions.
---------------------------------------------------------------------------

    In particular, to determine the effectiveness of the CCAP programs, 
an interagency work group polled the program managers at EPA, DOE, the 
U.S. Department of Transportation, and the U.S. Department of 
Agriculture who were responsible for the various CCAP programs. The 
program managers provided estimates of reductions for each CCAP 
program, generally expressed in billion kilowatt hours (billion KWh) of 
electricity usage and mmBtu of heat input, or other units of measure 
appropriate for the program. The workgroup compiled and reviewed those 
projections (Docket # A-96-56, Item # XIV-F-03). EPA used those 
estimates to reduce the NERC-based electricity demand projections for 
2001 through 2020. (See Analyzing Electric Power, Appendix 2, at A2-3). 
In addition, DOE used those estimates to project the amount of 
greenhouse gas emissions reductions that would result from the CCAP 
programs. These emissions reductions and other types of savings were 
included in the State Department's Climate Action Report.
    b. The record contains sufficient documentation of the additional 
CCAP demand reductions that EPA took into account. Some commenters 
claimed, in response to the August 3, 2001 NODA, that EPA did not 
provide adequate documentation to explain how the electricity demand 
reductions under CCAP were derived.
    EPA notes that this issue--as well as the issue of double-counting 
of CCAP demand reductions, discussed below--was not raised in any of 
the rulemakings to this point or brought to the Court's attention in 
either the Section 126 or the Technical Amendments cases. Commenters 
had a full opportunity to raise the issues during the development of 
the NOX SIP Call and Section 126 Rule. In fact, some of the 
parties raising the issues now claimed, in comments in the 
NOX SIP Call and Section 126 rulemakings, that no CCAP 
electricity demand reductions should be considered in projecting 
electricity demand. These commenters based these claims on the ground 
that CCAP was a voluntary, rather than a mandatory, program. Thus, 
these commenters clearly had the opportunity during the earlier 
rulemakings to raise the issues concerning CCAP that they are raising 
only now.
    The lack of attention to these issues by commenters during the 
earlier rulemakings has some impact on the extent to which the record 
addresses them. Had commenters raised these issues earlier, EPA would 
have been obliged to respond, and the record would have included that 
dialogue. Thus, if the commenters view the record as deficient, their 
failure to raise this issue at several earlier junctures should be 
considered. Moreover, it is questionable whether EPA is required, at 
this point, to address these issues in light of the commenters' earlier 
opportunities.
    Even so, EPA maintains that its assumptions about the CCAP demand 
reductions are well supported. The IPM documentation shows the amount 
of actual electricity demand in 1997, and the amount of projected 
electricity demand from 1997 to 2010 (and beyond), all expressed in 
billion Kwh, (IPM basecase modeling runs, http://www.epa.gov/capi/ipm/npr.htm). As noted above, EPA based these projections on information 
supplied by NERC. In addition, other IPM documentation shows the total 
amount of CCAP reductions, expressed in billion kwh, for 2001 through 
2010 (and beyond) (Analyzing Electric Power, Appendix 2 at A2-2).
    These total amounts of CCAP reductions ``were taken from the 
supporting analysis that was done to forecast future U.S. carbon 
emissions from the power industry that appeared in the U.S. Department 
of State's Climate Action Report, July 1997,'' (Analyzing Electric 
Power, Appendix 2 at A2-3). Specifically, this supporting analysis 
consisted of a spreadsheet, entitled ``CCAP Inputs for April 1997 
Update,'' developed by the above-described interagency work group 
tasked with projecting the amount of reductions for each CCAP program, 
(Docket # A-96-56, Item # XIV-F-03). The workgroup solicited 
information from the various agencies charged with administering CCAP 
programs and, based on that information, prepared the spreadsheet. No 
commenter requested this information during the NOX SIP Call 
and Section 126 rulemakings until the comment period for the August 3, 
2001 NODA. At that time, EPA provided the spreadsheet--annotated to 
reflect the adjustment related to the NERC forecasts, described below--
to commenters when requested and placed it in the docket, (Letter from 
John Seitz to Andrea Bear Field, August 31, 2001, Docket #A-96-56, Item 
#XIV-F-01, included as Attachment D to Docket Item #A-96-56-XIV-D-31).
    The spreadsheet identifies the amount of reductions, expressed in 
billion Kwh and mmBtu of each of the dozen or so relevant CCAP 
programs, for the years 2000 and 2010 (as well as 2020). The amount of 
reductions from these programs for 2010--after the adjustment related 
to the NERC forecasts, described below--equals the amount included for 
that year in Analyzing Electric Power, Appendix 2 at A2-2. Moreover, 
the IPM documentation states that ``EPA did a linear interpolation'' to 
determine the amount of CCAP reductions assumed for years between 2000 
and 2010, including 2001, (Analyzing Electric Power, Appendix 2 at A2-
3).
    One commenter claimed that it was not clear how EPA converted the 
CO2

[[Page 21878]]

reductions cited in the State Department's Climate Action Report into 
the electricity demand reductions set forth in Analyzing Electric Power 
or the spreadsheet used by EPA to adjust the NERC electricity demand 
forecasts. Actually, the CO2 reductions in the State 
Department report were based on the electricity demand reductions in 
the spreadsheet, not the other way around. As noted above, these 
electricity demand reductions were developed by the agencies involved 
in implementing CCAP and then were converted to CO2 
reductions for purposes of the State Department report, using a U.S. 
DOE model (the Integrated Dynamic Energy Analysis Simulation (IDEAS)) 
of the U.S. energy system. These values were then included in the 
proposed and final versions of that report.\11\
---------------------------------------------------------------------------

    \11\ A commenter questioned the accuracy of the projections of 
reductions attributable to the programs on the spreadsheet because 
those projections were done a program-by-program basis, without 
consideration of the interactive effects of the programs. The IDEAS 
model run, noted above, in effect considered those interactive 
effects on the programs and provided as an output the total 
electricity savings expressed in billion Kwh (along with other 
outputs, including the emissions reductions). The total electricity 
savings indicated by the IDEAS model run are virtually identical to 
the total amounts projected on a program-by-program basis. (Docket 
#A-96-56, XIV-F-03).
---------------------------------------------------------------------------

    c. Commenters failed to prove their claim that NERC and EIA 
projections already included the CCAP demand reductions that EPA took 
into account. Commenters suggested that the NERC electricity demand 
forecasts that EPA adjusted for certain CCAP reductions already assumed 
those reductions. According to commenters, the NERC members that 
supplied the information used in the NERC forecasts would have been 
aware of, and in some cases participated in, CCAP programs and so 
``would have * * * taken into account'' CCAP programs in the 
information supplied to NERC. The commenters emphasized that NERC 
projected electricity demand growth at an annual rate of 1.7%, which is 
higher than EPA's projection of 1.1%, and therefore concluded that EPA, 
by purportedly double-counting CCAP reductions, underestimated 
electricity demand. The commenters made a similar point with respect to 
electricity demand forecasts by EIA, emphasizing that in 1997, EIA 
projected electricity demand growth at 1.6% annually, and that, in 
making this projection, EIA explicitly noted that it was taking account 
of CCAP.
    As discussed below, after weighing all the evidence in the record 
relevant to the claim that EPA double-counted CCAP demand reductions, 
EPA concludes that no such double-counting occurred and that commenters 
failed to show otherwise.
(i) NERC Forecasts
    When EPA developed electricity demand forecasts for the 
NOX SIP Call and the Section 126 Rule, the NERC forecasts 
did not mention the energy efficiency programs as a factor that was 
considered. NERC explained only that it considered an ``economic 
variable, weather and a random component that expresses unknown 
determinants of net energy for load.'' (Docket # A-96-56, Item # XV-C-
23, Peak Demand and Energy Projection Bandwidths: 1997-2006 
projections, p. 4, Load Forecasting Work Group of the Engineering 
Committee North American Electric Reliability Council, June 1997). 
Consequently, EPA had to exercise its best judgement in determining the 
extent to which the NERC forecasts took into account CCAP demand 
reductions. Rather than assuming, from the absence of any affirmative 
statements by NERC about CCAP reductions, that NERC did not consider 
any CCAP reductions, EPA took the more conservative approach of 
assuming that some of the reductions were likely to have been 
considered by NERC. (See Docket # A-96-56, Item # XIV-F-03.) EPA 
reduced the NERC electricity demand forecasts only to take account of 
the additional CCAP demand reductions beyond those EPA believed were 
included in the NERC forecasts. EPA believed that it was appropriate to 
factor in these additional CCAP demand reductions ``given the extensive 
Administration, State, and business efforts underway and the promising 
early results that EPA has seen in some of the CCAP's programs that 
have substantially lowered electric energy use and saved money for many 
businesses.'' (Responses to Significant Comments on the Proposed 
Finding of Significant Contribution and Rulemaking for Certain States 
in the Ozone Transport Assessment Group (OTAG) Region for Purposes of 
Reducing Regional Transport of Ozone, September 1998, at 182).
    In applying this approach to CCAP reductions, EPA did not factor in 
reductions from either the Green Lights Program or the Energy Star-
Products Office Equipment Program, which existed before CCAP and that 
were simply put under the umbrella of CCAP when CCAP was established in 
1993. Green Lights was one of EPA's earliest voluntary energy 
efficiency programs and was aimed at encouraging the use of energy 
efficient lighting products. This program was expanded under CCAP. 
Similarly, the Energy Star Products program included a pre-1993 program 
to encourage the purchase of energy efficient office equipment. EPA 
assumed that because Green Lights and Energy Star Products-Office 
Equipment were pre-existing programs, they were better established and 
their benefits more predictable by the utilities in forecasting demand; 
as a result, EPA assumed that the NERC forecasts were more likely to 
have already taken their reductions into account. These two programs 
were categorized as commercial programs and were projected to result in 
over 89 billion Kwh in reduced electricity demand by 2010. (Docket # A-
96-56. Item # XIV-F-01). By comparison, the remaining CCAP commercial 
programs resulted in reduced electricity demand of 119.6 billion Kwh. 
Id. Therefore, EPA assumed that the NERC forecasts accounted for over 
42 percent of the reductions from the commercial CCAP programs, 
including the pre-1993 programs.
    EPA also decided not to include reductions from a fuel cells 
program and renewable energy program, which were projected to total 
24.5 billion Kwh by 2010, both for reasons of erring on the side of the 
conservative (not including those reductions had the effect of 
increasing electricity demand) and because adding them would have 
created some technical modeling complexities. Specifically, EPA would 
have had to decide at what level, and where, to allocate this capacity 
among the States within and outside of the NOX SIP Call 
region. EPA decided, rather than make that judgment, to err on the side 
of the conservative by assuming that the fuel cell program and 
renewable energy program did not reduce electricity. In addition, the 
emission factors for fuel cells and biomass facilities that could have 
been employed were highly uncertain. (See Docket # A-96-56, Item # XIV-
F-01).
    Nor did EPA factor in reductions from the Climate Challenge 
program, which was initiated in 1994 as part of CCAP. Under Climate 
Challenge, utilities agreed to voluntarily reduce emissions of 
CO2 through projects for, e.g., improving electricity 
generation or transmission efficiency. Because Climate Challenge was 
specifically directed towards utilities, EPA assumed that the utilities 
submitting their demand estimates to NERC would be familiar with the 
program and would be more likely to have taken demand reductions from 
that program into account. In any event, the Climate Action Report 
workgroup did not assign a specific amount of reductions to this 
program.

[[Page 21879]]

    All told, EPA assumed that CCAP programs would result in 389 
billion Kwh in reductions by 2010 and further assumed that an 
additional 113.5 billion Kwh from CCAP programs and their pre-1993 
predecessors, or 22.6% of the total, had already been included in the 
NERC estimates. Thus, it is evident that EPA conservatively assumed 
that NERC took into account demand reductions from some CCAP programs, 
even though NERC's documentation did not indicate that any CCAP 
reductions were taken into account and no utility commenter provided 
documentation that the demand forecasts they submitted to NERC assumed 
any CCAP reductions.\12\
---------------------------------------------------------------------------

    \12\ Many other CCAP programs generated energy savings but in 
ways other than reducing electricity demand, so that EPA did not 
take into account benefits from these programs either.
---------------------------------------------------------------------------

    On the other hand, EPA did factor into the electricity demand 
projections the reductions from the CCAP programs initiated in 1993 or 
later that were aimed at a broader group of potential participants than 
only utilities. Some of the largest of these programs included (i) 
WasteWise (a voluntary program designed to reduce municipal waste 
through waste prevention and recycling); (ii) Motor Challenge (a 
program designed to help industry realize electricity savings by 
providing industry with the technical expertise concerning management 
of electric motor systems and purchase of more energy efficient 
electric motors); (iii) Rebuild America (a program designed to 
encourage partnerships of various types of companies and 
organizations--ranging from builders to local governments--to retrofit 
existing public housing as well as commercial and multifamily buildings 
to be more energy efficient); (iv) Energy Star Buildings (a program 
designed to encourage individual building owners, developers, and 
others to make comprehensive, energy-efficient building upgrades); and 
(v) Residential Appliance Standards (a program under which DOE would 
establish by rulemaking standards for improved energy-efficient 
appliances such as room air conditioners, refrigerators, water heaters, 
and others). (Docket # A-96-56, Item # XIV-F-01; Climate Action Report, 
Appendix A). Because such programs were relatively new and were geared 
primarily to companies other than utilities, it is less likely that 
utilities would have included demand reductions from these programs in 
their electricity demand projections.
    A commenting group of utilities argued that the NERC forecasts 
likely already included the CCAP reductions that EPA used to adjust 
those forecasts, resulting in double-counting. The commenting utility 
group noted that some utilities participated in two CCAP programs 
(i.e., WasteWise and Motor Challenge) and speculated that the 
participating utilities ``would have'' included CCAP reductions in 
developing the information provided for the NERC forecasts.
    However, utilities comprise only a small number of companies 
participating in WasteWise and Motor Challenge. In 1996, WasteWise 
involved over 600 partners, representing over 30 industries, including 
some utilities. (Docket # A-96-56, Item # X-V-C-24, Wastewise, Third 
Year Progress Report, USEPA, November, 1997, at p.2.) Motor Challenge 
is aimed primarily at industrial end-users, not utilities, (60 FR 
61443-47, Nov. 29, 1995). Thus, the commenter's evidence that a few 
utilities were among the many participants in these two programs 
provides a very weak basis for speculating that the NERC forecasts 
included CCAP demand reductions factored in by EPA. Similarly, many 
other CCAP programs, including the Rebuild America and Energy Star 
Buildings programs, were generally directed at entities other than 
utilities.
    Moreover, except for Climate Challenge, the CCAP programs are 
designed to achieve electricity demand reductions from a wide range of 
electricity end-users (i.e., residential, commercial, and industrial 
end-users) and were relatively new--only a few years old when the 
utilities reported their 1997 demand estimates to NERC. The interagency 
workgroup had estimated amounts of demand reductions from these 
programs on a national basis, but had not broken those estimates down 
to the NERC region level that was the basis for individual utilities' 
reports to NERC. Accordingly, it appears that the individual utilities 
would have had relatively little experience in analyzing the extent to 
which their particular customers followed the CCAP programs and would 
not have had any other source of information for quantifying the CCAP 
demand reductions in their respective regions.\13\
---------------------------------------------------------------------------

    \13\ For example, the Residential Appliance Program depended on 
a series of DOE regulations establishing standards for numerous 
appliances. By 1997, DOE had not yet promulgated the first of these 
regulations. As of 1997, the DOE program manager would nevertheless 
be in a position to estimate the impact of this program on a 
national level for future years, but individual utilities estimating 
electricity demand in their areas would not be in a position to do 
so.
---------------------------------------------------------------------------

    For these reasons, it seems reasonable to conclude that as of 1997, 
the only CCAP program reductions that utilities are likely to have 
included in their reports to NERC would have been the few older 
programs or those primarily targeting utilities, and not the many other 
CCAP programs. Indeed, while a commenting group of utilities speculated 
that utilities must have taken CCAP into account in submitting their 
electricity demand information to NERC in 1997, EPA did not receive any 
direct evidence from the utilities that made the submissions stating 
(much less demonstrating) that their submissions actually took into 
account any specific CCAP programs or otherwise reflected any specific 
demand reductions.\14\ Particularly, in light of the silence of the 
individual utilities about what CCAP reductions they actually included 
(as distinguished from speculation about what they would have 
included), EPA maintains that its assumptions about what CCAP 
reductions were included are reasonable.
---------------------------------------------------------------------------

    \14\ Indeed, several commenters critical of EPA's electricity 
demand assumptions nevertheless acknowledged that it is unclear to 
what extent individual utilities incorporated CCAP programs into 
their demand projections. (Docket # A-96-56, Item # XIV-D-14, 
Michigan, Attachment, p. 5, and Item # XIV-D-31, UARG, Attachment H, 
p. 7).
---------------------------------------------------------------------------

    In addition, the argument that utilities accounted for all CCAP 
reductions is undercut by utilities' comments in the NOX SIP 
Call proceeding. Several utilities commented that because CCAP 
reductions are voluntary, such reductions should not be considered when 
making future demand assumptions. Given this view of the CCAP 
reductions, it seems doubtful that these utilities would have 
considered, in their demand forecasts submitted to NERC, the CCAP 
reductions factored in by EPA. Moreover, an analysis, included in 
comments by the utility group on whether the NOX SIP Call 
would have an impact on the reliability of the region's electricity 
supply in meeting electricity demand, did not take into account any 
demand reductions under CCAP (Responses to Significant Comments on the 
Proposed Finding of Significant Contribution and Rulemaking for Certain 
States in the Ozone Transport Assessment Group (OTAG) Region for 
Purposes of Reducing Regional Transport of Ozone, September 1998, at 
181-82; see also Docket # A-96-56, Item # V-J-66, UARG briefing 
entitled ``The Impact of EPA's Regional SIP Call on the Reliability of 
the Electric Power Supply in the Eastern United States,'' September 11, 
1998.)
    Finally, one utility commenter stated that NERC's forecasts were 
unlikely to consider CCAP demand reductions. The commenter explained:


[[Page 21880]]


    NERC's reliability planning mission suggests just the opposite. 
NERC projections of future demand growth are used to determine how 
much capacity is needed to meet demand to ensure electric system 
reliability. The projections are a compilation of individual utility 
projections sent to each of the NERC regional councils to ensure 
adequate supply exists to meet demand in each region. The 
projections must be conservative and err on the side of overstating 
demand to avoid supply shortfalls--it is of little consequence if 
NERC overestimates demand, but of potentially great consequence if 
it underestimates it. For this reason, although the compiled nature 
of NERC's forecasts makes it virtually impossible to assess its 
underlying assumptions, it is reasonable to assume NERC projections 
largely ignore new, uncertain electricity demand dampening impacts, 
such as voluntary programs with no clear track record of affecting 
electricity consumption. (See Docket # A-96-56, Item # XIV-E-01, 
Letter from Mark Brownstein, Public Service Electric & Gas, Sept. 
15, 2001, at p. 8)
(ii) EIA Forecasts
    Several commenters pointed out that NERC's electricity demand 
forecast (1.8% demand growth per year) and EIA's electricity demand 
forecast (1.7% demand growth per year) are similar and higher than 
EPA's forecast. Emphasizing that EIA explicitly took CCAP reductions 
into account, commenters suggested that the EIA forecast factored in 
the proper amount of CCAP demand reductions and that the similarity of 
the EIA and NERC forecasts therefore shows that the NERC forecasts 
already properly factored in such demand reductions.
    However, EIA's explanation, in the Annual Energy Outlook for 1998, 
of its electricity demand forecast indicated that while EPA factored 
into its forecasts all the CCAP demand reductions projected by the 
State Department's Climate Action Report, described above, EIA factored 
into its forecasts only a small portion of those reductions. This 
different treatment of CCAP reductions explains much of the difference 
in demand reductions between EIA and EPA.
    The Climate Action Report organizes virtually all of the CCAP 
programs that affect electricity demand into three categories: 
residential, commercial, and industrial, (Climate Action Report, Table 
1-2). The report indicates that the residential and commercial programs 
were expected to generate reductions of carbon emissions totaling 53 
million metric tons by 2010. Id. Not including the reductions from 
programs that EPA assumed were included in the NERC estimates, EPA 
reduced projected electricity demand in 2010 due to these programs by 
282.5 billion KWh (Docket # A-96-56, Item # XIV-F-01). EIA, however, 
reduced projected electricity demand in 2010 from these programs by 
much less. In explaining its analysis of the impact of CCAP residential 
and commercial programs, EIA stated:

    Other CCAP programs which could have a major impact on 
residential energy consumption are the Environmental Protection 
Agency's (EPA) Green Programs. These programs which are cooperative 
efforts between the EPA and home builders and energy appliance 
manufacturers encourage the development and production of highly 
energy-efficient housing and equipment. At fully funded levels, 
residential CCAP programs are estimated by program sponsors to 
reduce carbon emissions by approximately 28 million metric tons by 
the year 2010. For the reference case, carbon reductions are 
estimated to be 8 million metric tons, primarily because of 
differences in the estimated penetration of energy-saving 
technologies. * * *
    At fully funded levels, commercial CCAP programs are estimated 
by program sponsors to reduce carbon emissions by approximately 25 
million metric tons by the year 2010. For the reference case, carbon 
reductions are estimated to be just over 9 million metric tons in 
2010, primarily because of differences in estimated penetration of 
energy-saving technologies.

