[Federal Register Volume 70, Number 202 (Thursday, October 20, 2005)]
[Proposed Rules]
[Pages 61081-61103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20983]



[[Page 61081]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51 and 52

[FRL-7985-7; E-Docket ID No. OAR-2005-0163]
RIN 2060-AN28


Prevention of Significant Deterioration, Nonattainment New Source 
Review, and New Source Performance Standards: Emissions Test for 
Electric Generating Units

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The EPA (we) is proposing to revise the emissions test for 
existing electric generating units (EGUs) that are subject to the 
regulations governing the Prevention of Significant Deterioration (PSD) 
and nonattainment major New Source Review (NSR) programs (collectively 
``NSR'') mandated by parts C and D of title I of the Clean Air Act (CAA 
or Act). The revised emissions test is the same as that in the New 
Source Performance Standards (NSPS) program under CAA section 
111(a)(4). For existing EGUs, we are proposing to compare the maximum 
hourly emissions achievable at that unit during the past 5 years to the 
maximum hourly emissions achievable at that unit after the change to 
determine whether an emissions increase would occur. Alternatively, we 
are soliciting public comment on a major NSR emissions test for 
existing EGUs that would compare maximum hourly emissions achieved 
before a change to the maximum hourly emissions achieved after the 
change. We are also soliciting public comment on adopting an NSR 
emissions test based on mass of emissions per unit of energy output. In 
addition, we are soliciting comment on whether to revise the NSPS 
regulations to include a maximum achieved emissions test or an output-
based emissions test, either in lieu of or in addition to the maximum 
achievable hourly emissions test. Today's proposal would not affect new 
EGUs, which would continue to be subject to major NSR preconstruction 
review and to the NSPS program. The proposed rule would only apply 
prospectively to changes at existing EGUs potentially covered by major 
NSR and the NSPS programs.
    These proposed regulations interpret CAA section 111(a)(4), in the 
context of NSR and NSPS, for physical changes and changes in the method 
of operation at existing EGUs. The proposed regulations would establish 
a uniform emissions test nationally under the NSPS and NSR programs for 
existing EGUs. The proposed regulations would also promote the safety, 
reliability, and efficiency of EGUs.

DATES: Comments. Comments must be received on or before December 19, 
2005.
    Public Hearing. If anyone contacts us requesting to speak at a 
public hearing November 9, 2005, we will hold a public hearing 
approximately 30 days after publication in the Federal Register.

ADDRESSES: Submit your comments, identified by Docket ID No. OAR-2005-
0163 by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the on-line instructions for submitting comments.
     Agency Web site: http://www.epa.gov/edocket. EDOCKET, 
EPA's electronic public docket and comment system, is EPA's preferred 
method for receiving comments. Follow the on-line instructions for 
submitting comments.
     E-mail: [email protected].
     Fax: 202-566-1741.
     Mail: Attention Docket ID No. OAR-2005-0163, U.S. 
Environmental Protection Agency, EPA West (Air Docket), 1200 
Pennsylvania Avenue, Northwest, Mail Code: 6102T, Washington, DC 20460. 
In addition, please mail a copy of your comments on the information 
collection provisions to the Office of Information and Regulatory 
Affairs, Office of Management and Budget (OMB), Attn: Desk Officer for 
OMB, 725 17th Street, Northwest, Washington, DC 20503.
     Hand Delivery: U.S. Environmental Protection Agency, EPA 
West (Air Docket), 1301 Constitution Avenue, Northwest, Room B102, 
Washington, DC 20004, Attention Docket ID No. OAR-2005-0163. Such 
deliveries are only accepted during the Docket's normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information.
    Instructions: Direct your comments to Docket ID No. OAR-2005-0163. 
EPA's policy is that all comments received will be included in the 
public docket without change and may be made available online at http://www.epa.gov/edocket, including any personal information provided, 
unless the comment includes information claimed to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. Do not submit information that you consider to 
be CBI or otherwise protected through EDOCKET, regulations.gov, or e-
mail. The EPA EDOCKET and the Federal regulations.gov Web sites are 
``anonymous access'' systems, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail comment directly to EPA without 
going through EDOCKET or regulations.gov, your e-mail address will be 
automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, avoid any form of encryption, and be 
free of any defects or viruses. For additional information about EPA's 
public docket visit EDOCKET on-line or see the Federal Register of May 
31, 2002 (67 FR 38102). For additional instructions on submitting 
comments, go to section I..B. of the SUPPLEMENTARY INFORMATION section 
of this document.
    Docket: All documents in the docket are listed in the EDOCKET index 
at http://www.epa.gov/edocket. Although listed in the index, some 
information is not publicly available, i.e., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the Internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available either electronically in EDOCKET or in hard 
copy at the U.S. Environmental Protection Agency, EPA West (Air 
Docket), 1301 Constitution Avenue, Northwest, Room B102, Washington, 
DC. Attention Docket ID No. OAR-2005-0163. The Public Reading Room is 
open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding 
legal holidays. The telephone number for the Public Reading Room is 
(202) 566-1744, and the telephone number for the Air Docket is (202) 
566-1742.

FOR FURTHER INFORMATION CONTACT: Ms. Janet McDonald, Information 
Transfer and Program Integration Division (C339-03), U.S. Environmental 
Protection Agency, Research Triangle Park, NC 27711, telephone number: 
(919) 541-1450; fax number : (919) 541-5509, or electronic mail at 
[email protected].

SUPPLEMENTARY INFORMATION:

[[Page 61082]]

I. General Information

A. What Are the Regulated Entities?

    Entities potentially affected by the subject rule for today's 
action are fossil-fuel fired boilers, turbines, and internal combustion 
engines, including those that serve generators producing electricity, 
generate steam or cogenerate electricity and steam.

------------------------------------------------------------------------
          Industry group              SIC a              NAICS b
------------------------------------------------------------------------
Electric Services................          491  221111, 221112, 221113,
                                                 221119, 221121, 221122.
Federal government...............       221121  Fossil-fuel fired
                                                 electric utility steam
                                                 generating units owned
                                                 by the Federal
                                                 government.
State/local/Tribal government....        22112  Fossil-fuel fired
                                                 electric utility steam
                                                 generating units owned
                                                 by municipalities.
                                                 Fossil-fuel fired
                                                 electric utility steam
                                                 generating units in
                                                 Indian country.
------------------------------------------------------------------------
a Standard Industrial Classification.
b North American Industry Classification System.
1 Establishments owned and operated by Federal, State, or local
  government are classified according to the activity in which they are
  engaged.

    Entities potentially affected by the subject rule for today's 
action also include State, local, and tribal governments.

B. How Should I Submit CBI to the Agency?

    1. Submitting CBI. Do not submit this information that you consider 
to be CBI electronically through EDOCKET, regulations.gov or e-mail. 
Clearly mark the part or all of the information that you claim to be 
CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark 
on the CD ROM the specific information that is claimed as CBI. In 
addition to one complete version of the comment that includes 
information claimed as CBI, a copy of the comment that does not contain 
the information claimed as CBI must be submitted for inclusion in the 
public docket. Information so marked will not be disclosed except in 
accordance with procedures set forth in 40 CFR part 2. Also, send an 
additional copy clearly marked as above not only to the Air Docket but 
to: Mr. Roberto Morales, OAQPS Document Control Officer, (C339-03), 
U.S. Environmental Protection Agency, Research Triangle Park, NC 27711, 
Attention Docket ID No. OAR-2005-0163.

C. What Should I Consider as I Prepare My Comments for EPA?

    When submitting comments, remember to:
    1. Identify the rulemaking by docket number and other identifying 
information (subject heading, Federal Register date and page number).
    2. Follow directions--The agency may ask you to respond to specific 
questions or organize comments by referencing a Code of Federal 
Regulations (CFR) part or section number.
    3. Explain why you agree or disagree; suggest alternatives and 
substitute language for your requested changes.
    4. Describe any assumptions and provide any technical information 
and/or data that you used.
    5. If you estimate potential costs or burdens, explain how you 
arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
    6. Provide specific examples to illustrate your concerns, and 
suggest alternatives.
    7. Explain your views as clearly as possible, avoiding the use of 
profanity or personal threats.
    8. Make sure to submit your comments by the comment period deadline 
identified.

D. How Can I Find Information About a Possible Public Hearing?

    People interested in presenting oral testimony or inquiring as to 
whether a hearing is to be held should contact Ms. Chandra Kennedy, 
Integrated Implementation Group, Information Transfer and Program 
Integration Division (C339-03), U.S. Environmental Protection Agency, 
Research Triangle Park, NC 27711, telephone number (919) 541-5319, at 
least 2 days in advance of the public hearing. People interested in 
attending the public hearing should also contact Ms. Kennedy to verify 
the time, date, and location of the hearing. The public hearing will 
provide interested parties the opportunity to present data, views, or 
arguments concerning these proposed changes.

E. How Is This Preamble Organized?

    The information presented in this preamble is organized as follows:

I. General Information
    A. What Are the Regulated Entities?
    B. How Should I Submit CBI Material to the Agency?
    C. What Should I Consider as I Prepare My Comments?
    D. How Can I Find Information About a Possible Public Hearing?
    E. How Is This Preamble Organized?
II. Overview
III. Background on EGU Emissions and Requirements
    A. SO2 and NOX Requirements Before 1990
    B. SO2 and NOX Requirements After 1990
    C. Requirements for Pollutants Other Than SO2 and 
NOX
IV. Today's Proposed Rule
    A. Background on Existing Regulations
    B. What We Are Proposing
    1. Test for EGUs Based on Maximum Achievable Hourly Emissions
    2. Test for EGUs Based on Maximum Achieved Hourly Emissions
    3. Emissions Test Based on Energy Output
    C. Pollutants to Which the Revised Applicability Test Applies
    D. Significant Emissions Rates
    E. Eliminating Netting
    F. Benefits of Maximum Achievable Hourly Emissions Test
    G. Would States Be Required To Adopt the Revised Emissions Test?
V. Statutory and Regulatory History and Legal Rationale
    A. The NSPS Program
    B. The Major NSR Program
    C. Legal Rationale
    1. Maximum Achievable Hourly Emissions Test
    2. Maximum Achieved Hourly Emissions Test
VI. Statutory and Executive Order Reviews
    A. Executive Order 12866--Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132--Federalism
    F. Executive Order 13175--Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045--Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211--Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act

II. Overview

    In today's action, we are proposing to revise the emissions test 
for existing EGUs that are subject to the regulations in the major NSR 
programs mandated by parts C and D of title I of the CAA. The revised 
emissions test is the same as that in the NSPS under CAA section

[[Page 61083]]

111. For existing EGUs, we are proposing to compare the maximum hourly 
emissions achievable at that unit during the past 5 years to the 
maximum hourly emissions achievable at that unit after the change to 
determine whether an emissions increase would occur. This maximum 
achievable hourly emissions test would apply to emissions from existing 
EGUs. Today's proposal would not affect new EGUs, which would continue 
to be subject to major NSR preconstruction review. These proposed 
regulations interpret CAA section 111(a)(4), in the context of NSR, for 
physical changes and changes in the method of operation at existing 
EGUs.
    Alternatively, we are soliciting public comment on a major NSR 
emissions test for existing EGUs that would compare maximum hourly 
emissions achieved before a change to the maximum hourly emissions 
achieved after the change. The test based on maximum achievable hourly 
emissions is our preferred test, but we are also soliciting comment on 
this test based on maximum achieved hourly emissions.
    We also request comment on adopting an NSR emissions test based on 
mass of emissions per unit of energy output, such as lb/MW hour or 
nanograms per Joule. As we discuss in more detail in Section IV.B.3. of 
this preamble, an output-based emissions test encourages use of energy 
efficient EGU that displace less efficient, more polluting units.
    We also request comment on extending the proposed emission increase 
tests to the NSPS program. Specifically, we are also soliciting comment 
on whether to revise 40 CFR 60.14 to include a maximum achieved 
emissions test or an output-based emissions test, either in lieu of or 
in addition to the maximum achievable hourly emissions test in the 
current regulations.
    The proposed regulations would establish a uniform emissions test 
nationally under the NSPS and NSR programs for existing EGUs. The need 
to provide national consistency for EGUs is apparent following a recent 
Fourth Circuit Court of Appeals decision. On June 15, 2005, the Fourth 
Circuit Court of Appeals ruled that EPA must use a consistent 
definition of the term ``modification'' for the purposes of both the 
NSPS program under section 111 of the Act and NSR program under parts C 
and D of the Act. The Court further ruled that because EPA had 
promulgated NSPS regulations with a test based on increases in a 
plant's hourly rate of emissions prior to enactment of the PSD 
provision of the statute, and the PSD regulations had to be interpreted 
congruently to include the same hourly test.\2\ See United States v. 
Duke Energy Corp., No. 04-1763 (4th Cir. June 15, 2005). The Fourth 
Circuit denied the United States' petition for rehearing concerning 
this decision, although the deadline for filing a petition for 
certiorari has not yet run.\3\ The NSPS program applies a maximum 
achievable hourly emissions rate test to determine whether a physical 
change or change in the operation (physical or operational change) 
results in an emissions increase. Once the mandate is issued in the 
Duke Energy case, the NSPS test will apply in all Fourth Circuit 
States, unless the NSR test in those States' implementation plans is 
more stringent than the NSPS test. This holding creates a potential 
disparity in the way we interpret the program in States in the Fourth 
Circuit compared to States in other Circuits in the country. By 
finalizing today's proposed rule, we would provide nationwide 
consistency in how States implement the major NSR program for EGUs and 
establish a test consistent with the Fourth Circuit's holding in Duke 
Energy. We would also make a uniform emissions test under the NSPS and 
NSR programs for existing EGUs.
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    \2\ The Court allowed for the possibility that EPA may change 
the test that applies through future rulemaking. See item 0015 in E-
Docket OAR-2005-0163.
    \3\ We continue to respectfully disagree with the Fourth 
Circuit's decision in Duke Energy (item 0015 in E-Docket OAR-2005-
0163) and continue to believe that we have the authority to define 
``modification'' differently in the NSPS and NSR programs. However, 
we believe that the action that we proposed today is an appropriate 
exercise of our discretion.
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    We believe a uniform national emissions test has particular merit 
considering the substantial emissions reductions from other CAA 
requirements that are more efficient than major NSR, which we describe 
in Section III of this preamble. Furthermore, the proposed regulations 
allow owner/operators to make changes that, without increasing existing 
capacity, promote the safety, reliability, and efficiency of EGUs. The 
current major NSR approach discourages sources from replacing 
components, and encourages them to replace components with inferior 
components or to artificially constrain production in other ways. This 
behavior does not advance the central policy goals of the major NSR 
program as applied to existing sources. The central policy goal is not 
to limit productive capacity of major stationary sources, but rather to 
ensure that they will install state-of-the-art pollution controls at a 
juncture where it otherwise makes sense to do so. We also do not 
believe the outcomes produced by the approach we have been taking have 
significant environmental benefits compared with the approach we are 
proposing today.
    In the following sections of this preamble, we provide details on 
the EGU requirements and emissions, today's proposed rule, and the 
legal basis for our proposal. We request public comment on all aspects 
of today's proposed action. We intend to publish a supplemental 
proposal in the near future that will include proposed regulatory 
language, as well as additional data and information.

III. Background on EGU Requirements and Emissions

    In this section we describe the regulatory history and programs 
applying to EGUs. These include the command-and-control strategies such 
as NSPS and major NSR that went into effect before 1990, as well as the 
more efficient programs since 1990 that have achieved substantial 
reductions in EGU emissions.

A. SO2 and NOX Requirements Before 1990

    Beginning in 1970, the CAA and our implementing regulations have 
imposed numerous requirements on sulfur dioxide (SO2) and 
nitrous oxide (NOX) emissions from utilities. In the early 
regulatory history under the CAA, these requirements were limited to 
the NSPS and major NSR programs. The NSPS program applies to EGUs and 
other stationary sources of pollutants, including SO2, 
NOX, particulate matter (PM), carbon monoxide (CO), ozone, 
and lead, among others. The Act required us to develop NSPS for a 
number of source categories, including coal-fired power plants. The 
first NSPS for EGUs (40 CFR part 60, subpart D) required new units to 
limit SO2 emissions either by using scrubbers or by using 
low sulfur coal. It required limits on NOX emissions through 
the use of low NOX burners. A new NSPS (40 CFR part 60, 
subpart Da), promulgated in 1978, tightened the standards for 
SO2, requiring scrubbers on all new units.
    Federal preconstruction permitting for EGUs and other new 
stationary sources was considered in 1970, but not added to the CAA 
until it was amended again in 1977. The Federal preconstruction program 
for major stationary sources is commonly called the major NSR program. 
As we discuss in further detail in Section V.B. of this preamble, the 
major NSR program required emission limitations based on Best Available 
Control Technology (BACT) and Lowest

[[Page 61084]]

Achievable Emission Rate (LAER) controls.
    The NSPS and major NSR programs imposed limitations on EGU 
SO2 and NOX emissions at individual sources based 
on control technology performance. They did not set specific limits on 
the total regional or national emissions from EGUs. Neither of these 
programs apply to EGUs that were already in existence before the 
regulations were effective, unless these EGUs choose to modify. Thus, 
neither program applies to all EGUs. Before 1990, however, the major 
NSR program did provide States one of the few opportunities to mitigate 
rising levels of air pollution through regulation of possible emissions 
increases from existing sources. Therefore, the program was consistent 
with Congress' directive that the major NSR program be tailored to 
balance the ``need for environmental protection against the desires to 
encourage economic growth.''

