<DOC>
[107 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:83717.wais]
S. Hrg. 107-868
NEW SOURCE REVIEW POLICY, REGULATIONS AND ENFORCEMENT ACTIVITIES
=======================================================================
JOINT HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
AND THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ON
__________
JULY 16, 2002
__________
Printed for the use of the Senate Committee on Environment and Public
Works
and the Senate Committee on the Judiciary
______
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED SEVENTH CONGRESS
second session
JAMES M. JEFFORDS, Vermont, Chairman
MAX BAUCUS, Montana BOB SMITH, New Hampshire
HARRY REID, Nevada JOHN W. WARNER, Virginia
BOB GRAHAM, Florida JAMES M. INHOFE, Oklahoma
JOSEPH I. LIEBERMAN, Connecticut CHRISTOPHER S. BOND, Missouri
BARBARA BOXER, California GEORGE V. VOINOVICH, Ohio
RON WYDEN, Oregon MICHAEL D. CRAPO, Idaho
THOMAS R. CARPER, Delaware LINCOLN CHAFEE, Rhode Island
HILLARY RODHAM CLINTON, New York ARLEN SPECTER, Pennsylvania
JON S. CORZINE, New Jersey PETE V. DOMENICI, New Mexico
Ken Connolly, Majority Staff Director
Dave Conover, Minority Staff Director
------
COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin JON KYL, Arizona
CHARLES E. SCHUMER, New York MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina MITCH McCONNELL, Kentucky
Bruce A. Cohen, Majority Chief Counsel and Staff Director
Sharon Prost, Minority Chief Counsel
Makan Delrahim, Minority Staff Director
(ii)
C O N T E N T S
----------
Page
JULY 16, 2002
OPENING STATEMENTS
Baucus, Hon. Max, U.S. Senator from the State of Montana,
prepared statement............................................. 94
Biden, Hon. Joseph R., Jr., U.S. Senator from the State of
Delaware....................................................... 16
Bond, Hon. Christopher S., U.S. Senator from the State of
Missouri....................................................... 42
Cantwell, Hon. Maria, U.S. Senator from the State of Washington.. 96
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware.. 39
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New
York........................................................... 50
Corzine, Hon. Jon S., U.S. Senator from the State of New Jersey.. 56
Durbin, Hon. Richard J., U.S. Senator from the State of Illinois. 54
Edwards, Hon. John, U.S. Senator from the State of North Carolina 45
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 19
Jeffords, Hon. James M., U.S. Senator from the State of Vermont.. 6
Leahy, Hon. Patrick, U.S. Senator from the State of Vermont...... 1
Lieberman, Hon. Joseph I., U.S. Senator from the State of
Connecticut.................................................... 12
Schumer, Hon. Charles E., U.S. Senator from the State of New York 67
Sessions, Hon. Jeff, U.S. Senator from the State of Alabama...... 48
Smith, Hon. Bob, U.S. Senator from the State of New Hampshire.... 9
Voinovich, Hon. George V., U.S. Senator from the State of Ohio... 14
Wyden, Hon. Ron, U.S. Senator from the State of Oregon........... 94
WITNESSES
Elliott, Donald, co-chair, Environmental Practice Group, Paul,
Hastings, Janofsky & Walker, LLP............................... 85
Prepared statement........................................... 619
Responses to additional questions from:
Senator Voinovich........................................ 622
Senator Wyden............................................ 622
Harper, Stephen, director, Environmental Health, Safety and
Energy Policy, INTEL Corporation, Washington, DC............... 80
Exhibit, Intel Aloha Pal..................................... 603
Prepared statement........................................... 599
Responses to additional questions from Senator Voinovich..... 604
Holmstead, Jeffrey, Assistant Administrator for Air and
Radiation, U.S. Environmental Protection Agency................ 29
Memorandum, Bryan Hubbell, senior economist, U.S.
Environmental Protection Agency, Innovative Strategies and
Economics Group............................................ 156
Prepared statement........................................... 109
Reports:
Benefits Associated with Electricity Generating Unit
Emissions Reductions Realized Under the NSR Program.... 156
New Source Review: Report to the President, Overview....134-155
New Source Review: Report to the President, June 2002,
Recommended Improvements to the New Source Review
Program...............................................130-134
Responses to additional questions from Senators Jeffords and
Leahy.....................................................113-130
Kelley, Hilton, founder, Community In-Power and Development
Association.................................................... 77
Articles:
Project Texas, Gasoline Alley............................ 580
Report, Refinery Reform: Overview Report on the
ExxonMobile Baytown Refinery, July 12, 2002............ 595
The Texas Observer, Port Arthur Blues, A Native Son
Returns to Revitalize His Pollution-Plagued
Neighborhood, Feature: 31/2002, by Michael May......... 589
Logs, PortArthur Odors....................................... 583
Prepared statement........................................... 569
Report, Refinery Reform Campaign............................. 571
Responses to additional questions from Senator Voinovich..... 599
Pryor, Bill, attorney general, State of Alabama, Montgomery, AL.. 65
Prepared statement........................................... 396
Responses to additional questions from Senator Voinovich..... 397
Sansonetti, Thomas L., Assistant Attorney General, Environment
and Resources Division, U.S. Department of Justice............. 27
Letter from Daniel J. Bryant, U.S. Department of Justice..... 105
Prepared statement........................................... 96
Report, U.S. Department of Justice, Office of Legal Policy,
New Source Review: An Analysis of the Consistency of
Enforcement Actions with the Clean Air Act and Implementing
regulations, January 2002.................................. 106
Responses to additional questions from:
Senator Cantwell......................................... 104
Senator Graham........................................... 104
Senator Jeffords......................................... 99
Senator Leahy............................................ 100
Senator Lieberman........................................ 102
Senator Voinovich........................................ 104
Schaeffer, Eric, director, Environmental Integrity Project,
Rockefeller Family Fund........................................ 71
Brief, United States of America v. Southern Indiana Gas and
Electric Company..........................................407-483
Letter from Henry V. Nickel, Hunton & Williams..............484-494
Prepared statement........................................... 398
Responses to additional questions from Senator Voinovich..... 495
Slaughter, Bob, president, National Petrochemical and Refiners
Association.................................................... 75
Chart, Cumulative Regulatory Impact on Refineries, 2000-2008. 501
Letters:
Chevron Texaco Company................................... 567
National Petrochemical and Refiners Association.......... 530
API NSR 90-Day Review Comments, EPA Docket No. A-
2001-19, July 19, 2001............................559-561
Attachment 1, New Source Review Examples............534-552
Attachment 2, New Source Review Potential Impact
Examples..........................................553-555
Attachment 3, NPRA Paper, Market Based Alternative to
Existing New Source Review, July 23, 2001.........556-557
Memorandum, Status of the New Source Review
Improvement Rulemaking, EPA........................ 562
News Release, NPRA Comments on EPA's NSR Reform
Package............................................ 558
Prepared statements:
April 5, 2001............................................ 517
February 28, 2000........................................ 503
July 10, 2001............................................ 526
July 16, 2002............................................ 496
Responses to additional questions from:
Senator Voinovich........................................ 565
Senator Wyden............................................ 566
Sorrell, William H., attorney general, State of Vermont.......... 60
Prepared statement........................................... 163
Supplemental Comments........................................ 164
Spitzer, Eliot, attorney general, State of New York.............. 63
Brief, State of New York v. Niagara Mohawk Power Corp.......180-360
Charts:
Department of Public Service, Article X Cases, Revised
July 30, 2002.......................................... 362
2000 Air Emissions From Coal Fired Power Plant That Are
Targets of New York State Attorney General Enforcement. 178
Prepared statement........................................... 167
Report, Attorney General's Action Plan for a Balanced
Electric Power Policy in New York State.................... 366
Responses to additional questions from:
Senator Cantwell......................................... 394
Senator Voinovich........................................ 361
Walke, John D., clean air director, Natural Resources Defense
Council........................................................ 83
Prepared statement........................................... 604
ADDITIONAL MATERIAL
Letters:
Josten, Bruce R., U.S. Chamber of Commerce................... 24
Senators Inhofe and Breaux................................... 20
Senators Inhofe and Specter.................................. 21
Response to Climate Change Report by several State Attorneys
General........................................................ 627
Statements:
Abbott, Ande, director, Legislative Department, International
Brotherhood of Boilermakers................................ 25
Bast, Joseph, president, Heartland Institute on New Source
Review Reform.............................................. 625
NEW SOURCE REVIEW POLICY, REGULATIONS AND ENFORCEMENT ACTIVITIES
----------
TUESDAY, JULY 16, 2002
U.S. Senate,
Committee on Environment and Public Works,
Committee on the Judiciary,
Washington, DC.
The committees met, pursuant to notice, at 10 a.m. in room
106, Senate Dirksen Building, Hon. Patrick J. Leahy (chairman
of the Committee on the Judiciary) and Hon. James M. Jeffords
(chairman of the Committee on Environment and Public Works)
presiding.
Present for the Committee on the Judiciary: Senators Leahy,
Biden, Durbin, Edwards, Schumer, Sessions and Specter.
Present for the Committee on the Environment and Public
Works: Senators Jeffords, Bond, Carper, Chafee, Clinton,
Corzine, Inhofe, Lieberman, Smith, Voinovich and Warner.
OPENING STATEMENT OF HON. PATRICK LEAHY, U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. We welcome everybody here. Thank you for
attending this joint hearing of the Senate Environment and
Public Works Committee and the Senate Judiciary Committee.
Before we start the hearing, I would note that the record
will be kept open for 2 weeks so that Senators can ask followup
questions, and they are sent to committee staff within the next
week, but also give the witnesses a chance to look at their
answers should they want to add anything to them. Obviously,
this is unusual and I want to extend thanks to my fellow co-
chair, Senator Jeffords, who is also my colleague from Vermont.
I thank him for helping to put this together, and Senator Bob
Smith, who is the ranking Republican, and of course the ranking
Republican on the Judiciary Committee, Senator Orrin Hatch. We
will have statements by myself and Senator Jeffords and Senator
Hatch and Senator Smith. The two appropriate subcommittee
chairmen and ranking members are Senator Lieberman and Senator
Voinovich, and Senator Biden and Senator Grassley.
I am disappointed that Administrator Christie Whitman was
unable to join us today. We tried to make things easier by
having two major committees with jurisdiction here, but she is
not here. I would like to thank the Administration for having a
couple of representatives who are willing to take time to be
with us.
I also want to thank the State attorneys general who
traveled long distances to be present. I would like to
recognize among them my good friend, Vermont's Attorney General
William Sorrell, a highly respected attorney general. We pay
attention to that, because we have another highly respected
former attorney general from Vermont, Jim Jeffords. I never
made it beyond the ranks of being a State's attorney. I also
see Attorney General Spitzer here and Attorney General Pryor
and others.
Our committees have come together because of the issues we
are discussing, the Administration's proposed revision to the
Clean Air Act's New Source Review regulation, or NSR. Now, it
does not just go into the question of quality of air, it goes
into the question of enforcing our laws and the quality of air.
Back in 1977, New Source Review was a part of an agreement to
give corporate energy companies a temporary, and I emphasize a
temporary, grace period before they adopted modern Clean Air
Act standards at their facilities. I was here at the time, and
I remember the negotiations that went on between both Democrats
and Republicans, the industry and the Administration. We worked
out a compromise, and the understanding of the compromise was
that everybody would keep their word, including whoever might
be in the Administration. The Clean Air Act exempted or
grandfathered pre-1977 industrial facilities from immediate
installation of modern pollution controls, requiring them to do
so only when they made significant modification to their sites.
It was a fair and generous concession that gave corporate
energy companies the benefit of the doubt.