(Annual Energy Outlook 1998 (AEO98), Energy Information Administration, 
December 1997 at 209-10).
    In other words, EIA believed that CCAP residential and commercial 
programs would be about one-third as effective at reducing energy use 
(including electricity use) as the State Department and EPA and other 
sponsors projected and included the lower estimate of the energy use 
reductions in the ``reference case'' on which EIA based its electricity 
demand forecasts.
    EIA similarly assumed much fewer energy savings from CCAP 
industrial programs than EPA believed based on the Climate Action 
Report. As EIA explained:

    For their annual update, the program offices estimated that full 
implementation of these programs would reduce industrial electricity 
consumption by 20 billion kilowatt hours * * * However since the 
energy savings associated with the voluntary programs are, to a 
large extent, already contained in the AEO98 baseline total CCAP 
energy savings were reduced. Consequently, CCAP is assumed to reduce 
electricity consumption by 9 billion kilowatt hours. Id. at 210.

EIA essentially assumed that CCAP industrial programs resulted in 
relatively few additional energy saving activities beyond those 
activities that industrial companies were already carrying out and that 
were therefore already reflected in the ``AEO98 baseline'' or 
``reference case'' on which EIA based its electricity demand forecasts. 
By comparison, the State Department analysis projected that industrial 
CCAP programs would generate reductions of 96.4 billion Kwh (counting 
an adjustment from programs categorized as commercial) (Docket # A-96-
56, Item # XIV-F-01). Thus, EIA projected that these industrial 
programs would generate savings of less than one-tenth the amount that 
EPA did.
    As discussed above, EPA's more aggressive assumptions were taken 
from the supporting analysis for the State Department's Climate Action 
Report, which included reduction estimates that were developed through 
interagency consultation and were subject to public comment. EPA 
believes it was appropriate to use them.
    Some commenters suggest that EPA should assess whether the CCAP 
demand reductions are still justified based on any new information that 
has become available since EPA issued the Section 126 Rule and the 
Technical Amendments. EPA believes that it is appropriate for the 
Agency to rely on the information that was available during the 
rulemakings that resulted in those rules. However, EPA notes that 
commenters did not provide any specific information showing that EPA's 
projected CCAP demand reductions were incorrect.\15\ Further, new, 
current information provides some confirmation that EPA's projected 
CCAP demand reductions were reasonable. A recent report, (Docket # A-
96-56, Item # XV-C-25, The Power of Partnerships Energy Star and Other 
Voluntary Programs--2000 Annual Report, EPA , 2001 at p. 6) states that 
the Energy Star Program, which promotes highly efficient equipment such 
as energy efficient refrigerators, dish washers, and windows, has 
exceeded the level forecasted by CCAP for 2000 by more than 20 percent 
of the forecasted level in the CCAP.\16\ Furthermore, EPA has expanded 
CCAP to cover other uses of electricity (e.g., at hospitals) that will 
increase savings further. (See Docket # A-96-56, Item # XV-C-26, EPA 
Administrator Launches New Energy

[[Page 21881]]

Star Rating Tool for Hospitals, Honors First Hospital to Earn Energy 
Star Label, November 15, 2001.)
---------------------------------------------------------------------------

    \15\ A commenter stated that CCAP has not generated the expected 
level of reductions because it did not achieve its goal of reducing 
U.S. greenhouse gas emissions to 1990 levels. However, the amounts 
of reductions projected by the Climate Action Report for particular 
CCAP programs affecting electricity demand, which are the ones 
relevant for present purposes, were far less than would be necessary 
to reduce overall U.S. greenhouse gas emissions to 1990 levels.
    \16\ Only a small part of the Energy Star reductions were 
considered to be included in the NERC forecasts because they 
involved programs in existence before 1993.
---------------------------------------------------------------------------

    In short, commenters failed to show that the EIA electricity demand 
forecast properly factored in the CCAP demand reductions, much less 
that the NERC forecast (which was higher than the EIA forecast) already 
included the CCAP demand reductions that EPA used to reduce the NERC 
forecast.
(iii) Consistency With Regional Heat Input
    Finally, EPA notes that ``the electricity demand reductions [under 
CCAP] were distributed evenly throughout the United States, and 
therefore have no influence on the share of the total amount of 
NOX emissions that each State receives,'' (63 FR 57414). Any 
overestimation of the CCAP demand reductions would therefore be likely 
to result in regionwide projections of heat input being lower than 
actual levels, rather than in only a few States' projections being 
lower than actual levels. Yet, as explained below, EPA's heat input 
projections have been reasonably accurate on a regionwide basis. EPA's 
projections were 0.1% lower than actual regionwide heat input for 2000 
and 2% higher than actual regionwide heat input for 2001. This 
indicates that the CCAP assumptions were reasonable and did not lead to 
``stark disparities between [EPA's] projections and real world 
observations.'' Appalachian Power v. EPA, 249 F.3d 1054.\17\
---------------------------------------------------------------------------

    \17\ EPA also notes that the Agency's use of assumed CCAP 
reductions did not significantly affect the cost effectiveness of 
the NOX emissions reductions on which the State 
NOX emission budgets are based and did not change whether 
the reductions met EPA's cost effectiveness criteria. As explained 
in the NOX SIP Call, EPA examined the impact of the CCAP 
reductions and found that ``even if the Agency did not assume the 
CCAP reductions, it was still highly cost effective to develop a 
regional level NOX budget for the electric power 
industry, based on the level of control that EPA has assumed,'' (63 
FR 57414). (See also Regulatory Impact Analysis for the Regional 
NOX SIP Call, at 6-24 and 6-25, September 1998).
---------------------------------------------------------------------------

5. EPA's Assumptions Regarding the Location of New Units Were 
Reasonable
    Commenters on EPA's August 3, 2001 NODA expressed concern about the 
methodology that EPA used to assign new units to individual States.\18\ 
The IPM divided the country into geographic regions that are based on 
NERC regions. These regions are further subdivided to account for 
transmission bottlenecks or areas that have different environmental 
requirements. These regions and subregions do not correspond to State 
boundaries, in many cases. For example, part of Illinois and part of 
Missouri is split between two NERC Regions, the East Central 
Reliability Area Council (ECAR) and the Mid America Interconnected 
Network. Similarly, Virginia and Kentucky are split between ECAR and 
the Southern Electric Reliability Council (SERC). While Alabama and 
Georgia are both located entirely within the SERC Region, in IPM they 
have been further subdivided into multiple IPM subregions to more 
closely match the constraints within the electric distribution system. 
The IPM runs indicated which new units would operate in which 
subregions but did not specify in which States in these subregions. In 
order to develop State budgets, EPA had to develop a methodology to 
disaggregate these new units from the subregional level to the State 
level.
---------------------------------------------------------------------------

    \18\ This issue, like the CCAP issues, was raised by commenters 
for the first time in response to the August 3, 2001 NODA and was 
not raised in any earlier rulemaking or before the Court. 
Nevertheless, EPA is addressing all these issues on the merits in 
today's notice.
---------------------------------------------------------------------------

    Under EPA's methodology, new units that had commenced construction 
or received financing, at the time that the model was updated (i.e., in 
1998) for use in the NOX SIP Call and the Section 126 Rule, 
were included in the State in which they existed or were planned. 
Second, new units that had not commenced construction or received 
financing at that time, but that were projected by the IPM to be built 
were assigned to an individual State based on the share of the 
subregion's generation capacity (both fossil and non-fossil) that was 
located in the State. EPA maintains that this was a reasonable approach 
that took into account the then most current, available information on 
new unit construction and financing.
    EPA also notes that the only alternative approach suggested by 
commenters was to use new information on the commencement of 
construction and financing of new units. To the extent that this type 
of information was available at the time that EPA updated the IPM 
(i.e., in 1997) for use in the NOX SIP Call and the Section 
126 Rule, EPA did use such information. However, EPA rejects the 
approach of now using new information of this type, for units that have 
been more recently built or are currently being built, that was not 
available when the IPM was updated. EPA believes that it reasonably 
relied on the most current information available around the time the 
IPM was updated and that it would not be reasonable to require the 
Agency to redo its analysis whenever, as inevitably occurs, more recent 
information becomes available. Imposing such a requirement would be a 
prescription for endless rulemaking.
    It should also be noted that, while coal-fired and nuclear units 
make up about 77% of existing electricity generation capacity (with 
gas- and oil-fired units making up 13% and hydroelectric and renewal 
facilities making up the rest), the only new units projected by the IPM 
in the runs for the NOX SIP Call (and applicable to the 
Section 126 Rule) were gas-fired units. Because new gas-fired units 
will likely have very high levels of NOX control and much 
lower NOX emissions as compared to existing units (see 
discussion of new units' low NOX emissions in section V.D.8 
of this notice), these units will have a much smaller impact on 
NOX emissions than do existing units. Therefore, even if 
some new units locate in different States than those projected by the 
IPM, those units will not significantly increase the NOX 
emissions in the States where they locate and so will not significantly 
increase the stringency of the NOX emission reduction 
requirements for other units in such States. In conclusion, EPA 
believes that its heat input growth rate methodology--including the 
challenged assumptions on new unit location, electricity demand, and 
representativeness of the 2001-2007 heat input growth rates--is 
reasonable.

D. Actual Heat Input Compared to EPA Projections of Heat Input

1. Court's and Commenters' Concerns
    The Court expressed concern about the perceived discrepancies 
between EPA's heat input projections and actual heat input data. The 
Court stated: ``In Michigan and West Virginia, for example, actual 
utilization in 1998 already exceeded the EPA's projected levels for 
2007. This, on its face, raises questions about the reliability of the 
EPA's projections.'' (Appalachian Power v. EPA, 249 F.3d at 1053). The 
Court added that ``[f]urther growth projections that implicitly assume 
a baseline of negative growth in electricity generation over the course 
of a decade appear arbitrary, and the EPA can point to nothing in the 
record to dispel this appearance.'' Id.
    Commenters expressed similar concerns. Through the August 13, 2001 
NODA, EPA put in the docket data indicating ozone season heat input for 
each State in the NOX SIP Call region for the years 1997-
2000. Commenters pointed out that this data indicated that in 2000, 
actual heat input for four other States--Alabama, Georgia, Illinois, 
and Missouri--exceeded EPA's projected heat input for the year 2007. 
Commenters claimed that this showed

[[Page 21882]]

that EPA's heat input growth rates and projections were unreasonable. 
Through the March 11, 2002 NODA, EPA put in the docket comparable data 
for the year 2001 and, subsequently, put in annual data for each State 
for 1960-2000. (See Docket # A-96-56, Item #'s XV-C-18 and XV-C-19).
    After careful review of these and other data in the record and the 
Court's and commenters' concerns, EPA concludes that the available, 
actual heat input does not indicate that the Agency's heat input growth 
methodology is unreasonable.
2. EPA's Heat Input Projections for the Region Are Consistent With 
Actual Heat Input Data
    EPA's heat input projections for EGUs for the NOX SIP 
Call region (21 States and the District of Columbia), taken as a whole, 
are consistent with the actual heat input data that are available. EPA 
projected heat input for 2007 by applying State heat input growth rates 
to 1995 or 1996 baseline heat input. Although 2007 is the only year for 
which EPA was projecting heat input and for which EPA established 
NOX emission budgets for EGUs, the EPA methodology can be 
applied to yield heat input values for other years, such as 2000 and 
2001. When compared with actual heat input data now available for 2000 
and 2001, EPA projections for those years are consistent with the 
actual data.
    Specifically, EPA's projections for total regionwide heat input for 
EGUs are 6,250,350,678 mmBtu for 2000 and 6,328,056,922 mmBtu for 
2001.\19\ These projections are 0.1% lower and 2% higher respectively 
than actual regionwide heat input for EGUs for 2000 and for 2001 (see 
Table 1).
---------------------------------------------------------------------------

    \19\ As noted in the August 3, 2001 NODA, EPA's methodology 
called for projecting 2007 heat input, not heat input at interim 
points in time. However, for purposes of responding to concerns 
about the reasonableness of the methodology, it is useful to examine 
what the methodology would project if applied to interim points in 
time when data concerning actual heat input are available.
---------------------------------------------------------------------------

    In commenting on the data presented by the August 3, 2001 NODA, 
which included the actual heat input values for years up to 2000, 
commenters stated that the closeness of the regionwide projection for 
2000 and actual regionwide heat input did not cast doubt on their view 
that EPA's heat input growth methodology provided unreasonably low 
growth rates. Rather, commenters asserted, the closeness was ``pure 
coincidence'' resulting from EPA using an inflated 1995-1996 baseline 
and applying to it a ``less-than-reasonable'' heat input growth rate. 
According to the commenters, in subsequent years, EPA's regionwide 
projection would diverge significantly from actual regionwide heat 
input.
    The actual heat input values for 2001 became available after the 
submission of comments on the August 3, 2001 NODA and were put in the 
docket. As noted above, the regionwide, actual heat input for 2001 
remains quite close to, and in fact is a little lower than, the EPA's 
regionwide heat input projection for 2001. Of course, regionwide 
electricity demand, and so regionwide heat input, in the 2001 ozone 
season were probably somewhat lower than they otherwise would have been 
because of the unusual reduction in economic activity immediately after 
the September 11, 2001 terrorist attacks. Even so, regionwide 
electricity demand still grew slightly over 2000 ozone season levels. 
(Docket #A-96-56, Item # XV-C-12, summarizing EIA electricity sales 
data for the ozone season for the NOX SIP Call States during 
1995-2001). With the continued closeness of EPA's projected and the 
actual values for regionwide heat input, it is difficult to give the 
commenters' assertion of ``pure coincidence'' much credence. Moreover, 
as discussed above, EPA's methodology for developing heat input growth 
rates, and the assumptions underlying the methodology, are reasonable, 
and so it is logical to expect that the heat input projections 
resulting from that methodology are reasonable.
3. EPA's Heat Input Growth Rates and 2007 Projections for Most States 
Are Not Disputed by Commenters
    EPA's heat input growth rates and 2007 projections for most States 
in the NOX SIP Call region, and for most States covered by 
the Section 126 Rule, are not specifically disputed by commenters. Of 
the 21 States and the District of Columbia covered by the 
NOX SIP Call, or recently proposed to be covered, the heat 
input growth rates and 2007 projections for only seven States (Alabama, 
Georgia, Illinois, Michigan, Missouri, Virginia, and West Virginia) are 
disputed by commenters. Of the 12 States and the District of Columbia 
covered by the Section 126 Rule, these values for only three States 
(Michigan, Virginia, and West Virginia) are disputed by commenters.
    As noted above, petitioners and the Court raised concerns about 
EPA's growth rates and projections for Michigan and West Virginia, 
stating that EPA's State heat input growth rates resulted in State 
projections for 2007 below the 1998 actual heat input values. 
Subsequently, in comments on the August 3, 2001 NODA, commenters raised 
concerns that the heat input growth rates for five other States 
(Alabama, Georgia, Illinois, Missouri, and Virginia) were too low 
because, for each State, the actual heat input in 2000 exceeded or were 
close to EPA's 2007 projection. For the remaining 15 jurisdictions in 
the NOX SIP Call region, EPA's heat input growth rates and 
projections were not disputed by any petitioner and are not disputed in 
any comments on the August 3, 2001 and March 11, 2002 NODA's or on any 
other documents added to the docket concerning the remand on growth 
rates.
    The fact that no objections have been raised with respect to the 
majority of the States is an indication of the reasonableness of EPA's 
heat input growth methodology. Further, as discussed below, all of the 
States about which the Court or commenters expressed concern have 
recently had decreases in their heat input, in some cases to levels 
below EPA's 2007 projections. Also as discussed below, because in a 
number of instances State annual heat input has decreased significantly 
over multi-year periods, the fact that a State has recently had heat 
input exceeding or close to EPA's 2007 projections does not mean that 
the projection is unreasonable.
4. Historical Data Show That a State's Heat Input Can Decrease 
Significantly Over Multi-Year Periods
    As noted above, the Court indicated significant doubt that a 
State's heat input could decrease over a long period of years. The 
Court seemed to be concerned that underlying a decrease in State heat 
input would have to be a decrease in electricity generation. 
Consequently, the Court questioned the reasonableness of EPA's heat 
input growth rate methodology because the methodology resulted in a 
State exceeding its 2007 level nine years in advance. However, 
historical heat input data shows that, on many occasions, State annual 
and ozone season heat input has decreased significantly for the last 
year, as compared to the first year, of multi-year periods.
    Table 1 below shows the ozone season heat input for EGUs for 1995-
2001 for each State in the NOX SIP Call region. For each 
ozone season, EPA summed the heat input data for Acid Rain Program 
units, as reported to EPA under 40 CFR part 75, and for other EGUs, as 
reported to EIA.