B. SO2 and NOX Requirements After 1990

    The 1990 Amendments to the CAA imposed a number of new requirements 
on EGUs. The Acid Rain program, established under title IV of the 1990 
CAA Amendments, requires major reductions of SO2 and 
NOX emissions. The SO2 program, which covers most 
EGU in the contiguous United States,\4\ sets a permanent cap on the 
total amount of SO2 that can be emitted by EGUs at about 
one-half of the amount of SO2 these sources emitted in 1980. 
Using a market-based cap-and-trade mechanism such as the Acid Rain 
SO2 program allows flexibility for individual combustion 
units to select their own methods of compliance. The program requires 
NOX emission limitations for certain coal-fired EGUs, with 
the objective of achieving a 2 million ton reduction from projected 
NOX emission levels that would have been emitted in the year 
2000 without implementation of title IV.
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    \4\ The Acid Rain program generally applies to all fossil-fuel 
fired combustion devices that, if commencing commercial operation 
before November 15, 1990, serve on or after November 15, 1990 a 
generator greater than 25 MW producing electricity for sale and 
that, if commencing commercial operation on or after November 15, 
1990, serve on or after November 15, 1990 any generator producing 
electricity for sale. The Acid Rain program does not apply to a 
small portion of the national EGU inventory, including some 
cogeneration units (many of which are natural-gas fired), certain 
independent power producers, and solid waste incineration units.
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    The Acid Rain program at 40 CFR parts 72 through 78 comprises two 
phases for SO2 and NOX. Phase I applied primarily 
to the largest coal-fired electric generation sources from 1995 through 
1999 for SO2 and from 1996 through 1999 for NOX. 
Phase II for both pollutants began in 2000. For SO2, it 
applies to thousands of combustion units generating electricity 
nationwide; for NOX it generally applies to affected units 
nationwide that burned coal during the period between 1990 and 1995. 
The Acid Rain program has led to the installation of scrubbers on a 
number of existing coal-fired units, as well as significant fuel 
switching to lower sulfur coals. Under the NOX provisions of 
title IV, most existing coal-fired units were required to install low 
NOX burners.
    The 1990 CAA also placed much greater emphasis on interstate 
transport of ozone and its precursors, and on control of NOX 
to reduce ozone nonattainment. This led to the formation of several 
regional NOX trading programs. In 1998, EPA promulgated 
regulations, known as the NOX SIP Call,\5\ that required 21 
states in the eastern United States and the District of Columbia to 
reduce NOX emissions that contributed to nonattainment in 
downwind States. EPA based the reduction requirements on, and States 
implemented those requirements through a cap-and-trade approach 
targeted to EGUs. This program has resulted in the installation of 
significant amounts of selective catalytic reduction (SCR). The first 
SCR application in the U.S. on a coal-fired boiler started operating in 
1993. At the end of 2002, 56 U.S. boilers were operating with SCR.
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    \5\ See 63 FR 57356, October 27, 1998 (Item 002 in E-Docket OAR-
2005-0163).
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    By notice dated May 12, 2005 [70 FR 25162], we promulgated the 
Clean Air Interstate Rule (CAIR) to reduce interstate transport of 
SO2 and NOX emissions. This rule established 
statewide emission reduction requirements for SO2 and 
NOX for States in the CAIR region. The emission reduction 
requirements are based on controls that are known to be highly cost 
effective for EGUs. This program was based on extensive experience in 
the Acid Rain and NOX SIP Call cap-and-trade programs for 
major sources of SO2 and NOX.
    In the CAIR, we took final action requiring 28 States and the 
District of Columbia to adopt and submit revisions to their State 
Implementation Plans (SIPs), under the requirements of CAA section 
110(a)(2)(D), that would eliminate specified amounts of SO2 
and/or NOX emissions. In developing the CAIR, we limited the 
requirements to those 28 States because we did not find that emissions 
from other States contribute significantly to downwind PM2.5 
or 8-hour ozone nonattainment.
    Each State covered by CAIR may independently determine which 
emission sources to control, and which control measures to adopt. Our 
analysis indicates that emissions reductions from EGUs are highly cost 
effective, and we encourage States to base their CAIR SIP programs on 
emissions reductions from EGUs. States that do so may allow their EGUs 
to participate in an EPA-administered cap-and-trade program as a way to 
reduce the cost of compliance, and to provide compliance flexibility. 
The EPA-administered cap-and-trade program includes fossil-fuel fired 
boilers, combustion turbines, and certain cogeneration units with 
nameplate capacity of more than 25 MWe producing or supplying 
electricity for sale as defined in 40 CFR 96.104 and 96.204.\6\ Some of 
these units have never been subject to major NSR because they commenced 
construction before the effective date of the major NSR regulations, 
and they have never undertaken modifications. CAIR Units must hold 
annual allowances. Each allowance authorizes the emission of one ton of 
NOX for a specified calendar year. For SO2 
allowances with vintage in the years before 2010, each allowance 
authorizes the emission of one ton of SO2 for a calendar 
year. For 2010 and beyond, each allowance authorizes the emission of 
less than one ton of SO2 per year.\7\ The CAIR emissions 
reductions will be implemented in two phases, one beginning in 2009 
(2010 for SO2) and a second beginning in 2015. CAIR Units 
are subject to stringent monitoring, recordkeeping, and reporting 
requirements. Owner/operators must monitor and report CAIR Unit 
emissions using CEMS or other monitoring methodologies that are as 
precise, reliable, accurate, and timely according to the requirements 
in 40 CFR part 75. Source information management, emissions data 
reporting, and allowance trading occur through EPA-administered

[[Page 61085]]

online systems. Any source found to have excess emissions must 
surrender allowances sufficient to offset excess emissions and 
surrender future allowances equal to three times the excess 
emissions.\8\
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    \6\ The proposed test would not apply to all cogeneration units. 
It would apply only to those EGU that Sec. Sec.  96.104, 96.204, and 
96.304 identify. On August 24, 2005 [70 FR 49708; see item 0029 in 
E-Docket OAR-2005-0163], we proposed changes to Sec. Sec.  96.104 
and 96.204 to exclude units (serving a greater-than-25 MW generator) 
that stopped operating before November 15, 1990 and do not resume. 
In this notice, we also proposed changes to the definition of 
``EGU'' to exclude certain solid waste incineration units.
    \7\ For allowances of vintage years 2010-2014, each allowance 
authorized the emission of half a ton of SO2 for a 
calendar year. For allowances of vintage years 2015 and beyond, each 
allowance authorizes the emission of 0.35 tons of SO2 for 
a calendar year. See item 0019 in E-Docket OAR-2005-0163-70 FR 
25258, May 12, 2005. See also 40 CFR 96.202.
    \8\ For a complete description of requirements for CAIR Units 
under the EPA-administered trading program, see item 0019 in E-
Docket OAR-2005-0163-70 FR 25162.
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    The CAIR will result in significant reductions in SO2 
and NOX emissions across the region that it covers. CAIR, if 
implemented through controls on EGUs, would result in EGU emissions 
reductions in the CAIR States of roughly 73 percent for SO2 
and 61 percent for NOX from 2003 levels. The rule would 
affect roughly 3,000 fossil-fuel-fired units. As Table 1 shows, these 
sources accounted for roughly 89 percent of nationwide SO2 
emissions and 79 percent of nationwide NOX emissions from 
EGUs in 2003.\9\
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    \9\ See our Regulatory Impact Analysis for the CAIR at 6-9. The 
RIA is available at http://www.epa.gov/air/interstateairquality/pdfs/finaltech08.pdf. See item 0022 in E-Docket OAR-2005-0163.

 Table 1.--EGU SO2 and NOX Emissions in 2003 and Percentage of Emissions
                   in the CAIR Affected Region (Tons)
------------------------------------------------------------------------
                                                SO2             NOX
------------------------------------------------------------------------
CAIR region.............................       9,407,406       3,222,636
Nationwide..............................      10,595,069       4,165,026
CAIR emissions as % nationwide..........             89%            79%
------------------------------------------------------------------------
Note: Region includes States covered for the annual SO2 and NOX trading
  programs (Alabama, District of Columbia, Florida, Georgia, Illinois,
  Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota,
  Mississippi, Missouri, New York, North Carolina, Ohio, Pennsylvania,
  South Carolina, Tennessee, Texas, Virginia, West Virginia, and
  Wisconsin).

    We estimate that the CAIR will reduce SO2 emissions by 
3.5 million tons \10\ in 2010 and by 3.8 million tons in 2015. We also 
estimate that it will reduce annual NOX emissions by 1.2 
million tons in 2009 and by 1.5 million tons in 2015. (These numbers 
are for the 23 States and the District of Columbia that are affected by 
the annual SO2 and NOX requirements of CAIR. 
There are 28 States affected by CAIR, but only 23 States affected by 
the CAIR annual SO2 and NOX requirements. That 
is, five States are only affected by the CAIR seasonal NOX 
trading program requirements.) If all the affected States choose to 
achieve these reductions through EGU controls, then EGU SO2 
emissions in the affected States would be capped at 3.6 million tons in 
2010 and 2.5 million tons in 2015,\11\ and EGU annual NOX 
emissions would be capped at 1.5 million tons in 2009 and 1.3 million 
tons in 2015.
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    \10\ These data are from EPA's most recent Integrated Planning 
Model (IPM) modeling reflecting the final CAIR as promulgated at 70 
FR 25162. Please see the final CAIR rule at 70 FR 25162. (See item 
0019 in E-Docket OAR-2005-0163) for a complete description of the 
assumptions related to these data.
    \11\ The banking provisions of the cap-and-trade program 
encourage sources to make significant reductions before 2010. Such 
early reductions are beneficial because they encourage greater 
health benefit sooner. However, due to the use of banked allowances, 
EPA does not project that these caps will be met in 2010 and 2015.
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    The CAIR will also improve air quality in all areas of the eastern 
U.S. We estimate that the required SO2 and NOX 
emissions reductions will, by themselves, bring into attainment 52 of 
the 79 counties that are otherwise projected to be in nonattainment for 
PM2.5 in 2010, and 57 of the 74 counties that are otherwise 
projected to be in nonattainment for PM2.5 in 2015. We 
further estimate that the required NOX emissions reductions 
will, by themselves, bring into attainment three of the 40 counties 
that are otherwise projected to be in nonattainment for 8-hour ozone in 
2010, and six of the 22 counties that are otherwise projected to be in 
nonattainment for 8-hour ozone in 2015.\12\ In addition, the CAIR will 
improve PM2.5 and 8-hour ozone air quality in the areas that 
would remain nonattainment for those two NAAQS after implementation of 
the rule. The CAIR will also reduce PM2.5 and 8-hour ozone 
levels in attainment areas.
---------------------------------------------------------------------------

    \12\ See item 0019 in E-Docket OAR-2005-0163--70 FR 25162.
---------------------------------------------------------------------------

    To determine the statewide emission caps under the CAIR, we assumed 
the application of highly cost-effective control measures to EGUs and 
determined the emissions reductions that would result. Specifically, we 
modeled emissions reductions using the Integrated Planning Model (IPM) 
with wet and dry desulfurization (FGD, commonly known as scrubbers) 
technologies for SO2 control and SCR technology for 
NOX control on coal-fired boilers.\13\ These are fully 
demonstrated and available pollution control technologies. The design 
and performance levels for these technologies were based on proven 
industry experience.
---------------------------------------------------------------------------

    \13\ U.S. EPA, Regulatory Impact Analysis for the CAIR at p. 7-
5. See item 0022 in E-Docket OAR-2005-0163. Available at http://www.epa.gov/air/interstateairquality/pdfs/finaltech08.pdf. For more 
information about the highly cost effective controls for EGUs that 
were used to establish the emissions reductions under the CAIR, see 
also 69 FR 4612 (item 0003 in E-Docket OAR-2005-0163).
---------------------------------------------------------------------------

    We expect many EGUs to install scrubbers and SCR to meet the 
emissions reductions required under the CAIR. As a result of the CAIR, 
we project installation of scrubbers on an additional 64 GW of existing 
coal-fired generation capacity for SO2 control and SCR on an 
additional 34 GW of existing coal-fired generation capacity for 
NOX control by 2015. By 2020, we expect installation of 
scrubbers on an additional 82 GW of existing coal-fired generation 
capacity for SO2 control and SCR on an additional 33 GW of 
existing coal-fired generation capacity for NOX control.\14\
---------------------------------------------------------------------------

    \14\ See CAIR RIA at 7-8 and 7-9 (item 0022 in E-Docket OAR-
2005-0163). The CAIR RIA is also available at http://www.epa.gov/air/interstateairquality/technical.html. In 1999, total electric 
generating capacity was 781 GW, of which utilities accounted for 
approximately 85 percent. U.S. EPA NSR 90-Day Review Background 
Paper, p. 12. See item 0039 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    In the western half of the U.S. and other States where CAIR will 
not apply, the Best Available Retrofit Technology (BART) requirements 
of the regional haze rule will also apply to EGUs that may not be 
subject to major NSR. The regional haze rule requires all States to 
take steps in their implementation plans to improve visibility in Class 
I areas. [64 FR 35714 (July 1, 1999); 70 FR 39104 (July 6, 2005)] Under 
the Regional Haze program, States are to address all types of manmade 
emissions contributing to visibility impairment in Class I areas, 
including those from mobile sources, stationary sources (such as EGUs), 
area sources such as residential wood combustion and gas stations, and 
prescribed fires. CAA sections 169(b)(2)(A) and (g)(7) specifically 
require installation of BART for emissions of visibility-impairing 
pollutants (for example, SO2 and NOX) from 
certain existing stationary sources, including large EGUs. The CAA 
defines

[[Page 61086]]

a BART-eligible source as a stationary source of air pollutants that 
falls within one of 26 listed categories and that was put into 
operation between August 7, 1962 and August 7, 1977, with the potential 
to emit 250 tons per year of any visibility-impairing pollutant. [CAA 
section 169(b)(2)(A) and (g)(7); 40 CFR 51.301.]
    We issued guidelines for implementing BART requirements,\15\ 
including presumptive BART control levels for emissions of 
SO2 and NOX from utility boilers located at power 
plants over 750 MW. Those presumptive BART control levels are based on 
cost effective controls. As explained in the guidelines, as a general 
matter States must require owners and operators of greater than 750 MW 
power plants to meet these BART emission limits. In addition, while 
States are not required to follow these guidelines for EGUs located at 
power plants with a generating capacity of less than 750 MW, based on 
our analysis, we believe that States will find these same presumptive 
controls to be highly cost effective, and to result in a significant 
degree of visibility improvement, for most EGUs greater than 200 MW, 
regardless of the size of the plant at which they are located.
---------------------------------------------------------------------------

    \15\ See Federal Register 70 FR 39104 (July 6, 2005) at item 
0017 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    Regional haze is the result of air pollutants emitted by numerous 
sources over a wide geographic region. As a result, EPA has encouraged 
States to work together in developing and implementing their air 
quality plans addressing regional haze. In fact, the States have been 
working together in regional planning organizations to develop regional 
plans. Moreover, we have proposed a process by which States may use an 
emissions trading program in place of facility-by-facility BART 
requirements. In these aspects, the requirements for BART are similar 
to those under the CAIR. We expect that both the CAIR and the BART 
requirements will reduce regional SO2 and NOX 
emissions from EGUs in a cost-effective manner.
    We developed three scenarios to project the nationwide EGU 
SO2 and NOX emissions reductions under BART. 
Under the medium stringency scenario (Scenario 2), we estimate that 
BART controls will result in annual NOX reductions of 
585,459 tons, about a 9.6 percent reduction; and in annual 
SO2 reductions of 390,224 tons, about a 2.3 percent 
reduction, over the 2015 base case.\16\ Under Scenario 2, BART is 
projected to result in the installation of scrubbers on an additional 
6.2 GW of existing coal-fired generation capacity for SO2 
control in 2015 (relative to expected reductions from CAIR alone). For 
NOX control, this BART scenario is also projected to result 
in installation of combustion control equipment on an additional 24 GW 
of coal-fired generation capacity by 2015, as well as installation of 
SCR on an additional 2.4 GW on coal-fired generation capacity by 2015.
---------------------------------------------------------------------------

    \16\ That is, these are the reductions that are estimated to 
occur under Scenario 2 in addition to the reductions that are 
estimated to occur under CAIR. See BART RIA at 3-6--item 0004 in E-
Docket OAR-2005-0163. Regulatory Impact Analysis for the Final Clean 
Air Visibility Rule or the Guidelines for Best Available Retrofit 
Technology (BART) Determinations Under the Regional Haze 
Regulations. EPA-452/R-05-004. U.S. Environmental Protection Agency, 
June 2005. Also, available at: http://www.epa.gov/oar/visibility/actions.html.
---------------------------------------------------------------------------