Now, several of the largest corporate energy companies did
not keep their word. They completely abused our trust in
upgrading old, dirty plants on the cheap. They ignored required
air pollution controls--controls required by the New Source
Review regulation. For more than 25 years, these irresponsible
polluters who did not keep their word have chosen to save money
by allowing their 1950's-era plants to belch hundreds of
thousands of tons of excess pollution into the air, including
harmful toxins such as mercury. Vermont and other States have
paid the price with decades of acid rain and mercury deposits
in our soils, our lakes and our rivers.
Some of us here were among the strongest supporters of the
action by former President Clinton's Environmental Protection
Agency and the Department of Justice. They recognized and
documented this corporate abuse. They cracked down on our
Nation's most flagrant NSR violators in 1999. The owners of
these facilities happen to be some of the largest and
wealthiest corporate energy giants in the country, especially
those in the utility sector, as we show on our chart over here
on the side. This shows the incredible amount of annual
emissions emitted by eight of these companies. American
Electric Power, Southern Company, and Tennessee Valley
Authority exceed the corporate average emission for the
Nation's top 100 utility companies' emissions by five to eight
times. The lawsuits brought by the last Administration were
landmark enforcement cases against the largest corporate air
polluters. They set the stage for a multi-billion dollar
settlement by those companies and hundreds of thousands of tons
of annual pollution reductions.
For the children in my State, having the pollution go down
is worth a lot more than having the money in fines. But I would
point out that unless these companies face the fines, our
children are going to continue to breathe the pollutants. We
have paved the way for numerous settlements with refineries
around the country, and these are smaller in cases--fines and
pollution reductions--but they are significant for the
communities who live there.
But as you might imagine, the largest of these corporate
polluters did not like being caught, especially when it meant
billions of dollars in fines. So what did they do? Instead of
paying the fines or cutting the pollution, they went last year
to the new Bush Administration for relief--relief from a
regulation they had circumvented for more than a quarter of a
century. Somebody finally called them on it, and told them they
had to keep their word, they had to obey the law, and now they
want to get away with it. Lobbyists for the biggest corporate
polluters complained these lawsuits were in error. They had
done nothing wrong. The explanation for why they continued to
operate ancient pollution-spewing facilities was simply they
had never performed major maintenance--only routine
maintenance, which of course would not trigger the NSR. Their
justification is so transparent that one would think it would
not even pass the lab test, but the Administration saw it
differently.
Meeting behind closed doors in secret meetings that have
yet to be fully disclosed to Congress or to the American
public, Vice President Cheney's Energy Policy Task Force
created this document. They sent it to the President in May
2001. Tucked within its pages is a short paragraph recommending
a review of the NSR by the Department of Justice and the
Environmental Protection Agency. That is a huge victory for
corporate polluters. The path was clear for corporate energy
lawyers to get their clients off the hook.
As quoted in the New York Times earlier this year, one
energy lawyer revealed the strategy. The thinking was, how can
you do things that will influence the NSR issue in the pending
litigation? The Administration recants NSR provisions and the
lawsuits fall apart. They knew exactly what to do. They could
say, go ahead and pollute, because the Administration doesn't
give a hoot. That is exactly what happened. Last month, the
Environmental Protection Agency proposed sweeping revisions and
despite pledges by the Administration officials that these
revisions would not change the course of pending litigation
against NSR violators, we are already seeing the effects of
this roll-back. Two of the largest utility cases have been
settled in principle. Cinergy and VEPCO remain stalled to this
day. Those cases would have required $2.6 billion in fines, but
more importantly the reduction of 800,000 tons of pollutants.
As soon as they heard that the Administration was backing off,
those cases became stalled.
The bellwether case that set precedent for all litigation,
U.S. v. Tennessee Valley Authority, was recently sent to
mediation. That was a surprise to all involved. It is a much
weaker outcome than expected, but it was following what was
being said on the NSR revisions. Early estimates of the case
might have been in settlement, and it would have, and TVA would
have been responsible for over $1 billion in fines to the
American people.
Now, this is not an obscure regulatory battle. Relaxation
of the Clean Air Act has made headlines for months. In fact, it
is the lead story in today's Post. I believe the American
people will be listening for this Administration to explain
itself. The dismantling of these lawsuits did not happen by
themselves. The gutting of them is done in a calculated and
planned manner, or it is completed in confidence. Either way,
it is now allowable.
Recalling the American people in every single poll say have
tougher action against corporate abuse. There is no way we can
accept this roll-back of our Nation's clean air laws to benefit
the wealthiest, largest, dirtiest corporate polluters, and
sadly at the health and safety of our children.
[The prepared statement of Senator Leahy follows:]
Statement of Hon. Patrick Leahy, U.S. Senator from the State of Vermont
Good morning to all of you and thank you for attending this joint
hearing of the Senate Environment and Public Works Committee and the
Senate Judiciary Committee.
Before I move to the hearing itself, let me take a moment to
mention that the record for this hearing will be open for 2 weeks from
today and that any follow-up questions that Senators wish to post: to
our witnesses today will be accepted if sent to committee staff within
the next week.
I want to extend my sincere thanks to my co-chair and fellow
Vermonter, Senator Jim Jeffords, for his help in putting this hearing
together as well as to my good friend from the Granite State, Ranking
Republican Bob Smith. And of course, I would like to thank this
committee's Ranking Republican Member, Orrin Hatch.
While I am disappointed Administrator Christie Whitman did not join
us today, I would very much like to thank the Administration's
representatives for taking time to be here and the State attorney;
general who have each traveled long distances to be present. In
particular, I would like to recognize my good friend, Vermont's
Attorney General William Sorrell. Thank you so much for being here.
Finally, I would like to thank the many witnesses that acre present to
testify today--your time is much appreciated by both committees.''
Our committees have come together for this special session today
because the issue we are discussing--the Administration's proposed
revisions to the Clean Air Act's New Source Review regulation (or
NSR)--is not just about the future of our air quality, it is about
enforcing the law.
Written in 1977, New Source Review was a part of an agreement to
give corporate energy companies a temporary grace period before they
adopted modem Clean Air Act standards at their facilities.
The Clean Air Act exempted, or ``grandfathered,'' pre-1977
industrial facilities from immediate installations of modern pollution
controls, requiring them to do so only when they made significant
modifications to their sites and increased emissions.
This was a fair--and, generous--concession that gave corporate
energy companies the benefit of the doubt acid trusted that they would
use future modification upgrades to not only extend the life of their
plants, but also to clean up the air.
Sadly, several of the largest corporate energy companies completely
abused our trust, upgrading old, dirty plants on the cheap, and
ignoring the required air pollution controls--controls required by the
New Source Review regulation.
For more than 25 years, these irresponsible polluters have chosen
to save money by allowing their 1950's era plants to belch hundreds of
thousands of tons of excess pollution into the air, including harmful
toxins such as mercury. Vermont and other States have paid the price,
with decades of acid rain and mercury deposits in our soils, our lakes,
and our rivers.
Some of us here were among the strongest supporters of the actions
by former President Clinton's Environmental Protection Agency and
Department of Justice that recognized and documented this corporate
abuse, cracking down on our nation's most flagrant NSR violators in
1999.
The owners of these facilities happened to be some of the largest,
and wealthiest, corporate energy giants in the country, especially
those in the utility sector.
On the chart behind me, you can see for yourself the incredible
amount of annual emissions emitted by eight of these companies. Three
of them--American Electric Power, Southern Company, and Tennessee
Valley Authority--exceed the corporate average emissions for the
nation's top 100 utility companies' emissions by five to eight times.
The Clinton lawsuits were landmark enforcement cases against the
largest corporate air polluters--especially those in the utility
sector--and set the stage for a multi-billion dollar settlements by
those companies and hundreds of thousands of tons of annual pollution
reductions. These, in turn, paved the way for numerous settlements with
refineries around the country. While these were smaller cases in terms
of fines and pollution reductions, they were and are significant cases
for those communities living under the cloud of refinery smog.
Yet, as you may imagine, the largest of these corporate polluters
did not like being caught--especially when it meant billions of dollars
in fines.
So, last year, they went to the new Bush Administration for
relief--relief from a regulation they had circumvented for more than a
quarter of a century. Lobbyists for the biggest corporate polluters
complained that the Clinton Administration's lawsuits were in error and
that they had done nothing wrong.
Their explanation for why they continued to operate ancient,
pollution-spewing facilities was simply that they have never performed
major maintenance--only ``routine maintenance''--to their facilities
for the past 25 years. As you might guess, ``routine maintenance'' does
not trigger the pollution controls of NSR.
This justification is so transparent that one would think it would
not, should not, even pass the laugh test. Yet this Administration
obviously saw it differently.
Meeting behind closed doors in secret meetings that have yet to be
fully disclosed to Congress or to the American public, Vice President
Cheney's Energy Policy Task Force created this document and sent it to
the President in May 2001.
Tucked within its pages is a short paragraph, recommending a
``review'' of the NSR regulation by the Department of Justice and the
Environmental Protection Agency.
It cannot be understated that this recommendation to review NSR by
Vice President Cheney's Task Force was a huge victory for corporate
polluters. With it, the path was clear for corporate energy lawyers to
get their clients off the hook. As quoted in the New York Times earlier
this year, one energy lawyer--who chose to remain anonymous--revealed
the strategy:
``The thinking was,'' he said, ``how can you do things that will
influence the NSR issue and the pending litigation? If the
Administration recants NSR provisions, the lawsuits fall apart.''
And that is exactly what has happened. Last month, the
Environmental Protection Agency proposed sweeping revisions to the New
Source Review regulation--revisions that could have been written in
corporate energy boardrooms or by the legal teams for corporate NSR
violators.
And despite pledges by Bush Administration officials that these
revisions would not change the course of bending litigation against NSR
violators, we are already seeing the effects of this rollback.
Two of the largest utility cases that had been settled ``in
principle'' in early 2000 under the Clinton Administration--Cinergy and
VEPCO--remain stalled to this day. Those cases would have required $2.6
billion in fines and the reduction of more than 800,000 tons of
pollution.
And the case that has been called the ``bellwether'' case to set
the precedent for all litigation against illegal pollution from coal-
fired powerplants--U.S. vs. Tennessee Valley Authority--was recently
sent to mediation. This action by the judge was a surprise to all
involved and is a much weaker outcome than had been expected before the
NSR revisions were publicized.
By all accounts, the mediation ruling occurred because of publicity
surrounding EPA's revision to the NSR regulation.
As you can see on the chart behind me, early estimates of this case
might have ended in settlement and would have held TVA responsible for
well over $1 billion in fines to the American people.
This issue is not an obscure regulatory battle--the relaxation of
the Clean Air Act has made headlines for months and was a lead story in
today's Washington Post, with the headline ``Bush Plan to Ease Clean
Air Rules Roils Court Cases Against Utilities.''
We will hear much more about the details of this issue in today's
hearing.
I believe the American people will be listening for this
Administration to explain itself. The dismantling of these lawsuits did
not happen by itself. The gutting of these lawsuits was either done in
a calculated and planned manner or it was a product of complete
Administration incompetence and lack of foresight.
At a time when the American people ware calling for tougher
government vacation against corporate abuse, this Administration needs
to be held accountable for its rollback of our nation's clean air laws
for the benefit of the wealthiest, largest, dirtiest corporate
polluters and, sadly, at the expense of the American people.
Senator Jeffords.
OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM
THE STATE OF VERMONT
Senator Jeffords. I am pleased also to be here with my
colleagues and co-chair from Vermont. I believe this is the
first joint Judiciary-EPW hearing ever held, but the gravity of
the Administration's actions on New Source Review, or NSR,
requires scrutiny of both legal and environmental grounds.