BILLING CODE 6560-50-P

[[Page 21883]]

[GRAPHIC] [TIFF OMITTED] TR01MY02.000

BILLING CODE 6560-50-C

[[Page 21884]]

    This ozone season data shows decreases in State heat input for 
several States for the last year, as compared to the first year, of 
multi-year periods of 3 to 6 years.\20\ For example, during 1995 
through 2001, Delaware, Georgia, Illinois, Indiana, Massachusetts, 
Maryland, Michigan, North Carolina, Ohio, Pennsylvania, Virginia, and 
West Virginia had decreases in heat input for the last year, as 
compared to the first year, of the 3-year period 1998-2001. Heat input 
decreases for other multi-year periods occurred during 1995 through 
2001 for Delaware (6-year period 1995-2001), North Carolina (5-year 
period 1996-2001), New Jersey (3-year period 1995-1998), New York (6-
year period 1995-2001), Pennsylvania (6-year period 1995-2001) Rhode 
Island (4-year period 1996-2000), and Tennessee (6-year period 1995-
2001).
---------------------------------------------------------------------------

    \20\ EPA, of course, recognizes that there also can be 
significant increases in State heat input over multi-year periods. 
However, commenters suggested that significant decreases could not 
occur. The point is that, since significant decreases can occur, the 
fact that State's recent heat input exceeds or is close to EPA's 
2007 projection does not make the projection unreasonable.
---------------------------------------------------------------------------

    EPA also examined long-term, fossil fuel use data. The long-term 
data from EIA show fossil fuel use (in mmBtu) on an annual, not an 
ozone season, basis for the 21 States subject to the NOX SIP 
Call for 1960-2000.\21\ (Because of the large amount of data, the full 
set of 1960-2000 annual data is provided in Docket #A-96-56, Item #XV-
C-18, rather than being included in today's notice.) These data 
demonstrate that decreases in State annual heat input, like decreases 
in State ozone season heat input, are not unusual.
---------------------------------------------------------------------------

    \21\ EIA collected, on a long term historical basis, monthly and 
annual plant-by-plant data on quarterly and heat content of fuel 
used. EIA used these data to determine annual heat input for each 
State and did not determine State heat input on an ozone season 
basis. EPA notes that its analysis does not include the District of 
Columbia, for which a full set of historical, annual heat input data 
was not available. However, the heat input growth rate for the 
District of Columbia is not disputed by commenters.
---------------------------------------------------------------------------

    Specifically, the 1960-2000 annual heat input data show significant 
decreases in State annual heat input for the last year, as compared to 
the first year, of multi-year periods of 3 to 10 years (or longer). In 
fact, all but one of the 21 States under the NOX SIP Call 
has had significant decreases in annual heat input over many multi-year 
periods ranging from 3 to 10 years; one of the States (Indiana) has had 
such decreases over multi-year periods, within that range, of only 3-
years. Tables 2, 3, 4, 5, 6, 7 ,8, and 9 summarize this information by 
showing the largest percentage decreases (for the last year, as 
compared to the first year, of multi-year periods) that the listed 
States have had in annual heat input over 3-year, 4-year, 5-year, 6-
year, 7-year, 8-year, 9-year and 10-year periods respectively.

 Table 2.--Largest Decreases in State Annual Heat Input Over Three Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         3-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................   1979--1982           17
Connecticut...................................   1989--1992            6
Delaware......................................   1995--1998           24
Georgia.......................................   1989--1992            9
Illinois......................................   1986--1989           17
Indiana.......................................   1979--1982            3
Kentucky......................................   1997--2000            8
Massachusetts.................................   1997--2000           42
Maryland......................................   1978--1981           26
Michigan......................................   1979--1982           19
Missouri......................................   1990--1993           12
New Jersey....................................   1989--1992           46
New York......................................   1990--1993           34
North Carolina................................   1981--1984           17
Ohio..........................................   1979--1982           11
Pennsylvania..................................   1996--1999           14
Rhode Island..................................   1990--1993           88
South Carolina................................   1981--1984           19
Tennessee.....................................   1979--1982           16
Virginia......................................   1979--1982           35
West Virginia.................................   1988--1991           13
------------------------------------------------------------------------


 Table 3.--Largest Decreases in State Annual Heat Input Over Four Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         4-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................   1980--1984            9
Connecticut...................................   1989--1993           55
Delaware......................................   1996--2000           25
Georgia.......................................   1988--1992           12
Illinois......................................   1984--1988           18
Indiana.......................................         None         None
Kentucky......................................   1996--2000            5
Massachusetts.................................   1989--1993           34
Maryland......................................   1978--1982           23
Michigan......................................   1979--1983           19
Missouri......................................   1989--1993           13
New Jersey....................................   1989--1993           48
New York......................................   1990--1994           37
North Carolina................................   1983--1987           48
Ohio..........................................   1979--1983           12
Pennsylvania..................................   1980--1984           14
Rhode Island..................................   1989--1983           86
South Carolina................................   1980--1984           15
Tennessee.....................................   1978--1982           24
Virginia......................................   1979--1983           35
West Virginia.................................   1989--1993           14
------------------------------------------------------------------------


 Table 4.--Largest Decreases in State Annual Heat Input Over Five Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         5-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................   1977--1982           15
Connecticut...................................   1989--1994           55
Delaware......................................   1993--1998           28
Georgia.......................................   1987--1992           14
Illinois......................................   1983--1988           23
Indiana.......................................         None         None
Kentucky......................................   1995--2000            2
Massachusetts.................................   1989--1994           35
Maryland......................................   1976--1981           24
Michigan......................................   1978--1983           17
Missouri......................................   1988--1993           13
New Jersey....................................   1989--1994           44
New York......................................   1989--1994           40
North Carolina................................   1982--1987           25
Ohio..........................................   1979--1984           11
Pennsylvania..................................   1980--1985           13
Rhode Island..................................   1988--1993           90
South Carolina................................   1981--1986           14
Tennessee.....................................   1977--1982           23
Virginia......................................   1977--1982           38
West Virginia.................................   1988--1993           12
------------------------------------------------------------------------


  Table 5.--Largest Decreases in State Annual Heat Input Over Six Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         6-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................   1976--1982           11
Connecticut...................................   1989--1994           52
Delaware......................................   1993--1999           28
Georgia.......................................   1985--1991           14
Illinois......................................   1983--1989           25
Indiana.......................................         None         None
Kentucky......................................   1993--1999            2
Massachusetts.................................   1989--1995           37
Maryland......................................   1974--1980           27
Michigan......................................   1976--1982           13
Missouri......................................   1987--1993            9
New Jersey....................................   1989--1995           45
New York......................................   1990--1996           44
North Carolina................................   1981--1987           29
Ohio..........................................   1977--1983            8
Pennsylvania..................................   1980--1986           15
Rhode Island..................................   1987--1993           91
South Carolina................................   1977--1983           11
Tennessee.....................................   1976--1982           24
Virginia......................................   1977--1983           38
West Virginia.................................   1985--1991           11
------------------------------------------------------------------------


 Table 6.--Largest Decreases in State Annual Heat Input Over Seven Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         7-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................   1975--1982            8
Connecticut...................................   1986--1993           53
Delaware......................................   1993--2000           31
Georgia.......................................   1985--1992           17
Illinois......................................   1981--1988           22

[[Page 21885]]

 
Indiana.......................................         None         None
Kentucky......................................   1993--2000            1
Massachusetts.................................   1989--1996           40
Maryland......................................   1974--1981           37
Michigan......................................   1975--1982           15
Missouri......................................   1984--1991            7
New Jersey....................................   1989--1996           54
New York......................................   1989--1996           47
North Carolina................................   1981--1988           27
Ohio..........................................   1977--1984            7
Pennsylvania..................................   1980--1987           14
Rhode Island..................................   1986--1993           89
South Carolina................................   1977--1984            6
Tennessee.....................................   1976--1983           15
Virginia......................................   1976--1983           38
West Virginia.................................   1984--1991           10
------------------------------------------------------------------------


 Table 7.--Largest Decreases in State Annual Heat Input Over Eight Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         8-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................    1974-1982           12
Connecticut...................................    1986-1994           52
Delaware......................................    1991-1999           29
Georgia.......................................    1984-1992           11
Illinois......................................    1980-1988           28
Indiana.......................................         None         None
Kentucky......................................         None         None
Massachusetts.................................    1992-2000           41
Maryland......................................    1974-1982           35
Michigan......................................    1974-1982           13
Missouri......................................    1984-1992           11
New Jersey....................................    1984-1992           53
New York......................................    1988-1996           42
North Carolina................................    1980-1988           24
Ohio..........................................    1976-1984            5
Pennsylvania..................................    1991-1999           12
Rhode Island..................................    1985-1993           88
South Carolina................................    1978-1986            2
Tennessee.....................................    1976-1984           13
Virginia......................................    1977-1985           36
West Virginia.................................    1985-1993           11
------------------------------------------------------------------------


 Table 8.--Largest Decreases in State Annual Heat Input Over Nine Years
------------------------------------------------------------------------
                                                              % decrease
                     State                         9-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................    1973-1982           17
Connecticut...................................    1984-1993           51
Delaware......................................    1991-2000           33
Georgia.......................................    1984-1993            3
Illinois......................................    1990-1989           31
Indiana.......................................         None         None
Kentucky......................................         None         None
Massachusetts.................................    1991-2000           47
Maryland......................................    1972-1981           31
Michigan......................................    1974-1983           13
Missouri......................................    1984-1993           20
New Jersey....................................    1984-1993           54
New York......................................    1987-1996           35
North Carolina................................    1981-1990           26
Ohio..........................................    1979-1988            2
Pennsylvania..................................    1990-1999           14
Rhode Island..................................    1984-1993           88
South Carolina................................         None         None
Tennessee.....................................    1973-1982           18
Virginia......................................    1974-1983           35
West Virginia.................................    1984-1993            9
------------------------------------------------------------------------


  Table 9.--Largest Decreases in State Annual Heat Input Over Ten Years
------------------------------------------------------------------------
                                                              % decrease
                     State                        10-year      in heat
                                                   period       input
------------------------------------------------------------------------
Alabama.......................................    1973-1983            9
Connecticut...................................    1983-1993           48
Delaware......................................    1988-1998           31
Georgia.......................................         None         None
Illinois......................................    1979-1989           32
Indiana.......................................         None         None
Kentucky......................................         None         None
Massachusetts.................................    1990-2000           48
Maryland......................................    1972-1982           28
Michigan......................................    1973-1983           11
Missouri......................................    1983-1993           16
New Jersey....................................    1983-1993           55
New York......................................    1989-1999           31
North Carolina................................    1980-1990           23
Ohio..........................................         None         None
Pennsylvania..................................    1989-1999           21
Rhode Island..................................    1983-1993           88
South Carolina................................    1973-1983            6
Tennessee.....................................    1973-1983            8
Virginia......................................    1972-1982           36
West Virginia.................................    1981-1991            6
------------------------------------------------------------------------

    Although the longer term EIA annual heat input data and EPA's 
shorter term ozone season data show the same types of multi-year period 
decreases, EPA conducted further analysis in order to confirm that 
ozone season and annual State heat input have similar fluctuations. 
Specifically, EPA used EIA monthly data on fuel quantity (which was 
available for years starting with 1970) and generic heat content 
factors in order to derive estimated ozone season heat input data for 
1970-1998. [See Docket # A-96-56, Item # XV-C-19 (explaining how EPA 
derived estimated ozone season data and providing that estimated 
data)]. Because of the nature of the simplifying assumptions that EPA 
made in order to derive long-term ozone season data, EPA's analysis in 
this notice relies primarily on the long-term State annual heat input 
data, not the derived long-term State ozone season heat input data. 
However, EPA believes that the latter data confirm EPA's annual-data 
analysis because the long-term ozone season data show multi-year 
decreases in State heat input that are very similar in length and 
magnitude to those shown by the long-term State annual heat input data. 
Id.
    In summary, historical data show that heat input (whether for the 
ozone season or the entire year) in individual States is quite variable 
and has decreased significantly over multi-year periods on a number of 
occasions. EPA respectfully submits that the data provide a basis for 
the Court to reconsider its concern that the fact that heat input 
values for some States for certain years have already exceeded EPA's 
2007 heat input projections supports objections to the reasonableness 
of EPA's heat input growth methodology.
5. Approach of Using Recent State Heat Input To Project Future State 
Heat Input Is Not Statistically Sound
    Commenters claimed that, because the recent heat input for seven 
States (Alabama, Georgia, Illinois, Michigan, Missouri, Virginia, and 
West Virginia) has exceeded or been close to EPA's 2007 heat input 
projections, EPA's projections are unreasonable. In making this claim, 
commenters implicitly assumed that future heat input can reasonably be 
projected using a relatively short period of years of actual State heat 
input data.
    In order to test the validity of this assumption, EPA simulated 
that approach using historical annual heat input data for the 21 
NOX SIP Call States for 1960-2000 (or in some States where 
less data was available, from 1970-2000). Using this data, EPA used 6 
years worth of historical data (e.g., 1960-1966) to project annual heat 
input for the sixth year after the 6-year period (e.g, 1972). EPA did 
this on a rolling basis, using historical 6-year periods from 1960 to 
1994 (or 1970 to 1994), to project annual heat input for the years 1972 
(or 1982) to 2000. EPA tested how well the historical data predicted 
future annual heat input value by comparing the projected value with 
the actual value for the same year. Specifically, EPA performed an r-
squared test on the actual annual heat input vs. the projected annual 
heat input for the same year. This test provides a measure of how much 
a change in one variable (here, actual annual heat input) is related to 
a change in a second variable (here, projected annual heat input). For 
instance, an r-squared value of 1 implies that all of the change in the 
first variable

[[Page 21886]]

is related to change in the second value. Conversely, an r-squared 
value of 0 implies that none of the change in the first variable is 
related to change in the second variable.
    EPA found that, in testing the actual annual heat input data vs. 
the projected annual heat input data for each State, 10 States 
(including Illinois, Michigan and Virginia) out of the 21 
NOX SIP Call States had r-squared values below 0.12. An 
additional six States (including Missouri and West Virginia) had r-
squared values below 0.32. Because the r-squared test showed that less 
than one-third of the variability in projected annual heat input can be 
explained by the variability in actual annual heat input for 16 of the 
NOX SIP Call States, EPA believes that it is clear that 
historical heat input cannot be used as a reliable indicator of future 
heat input. Moreover, the r-squared values for the remaining States 
were: Alabama, 0.63; Georgia 0.42; Indiana, 0.80; Kentucky, 0.67; New 
Jersey (0.59). Except for Indiana, this indicates only a weak 
correlation between actual heat input data and projected heat input 
data because 33% to 58% of the variability of projected heat input data 
cannot be explained by the variability in actual heat input data. Even 
in Indiana where the correlation was strongest, the projections ranged 
from 13.4% below the actual value to 10.9% above the actual value. For 
Alabama, 15 of the 29 projections were more than 10% above or below the 
actual value, and the projections ranged from 26.7% below the actual 
value to 27.9% above the actual value. (See Docket # A-96-56, Item #'s 
XV-C-19 and XV-C-20.) For other States, disparities between the 
projected values and the actual values were even wider. The variability 
in the projections for the States where concerns have been raised are 
summarized below.

 
------------------------------------------------------------------------
                                   Number of
                                projections off
             State                by more than    Range of  projections
                                      10%
------------------------------------------------------------------------
Alabama.......................  15 of 29.......  -26.7% to 27.3%
Georgia.......................  14 of 29.......  -50.9% to 37.0%
Illinois......................  21 of 29.......  -46.4% to 40.1%
Michigan......................  25 of 29.......  -33.4% to 54.6%
Missouri......................  23 of 29.......  -36.4% to 31.9%
Virginia......................  25 of 29.......  -60.2% to 71%
West Virginia.................  21 of 29.......  -44.0% to 37.9%
------------------------------------------------------------------------

In short, historical State heat input for a relatively short period of 
years is not a reliable method for predicting future State heat input.
6. EPA's Heat Input Projections Do Not Implicitly Assume Negative 
Growth in Electricity Generation
    In Appalachian Power v. EPA, 249 F.3d at 1053, the Court expressed 
concern that, for States whose actual heat input for EGUs already 
exceeded EPA's projections for 2007, EPA's projection ``implicitly 
assume a baseline of negative growth in electricity generation.'' 
Although the Court expressed concern about electricity generation, it 
should be recalled that in the NOX SIP Call and Section 126 
Rule, the regulatory requirements were computed with reference to heat 
input, and not electricity generation. Accordingly, in expressing 
concern about electricity generation, the Court apparently was 
concerned that a decrease in heat input would necessarily mean a 
decrease in electricity generation and that a projection of a heat 
input decrease would implicitly assume decreased electricity 
generation.
    In response, EPA respectfully submits that fossil-fuel use at the 
State level--which is at issue in the present case--is but one factor 
associated with electricity generation. Many other factors affect 
electricity generation as well. Accordingly, EPA respectfully submits 
that a decrease in State heat input (whether actual or projected) does 
not implicitly mean a decline in electricity generation.
    Indeed, State heat input can decrease while electricity generation 
in the State or in the region increase. There are at least two reasons 
why this can happen. First, even within a State, heat input does not 
necessarily correlate with electricity generation because of 
electricity generated using non-fossil fuel sources and increased 
efficiency of fossil fuel generation. Second, because electricity is 
sold on a regionwide basis, electricity generation can decrease in one 
State and increase in another State, with increased electricity being 
sold and used in the first State.
    a. State heat input does not necessarily correlate with electricity 
generation in the State. Electricity generation in a State can increase 
at the same time that heat input (i.e., fossil fuel use) decreases in 
that State. One reason for this is that significant amounts of 
electricity can be generated from non-fossil sources, such as nuclear 
units or hydro-electric facilities.
    Commenters suggested that heat input will have to increase in the 
next several years because nuclear power plants are already operating 
at near capacity. This may be generally correct on a regionwide basis, 
and EPA projects increased regionwide heat input in 2007. However, this 
is not true on a State-by-State basis for all States. For example, in 
Illinois several nuclear power plants recently received approval by the 
Nuclear Regulatory Commission to increase their generation capacity. 
Four units (Dresden Units 2 and 3 and Quad Cities Units 1 and 2) plan 
to increase their capacity by 17 to 18% in 2002 and 2003.\22\ Carrying 
out these plans will tend to reduce heat input, while increasing 
electricity generation. Further, two units at the Cook Nuclear Plant in 
Michigan underwent an extended, unexpected outage in 1998-2000. The 
outage of the two units tended to increase fossil fuel use, and 
bringing them back online tended to decrease fossil fuel use. An 
increase in nuclear generation can reduce heat input without reducing 
total electricity generation in a State.
---------------------------------------------------------------------------

    \22\ See http://www.nrc.gov/reading-rm/doc-collections/news/archive/01-136.html.
---------------------------------------------------------------------------

    Heat input can also decrease, without decreasing electricity 
generation, because the efficiency of fossil-fuel fired electricity 
generating units can be increased, allowing generation of the same 
amount of electricity with use of less fossil fuel. One way this can 
occur is through replacement of existing boilers, which are on average 
between 33% and 35% efficient at converting fossil fuel to electricity, 
with combined cycle turbines, which can be up to 60% efficient. For 
example, on February 25, 2000, Illinois approved a permit for Ameren 
Corporation to replace two coal-fired units at the Grand Tower 
Generating Station with two combined cycle gas turbines.\23\
---------------------------------------------------------------------------