    We have conducted analyses based on emission projections and air 
quality modeling showing that CAIR (as we expect States to implement 
it) will achieve greater reasonable progress towards the national 
visibility goal than would BART for affected EGUs. In our final BART 
rule (70 FR 39104), we thus promulgated regional haze rule revisions 
allowing States to treat CAIR as an in-lieu-of BART program for 
SO2 and NOX emissions from EGUs in CAIR-affected 
States, where those States participate in the EPA-administered cap and 
trade program. The criteria for making ``better than BART'' 
determinations have now been codified in the regional haze rule at 40 
CFR 51.308(e)(3). We thus expect EGUs in CAIR-affected States to be 
subject to SIPs implementing CAIR SO2 and NOX 
requirements rather than to BART.
    We are aware that there are some EGUs that would not be subject to 
the Acid Rain program or BART, would not be included in the CAIR 
program due to their geographic location, and that also would not be 
subject to major NSR unless they choose to modify.\17\ First, there is 
a set of EGUs that are not in CAIR affected States, and that are BART-
eligible but may not be subject to BART. Assuming Scenario 2, there 
would be approximately 28 coal-fired EGUs that are BART-eligible, not 
in the CAIR region, and have a capacity less than 200 MW. Smaller units 
such as these generally are not base load units. The total capacity for 
these 28 units is approximately 4 GW, less than one half of a percent 
of current national capacity. Of these 28 units, approximately 3 GW 
have NOX controls and approximately 2 GW have SO2 
controls. There are approximately 47 oil or gas-fired EGUs that are 
BART-eligible, not in the CAIR region, and have a capacity less than 
200 MW. The total capacity for these 47 units is approximately 5 GW, 
also less than one half of a percent of national capacity. Of these 47 
units, approximately 1 GW have NOX controls. Of these 47 
units, 41 are gas-fired. Gas-fired EGU are clean burning and generally 
emit very small amounts of SO2. The main control strategy 
for SO2 emissions from oil-fired units is using lower-sulfur 
fuel.
---------------------------------------------------------------------------

    \17\ Major stationary sources of regulated NSR pollutants that 
commenced construction on or after August 7, 1977 are subject to 
requirements under major NSR, including meeting emissions 
limitations based on BACT or LAER. To be BART-eligible, an EGU must 
have commenced operation between August 7, 1962 and August 7, 1977. 
Thus, due to their construction date, BART-eligible EGUs are not 
subject to major NSR unless they modify.
---------------------------------------------------------------------------

    The second set of EGUs that may not be subject to any control 
requirements are those in the non-CAIR States that are not subject to 
major NSR and are not BART-eligible. Some EGUs that are located in non-
CAIR States and that began operation on or before August 7, 1962 would 
not be BART-eligible. These units would neither be subject to BART nor 
included in regulations implementing the CAIR program. They would also 
not be subject to major NSR unless they choose to modify. Some may be 
subject to the Acid Rain program. Our database \18\ shows that there is 
a total of about 2 GW of coal capacity (less than one half of a percent 
of national capacity) outside the CAIR region that was constructed or 
began operations before 1962. This capacity represents about 25 units 
at about 13 plants, ranging in capacity from 38-135 MW. Smaller, older 
units such as these generally are not base load units. We estimate that 
these units have a potential to emit SO2 and NOX 
that is high enough that they would have been subject to major NSR if 
they had been constructed later. Of these 25 units, four have 
NOX controls and six have SO2 controls. The 13 
plants are geographically dispersed.
---------------------------------------------------------------------------

    \18\ Information received from Mikhail Adamantiades, U.S. EPA, 
Clear Air Markets Division on October 4, 2005--item 0051 in E-Docket 
OAR-2005-0163.
---------------------------------------------------------------------------

    Thus, as we explain above, there are a small number of EGUs that 
may not be required to control emissions under any program, but they 
comprise a very small portion of the national capacity and will have a 
minimal impact on emissions.\19\ As we note in Table 1,

[[Page 61087]]

approximately 90 percent of nationwide EGU SO2 emissions and 
approximately 80 percent of nationwide EGU NOX emissions are 
from EGU in the CAIR affected region. Furthermore, we note that EGUs, 
including EGUs outside the CAIR region, are subject to national caps on 
SO2 emissions through the Acid Rain program requirements. We 
therefore believe that any EGUs that might remain uncontrolled would 
have a negligible impact on national emissions of regulated NSR 
pollutants.
---------------------------------------------------------------------------

    \19\ We expect all State agencies to include EGUs in their 
regulations implementing the CAIR rule. We therefore believe that in 
CAIR-affected States, regulations implementing the CAIR will apply 
to all EGU. However, there is a possibility that a State agency 
would decide not to include EGU in their SIP regulations 
implementing the CAIR. We believe this possibility to be remote.
---------------------------------------------------------------------------

    Finally, as Table 2 below shows, substantial reductions in 
SO2 and NOX emissions are projected to occur 
following the imposition of these market-based strategies after 1990.

                            Table 2.--Reduction in EGU National Annual Emissions \20\
                                         [In thousands of tons per year]
----------------------------------------------------------------------------------------------------------------
                                                                                          Emission     Percent
                                                                  1990         2015      reduction    reduction
----------------------------------------------------------------------------------------------------------------
SO2 (Annual)................................................       15,700        4,770       10,930           70
NOX (Annual)................................................        6,700        1,916        4,784           71
----------------------------------------------------------------------------------------------------------------

    The figure below shows the national reductions in EGU 
SO2 and NOX emissions that have occurred to date, 
and that we expect to occur, due to these programs.
---------------------------------------------------------------------------

    \20\ Modeled 1990 baseline emissions from John Robbins. 
Reductions based on 2015 projected emissions for EGUs greater than 
25 MW, assuming BART Scenario 2 (medium stringency scenario). These 
projected reductions assume control requirements implemented under 
CAIR, the Acid Rain program, BART (Scenario 2), and State rules. 
Under BART Scenario, our IPM modeling assumes control of all EGU at 
least 200 MW, regardless of the size of the plant at which the EGU 
is located. See BART RIA at 7-7--item 0004 in E-Docket OAR-2005-
0163.
[GRAPHIC] [TIFF OMITTED] TP20OC05.008

    These reductions in national emissions for the utility sector are 
especially significant considering that national capacity continues to 
increase. In 1990, national nameplate capacity for EGUs was 692,935 MW, 
in 2002 it was 758,756 MW, and in 2015 we anticipate it to be 776,377 
MW.\21\
---------------------------------------------------------------------------

    \21\ Data from EPA Office of Air and Radiation, Clean Air 
Markets Division. See item 0012 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    In summary, since the 1990 CAA Amendments, additional requirements 
for EGUs have applied under the Acid Rain program and the 
NOX SIP Call, and we expect significant additional 
reductions as States implement the CAIR. These regional and national 
programs apply or will apply to EGUs, regardless of when the EGUs were 
constructed or began operating. More importantly, these national or 
regional trading programs set permanent caps on SO2 and 
NOX emissions. Notably, the CAIR will permanently cap 
SO2 and NOX emissions in the CAIR region, which 
covers approximately 80 percent of national electric generating 
capacity. We expect all of the SO2 and NOX 
reductions under CAIR to come from EGUs. Despite growth in the utility 
and other sectors, these programs have substantially reduced 
SO2 and NOX emissions and even more substantial 
reductions will occur as a result of the CAIR. The BART program will 
further reduce national EGU SO2 and NOX 
emissions.

[[Page 61088]]

    The Acid Rain, NOX SIP Call and CAIR programs will 
require substantial reductions in SO2 and NOX 
emissions over the next decade. At the same time, they provide 
substantial flexibility to EGUs in responding to these regulatory 
requirements, allowing EGUs to make cost effective control decisions. 
As a result, they serve a function similar to that under major NSR of 
balancing environmental goals and encouraging economic growth.
    As we discuss in more detail in Section V.B. of this preamble, the 
primary purpose of the major NSR program is not to reduce emissions, 
but to balance the need for environmental protection and economic 
growth. That is, the goal of major NSR is to minimize emissions 
increases from new source growth. The major NSR approach we have been 
taking leads to outcomes that have not advanced the central policy of 
the major NSR program as applied to existing sources. This is because 
the program is not designed to cut back on emissions from existing 
major stationary sources through limitations on their productive 
capacity, but rather to ensure that they will install state-of-the-art 
pollution controls at a juncture where it otherwise makes sense to do 
so. We also do not believe the outcomes produced by the approach we 
have been taking have significant environmental benefits compared with 
the approach we are proposing today. We do not believe that today's 
revised emissions test is substantially different from the actual-to-
projected-actual test. This is particularly true in light of the 
substantial EGU emissions reductions that other programs have achieved 
or are expected to achieve. We therefore believe that, to any extent 
today's revised emissions test would lead to more growth in emissions 
than the actual-to-projected-actual test would, the emissions increases 
from that growth would be substantially less than the emissions 
reductions we expect from the Acid Rain, NOX SIP Call, CAIR, 
and BART programs.\22\
---------------------------------------------------------------------------

    \22\ In our projections of emissions changes under the Acid Rain 
program, the NOX SIP Call, the CAIR, and BART, increases 
in future electric generating capacity are accounted for.
---------------------------------------------------------------------------

C. Requirements for Pollutants Other Than SO2 and NOX

    Concerning PM and lead, the application of the major NSR program to 
EGU emissions increases would be unlikely to result in the 
implementation of any additional controls. Current BACT and LAER limits 
to control PM (both PM10 and PM2.5) for EGUs are 
achieved through the application of baghouses or electrostatic 
precipitators (ESPs) to individual boilers. Of the 450 coal-fired 
plants, the following controls are in place to reduce PM emissions from 
EGU: 79 plants have bag houses (fabric filters), 354 plants have ESPs, 
and 21 plants have both ESPs and baghouses.\23\ Therefore, virtually 
all coal-fired EGUs are already well-controlled for PM. The minimal 
lead emissions from EGUs are in particulate form, and are captured by 
PM controls.
---------------------------------------------------------------------------

    \23\ See information received from Kevin Culligan, U.S. EPA 
Clean Air Markets Division, item 0044 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    For CO and VOC, the only BACT/LAER requirements that exist for 
boilers are ``good combustion'' practices. EGUs operate under enormous 
economic incentives not to waste fuel, and good combustion practices 
conserve fuel. Thus, EGUs have strong incentives to use good combustion 
practices, regardless of the major NSR regulations. We believe that 
virtually all EGUs are already implementing such practices to control 
CO and VOC. Accordingly, we do not believe that VOC or CO emissions 
increases at EGU are likely or that the application of the major NSR 
program to changes made at the EGUs would be likely to result in the 
implementation of additional controls for CO and VOC. Furthermore, even 
if EGU did not have built-in incentives to control VOC and CO 
emissions, we do not believe that today's revised emissions test would 
result in emissions increases compared to the actual-to-projected-
actual test. Therefore, we expect no air quality impacts due to CO or 
VOC emissions as a result of this proposed rule.

IV. Today's Proposed Rule

    Today, we are proposing to allow existing EGUs to use the same 
maximum achievable hourly emissions test we apply under NSPS to 
determine whether a physical change in or change in the method of 
operation (physical or operation change) results in an emissions 
increase under the major NSR program. We request public comments on all 
aspects of the proposed changes.
    This section also provides a brief background on the emissions 
increase test used in the NSPS and major NSR programs, and summarizes 
our proposed changes to the NSR program, which is necessary to 
understand the proposed regulations. For a fuller discussion on the 
statutory and legislative background of the major NSR program, please 
see Section V.B. of today's preamble.

A. Background on Existing Regulations

    Both the NSPS and major NSR programs impose requirements on 
modifications of stationary sources. Our NSPS regulations contain a 
two-part definition of modification. The first part substantially 
mirrors the statutory text found in section 111(a)(4) of the Act, while 
the second elaborates upon the first. In simplistic terms, the Act 
establishes a two-step test for determining whether an activity is a 
modification. First you must determine whether the activity qualifies 
as a physical change or operational change of a stationary source, then 
you must determine whether that activity also increases the amount of 
pollution emitted by the stationary source.
    You can find the regulatory text defining ``modification'' within 
the NSPS general provision regulations at 40 CFR sections 60.2 and 
60.14. Substantially mirroring CAA 111(a)(4), Sec.  60.2 contains a 
general description of the two components an activity must satisfy to 
qualify as a modification. Section 60.14 elaborates on the general 
description contained in Sec.  60.2 by more precisely defining how you 
measure the amount of pollution that results from an activity, and 
listing activities that do not qualify as physical or operational 
changes.\24\
---------------------------------------------------------------------------

    \24\ We described the relationship between the provisions 
contained in sections 60.2 and 60.14 in a 1974 Federal Register 
notice in which we stated that the regulations concerning 
modifications in Sec.  60.14 clarify the phrase ``increases the 
amount of any air pollutant'' that appears in the definition of 
modification in Sec.  60.2. 39 FR 36946, October 15, 1974--see item 
0014 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    Unlike our NSPS regulations, our major NSR regulations do not 
contain a specific definition of the term ``modification.'' Instead, 
our regulations define ``major modification,'' which adds provisions 
for determining whether an activity satisfies the second component 
(whether there is an increase in the amount of an air pollutant). 
Specifically, the major modification definition provides a two-step 
procedure for measuring emissions increases. Under this process, a 
source looks at whether a project will result in a significant 
emissions increase on an annual basis and then whether contemporaneous 
increases and decreases will result in a significant net emissions 
increase (netting) on an annual basis.
    The differences between the definition of ``modification'' as 
applied in the NSPS program and ``major modification'' as applied in 
the major NSR program illustrate some fundamental differences in the 
way we have implemented the programs to date.

[[Page 61089]]

First, the NSPS program regulates all emissions increases (that is, it 
regulates any increase in the hourly emissions), while the major NSR 
program exempts emissions increases that are less than significant 
(that is, it exempts emissions increases that are less than 40 tpy). 
Second, the NSPS program regulates modifications of ``affected 
facilities,'' which are typically small collections of equipment within 
a larger manufacturing plant. The major NSR program regulates 
modifications of major stationary sources. Accordingly, all the 
equipment within a larger manufacturing plant is looked at 
collectively. Finally, because the NSPS regulates small collections of 
equipment rather than the entire plant, increases in one part of the 
plant cannot be ``offset'' with decreases at other parts of the plant. 
[See Asarco, Inc. v. EPA, 578 F.2d 319 (D.C. Cir. 1978).] Conversely, 
major NSR regulates changes in emissions at the major stationary source 
as a whole and allows decreases in emissions from one part of the plant 
to ``offset'' increases in emissions that occur in another part of the 
plant. [See Alabama Power v. Costle, 636 F.2d 323 (D.C. Cir. 1979).] 
This process is known as ``netting.''
    The NSPS modification provisions apply an hourly emission rate test 
to measure emissions increases resulting from a physical or operational 
change. Specifically, under the regulations, whether there is an 
emissions increase is determined by comparing the pre-change baseline 
hourly emission rate to the post-change hourly emission rate. For 
electric utility steam generating units (EUSGUs), the baseline hourly 
rate is ``the maximum hourly emissions achievable at that unit during 
the 5 years prior to the change.'' [See 40 CFR 60.14(h).] EPA has 
described this rate as the rate, in the past 5 years, that the source 
could achieve at its physical and operational capacity (57 FR 32330). 
Thus, this hourly rate represents the highest rate at which the source 
could actually emit during the relevant period.
    The baseline hourly emissions rate for non-EGUs is likewise based 
on current maximum capacity, which is defined as the production rate at 
which the source could operate without making a capital expenditure. 
[See Sec.  60.14(e)(2).] As provided in Sec.  60.14 (b)(1), we measure 
the emissions rate in kg/hr or lbs/hr. Therefore, the baseline hourly 
emissions for non-utilities is also based on the highest rate at which 
the source could actually emit. As we stated at 57 FR 32316 referring 
to the rules for non-utilities, ``under current NSPS regulations, 
emissions increases, for applicability purposes, are calculated by 
comparing the hourly emission rate, at maximum physical capacity, 
before and after the physical or operational change. That is, to 
determine whether a change to an existing facility will increase the 
emissions rate, the existing NSPS regulations authorize the use of an 
``emissions factor analysis'', or materials balance, continuous 
monitoring, or manual emissions test to evaluate emissions before and 
after the change.''
    This characterization of the emissions rate as based on the highest 
rate at which the source could actually emit is consistent with our 
previous statements and regulations. In the preamble to the December 
23, 1971 NSPS rules, we stated that ``procedures have been modified so 
that the equipment will have to be operated at maximum expected 
production rate, rather than rated capacity, during compliance tests.'' 
(See 36 FR 24876.) The December 1971 rules specified that a change in 
the method of operation did not include ``an increase in the production 
rate, if such increase does not exceed the operating design capacity of 
the affected facility.'' (See 36 FR 24877.) On October 15, 1974, we 
proposed to change this provision to ``an increase in the production 
rate of an existing facility, if that increase can be accomplished 
without a major capital expenditure'' and to move it to Sec.  
60.14(e)(2).\25\ [See 39 FR 36946.] In describing the reason for this 
change, we specifically stated that hourly emissions must be determined 
considering what the source could actually emit, rather than ``design'' 
(nameplate) capacity.
---------------------------------------------------------------------------

    \25\ These changes were adopted on December 16, 1975 (see 40 FR 
58416) and the provisions have remained unchanged, except to clarify 
that they apply to the facility rather than to the stationary source 
containing that facility.

    The exemption of increases in production rate is no longer 
dependent upon the ``operating design capacity.'' This term is not 
easily defined and for certain industries the ``design capacity'' 
bears little relationship to the actual operating capacity of the 
---------------------------------------------------------------------------
facility.

Id. at 39 FR 36948.