I am also glad to see one of my successors--Vermont
Attorney General William Sorrell is here today. I appreciate
his willingness to testify along with others. I wish we were
meeting jointly on a happier occasion, but these changes in NSR
regulations appear to be the biggest regulatory roll-back in
the history of the Clean Air Act. They seem designed to subvert
the Federal Government's own enforcement actions that would
otherwise remove millions of tons of pollutants from the public
air space.
They also seem intended to give away the billions of
dollars worth of health benefits that NSR provides every year.
Under these proposals, far fewer plants and maybe 50 percent or
less will have to apply pollution controls. The basic concept
of NSR is one of constant improvement. That means industry
should emit less and less pollution as time passes, as
investments occur, and as technology develops. The Clean Air
Act does not provide loopholes for non-routine maintenance or
picking decade-old baselines or any of the other loopholes that
this Administration is trying to finalize.
When any physical change as a stationary source increases
the amount of any air pollutant by that source, ``then
pollution controls must be applied.'' That is simple. It is
straightforward and it is the law. Unfortunately, aside from
the dubious legality of the public health cost of these
proposed NSR changes, the Administration's poor handling of
this matter has created an atmosphere of distrust. Even if
these proposals were legal or justified, I would be suspicious.
To my knowledge, no attempt was made to reach consensus among
the various stakeholders or consult with the committees of
jurisdiction before issuing the reform package.
Overall, this has been a much different, much less open
rulemaking process than the one used by the Clinton
Administration. This Administration seems to have largely
ignored comments from public health advocates and the States,
while listening mainly to industry. The Senate Environment and
Public Works Committee's legitimate request for information on
this matter and others have been treated disrespectfully and
disdainfully by the White House.
While the EPA has recently begun to provide information in
response to our December request, 90 percent of which is
already in the public docket, the Department of Energy has been
very unresponsive. We will be reviewing the additional material
that EPA has promised to deliver by the end of this week, then
we will decide whether a subpoena is necessary. I hope it does
not come to that, but this White House may give the committee
and Congress little choice.
I will note, however, that I do not recognize any validity
in the Agency's claim, made largely by the White House
insistence, that the documents we are requesting cannot be
shared before the rules become final. There is no precedent or
protection provided by statute or case law to defend that
position. I am saddened by what the White House is doing to the
Environmental Protection Agency. It seems intent on gagging and
binding this independent agency. This prevents us from working
together in any kind of productive and cooperative manner. Even
communication at the staff level has been intentionally
stifled.
More than a year ago, the President directed the Agency to
prepare a three-pollutant legislative proposal. The Agency
developed and analyzed a proposal that it thought was
defensible from air quality and public health perspectives.
That straw proposal from August 2001 disappeared almost as soon
as it was floated. Then in February of this year, a new version
of targets and timetables was announced, one that looked quite
different and substantially less protective, but no
environmental or economic justification for those numbers had
been provided to Congress or the public to see. We still do not
have legislative language or any comprehensive analysis or
demonstration on it.
NSR fits into a similar pattern. The Clinton Administration
did a draft regulatory impact analysis in 1996 with its
proposed regulations. Many years of stakeholder discussions
took place, with lots of commentary and the analysis was
shared. That Administration ended without a final rulemaking
because of the many concerns, including environmental and legal
questions. In June of this year, this Administration announced
the NSR reform package. It did not conduct stakeholder meetings
on the rulemaking passage. It provided no final regulatory
impact analysis or any environmental or public health
assessment. Worse yet, the Agency staff indicated that no
qualitative analysis had been done or would be forthcoming.
That does not seem to comport very well with the
requirement of the Executive Order on regulatory relief or with
EPA's own internal documents. The NSR reform package is a
recipe for litigation. If these changes become final, they will
be overturned by the courts or perhaps by the Congress. The
Agency will not be due any deference in court on its expert
opinion because it has not justified how these changes can
improve and protect the public health.
Except for a brief period, Congress has counted on EPA to
be the ``green'' eyeshades people for 30 years. The Agency job
is to make sure that pollution is accounted for and reduced.
The EPA is supposed to keep corporate polluters honest and look
out for the public good. But given these NSR changes and the
White House anti-disclosure policy on information, it is hard
not to think that the executives are overruling the green
eyeshades people and trying to cook the books. Instead of
greenbacks, we are talking about millions of tons of pollution
that severely damages the health and welfare of the public.
Thank you, Mr. Chairman.
[The prepared statement of Senator Jefford follows:]
Statement of Hon. James Jeffords, U.S. Senator from the State of
Vermont
I am pleased to be here with my colleague and co-chair from
Vermont. I believe this is the first joint Judiciary-EPW hearing ever
held. But, the gravity of the Administration's actions on New Source
Review, or NSR, requires scrutiny on both legal and environmental
grounds.
I am also glad to see one of my successors, Vermont Attorney
General William Sorrell, is here today. I appreciate his willingness to
testify along with the other distinguished witnesses.
I wish we were meeting jointly on a happier occasion. But these
changes in NSR regulations appear to be the biggest regulatory rollback
in the history of the Clean Air Act. They seem designed to subvert the
Federal Government's own enforcement actions that would otherwise
remove millions of tons of pollutants from the public's air space.
They also seem intended to give away the billions of dollars worth
of health benefits that NSR provides every year. Under these proposals,
far fewer plants, maybe 50 percent or less, would have to apply
pollution controls.
In exchange for these giveaways, what would the public get? More
premature deaths, more lung disease, and more polluted landscapes. That
doesn't seem like a fair trade to me.
I'd like to place in the Record a letter from Ben Rose of the Green
Mountain Club and the Hikers for Clean Air. Their letter clarifies that
such NSR changes will foul the air, ``shroud our State and national
parks in haze,'' and acidify our lakes and streams.
The basic concept of NSR is one of constant improvement. That means
industry should emit less and less pollution as time passes, as
investments occur and as technology develops. The Clean Air Act doesn't
provide loopholes for non-routine maintenance or picking decades-old
baselines or any of the other loopholes that this Administration is
trying to finalize.
When ``any physical change in a stationary source increases the
amount of any air pollutant by that source'' then pollution controls
must be applied. That's simple and straightforward. And, it's the law.
Unfortunately, aside from the dubious legality and the public
health costs of these proposed NSR changes, the Administration's poor
handling of this matter has created an atmosphere of distrust.
Even if these proposals were legal or justified, I would be
suspicious.
To my knowledge, no attempt was made to reach consensus among the
various stakeholders or consult with the committees of jurisdiction
before issuing this reform package. Overall, this has been a much
different, much less open rulemaking process than the one used by the
Clinton Administration.
This Administration seems to have largely ignored comments from
public health advocates and the States, while listening mainly to
industry. The Senate Environment and Public Works Committee's
legitimate requests for information on this matter and others have been
treated disrespectfully and disdainfully by this White House.
While the EPA has recently begun to provide information in response
to our December request, 90 percent of which is already in the public
docket, the Department of Energy has been very unresponsive.
We will be reviewing the additional material that EPA has promised
to deliver by the end of this week. Then we will decide on whether a
subpoena is necessary. I hope it doesn't come to that, but this White
House may give the Committee and Congress little choice.
I will note, however, that I do not recognize any validity in the
Agency's claim, made largely at the White House's insistence, that the
documents we are requesting cannot be shared before the rules become
final. There is no precedent or protection provided by statute or case
law to defend that position.
I am saddened at what the White House is doing to the Environmental
Protection Agency. It seems intent on gagging and binding this
``independent'' agency. This prevents us from working together in any
kind of productive and cooperative manner. Even communication at the
staff level has been intentionally stifled.
More than a year ago, the President directed the Agency to prepare
a three-pollutant legislative proposal. The Agency developed and
analyzed a proposal that it thought was defensible from an air quality
and public health perspective. That ``straw proposal'' from August 2001
disappeared almost as soon as it was floated.
Then, in February of this year, a new version of targets and
timetables was announced, one that looked quite different and
substantially less protective. But no environmental or economic
justification for those numbers had been done for the Congress or the
public to see. We still don't have legislative language or any
comprehensive analysis or documentation on it.
NSR fits into a similar pattern. The Clinton Administration did a
draft regulatory impact analysis in 1996 with its proposed regulations.
Many years of stakeholder discussions took place where lots of
commentary and analysis was shared. That Administration ended without a
final rulemaking because of many concerns, including environmental and
legal questions.
In June of this year, this Administration announced its NSR reform
package. It did not conduct stakeholder meetings on this rulemaking
package. It provided no final regulatory impact analysis or any
environmental or public health assessment. Worse yet, the Agency's
staff indicated that no quantitative analysis had been done or would be
forthcoming. That doesn't seem to comport very well with the
requirements of the Executive Order on regulatory review, or with the
EPA's own internal documents.
This NSR reform package is a recipe for litigation. If these
changes become final, they will be overturned by the courts or perhaps
by Congress. The Agency will not be due any deference in court on its
expert opinion, because it has not justified how these changes can
improve and protect public health.
Except for a brief period, Congress has counted on EPA to be the
``green'' eye-shades people for 30 years. The Agency's job is to make
sure that pollution is accounted for and reduced. The EPA is supposed
to keep corporate polluters honest and look out for the public good.
But given these NSR changes and the White House's anti-disclosure
policy on information, it is hard not to think that the executives are
overruling the ``green'' eye-shades people and trying to cook the
books. Instead of greenbacks, we're talking about millions of tons of
pollution that severely damages the health and welfare of the public.
Thank you.
Senator Leahy. Thank you very much.
We go next to Senator Bob Smith of New Hampshire, and then
Senator Hatch, and then Senator Lieberman as the subcommittee
chair and Senator Voinovich as ranking member, then Senator
Biden and Senator Grassley, and then the witnesses.
OPENING STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE
STATE OF NEW HAMPSHIRE
Senator Smith. Thank you very much, Mr. Chairman.
Goodness gracious, I wonder if there might be a priest in
the house and I could go to confession for being a Republican
after listening to all of that. Man. I guess it is an election
year. Politics is in the air.
Senator Leahy. You got that right.
Senator Smith. I wonder, though, really how in the world
this kind of discussion can be productive in terms of
addressing the problems that we face in this country. Remember
these terrible people are the ones that have produced the power
to run this country through the last 100 years, including the
Cold War--the machinery that they produced to win the Cold War
and to keep a free Nation. So if we just get that on there,
just to get a little balance.
NSR, in my view, is a nightmare that does little to protect
the environment. In fact, it often is the mechanism that delays
the upgrades that would provide for cleaner air. This
discussion has ignored the new technology that is being
produced every day, that will in fact clean up the air. If they
will just be given the opportunity to unleash that technology
and not be restricted from doing so by some of the actions that
we take here, the results would be beneficial to the
environment.
Lest some people think that it is all one-way with me, in
1999 just days after I became chairman of the Environment and
Public Works Committee, I opposed a rider that many on my side
supported that would have ended NSR enforcement cases. I
opposed that rider because I believe that we need to set clear
environmental rules and prosecute violators. I opposed it, and
at the same time I recognized the merits of the amendment and
why they sought it. It was to avoid yet another round of
litigation that would not clean up anything and just make
lawyers rich. That is all we would accomplish with that--
provide less clean air and make more lawyers wealthy.