    \23\ See http://yosemite.epa.gov/r5/il_permt.nsf/
50d44ae9785337bf8625666c0063caf4/b04c4b1ab67564e48625685d0068df82/
$FILE/99080101fnl.PDF; and http://www.dom.com/operations/station-fossil/unit.html.
---------------------------------------------------------------------------

    Efficiency can also be improved through modifications at existing 
generation facilities. For example, improvements can be made to the 
boiler that allow better transfer of heat from the burning coal to the 
steam used to power the turbine-generators; the

[[Page 21887]]

efficiency of auxiliary equipment such as fans can be improved; the 
efficiency of the turbine generators that convert the steam to 
electricity can be improved; and combustion optimization software, 
which can reduce NOX emissions while increasing efficiency, 
can also be added.\24\ Greater efficiency, whether from improvements to 
existing facilities or from new units, can result in the same or more 
electricity generation in a State with less heat input. EPA notes that 
the incentives for companies that generate electricity for sale to 
improve the efficiency of electricity generation has increased with 
deregulation of electricity generation and increased competition in the 
electricity market.
---------------------------------------------------------------------------

    \24\ See http://www.sargentlundy.com/fossil/plant.asp; and 
http://www.pegasustec.com/docs/NICE3.pdf.
---------------------------------------------------------------------------

    b. Electricity is generated and sold on a regional, not on a State-
by-State basis. Electricity generation may decrease in one State but, 
because electricity is generated and sold on a regional basis, the 
decrease may simply reflect the fact that customers are using 
electricity generated in another State. Three factors--the deregulation 
of electricity generation, the restructuring of the electricity 
industry, and the efforts of the Federal Energy Regulatory Commission 
to promote market-based rates of electricity and nondiscriminatory 
access for all electricity supplies to the transmission system--have 
resulted in significant amounts of electricity being generated in one 
State and sold in another. For example, in 1993, West Virginia 
generated three times the amount of electricity sold in that State, and 
in 1999, Alabama generated one and a half times the amount of 
electricity sold in that State. Historically, electricity was generated 
and sold by vertically integrated utilities providing for generation, 
transmission, and distribution for all customers in a designated 
franchise service area, which often was within a single State.
    With electricity deregulation, restructuring, and Federal policies 
promoting competition and open transmission access, the industry has 
been changing ``from a vertically integrated and regulated monopoly to 
a functionally unbundled industry with a competitive market for power 
generation.'' The Changing Structure of the Electric Power Industry 
1999: Mergers and Other Corporate Combinations, Energy Information 
Administration, December 1999 at pg. 5. Non-utilities are participating 
in the electricity market to an increasing extent by generating 
electricity for sale to utilities or to end-users. The Changing 
Structure of the Electric Power Industry 2000: An Update, Energy 
Information Administration, October 2000 at pp. ix, xi, and 117. 
Significant amounts of new generating capacity (about 82% of total 
capacity additions in 1998) have been built by non-utilities in order 
to generate electricity for sale in the regional electricity market. 
Id. at xi.
7. Even if There Were a Substantial Risk That EPA's State Heat Input 
Projection Would Be Less Than a State's Actual 2007 Heat Input, This 
Would Not Make EPA's Projection Unreasonable
    For the reasons discussed above, commenters failed to show that 
having recent State heat input exceeding or close to EPA's 2007 heat 
input projection means that the actual 2007 State heat input will 
exceed EPA's 2007 projection. However, EPA believes that, even if they 
had shown that there was a substantial risk that the actual heat input 
would turn out to exceed the projection in 2007, this would not make 
EPA's projection unreasonable. Projections may not match perfectly 
actual, future values and are not required to do so. See Appalachian 
Power v. EPA, 249 F.3d at 1052 (stating that the fact that ``a model is 
limited or imperfect is not, in itself, a reason to remand agency 
decisions based upon it''). If the projections of the results of 
complex activities (here, State heat input resulting from the operation 
of the regional electricity market) were required to match actual, 
future results, this would, in effect, preclude the use of projections 
or a model to develop such projections.
    In this case, where EPA developed State heat input growth rates 
using the IPM and applied them to a State baseline to project 2007 
State heat input, there are unavoidable sources of variability between 
projections and actual, future heat input data. These sources of 
variability are: the necessity to make simplifying assumptions in a 
model; the necessity to model regional activities (i.e., electricity 
generation, transmission and distribution) but make State-by-State 
projections of heat input resulting from those activities; and the 
inherent, year-to-year variability of actual State heat input.
    a. Models, such as the IPM, necessarily contain simplifying 
assumptions. The IPM simulates the complex operation of the electricity 
generation, transmission, and distribution sector. Like any model 
designed to simulate complex phenomena, the IPM must use simplifying 
assumptions in order to make it feasible to construct and run the 
model. Furthermore, the model uses inputs that are themselves 
projections (e.g., electricity demand and fuel costs). Because of these 
simplifying assumptions and projected inputs, the results from the IPM, 
like those from any model, may well differ from reality. For example, 
the IPM assumes typical electricity demand each year, which reflects 
typical conditions like typical weather and typical economic growth. 
The basis for assuming typical conditions is the assumption that 
periods of high or low demand or hot or cold weather tend to average 
out over time. In reality, of course, there are years of unusually warm 
weather or unusually high economic growth, resulting in unusually high 
electricity demand. For example, in 1998, large parts of the 
NOX SIP Call region experienced particularly warm weather, 
and the country experienced an economic boom. The model will not 
predict extra heat input in such years.
    The IPM accounts for unplanned outages in a similar way. It assumes 
that, on average, plants will be available some portion of time less 
than 100%. The model also includes assumptions about a capacity reserve 
margin, thereby assuring that the costs of building plants that may be 
needed to meet demand are accounted for. However, the model does not 
assume that any specific units are out for any extended length of time. 
In reality, unplanned outages do not affect every unit for the same 
amount of time every year. Therefore, the model will not predict 
exactly the dispatch pattern of units in the real world. These 
differences could be substantial in a year or more. For example, if 
several large nuclear units went out of service in one geographic 
region for an extended period of time (as was the case, discussed 
below, when two units at the Cook Nuclear Plant went out of service 
during 1998 through 2000), fossil fuel-fired units might have a 
significant increase in heat input to provide the electricity that 
would otherwise have been generated by the nuclear units. The model 
would not predict this large increase in heat input.
    The IPM also picks the optimum way to minimize costs given the 
constraints that have been included in the model. In the real world, 
different people and different companies may have differing viewpoints 
about what future constraints may be. This may lead them to act 
differently than the model projected. For instance, the model is given 
specific constraints regarding the projected future demand for 
electricity. It assumes that there are just enough units to meet that 
demand plus a reserve

[[Page 21888]]

margin. In the real world, future demand is less certain, and this can 
lead to construction of fewer or more units than projected by the IPM.
    For any particular State, a series of events may occur that differ 
from the model's assumptions, such as a period of higher electricity 
demand first caused by warmer weather than assumed in the model, 
followed by a period of higher economic activity than assumed in the 
model. This series of events may lead, over a year or more, to actual 
heat input that is higher than modeled for that State. In subsequent 
periods, the different-than-modeled factors may return to levels closer 
to those modeled, so that heat input returns to levels closer to those 
modeled.
    In short, in designing the IPM, EPA necessarily made many 
assumptions. These assumptions may well result in differences between 
projected and actual State heat input for a specific year or specific 
years. However, this would not make the heat input projection 
methodology or the resulting heat input projection unreasonable.
    b. While the electricity industry functions on a region-wide basis, 
budgets must be established on a State-by-State basis. Another source 
of differences between projected and actual State heat input is that, 
while NOX emission budgets must be projected on a State-by-
State basis, electricity is generated and sold on a regionwide, not 
State-by-State, basis. As discussed above in section V.D.6 of this 
notice, deregulation of electricity generation, restructuring of the 
electric industry, and Federal policies promoting market-based 
electricity prices and open access to transmission have resulted in 
development of a regional electricity market. The IPM necessarily 
models electricity generation and sales on a regional basis in order to 
reflect the regional nature of the electricity sector. For instance, as 
explained above, the model divides the U.S. into subregions based on 
the NERC regions and on transmission constraints, not based on State 
boundaries. (See section V.C.5 of this notice discussing subregions in 
the IPM.)
    However, EPA had to develop State-by-State NOX emission 
budgets under the NOX SIP Call. EPA used those same budgets 
under the Section 126 Rule in order to allow a single cap-and-trade 
program to be developed and implemented under both the NOX 
SIP Call and the Section 126 Rule. EPA had to disaggregate regionally-
developed heat input projections down to the State level in order to 
establish State NOX emission budgets, and this 
disaggregation may well create additional differences between projected 
and actual State heat input. These differences should not be taken to 
indicate that the heat input growth methodology or the resulting 
projections are unreasonable.
    c. Actual State heat input is inherently variable. State heat input 
is quite variable, as discussed in section V.D.4 of this notice. This 
is because heat input results from the activities of the complex, 
regional electricity market. The variability of State heat input from 
year to year may well result in additional differences between 
projected and actual State heat input for any particular year. Again, 
these differences should not be taken as an indication of 
unreasonableness of the heat input growth methodology or the 
projections.
8. Commenters Overstated the Impacts of Actual State Heat Input 
Exceeding Projected State Heat Input
    Even if EPA's heat input projections turn out to be lower for some 
States than actual 2007 heat input, the impacts of any such differences 
will not be as significant as commenters suggest. This is because the 
impacts will be mitigated by: (i) The fact that much of heat input 
growth will come from new, very low NOX emission units; and 
(ii) the flexibility provided by the NOX cap-and-trade 
program.
    a. Higher than projected State heat input will not mean 
proportionately higher NOX emissions. Commenters claimed 
that EPA's projections underestimate heat input for certain States and 
would result in sources in those States facing underestimated, and so 
overly stringent, NOX emissions budgets. Commenters also 
stated that underestimated State heat input would cause electric supply 
interruptions. In addition, commenters suggested that underestimated 
State heat input would jeopardize or prohibit economic growth in those 
States by increasing EGU operating costs and jeopardizing access to 
adequate electricity by preventing new EGUs from locating in the 
State.\25\
---------------------------------------------------------------------------

    \25\ One commenter claimed EPA's heat input growth methodology 
thereby results in ``draconian economic sanctions'' and a ``no-
growth policy'' for Michigan. As discussed below in section V.D.9 of 
this notice, there is no basis for claiming that EPA's heat input 
growth rate underestimates Michigan's future heat input. In fact, 
Michigan's actual heat input has never exceeded EPA's 2007 
projection and, since 1998, has declined to where for 2001 it is 
8.7% below that projection.
---------------------------------------------------------------------------

    The NOX SIP Call and the Section 126 Rule limit units' 
NOX emissions, not their heat input. EPA anticipates that, 
as State heat input grows from 1996 to 2007, a State's total EGU 
NOX emissions will grow at a much slower rate than heat 
input because of the addition of new, very low NOX emission 
units accounting for much of the increased heat input. The vast 
majority of new units added since 1996 are or will be gas-fired 
combustion turbines and combined cycle units that include gas-fired 
combustion turbines and duct burners. Because NOX emissions 
from these units will be very low and significantly below the 0.15 lbs/
mmBtu level used to set the State NOX emission budgets for 
EGUs, the rate of increase in NOX emissions in any State 
will be significantly less than the actual 1996-2007 growth rate in 
State heat input.
    Specifically, EPA projects that gas-fired generation will increase 
at a greater rate than coal-fired generation. (See Analyzing Electric 
Power at pg. 7, Table 1, Winter 1998 Base Case Forecast for the U.S. of 
Electric Power Generation by Fuel Type (billion KWh), which indicates 
that coal generation will increase by 85 billion KWh between 2001 and 
2005 and by 95 billion KWh between 2001 and 2007, while oil/gas 
generation \26\ will increase by 95 billion KWh between 2001 and 2005 
and 158 billion KWh between 2001 and 2007.) \27\ In other words, EPA 
projects that gas-fired generation will increase at a rate 1.66 times 
faster than coal-fired generation (for every 3 Mwh increase in coal-
fired generation, there would be a 5 Mwh increase in gas-fired 
generation.) Because gas-fired combined cycle units are more efficient 
than coal units, heat input from both categories of units will increase 
at a similar rate, even though generation from the gas-fired units will 
increase at a faster rate. This projected trend of increasing use of 
gas-fired combined-cycle use is consistent with observed results. For 
example, for the years 2000-2004, electric utilities reported plans to 
add 38,051 MW of generating capacity in new units. Ninety-three percent 
of this total is gas-fired capacity (Inventory of Electric Utility 
Power Plants in the U.S. 1999, Energy Information Administration, 
September 2000, at pg. 1). This is a continuation of the trend in 1997-
1999, when most new capacity for utilities (81% in 1997 and 88% in 1998 
and 1999) has been gas-fired combustion turbines and combined cycle 
units.\28\
---------------------------------------------------------------------------

    \26\ Oil/gas units are included in the same category because 
many units that burn one fuel can also burn the other. However, as 
the analysis points out, more inefficient oil/gas boilers are being 
retired and most of the increase in generation comes from highly 
efficient, highly controlled natural gas combined cycle units. 
Analyzing Electric Power at 8.
    \27\ EPA notes that oil generation will account for a trivial 
amount of oil/gas generation.
    \28\ Inventory of Power Plants in the U.S. as of January 1, 
1998, EIA, December 1998, at pg. 3; Inventory of Electric Utility 
Power Plants in the U.S. 1999 With Data as of January 1, 1999, EIA, 
November 1999, at pg. 1; Inventory of Electric Utility Power Plants 
in the U.S. 1999, EIA, September 2000 at pg. 1.

---------------------------------------------------------------------------

[[Page 21889]]

    New EGUs are subject to new source review requirements and, 
therefore, are well controlled. New combined cycle turbines generally 
are permitted at 9 ppm or less (i.e., less than 0.035 lb/mmBtu).\29\ 
This means these new units will emit about one-fifth of the average 
0.15 lb/mmBtu NOX emission rate assumed for EGUs in the 
NOX SIP Call and Section 126 Rules. Most existing combined-
cycle units are controlled to levels similarly below 0.15 lb/mmBtu. 
Consequently, NOX emissions will grow at a much lower rate 
than heat input as these units come online.
---------------------------------------------------------------------------

    \29\ See EPA Region 4 National Combustion Spreadsheet maintained 
at http://www.epa.gov/region4/air/permits/national_ct_list.xls.
---------------------------------------------------------------------------

    For example, consider the hypothetical case where 1996-2007 heat 
input growth would be 10% and about equally divided between generation 
from new gas-fired units and increased capacity utilization at existing 
coal-fired units. Because emissions from the gas-fired units are only 
one-fifth of the 0.15 lb/mmBtu NOX emission rate assumed in 
the NOX SIP Call and the Section 126 Rule, NOX 
emissions would grow only 1% while heat input would grow 5% at new gas-
fired units. A 5% growth in heat input at existing coal-fired plants 
emitting at the 0.15 lb/mmBtu NOX emission rate would result 
in a 5% growth in NOX emissions from the coal-fired units in 
this example. Thus, the total NOX emissions growth would be 
about 6% when total heat input growth was 10%.
    In summary, even if State heat input grows at a rate faster than 
projected by EPA, NOX emissions will grow at a much slower 
rate than State heat input and the impact on the State's EGU 
NOX emission budget from the difference between actual and 
projected heat input growth will be significantly reduced. This is 
reflected in EPA's modeling showing that increased heat input growth 
would not significantly increase the cost of meeting the State 
NOX EGU budget. Even when electricity demand growth is 
assumed to be higher than EPA projected (e.g., with no electricity 
demand reductions under CCAP), the average cost of meeting the 
NOX EGU budgets only increased $40/ton.
    Since higher than projected State heat input growth results in much 
less than proportionately higher State NOX emissions, the 
commenters greatly overstated the impacts of higher-than-projected 
State heat input on the stringency of the NOX emission rate 
reflected in the State NOX emission budget. Similarly, 
commenters greatly overstated the impacts of higher-than-projected 
State heat input on the State economy. Since new units tend to have 
very low NOX emissions, higher-than-projected State heat 
input will not prevent the location of new units in the State to the 
extent suggested by commenters. Moreover, the amount of electricity 
available in a State is not tied to the amount of electricity generated 
in that State since electricity is generated and sold on a regionwide, 
not State-by-State, basis. Therefore, higher than projected State heat 
input will not limit the amount of electricity available for 
industrial, commercial and residential customers in that State. (See 
section V.D.6 discussing that State heat input is not necessarily 
correlated with availability of electricity and economic growth in the 
State.) Since the commenters ignore the fact that a State's electricity 
supply is not limited to the generation capacity in that State and 
since, as discussed above, EPA's regional heat input projections are 
consistent with actual regional heat input, the commenters failed to 
show that underestimated State heat input will prevent access to 
adequate electricity supply.
    Finally, some commenters claiming that low heat input growth rates 
would prevent new units from locating in certain States also claimed 
that large numbers of new units are being located in those States and 
that this shows that EPA's heat input growth rates are too low. 
However, the fact that new units are continuing to be located in these 
States indicates that the selected locations in these States continue 
to be economically desirable for new units, despite the NOX 
emission budgets that EPA established under the NOX SIP Call 
in 1998 and modified in the Technical Amendments in 1999. One reason 
for this, of course, is that most of these new units are gas-fired 
units with very low NOX emission rates.
    b. The cap-and-trade program will further limit the impact of 
higher than projected State heat input. The NOX SIP Call and 
the Section 126 Rule are being implemented through a cap-and-trade 
program that will reduce the cost of meeting the State NOX 
emission budgets and thus will limit the cost impact of higher than 
projected State heat input. Under the NOX SIP Call, each 
State is required to revise its SIP to meet the NOX emission 
budget for 2007, which was developed using, among other things, the 
State's heat input growth rate projected by EPA. Each State has the 
option of meeting its NOX emission budget by submitting a 
revised SIP that adopts EPA's recommended cap-and-trade program 
covering NOX emissions from EGUs. Most States have already 
taken this option by submitting a SIP and final regulations adopting 
such a program, and EPA has approved a number of State rules, including 
Alabama's (66 FR 36919, July 16, 2001) and Illinois' (66 FR 56434, Nov. 
8, 2001). West Virginia has developed final regulations adopting EPA's 
recommended cap-and-trade program, as have North Carolina, South 
Carolina, and Tennessee. Michigan, Virginia, and Ohio have draft 
regulations adopting such a program. Only Georgia and Missouri do not 
have draft or final regulations since EPA has not yet finalized a rule 
responding to the Court's remand of the NOX SIP Call for 
those two States. (See Docket A-96-56, Item # XII-K-84).
    Under the Section 126 Rule, EPA required affected units to 
participate in a cap-and-trade program, which is virtually identical to 
the cap-and-trade programs that have been (or are likely to be) adopted 
by States under the NOX SIP Call. In fact, EPA has stated 
that it intends to integrate the approved SIP trading program with the 
Section 126 trading program into a single cap-and-trade program.
    Under the cap-and-trade program, the State EGU NOX 
budget is allocated among the affected units in the form of 
NOX allowances, each allowance providing an authorization to 
emit one ton of NOX during the ozone season for which the 
allowance is allocated or for any subsequent ozone season. After the 
end of each ozone season, the owner or operator of each affected unit 
is required to surrender a number of NOX allowances equal to 
the number of tons that the unit emitted during that period. Owners or 
operators (or any other person) may buy or sell allowances or bank 
allowances for use in future years. The ability to trade and bank 
allowances provides units in a State flexibility in complying with the 
NOX emission limit under the NOX SIP Call and the 
Section 126 Rule and thereby limits the impact that higher than 
projected heat input would have on the cost of compliance.
    Specifically, the owner or operator of a unit with an allowance 
allocation lower than the unit's tonnage of NOX emissions 
for an ozone season has several compliance options, including the 
options of installing and operating additional NOX emission 
controls at the unit or of purchasing allowances allocated to other 
units in the same State or in other States under the trading program. 
The owners or operators will presumably choose the most economically 
efficient option. If the cost of allowances in the regionwide market