    As Congress indicated in the legislative history for the 1977 
CAA,\26\ design capacity is equivalent to potential to emit. In the 
NSPS regulations, neither the EGU nor the non-EGU hourly emissions are 
based on design capacity. Thus, to describe the NSPS test as a 
potential-to-potential test is inaccurate, and EPA has not asserted 
that the NSPS test is a potential-to-potential test. Instead, the 
Agency has at times referred to ``hourly potential emissions.'' Where 
we have referred to hourly potential emissions, we have also been clear 
that we are referring to what the source is actually able to emit at 
current maximum capacity. For example, in the 1988 WEPCO memorandum, we 
stated:
---------------------------------------------------------------------------

    \26\ The legislative history is clear that Congress considered 
``potential to emit'' and ``design capacity'' to be equivalent 
terms. The House bill defined a major stationary source as any 
stationary source of air pollutant which directly emits or has the 
design capacity to emit 100 tons annually of any pollutant for which 
an ambient air quality standard is promulgated. [H.R. Report 95-564, 
p. 172 (1977), U.S. Code Cong. & Admin.News 1977, p. 1552.] The 
House bill also stated that ``major emitting facilities proposing to 
construct facilities must receive State permits. All sources with 
the design capacity to emit 100 tons per year or more of any 
pollutant must receive a permit.'' [H.R. Report 95-564, p. 149 
(1977), U.S. Code Cong. & Admin.News 1977, p. 1529.] The Senate 
amendment defined major emitting facility as any stationary source 
with an annual potential to emit 100 tons or more of any pollutant. 
The Senate bill also required permits for major stationary sources 
with potential to emit over 250 tons per year. The conference 
committee agreed on the provisions on major emitting facilities and 
major stationary sources to be included in the statute at 302(j) and 
169(1) as follows.
    The State plan must require permits for: (a) All 28 categories 
listed in the Senate bill if the sources has the potential (design 
capacity) to emit over 100 tons per year; and (b) any other source 
with the design capacity to emit more than 250 tons per year of any 
air pollutant. [H.R. Report 95-564, p. 149 (1977), U.S. Code Cong. & 
Admin.News 1977, p. 1153].

    Pursuant to longstanding EPA interpretations, the emission rate 
before and after a physical or operational change is evaluated at 
each unit by comparing the hourly potential emissions under current 
maximum capacity to emissions at maximum capacity after the 
change.'' \27\
---------------------------------------------------------------------------

    \27\ Memorandum dated September 9, 1988, from Don R. Clay, 
Acting Assistant Administrator for Air & Radiation, U.S. EPA, to 
David A. Kee, Director, Air and Radiation Division, U.S. EPA Region 
V. Applicability of PSD and NSPS Requirements to the WEPCO Port 
Washington Life Extension Project. Available at: http://www.epa.gov/region7/programs/artd/air/nsr/nsrmemos/wpco2.pdf. Page 9 and item 
0005 in E-Docket OAR-2005-0163.

    Our current major NSR regulations measure an emissions increase at 
an existing emissions unit using the ``actual-to-projected-actual'' 
applicability test. Under this approach, we compare an emissions unit's 
``baseline actual emissions'' to the emission unit's projected actual 
emissions after the change. Our current test distinguishes how non-
EUSGUs compute an emissions unit's baseline actual emissions from the 
method used for EUSGUs. We define baseline actual emissions for non-
EUSGUs as the average annual emission rate calculated from any 
consecutive 24-month period in the past 10 years. For EUSGUs, the 
baseline actual emissions equals the average annual emission rate 
achieved over any consecutive 24-month period in the past 5 years 
unless there is another period of time that is more representative of 
normal source

[[Page 61090]]

operations. We use the same definition of projected actual emissions 
for both EUSGUs and non-EUSGUs. The rules generally define projected 
actual emissions as the maximum annual rate of emissions at which the 
emissions unit is projected to operate for the first 5 years after the 
emissions unit begins operation following the change. See 40 CFR 51.166 
(b)(47) and (b)(40) to understand all aspects of the baseline actual 
emissions and projected actual emissions definitions.

B. What We Are Proposing

1. Test for EGUs Based on Maximum Achievable Hourly Emissions
    Today, we are proposing to allow existing EGUs to use the same 
maximum achievable hourly emissions test applied in the NSPS to 
determine whether a physical or operation change results in an 
emissions increase under the major NSR program. Accordingly, the major 
NSR regulations would apply at an EGU if a physical or operational 
change results in any increase in the maximum hourly emissions rate. We 
are not proposing to allow EGUs to exclude emissions increases that 
fall below a particular significant emissions rate, or to allow EGUs to 
use plantwide netting to avoid NSR applicability.
    We are proposing to define EGUs in the same way that this term is 
defined by the CAIR and Acid Rain regulations. Specifically, we would 
define EGU as fossil-fuel fired boilers and turbines serving an 
electric generator with a nameplate capacity greater than 25 megawatts 
(MW) producing electricity for sale.\28\ Fossil fuel is described as 
natural gas, petroleum, coal, or any form of solid, liquid, or gaseous 
fuel derived from such material. The term ``fossil fuel-fired'' with 
regard to an emissions unit means combusting fossil fuel, alone or in 
combination with any amount of other fuel or material.
---------------------------------------------------------------------------

    \28\ On August 25, 2005, we proposed regulatory language to 
clarify that the definition of EGU in CAIR does not include 
municipal waste combustors or solid waste incinerators, and to 
clarify that the definition only covers entities that have at any 
time since November 15, 1990 served an electric generator with a 
nameplate capacity greater than 25 megawatts (MW) producing 
electricity for sale. See 70 FR 49708, item 0029 in E-Docket OAR-
2005-0163.
---------------------------------------------------------------------------

    This definition of EGU is broader than the definition of EUSGU 
currently found in the NSPS and NSR regulations. The EGU definition 
includes cogeneration facilities and simple cycle gas turbines that 
would not qualify under EUSGU definitions. That is, the revised 
emissions test would apply to EUSGUs, cogeneration facilities, and 
simple cycle gas turbines.
    To incorporate the NSPS maximum achievable hourly emissions test 
into the major NSR regulations, we are proposing to add a definition of 
modification to the major NSR regulation that will apply to changes 
affecting regulated NSR pollutant emissions in lieu of the current 
definition of major modification. We would add the new definition to 
all versions of the NSR regulations including 40 CFR 51.165, 51.166, 
52.21, 52.24, and in Appendix S of 40 CFR part 51, as well as any 
regulations we finalize to implement major NSR in Indian Country.\29\
---------------------------------------------------------------------------

    \29\ In the near future, we plan to publish a proposed rule 
addressing NSR requirements in tribal lands.
---------------------------------------------------------------------------

    We propose that this definition would substantially mirror, but 
would not be identical to, the definition of modification contained in 
section 60.14 of the NSPS regulations. There are differences between 
the two programs that prevent a wholesale adoption of the NSPS 
modification definition into the major NSR provisions. For example, the 
NSPS program applies the definition of modifications only to stationary 
sources and pollutants for which a particular NSPS standard applies. 
Specifically, the NSPS program regulates modifications of ``affected 
facilities,'' which are typically small collections of equipment within 
a larger manufacturing plant. The NSPS program also specifies which 
pollutants from the affected facility are regulated. For example, 
Subpart Da of 40 CFR part 60 regulates emissions increases of sulfur 
dioxides, nitrogen oxides, and particulate matter from EUSGUs. The 
major NSR program, on the other hand, regulates modifications of major 
stationary sources. Accordingly, all the equipment within a larger 
manufacturing plant is looked at collectively. Furthermore, the Act 
mandates that major NSR requirements apply to modifications at any 
major stationary source that increases emissions of any regulated NSR 
pollutant.\30\ The proposed definition is as follows.
---------------------------------------------------------------------------

    \30\ The major NSR regulations define NSR regulated pollutants 
at 40 CFR 51.166(b)(49).

    ``Modification,'' for an electric generation unit (EGU), means 
any physical change in, or change in the method of operation of, an 
EGU which increases the amount of any regulated NSR pollutant 
emitted into the atmosphere by that source or which results in the 
emission of any regulated NSR pollutant(s) into the atmosphere that 
the source did not previously emit. An increase in the amount of 
regulated NSR pollutants must be determined according to the 
---------------------------------------------------------------------------
provisions in paragraph (x) of this section.

    We disagree with the Fourth Circuit's holding in Duke Energy, and 
thus believe we are able to make reasonable distinctions between the 
NSPS and NSR programs where appropriate. Although the Fourth Circuit 
held in Duke Energy that we must use the same definition of 
modification in both the NSPS and NSR programs where appropriate, it 
only discussed this finding in the context of the component term of the 
definition ``increases in the amount of any air pollutant emitted.'' In 
fact, the Court noted that the Fourth Circuit had previously held that 
the term ``stationary source,'' a component term within the definition 
of ``modification,'' could be interpreted differently in the NSPS and 
PSD programs because Congress had not defined the term in both 
programs. [Duke Energy, slip op. at 17, citing Potomac Elec. Power Co. 
v. EPA, 650 F.2d 509, 518 (4th Cir. 1981).\31\ Accordingly, we believe 
it is reasonable to interpret the Duke Energy decision as requiring, 
within the Fourth Circuit, that the maximum hourly emissions test be 
used within the major NSR provisions, but as not requiring the 
identical treatment of the term ``physical change in or change in the 
method of operation.'' Based on our interpretation, we propose to 
incorporate the part of the major modification definition that 
addresses regulation of physical and operational changes into the 
modification definition for EGUs. We request comment on this 
interpretation.
---------------------------------------------------------------------------

    \31\ The Duke Energy Court also noted that in Northern Plains 
Res. Council v. EPA, 645 F.2d 1349, 1356 (9th Cir. 1981) [see item 
0046 in E-Docket OAR-2005-0163], the Ninth Circuit allowed EPA to 
interpret the statutory term ``commenced'' differently in the NSPS 
and PSD regulations. Duke Energy, slip op. at 17.
---------------------------------------------------------------------------

    We also are not proposing to change our current methodologies for 
computing the amount or availability of emissions offsets, or for 
computing emissions for purposes of conducting an ambient impact 
analysis. Accordingly, EGUs will be required to follow the existing 
regulations related to these provisions.
    In proposing this NSR test for EGUs based on maximum achievable 
hourly emissions, we are aware of the recent opinion by the United 
States Court of Appeals for the District of Columbia Circuit in New 
York v. EPA, 413 F.3d 3 (D.C. Cir. June 24, 2005). In that case, the 
Court rejected challenges to substantial portions of EPA's 2002 NSR 
rules. However, the Court did hold that EPA lacked authority to 
promulgate the ``Clean Unit'' provision of the 2002 rules, and in doing 
so, held that ``the plain language of the CAA indicates that

[[Page 61091]]

Congress intended to apply NSR to changes that increase actual 
emissions instead of potential or allowable emissions.'' Id., slip op. 
at 40.
    We respectfully disagree with the Court's holding that the plain 
language of the CAA requires that NSR apply to changes in actual 
emissions, and the United States has filed a petition for rehearing and 
rehearing en banc as to this holding. We believe that the CAA is silent 
on whether increases in emissions for purposes of determining whether a 
physical or operational change constitutes a modification must be 
measured in terms of actual emissions, potential emissions, or some 
other currency. Therefore, we believe that even if the test for 
emissions increases that we propose today were based on something other 
than actual emissions, it would be an appropriate interpretation and 
entitled to deference under step 2 of the analytical process set forth 
in Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 
(1984). Nonetheless, we recognize that we must promulgate a rule that 
is consistent with the D.C. Circuit's resolution of this issue.
    Regardless of whether our petition for rehearing in New York v. EPA 
is denied, we believe that a test based on maximum achievable hourly 
emissions is a test based on actual emissions. The maximum achievable 
hourly emissions test measures what a source has been actually able to 
emit based on physical and operating capacity during a representative 
period prior to the change. For most, if not all EGUs, the hourly rate 
at which the unit is actually able to emit is substantively equivalent 
to that unit's historical maximum hourly emissions. States require 
most, if not all EGUs, to perform periodic performance tests under 
applicable SIPs and enhanced monitoring requirements. The NSPS 
regulations require a source to conduct testing based on representative 
performance of the affected facility, generally interpreted as 
performance at current maximum physical and operational capacity. [40 
CFR 60.8(c).] \32\ Also, in the National Stack Test Guidance that we 
issued on September 30, 2005, we recommended that facilities conduct 
performance tests under conditions that are ``most likely to challenge 
the emissions control measures of the facility with regard to meeting 
the applicable emission standards, but without creating an unsafe 
condition.'' \33\ Most EGUs actually emit at the highest level at which 
they are capable of emitting at some time within a 5-year baseline 
period.
---------------------------------------------------------------------------

    \32\ See also 36 FR 24876, December 23, 1971. Referring to 
performance tests, we stated that ``Procedures have been modified so 
that the equipment will have to be operated at maximum expected 
production rate, rather than rated capacity, during compliance 
tests.
    \33\ See the EPA memorandum, Issuance of Final Clean Air Act 
National Stack Testing Guidance, from Michael M. Stahl, Director, 
Office of Compliance, to Regional Compliance/Enforcement Division 
Directors, September 30, 2005, p. 14. Available at http://www.epa.gov/Compliance/resources/policies/monitoring/caa/stacktesting.pdf and item 0007 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    We solicit comment on our assumption that an NSR test for EGUs 
based on maximum achievable hourly emissions is, in fact, a test that 
would be based on a measure of actual emissions in light of the manner 
in which EGUs are operated.
    As we noted earlier, the current major NSR regulations contain a 
definition of major modification. Specifically, the major modification 
definition provides a two-step procedure for measuring emissions 
increases. Under this process, a source looks at whether a project will 
result in a significant emissions increase on an annual basis and then 
whether contemporaneous increases and decreases will result in a 
significant net emissions increase (netting) on an annual basis. We are 
proposing to replace this definition of major modification with a 
definition of modification based on the maximum hourly achievable 
emissions increase test (or one of the two other emissions increase 
tests that we discuss in the following sections, maximum achieved 
emissions or an output-based measure of emissions). However, we request 
comment on whether we should instead add the definition of modification 
based on an hourly emissions test, which would then be followed by the 
current major modification provisions based on annual emissions. 
Specifically, we request comment on whether the major NSR program 
should include a four-step process as follows: (1) Physical change or 
change in the method of operation; (2) maximum achievable hourly 
emissions increase (or another alternative emissions increase test such 
as discussed below); (3) significant emissions increase as in the 
current major NSR regulations; (4) significant net emissions increase 
as in the current major NSR regulations.
2. Test for EGUs Based on Maximum Achieved Hourly Emissions
    We are also proposing in the alternative a slightly different 
emissions test from the maximum achievable hourly emissions test 
applied in the NSPS program. Specifically, we are requesting comment on 
whether we should promulgate an emissions test based on assessing an 
emissions unit's historical maximum hourly emissions. That is, instead 
of calculating what a source could actually emit at current maximum 
capacity, actual emissions would be determined by a specific measure of 
historical emissions, such as with CEMS. This test may be preferred by 
some because the method of assessing the source's actual emissions is 
similar to the current major NSR approach for determining baseline 
actual emissions.
    We would call this test the maximum achieved hourly emissions test. 
Under this approach, an EGU would determine whether an emissions 
increase will occur by comparing the pre-change maximum actual hourly 
emission rate to a projection of the post-change maximum actual hourly 
emission rate. The pre-change maximum actual hourly emission rate would 
be the highest rate at which the EGU actually emitted the pollutant 
within the 5-year period immediately before the physical or operational 
change.
    Like the maximum achievable hourly emissions test, the maximum 
achieved emissions test is a measure of a source's actual emissions. 
The maximum achieved hourly emissions test is based on a specific 
measure of historical actual emissions during a representative period. 
Therefore, even if our petition for rehearing in New York v. EPA is 
denied, we believe that a test based on maximum achieved hourly 
emissions satisfies the requirement that major NSR applicability be 
based on ``some measure of actual emissions.''
    We request comment on whether adopting this alternative approach 
would achieve all of the policy objectives supporting this proposal as 
effectively as the maximum achievable hourly emissions test would. We 
stated that two of our goals for this proposal are to streamline the 
regulatory requirements applying to EGUs by allowing EGUs to apply the 
same test for measuring emissions increases from modifications under 
both the NSPS program and NSR program, and to provide some nationwide 
consistency in the emissions calculation procedures in light of the 
Fourth Circuit's decision in Duke. We believe that the maximum 
achievable hourly emissions test could better comport with our policy 
goals than the maximum achieved hourly emissions test. Therefore, given 
that we do not believe that there is substantive difference in the 
baseline emissions between the two tests, we prefer adoption of the 
maximum achievable hourly emissions test as used in the NSPS program.