There is a better way, to be frank. NSR, which is anything
but clear, has been the subject of near-continuous litigation
and revision since its enactment in 1977--continuous revision
and litigation. It is no wonder. A few pages of Federal law,
led to a 20-page regulation that needed to be, ``clarified'' by
more than 4,000 pages of guidance. Let me repeat that. A few
pages of Federal law led to a 20-page regulation that needed to
be clarified by 4,000 pages of guidance documents. This should
not be a partisan issue. I don't know of anybody that wants to
breathe dirty air. I don't. I will speak for myself. I don't
think any of my colleagues down here on this side of the table
want to breathe dirty air. But it is worth reminding my
colleagues on both sides that the Clinton Administration
realized the problems with NSR. That Democratic Administration
in a proposal by Vice President Gore proposed the NSR reforms
that are now in the Bush proposal and brought forth some of the
same proposals that are now being roundly criticized on the
other side.
I do not believe regulatory efforts alone are enough of an
answer. I do not fault President Bush in the least for trying
to create order out of this jumbled heap of nonsense and chaos
that some generously call an environmental program.
Unfortunately, while we have yet to even see drafts of the
final or proposed rules, we have already heard threats of
future lawsuits. We haven't seen a draft yet, and now future
lawsuits are being threatened. That is in addition to the
cries--the biggest roll-back of the Clean Air Act since its
inception. Biggest roll-back? On what data and analysis is the
biggest roll-back based? I haven't seen any data. It was just
in the last week that this committee, the Environment and
Public Works Committee, received 13 boxes of information and
analysis from the Administration's NSR review, long after
claims of a roll-back were splashed across our Nation's
newspapers and TV news. The majority has even indicated that 13
boxes are not enough. They may decide to issue a subpoena to
get some more boxes.
If we do not have enough analysis yet, how can we conclude
that this is a roll-back of the Clean Air Act? If you haven't
got all the boxes they want, how do you know what is in the
boxes? Maybe we do not need a roll-back of the Clean Air Act.
If there is enough information to support such a conclusion,
why do we need another subpoena?
It seems that again environmental politics is trumping real
environmental policy. Good environmental politics is not good
environmental policy, believe me, and it is now going to lead
to cleaner air. Believe me on that, too. Real environmental
progress would be working together to enact consensus, multi-
emissions legislation for electrical utilities. Real
environmental progress would be working together to build on
the success of the acid rain program which worked, frankly, not
at a cost of $5 billion as many said, but less than $1 billion,
rather than to fight to keep a program that has reduced maybe a
pound of emissions per lawyer involved.
Well, the President is trying to move forward on this, just
like his predecessor did, but politics dictates that we must
oppose a consensus approach. We cannot have a consensus
approach because that would not have a political debate, and
then we cannot call all Republicans polluters. That is the
bottom line, folks, and that has served as an employment
service for Clean Air Act lawyers and has produced very little
in terms of environmental benefits. What we need is a
legislative solution. That is what we are here for--a
legislative solution. Isn't it about time we sit down and do
it? Why don't we go in the back and stop all this rhetoric out
here in the front and sit down and work it out? You know that
solution is? It is a market-based cap and trade program modeled
on the acid rain program.
I spent weeks talking to Carol Browner about it in the
Clinton Administration and she supported it--a program with
clear admission reduction levels and compliance dates set in
law, allowing cap and trade. And yes, putting NSR on the
table--a program that avoids needless litigation and delay; a
program that provides industry with incentives to make deeper
and faster reductions that would employ their new technology.
That is my goal. That is where I am coming from. That is what I
think we all should be working to achieve--the most reductions
with the least litigation, and we ought to get started this
morning. Unfortunately, that is not going to happen.
Thank you, Mr. Chairman.
[The prepared statement of Senator Smith follows:]
Statement of Senator Bob Smith, U.S. Senator from the State of
New Hampshire
Thank you Mr. Chairman.
This must be an election year, because there is definitely politics
in the air.
NSR is a nightmare that does little to protect the environment; in
fact it often is the mechanism that delays upgrades that would provide
for cleaner air. None-the-less, in 1999, just days after I became
chairman of the Environment and Public Works Committee, I opposed a
rider that would have ended NSR enforcement cases. I opposed the rider
because it is my belief that we need to set clear environmental rules
and prosecute violators.
At the same time, I recognized the merits of the amendment. It
sought to avoid yet another round of litigation. Lawsuits make lawyers
richer, but do little to provide for cleaner air--there is a better
answer.
NSR--which is anything but clear--has been the subject of near-
continuous litigation and revision since its enactment in 1977. And
it's no wonder--a few pages of Federal law led to a 20-page regulation
that needed to be ``clarified'' by more than 4,000 pages of guidance
documents.
This shouldn't be a partisan issue either--its worth reminding my
colleagues on both sides of the aisle that the Clinton Administration
realized the problems with NSR. That Democratic Administration--led by
Vice President Gore--proposed NSR reforms that are now included in the
Bush proposal that is being so roundly criticized.
Although I do not believe regulatory efforts alone are enough of an
answer, I do not fault President Bush in the least for trying to create
order out of this jumbled heap of nonsense some generously call an
environmental program. Unfortunately, while we have yet to see even
drafts of the final or proposed rules, we have already heard threats of
future lawsuits.
That's in addition to all the cries of this being ``the biggest
rollback of the Clean Air Act.'' Biggest rollback? On what data and
analysis are those claims based?
It was just in the last week and a half that the committee received
13 boxes of information and analysis from the Administration's NSR
review--long after claims of a ``rollback'' were splashed across our
nation's newspapers and television news shows. And the majority has
indicated that even 13 boxes are not enough--they may decide to issue a
subpoena to get more.
If we don't have enough analysis yet, how can we conclude that this
is a rollback of the Clean Air Act?
If there is enough information to support such a conclusion, why
would we need to issue a subpoena?
It seems that, again, environmental politics is trumping a real
environmental debate that could lead to cleaner air. Real environmental
progress would be working together to enact consensus multi-emissions
legislation for electric utilities. Real environmental progress would
be working together to build on the success of the Acid Rain Program,
rather than fighting to keep a program that has reduced maybe a pound
of emissions per lawyer involved.
Well that's what I've tried to do. That's what the President has
proposed doing. But politics dictate that the majority must oppose a
consensus approach. While NSR has served as an employment service for
Clean Air Act lawyers, it has produced very little in terms of
environmental benefits.
What we need is a legislative solution.
That solution is a market-based, cap-and-trade program modeled on
the Acid Rain Program--a program with clear emission reduction levels
and compliance dates set in law--a program that avoids needless
litigation and delay--and a program that provides industry with
incentives to make deeper and faster reductions than required.
That's my goal, and that's what I think we all should be working to
achieve--the most reductions with the least litigation and delay.
Senator Leahy. Thank you.
Senator Lieberman is the chairman of the Clean Air,
Wetlands and Climate Change Subcommittee, the Committee on
Environment and Public Works--quite a mouthful.
[Laughter.]
OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN, U.S. SENATOR
FROM THE STATE OF CONNECTICUT
Senator Lieberman. It is a mouthful.
Thanks, Chairman Jeffords and Chairman Leahy. This is an
all-Vermont-led hearing. I feel as if I have enlisted in the
Green Mountain Boys here today, but it is an honor to be
marching alongside behind you. I thank you for convening this
hearing, which is aimed at shining a spotlight on these
proposals to amend the New Source Review provisions of the
Clean Air Act.
This is a very important hearing because the Bush
Administration is on the brink of gutting these New Source
Review provisions and replacing them with nothing, or with an
alternative that is so weak it is essentially nothing. That
would be devastating to the quality of air in Connecticut and
all across the country. There is a good deal of attention that
we are paying in the Senate these days, and the whole country
is to so-called ``corrupt corporate accounting.'' I am not
saying that the accounting being done here is corrupt, but I am
saying that with regard to New Source Review, the environmental
accounting that is being done is at best deceptive.
The Administration asserts, for instance, that an increase
of thousands of tons of emitted pollutants by a power plant
would not be an increase under the law. Why? Because a decade
ago, the plant polluted at the higher level. As a result of
this change alone, some in EPA have estimated that over 50
percent of the polluters currently required to install
pollution controls would, under the President's plans, get to
escape regulation and breathe a little easier.
Not so for the rest of us. The more noxious pollutants in
the air, the more the American people will have to grapple with
more asthma, more cardiac disease and more cancer. That is just
not my conclusion. In 1999, EPA sued eight utility companies
that it believed has violated the New Source Review provisions
and according to EPA's own analysts, these eight utilities
alone, a fraction of all those that are subject to the New
Source Review regulations, produced emissions responsible for
14,000 cases of acute bronchitis, 140,000 asthma attacks, and
5,900 premature deaths every year. It is those lawsuits that
these rule changes would under-cut, and those health problems
that would be a prelude, I am afraid, to many more to come if
the Administration's proposed rule change goes through.
In an effort to understand the full environmental and
public health consequences of these Administration's actions,
as has been indicated here today, last December I was proud to
join Chairman Jeffords and other colleagues on the Environment
Committee in requesting EPA's analysis of the impacts of these
rule changes. Since then, I would say we have been slow-walked
and have not truly received answers to our questions. This is
subject to two interpretations, I would say. The first is
either that the Agency has not done the analyses we have
requested, and therefore is gutting the Clean Air Act without
adequate evaluation of the consequences. Or second, the Agency
has done the analyses and does not want to release them.
Either way, it says that these amendments are not built on
a strong foundation. The divergence between EPA's proposal and
the position of the United States in these lawsuits is
stunning. In legal briefs that were actually signed by Mr.
Sansonetti, who is a witness on the first panel, and submitted
to Federal courts, the United States argued that any exemption
from the New Source Review provisions should be, ``narrowly
construed,'' that utilities, ``indisputably had notice of EPA's
interpretation,'' of the New Source Review rules and that EPA's
interpretation has been held constant for at least the past
decade.
These legal arguments directly contradict the EPA proposals
we are looking at in this hearing today, which seek to carve
out what I would call a cavernous exemption for routine
maintenance and which announce a need to clarify previous
interpretations of these provisions. Why would there need to be
any clarification if, as the Justice Department asserts, the
interpretation has not varied for a decade, and industry has
had fair notice? I hope that from the witnesses today, we will
be able to clarify the Administration's true position on these
provisions.
Mr. Chairman, there is room for improvement in the New
Source Review program. That is clear. I think it would best be
done, however, in concert with the legislation that you and I
and others have sponsored, which would limit the emissions of
all four major pollutants from power plants, and that
legislation was passed out of our committee last month. The
reason I think any alteration of New Source Review would best
be done in concert with new pollution protections is that
otherwise we are going to be replacing the existing
environmental regime with nothing, or with something that
promises even more pollution, and that is not good for the
health and well-being of the American people.
So I congratulate both of you for your leadership. I thank
you for convening this hearing. I always preserve the hope that
out of this kind of dialog, even confrontation, will emerge a
path to cooperation in the interest of the health and safety of
the American people.
Thank you very much.
Senator Leahy. Thank you.
Senator Voinovich.
OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR
FROM THE STATE OF OHIO
Senator Voinovich. Mr. Chairman, first of all I object to
the majority's gross negative sinister characterization of the
Administration's initiative to clarify New Source Review. It
reminds me of the old bogeyman, and that is characterize
something as bad before you know what it is or it has been
finalized. That being said, Mr. Chairman, thank you for calling
today's hearing on New Source Review.
[Laughter.]
Senator Leahy. Strong message to follow.
Senator Voinovich. Yes.
The program has been around since 1977. It requires new
facilities to install the best demonstrated technology to
control emissions. The program also requires older facilities
to update their equipment to state-of-the-art as they undergo
major modifications. I think it is important to point out at
the very beginning that it is a fallacy to say that any plants
are so-called ``grandfathered'' from the Clean Air Act. On the
contrary, every major facility is regulated by the Clean Air
Act and must meet defined permit levels, all of them. Every
plant must abide by the ozone and PM standards, the MACT
standards, the NOx and SIP Call, and every regulatory program
applicable to each industry.