[[Page 21890]]

for allowances under the trading program is less than the cost of 
installing and operating additional controls at the unit, then the 
owner or operator will purchase allowances. Assuming, for the sake of 
argument, the unit is in a State where actual heat input for the year 
exceeds EPA's projected 2007 heat input and actual NOX 
emissions exceed the NOX emission budget, the cost impact of 
the difference between actual and projected heat input is limited by 
the owner's or operator's option to buy allowances, rather than 
installing emission controls.\30\
---------------------------------------------------------------------------

    \30\ Commenters have characterized EPA's preliminary views in 
the August 3, 2000 NODA as attempting, in essence, to argue that the 
only thing that matters is the regionwide heat input growth rate, 
not the individual State growth rates. This is a 
mischaracterization. EPA believes that as long as the regionwide 
projection is reasonably close to the actual regionwide heat input, 
then, as a matter of simple arithmetic, trading opportunities will 
likely be present for any State whose actual NOX 
emissions exceed its NOX emission budget. As discussed 
above, the availability of trading, in turn, limits the impact of 
higher than expected heat input.
---------------------------------------------------------------------------

    Moreover, as discussed above in section V.D.4 of this notice, State 
heat input is quite variable. Even if actual State heat input exceeds 
EPA's projected 2007 heat input in one or more years, it is quite 
possible that actual State heat input will be less than EPA's projected 
2007 heat input in a later year. Under the NOX cap-and-trade 
program, the owner or operator in the example above who has to buy 
allowances in one year may have excess allowances during the subsequent 
year of reduced State heat input. That owner or operator may sell 
allowances and thereby offset, at least in part, the cost of buying 
allowances in the previous year. EPA is not suggesting that such an 
offset of costs will always be available. Rather, EPA notes that the 
cap-and-trade program will tend to create the potential to offset in 
one year a unit's shortfalls in allocations (whether or not 
attributable to higher than projected State heat input) in another 
year.
9. Discussion of Individual States for Which EPA's Heat Input Growth 
Rates Are Disputed by Commenters
    Out of the 21 States and the District of Columbia for which EPA 
developed heat input growth rates and heat input projections for EGUs 
for 2007, commenters specifically disputed the heat input growth rates 
and projections for 7 States, i.e., Alabama, Georgia, Illinois, 
Michigan, Missouri, Virginia, and West Virginia. In six States, the 
commenters claimed that EPA's heat input growth rates and heat input 
projections are unreasonable because these States recently had actual 
heat input that exceeded EPA's projected heat input for 2007.\31\ In 
the seventh State, Virginia, commenters claimed that the State's heat 
input had almostexceeded EPA's projections and would soon do so. With 
regard to some States, commenters also suggested that actual data and 
projections concerning electricity demand, economic output, population, 
and new generating capacity for these individual States support higher 
heat input growth rates than the rates adopted for those States by EPA.
---------------------------------------------------------------------------

    \31\ In one of those States, Michigan, EPA's heat input 
projections have not actually been exceeded.
---------------------------------------------------------------------------

    EPA believes that, in general, these comments have common flaws 
that prevent them from providing a basis for concluding that EPA's heat 
input growth rates are unreasonable for the particular States at issue. 
First, several commenters flatly stated or implicitly assumed that 
significant negative growth in heat input was not plausible for their 
respective States between now and 2007. As noted above, historical heat 
input data show that individual State's heat input can decrease 
significantly in the last year, as compared to the first year, of 
multi-year periods and is quite variable from year-to-year. (See 
section V.D.4 of this notice.)
    Indeed, the State heat inputs for four of the States that, as 
commenters have emphasized, rose to over or nearly over EPA's 2007 
projections, have recently decreased to below or nearly below the 2007 
projections. Specifically, the heat input of Michigan--which in 1998 
was close to EPA's 2007 projection and, along with West Virginia, was 
the focus of the Court's concerns about EPA's growth rates--has 
declined since 1998 and remained well below EPA's 2007 projection. The 
heat input of West Virginia was higher in 1998, and still is slightly 
higher, than EPA's 2007 projection but has declined over 8% since 1998. 
Georgia's heat input recently increased above EPA's 2007 projections 
but decreased in 2001 below that projection. EPA maintains that the 
recent heat input decreases and the variability in State heat input 
show why the fact that current heat input for a State exceeds, or is 
close to, EPA's 2007 heat input projection for the State does not show 
that EPA's heat input growth rate and 2007 projection for the State are 
unreasonable.
    Second, several commenters compared EPA's heat input growth rate 
for an individual State with the heat input growth that the State had 
during 1996-2000 and either asserted or implied that EPA should project 
the State heat input for 2007 using the actual 1996-2000 growth rate. 
However, EPA believes that it is inappropriate to project long-term 
heat input growth to 2007 based on a short-term historic trend (here, 
1996-2000 heat input growth) for several reasons. Because heat input 
can vary greatly from year to year because of factors such as the 
weather and the economy, short-term trend data can be greatly skewed.
    Moreover, as discussed above, in order to test the validity of 
using a relatively short period of years of actual State heat input 
data to project future State heat input, EPA simulated that approach 
using historical annual heat input data for the 21 NOX SIP 
Call States for 1960-2000 (or in some States where less data was 
available, from 1970-2000). See section V.D.4 of this notice. Based on 
this data, EPA used 6 years' worth of historical data (e.g., 1960-1966) 
to project annual heat input for the sixth year after the 6-year period 
(e.g, 1972). EPA did this on a rolling basis. For 16 States, EPA found 
that there was a very little correlation between the predicted value 
based on the historical 6-year periods and the actual value for the 
sixth year after that period. For four of the remaining five States, 
the correlation was weak. In short, the commenters' approach of using 
historical State fossil fuel use for a relatively short period of years 
is not a reliable method for predicting future State heat input.
    Third, in pointing to certain factors concerning each individual 
State to support the claim that the State's heat input could not 
reasonably be projected to decline, commenters implicitly assumed that 
the State's heat input is determined solely by those State-specific 
factors, rather than by the operation of the regional electricity 
market as a whole. EPA believes that heat input for an individual State 
cannot reasonably be projected by considering only the State's 
projected electricity demand and other State-specific factors. Because 
electricity is generated and sold in a regional electricity market, an 
individual State's heat input is not determined, and cannot reasonably 
be projected, based solely on factors relating only to that State. 
Rather, a State's heat input must be projected using a comprehensive 
approach that considers the regional market. Largely for this reason, 
EPA used the IPM--which models electricity markets in the continental 
U.S. and the regional electricity market for the NOX SIP 
Call area--in its analysis for the NOX SIP Call and the 
Section 126 Rule, including the analysis for making heat

[[Page 21891]]

input growth projections.\32\ See Appalachian Power v. EPA, 249 F.3d at 
1053 (upholding EPA's determination that ``the IPM offered a more 
comprehensive and consistent means of allocating emission allowances 
than sorting through the various state-specific projections'').
---------------------------------------------------------------------------

    \32\ EPA also used the IPM in order to make sure that consistent 
assumptions were used for projecting each State's heat input growth.
---------------------------------------------------------------------------

    Contrary to this comprehensive approach to projecting individual 
State's heat input, commenters presented projections of significant 
economic and population growth for individual States. While these 
economic and population projections for a State may suggest that there 
will be significant growth in electricity demand in that State, these 
State-specific factors suggest little about whether the State's 
increased electricity demand will be met from in-State EGUs. It may be 
met through increased generation from units within the State, which may 
increase that State's heat input, or it may be met through increased 
generation from units outside the State from which the State imports 
electricity, which may increase the heat input for another State. Even 
if the electricity demand is met by units in the State that has the 
increased demand, the State's heat input may be affected by the amount 
of electricity that the State exports to other States, as well as by 
the amount of electricity used within the State. The State's heat input 
may still decline under these circumstances if such exports decline. In 
short, because electricity is generated and sold on a regional basis, a 
State's heat input can decrease even as the State's electricity demand 
increases. Because the comments on individual States failed to address 
these regional factors, the commenters' claims that the respective 
State's heat input could not be expected to decline to the level of 
EPA's 2007 projection are unpersuasive.
    Another State-specific factor on which some commenters relied in 
challenging EPA's heat input growth rate for an individual State is the 
amount of new capacity that has been permitted or that is under 
construction in that State. The commenters assumed that a significant 
amount of new, permitted capacity or capacity under construction 
necessarily means that the State's heat input will increase 
significantly. However, owners and operators may seek permits for units 
that, as it turns out, are not actually built. Further, new units that 
are built and operated may displace existing units and, since the new 
units are likely to be more efficient in converting heat input to 
electricity, the State's heat input may actually decline. (See sections 
V.D.6 and 8 of this notice discussing that most new units are gas-fired 
units and are likely to be more efficient than existing units.) 
Moreover, the amount of electricity that the new units produce will 
depend on the supply and demand factors in the regional electricity 
market, not simply on supply and demand in the State where the units 
are located. Thus, projected increased new capacity may potentially be 
a factor pointing to increased heat input in the State where the new 
capacity is to be located, but, because so many other factors are 
involved, that does not necessarily mean heat input will increase in 
that State.
    In light of the above discussion, EPA does not believe that 
commenters have demonstrated that it is unreasonable to project that 
the heat input for those States with recent heat input exceeding EPA's 
2007 projections will decline by 2007 to the levels projected by EPA. 
EPA addresses below the specific comments made about each State whose 
heat input growth rate and heat input projection are in dispute.

a. Alabama

(i) Comments
    A commenter stated that Alabama's gross State product is projected 
to grow at 2.5% per year during 2001-2010. The commenter also noted 
that the ``average annual economic growth rate for the region'' was 
3.9% per year during 1995-2000, Alabama has recently had ``economic 
annual growth'' well over 3%, and seasonal heat input growth for 
Alabama has averaged 3.37% per year in 1996-2000. Noting that Alabama's 
heat input in 1999 and 2000 exceeded EPA's 2007 heat input projection, 
the commenter claimed that ``[n]egative growth between now and 2007 for 
Alabama is simply not a plausible scenario.'' The commenter compared 
EPA's heat input growth rate to the State's historical heat input 
growth rate for 1995-2000. Claiming that nuclear generation increased 
during 1995-2000 but is not expected to increase significantly during 
2001-2007, the commenter suggested that Alabama's heat input will grow 
even more than the historical heat input growth rate. Finally, the 
commenter stated that the NOX SIP Call currently applies 
only to the northern two-thirds of the State, where most of the State's 
population centers are located and most economic growth will be 
concentrated. This is cited as another reason why EPA's heat input 
growth rate is inadequate and unrealistic.
(ii) Response
    EPA notes that in 1999 and 2000, Alabama's ozone season heat input 
(389,364,461 mmBtu and 400,689,850 mmBtu) exceeded EPA's 2007 heat 
input projection (385,998,780 mmBtu) by 0.9% and 3.8% respecteviely. 
However, in 2001 Alabama's heat input (391,665,691 mmBtu) fell 2.5% and 
was only 1.4% above EPA's 2007 projection. Further, as discussed above, 
EPA intends to include only the northern portion of Alabama in the 
NOX SIP Call. When actual heat input for 2001 for northern 
Alabama is compared with EPA's recently proposed 2007 projection for 
northern Alabama, the actual heat input in northern Alabama 
(284,528,783 mmBtu) is 7.9% below EPA's 2007 projection (308,912,352 
mmBtu).\33\
---------------------------------------------------------------------------

    \33\ EPA calculated the partial State heat input budgets for 
large EGUs for Alabama, Georgia, and Missouri by summing the heat 
input for 1996, 1995, and 1995 respectively for all such units in 
the fine grid counties of the particular State and applying the 
appropriate growth rate. This information is in Docket Item XV-C-29 
and is consistent with the partial State NOX emission 
budgets proposed in 67 Fed. Reg. 8395, 8416, Feb. 22, 2002.
---------------------------------------------------------------------------

    Moreover, as discussed above, individual State heat input is quite 
variable and can decrease significantly over multi-year periods. In 
fact, historical data for 1960-2000 shows that there have been periods 
in the past when Alabama's annual heat input decreased significantly 
for the last year, as compared to the first year, of a multi-year 
period. For example, for the 8-year period 1974-1982 (comparable in 
length to the period 1999-2007), Alabama's annual heat input decreased 
by 12%.\34\ Ozone season heat input decreased 17% over the same period, 
1974-1982. Thus, the fact that Alabama's most recent heat input 
exceeded EPA's 2007 projection

[[Page 21892]]

does not mean that the projection is unreasonable.
---------------------------------------------------------------------------

    \34\ EPA's review indicates that one out of the 33 eight-year 
periods from 1960-2000 had a decrease in annual heat input of well 
over 3.8% (Docket # A-96-56, Item # XV-C-18, at 1), while three out 
of the 20 eight-year periods from 1970-1998 had a decrease in ozone 
season heat input, with a decrease of well over 3.8% for two periods 
(Docket # A-96-56, Item # XV-C-19, at 1). Since these periods--
although a minority--indicate that such decreases can occur, EPA 
believes that its methodology should not be considered unreasonable 
based on the recent State heat input. Moreover, while these long-
term historical data certainly show the potential for such 
decreases, the data are otherwise of limited use in projecting 
future heat input. As explained in Section V.D.6. of this notice, 
the electricity industry has been undergoing deregulation of 
generation and restructuring. As a result, trends in the past, as 
reflected in the data, may not continue in the future. The IPM 
reflects these changes, and by using the IPM in developing heat 
input growth rates, EPA has taken these changes into account.
---------------------------------------------------------------------------

    Further, while the commenter did not provide the data to support 
its claims about Alabama's economic growth or growth in gross State 
product, EPA used data from the Bureau of Economic Analysis to evaluate 
the commenter's claims. The commenters assumed, but did not 
demonstrate, that growth in gross State product necessarily results in 
growth in heat input. In fact, data for 1996-1999 for Alabama, as 
reflected in Table 10 below, shows that growth in gross State product 
does not necessarily result in growth in heat input. For example, in 
1997, State heat input declined 0.2% while gross State product grew 
3.4%. In 1996, while Gross State Product grew at 2.8%, heat input grew 
at a much slower rate of 0.2%. EPA tested the correlation of heat input 
growth rate to gross State product growth rate using the r-squared 
test, which is described above in section V.D.5 of this notice. EPA 
found that the two sets of growth rate data have a r-squared value of 
0.12, showing very little correlation between growth in heat input and 
growth in gross State product.

Table 10.--Gross Alabama State Product Growth Rate vs. Heat Input Growth
                           Rate for 1996-1999
------------------------------------------------------------------------
                                                 BEA Gross
                                                   State      Heat input
                     Year                         product    growth rate
                                                growth rate    (percent)
                                                  (percent)
------------------------------------------------------------------------
1996..........................................          2.8          0.2
1997..........................................          3.4         -0.2
1998..........................................          2.9          5.6
1999..........................................          4.2          5.2
------------------------------------------------------------------------

    There are several reasons that EPA believes that heat input growth 
on a State level does not correlate with economic growth. First, 
electricity demand is affected by many variables. This includes not 
only economic growth, but also other factors such as weather and 
changes in efficiency in the use of electricity.
    Second, as discussed above, a State's heat input does not 
necessarily correlate with the State's electricity demand. (See section 
V.D.6 of this notice discussing that State heat input can decline when 
State electricity use increases.) For instance, in the case of Alabama, 
the State is generally a net exporter of electricity. In 1999, Alabama 
EGUs generated 120,865,327 Mwh of electricity. In that same year, only 
80,401,000 Mwh of electricity were sold in Alabama. Therefore, in order 
to assess whether electricity generation or heat input in Alabama will 
grow, it is necessary to consider not only electricity demand in 
Alabama, but also electricity demand and supply in the regional market 
for electricity outside of Alabama. The commenter did not provide any 
information on future electricity demand and supply outside of Alabama 
and how they might affect future generation and heat input in Alabama.
    The lack of strong correlation between economic growth and heat 
input is confirmed by historical data on electricity demand and heat 
input in northern Alabama. Noting that the NOX SIP Call now 
covers only the northern part of Alabama (the fine grid counties), the 
commenter presented evidence suggesting that the economy and population 
are growing faster in the northern part than in the southern part of 
the State. The commenter suggested that heat input will therefore grow 
faster in northern Alabama than in the State as a whole. EPA reviewed 
heat input data for Alabama and found that, despite higher growth in 
the economy and population in northern Alabama, heat input has actually 
grown faster in the southern part of the State. The data are summarized 
in Table 11 below.