[[Page 61092]]

    In view of our policy goal to establish a uniform emissions test 
nationally under the NSPS and NSR programs for existing EGUs, we also 
request comment on extending the maximum achieved hourly emissions test 
to emissions increases in the NSPS program. Specifically, we request 
comment on whether we should revise 40 CFR 60.14 to include a maximum 
achieved hourly emissions test, either in lieu of the maximum 
achievable hourly emissions test or in addition to the maximum 
achievable hourly emissions test. We intend to provide more detailed 
information concerning the maximum achieved hourly emissions test in 
the NSPS program in our supplemental proposal.
3. Emissions Test Based on Energy Output
    We also request comment on adopting an NSR emissions test based on 
mass of emissions per unit of energy output, such as lb/MW hour or 
nanograms per Joule. Applicability under the major NSR program has 
historically been based on annual limits measured in tons per year. As 
we discuss in Section V. of this preamble, Congress did not specify how 
to calculate ``increases'' in emissions and left EPA with the task of 
filling that gap. We believe establishing an NSR emissions increase 
test based on mass emissions per unit of energy output would be a 
reasonable use of our discretion.
    We also believe that incorporating an output-based emissions test 
has merit for several reasons. The primary benefit of output-based 
standards is that they recognize energy efficiency as a form of 
pollution prevention. Using more efficient technologies reduces fossil 
fuel use and also reduces the environmental impacts associated with the 
production and use of fossil fuels. Another benefit is that output-
based standards allow sources to use energy efficiency as a part of 
their emissions control strategy. Energy efficiency as an additional 
compliance option can lead to reduced compliance costs, as well as 
lower emissions. We want to encourage use of efficient units that 
displace less efficient, more polluting units. This approach is 
especially desirable where EGUs are already subject to market-based 
systems such as the Acid Rain program, NOX SIP Call, and 
State trading programs implementing the CAIR, as those programs 
increase incentives for using efficient units.
    Furthermore, an output-based emissions test would comport with 
recent State efforts. Several States have initiated regulations or 
permits-by-rule for distributed generation (DG) units, including 
combustion turbines. States that have made efforts to regulate DG 
sources include California, Texas, New York, New Jersey, Connecticut, 
Delaware, Maine, and Massachusetts. Those State rules include emission 
limits that are output-based, and many allow generators that use 
combined heat and power (CHP) to take credit for heat recovered. For 
example, Texas recently passed a DG permit-by-rule regulation that 
gives facilities 100 percent credit for steam generation thermal 
output, and incorporates HRSG and duct burners under the same limit. 
The California Air Resources Board (CARB) also has output-based 
emission limits, which allow DG units using CHP to take a credit to 
meet the standards, at a rate of 1 MW-hr for each 3.4 million British 
thermal units (MMBtu) of heat recovered, or essentially, 100 percent. 
The draft rules for New York and Delaware also allow DG sources using 
CHP to receive credit toward compliance with the emission standards.
    We request comment on the desirability and feasibility of using an 
output-based test for measuring emissions increases in the major NSR 
program. In view of our policy goal to establish a uniform emissions 
test nationally under the NSPS and NSR programs for existing EGUs, we 
also request comment on extending an output-based test for measuring 
emissions increases to the NSPS program. Specifically, we request 
comment on whether we should revise 40 CFR 60.14 to include an output-
based emissions test, either in lieu of the maximum achievable and 
maximum achieved hourly emissions tests or in addition to these 
emissions tests. We intend to provide more detailed information 
concerning the output-based emissions test for both the NSR and NSPS 
programs in our supplemental proposal.

C. Pollutants to Which the Revised Applicability Test Applies

    We request comments on our proposal that the revised emissions test 
(either our preferred maximum achievable test, the alternative maximum 
achieved test, or the output-based emissions test) should apply to all 
regulated NSR pollutants. In light of our policy goal to provide a 
nationally consistent program and to streamline major NSR for EGUs, we 
believe it is desirable to provide the alternative test for emissions 
increases of all regulated NSR pollutants. As described in detail in 
Section III of this preamble, we do not believe that today's revised 
emissions test is substantially different from the actual-to-projected-
actual test, particularly in light of the substantial SO2 
and NOX emissions reductions that other programs have 
achieved or are expected to achieve from EGUs. As we describe in 
further detail in Section III.C. of this preamble, the application of 
the major NSR program to EGU emissions increases of regulated NSR 
pollutants other than SO2 and NOX would be 
unlikely to result in the implementation of any additional controls.

D. Significant Emissions Rates

    As we stated, we are not proposing to allow EGUs to exclude 
emissions increases that fall below a particular significant emissions 
rate. Our current major NSR regulations allow sources to avoid major 
NSR applicability if the physical or operational change results in an 
emissions increase that is below a significant level.
    We codified the existing significant rates based on a de minimis 
legal theory that balances the administrative burden of running the 
program with the environmental benefit of undergoing major NSR review. 
In codifying the significant rates, we relied on our belief that 
Congress did not intend to regulate every physical or operational 
change at a major source. Because a maximum achievable hourly emissions 
rate test is based on computing a unit's rate of emissions in kg/hr, 
whereas the existing significant rates are expressed in tons per year 
(tpy), it is more administratively efficient to eliminate the need to 
compute significant emission rates from the proposed emissions test.
    By eliminating the use of a significant emission rate threshold for 
modifications, we balance the differences in these tests, and focus 
permitting authority resources on reviewing all changes that result in 
increases in existing capacity.\34\ We believe that this result is 
consistent with our interpretation of Congressional intent in that it 
assures that, at a minimum, increases in existing capacity undergo 
major NSR review. See a fuller discussion of the legislative history in 
Section V. of this preamble.
---------------------------------------------------------------------------

    \34\ To the extent that sources prefer to avoid major NSR by 
taking enforceable limitations on their potential to emit, reviewing 
authority resources will also be focused on establishing synthetic 
minor limits subject to the conditions in Sec.  51.165(a)(5)(ii), 
Sec.  51.166(r)(2), and Sec.  52.21(r)(4). That is, sources 
basically have two choices--enforceable limitations on emissions 
increases or major NSR review for changes that result in increases 
in existing capacity.
---------------------------------------------------------------------------

    We request comment on our conclusion that the maximum achievable 
hourly emissions test should regulate all emissions increases and not

[[Page 61093]]

just those that are above the significant rate. We also request comment 
on the alternative of including a significant emissions rate as a 
component of the maximum achievable hourly emissions test for major 
NSR. If we include use of the significant rate within the emissions 
increase test, sources would have to extrapolate their maximum hourly 
emission rate to a maximum annual emission rate. We request comment on 
an appropriate approach for making this extrapolation.

E. Eliminating Netting

    Netting has played an important role over the history of the major 
NSR program by, to some extent, allowing sources to manage plantwide 
changes in a way that assures that the major stationary source's 
emissions do not increase. Nonetheless, numerous stakeholders, 
including individuals among State, environmental, and industry groups, 
believe that our netting procedures in the existing program are too 
complicated. State and environmental groups also believe netting allows 
construction of brand new emissions units to occur without requiring 
emissions controls. These stakeholders suggested removing the netting 
provisions or revising the procedures to shorten the contemporaneous 
period to allow for ``project netting.'' Project netting allows the 
emissions increases and decreases from a given project to be summed 
together without the need to review all changes over the previous 5 
years.
    Because the maximum achievable hourly emissions test is based on 
increases in kg/hr, including netting within the emissions test would 
further complicate administration of the program by adding additional 
calculations to an already complicated process. Accordingly, 
eliminating the ability to net pollutant increases and decreases would 
simplify applicability determinations and assure that increases in 
existing capacity could not occur without preconstruction review and 
installation of appropriate controls (except where sources otherwise 
establish enforceable limitations to avoid emissions increases) . Also, 
one of the advantages of our proposal to eliminate netting is that 
there would be no unreviewed increases.
    Nevertheless, the Court in Alabama Power held that the Act requires 
EPA to allow netting within our regulations (the ``bubble'' approach), 
because such an approach is consistent with the purposes of the Act. 
The Court reasoned that Congress intended to ``generate technological 
improvement in pollution control, but this approach focused upon `rapid 
adoption of improvements in technology as new sources are built,' not 
as old ones [plants] were changed without pollution increases.''
    It is important to place this ruling in the context of the rules 
before the Court at that time. Our 1978 regulations required a source-
wide accumulation of emissions increases without providing for an 
ability to offset these accumulated increases with any source-wide 
decreases. In finding that we must apply a bubble approach, the Court 
held that we could not require sources to accumulate increases without 
also accumulating decreases. It is unclear whether the Court would have 
reached the same conclusion if the emissions test before the Court only 
considered the increases from the project under review and not source-
wide increases from multiple projects. Moreover, contrary to the 
Alabama Power Court's analysis, some have argued that the netting 
approach may have impeded Congress' objective of promoting ``rapid 
adoption of improvements in technology as new sources are built.'' This 
is because it allows construction of new units at existing facilities 
without emissions controls, while requiring major NSR for large 
greenfield sources.
    We request comment on our observations related to the Alabama Power 
Court's decision related to netting and whether a major NSR program 
without netting can be supported under the Act. Specifically, we 
request comment on whether, in adding the maximum achievable emissions 
test for EGUs within the major NSR program, we should retain the 
requirement to compute a net emissions increase. Under this approach, a 
source would first determine whether an activity results in an increase 
in maximum hourly emissions, and then the source would determine 
whether this increase, when considered with other increases and 
decreases at the major stationary source over the past 5 years, would 
result in a net emissions increase at the major stationary source. We 
also request comment on whether we should retain netting, but shorten 
the contemporaneous period to the time of construction and allow EGUs 
to use only ``project'' netting in computing whether a physical or 
operational change results in an emissions increase.

F. Benefits of Maximum Achievable Hourly Emissions Test

    We believe that implementing our proposed maximum achievable hourly 
emissions rate test for EGUs offers significant benefits over the 
current actual-to-projected-actual emissions test. The proposed 
regulations (and our alternate proposal) would provide nationwide 
consistency in how States implement the major NSR program for EGUs. 
They would also establish a uniform emissions test nationally under the 
NSPS and NSR programs for existing EGUs. However, we are also 
requesting comment on whether the proposed maximum achievable hourly 
emissions test (and our alternate proposals) should be limited to the 
geographic area covered by CAIR, or to the geographic area covered by 
both CAIR and BART.
    Furthermore, the proposed regulations allow owner/operators to make 
changes that, without increasing existing capacity, promote the safety, 
reliability, and efficiency of EGUs. We do not want to discourage plant 
owners or operators from engaging in activities that are important to 
restoring, maintaining, and improving plant safety, reliability, and 
efficiency. Uncertainties inherent in the current major NSR permitting 
approach can exacerbate the reluctance to engage in these activities. 
To elaborate on the uncertainty issues: Unless an owner or operator 
seeks an applicability determination from his or her reviewing 
authority, it can be difficult for the owner or operator to know with 
reasonable certainty whether a particular activity would trigger major 
NSR. This gives the owner or operator five choices, two of which the 
owner or operator is not likely to select, and the other three of which 
have significant drawbacks for the productivity of the plant.
    First, the owner or operator may simply seek an NSR permit. That 
course, however, is likely to be time-consuming and expensive, since it 
will likely result in a requirement to retrofit an existing plant with 
state-of-the-art pollution controls, which often is very costly and can 
present significant technical challenges. Therefore, an owner or 
operator is not likely to select this option if it can be avoided.
    Second, the owner or operator may proceed at risk without a 
reviewing authority determination. That option, however, is also not 
likely to be attractive where a significant replacement activity is 
involved, because if the owner or operator proceeds without a reviewing 
authority determination and if we later find that he or she made an 
incorrect determination on their own, the owner or operator faces 
potentially serious enforcement consequences. Those consequences could 
well include substantial fines and penalties for violation of the CAA 
(along with the further consequences of violation of the CAA) and a 
requirement to install state-

[[Page 61094]]

of-the-art pollution controls, even though those controls present 
technical issues or represent a significant enough expenditure that 
they likely would have deterred the owner or operator from seeking a 
permit in the first place. The owner or operator is not likely to take 
this risk if he or she believes there is a high probability of these 
kinds of consequences and if he or she has other options.
    Third, the owner or operator may seek an applicability 
determination. That process, too, is time-consuming and expensive, 
albeit typically less so than seeking a permit. Furthermore, there is a 
possibility that EPA could eventually make a different applicability 
determination than the State has made, which can add more time and 
uncertainty to the process. This path presents a potentially 
significant barrier to EGUs and other industries. This approach also is 
likely to delay important projects that would enhance the safety, 
reliability, and efficiency of the plant while the owner/operator waits 
for the applicability determination.
    Fourth, the owner or operator may forego or curtail activities that 
would enhance the safe, reliable, or efficient operation of its plant, 
instead opting to repair existing components, even though they are 
inferior to current-day components because they probably are less 
advanced and less efficient than current technology. Foregoing the 
activities altogether will reduce plant safety, reliability and 
efficiency; curtailing or postponing them does as well, differing only 
in the degree of these effects.
    Finally, the owner or operator may curtail the plant's productive 
capacity by replacing components with less than the best technology to 
be more certain that the replacement is within the regulatory bounds. 
Or he or she may agree to limit the source's hours of operation or 
capacity or install air pollution controls that are less than state-of-
the-art. These alternative courses of action, however, will also result 
in loss of plant productivity.
    The current approach to major NSR is also problematic for State and 
local reviewing authorities. They require the regulatory authorities to 
devote scarce resources to make complex determinations, including 
applicability determinations, and consult with other agencies to ensure 
that any determinations are consistent with determinations made for 
similar circumstances in other jurisdictions and/or that other 
reviewing authorities would concur with the conclusion. In our June 
2002 report to the President, we concluded that the current major NSR 
program has impeded or resulted in the cancellation of projects that 
would have maintained and improved the reliability, efficiency, or 
safety of existing energy capacity.
    We believe it is desirable to change the approach to major NSR. The 
current approach discourages sources from replacing components, and 
encourages them to replace components with inferior components or to 
artificially constrain production in other ways. This behavior does not 
advance the central policy goals of the major NSR program as applied to 
existing sources. The central policy goal is not to limit productive 
capacity of major stationary sources, but rather to ensure that they 
will install state-of-the-art pollution controls at a juncture where it 
otherwise makes sense to do so. We also do not believe the outcomes 
produced by the approach we have been taking have significant 
environmental benefits compared with the approach we are proposing 
today.
    We believe that these problems would be significantly reduced by 
the rule we are proposing today. Our new approach would provide more 
certainty both to source owners or operators who will be able better to 
plan activities at their facilities, and to reviewing authorities who 
will be able better to focus resources on other areas of their 
environmental programs rather than on time-consuming determinations. 
The effect should be to remove disincentives to undertaking activities 
that improve efficiency, safety, reliability, and environmental 
performance.
    We also note that today's proposed emissions test would simplify 
applicability determinations for sources by using the same test for 
both the NSPS and NSR programs. Moreover, it eliminates the burden of 
projecting future emissions and distinguishing between emissions 
increases caused by the change from those due solely to demand growth, 
because any increase in the emissions under the maximum achievable 
emissions test would logically be attributed to the change. It reduces 
recordkeeping and reporting burdens on sources because compliance will 
no longer rely on synthesizing emissions data into rolling average 
emissions. It improves compliance by making the rules more 
understandable, which correspondingly reduces the reviewing 
authorities' compliance and enforcement burden.
    Nonetheless, despite identifying many of these benefits in our 
analysis of the Settlement Agreement that EPA had entered into in 
Chemical Manufacturer's Association v. EPA, No. 79-112, we rejected the 
use of that approach because we stated that such an approach was not 
acceptable for major NSR applicability as a general matter.\35\ We 
based our conclusions on concerns that the Settlement Agreement 
Approach would allow facilities to generate paper credits for netting 
and offsets because the facility may never have operated at its full 
potential emissions. Moreover, we raised concerns that unreviewed 
increases could lead to increment violations.
---------------------------------------------------------------------------

    \35\ We discuss the regulatory history related to the CMA 
Exhibit B Settlement Agreement in Section V. of today's preamble. 
See also 67 FR 80205, December 31, 2002--item 0030 in E-Docket OAR-
2005-0163.
---------------------------------------------------------------------------

    Today's proposal differs from the Settlement Agreement Approach in 
an important way. We retain the existing procedures for calculating 
offset credits to avoid any possibility of generating paper reductions. 
Moreover, we requested comment on eliminating or limiting the 
availability of netting. Either approach would alleviate the 
possibility of generating paper reductions. One of the advantages of 
our proposal to eliminate netting is that there would be no unreviewed 
increases. (That is, all emission increases, including those less than 
40 tpy, would be reviewed.) On the other hand, if we continue to 
include netting provisions in the major NSR applicability test, those 
provisions will continue to be based on actual emissions.
    Importantly, States' implementation of the Acid Rain, CAIR, and 
BART programs will generate significant reductions in pollution and 
thereby decrease the likelihood that an unreviewed source could cause 
an increment violation. We conducted modeling to estimate the impact of 
the CAIR program on nationwide emissions trends and ambient 
concentrations. The modeling shows that emissions are predicted to 
decline in all parts of the country. With nationwide emissions 
declining, there is a decreased likelihood that unpermitted emissions 
increases could violate a PSD increment by returning a given 
geographical area to levels above that area's historical actual levels. 
We also conducted modeling to estimate the impact of the BART rule on 
nationwide emissions trends and visibility. The BART modeling shows 
that emissions will decline beyond those reductions under CAIR, 
particularly in Class I areas.\36\

[[Page 61095]]

Furthermore, our analyses estimate improvements in air quality related 
values from both the CAIR and BART.\37\
---------------------------------------------------------------------------

    \36\ For a complete discussion of the emissions reductions and 
air quality impacts of the BART rule, see Chapter 3 of the RIA for 
the BART final rule, available at http://www.epa.gov/oar/visibility/actions.html and item 0004 in E-Docket OAR-2005-0163.
    \37\ For our discussion of these impacts related to the CAIR, 
see the CAIR RIA at 5-1, item 0022 in E-Docket OAR-2005-0163. The 
CAIR RIA is also available at http://www.epa.gov/air/interstateairquality/technical.html. For our discussion of these 
impacts related to the BART, see the BART RIA at 5-1, available at 
http://www.epa.gov/oar/visibility/actions.html and item 0004 in E-
Docket OAR-2005-0163.
---------------------------------------------------------------------------

    The emissions reductions from the programs that affect electric 
utilities principally come from cap-and-trade programs such as the Acid 
Rain Program, the NOX SIP Call, and the CAIR. Concerns have 
been expressed at times about how trading programs might have a 
disparate impact on some populations, especially those located closest 
to some of the affected emission sources. EPA is developing a 
methodology to look at the local impacts of these types of programs and 
will attempt to quantify the impacts on local communities for the final 
rule.
    For all the reasons we articulate in this section, we now believe 
that it is appropriate to consider the benefits of implementing the 
maximum achievable hourly emissions increase test.