It is important to note, particularly for me as the former
Governor of Ohio, that our utilities have spent more money to
reduce pollution than all of the utilities in the northeastern
part of the United States of America. We have reduced pollution
significantly since the Clean Air Act, which never seems to be
mentioned in any of these hearings.
It is also a fallacy to assume that NSR only applies to
utilities and refiners. It applies to every stationary source
in the country as evidenced by the testimony you will hear
today from Intel. The EPA issued first NSR regulations back in
1980--a 20-page document. Since then, they have produced, as
Senator Smith said, over 4,000 pages of guidance documents in
an attempt to explain and reinterpret the regulations. I think
it is important for this committee to understand that the
lawsuits blossoming all over the country were triggered by an
EPA guidance in 1998 which changed the definition of routine
maintenance. That is a guidance. It was not a regulation.
Somebody came out with a new guidance and said that the way we
define routine maintenance is wrong, and subjected these
utilities to these lawsuits because they said they violated New
Source Review. This has led to confusion and misunderstanding
by the Agency, the States and the regulated community.
Mr. Chairman, this chart, which I have used once before at
a Governmental Affairs Committee hearing, shows by companies
are reluctant to subject themselves to NSR permits. Only a fool
would put themselves into this maze to do ordinary repair and
maintenance of a generating facility. Look at that chart. It is
no wonder companies postpone making changes that would improve
efficiency and the environment. We need clarification of the
regulations. We need to do everything possible to encourage new
investments in more efficient equipment that produces fewer
noxious emissions. That is why, and I think it is really
important for this committee to know that Senator Conrad and I,
along with 24 of our colleagues, sent a bipartisan letter to
Administrator Whitman in May, calling on her to complete the
NSR review and undertake the necessary regulatory process in
the future to clarify and reform the NSR program.
Our letter was bipartisan, with 9 Democrats and 17
Republicans all calling for reform. While I am sure that all of
us will not necessarily agree on exactly what the reforms
should ultimately look like, we did all agree we had to move
forward with reform. If members of this committee have concerns
with certain aspects of the proposed reforms, then this hearing
should take place after the proposed changes are published. At
that point, we could debate the merits of the proposed
regulations and whether the reforms go far enough. In the
letter, we also stated that we have heard of many situations in
which confusion over the NSR program is having a dampening
effect on utilities' willingness to perform energy efficiency
and environmental improvement projects.
Mr. Chairman, I would just like to mention just a few of
the examples I am aware of. I think it is important. There is a
new technology called dense pack, which enhances the efficiency
of turbine blades in coal-fired power plants, and can result in
significant improvements by generating more electricity with no
additional use of fuel. If one of those generating units could
improve efficiency between 2 and 4 percent with this
technology, which is a conservative estimate, it would result
in additional output of 6,000 to 12,000 megawatts of power in
the near term, and significantly reduce emissions of NOx and
SOx. This is the equivalent of building 20 to 40 new power
plants of 300 megawatts today, with no more emissions. It is my
understanding that these dense packs would trigger NSR today.
That is where we are.
Another example--the EPA concluded that a plan by the
Detroit Edison Company to replace worn turbine blades with new
improved blades was non-routine. The replacement would increase
the efficiency of two turbines by 4.5 percent each along each
unit, to produce 70 additional megawatts of additional power
with no increase in fuel consumption, or to continue to
producing at past levels while reducing fuel consumption and
emissions.
For refiners, I am aware of one example in which tubes
failed, resulting in a fire which damaged the remaining tubes.
New tubes were installed and the unit was back in production
within 2 weeks. However, they were in violation of NSR due to
the actual potential emission test. If NSR regulations were
followed, the unit should have followed the PSD permit process,
resulting in the refinery being out of commission for 5 to 18
months instead of the 2-week period that it took for them to
repair it. I think my colleagues should remember that the next
time a refinery closes and gas prices spike.
Mr. Chairman, the 26 Senators who signed the letter are not
the only ones that think NSR has prohibited reductions in
emissions. According to the national coal study commissioned by
the Clinton Administration, if the EPA were to return to pre-
1998 NSR definitions, we would generate 40,000 new megawatts of
electricity from coal-fired facilities and reduce pollution at
the same time--reduce pollution at the same time.
One last point, and that needs to be made. The cost of NSR
are passed on to the rate-payers. Somehow, people forget that
the customer always pays. (INAUDIBLE) about the utilities,
about those industries and those bad people that run them? But
when it comes to utilities, it is the rate-payers that
ultimately have to pay the cost of this.
We have an interesting mix of witnesses today. I am
particularly eager to hear from the Administration because
those opposed to NSR reform have put a negative spin on their
announcement. Isn't that why we are here today?
Thank you, Mr. Chairman.
Senator Leahy. Thank you.
Senator Biden is the chairman of the Crime Subcommittee of
the Senate Judiciary Committee.
Senator Biden.
OPENING STATEMENT OF HON. JOSEPH R. BIDEN, JR., U.S. SENATOR
FROM THE STATE OF DELAWARE
Senator Biden. Mr. Chairman, thank you for the opportunity
to hear these witnesses. I would like to ask unanimous consent
that my entire statement be placed in the record, and I would
like to abbreviate it if I may.
Senator Leahy. Without objection, all statements can be
placed in the record.
Senator Biden. To state the obvious, I would like to thank
you and Chairman Jeffords for holding this hearing.
I would like to just say a few things at the outset. We
sometimes forget the focus of the Clean Air and Clean Water
Acts, which were passed when I came to the Senate in 1972.
Their purposes are not to maintain the status quo or to
generate more energy. They are to fundamentally change the
quality of the air we breathe and the water we drink. The
objective is not to stay static, but is to improve the
environment; and there is a whole hell of a lot of improvement
needed.
Without blaming anyone about anything, I suspect our
perspectives are impacted upon by which way the wind blows. I
would like for a while to have the wind blow into Ohio instead
of out of Ohio. I would like the wind to blow from Delaware
into Pennsylvania, rather than from Pennsylvania into Delaware.
I was raised in a steel town called Claymont, DE. I lived a
tenth of a mile from the Pennsylvania border, a place called
Marcus Hook, PA. The Delaware River has more oil refineries--I
don't know if it still the case--in any one spot than any other
place in America, including Houston, TX.
The prevailing winds blow our way, not the other way. As a
kid, I would wake up in the morning. My uncle would drop me off
at the local school. If there was mist that day, literally he
would turn on the windshield wiper and there would be an oil
slick on the window.
Now, we have improved, but it was not a joke. It was real.
It is exactly how it worked.
Where we sit impacts on where we stand on this issue. I am
not being critical of the State of Ohio or any other State, but
if the coal plants in Ohio and Michigan and other places were
20 feet high instead of 300 feet high, they would just seep
over the top and all the folks in Ohio would get the benefit of
the acid rain that we get where we live.
I understand the perspective, but we should be straight
with each other. Part of what is at stake and the degree to
which we feel intense about this depends upon who breathes what
and what happens to our constituents. In my State, it is a big
deal. If I take issue slightly with my friend Senator
Lieberman, is not to clarify what you think, but rather to
change what you think. You guys have a chance to correct this.
I am not being facetious. I think we need to bring some
focus on this. The President says that he fully is focused on
this--but it is a little bit like when we started off the
debate on corporate difficulties we now have. When it started,
we did not alter very much at all the bill that Senator
Sarbanes brought out of committee. We saw overwhelming
opposition from about a third to probably a little more than
that of the Members of the Senate. Then the public spoke. The
public figured out what was going on and the Congress passed it
overwhelmingly--not a single dissenting vote. That is my hope
for this issue. You have time, fellows. Redemption is at hand.
You can change this. I mean it sincerely--you do not have to go
this route.
This is understandable; it happens in every Administration.
A relatively small group of people who feel very strongly for
one position end up having control of it, and move it. Then
once the whole deal is figured out by everybody else, there are
sometimes second thoughts. My hope is for second thoughts. This
is all about cleaner air and cleaner water.
It is a serious issue to the people in my State. We live in
a region that is in non-attainment of the Federal ozone
standard. We are a tiny State. No place is wider than 55 miles;
no place can you drive in a straight line longer than 113
miles. We have the highest cancer rates of any State in the
Nation on average. We are one, two or three among the four
cancers that are the biggest killers in America. Why in the
heck is that? I don't know. We can't prove anything, but I will
tell you what--we cannot build a barrier 300, 500, 700, 800,
10,000 feet high. We can't. Nothing we can do about it. Nothing
we can do about it. Yet the standards are higher in Delaware
than elsewhere and we cannot meet the non-attainment Federal
ozone--we are in non-attainment.
The bottom line is, we don't have the ability to meet the
current health-based standards. But to state the obvious, not
all of our air pollution comes from Delaware. Think about this.
I think maybe one of the big wake-up calls every once in a
while--I have been here a long time--every once in a while,
something happens that is totally unrelated to the issue at
hand that sheds light on the issue like nothing else. The
entire East Coast was in a fog because of a forest fire up in
North Central Canada. If you ever need a graphic description of
how the air we breathe is affected by what happens in other
parts of the country, I don't know what more you would need to
understand that point.
I would love to do something. I would love to be able to,
just for kicks, make every emission that comes out of a coal-
fired plant, to have a color, literally. I mean this sincerely.
I am not joking. Instead of it being what is emitted, not
discernible to the naked eye, I would love to be able to
literally color code what was coming out of it, just like we
saw that smog and smoke coming down from thousands of miles
away in Canada. We would have, as we Catholics say, ``a real
epiphany,'' a real epiphany here in America.
My friend from Ohio makes a very valid point--the rate-
payers pay. I will lay you 8 to 5, if you went to the rate-
payers and said, look, your rates are going to go up 2, 3, 5, 7
percent, but the air you breathe is not going to cause my son's
asthma to get any worse. I will get they would pay. I bet they
would pay. We don't ask them that question. We don't get there.
I will make one last and concluding point. Under the
leadership of Delaware's Governor Carper, now Senator Carper,
Delaware's Chrysler wanted to build a new plant--to build the
Dodge Durango. They had to build a new paint plant. They
debated whether or not they were going to meet the standards of
New Source Review. The Delaware officials--the Governor, and
our Secretary of our EPA our Secretary of Natural Resources, a
guy named DiPasquale--came up with a program that is permitted
in which there is a plant-wide applicability limit, the so-
called PAL permit.
They did a heck of a job. Working with EPA, one of the
first PAL permits was issued to the plant in 1996. The permit,
the first of its kind in the automotive industry, was issued in
99 days. Everybody acknowledged we have to reform some of
this--it was issued in 99 days. The plant continues to operate
under flexible permit; and as an added benefit, it saved
Chrysler $13 million in increased productivity and pollution
prevention costs.
This can be a win-win situation. Chrysler won with a permit
giving the flexibility to meet production needs. Delaware
citizens won through reduced air pollution. Clearly the PAL
permits are one of the many ways industry can meet its
responsibility to prevent pollution, while continuing to grow
and expand under New Source Review rules. The Administration
says it wants to promote the use of PAL permits. As part of the
NSR reform, it has proposed a new PAL rule, but the similarity
between the PAL permit that you all are proposing and the one,
the old PAL permit that we used, is one in name only. In the
words of the bluegrass singer Guy Davis, ``This permit is a
two-dollar chicken on a three-dollar plate.''
The Administration is using the successful Delaware PAL
record to support their new version, but the new version is
fundamentally different. It gives the industry fewer regulatory
requirements, but it fails to get in return pollution
reductions that could come from state-of-the-art pollution
control technology. The new version would force States to issue
those new permits without gaining the benefits derived from the
old permit.