                             Table 11.--Heat Input (mmBtu) in Alabama for 1996-2001
----------------------------------------------------------------------------------------------------------------
                                                               Fine grid       Outside fine
                                                                counties      grid counties      All counties
----------------------------------------------------------------------------------------------------------------
1995......................................................    279,392,756       70,666,448         350,059,204
1996......................................................    280,829,411       70,078,571         350,907,982
1997......................................................    277,733,999       72,594,373         350,328,372
1998......................................................    298,464,504       71,513,696         369,978,200
1999......................................................    318,056,030       71,308,431         389,364,461
2000......................................................    314,726,690       85,693,161         400,689,850
2001......................................................    284,528,783      107,136,907         391,665,690
Avg Annual Growth Rate 1996 to 2001.......................              0.4              8.7                 2.3
----------------------------------------------------------------------------------------------------------------

    Finally, EPA notes that the commenters' claim concerning the effect 
of Alabama's nuclear generation on the State's heat input growth rate 
appears to be overstated. The commenters stated that nuclear generation 
in Alabama increased during 1995-2000 and is not expected to continue 
to increase and that therefore the State's heat input will increase at 
a greater rate starting in 2001. However, while Alabama's ozone season 
nuclear generation increased significantly from 1995 to 1996 (8,371,445 
Mwh to 13,161,369 Mwh during the ozone season), EPA used 1996 as the 
baseline year for determining Alabama's NOX emission budget. 
During 1996-2000, nuclear generation in Alabama grew much less than 
during 1995-2000. Nuclear generation was 13,321,089 Mwh in the 1999 
ozone season and 13,578,728 Mwh in the 2000 ozone season. Because there 
was only limited growth in nuclear generation from 1996 to 2000, there 
is no basis for commenters' claim of increased heat input growth in the 
future to offset limited growth from nuclear units. Furthermore, the 
Nuclear Regulatory Commission is anticipating that applications will be 
submitted to increase the generating capacity of two nuclear powered 
units at the Brown's Ferry Plant by 14%. (Docket # A-96-56, Item # XV-
C-27.) While these applications do not necessarily mean that nuclear 
generation will increase, they cast doubt on the commenters' assertion 
that nuclear generation will not grow.
    For the above reasons, EPA rejects the commenters' claims that 
EPA's heat input growth rate and 2007 heat input projection of Alabama 
are unreasonable.

b. Georgia

(i) Comments
    Commenters pointed to EPA's data as showing that Georgia's ozone 
season heat input increased more than 3.3% per year from 1995 to 2000, 
as compared with EPA's projected increase of 1.01% per year through 
2007. Further, commenters noted that Georgia's current

[[Page 21893]]

heat input exceeds EPA's 2007 heat input projections and so the State's 
heat input will have to decrease by 2007 in order for the projection to 
be correct. Commenters cited several factors--i.e., rapid population 
growth, projected growth in peak demand for electricity, and rapid 
growth in gross State product--to show that Georgia's heat input will 
continue to grow faster than EPA projected. Commenters also stated that 
the NOX SIP Call will cover only the northern part of 
Georgia (the fine grid counties), whose population is growing faster 
than in the southern portion of the State. The commenters suggested 
that the heat input will therefore grow even faster for the northern 
part of Georgia.
(ii) Response
    EPA notes that Georgia's heat input in 1998 (403,716,898 mmBtu) and 
2000 (420,260,694 mmBtu) exceeded EPA's 2007 heat input projection 
(403,368,582 mmBtu). However, in both cases, heat input fell 
significantly the next year and was below EPA's 2007 projection. 
Georgia's heat input fell 3.9% between 1998 and 1999 and 10.9% between 
2000 and 2001. In 2001, the State's heat input (374,355,956 mmBtu) was 
7.2% below EPA's 2007 projection. Further, as discussed above, EPA 
intends to include only the northern portion of Georgia in the 
NOX SIP Call. When actual heat input for northern Georgia 
for 2001 is compared with EPA's recently proposed 2007 projection for 
northern Georgia, actual 2001 heat input (360,162,148 mmBtu) is 8.2% 
below projected heat input (392,215,442 mmBtu).
    Moreover, as discussed above, individual State heat input is quite 
variable and can decrease significantly over multi-year periods. In the 
past, Georgia's annual heat input has decreased significantly for the 
last year, as compared to the first year, of multi-year periods and, 
for example, decreased by 17% over the seven-year period 1985-1992 
(comparable in length to the period 2000-2007).\35\ Ozone season heat 
input decreased 9.9% over the same period, 1985-1992.
---------------------------------------------------------------------------

    \35\ EPA's review indicates that four out of the 34 seven-year 
periods from 1960-2000 had a decrease in annual heat input, with a 
decrease of over 4% for three periods (Docket # A-96-56, Item # XV-
C-18, at 10), while two out of the 21 seven-year periods from 1970-
1998 had a decrease in ozone season heat input, with one of those 
decreases greatly exceeding 4% (Docket # A-96-56, Item # XV-C-19, at 
10). Since these periods--although a minority--indicate that such 
decreases can occur, EPA believes that its methodology should not be 
considered unreasonable based on the recent State heat input. 
Moreover, while these long-term historical data certainly show the 
potential for such decreases, the data are otherwise of limited use 
in projecting future heat input. As explained in Section V.D.6. of 
this notice, the electricity industry has been undergoing 
deregulation of generation and restructuring. As a result, trends in 
the past, as reflected in the data, may not continue in the future. 
The IPM reflects these changes, and by using the IPM in developing 
heat input growth rates, EPA has taken these changes into account.
---------------------------------------------------------------------------

    Furthermore, as discussed above, EPA does not believe that 
commenters have shown that increases in parameters such as population, 
economic output, or peak electricity demand in a particular State 
necessarily mean that heat input will increase in that State. In fact, 
EPA's analysis of the heat input data for the northern and southern 
portions of Georgia shows that recently heat input has increased more 
in the southern part of the State, where, according to commenters there 
has been less growth in population, than in the northern part of the 
State. The data are summarized in Table 12 below.

                             Table 12.--Heat Input (mmBtu) in Georgia for 1995-2001
----------------------------------------------------------------------------------------------------------------
                                                               Fine grid      Outside  fine
                                                                counties      grid counties      All counties
----------------------------------------------------------------------------------------------------------------
1995......................................................    347,093,311        9,870,035         356,963,346
1996......................................................    326,944,480        9,032,533         335,977,013
1997......................................................    342,870,775        8,336,975         351,207,750
1998......................................................    390,888,493       12,828,405         403,716,898
1999......................................................    370,011,938       17,769,163         387,781,101
2000......................................................    399,110,359       21,150,335         420,260,694
2001......................................................    360,162,148       14,193,808         374,355,956
Avg Annual Growth Rate 1995 to 2001.......................              0.6              6.2                 0.8
----------------------------------------------------------------------------------------------------------------

    For the above reasons, EPA rejects the commenters' claims that 
EPA's heat input growth rate and 2007 heat input projection of Georgia 
are unreasonable.

c. Illinois

(i) Comments
    Commenters were concerned that EPA initially proposed to establish 
the Illinois heat input growth rate at 34%, but then adopted a final 
growth rate of 8%. Commenters contended that the 8% growth rate does 
not reflect a realistic growth projection for the State, in light of 
the actual heat input growth in Illinois during 1995-2000. According to 
the commenters, the actual heat input growth for 1995-2000 exceeded 
EPA's projected growth rate, and by 1998 Illinois' heat input exceeded 
EPA's heat input projection for 2007. Commenters pointed to the 2000 
ozone season (described as a relatively mild summer) when heat input 
was 15% higher than the 1996 baseline. Commenters suggested that total 
growth from 1996 to 2007 could exceed 30%, far above EPA's 8% estimate, 
and that the data support a growth of 34% and certainly no lower than 
22%. Commenters asserted that it is also not likely that heat input in 
the State will decline below 2000 levels because Illinois has approved 
an additional 436.6 million mmBtu/ozone season in generating capacity 
since 1999 for which construction has been initiated, with an 
additional 25.2 million mmBtu pending.
(ii) Response
    With regard to EPA's revision of Illinois' annual heat input growth 
rate from 34% to 8%, EPA explained in the NOX SIP Call that 
the Agency took comment on using two alternative electricity demand 
forecasts to develop the State NOX emission budgets and to 
perform the cost-effectiveness analysis. One alternative was a 1995 
electricity demand forecast, modified by demand reductions under CCAP, 
that was used in an IPM run (``1996 IPM Base Case forecast'') and would 
have resulted in certain heat input growth rates (``corrected'' growth 
rates), including a growth rate of 34% for Illinois. The second 
alternative was a 1997 electricity demand forecast, modified by demand 
reductions under CCAP, that was used in a later IPM run (``1998 IPM 
Base Case forecast'') and resulted in another set of heat input growth 
rates (``revised'' growth rates), including a growth rate of

[[Page 21894]]

8% for Illinois. As explained in the NOX SIP Call (63 FR 
57409), EPA used the 1998 IPM Base Case forecast (as the base case run 
described in section V.B.1 of this notice) and resulting heat input 
growth rates because that forecast reflected assumptions that had been 
revised based on public comment and that ``lead to a better projection 
of electricity generation nationally, by region and by State.'' \36\
---------------------------------------------------------------------------

    \36\ EPA stated that the improvements in the 1998 IPM Base Case 
forecast included ``using the most recent NERC estimate for regional 
electricity demand; the latest available EIA and NERC generation 
unit data; updated fuel forecasts; updated assumptions on nuclear, 
hydro-electric and import assumptions (with special attention to 
differences in summer use); and an increase in the level of detail 
in the model to more accurately capture the transmission constraints 
that exist for moving power between various regions of the 
country.'' Id. In addition, the forecast included updated 
assumptions ``on the size and operation of all electricity 
generation units of utilities and independent power producers (with 
special attention to cogenerators)'' and ``planning reserve margins 
and the costs of building new generation capacity.'' Id.
---------------------------------------------------------------------------

    EPA notes that Illinois' heat input in 1998 (450,929,580 mmBtu) 
exceeded EPA's 2007 heat input projections (409,351,519 mmBtu), by 
10.2% and has continued to exceed that projection. However, the State's 
heat input peaked in 1998 and has remained below the 1998 level since 
then. By 2001, Illinois' heat input (434,282,881 mmBtu) declined by 
3.7% from the 1998 level and was 6.1% higher than EPA's 2007 
projection. As discussed above, individual State heat input is quite 
variable and can decrease significantly over multi-year periods. In the 
past, Illinois' annual heat input has decreased significantly for the 
last year, as compared to the first year, of multi-year periods and, 
for example, decreased 31% over the 9-year period 1981-1990 (comparable 
in length to the 1998-2007 period).\37\ Ozone season heat input 
decreased 25.8% over the same period, 1981-1990. Thus, the fact that 
Illinois' recent heat input exceeded EPA's 2007 projection does not 
mean that the projection is unreasonable.
---------------------------------------------------------------------------

    \37\ EPA's review indicates that 13 out of the 32 nine-year 
periods from 1960-2000 had a decrease in annual heat input, with a 
decrease of more than 10.2% in eight of those periods (Docket #A-96-
56, Item #XV-C-18, at 13), while 11 of the 19 nine-year periods from 
1970-1998 had a decrease in ozone season heat input, with a decrease 
of more than 10.2% in eight of those periods. (Docket #A-96-56, Item 
#XV-C-19, at 13). Since these periods--although a minority--indicate 
that such decreases can occur, EPA believes that its methodology 
should not be considered unreasonable based on the recent State heat 
input. Moreover, while these long-term historical data certainly 
show the potential for such decreases, the data are otherwise of 
limited use in projecting future heat input. As explained in Section 
V.D.6. of this notice, the electricity industry has been undergoing 
deregulation of generation and restructuring. As a result, trends in 
the past, as reflected in the data, may not continue in the future. 
The IPM reflects these changes, and by using the IPM in developing 
heat input growth rates, EPA has taken these changes into account.
---------------------------------------------------------------------------

    Illinois' decreases in heat input over the last few years may be 
partly attributed to an increase in nuclear generation in Illinois 
since 1998, as shown in Table 13. In both 1997 and 1998, five nuclear 
units representing over 5000 MW of capacity (nearly 14% of the total 
installed capacity in Illinois) were offline. This resulted in 
significantly less generation from nuclear units. It appears that at 
least some of the generation was made up by additional fossil-fired 
generation. In 1999, when three of the nuclear units returned online, 
heat input declined. During this period, electricity demand in Illinois 
increased.

           Table 13.--Heat Input, Nuclear Generation, and Electricity Sales in Illinois for 1995-2001
----------------------------------------------------------------------------------------------------------------
                                                                                      Nuclear
                              Year                                  Heat Input      generation      Electricity
                                                                      (mmBtu)          (Mwh)       sales  (Mwh)
----------------------------------------------------------------------------------------------------------------
1995............................................................     347,985,300      35,410,101      55,960,000
1996............................................................     379,029,184      29,038,573      53,348,000
1997............................................................     406,127,886      23,038,672      53,357,000
1998............................................................     450,929,580      25,331,514      58,665,000
1999............................................................     418,420,171      37,004,253      60,470,000
2000............................................................     436,052,570      38,287,858      59,834,000
2001............................................................     434,282,881      38,590,400      60,310,000
----------------------------------------------------------------------------------------------------------------

    The commenters did not provide any information on future nuclear 
generation in Illinois and how that might affect future generation and 
heat input in the State. However, the Nuclear Regulatory Commission 
recently approved significant expansions in generating capacity for 
several nuclear units in Illinois (i.e., a 17% expansion to about 912 
MW each for Dresden 2 and 3 and a 17.8% expansion to about 912 MW each 
for Quad Cities 1 and 2). The upgrades are scheduled for completion 
during outages in 2002 and 2003. (Docket A-96-56, Item # XV-C-07, ``NRC 
Approves Power Uprates for Dresden 2, 3 and Quad Cities 1, 2,'' Nuclear 
Regulatory Commission Press Release, December 26, 2001.) Once the 
capital investment is made in expanding nuclear capacity, nuclear 
generation has relatively low operating costs.\38\ As a result, nuclear 
generation in Illinois may well increase in the next 2 years and 
therefore may be one factor tending to reduce heat input for the State.
---------------------------------------------------------------------------

    \38\ This contrasts with fossil fuel-fired units, whose 
operating costs are higher because of the cost of fossil fuel.
---------------------------------------------------------------------------

    Another factor that may have been a partial cause of increased heat 
input in Illinois and that may change in the future is Illinois' 
recently increased exports of electricity to other States. In 1994, 
Illinois was exporting 14% of its electricity; by 1999 that number had 
reached 19%. Heat input increased along with this increase in export of 
electricity. Whether this level of exports will continue will depend on 
electricity supply and demand in the regional electricity market. For 
example, increases in generation in neighboring States may lead to less 
of an export market and therefore a decrease in heat input. The 
commenters did not provide any information on future electricity demand 
and supply outside of Illinois or how they might affect future 
generation and heat input in Illinois.
    Finally, the commenters pointed to approval or construction of new 
units in Illinois as showing that Illinois heat input will continue to 
grow through 2007. However, as discussed above, approval or 
construction of new units is not a definitive indicator of increased 
heat input in the future.
    For the reasons above, EPA rejects the commenters' claims that 
EPA's heat input growth rate and 2007 heat input projection for 
Illinois are unreasonable.

[[Page 21895]]

d. Michigan

(i) Comments
    Commenters stated that Michigan's heat input in 1998 exceeded EPA's 
2007 heat input projection. Commenters also stated that the Michigan 
Public Service Commission estimates Michigan's growth in electricity 
demand to be twice the amount that EPA ``presumed in its calculations'' 
for the NOX SIP Call and Section 126 Rule and that there is 
no basis for the ``presumed'' negative growth in energy demand for 
Michigan. Further, commenters pointed to weather as the major reason 
for year-to-year variability in Michigan's heat input. Noting the hot 
temperatures in 1995, 1998, and 1999 and the cool temperatures in 1996, 
1997, and 2000, they stated that weather was the primary cause of the 
dramatic increase in heat input in 1998 and the decline in 2000. The 
commenters compared the years with similar summer weather patterns to 
find an ozone season growth rate of 2.0% or 2.1% per year, which is 
much higher than EPA's 1.1% projected annual growth rate. Commenters 
also pointed to operational problems at the fossil-fuel fired Monroe 
Plant as contributing to the lower State heat input in 2000. Finally, 
commenters suggested that the modeling of unit dispatch in the IPM does 
not accurately reflect unit dispatching in Michigan because the IPM 
dispatches on a national basis.
(ii) Response
    EPA notes that Michigan's heat input has never actually exceeded 
EPA's 2007 heat input projection. In 1998, Michigan's heat input 
(408,239,157 mmBtu) came close to (i.e., 0.4% below) EPA's 2007 
projection (410,058,589 mmBtu). Since 1998, Michigan's heat input has 
declined each year. Michigan's 2001 heat input (374,318,406 mmBtu) was 
8.7% below EPA's 2007 projection. Moreover, as discussed above, 
individual State heat input is quite variable and can decrease 
significantly over multi-year periods. In the past, Michigan's annual 
heat input has decreased significantly for the last year, as compared 
to the first year, of multi-year periods and, for example, decreased by 
10.9% over the 9-year period 1973-1982 (comparable in length to the 
1998-2007 period).\39\ Ozone season heat input decreased 13.4% over the 
same period, 1973-1982.
---------------------------------------------------------------------------

    \39\ EPA's review indicates that eight out of the 32 nine-year 
periods from 1960-2000 had a decrease, or an increase of no more 
than 0.4%, in annual heat input (Docket # A-96-56, Item # XV-C-18, 
at 28), while 2 of the 19 nine-year periods from 1970-1998 had a 
decrease, or an increase of no more than 0.4%, in ozone season heat 
input. (Docket # A-96-56, Item # XV-C-19, at 28). Since these 
periods--although a minority--indicate that such decreases and small 
increases can occur, EPA believes that its methodology should not be 
considered unreasonable based on the recent State heat input. 
Moreover, while these long-term historical data certainly show the 
potential for such decreases and small decreases, the data are 
otherwise of limited use in projecting future heat input. As 
explained in Section V.D.6. of this notice, the electricity industry 
has been undergoing deregulation of generation and restructuring. As 
a result, trends in the past, as reflected in the data, may not 
continue in the future. The IPM reflects these changes, and by using 
the IPM in developing heat input growth rates, EPA has taken these 
changes into account.
---------------------------------------------------------------------------

    EPA believes that Michigan's decline in heat input in the last few 
years may be at least partly attributable to resolution of operational 
problems at the Cook Nuclear facility, as reflected in Table 14 
below.\40\ The spike in Michigan's heat input in 1998 coincides with 
the outage of two nuclear units at the Cook Nuclear Plant in Michigan. 
These two units are capable of generating a total of 2285 MW, which 
represents over 9% of the capacity in Michigan. Cook Unit 2 did not 
return to service until the middle of the 2000 ozone season, and Cook 
Unit 1 did not return to service until after the 2000 ozone season. 
These outages resulted in significantly less generation from nuclear 
plants and coincided with significantly more fossil fuel generation and 
heat input in 1998 and 1999. As the nuclear units came back into 
service and increased their generation, fossil fuel generation and heat 
input in Michigan declined. Under these circumstances, the fact that 
Michigan's 1998 heat input came close to EPA's 2007 projection does not 
demonstrate that EPA's projection is unreasonable.
---------------------------------------------------------------------------

    \40\ It has been suggested that Cook nuclear generation has been 
taken up by out-of-state affiliates of Cook and therefore that 
Cook's operational problems have not affected fossil-fired 
generation in Michigan. However, EPA has not received specific 
information purporting to demonstrate this pattern. Indeed, the 
Michigan Public Utility Commission has highlighted that the 
resumption of normal operations by the Cook Nuclear facility 
increases both available generation and the ability to import power, 
which suggests that Cook and fossil-fired Michigan generators are 
interrelated. Summer 2001, Energy Appraisal, Michigan Public Utility 
Commission, http://www.cis.state.mi.us/mpsc/reports/energy/01summer/electric.htm.

 Table 14.--Nuclear Generation vs. Total Utility Generation for Michigan
                              in 1995-2001
------------------------------------------------------------------------
                                           Ozone Season   Total  Utility
                                              nuclear       Ozone Season
                  Year                      generation    Generation\41\
                                               (Mwh)           (Mwh)
------------------------------------------------------------------------
1995....................................       8,779,412      38,175,367
1996....................................      12,708,112      41,024,588
1997....................................      12,804,255      40,660,688
1998....................................       4,923,916      36,618,364
1999....................................       6,472,871      38,679,849
2000....................................       8,195,891      39,550,421
2001....................................      10,456,684     40,844,263
------------------------------------------------------------------------
\41\ EIA provided generation data for this entire period only for large
  utility units. In the State of Michigan, non-utility units make up
  about 12% of the generation capacity.