G. Would States Be Required To Adopt the Revised Emissions Test?

    Consistent with our longstanding practice, we are proposing that 
the revised emissions test would be a core, mandatory, minimum program 
element for SIPs implementing the part C and part D major NSR programs. 
We are also proposing that State and local agencies would submit NSR 
SIP revisions incorporating the revised emissions test within 12 months 
after promulgation of the final rules. For the reasons we articulate in 
Section V.C. of this preamble, we believe the maximum achievable hourly 
emissions test implements Congressional intent for the major NSR 
program and in a more effective manner for EGUs than the current major 
NSR program.
    Consistent with our longstanding practice, we are also proposing 
that if a State were to decide it does not want to implement the 
revised emissions test, that State would need to make a showing that 
its program is not less stringent than our program.

V. Statutory and Regulatory History and Legal Rationale

    This section provides our legal basis and rationale for the 
proposed changes. In support of our legal basis and rationale, this 
section provides a more detailed background than that in Section IV. on 
the emissions increase test used in the NSPS program and major NSR 
program.

A. The NSPS Program

    In the 1970 CAA Amendments, Congress included, for the first time, 
emission standards for new sources of air pollution, termed ``new 
source performance standards'' (NSPS). [CAA section 111.] The purpose 
of the NSPS program was to prevent new air pollution problems by 
requiring that new sources of emissions, including those from expanded 
or modified existing facilities, be designed and equipped to 
incorporate demonstrated emissions controls.\38\
---------------------------------------------------------------------------

    \38\ See House Report 91-1146 at 5365: The purpose of this 
authority is to prevent the occurrence of significant new air 
pollution problems arising from or associated with such new sources. 
As explained above, such new sources may take the form either of 
entirely new facilities or expanded or modified facilities, or of 
expanded or modified operations which result in substantially 
increased pollution. * * * The emission standards shall provide that 
sources of such emissions shall be designed and equipped to prevent 
and control such emissions to the fullest extent compatible with the 
available technology and economic feasibility as determined by the 
Secretary.
---------------------------------------------------------------------------

    Specifically, Congress required the EPA to set emission limitations 
for categories of new stationary sources of air pollution based on the 
best system of emissions reduction, considering costs, that has been 
adequately demonstrated. Congress also specifically required that the 
NSPS apply to modifications of existing facilities, and defined 
``modification'' in CAA section 111(a)(4) as follows:

    ``The term modification means any physical change in, or change 
in the method of operation of, a stationary source which increases 
the amount of any air pollutant emitted by such source or which 
results in the emission of any air pollutant not previously 
emitted.'' \39\
---------------------------------------------------------------------------

    \39\ CAA section 111(a)(4). This section has not been amended 
since it was inserted into the statute in 1970.

    The statute does not specify how increases in emissions are to be 
determined and the 1970 legislative history does not directly speak to 
it. Nonetheless, the legislative history shows that, at a minimum, 
Congress was concerned about regulating new sources of emissions caused 
by expanded or modified capacity, as the following two statements 
---------------------------------------------------------------------------
indicate:

    Therefore, particular attention must be given to new stationary 
sources which are known to be either particularly large-scale 
polluters or where the pollutants are extra hazardous. The 
legislation, therefore, grants authority to the Secretary of Health, 
Education, and Welfare to establish emission standards for any such 
sources which either in the form of entire new facilities or in the 
form of expanded or modified facilities, or because of expanded or 
modified operation or capacity, constitute new sources of 
substantially increased pollution.\40\
---------------------------------------------------------------------------

    \40\ H.R. Rep 91-1146, p. 5361 (1970).
---------------------------------------------------------------------------

    Therefore, it would appear to me that, for instance, an old 
steel plant which altered its production of a particular unit or 
operation, even though that unit was an old unit, would be 
controlled just as its competitor, a new steel plant, would be 
controlled, where new equipment plus new sources of emissions occur? 
That is correct.\41\
---------------------------------------------------------------------------

    \41\ Congressional Record--HR 17090, June 10, 1970 at 19212.

    On December 23, 1971 (36 FR 24877), we promulgated the first NSPS 
regulations. Consistent with Congressional intent to regulate new 
sources of emissions, these regulations included a definition of 
---------------------------------------------------------------------------
modification applying to affected facilities as follows.

    Modification means any physical change in, or change in the 
method of operation of, an affected facility which increases the 
amount of any air pollutant (to which a standard applies) emitted by 
such facility or which results in the emission of any air pollutant 
(to which a standard applies) not previously emitted, * * *

Id.

    On December 16, 1975, we revised the definition of modification in 
the NSPS program. 40 FR 58416. Our revisions clarified how to measure 
emissions increases when there is a physical change or change in the 
method of operation at an existing facility. Specifically, we added the 
phrase ``emitted into the atmosphere'' to the definition of 
modification at 40 CFR 60.2 and added new provisions to define how to 
measure emissions increases for purposes of determining whether a 
modification occurs, at 40 CFR 60.14.\42\
---------------------------------------------------------------------------

    \42\ This language concerning modifications was never included 
in the NSR regulations at Sec. Sec.  51.165, 51.166, 52.21, 52.24, 
and Appendix S to part 51. On January 23, 1980 (see 45 FR 5616, item 
32 in E-Docket OAR-2005-0163), we amended this language to delete 
the portions of Sec.  60.14 that implemented the bubble concept, 
which the United States Court of Appeals for the District of 
Columbia Circuit rejected in a decision rendered January 27, 1978. 
[Asarco, Inc. v. EPA, 578 F.2d 319 (D.C. Cir. 1978)--item 0047 in E-
Docket OAR-2005-0163.] Following the Asarco decision, Sec.  60.14 
was amended to include the current provisions.
---------------------------------------------------------------------------

    Our focus in adding the regulatory phrase ``emission rate to the 
atmosphere'' was to regulate facilities only when they constitute a new 
source of emissions. We do not believe that Congress intended to draw 
existing facilities into NSPS applicability when there was no increase 
in the amount of pollution that a facility could actually emit to the 
environment, either because the new equipment did not emit

[[Page 61096]]

pollutants or because the addition of control devices means that the 
total emissions rate to the atmosphere did not increase. In the 
proposed preamble, we described the addition of the regulatory term 
emitted into the atmosphere'' by reference to ``actual emissions,'' 
measured as post-control emissions at capacity instead of potential 
---------------------------------------------------------------------------
emissions without controls.

    The proposed amended definition of ``modification'' also 
includes a new phrase ``emitted into the atmosphere.'' The new 
phrase clarifies that for an existing facility to undergo a 
modification there must be an increase in actual emissions. If any 
increase in emissions that would result from a physical or 
operational change to an existing facility can be offset by 
improving an existing control system or installing a new control 
system for that facility, such a change would not be considered a 
modification because there would be no increase in emissions to the 
atmosphere. The Administrator considered defining ``modification'' 
so that increases in pre controlled (potential) emissions would be 
considered modifications. However, the proposed definition of 
modification is limited to increases in actual emissions in keeping 
with the intent of section 111 of controlling facilities only when 
they constitute a new source of emissions * * * Section 60.14(b) 
provides four mechanisms which the Administrator may use (but to 
which he is not limited) in determining whether an increase in 
emissions has occurred * * * [T]hese techniques utilize parameters 
such as maximum production rate * * *''

39 FR 36946, 36946-7.

    As we stated in the preamble for the proposal, we added the 
regulations in Sec.  60.14 to clarify the phrase ``increases the amount 
of any air pollutant'' in the definition of modification in Sec.  60.2 
. [See 39 FR 36946.] We did not create a new definition of modification 
in codifying Sec.  60.14, but instead used Sec.  60.14 to define how to 
determine an actual emissions increase based on the facility's maximum 
hourly emissions rate considering controls. Under Sec.  60.14(b), we 
calculate an emissions increase by comparing the hourly emissions rate 
before and after the physical or operational change using ``parameters 
such as maximum production rate * * *'' 39 FR 36946, 36947. We 
clarified in the proposed rule that maximum production rate should not 
be interpreted to mean the facility's operating design capacity 
(sometimes referred to as name plate capacity) because this rate 
``bears little relationship to the actual operating capacity of the 
facility.'' Id. at 36948. Instead, the maximum production rate refers 
to ``that production rate that can be accomplished without making major 
capital expenditures.'' Id.
    Thus, the final regulations calculate changes in what a source is 
actually able to emit at its capacity, considering controls. (We may 
refer to this test as the actually-able-to-emit test.) Under Sec.  
60.14(b), we calculate an emissions increase by comparing the hourly 
emissions rate before and after the physical or operational change 
using ``parameters such as maximum production rate * * *'' 39 FR 36946, 
36947. Some refer to this test as a ``maximum hourly potential-to-
potential'' emissions test. However, since the NSPS test is based on 
actual operating capacity rather than design capacity, we believe that 
this potential-to-potential terminology can be misleading, and prefer 
the name ``maximum achievable hourly emission rate'' which is similar 
to the provision we promulgated in the 1992 WEPCO rule, described 
below. As we discuss in detail in Section IV.A of this preamble, NSPS 
applicability based on maximum achievable hourly emissions before and 
after a change was reiterated in various policy memoranda and 
applicability determinations over the history of the program.
    On July 21, 1992, we further revised the NSPS regulations to 
clarify how we calculate emissions increases at electric utilities. 
[See 57 FR 32314 (final rule); 56 FR 27630 (June 14, 1991) (proposed 
rule).] Among other things, this regulation further defined 
``capacity'' for electric utilities subject to the NSPS program. 
Specifically, we indicated that utilities could use the highest hourly 
emissions rate achievable by the facility at any time during the 5 
years before the change.
    In this rulemaking, prompted by litigation involving the Wisconsin 
Electric Power Company and commonly called the WEPCO rule, we noted 
that the pre-existing NSPS program ``examines maximum hourly emission 
rates, expressed in kilograms per hour,'' that is, ``[e]missions 
increases for NSPS purposes are determined by changes in the hourly 
emissions rates at maximum physical capacity.'' 57 FR 32316. We 
explained how to determine an hourly rate, as follows.

    An hourly emissions rate may be determined by a stack test or 
calculated from the product of the instantaneous emissions rate, 
i.e., the amount of pollution emitted by a source, after control, 
per unit of fuel combusted or material processed (such as pounds of 
sulfur dioxide emitted per ton of coal burned) times the production 
rate (such as tons of coal burned per hour) * * *

Id., n. 5.\43\

    \43\ By comparison, we added, ``NSR regulations examine total 
emissions to the atmosphere,'' that is, ``emissions increases under 
NSR are determined by changes in annual emissions as expressed in 
tons per year (tpy).'' Id. We explained how to determine the annual 
emissions as follows:
    Annual emissions may be calculated as the product of the hourly 
emissions rate times the utilization rate, expressed as hours of 
operation per year, or as the product of an emission factor * * * in 
units of mass emitted per unit of process throughput times the 
annual throughput * * *
    Thus, we said, both NSPS and NSR calculations include the hourly 
emission rate, but the difference between the two is that the NSR 
calculation then adds the annual utilization rate, expressed as 
hours of operation per year.
---------------------------------------------------------------------------

    One of the purposes of the WEPCO rule was to address problems that 
resulted from the pre-existing method of calculating the maximum hourly 
emissions rate for NSPS purposes. We stated the following.

    Under current regulations, the emissions rate before and after a 
physical or operational change is evaluated at each unit by 
comparing the current hourly potential emissions at maximum 
operating capacity to hourly emissions at maximum capacity after the 
change. In this calculation, the reviewing authority disregards the 
unit's maximum design capacity. The original design capacity of a 
unit, to the extent it differs from actual maximum capacity at the 
time that the baseline is established due to physical deterioration 
of the facility, is immaterial to this calculation.

57 FR 32330. We stated that current regulations presented the problem 
of ``undue emphasis on the physical condition of the affected facility 
immediately prior to the change * * * For instance, if a unit has 
broken down and is in need of repairs, the utility's baseline will be 
artificially low.'' Id.

    Accordingly, we revised the baseline requirement for electric 
utilities to include the following constraint.

    No physical change, or change in the method of operation, at an 
existing electric utility steam generating unit shall be treated as 
a modification for the purposes of this section provided that such 
change does not increase the maximum hourly emissions of any 
pollutant regulated under this section above the maximum hourly 
emissions achievable at that unit during the 5 years prior to the 
change.

40 CFR 60.14(h). In characterizing this requirement as a ``modest'' 
change from the pre-existing regulation, we described this requirement 
as a

    More flexible provision [that] enables units to establish a 
baseline that is representative of its physical and operational 
capacity in recent years, while still precluding the use of a 
baseline tied to original design capacity, which * * * may bear no 
relationship to the facility's capacity in recent years.

57 FR 32330. Therefore, the WEPCO rule makes clear that the NSPS 
applicability test for EGUs is the same test (that is, the actually-
able-to-emit

[[Page 61097]]

test) that is generally applicable. Thus, the only difference in the 
NSPS applicability test for EGUs and non-EGUs is the method for 
determining the actual operating capacity; for EGUs it is the actual 
operating capacity at any time in the previous 5 years and for non-EGUs 
it is actual operating capacity that is achievable without a capital 
expenditure.

B. The Major NSR Program

    EPA promulgated the first set of PSD regulations in 1974 (39 FR 
42510), and the first nonattainment major NSR programs in 1976 (41 FR 
55524). At that time, the Act did not contain specific provisions for 
these programs. Instead, the PSD program evolved from a lawsuit 
claiming that the Act required EPA to ensure that air quality did not 
deteriorate in areas where air quality met the NAAQS. Sierra Club v. 
Ruckelshaus, 344 F.Supp. 253 (D.D.C 1972). We issued the first 
nonattainment NSR regulations (known as the Emission Offset 
Interpretative ruling) because attainment dates had passed and we 
received questions as to whether, and to what extent, new stationary 
sources could locate in areas that failed to meet the attainment date.
    Our preamble to the 1974 PSD rules explained that we intended the 
PSD definition of ``modified source'' to be consistent with the 
definition of that term under the NSPS regulations. 39 FR 42510, 42513. 
Accordingly, the 1974 PSD regulations defined ``modification'' in 
essentially the same way for both programs. [See 40 CFR 52.01(d); 39 FR 
42514; 1975.] Similar to the NSPS provisions, EPA also included an 
exclusion for increases in production rate and hours of operation 
within the regulatory definition of physical change in or change in the 
method of operation.
    Congress expressly added an expanded preconstruction permitting 
program for new and modified major stationary sources to the CAA in 
1977. The 1977 Amendments contained different preconstruction 
permitting requirements for major stationary sources in attainment and 
nonattainment areas. In areas meeting the NAAQS (``attainment'' areas) 
or for which there is insufficient information to determine whether 
they meet the NAAQS (``unclassifiable'' areas), Congress added 
requirements for the PSD program in part C of title I of the Act. 
Congress required States to amend their implementation plans to include 
requirements to prevent the significant deterioration of air quality 
where such air quality is presently cleaner than existing ambient air 
quality standards. The main focus of the PSD program was a ceiling on 
incremental pollution growth. The statute at sections 163(b) and 165(d) 
included specific ``increments,'' or maximum allowable increases in 
particulates and sulfur dioxide. In section 166, the 1977 Amendments 
also required EPA to propose regulations for increments or other means 
for preventing significant deterioration that would result from the 
other criteria pollutants. To ensure protection of increments and other 
means of preventing significant deterioration, Congress established a 
preconstruction permitting program for major sources that required 
installation of BACT for major sources. Thus Congress established the 
PSD program to allow for economic growth in attainment areas, to be 
accomplished primarily through preservation of increment. The PSD 
program is implemented primarily through SIP-approved State 
preconstruction permitting programs meeting the requirements of our 
regulations at 40 CFR 51.166. Where we have not approved a SIP for an 
attainment or unclassifiable area, the program is implemented by us or 
by the States according to the requirements in 40 CFR 52.21.
    Congress in 1977 was likewise concerned with permitting new or 
modified facilities in nonattainment areas. The House proposed a new 
CAA section 117 for nonattainment areas ``as a means of assuring 
realization of the dual goals of attainment air quality standards and 
providing for new economic growth.'' [H.R. Report 95-294, p. 19 (1977), 
U.S. Code Cong. & Admin. News 1977, p. 1091.] Thus, Congress added the 
preconstruction permitting program for major stationary sources in 
nonattainment areas in part D of title I of the 1977 CAA at section 
173. The basic requirements of the program as Congress established them 
in CAA section 173 are still in place: (1) Each major stationary source 
must go through preconstruction review; (2) the total allowable 
emissions from new and modified sources must be offset; \44\ (3) the 
source must comply with the lowest achievable emission rate (LAER); (4) 
there must be a demonstration that all major stationary sources in the 
State that have the same owner or operator are in compliance; and (5) 
an alternative sites analysis must be conducted. The preconstruction 
permitting program for major stationary sources in nonattainment areas, 
commonly known as the nonattainment major NSR program, is generally 
implemented through the SIP according to our regulations at 40 CFR 
51.165. In transition periods before SIP approval, permits must be 
issued meeting the conditions of 40 CFR Appendix S, which reflects 
substantially the same requirements as those in Sec.  51.165.
    Following the enactment of the major NSR program in the 1977 CAA, 
in 1978 we promulgated comprehensive changes to the PSD and 
nonattainment major NSR regulations to carry out the statutory changes. 
43 FR 26380. In the absence of statutory language on how to determine 
an emissions increase, we initially defined emissions increases in 
terms of allowable or potential emissions.\45\ As with the NSPS 
regulations, we defined potential emissions as uncontrolled emissions. 
Nonetheless, when we interpreted 111(a)(4) for the major NSR program, 
we concluded that the NSPS and NSR program have different purposes. We 
believed that the NSPS-based definitions and interpretations should not 
be controlling for NSR purposes. Accordingly, in our 1978 final rules, 
we defined ``modification'' for NSR differently than we defined it in 
the NSPS program by including a plantwide approach for reviewing 
emissions increases (netting), even though the Court held this approach 
unlawful as applied in the NSPS program. [Asarco, Inc. v. EPA, 578 F.2d 
319 (D.C. Cir. 1978).]
---------------------------------------------------------------------------