Not surprisingly, Delaware does not believe it could
achieve the same pollution prevention results under the new
rule. It is opposing the reform proposal. In a letter sent to
Administrator Whitman, Natural Resources Secretary DiPasquale
said the following:
``Fundamental differences in Delaware's approach versus EPA's
apparent proposal make the use of our permit to support your proposal
in appropriate. The Delaware approach ensures the use of state-of-the-
art pollution control technology and lower emissions per emission unit
than would otherwise be attained. Delaware believes this level of
commitment from the source is needed in order to ensure those obtaining
a PAL are truly environmental leaders and are capable of complying with
a permit that offers streamlined regulatory requirements and
flexibility along with the responsibility of self-regulation.''
Don't confuse what we did in Delaware with what you are
proposing now. This is serious stuff. These rules are designed
to protect public health, not to protect industry from
fulfilling its civic duty. If it is going to cost more, why
don't we engage in a little bit of truth in lending here? I
sued to be on the Banking Committee. We went through this whole
truth in lending thing 28 years ago--a gigantic fight. Why
don't we have a little ``truth in lending'' in pollution
control? If in fact you all tell us it is going to cause these
staggering increases in the cost of energy, tell us what they
will be and let the voters choose whether or not they would
rather breathe cleaner air or pay a little more money.
So I look forward to the hearing, Mr. Chairman. Thank you
for your time, and I yield the floor.
Senator Inhofe. Mr. Chairman, Senator Hatch has yielded his
time to me for opening statements.
Senator Leahy. Well, he would have to yield to somebody on
the Judiciary Committee.
Senator Inhofe. All right. Let me throw something else at
you. Could I make an opening statement and then defer my 5
minutes, since I was the early bird at the meeting and I was
the first one here?
Senator Leahy. We are going to make sure that you are going
to be one of the first to be heard and you will be able to make
a statement during that time.
Senator Inhofe. Wouldn't it be easier to do it now?
Senator Leahy. I would like to hear from Mr. Sansonetti,
and we will have him----
Senator Inhofe. They have been sitting there for an hour
already. I don't think another 5 minutes is going to bother
them. Is it going to bother you guys?
Senator Leahy. The chairman of your committee said to let
you go, so go ahead.
OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM
THE STATE OF OKLAHOMA
Senator Inhofe. All right. Thank you very much.
As a lot of you know, in March 2001, Senator Breaux and I
wrote the first congressional letter on the New Source Review
program to Vice President Cheney. In our letter, ``EPA's flawed
and confusing NSR policies will continue to interfere with our
Nation's ability to meet our energy supply needs,'' and I ask
unanimous consent that be placed in the record at the
conclusion of my remarks.
Senator Leahy. Without objection, it will be.
[The referenced document follows:]
United States Senate,
Washington, DC, March 23, 2001.
Hon. Richard B. Cheney,
Vice President of the United States of America,
Washington, DC.
Dear Mr. Vice President: In your capacity as the chairman of the
National Energy Policy Development Group, we are writing to bring to
your attention our concerns that, unless addressed, the prior
Administration's EPA's New Source Review (``NSR'') enforcement policies
will continue to interfere with our nation's ability to meet our energy
and fuel supply needs. We strongly urge that the Administration take
into account these concerns in developing its national energy plan.
As you are very much aware, the Nation faces a potential energy
supply shortage of significant dimensions. The California energy crisis
is receiving the greatest attention in the media. However, major
challenges exist in meeting demands for gasoline and other fuels,
especially in the Midwest. More troubling, current projections suggest
fuel shortages and price spikes--far exceeding last year's problem.
These are due to a number of factors including: difficulties in making
summer-blend Phase II reformulated gasoline; EPA hurdles to expanding
refinery capacity, and the overall increase in energy demand.
Unless reviewed and addressed, EPA's implementation of NSR
permitting requirements will continue to thwart the nation's ability to
maintain and expand refinery capacity to meet fuel requirements. In
1998, EPA embarked on an overly aggressive initiative in which it
announced new interpretations of its NSR requirements that it has
applied retroactively to create a basis for alleging that actions by
electric utilities. refineries and other industrial sources taken over
the past 20 years should have been permitted under the Federal NSR
program. We also understand that these new interpretations conflict
with EPA's regulations, its own prior interpretations and actions. and
State permitting agency decisions.
EPA's actions have been premised heavily on its reinterpretation of
two elements of the NSR permitting requirements. First, EPA's
regulations specifically exempt ``routine maintenance, repair and
replacement'' activities from NSR permitting. EPA now claims that
projects required to be undertaken by utilities and refineries over the
past 20 years to maintain plants and a reliable supply of electricity
and fuels were not routine and thus should have gone through the 18-
month, costly NSR permitting process. EPA's enforcement officials are
asserting this even though, for more than two decades, EPA staff have
had full knowledge that these maintenance, repair and replacement
projects were not being permitted.
A second ground for many of EPA's claims has to do with whether
projects resulted in significant emissions increases. By employing a
discredited method for determining whether emissions increases would
result from a project-using so called ``potential emissions'' instead
of actual emissions, EPA is asserting that numerous projects resulted
in emission increases when in reality they had no effect on emissions
or were followed by emissions decreases.
EPA's NSR interpretations have created great uncertainty as to
whether projects long recognized to be excluded from NSR permitting can
be undertaken in the coming months to assure adequate and reliable
energy supplies. Electric utilities and refineries have expected that
they could undertake maintenance activities, modest plant expansions,
and efficiency improvements without going through lengthy and
extraordinarily costly NSR permitting, as long as the project involved
either routine maintenance or no significant increase in actual
emissions.
Now, in light of the new interpretations, utilities and refineries
find themselves in a position where they cannot undertake these very
desirable and important projects. This is not an acceptable result when
the Nation is faced with severe strains on existing facilities. Against
this backdrop, we strongly urge that the National Energy Policy
Development Group:
<bullet> give investigation of EPA's implementation of its NSR
requirements a high priority;
<bullet> suspend EPA's activities until such time as there has been
a thorough review of both the policy and its implications;
<bullet> clarify whether the implications of EPA's new NSR
interpretations and its enforcement initiative are being reviewed by
the White House Office of Energy Policy and the Secretary of Energy
prior to actions that could undermine energy and fuel supply; and
<bullet> establish guidelines to assure that EPA's application and
enforcement of its NSR requirements will not interfere with the
Administration's enemy and fuel supply policy. Requirements should be
developed, which are consistent with responsible implementation of the
statutory NSR requirements.
Specifically, to assist you in assessing the implications of NSR on
meeting the nation's energy and fuel supply demands, you may want to
obtain the following: (1) all requests since January 1, 1998 for
information under section 114 of the Clean Air Act issued to facilities
and companies in any sector involved in energy and fuel supply: and (2)
notices of violation issued to, and complaints tiled against, any such
company and/or facility alleging NSR violations during that period. We
are submitting a similar request to EPA today.
Thank you for your consideration of this matter. We look forward to
working with you in the future to develop environmental policy, which
further protects human health and the environment and works in concert
with sound energy policy.
Sincerely,
James M. Inhofe,
U.S. Senator.
John B. Breaux,
U.S. Senator.
Senator Inhofe. I would like to publicly thank the
Administration for being responsive to Senator Breaux's and my
concerns. It took real courage to do this, to pursue NSR
reforms. It takes courage because this is always misconstrued
as a sneak attack on the environment. Despite all of the
partisan rhetoric we have heard today about NSR reforms and the
process of developing these reforms, make no mistake, President
Bush's decision will result in a cleaner environment and
greater energy security.
I am not going to go into this because it has already been
touched upon by Senator Smith--that is, it was the Clinton
Administration that developed the draft proposals that
accumulated over 130,000 comments on NSR reforms. It was
Clinton's Environmental Chief, Bob Perciasepe, who wrote a
letter outlining the NSR reforms, which are similar to
President Bush's reforms, and called for the Bush
Administration to consider formalizing the reforms. I would
like to place this letter in the record also.
Senator Leahy. Without objection, the letter will be placed
in the record.
Senator Inhofe. From my tenure as the chairman of the
Senate's Clean Air Subcommittee, I know that New Source Review
is a major issue for the energy sector. In fact, I held the
very first congressional hearing on New Source Review in your
State of Ohio back in February 2000. I could not believe my
ears of what I was hearing. We heard from companies who were
trying to make environmentally friendly modifications to the
facilities being stopped dead in their tracks, ironically by
the Clean Air Act. As a result of my March 2001 letter, a
number of stakeholders from all over the country have contacted
me to discuss their experience with the NSR program. These
examples further shocked me, so much so that Senator Specter
and I sent a letter to the EPA and DOJ outlining some of the
examples, and I would ask that that letter be made a part of
the record.
Senator Leahy. Without objection, the letter will be made
part of the record.
[The referenced document follows:]
United States Senate,
Washington, DC, June 20, 2001.
Hon. Christine Todd Whitman, Administrator,
U.S. Environmental Protection Agency,
Washington, DC.
Dear Administrator Whitman: Thank you for your May 14, 2001
response to the Inhofe letter, regarding all requests for information
under Sec. 114 of the Clean Air Act and Notices of Violation (NOVs)
issued to the energy sector. The information submitted was very useful
and has provided us with a greater appreciation of the impact of the
New Source Review program on our energy sector.
We have serious concerns that continuation of the prior
Administration's New Source Review (``NSR'') enforcement policies may
interfere with our nation's ability to meet our energy and fuel supply
needs. For that reason, we were very pleased to see that the President
has included in his energy policy an Environmental Protection Agency
(EPA) and Department of Energy review of the NSR program and a
Department of Justice (DOJ) review of the NSR enforcement initiative.
Prior to the Inhofe letter, we knew that New Source Review was a
major issue for the energy sector. However, as a result of the Inhofe
letter, a number of companies from all over the country have contacted
us to discuss their experience in responding to EPA's information
requests, the first step EPA takes in initiating an NSR enforcement
action. The information included in your response to the Inhofe letter
and the information received from these companies has raised a number
of issues for which we would appreciate additional information.
Therefore, we respectfully request the following information:
<bullet> Information and examples submitted to our offices by
companies over the past several weeks suggests that the response
provided by EPA does not include all of the Sec. 114 requests issued by
EPA since 1998. Specifically, our offices have become aware of
facilities that have received Sec. 114 requests without any official
cover letter. These requests were apparently not included in the
information sent to Sen. Inhofe. Please explain why these requests were
excluded from the information presented to Sen. Inhofe's office. In
addition, please explain how often the Agency submitted Sec. 114
requests without the appropriate cover letter, and the reason for this
apparent informality.
<bullet> Additionally, it has come to our attention that, in some
cases, the Sec. 114 requests came in the form of a photo-copied
document with the name of one facility scratched out and the name of
another facility penciled in. We are interested in knowing how many
Sec. 114 requests are issued in this manner and the reason for using
photo-copied requests with new names penciled in. Please include a copy
of each of these requests and the names of the individuals in both the
regional offices and headquarters who signed off on the Sec. 114
request in this form. Are Sec. 114 requests usually allowed to be
issued in this manner?
<bullet> According to individual companies that contacted our
offices, some Sec. 114 requests asked for information which had already
been produced. We are interested in understanding further how often
this occurs and the rationale for asking for the same information
twice. In instances where the same information is requested again, does
the company have to provide the same documentation again or can the
company simply refer to a previous submission?
<bullet> Similarly, some companies have also stated that Sec. 114
requests referred to attachments that were not provided. We would
request your staff to review the Sec. 114 requests sent out over the
past 2 years to determine how often the Sec. 114 requests refer to
attachments that are not provided.
<bullet> In addition, we are puzzled by the fact that upon
receiving these Sec. 114 requests, some company officials received
follow-up calls apologizing for the Sec. 114 request, requesting that
the recipient ``ignore'' or ``put on hold'' the request. Please tell us
how many of these calls were made and the reason for the retraction.