    With regard to the comment that EPA's heat input projections are 
not consistent with the Michigan Public Utility Commission's 
electricity demand projections, EPA notes that electricity demand and 
heat input are not necessarily correlated. (See section V.D.6 of this 
notice.) For example, from 1988 to 1993, Michigan's electricity sales 
grew 6.1% at the same time that the State's heat input dropped 8%.
    Several comments suggest that Michigan's 2000 heat input was not 
representative because 2000 was a cool summer and that the State's heat 
input therefore should be disregarded in considering the reasonableness 
of EPA's 2007 heat input projection. The commenters seem to suggest 
that the fact that the summer was relatively cool meant that 
electricity demand, and so heat input, were lower in Michigan in 2000. 
However, EPA notes that Michigan's electricity demand in 1998 was 
44,451,681 Mwh and has been higher every year since 1998. In other 
words, even though electricity demand has grown since 1998, heat input 
has not. As for the comment that operational problems at the Monroe 
Power Plant reduced Michigan's heat input in 2000, EPA notes that 
Michigan's heat input in 2001 continued to decrease from 2000, even 
though there was much less of a decrease in heat input from the Monroe 
Power Plant from 2000 to 2001. Furthermore, EPA believes that heat 
input should not be evaluated on a plant-by-plant basis, because 
declines in heat input for one plant may well be accompanied by 
increases in heat input for another plant. For instance, while the 
Monroe Power Plant had lower heat input in 2000 than it had in previous 
years, heat input from the David E. Karn Plant in Michigan was 
significantly higher in 2000 than in previous years, and the amounts of 
the decrease in

[[Page 21896]]

Monroe heat input and the increase in Karn heat input were about the 
same.
    Finally, EPA disagrees with the comment that the modeling of unit 
dispatch in the IPM is inaccurate for Michigan because the IPM models 
the entire U.S. The IPM divided the U.S. into multiple subregions 
(including a subregion comprising most of Michigan). This allows the 
model to reflect both local dispatch patterns and the interstate nature 
of the electric grid.
    For the reasons above, EPA rejects the commenters' claims that 
EPA's heat input growth rate and 2007 heat input projection of Michigan 
are unreasonable.

e. Missouri

(i) Comments
    A commenter noted that Missouri's average actual heat input growth 
rate for 1995-2000 exceeded EPA's heat input growth rate by about three 
times. The commenter also noted that Missouri's heat input in 1998 
exceeded EPA's 2007 heat input projection for the State.
(ii) Response
    EPA notes that Missouri's 1999 heat input (335,273,139 mmBtu) 
exceeded EPA's 2007 heat input projection (309,316,824 mmBtu)by 8.4%. 
Since 1999, Missouri's heat input declined to 332,332,587 mmBtu in 2000 
and 329,668,165 mmBtu in 2001, but continued to exceed EPA's 
projection. Missouri's 2001 heat input exceeded EPA's 2007 projection 
by 6.2%. The heat input decline occurred even though, during this time, 
electricity demand in Missouri increased from 31,704,000 Mwh in 1999 to 
33,519,000 Mwh in 2000 and 32,539,000 Mwh in 2001. Further, as 
discussed above, EPA intends to include only the eastern portion (the 
fine grid counties) of Missouri in the NOX SIP Call. When 
actual heat input for eastern Missouri for 2001 is compared with EPA's 
recently proposed 2007 projection for eastern Missouri, the difference 
between the actual 2001 heat input (184,541,335 mmBtu) and the 
projected 2007 heat input (178,431,621 mmBtu) narrows to 3.4%.

                             Table 15.--Heat Input (mmBtu) in Missouri for 1995-2001
----------------------------------------------------------------------------------------------------------------
                                                                         Outside  fine grid
                                                   Fine grid  counties        counties           All counties
----------------------------------------------------------------------------------------------------------------
1995.............................................    163,698,735          120,078,167          283,776,902
1996.............................................    159,770,676          116,268,060          276,038,736
1997.............................................    176,843,306          121,262,736          298,106,042
1998.............................................    190,237,705          124,494,173          314,731,878
1999.............................................    200,802,706          134,470,433          335,273,139
2000.............................................    196,392,883          135,939,703          332,332,587
2001.............................................    184,541,335          145,126,830          329,668,165
Avg Annual Growth Rate 1995 to 2001..............              2.0                  3.2                  2.5
----------------------------------------------------------------------------------------------------------------

    Moreover, as discussed above, individual State heat input is quite 
variable, is not necessarily correlated with electricity demand in the 
State, and can decrease significantly over multi-year periods. In the 
past, Missouri's annual heat input has decreased significantly for the 
last year, as compared to the first year, of multi-year periods and, 
for example, decreased 11% over the 8-year period 1984-1992 (comparable 
in length to the 2000-2007 period).\42\ Ozone season heat input 
decreased 9.1% over the same period, 1984-1992. Thus, the fact that 
Missouri's most recent heat input exceeded EPA's 2007 projection does 
not mean that the projection is unreasonable.
---------------------------------------------------------------------------

    \42\ EPA's review indicates that six out of the 33 eight-year 
periods from 1960-2000 had a decrease in annual heat input, with a 
decrease of 8.4% or more in one of these periods (Docket # A-96-56, 
Item # XV-C-18, at 31), while two out of the 20 eight-year periods 
from 1970-1998 had a decrease in ozone season heat input, with a 
decrease of 8.4% or more in one of these periods (Docket # A-96-56, 
Item # XV-C-19, at 31). Since these periods--although a minority--
indicate that such decreases can occur, EPA believes that its 
methodology should not be considered unreasonable based on the 
recent State heat input. Moreover, while these long-term historical 
data certainly show the potential for such decreases, the data are 
otherwise of limited use in projecting future heat input. As 
explained in Section V.D.6. of this notice, the electricity industry 
has been undergoing deregulation of generation and restructuring. As 
a result, trends in the past, as reflected in the data, may not 
continue in the future. The IPM reflects these changes, and by using 
the IPM in developing heat input growth rates, EPA has taken these 
changes into account.
---------------------------------------------------------------------------

    For the reasons above, EPA rejects the commenter's claims that 
EPA's heat input growth rate and 2007 heat input projection of Missouri 
are unreasonable.

f. Virginia

(i) Comments
    Commenters asserted that there are various data omissions and 
errors in the heat input data for baseline year (1995) and for 
subsequent years through 1999 for Virginia, particularly as applied to 
independent power producers. According to commenters, the lack of heat 
input data for several of these facilities resulted in understated 
baseline heat input and, in the Section 126 Rule, in understated 
allowance allocations for certain units, whose allocations were based 
on 1995-1998 heat input. Commenters requested that EPA correct the 
allowance allocations in the Section 126 Rule. Commenters also stated 
that there has been a substantial increase in Virginia's heat input 
between 1995 and 2000 and that the State's heat input in 1997 and 1998 
was within 7% of EPA's 2007 heat input projections and within 1.3% in 
1999. Commenters predicted that the State's 2007 heat input level will 
be 319,087,054 mmBtu, for existing units based on the ``historical 
trend'' of heat input, and 395,216,765 mmBtu, based on ``power 
generation output,'' as compared to EPA's projection of 228,699,872 
mmBtu. Commenters also were concerned that EPA underestimated 
Virginia's new generation capacity. Virginia has 12,000 MW of potential 
new capacity at various stages of the permitting process. According to 
the commenters, EPA's estimate of new generation capacity is 
underestimated by over 3,000 MW, and the 5% set aside in the State's 
EGU NOX emission budget under the Section 126 Rule is 
inadequate to accommodate projected new capacity.
(ii) Response
    EPA notes that its 2007 heat input projection for Virginia 
(227,875,597 mmBtu) has not been exceeded, though Virginia's 1999 heat 
input (225,665,092 mmBtu) was close to (i.e., 1% below) the 2007 
projection. Since 1999, Virginia's heat input has declined, and in 2001 
the State's heat input (213,583,835 mmBtu) fell to 6.3% below

[[Page 21897]]

EPA's 2007 projection. Moreover, as discussed above, individual State 
heat input is quite variable and can decrease significantly over multi-
year periods. In the past, Virginia's annual heat input has decreased 
significantly for the last year, as compared to the first year, of 
multi-year periods and, for example, decreased 38% over the 6-year 
period 1977-1983 (comparable in length to the 2001-2007 period).\43\ 
Ozone season heat input decreased by 23.9% over 1978 and 1984.\44\
---------------------------------------------------------------------------

    \43\ EPA's review indicates that ten out of the 32 nine-year 
periods from 1960-2000 had a decrease, or an increase of no more 
than 1%, in annual heat input (Docket # A-96-56, Item # XV-C-18, at 
58), while 7 of the 19 nine-year periods from 1970-1998 had a 
decrease, or an increase of no more than 1%, in ozone season heat 
input (Docket # A-96-56, Item # XV-C-19, at 58). Since these 
periods--although a minority--indicate that such decreases and small 
increases can occur, EPA believes that its methodology should not be 
considered unreasonable based on the recent State heat input. 
Moreover, while these long-term historical data certainly show the 
potential for such decreases and small increases, the data are 
otherwise of limited use in projecting future heat input. As 
explained in Section V.D.6. of this notice, the electricity industry 
has been undergoing deregulation of generation and restructuring. As 
a result, trends in the past, as reflected in the data, may not 
continue in the future. The IPM reflects these changes, and by using 
the IPM in developing heat input growth rates, EPA has taken these 
changes into account.
    \44\ Monthly data was not available for the year 1983, so a 
comparison of the period between 1977 and 1983 cannot be made.
---------------------------------------------------------------------------

    Further, as discussed above, because heat input is quite variable, 
EPA believes that it is inappropriate to project long-term heat input 
growth to 2007 based on a short-term trend like Virginia's heat input 
growth for 1995-2000. With regard to comments concerning the new 
generation capacity that is at various stages of permitting in 
Virginia, projected new units do not necessarily result, as discussed 
above, in increased State heat input.
    For the reasons above, EPA rejects the commenters' claims that 
EPA's heat input growth rate and 2007 heat input projection of Virginia 
are unreasonable.
    EPA notes that the comments on Virginia's 1996 baseline heat input 
and on unit-specific allowances allocations and the size of the set-
aside for new units under the Section 126 Rule are outside the scope of 
the remand and today's notice. The Court remanded EPA's heat input 
growth rates and 2007 heat input projections and did not address or 
remand any issues concerning the data used to calculate State's 1995 or 
1996 baseline heat input. In addition, the Court did not remand any 
issues concerning the determination of individual units' allowance 
allocations or the size of the set-aside for new units. Consistent with 
the Court's remand, EPA explained in the August 3, 2001 NODA that EPA 
was not seeking comments on the data used to calculate 1995 or 1996 
baseline heat input or on allowance allocations, (66 FR. 40616). EPA is 
therefore not addressing today the comments on Virginia's 1996 baseline 
heat input, unit-specific allowance allocations, and the set-aside for 
new units.\45\ However, data for subsequent years were not used in 
calculating Virginia's 1996 baseline heat input. EPA has incorporated 
the commenters' data corrections for 1997-1999 for purposes of the 
Agency's review of Virginia's heat input growth rates.\46\
---------------------------------------------------------------------------

    \45\ EPA notes that it previously solicited corrections to 
baseline heat input data and responded to requested corrections 
through the Technical Amendments in 1999 and 2000. EPA also notes 
that, based on the data provided by commenters, the requested 
changes to 1996 heat input would have very little impact on 
Virginia's EGU NOX emission budget. Virginia's 1996 
baseline heat input (which was used to develop the budget) would 
increase by 131 tons, and, with the application of EPA's growth 
factor of 1.32 for Virginia, the State's EGU NOX emission 
budget would increase by 173 tons or 1%.
    \46\ EPA similarly incorporated other specific data corrections 
requested by commenters for other States for 1997 or later.
---------------------------------------------------------------------------

g. West Virginia

(i) Comments
    Commenters argued that EPA's growth factor for West Virginia is 
inaccurate, technically unjustifiable, and significantly lower than the 
growth rates assigned to neighboring States. Commenters pointed to the 
discrepancy between actual heat input growth during 1995-2000 in West 
Virginia (1.84% a year) to EPA's heat input growth rate of 0.25% a 
year. According to commenters, extrapolating the 1.84% growth rate to 
2007 would result in a 32.3% increase in heat input compared to EPA's 
projected 3% increase. Commenters also noted that West Virginia's 
actual average heat input for 1998-2000 exceeds EPA's 2007 heat input 
projection by 8%. Commenters asserted that in order for EPA's 
projections to be reasonably accurate, West Virginia's heat input will 
have to decrease as much as 6% over the next 6 years.
    Further, commenters described West Virginia as an electricity 
exporter and argued that the State can be expected to have heat input 
increases commensurate with rising national electricity demand. 
Commenters pointed to the actual 1.84% increase in ozone season heat 
input from 1995-2000, which they argued is comparable to the projected 
1.8% increase in electricity demand over the next 20 years in the 
National Energy Policy.
    The commenters claimed that the unreasonableness of EPA's 
methodology is further demonstrated by comparing West Virginia's heat 
input relative to the total heat input for the NOX SIP Call 
region. With EPA's heat input growth rates and 2007 heat input 
projections, the State was allotted only 5% of the regional heat input, 
but use of the 2001 and 2010 IPM heat input projections show West 
Virginia with 6.9% and 6.4% respectively of regional heat input. In 
addition, commenters noted that the IPM run for 2007 projects heat 
input for West Virginia that exceeds EPA's 2007 heat input projection 
for the State.
    Commenters stated that year-to-year variation in heat input did not 
explain the difference between West Virginia's current heat input and 
EPA's 2007 heat input projection, which is lower. Commenters asserted 
that West Virginia has lower year-to-year variability in heat input 
than surrounding States.
    Finally, commenters contended that EPA's heat input growth rates 
fail to account sufficiently for new EGU units in the State. According 
to the commenters, while eight new EGUs with a combined generating 
capacity of 5,833 MW have been planned and committed for construction, 
EPA projected 1,049 MW of new natural gas fired units to West Virginia 
through 2010.
(ii) Response
    EPA notes that West Virginia's heat input exceeded EPA's 2007 heat 
input projection (358,117,926 mmBtu) beginning in 1997 when it exceeded 
EPA's 2007 projection by 1.9%. The State's heat input peaked in 1999 
(391,592,231 mmBtu), exceeding EPA's 2007 projection by 9.3%. Since 
1999, West Virginia's heat input declined by 8% over the next 2 years, 
and the 2001 heat input (360,185,154 mmBtu) exceeded EPA's 2007 
projection by only 0.6%. Moreover, as discussed above, individual State 
heat input is quite variable and can decrease significantly over multi-
year periods. In the past, West Virginia's annual heat input has 
decreased significantly for the last year, as compared to the first 
year, of multi-year periods and, for example, decreased 5.5% over the 
10-year period 1981-1991 (comparable in length to the 1997-2007 period) 
and decreased 10.9% over the 8-year period 1983-1991 (comparable in 
length to the 1999-2001 period) \47\ and 13% over 1984-1992.

[[Page 21898]]

Ozone season heat input decreased 9.1% over 1982-1992.\48\ Thus, the 
fact that West Virginia's heat input has recently exceeded EPA's 2007 
heat input projection does not mean that EPA's projection is 
unreasonable.
---------------------------------------------------------------------------

    \47\ EPA's review indicates that two out of the 31 ten-year 
periods from 1960-2000 had a decrease in annual heat input, with the 
largest decrease being 5.5% (Docket # A-96-56, Item # XV-C-18, at 
61), while four out of the 18 ten-years periods from 1970-1998 had a 
decrease in ozone season heat input, with the largest decrease being 
9.1% (Docket # A-96-56, Item # XV-C-19, at 61). Since these 
periods--although a minority--indicate that such decreases can 
occur, EPA believes that its methodology should not be considered 
unreasonable based on the recent State heat input. Moreover, while 
these long-term historical data certainly show the potential for 
such decreases, the data are otherwise of limited use in projecting 
future heat input. As explained in Section V.D.6. of this notice, 
the electricity industry has been undergoing deregulation of 
generation and restructuring. As a result, trends in the past, as 
reflected in the data, may not continue in the future. The IPM 
reflects these changes, and by using the IPM in developing heat 
input growth rates, EPA has taken these changes into account.
    \48\ The periods for decreasing ozone season heat input 
obviously differ slightly from the periods for decreasing annual 
heat input.
---------------------------------------------------------------------------

    Further, while EPA agrees that West Virginia is a significant 
exporter of electricity, EPA does not believe that it necessarily 
follows that West Virginia's heat input will continue to grow. Since 
less than a third of the electricity generated in West Virginia is sold 
in West Virginia, the ability to export electricity plays an important 
part in the amounts of both electricity generation and heat input in 
West Virginia. The level of West Virginia's exports in the future will 
depend on electricity supply and demand in the regional electricity 
market. The commenters did not provide any information on future 
electricity demand and supply outside of West Virginia and how they 
might affect future generation and heat input in West Virginia. West 
Virginia's heat input declined over 8% during 1999-2001 despite the 
fact that electricity sales increased 1.2% in the NOX SIP 
Call region.
    While commenters provided a graph to demonstrate that West 
Virginia's heat input has been less variable than other States' heat 
input, that graph covers only 1995-2000 and so fails to show the 
variability reflected by the heat input decrease between 2000 and 2001. 
Further, since the range of movement, up and down, of lines on a graph 
can vary depending on the range of the vertical and horizontal scales 
presented in the graph, the variability of the graphed parameter (here, 
State heat input) cannot be determined simply by looking at the graph. 
Commenters provided no other support for the claim of less variable 
heat input. Moreover, the 1995-2001 ozone season data and the 1960-2000 
annual heat input data for West Virginia show, contrary to the 
commenters, that the State's heat input is quite variable, as reflected 
in significant decreases over multi-year periods. (See Tables 2 through 
9 above.)
    Finally, as discussed above, because heat input is quite variable, 
EPA believes that it is inappropriate to project long-term heat input 
growth to 2007 based on a short-term trend like West Virginia's heat 
input growth for 1995-2000. With regard to comments concerning the heat 
input, or percentage share of heat input, projected for West Virginia 
by the IPM, EPA maintains that the IPM is more accurate in predicting 
the change in State heat input between modeled years than in 
pinpointing State heat input for a particular year. (See section V.C.2 
of this notice.) With regard to comments concerning the new gas-fired 
generation capacity that is planned in West Virginia, projected new 
units do not necessarily result, as discussed above, in increased State 
heat input.
    For the reasons above, EPA rejects the commenters' claims that 
EPA's heat input growth rate and 2007 heat input projection of West 
Virginia are unreasonable.
10. No Heat Input Growth Rate Methodology Has Been Presented That Would 
Have Results That Better Comport With Actual Heat Input
    As discussed in detail above, EPA believes that the fact that a 
State's recent heat input exceeds a heat input projection for the State 
for 2007 does not make the projection unreasonable. However, in light 
of the Court's and commenters' concerns over cases where recent actual 
State heat input exceeded the 2007 projection, EPA decided to compare 
the heat input growth rates and 2007 heat input projections under the 
Agency's methodology to those under the alternative heat input growth 
methodologies considered previously by EPA or discussed by commenters. 
In making this comparison, EPA focused on how the 2007 projections 
compared with actual heat input data to date for most of the 
NOX SIP Call States. EPA excluded Connecticut, 
Massachusetts, and Rhode Island from the comparison of the growth rate 
methodologies because they entered into a February 1999 Memorandum of 
Understanding in which they reallocated their NOX emission 
budgets for EGUs, and effectively reallocated their projected heat 
input, among the three States. This agreement, which was implemented in 
their SIPs approved on December 27, 2000, rendered moot any potential 
issues concerning the 2007 heat input projections used to calculate 
their original NOX emission budgets. As discussed below, EPA 
found that, while the alternative methodologies resulted in higher 2007 
projected heat input for some individual States, overall the 
alternative 2007 projections would not comport better than EPA's 2007 
projections with the actual heat input data for the NOX SIP 
Call States.
    The first alternative methodology would involve using heat input 
growth rates from OTAG. During the NOX SIP Call rulemaking, 
EPA reviewed NOX emission projections by OTAG and converted 
them into heat input projections and growth rates. The EPA and OTAG 
heat input growth rates are compared in Table 16 below.