    \44\ Before 1990, Congress provided States with two options for 
managing the impact of economic growth on emissions. A State could 
either provide a case-by-case review of each new or modified major 
source and require such source to obtain offsetting emissions, or 
the State could implement a waiver provision which allowed the State 
to develop an alternative to the case-by-case emissions offset 
requirement. This alternative program became known as the ``growth 
allowance'' approach. In 1990, Congress invalidated some of the 
existing growth allowances and shifted the emphasis for managing 
growth from using growth allowances to using the case-by-case offset 
approach.
    \45\ See the first nonattainment area regulations at Appendix S 
to part 51, December 21, 1976, at 41 FR 55528/1--see item 0034 in E-
Docket OAR-2005-0163. Similarly, a ``major modification'' shall 
include a modification to any structure, building, facility, 
installation or operation (or combination thereof) which increases 
the allowable emission rate by the amounts set forth above. See also 
our 1978 regulations at 43 FR 26380 item 0035 in E-Docket OAR-2005-
0163.
---------------------------------------------------------------------------

    Numerous aspects of our 1978 final rules were challenged by 
industry, State and environmental petitioners. In June 1979, the D.C. 
Circuit Court issued a per curiam (preliminary) opinion. [Alabama Power 
Co. v. Costle, 606 F.2d 1068 (D.C. Cir. 1979).] In response to that 
opinion, we immediately undertook to revise our regulations consistent 
with that opinion and proposed significant changes to the method for 
determining whether a change constitutes a major modification. Under 
the proposal, a major

[[Page 61098]]

modification would occur if a source increased its potential to emit a 
pollutant.
    On December 14, 1979, the Court in Alabama Power issued an opinion 
that superseded its per curiam decision. [Alabama Power v. Costle, 636 
F.2d 323 (D.C. Cir. 1979).] \46\ EPA interpreted the Court's opinion as 
focusing on ``actual emissions'' rather than ``potential to emit.'' [45 
FR 52676, 52700.] This led EPA to amend its NSR regulations and to 
change the baseline for measuring emissions increases from using a 
source's potential to emit to using the source's ``actual emissions.'' 
The final rules generally defined pre-change actual emissions based on 
historical emissions (the average of annual emissions for the 2 years 
preceding the change), but also included provisions to allow source-
specific allowables or potential to emit to be a measure of pre-change 
actual emissions in certain circumstances. [See 40 CFR 52.21(b)(21).]
---------------------------------------------------------------------------

    \46\ The Court amended the December 14th opinion on April 21, 
1980. See item 0024 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    Our 1980 regulations resulted in numerous challenges, including 
challenges to our methodology for calculating emissions increases. 
These challenges were consolidated in Chemical Manufacturer's 
Association v. EPA, No. 79-112. EPA entered into a Settlement Agreement 
which required us to propose an NSPS-like, hourly-potential-to-hourly-
potential emissions increase test for modifications (``CMA Exhibit 
B'').
    In 1992, before implementing the Settlement Agreement, we 
promulgated revisions to our applicability regulations creating special 
rules for physical and operational changes at EUSGUs. [See 57 FR 32314 
(July 21, 1992).] \47\ In this rule, as noted above, commonly referred 
to as the ``WEPCO rule,'' we adopted an actual-to-future-actual 
methodology for all changes at EUSGUs except the construction of a new 
electric generating unit or the replacement of an existing emissions 
unit. Under this methodology, the actual annual emissions before the 
change are compared with the projected actual emissions after the 
change to determine if a physical or operational change would result in 
a significant increase in emissions. To ensure that the projection is 
valid, the rule requires the utility to track its emissions for the 
next 5 years and provide to the reviewing authority information 
demonstrating that the physical or operational change did not result in 
an emissions increase.
---------------------------------------------------------------------------

    \47\ The regulations define ``electric utility steam generating 
units'' as any steam electric generating unit that is constructed 
for the purpose of supplying more than one-third of its potential 
electric output capacity and more than 25 megawatts (MW) of 
electrical output to any utility power distribution system for sale. 
See, for example, Sec.  51.166(b)(30).
---------------------------------------------------------------------------

    In promulgating the WEPCO rule, we also adopted a presumption that 
utilities may use as baseline emissions the actual annual emissions 
from any 2 consecutive years within the 5 years immediately preceding 
the change.
    On July 23, 1996, we proposed CMA Exhibit B as one alternative as 
part of a comprehensive proposal to reform the NSR regulations. [61 FR 
38250.] Finally, on December 21, 2002, we took final action on certain 
elements of our 1996 proposal and declined to promulgate the CMA 
Exhibit B approach. Instead, we revised the emissions calculation 
procedures to include an actual-to-projected-actual emissions test for 
all sources. [67 FR 80290.]
    While industry, environmental groups and States filed petitions for 
review with the United States Court of Appeals for the District of 
Columbia Circuit regarding both our 1980 and 1992 rules, those 
challenges were not heard and decided until earlier this year when 
those challenges were consolidated with challenges to our 2002 
revisions to the major source NSR program. [See New York v. EPA, No. 
02-1387 (D.C. Cir. June 24, 2005).] The Court upheld EPA's regulations 
concerning the actual-to-projected-actual test. Id., slip op. at 26. 
While industry argued that the statute requires EPA to use the same 
definition of ``modification'' for the NSPS program and NSR programs, 
the Court concluded that industry had waived the argument and thus 
declined to address this issue in its ruling.\48\
---------------------------------------------------------------------------

    \48\ The Court expressed a view that Congress' failure to 
expressly incorporate the NSPS regulatory definition of NSPS argues 
against a finding that Congress intended the NSPS definition to 
apply in implementing the NSR program. Id. at 25.
---------------------------------------------------------------------------

    In a separate part of its opinion, the Court held that EPA had 
discretion in defining the period of time over which to calculate 
emissions, for purposes of ascertaining whether a physical or 
operational change increases those emissions. Id. at 39-40. The Court 
upheld EPA regulations that revised that period as a 2-year period 
within the 10 years prior the change. The Court stated:

    In enacting the NSR program, Congress did not specify how to 
calculate ``increases'' in emissions, leaving EPA to fill in that 
gap while balancing the economic and environmental goals of the 
statute [citation omitted]. Based on its experience with the NSR 
program and its examination of the relevant data, EPA determined 
that a ten-year lookback period would alleviate the problems 
experienced under the 1980 rule and advance the economic and 
environmental goals of the CAA * * * [W]e defer to EPA's statutory 
interpretation under Chevron step 2 * * *.

Id. at 39-40.

    In another part of the Court's opinion, the Court held that the NSR 
modification requirement, which incorporates by reference CAA section 
111(a)(4), ``unambiguously defines `increases' in terms of actual 
emissions.'' Id. at 62. EPA has filed a petition for rehearing in which 
we argue that this holding was in error, and that the term 
``increases'' is ambiguous for NSR purposes and therefore EPA has 
discretion to promulgate an actuals, allowables, or potentials 
interpretation.
    On June 15, 2005, the United States Court of Appeals for the Fourth 
Circuit handed down a decision concerning an enforcement action against 
Duke Energy Corporation concerning major NSR applicability at eight 
electric utilities. [United States v. Duke Energy Corp., No. 04-1763.] 
The Court ruled that ``because Congress mandated that the PSD 
definition of `modification' be identical to the NSPS definition of 
`modification,' the EPA cannot interpret ``modification'' under the PSD 
inconsistently with the way it interprets that term under the NSPS.'' 
Id., slip op. at 12-14). The Court also stated that ``No one disputes 
that prior to enactment of the PSD statute, the EPA promulgated NSPS 
regulations that define the term ``modification'' so that only a 
project that increases a plant's hourly rate of emissions constitutes a 
`modification' '' Id., slip op. at 18. The Court thus held that for 
purposes of the PSD program, emissions increases must be determined by 
comparing the pre- and post-change maximum hourly emissions.

C. Legal Rationale

1. Maximum Achievable Hourly Emissions Test
    Sections 169(2)(C) and 171(4) of the Act specify that the 
definition of ``modification'' set forth in CAA section 111(a)(4) 
applies in the PSD and nonattainment major NSR programs. Pursuant to 
CAA section 111(a)(4), the term modification means ``any physical 
change or change in the method of operation of a stationary source 
which increases the amount of any air pollutant emitted by such source 
or which results in the emission of any air pollutant not previously 
emitted.'' The statute, however, does not prescribe the methodology for 
determining when an emissions increase has occurred following a 
physical change or change in the method of operation. New York v. EPA, 
slip op. at 31, 39-40, No. 02-1387

[[Page 61099]]

(D.C. Cir. June 24, 2005). Since Congress did not specify how to 
calculate ``increases'' in emissions, it left EPA with the task of 
filling that gap while balancing the economic and environmental goals 
of the CAA. Id. at 39-40.
    When a statute is silent or ambiguous with respect to specific 
issues, the relevant inquiry for a reviewing court is whether the 
Agency's interpretation of the statutory provision is permissible. 
Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 865 (1984). 
Accordingly, EPA has the discretion to propose a reasonable method by 
which to calculate emissions increases for purposes of NSR 
applicability. Although we do not assert that the NSPS interpretation 
is the only one we can adopt for NSR purposes (we followed quite a 
different interpretation from 1980 until today), at the very least we 
believe that the statutory silence on this issue delineates a zone of 
discretion within which EPA may operate.
    As we discuss in the previous section of this preamble, we modeled 
our early major NSR method for calculating any emissions increases 
after the existing NSPS program. In the NSPS program, we define major 
modification as the maximum achievable hourly increase in emissions at 
actual operating capacity, considering controls. That is, we defined 
actual emissions as post-controlled emissions at current capacity. Our 
early NSR regulations defined emissions increases in terms of allowable 
or potential emissions, consistent with our interpretation that 
Congress intended the modification definition to apply to expansions in 
capacity, but not to apply to the use of existing capacity.
    As we previously explained, we promulgated the actual-to-potential 
emissions test \49\ in 1980, after interpreting the Alabama Power final 
decision as shifting the focus from regulating increases in existing 
capacity to regulating possible changes in actual emissions. Our 
decision to change to a historical actual emissions baseline must be 
viewed in light of the progress of air quality programs at that time. 
The air quality was significantly degraded in a number of areas and air 
emission trends showed a steady decline in the quality of our nation's 
air in some jurisdictions. State and local air pollution control 
programs were just developing, and the programs mandated in 1990 by 
parts 2, 3, and 4 of title I of the Act and programs such as the Acid 
Rain program, the NOX SIP Call, CAIR, and BART did not 
exist. Accordingly, the major NSR program provided States one of the 
few opportunities under the Clean Air Act to mitigate rising levels of 
air pollution through regulation of potential emissions increases from 
existing sources. Moving to an actual-to-potential applicability test 
was a sensible approach for managing air quality at that time, and 
interpreting the Alabama Power final decision to support this goal was 
appropriate.
---------------------------------------------------------------------------

    \49\ The 1980 rules revised the pre-change (baseline) emissions 
calculation to one based on actual emissions, but retained 
potential-to-emit for measuring post-change emissions.
---------------------------------------------------------------------------

    The Alabama Power Court recognized EPA's discretion to define the 
same statutory terms differently in the NSR and NSPS regulations. 
[Alabama Power Co. v. Costle, 636 F.2d at 397-98 (EPA has latitude to 
adopt definitions of the component terms of ``source'' that are 
different in scope from those that may be employed for NSPS and PSD, 
due to differences in the purpose and structure of the two programs).] 
Moreover, while the Court held that potential to emit must be 
determined considering controls, and that NSR major modifications must 
be determined considering total or net emissions from the source over a 
contemporaneous period, the Court otherwise left it to EPA's discretion 
to determine how emissions increases following a physical change or 
change in the method of operation were to be determined, including the 
currency for measuring the emissions increases. Id. at 353-54, 401-03.
    In using our discretion for defining the component term ``increases 
in any pollutant emitted'' within the definition of ``modification,'' 
we are mindful of Congress' directive that the major NSR program be 
tailored in such a way as to balance the need for environmental 
protection against the desires to encourage economic growth. In this 
context, the appropriate methodologies for measuring emissions 
increases is inherently linked to our responsibility to guide the 
States in their efforts to achieve and maintain an effective, 
comprehensive air quality program, of which the major NSR program is 
only one component. See section 101(a) of the Act. Accordingly, as both 
we and the States have gained experience in managing air quality, we 
have amended the applicability provisions of the NSR regulations to 
better balance the need for environmental protection and economic 
growth, and the administrative burden of running the program. (See for 
example 57 FR 32314, July 21, 1992; 67 FR 80186, December 31, 2002; 68 
FR 61248, October 27, 2003.)
    In light of the progress of air quality programs under the 1990 CAA 
to reduce EGU emissions and the policy goals of the major NSR program, 
we considered the appropriate scope of the major NSR program as it 
applies to existing sources. The NSR program's scope is closely related 
to the scope of the NSPS program, created 7 years earlier in the CAA 
Amendments of 1970. In section 111 of the CAA, which sets forth the 
NSPS provisions, Congress applied the NSPS to ``new sources.'' [CAA 
sections 111(b)(1)(B), 111(b)(4).] Congress determined that as a 
general matter it would not impose the NSPS standards on existing 
sources, instead leaving to the State and local permitting authorities 
the decision of the extent to which to regulate those sources through 
``State Implementation Plans'' designed to implement National Ambient 
Air Quality Standards (NAAQS). [See CAA section 110.] Congress followed 
a similar approach in determining the scope of the major NSR program 
established by the 1977 Amendments to the CAA. As amended, the CAA 
specifies that State Implementation Plans must contain provisions that 
require sources to obtain major NSR permits prior to the point of 
``construction'' of a source. [CAA sections 172(c)(5); 165(a).] By 
contrast, the CAA generally leaves to State and local permitting 
authorities in the first instance the question of the extent, means, 
and timetable for obtaining reductions from existing sources that are 
needed to comply with NAAQS. [See CAA sections 172(c)(1), 161.] NSR's 
applicability to existing sources that undergo a ``modification'' is an 
exception to this basic concept. This exception likewise finds its 
roots in the NSPS program's applicability to ``modifications'' of 
existing sources. The 1970 CAA made the NSPS program applicable to 
modifications through its definition of a ``new source,'' which it 
defined as ``any stationary source, the construction or modification of 
which is commenced after the publication of regulations * * * 
prescribing a[n applicable] standard of performance * * *.'' [CAA 
section 111(a)(2).] CAA section 111(a)(4), in turn, defined a 
``modification'' as ``any physical change in, or change in the method 
of operation of, a stationary source which increases the amount of any 
air pollutant emitted from such source or which results in the emission 
of any air pollutant not previously emitted.''