What are the legal implications for the company of having received a
Sec. 114 request followed-up by a ``disregard call?'' Is the company
still obligated to respond to the request? If not, how does the company
adequately document that the Sec. 114 letter is not being pursued? In
light of these incidents, please provide us with information on any
requests for information under section Sec. 114, which have been
submitted to a facility and, subsequently, withdrawn for any reason,
including the date of the submission and withdrawal of the Sec. 114
request.
<bullet> Given these incidents, we would also appreciate
information on the procedure that EPA personnel must follow before
issuing information requests under section Sec. 114 of the Clean Air
Act. Please describe this procedure and all cases of a violation of
such a procedure since 1998, including the name of the facility
affected, the date of the violation of the procedure, the names and
titles of any Federal employees involved, the supervisors of the
Federal employees involved, and the nature of the specific violation of
the procedure. What quality controls procedures does EPA have in place
to assure compliance with these procedures?
<bullet> Unfortunately, because of the fear of retribution, many
of the parties receiving these Sec. 114 requests have requested that we
not disclose their names. None-the-less, we find it very troubling that
we did not see any of these Sec. 114 requests included in EPA's May 14,
2001 response. In your testimony before the Senate Committee on
Environment and Public Works on May 15, 2001, you responded to inquires
on these issues by stating that the problem is being addressed. Please
explain to us what actions you are taking to assess the magnitude of
these potential procedural missteps and the measures that you are
planning to take to address the problem.
<bullet> In addition, we would also like information on all
requests for information since 1998, which may not explicitly cite
section Sec. 114, but derive the power of the requests from this
section.
<bullet> With regard to the NOVs and complaints submitted, please
provide us with a list of the types of projects cited in the NOVs and
complaints.
<bullet> Finally, we would appreciate an explanation as to why EPA
apparently chose not to comply with the requirements of the Paperwork
Reduction Act (PRA) when it issued these Sec. 114 requests to the
electric utility companies and refineries. As you maybe aware, under
the PRA and the Office of Management and Budget's (OMB's) implementing
regulations, an agency such as EPA is not to conduct or sponsor the
collection of information without first consulting with and obtaining
approval from OMB. Under the PRA, this consultation and approval
process is intended to ensure that, among other things, the agency's
information collection request is necessary for the proper performance
of the functions of the agency, including whether the information will
have practical utility.
As you maybe aware, the PRA applies to all information collection
requests consisting of essentially identical questions or requests for
information imposed on 10 or more persons. OMB's implementing
regulations further specify that any collection of information
addressed to all or a substantial majority of an industry is presumed
to involve 10 or more persons. The information you previously submitted
to Sen. Inhofe indicates that this threshold requirement has been met
with respect to both the electric utility and refinery sectors.
Since the Sec. 114 requests you previously provided to Sen. Inhofe
do not display OMB control numbers, should we assume that EPA has
concluded that those requests are not subject to the PRA? If so, what
is the basis for EPA's conclusion? We are aware of the fact that the
PRA makes an exception for requests for information submitted during
the conduct of a civil action to which the United States or an agency
thereof is a party, as well for requests made in conjunction with an
administrative action or investigation involving an agency against
specific individuals or entities. But if this is the provision of the
PRA on which EPA is relying, we must remind you that OMB's implementing
regulations clarify that this exception applies only after a case file
or equivalent is opened with respect to a particular party. Are we to
understand that EPA has opened a case file for each and every one of
the electric utility companies and refineries to which EPA has
submitted Sec. 114 requests? If so, we would appreciate your formally
confirming this for us. If not, then the question remains, what is the
basis for EPA's apparent conclusion that the PRA does not apply? In
particular, we direct your attention to the provision of the PRA that
specifies that the PRA does apply to the collection of information
during the conduct of general investigations undertaken with reference
to a category of individuals such as a class of licensees or an entire
industry.
We respectfully request this information no later than July 13,
2001. A timely response is requested, so that we can assess the impact
of these enforcement policies on our energy supply. We trust that
producing such information will bring to light some interesting facts
for your review of the New Source Review program.
These examples concern us because they suggest a sloppy and poorly
managed enforcement initiative with little regard to the impact on
companies that often have to unearth and certify up to 20 years of
information in 30 days. Additionally, it costs a small facility
hundreds of man hours and hundreds of thousands of dollars to comply
with these information requests. Because these companies face the full
force of the law and must respond to any information request, the
government must bear the responsibility of being judicious in
undertaking these requests.
Therefore, we further request a full investigation by the EPA's
Inspector General, involving procedural errors and mismanagement.
Additionally, we request that you share this information and any
findings with DOJ, so DOJ can use this information for their review. We
will also be requesting that, during the NSR enforcement review called
for by the National Energy Plan, DOJ take a serious look at the extent
to which these and other procedural errors exist within the NSR
enforcement initiative.
We understand that you are still working hard to place your team
together, but we firmly believe that these issues must be investigated
immediately. If you have any questions, please feel free to contact us
or have your staff contact Louis Renjel with Sen. Inhofe's staff.
Sincerely,
James M. Inhofe,
U.S. Senate.
Arlen Specter,
U.S. Senate.
Senator Inhofe. As if it is not bad enough that no one
really understands NSR as a policy and NSR is stopping projects
which would make facilities cleaner and more efficient, under
the NSR enforcement initiative, I saw outrageous examples of
bureaucratic harassment. There were examples of information
requests submitted to companies by EPA employees without any
official authorization. There are other information examples in
the form of photocopied documents with the name of one facility
scratched out and the name of another facility penciled in.
There are also requests which were addressed to one facility,
but referred to operating units of another facility half-way
across the country, just to mention a few.
I fully support strong enforcement of the Nation's clean
air laws, but I am not going to stand by and watch what appears
at the minimum to be a gross incompetence and carelessness by
the Federal employees who appear to care nothing for the costs
involved. As a former businessman, I have personally dealt with
similar behavior from the government, and I often wish that
more people had a background like I had so they would know what
it is like to be overregulated when nothing is going to be
gained from it.
I think Congress and the executive branch are going to have
to understand how these various layers of regulation impact
sections of the economy. We have a chart here I have used
before, and this chart shows refiners who are currently working
at almost 100 percent capacity, are going to be simultaneously
hit with a multitude of regulations in the next few years. NSR
will make it close to impossible for refiners to make these
environmental upgrades. Higher energy prices affect everyone,
but you know, you had, Senator Voinovich, someone come in and
testify, I think his name was Tom Mullen, that it affects the
poor the worst. Twenty-five percent of the people have to make
a decision as to whether they want to heat their homes or have
groceries. That was your constituent that made that testimony.
Oklahoma is a poor State, so that percentage is much higher.
I think the NSR reforms enjoys the support of a wide range
of interests. You have States' attorneys general, you have
labor unions. I would like to submit two letters, one from the
U.S. Chamber of Commerce and one from the International
Brotherhood of Boilermakers to support the NSR reform at this
point--without objection so ordered.
[The referenced documents follow:]
Chamber of Commerce of the United States of America,
Washington, DC, July 15, 2002.
Hon. James Inhofe,
U.S. Senate,
Washington, DC.
Dear Senator Inhofe: I am writing on behalf of the U.S. Chamber of
Commerce (U.S. Chamber), the world's largest business federation,
representing more than three million businesses and organizations of
every size, sector, and region, to express our support for reform of
the New Source Review (NSR) program. NSR, in its current form has
impeded environmental progress and energy production for decades. The
revisions recently announced by the U.S. Environmental Protection
Agency (EPA) are a good beginning to reforming a deeply flawed program.
The NSR program concerns the Clean Air Act (CAA) emissions
standards applicable to significant new and modified stationary
sources. In 1980, EPA established a regulatory exclusion for ``routine
maintenance.'' The scope of this term, however, remains subject to
debate. A clear administrative interpretation of ``routine
maintenance'' would be an improvement over the present situation, which
is mired in complexity and confusion.
Reducing the problems with the NSR program is vital. Governments
should not unnecessarily impede the work of the private sector. The NSR
program is a classic example of bureaucratic complexity. More than 20
years after the initial regulation, a plant manager cannot determine
with any certainty whether planned maintenance activities will subject
the facility to millions of dollars of extra costs.
The NSR program, as presently constituted, is a severe impediment
to increasing domestic energy supply. Electric generating plants cannot
make even minor changes to their operations without running the risk of
ruinous enforcement actions that would impose huge fines and enormous
compliance costs on their facility. National energy policy, indeed
national security, requires the removal of every obstacle to increased
domestic energy production.
The National Energy Policy Report directed EPA to review the NSR
program, and report on its effect on environmental protection and
energy production--EPA's review found that the NSR program has impeded
or resulted in the cancellation of projects that would maintain or
improve reliability, efficiency, or safety of existing power plants and
refineries.
On June 13, 2002, EPA announced a set of revisions to the NSR
program. Among other changes, facilities would be able to make physical
changes to their plants without obtaining an NSR permit, if their
emissions do not exceed a plantwide cap. Projects would be excluded
from NSR requirements if they result in a net overall reduction of air
pollutants. EPA would also establish a safe harbor test. Projects whose
aggregate costs are below the threshold established by the safe harbor
test would be exempt from NSR requirements.
These proposals promise a major improvement to the NSR program.
They will lead to improvements in the environment, as regulatory
certainty will allow facilities to perform routine maintenance and
repairs without the fear of triggering NSR requirements. Plants have
deferred routine maintenance, which would have improved safety and
decreased emissions, due to the potential costs of NSR requirements.
With the NSR program modifications, overall emissions will be reduced.
The reforms, particularly the plantwide cap, will benefit facilities by
allowing increased operational flexibility. The revised NSR program
will simplify an overly complex program.
The recently announced NSR reforms are long overdue. The
regulations to be made final later this year were proposed in 1996. The
proposals requiring notice and comment rulemaking will not be in effect
until 2004, at the earliest.
The U.S. Chamber supports reform of the NSR program. The U.S.
Chamber urges the Senate to encourage these efforts to improve
environmental progress and energy production.
Sincerely,
R. Bruce Josten.
______
Statement of Ande Abbott, Director, Legislative Department,
International Brotherhood of Boilermakers
Chairman Jeffords, Chairman Leahy, and members of the committees,
my name is Ande Abbott and I am the director of Legislation for the
International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers, AFL-CIO. I thank you for this
opportunity to present our views.
Commonly referred to as the Boilermakers Union, we are a diverse
union representing over 100,000 workers throughout the United States
and Canada in construction, repair, maintenance, manufacturing,
professional emergency medical services, and related industries.
Boilermakers, who make and maintain industrial boilers and the
pollution control equipment they use, have had a long-time commitment
to a clear, effective and reasonable new source review (``NSR'')
policy. We support the recent efforts of this Administration to clarify
the program. The efficiency of our facilities and the safety of our
workers hang in the balance.
First, let me be clear today that Boilermakers do not oppose the
Clean Air Act, nor do we oppose its rigorous enforcement. In fact,
construction lodges of our union look forward to doing much of the
actual work for the installation of new technologies and controls at
utility plants and for industrial boilers across this region and the
country. In reference to the NOx control program alone, our
international President Charlie Jones recently wrote:
``The EPA estimates that compliance measures will cost about $1.7
billion a year. A sizable portion of that money will go to the
Boilermakers who do the work necessary to make the additions and
modifications required by the SCR technology.''
Aside from NOx control, Boilermakers have always led the way on
Clean Air Act issues. For example, Boilermakers were pioneers in
installation of scrubbers and further in fuel-substitution programs at
our cement kiln facilities. In short, Boilermakers have been there to
meet the challenges of the Clean Air Act, to the benefit our members
and all Americans that breathe clean air.