  Table 16.--Comparison of OTAG and EPA State Heat Input Growth Factors
                                  \49\
------------------------------------------------------------------------
                                                  OTAG
                    State                        growth     EPA  growth
                                                  rate          rate
------------------------------------------------------------------------
AL..........................................         1.21           1.10
DC..........................................         1.00           1.36
DE..........................................         1.15           1.27
GA..........................................         1.03           1.13
IL..........................................         1.08           1.08
IN..........................................         1.12           1.17
KY..........................................         1.08           1.16
MD..........................................         1.05           1.35
MI..........................................         0.94           1.13
MO..........................................         1.05           1.09
NC..........................................         1.10           1.21
NJ..........................................         1.10           1.21
NY..........................................         1.08           1.05
OH..........................................         1.04           1.07
PA..........................................         1.06           1.15
SC..........................................         1.03           1.43
TN..........................................         1.13           1.21
VA..........................................         1.07           1.32
WV..........................................         1.05           1.03
Region......................................         1.04           1.1
------------------------------------------------------------------------
\49\ Throughout this notice the term growth rate (expressed in percent)
  has been used. In the original rulemaking EPA actually used growth
  factors (a factor used to multiply the baseline heat input). Growth
  factors can be converted to growth rates by subtracting 1 and
  expressing the value in terms of a percent (e.g. a growth factor of
  1.08 is equivalent to a growth rate of 8%). In other words, increasing
  a baseline heat input by 8% growth rate is equivalent to multiplying
  the baseline heat input by a 1.08 growth factor.

    Focusing first on the States for which EPA's heat input growth 
rates have been disputed by commenters, EPA notes that EPA's State heat 
input growth rate is higher than OTAG's for three States (Georgia, 
Michigan, and Virginia), lower for three States (Alabama, Missouri, and 
West Virginia) and the same for one State (Illinois). Further, as shown 
in Table 19 below, the 2007 heat input projection based on OTAG's 
growth rates would be exceeded by actual State heat input in a recent 
year for ten jurisdictions, as compared to seven jurisdictions when 
2007 projections are

[[Page 21899]]

based on EPA's growth rates.\50\ In addition, using OTAG's heat input 
growth rates, the overall heat input growth rate for the entire 
NOX SIP Call region would be less than the overall growth 
rate using EPA's growth rates, and the heat input projections for 2007 
for the region would be lower. In summary, using OTAG's growth rates, 
rather than EPA's heat input growth rates would result in more States 
recently exceeding their 2007 heat input projections and lower heat 
input for the region as a whole.\51\
---------------------------------------------------------------------------

    \50\ While EPA's 2007 heat input projection was exceeded by New 
York's 1999 heat input, no commenter disputed the heat input growth 
rate for that State. Moreover, the State's heat input has decreased 
since 1999 and is now well below EPA's projection. In fact, heat 
input in every year other than 1999 has been lower than the actual 
heat input in 1995.
    \51\ As discussed in section V.C.3 of this notice, OTAG's 
projections also are fundamentally flawed in that they are not based 
on consistent assumptions.
---------------------------------------------------------------------------

    A second alternative methodology that EPA considered in the 
NOX SIP Call rulemaking and that a commenter proposed is use 
of a single, regionwide heat input growth factor based on the 2001-2010 
heat input growth rate under the IPM (i.e., 1.15%). This would result 
in the same projected heat input for the NOX SIP Call region 
as a whole, but in a different apportioning of that heat input among 
the States in the region. With regard to the States whose heat input is 
disputed by commenters, EPA's State heat input growth rate is higher 
than under this second alternative for four States (Georgia, Illinois, 
Michigan, and Virginia) and lower in three States (Alabama, Missouri, 
and West Virginia). Further, as shown in Table 18 below, the 2007 heat 
input projection based on the single, regionwide growth rate would be 
exceeded in a recent year by actual State heat input for nine 
jurisdictions, as compared to seven jurisdictions when 2007 projections 
are based on EPA's growth rates. Thus, using this second alternative 
methodology, rather than EPA's methodology, would result in additional 
States exceeding their 2007 heat input projections.\52\
---------------------------------------------------------------------------

    \52\ Further, as a conceptual matter, EPA considers this 
alternative less reasonable than EPA's methodology because this 
alternative assumes the same amount of heat input growth for each 
State, a phenomenon that is demonstrably unrealistic, based on both 
historical experience and model projections.
---------------------------------------------------------------------------

    During the NOX SIP Call rulemaking, EPA received comment 
on a third alternative methodology to project heat input. The commenter 
suggested using growth factors based on actual 1996 data and 2007 IPM 
projections. These growth rates, which would be applied to 1996 heat 
input, are set forth in Table 17 below.
    A second alternative methodology that EPA considered in the 
NOX SIP Call rulemaking and that a commenter proposed is use 
of a single, regionwide heat input growth factor based on the 2001-2010 
heat input growth rate under the IPM (i.e., 1.15%). This would result 
in the same projected heat input for the NOX SIP Call region 
as a whole, but in a different apportioning of that heat input among 
the States in the region. With regard to the States whose heat input is 
disputed by commenters, EPA's State heat input growth rate is higher 
than under this second alternative for four States (Georgia, Illinois, 
Michigan, and Virginia) and lower in three States (Alabama, Missouri, 
and West Virginia). Further, as shown in Table 18 below, the 2007 heat 
input projection based on the single, regionwide growth rate would be 
exceeded in a recent year by actual State heat input for nine 
jurisdictions, as compared to seven jurisdictions when 2007 projections 
are based on EPA's growth rates. Thus, using this second alternative 
methodology, rather than EPA's methodology, would result in additional 
States exceeding their 2007 heat input projections.\52\
---------------------------------------------------------------------------

    \52\ Further, as a conceptual matter, EPA considers this 
alternative less reasonable than EPA's methodology because this 
alternative assumes the same amount of heat input growth for each 
State, a phenomenon that is demonstrably unrealistic, based on both 
historical experience and model projections.
---------------------------------------------------------------------------

    During the NOX SIP Call rulemaking, EPA received comment 
on a third alternative methodology to project heat input. The commenter 
suggested using growth factors based on actual 1996 data and 2007 IPM 
projections. These growth rates, which would be applied to 1996 heat 
input, are set forth in Table 17 below.

Table 17.--Comparison of 1996-2007 State Growth Rates and EPA Heat Input
                              Growth Rates
------------------------------------------------------------------------
                                                 Commenter
                     State                         growth    EPA  growth
                                                    rate         rate
------------------------------------------------------------------------
AL............................................         1.07         1.10
DE............................................         1.53         1.36
DC............................................         0.40         1.27
GA............................................         1.11         1.13
IL............................................         1.25         1.08
IN............................................         1.09         1.17
KT............................................         1.13         1.16
MD............................................         1.08         1.35
MI............................................         1.24         1.13
MO............................................         1.33         1.09
NJ............................................          2.3         1.21
NY............................................         1.07         1.21
NC............................................         1.33         1.05
OH............................................         1.02         1.07
PA............................................         1.10         1.15
SC............................................         1.45         1.43
TN............................................         1.11         1.21
VA............................................         1.47         1.32
WV............................................         1.35         1.03
------------------------------------------------------------------------

    With regard to the States whose heat input is disputed by 
commenters, EPA's State heat input growth rate is higher than under 
this third alternative for two States (Alabama and Georgia) and lower 
in five States (Illinois, Michigan, Missouri, Virginia, and West 
Virginia). Further, as shown in Table 18 below, the 2007 heat input 
projection based on the third alternative methodology would be exceeded 
by actual State heat input in a recent year for seven jurisdictions. 
Thus, using this third alternative methodology would result in the same 
number of jurisdictions exceeding their 2007 heat input projections in 
a recent year as under EPA's methodology.\53\
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    \53\ As a conceptual matter, EPA considers this alternative less 
reasonable than EPA's methodology because it calculates growth 
between an actual year of heat input (1996) and a modeled year of 
heat input. See section V.C.2 of this notice.

     Table 18--States That in a Recent Year Have Exceeded 2007 Heat Input Under Different Projection Methods
----------------------------------------------------------------------------------------------------------------
                                                                 OTAG growth     Uniform growth     1996-2007
                    State                        EPA method          rate             rate         growth rate
----------------------------------------------------------------------------------------------------------------
AL..........................................        Exceeded         Exceeded         Exceeded         Exceeded
DC \54\.....................................        Exceeded         Exceeded         Exceeded         Exceeded
DE..........................................  ...............  ...............  ...............        Exceeded

[[Page 21900]]

 
GA..........................................        Exceeded         Exceeded         Exceeded         Exceeded
IL..........................................        Exceeded         Exceeded         Exceeded   ...............
IN..........................................  ...............  ...............  ...............        Exceeded
KY..........................................  ...............        Exceeded   ...............  ...............
MD..........................................  ...............        Exceeded         Exceeded   ...............
MI..........................................  ...............        Exceeded   ...............  ...............
MO..........................................        Exceeded         Exceeded         Exceeded   ...............
NC..........................................  ...............  ...............  ...............  ...............
NJ..........................................  ...............  ...............        Exceeded   ...............
NY..........................................        Exceeded         Exceeded   ...............        Exceeded
OH..........................................  ...............  ...............  ...............        Exceeded
PA..........................................  ...............  ...............  ...............  ...............
SC..........................................  ...............  ...............        Exceeded   ...............
TN..........................................  ...............  ...............  ...............  ...............
VA..........................................  ...............  ...............        Exceeded   ...............
WV..........................................        Exceeded         Exceeded   ...............  ...............
----------------------------------------------------------------------------------------------------------------
\54\ EPA notes that the District of Columbia is unique in that it has only six units and so its heat input is
  particularly variable.

    Finally, some commenters suggested using more recent data to 
develop 2007 heat input projections. One such approach continues to use 
EPA's heat input growth rates, but applies them to the 2000 actual 
State heat input data, instead of actual data representing the higher 
of a State's 1995 or 1996 heat input. While EPA believes that it was 
appropriate to use, to the extent feasible, the most up-to-date heat 
input data available during the NOX SIP Call and Section 126 
rulemakings in order to project 2007 heat input, the 2000 heat input 
data that the commenter suggests using became available in 2001 and 
was, obviously, not available when EPA issued the NOX SIP 
Call (1998), the Section 126 Rule (1999), and the Technical Amendments 
(2000). EPA believes that the Agency cannot reasonably be required to 
modify the heat input growth rate projections or other aspects of the 
NOX SIP Call and Section 126 Rule simply to use future data 
that inevitably becomes available with the passage of time. Requiring 
EPA to do so would be a prescription for endless rulemaking.
    Moreover, in this case, the data involved, i.e., State heat input, 
are quite variable from year to year. It therefore seems likely that, 
as subsequent years of actual State heat input data become available, 
some of the States' heat input may increase in one particular year more 
rapidly than reflected in the heat input growth rates and result in 
heat input for that year exceeding the new 2007 heat input projections 
under this fourth alternative methodology. The fact is that, as the 
latest year of actual State heat input data advances, the set of States 
with current, actual heat input exceeding 2007 projected heat input may 
well change. As discussed above, this already occurred during 1998-
2001, when the set of States with current, actual heat input exceeding 
or close to 2007 projected heat input changed somewhat almost every 
year. EPA believes that this demonstrates both that the exceedance in a 
particular year of a State's 2007 heat input projection does not make 
the projection unreasonable and that commenters failed to demonstrate 
that EPA's heat input growth methodology is unreasonable.

E. Procedural Issues

    As a procedural matter, EPA is responding in today's notice to the 
Court's remand in the Section 126 and the Technical Amendments cases of 
the heat input growth rate issue by providing a clearer explanation of 
the Agency's methodology. Before issuing today's notice, EPA outlined 
its proposed response in a notice in the Federal Register, i.e., the 
August 3, 2001 NODA (66 FR 40609-16). In that NODA, EPA relied largely 
on the existing record, but also pointed to new information that EPA 
placed in the docket at that time. EPA received some 30 comments on the 
NODA. EPA then developed additional new information and placed that in 
the docket through a second NODA dated March 11, 2002 (67 FR 10844-45). 
In the March 11, 2002 NODA, EPA also noted that some additional 
information might be put in the docket later. EPA did so at various 
times after March 11, 2002.
    Commenters raised several procedural issues concerning EPA's 
response to the Court's remand of the heat input growth rate issue.
1. Notice-and-Comment Rulemaking
    Commenters stated that EPA was required to have completed today's 
response to the Court's remand through notice-and-comment rulemaking.
    EPA believes that its procedure is appropriate for today's response 
to the Court's remand. The response to remand does not entail 
promulgation of a new or revised rule reflecting new or revised heat 
input growth rates. Rather, it involves a clearer explanation, based on 
the existing record and confirmed by supplemental information, of the 
same heat input growth rates that EPA previously used in the 
NOX SIP Call, the Section 126 Rule, and the Technical 
Amendments. Under these circumstances, notice-and-comment rulemaking is 
not required. See generally National Grain & Feed Ass'n, Inc. v. OSHA, 
903 F.2d 308 (5th Cir., 1990).
    A notice-and-comment rulemaking would have been appropriate had the 
Court vacated the rulemaking with respect to the heat input growth rate 
issue, but the Court did not do so in either the Section 126 Decision 
or the Technical Amendments Decision. Indeed, in the Section 126 case, 
the Court denied a post-decision procedural motion specifically 
requesting such a vacatur.
    In any event, as a practical matter, an opportunity to comment was 
afforded interested parties. By the August 3, 2001 NODA, EPA placed in 
the docket additional factual information that it compiled in the 
course of responding to the remand, and EPA allowed a 30-day comment 
period on that additional information. Many parties commented, and EPA 
has responded to those comments in today's notice. The August

[[Page 21901]]

3, 2001 NODA also outlined EPA's preliminary explanation in response to 
the remand, interested parties commented on that explanation, and EPA 
responded. Further, by the March 11, 2002 NODA, EPA again placed 
additional factual information compiled in the course of responding to 
the remand. As discussed above, two comments were submitted questioning 
whether there was time for submission of comments on the new 
information and questioning how the new data related to the response to 
remand. EPA thereafter explained to the commenters and the public the 
relevance of the documents and stated that the Agency would delay 
issuance of the final response to the remands until on or about April 
17, 2001 and would consider timely submitted comments. EPA also 
received a third comment stating that the data referenced in the March 
11, 2002 NODA were highly germane and supported EPA's heat input growth 
rate methodology.
    A commenter claimed that section 307(d)(1) of the CAA requires that 
EPA provide a comment period and hold a hearing on its response to the 
remand. EPA disagrees.
    Paragraph (1) of subsection (d) of section 307 provides that the 
procedural requirements found in subsection (d) apply to the items 
listed in subparagraphs (A) through (U). Each of these items refers to 
the ``promulgation'' (and, in almost all cases, the ``revision'') of a 
regulation or requirement under a provision of the CAA, except for 
subparagraph (N), which refers to an ``action of the Administrator 
under section 126,'' and subparagraph (U), which is a catch-all 
category that refers to ``such other actions as the Administrator may 
determine.'' EPA believes that the term ``action'' in subparagraph (N) 
is intended to cover both a grant or denial of a request for a finding 
under section 126(b), as well as a rulemaking establishing compliance 
requirements under section 126(c).
    However, EPA does not believe that term should be read so broadly 
as to include today's response to the remand. Reading the term 
``action'' so broadly would require that every remand response 
involving section 126 meet the procedural requirements of section 
307(d), while a remand response involving any other provision 
referenced in section 307(d)(1) would not have to meet such 
requirements so long as the response was not a ``promulgation'' or 
``revision'' of a regulation. EPA considers such a unique result for 
section 126 to be anomalous and therefore rejects that interpretation 
of the term ``action'' in section 307(d)(1)(N).
    EPA also notes that, in today's response, the Agency is not taking 
any ``action'' under section 126.\55\ Rather, EPA is simply explaining 
more clearly the basis for the ``action'' that it took in the section 
126 Rule issued in January 2000, i.e., the final rulemaking that 
established compliance requirements, including State NOX 
budgets for EGUs.
---------------------------------------------------------------------------

    \55\ Under Federal Register drafting requirements, EPA must have 
an ``Action'' caption in every document published in the Federal 
Register. The use of caption at the beginning of today's notice does 
not make the notice an ``action'' under Section 307(d)(1)(N). The 
``Action'' caption is required for all notices, including policy 
statements and interpretations for which public notice and comment 
and a public hearing are clearly not required.
---------------------------------------------------------------------------

2. Petition to Reconsider
    Some commenters requested that EPA should treat any of their 
comments that EPA considered to be outside the scope of today's notice 
as petitions to reconsider and that EPA should respond to such 
petitions at the same time that it issues today's notice. Because EPA 
is responding on the merits to the comments submitted by these 
commenters, this request is moot.\56\
---------------------------------------------------------------------------

    \56\ One of these commenters argued that EPA should remove any 
limit on the size of the Compliance Supplement Pool, which is a pool 
of extra allowances established by EPA for each State for use in the 
first 2 years of the NOX SIP Call and the section 126 
Rule by sources that may not be able to install NOX 
emissions in time. Not only is this claim outside the scope of this 
notice, but also the Court has already ruled on and upheld EPA's 
imposition of the cap on the Compliance Supplement Pool. See 
Michigan v. EPA, 213 F.3d at 694.
---------------------------------------------------------------------------

    However, as discussed in section V.D.8 of this notice, a few 
comments by some other commenters are outside the scope of the remand 
and of today's response to remand. EPA does not regard the 
reconsideration request to apply to these comments.

List of Subjects

40 CFR Part 51

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Intergovernmental relations, Ozone, Reporting 
and recordkeeping requirements.

40 CFR Part 52

    Air pollution control, Ozone, Reporting and recordkeeping 
requirements.

40 CFR Part 96

    Administrative practice and procedure, Air pollution control, 
Nitrogen oxides, Ozone, Reporting and recordkeeping requirements.

40 CFR Part 97

    Administrative practice and procedure, Air pollution control, 
Intergovernmental relations, Nitrogen oxides, Ozone, Reporting and 
recordkeeping requirements.

    Dated: April 23, 2002.
Christine T. Whitman,
Administrator.
[FR Doc. 02-10404 Filed 4-30-02; 8:45 am]
BILLING CODE 6560-50-P