[[Page 61100]]

    The 1980, 1992 and 2002 rules \50\ were reasonable interpretations 
of the statutory language in CAA section 111(a)(4) for purposes of the 
major NSR program and the air quality needs of the country at those 
times, and continue to be reasonable in many respects. Nonetheless, we 
retain discretion to adopt other constructs for determining emissions 
increases following a physical change or change in the method of 
operation when they make sense in particular circumstances. The 
proposed regulations would establish a uniform emissions test 
nationally under the NSPS and NSR programs for existing EGUs. They 
would also streamline requirements for EGUs. Accordingly, we believe 
that it is appropriate to tailor the major NSR program for EGUs to 
regulate modifications that result in increases to an EGU's existing 
capacity. The maximum achievable hourly emissions test is an 
appropriate tool for this purpose.
---------------------------------------------------------------------------

    \50\ 45 FR 52676, August, 7, 1980; 57 FR 32314, July 21, 1992; 
67 FR 80186, December 31, 2002. See items 0036, 0027, and 0030 in E-
Docket OAR-2005-0163.
---------------------------------------------------------------------------

    The Court in New York v. EPA held that the language of the CAA 
indicates that Congress intended to apply NSR to changes that increase 
actual emissions, instead of potential or allowable emissions. Slip op. 
at 64. The Court based its opinion, in part, on the Alabama Power 
Court's finding that the term ``emit'' in the phrase ``emit, or have 
the potential to emit'' within the definition of major emitting 
facility, is ``some measure of actual emissions.'' New York v. EPA, 
slip op. at 63, citing Alabama Power, 636 F.2d at 353 (emphasis 
added).\51\
    To the extent that the Alabama Power Court's holding relating to 
the definition of major emitting facility in CAA section 169(1) should 
have any persuasive value in interpreting a different component term 
(increases the amount of any air pollutant) in a different definition 
[definition of modification in CAA 111(a)(4)] in the Act, the Court's 
reference to ``some measure of actual emissions'' indicates that the 
statute allows for different ways of measuring actual emissions.
---------------------------------------------------------------------------

    \51\ As previously stated, the United States has filed a 
petition for rehearing on this aspect of the Court's decision in New 
York v. EPA. See item 0050 in E-Docket OAR-2005-0163.
---------------------------------------------------------------------------

    We believe that the maximum achievable hourly emissions test 
provides ``some measure of actual emissions.'' For most, if not all 
EGUs, the amount at which the unit is actually able to emit--its 
maximum achievable hourly rate--is equivalent to that unit's maximum 
actual hourly rate during the relevant period. States require most, if 
not all EGUs, to perform periodic performance tests under applicable 
State Implementation Plans and enhanced monitoring requirements. The 
NSPS regulations require a source to conduct testing based on 
representative performance of the affected facility, generally 
interpreted as performance at current maximum physical and operational 
capacity. [40 CFR 60.8(c).] \52\ Also, in the National Stack Test 
Guidance that we issued on September 30, 2005, we recommended that 
facilities conduct performance tests under conditions that are ``most 
likely to challenge the emissions control measures of the facility with 
regard to meeting the applicable emission standards, but without 
creating an unsafe condition.'' Most EGUs actually emit at the highest 
level at which they are capable of emitting at some time within a 5-
year baseline period.
---------------------------------------------------------------------------

    \52\ See also 36 FR 24876, December 23, 1971. Referring to 
performance tests, we stated that ``Procedures have been modified so 
that the equipment will have to be operated at maximum expected 
production rate, rather than rated capacity, during compliance 
tests.''
---------------------------------------------------------------------------

    One way in which the maximum achievable hourly emissions test 
differs from the way actual emissions are measured under the current 
actual-to-projected-actual test is that the former measures actual 
emissions over an hourly period rather than over an annual period. When 
Congress enacted the 1977 amendments to the CAA creating the NSR 
program, it did not specify how increases in emissions were to be 
calculated, or over what increment of time emissions should be 
measured. Nonetheless, Congress was likely aware, before it enacted the 
1977 Amendments, that we calculated emissions increases in terms of kg/
hr to determine whether a project resulted in a ``modification.'' 
Congress did not indicate anywhere in the 1977 Amendments or the 
legislative history that our use of a kg/hr measure of emissions would 
be contrary to the purposes of the NSR program. Accordingly, we believe 
that we have discretion to determine the appropriate increment of time 
over which to measure actual emissions for purposes of determining 
whether emissions increases have occurred in the major NSR program.
    We believe that it is reasonable to use an hourly period to 
calculate actual emissions for purposes of measuring emissions 
increases in the major NSR program. Prior to Congress' enactment of the 
major NSR provisions in the CAA Amendments of 1977, the NSPS 
regulations calculated emissions increases from physical and 
operational changes in terms of hourly emissions. Our 1975 NSPS 
regulations provided that ``any physical or operational change to an 
existing facility which results in an increase in the emission rate to 
the atmosphere of any pollutant to which a standard applies shall be 
considered a modification within the meaning * * * of the Act,'' with 
``emission rate * * * expressed as kg/hr of any pollutant discharged to 
the atmosphere.'' [40 FR 58416, 58419 (December 16, 1975)] Even before 
the 1975 NSPS rule, we put forth a definition of ``modification'' in a 
1974 regulation implementing what became known as the ``Prevention of 
Significant Deterioration'' program. [39 FR 42510 (December 5, 1974).] 
The regulation's preamble further provided that we intended the term 
``modified source'' to be ``consistent with the definition used in the 
[NSPS].'' Id. at 42513.
    We further believe that today's revised emissions test does not 
result in a substantially different outcome from the actual-to-
projected-actual test. The current major NSR regulations measure actual 
emissions differently from the emissions test we are proposing by 
assessing changes in emissions relative to historical emissions over a 
baseline period defined in terms of annual emissions. Nonetheless, like 
the NSPS test, the major NSR regulations allow for consideration of an 
emissions unit's operating capacity in determining whether a change 
results in an emissions increase. Under the actual-to-projected-actual 
test, a source can subtract from its post-project emissions those 
emissions that the unit could have accommodated during the baseline 
period and that are unrelated to the change (sometimes referred to as 
the ``demand growth exclusion''). That is, the source can emit up to 
its current maximum capacity without triggering major NSR under the 
actual-to-projected-actual test, as long as the increase is unrelated 
to the physical or operational change. The NSPS approach thus differs 
from the major NSR test only by when a source considers operating 
capacity in the methodology, and by assuming that a source's use of 
existing operating capacity is unrelated to the change.
    Although the approaches differ, applying the maximum achievable 
hourly emissions test for EGUs in the major NSR program has merit 
because it reduces the administrative burden of the NSR program. It 
eliminates the burden of projecting future emissions and distinguishing 
between emissions increases caused by the change from those due solely 
to demand growth, because any increase in the emissions under the 
maximum achievable

[[Page 61101]]

emissions test would logically be attributed to the change. It reduces 
recordkeeping and reporting burdens on sources because compliance will 
no longer rely on synthesizing emissions data into rolling average 
emissions. In view of this, allowing use of the maximum achievable 
hourly rate test reasonably balances the economic need of sources to 
use existing operating capacity with the environmental benefit of 
regulating those emissions increases related to a change. Moreover, 
allowing use of this approach for EGUs is a reasonable use of our 
discretion to define how we measure emissions increases for purposes of 
the major NSR program, because it reduces administrative burden 
associated with the emissions calculation procedure, and considers the 
effectiveness of other regulatory programs in regulating use of 
existing EGU capacity.
    Finally, the test allows sources to undertake projects designed to 
improve the efficiency, reliability, and safety of the EGU without 
necessitating a finding that post-change emissions at such a unit are 
unrelated to regulated physical or operational changes. In our 2003 
final rule on the Equipment Replacement Provision of the Routine 
Maintenance, Repair and Replacement Exclusion for NSR (68 FR 61248, 
October 27, 2003), we articulated our position that activities designed 
to promote safety, reliability, and efficiency of emissions units 
should not be subject to major NSR, yet it is often these types of 
projects that raise questions as to whether post-change emissions are 
related to a change. The maximum achievable hourly emissions test 
encourages sources to undertake such projects by focusing reviewing 
authority resources on changes that add new operating capacity rather 
than on projects that restore a source to normal operations. 
Importantly, short-term emissions are a good indicator for operating 
capacity. That is, longer averaging periods, such as an annual basis, 
can mask spikes in production.
2. Maximum Achieved Hourly Emissions Test
    As we stated in Section IV.B. of this preamble, we also believe 
that, like the maximum achievable hourly emissions test, the maximum 
achieved emissions test is a measure of a source's actual emissions. 
The maximum achieved hourly emissions test is based on a specific 
measure of historical actual emissions during a representative period. 
Therefore, even though it is not our preferred option, we believe that 
a test based on maximum achieved hourly emissions satisfies the 
requirement that major NSR applicability be based on ``some measure of 
actual emissions.'' For the reasons that we state in Section V.C.1 of 
this preamble, we believe we have discretion to adopt a maximum hourly 
achieved emissions test for determining whether there is an increase in 
emissions following a physical change or change in the method of 
operation. We request comment on this option and on whether it 
satisfies the requirement that major NSR applicability be based on a 
measure of actual emissions.
    We request public comment on all aspects of the legal basis in 
today's proposed action.

VI. Statutory and Executive Order Reviews

A. Executive Order 12866--Regulatory Planning and Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to Office of Management and Budget (OMB) review 
and the requirements of the Executive Order. The Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, OMB has notified 
EPA that it considers this a ``significant regulatory action'' within 
the meaning of the Executive Order. EPA has submitted this action to 
OMB for review. Changes made in response to OMB suggestions or 
recommendations will be documented in the public record.

B. Paperwork Reduction Act

    The information collection requirements in this proposed rule have 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The 
Information Collection Request (ICR) document prepared by EPA has been 
assigned EPA ICR number 1230.18.
    Certain records and reports are necessary for the State or local 
agency (or the EPA Administrator in non-delegated areas), for example, 
to: (1) Confirm the compliance status of stationary sources, identify 
any stationary sources not subject to the standards, and identify 
stationary sources subject to the rules; and (2) ensure that the 
stationary source control requirements are being achieved. The 
information would be used by the EPA or State enforcement personnel to 
(1) identify stationary sources subject to the rules, (2) ensure that 
appropriate control technology is being properly applied, and (3) 
ensure that the emission control devices are being properly operated 
and maintained on a continuous basis. Based on the reported 
information, the State, local, or tribal agency can decide which 
plants, records, or processes should be inspected.
    The proposed rule would reduce burden for owners and operators of 
major stationary sources. While we do not expect a change in the number 
of permit actions due to the proposed changes, we expect the proposed 
rule would simplify applicability determinations, eliminate the burden 
of projecting future emissions and distinguishing between emissions 
increases caused by the change from those due solely to demand growth, 
and reduce recordkeeping and reporting burdens. Over the 3-year period 
covered by the ICR, we estimate an average annual reduction in burden 
of about 5,870 hours and $462,000 for all industry entities that would 
be affected by the proposed rule. For the same reasons, we also expect 
the proposed rule to reduce burden for State and local authorities 
reviewing permits when fully implemented. However, there would be a 
one-time, additional burden for State and local agencies to revise 
their SIPs to incorporate the proposed changes. We estimate this one-
time burden to be about 2,240 annual hours and $83,000 for all State 
and local reviewing authorities that would be affected by this proposed 
rule.
    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purpose of responding to the information 
collection; adjust existing ways to comply with any previously 
applicable

[[Page 61102]]

instructions and requirements; train personnel to respond to a 
collection of information; search existing data sources; complete and 
review the collection of information; and transmit or otherwise 
disclose the information.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations are listed in 40 CFR part 9 and 48 CFR chapter 15. We will 
continue to present OMB control numbers in a consolidated table format 
to be codified in 40 CFR part 9 of the Agency's regulations, and in 
each CFR volume containing EPA regulations. The table lists the section 
numbers with reporting and recordkeeping requirements, and the current 
OMB control numbers. This listing of the OMB control numbers and their 
subsequent codification in the CFR satisfies the requirements of the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) and OMB's implementing 
regulations at 5 CFR part 1320.
    To comment on the Agency's need for this information, the accuracy 
of the provided burden estimates, and any suggested methods for 
minimizine respondent burden, including use of automated collection 
techniques, EPA has established a public docket for this rule, which 
includes this ICR, under Docket ID number OAR-2005-1064. Submit any 
comments related to the ICR for this proposed rule to EPA and OMB. See 
Addresses section at the beginning of this notice for where to submit 
comments to EPA. Send comments to OMB at the Office of Information and 
Regulatory Affairs, Office of Management and Budget, 725 17th Street, 
NW., Washington, DC 20503, Attention: Desk Officer for EPA. Since OMB 
is required to make a decision concerning the ICR between 30 and 60 
days after October 20, 2005, a comment to OMB is best assured of having 
its full effect if OMB receives it by November 21, 2005. The final rule 
will respond to any OMB or public comments on the information 
collection requirements contained in this proposal.

C. Regulatory Flexibility Act (RFA)

    The RFA generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to notice and comment 
rulemaking requirements under the Administrative Procedure Act or any 
other statute unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
Small entities include small businesses, small organizations, and small 
governmental jurisdictions.
    For purposes of assessing the impacts of today's notice on small 
entities, small entity is defined as: (1) A small business that is a 
small industrial entity as defined in the U.S. Small Business 
Administration (SBA) size standards. (See 13 CFR 121.201); (2) a small 
governmental jurisdiction that is a government of a city, county, town, 
school district, or special district with a population of less than 
50,000; or (3) a small organization that is any not-for-profit 
enterprise that is independently owned and operated and is not dominant 
in its field.
    After considering the economic impacts of today's notice on small 
entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. In 
determining whether a rule has a significant economic impact on a 
substantial number of small entities, the impact of concern is any 
significant adverse economic impact on small entities, since the 
primary purpose of the regulatory flexibility analyses is to identify 
and address regulatory alternatives ``which minimize any significant 
economic impact of the proposed rule on small entities.'' 5 U.S.C. 
sections 603 and 604. Thus, an agency may certify that a rule will not 
have a significant economic impact on a substantial number of small 
entities if the rule relieves regulatory burden, or otherwise has a 
positive economic effect, on all of the small entities subject to the 
rule.
    We believe that today's proposed rule changes will relieve the 
regulatory burden associated with the major NSR program for all EGUs, 
including any EGUs that are small businesses. This is because the 
proposed rule would simplify applicability determinations, eliminate 
the burden of projecting future emissions and distinguishing between 
emissions increases caused by the change from those due solely to 
demand growth, and by reducing recordkeeping and reporting burdens. As 
a result, the program changes provided in the proposed rule are not 
expected to result in any increases in expenditure by any small entity.
    We have therefore concluded that today's proposed rule would 
relieve regulatory burden for all small entities. We continue to be 
interested in the potential impacts of the proposed rule on small 
entities and welcome comments on issues related to such impacts.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating an EPA rule for which a written statement 
is needed, section 205 of the UMRA generally requires EPA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective or least burdensome alternative 
that achieves the objectives of the rule. The provisions of section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows EPA to adopt an alternative other than the least 
costly, most cost-effective or least burdensome alternative if the 
Administrator publishes with the final rule an explanation why that 
alternative was not adopted. Before EPA establishes any regulatory 
requirements that may significantly or uniquely affect small 
governments, including tribal governments, it must have developed under 
section 203 of the UMRA a small government agency plan. The plan must 
provide for notifying potentially affected small governments, enabling 
officials of affected small governments to have meaningful and timely 
input in the development of EPA regulatory proposals with significant 
Federal intergovernmental mandates, and informing, educating, and 
advising small governments on compliance with the regulatory 
requirements.
    We have determined that this rule would not contain a Federal 
mandate that would result in expenditures of $100 million or more by 
State, local, and tribal governments, in the aggregate, or the private 
sector in any 1 year. Although initially these changes are expected to 
result in a small increase in the burden imposed upon reviewing 
authorities in order for them to be included in the State's SIP, these 
revisions would ultimately simplify applicability determinations, 
eliminate the burden of reviewing projected future emissions and 
distinguishing between emissions increases caused by the change from 
those due solely to demand growth, and reduce the burden associated 
with making compliance

[[Page 61103]]

determinations. Thus, today's action is not subject to the requirements 
of sections 202 and 205 of the UMRA.
    For the same reasons stated above, we have determined that today's 
notice contains no regulatory requirements that might significantly or 
uniquely affect small governments. Thus, today's action is not subject 
to the requirements of section 203 of the UMRA.

E. Executive Order 13132--Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.''
    This proposed rule does not have federalism implications. It will 
not have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in Executive Order 13132. We estimate an one-time burden 
of approximately 2,240 hours and $83,000 for State agencies to revise 
their SIPs to include the proposed regulations. However, these 
revisions would ultimately simplify applicability determinations, 
eliminate the burden of reviewing projected future emissions and 
distinguishing between emissions increases caused by the change from 
those due solely to demand growth, and reduce the burden associated 
with making compliance determinations. This will in turn reduce the 
overall burden of the program. Thus, Executive Order 13132 does not 
apply to this rule.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicits comment on this proposed rule 
from State and local officials.

F. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 9, 2000), 
requires EPA to develop an accountable process to ensure ``meaningful 
and timely input by tribal officials in the development of regulatory 
policies that have tribal implications.'' This proposed rule does not 
have tribal implications, as specified in Executive Order 13175. There 
are no Tribal authorities currently issuing major NSR permits. To the 
extent that today's proposed rule may apply in the future to any EGU 
that may locate on tribal lands, tribal officials are afforded the 
opportunity to comment on tribal implications in today's notice. Thus, 
Executive Order 13175 does not apply to this rule.
    Although Executive Order 13175 does not apply to this proposed 
rule, EPA specifically solicits comment on this proposed rule from 
tribal officials. We will also consult with tribal officials, including 
officials of the Navaho Nation lands on which Navajo Power Plant and 
Four Corners Generating Plant are located, before promulgating the 
final regulations.

G. Executive Order 13045--Protection of Children From Environmental 
Health Risks and Safety Risks

    Executive Order 13045: ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that: (1) Is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, the Agency must evaluate the environmental health 
or safety effects of the planned rule on children, and explain why the 
planned regulation is preferable to other potentially effective and 
reasonably feasible alternatives considered by the Agency.
    EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that are based on health or safety risks, such that 
the analysis required under section 5-501 of the Order has the 
potential to influence the regulation. This rule is not subject to 
Executive Order 13045, because we do not have reason to believe the 
environmental health or safety risks addressed by this action present a 
disproportionate risk to children. We believe that, based on our 
analysis of electric utilities, this rule as a whole will result in 
equal environmental protection to that currently provided by the 
existing regulations, and do so in a more streamlined and effective 
manner.

H. Executive Order 13211--Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' [66 FR 28355 
(May 22, 2001)] because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. In fact, this 
rule improves owner/operator flexibility concerning the supply, 
distribution, and use of energy. Specifically, the proposed rule would 
increase owner/operators' ability to utilize existing capacity at EGUs.

I. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law No. 104-113, 12(d) (15 U.S.C. 272 
note) directs EPA to use voluntary consensus standards in its 
regulatory activities unless to do so would be inconsistent with 
applicable law or otherwise impractical. Voluntary consensus standards 
are technical standards (for example, materials specifications, test 
methods, sampling procedures, and business practices) that are 
developed or adopted by voluntary consensus standards bodies. The NTTAA 
directs EPA to provide Congress, through OMB, explanations when the 
Agency decides not to use available and applicable voluntary consensus 
standards.
    Today's proposed rule does not involve technical standards. 
Therefore, EPA is not considering the use of any voluntary consensus 
standards.

List of Subjects in 40 CFR Parts 51 and 52

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Electric Generating Unit, BACT, LAER, Nitrogen 
oxides, Sulfur dioxide, BART, Clean Air Interstate Rule.

    Dated: October 13, 2005.
Stephen L. Johnson,
Administrator.
[FR Doc. 05-20983 Filed 10-19-05; 8:45 am]
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