However, Boilermakers could not support the EPA's 1999 recent
interpretation of its authority under the New Source Review program.
NSR, correctly interpreted as we believe the Administration's
clarification does, forces new sources or those undergoing major
modifications, to install new technology, like the technology President
Jones mentioned. We support NSR in that context.
But, when NSR is applied to the routine maintenance policies and
schedules of existing facilities, very different results occur. In
those cases, facilities are discouraged from undertaking routine
actions for fear of huge penalties or long delays or both. By applying
NSR in that way, we are pretty sure that Boilermakers won't have the
opportunity to work on maintenance projects that we know are extremely
important to energy efficiency. Just hearing about recent events in
California is enough to make the case that facilities need to be as
efficient as possible. We now have read that New York maybe facing
similar problems. The New York Times reported just a few days ago that,
the State ``is unexpectedly facing the potential for serious power
shortages over the next couple of months.'' Now is definitely not the
time to play with the reliability of power grid.
Efficiency is not the only reason to encourage routine maintenance.
Experienced professionals or Boilermakers new to the trade can both
tell you: maintenance is necessary to maintain worker safety. Electric
generating facilities harness tremendous forces: superheater tubes
exposed to flue gases over 2000 degrees; boilers under deteriorating
conditions; and parts located in or around boilers subjected to both
extreme heat and pressure. Any EPA interpretation which creates
incentives to delay maintenance is simply unacceptable to our workers.
Some critics of the June 13 action by the Administration have
contended that the NSR decision was made with insufficient attention to
public process. This simply has not been the experience of the
Boilermakers or other unions working on this project. The U.S. EPA held
four public hearings in each region of the country. Paul Kern, the
recording secretary of our Local 105 in Piketon, Ohio, offered a
statement at the hearing in Cincinnati. In addition, it is our
understanding that over 130,000 rulemaking comments were received on
this initiative. Given our experience with certain regulations that
just seem to appear over night, the Administration's action on NSR seem
pretty open and fair to us. When you compare the current clarification
to the way the program changed by in 1999--without any rulemaking
process whatsoever--the Administration's June 13 announcement looks all
the better!
Boilermakers are not just workers; they are also consumers of
electricity that work hard for their wages. One item often lost in the
mess regarding NSR is that capital expenditures not justified for
environmental protection are still passed along to ratepayers.
Unfortunately, the less money you make, the greater the percentage of
your paycheck goes to your electricity bills. According to Energy
Information Administration data, those living at or near the poverty
level pay 4 to 6 times the percentage of their income for power. So,
advocates of misusing the NSR program hurt those least able to afford
it the most!
As you can see, Boilermakers have never asked for repeal or
substantial revision of the NSR program. We encourage the development
and installation of new technology, and we stand ready to continue to
train and apprentice workers to meet the needs of the Clean Air Act.
However, when the NSR programs goes where it wasn't intended--and
discourages the very maintenance, repair and replacement activities
that constitute the livelihood of Boilermakers--we must strongly
object. Thanks for the opportunity to make a statement.
Senator Inhofe. President Bush will not place layer after
layer of regulations without considering the energy
implications.
Mr. President, we now have an energy crisis in this
country----
Senator Leahy. I will settle for ``Chairman,'' as one of
the very few members of the Judiciary Committee who has never
run for President.
[Laughter.]
Senator Inhofe. I see. That is true. Well, we heard some
really great Presidential speeches already today, and I kind of
enjoyed them. The season is starting early.
[Laughter.]
But we do have a crisis and it is not a laughing matter,
and the extreme left environmental extremists do not want to
drill, they do not want to refine, they do not want nuclear
energy. I don't know what they want. You cannot run the most
highly industrialized Nation in the history of the world on
windmills.
Thank you, Mr. Chairman.
Senator Leahy. Thank you.
Mr. Sansonetti is the Assistant Attorney General for the
Environment and Natural Resources Division of the Department of
Justice. He is the top law enforcement official on
environmental issues. He will go first, followed by Jeffrey
Holmstead, who is the Assistant Administrator for Air and
Radiation at the U.S. Environmental Protection Agency.
In your statement, Mr. Sansonetti, please also tell us
whether you had any involvement with development of the
Administration's energy policy, including specifically its
Clean Air Act stance before you were confirmed to your current
post as chief environmental enforcer.
Please go ahead, Mr. Sansonetti.
STATEMENT OF THOMAS L. SANSONETTI, ASSISTANT ATTORNEY GENERAL,
ENVIRONMENT AND RESOURCES DIVISION, U.S. DEPARTMENT OF JUSTICE
Mr. Sansonetti. Chairmen Leahy and Jeffords, members of the
committees, I am pleased to be here today to discuss the
Department of Justice's enforcement activities on behalf of the
New Source Review program. We take the health impacts of air
pollution seriously, and our enforcement activities in this
area are an important part of the effort to clean up our air
and to protect public health and the environment.
Accordingly, we are continuing to prosecute vigorously a
variety of actions in connection with the NSR program. One
point that I want to state at the outset is that there is much
more to this program than the regulation of power plants. We
are targeting a variety of industries. This approach has
resulted in significant gains for public health and the
environment across the United States.
In addition, the committee should be aware that the NSR
litigation is only one part of the Environment and Natural
Resources Division's enforcement docket. We have many other
enforcement actions focusing on other environmental laws,
including for instance the Clean Water Act, and we have to
thank both of the Chairmen for our Vermont pure natural spring
water that you supplied us with today. We are committed to
vigorously enforcing all of these laws, as well as NSR
violations.
In the late 1980's, the Department of Justice began
bringing enforcement actions for NSR violations. Our primary
goal in these actions has always been the protection of the
public health and the environment by compelling facilities that
are in violation of the law to install state-of-the-art
pollution controls. We also seek to impose appropriate civil
penalties for past violations so as to discourage noncompliance
and ensure a level playing field between those who comply with
the law and those who fail to do so. Over time, working with
our colleagues at EPA, we developed a strategy of targeting
industries that had significant compliance problems with regard
to NSR requirements that were major sources of air pollution. I
would like to describe just a few or our recent successes in
those areas.
Beginning in the late 1980's, we focused our first NSR
enforcement efforts on the wood products industry. In a
landmark settlement, we resolved an action against Louisiana
Pacific in 1993 with a consent decree that required the company
to install pollution controls at its facilities nationwide.
Since then, we have had a string of successes in obtaining
similar settlements from other major wood product
manufacturers. In March, we filed a settlement with Boise
Cascade that will require reductions of up to 95 percent of the
emissions from the company's eight plywood and particle board
plants. Boise Cascade will also pay millions in civil penalties
in its supplemental controls to reduce emissions at its various
plants. The State of Louisiana which joined us in bringing this
action will receive a portion of that civil penalty.
We have also been very successful in reaching settlements
for NSR violations with several major refiners. After
prevailing at trial on the issue of liability, we joined with
the EPA and the Wisconsin Department of Justice in January to
announce a settlement with Murphy Oil, which will dramatically
cut sulfur dioxide emissions from the company's Wisconsin
refinery. Murphy Oil will also pay a civil penalty of $5.5
million, the largest ever leveled in Wisconsin in an
environmental enforcement case. Also last December, we
announced comprehensive environmental settlements with Conoco,
Navajo Refining and Montana Refining Company that are expected
to reduce harmful air emissions from seven petroleum refineries
by more than 10,000 tons per year. Several States joined in
those settlements.
These are only a few of the many settlements that we have
reached with major refiners in the last 18 months. All
together, these settlements cover 37 refineries and almost 31
percent of the Nation's domestic refining capacity, and are
expected to reduce air emissions of nitrogen oxides and sulfur
dioxides by more than 150,000 tons per year.
Now, what about coal-fired utilities? The Department has
filed 10 enforcement actions against coal-fired utilities. So
far, we have reached settlements with two companies and
agreements in principle with two others. Our most recent
success in this area came in January when we joined forces with
the State of New Jersey to reach a settlement with PSEG, in
which it will spend over $337 million to install state-of-the-
art pollution controls to eliminate the vast majority of sulfur
dioxide and nitrogen oxide emissions from two New Jersey coal-
fired power plants. The combined effect of the pollution
controls will reduce the company's sulfur dioxide emissions by
90 percent and nitrogen oxide by over 80 percent. PSEG also
agreed to pay a civil penalty of $1.4 million and to spend at
least $6 million on three pollution reduction projects. As
Attorney General Ashcroft stated, ``This important settlement
reflects our continuing commitment to enforce vigorously the
Clean Air Act to protect public health and the environment.''
What about the current status? We currently have 11 pending
enforcement actions in which NSR violations are the main issue.
Eight of those eleven involve power plants. The remaining three
involve other industries. Of the eight pending power plant
cases, five are currently in active discovery on liability
issues, with one of these scheduled to go to trial this year in
October. In the other three pending power plant cases, the
parties are either engaged in settlement negotiations or
discovery has been stayed because the district courts are
awaiting the 11th Circuit's decision in TVA v. EPA. That case
was argued in May. The 11th Circuit has not reached a decision
and has recently referred that case to mediation.
Last, the Department's Office of Legal Policy has reviewed
the existing enforcement actions for their consistency with the
Clean Air Act and determined that the existing enforcement
actions are supported by a reasonable basis in law and fact. It
further stated that the Division will continue as it has during
the pendency of this review to prosecute vigorously the EPA's
civil actions to enforce the New Source Review provisions.
In conclusion, I would like to assure these committees that
the Department of Justice takes very seriously its obligation
to enforce the existing laws and to protect public health and
the environment. As directed by the Attorney General, we will
continue to vigorously prosecute the NSR enforcement actions
and to defend the action brought by TVA against EPA.
I will be happy to answer any questions you have about my
testimony.
Senator Leahy. Mr. Sansonetti, you asked several questions
yourself and answered them, but I did not hear the answer,
which can be a simple yes or no.
Mr. Sansonetti. It is a no.
Senator Leahy. You had no involvement with development of
the Administration's energy policy, including specifically its
Clean Air Act stance before you were confirmed here?
Mr. Sansonetti. That is correct, sir.
Senator Leahy. Thank you.
Mr. Holmstead.
STATEMENT OF JEFFREY HOLMSTEAD, ASSISTANT ADMINISTRATOR FOR AIR
AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY
Mr. Holmstead. Good morning, Chairman Jeffords, Chairman
Leahy and members of the committee. Thank you for giving me the
opportunity today to discuss the changes that the EPA is
planning on making to the New Source Review program.
I must admit that I have been looking forward to this
opportunity because for some time now, I have been wanting to
try to clear up some of the misperceptions that are circulating
about the NSR program. Since I arrived at EPA almost a year and
a half ago, I have spent much of my time learning about the
details of this very complex program and I am eager to share
with you what I have learned.
As several of you have mentioned, Congress created the New
Source Review program in 1977 to allow for industrial growth
without compromising our progress toward cleaner air. To
accomplish this goal, the NSR program requires companies to
install state-of-the-art pollution control equipment when they
build a new major-emitting facility or when they modify an
existing plant in a way that results in a significant emissions
increase. We believe that the New Source Review program should
provide a bright line for industry and regulators to follow in
meeting these statutory requirements, but it does not. Over the
years, the program has become increasingly complicated, often
leading to protracted litigation. For example, as Tom
mentioned, EPA filed several NSR-related lawsuits against power
plants in 1998 and they are still far from being resolved. Now,
as Tom has said and as Governor Whitman has repeatedly said, we
are committed to pursuing those cases, but we do not believe
that a properly designed program should need protracted and
uncertain litigation to make it work. EPA is attempting to end
this system of regulation by litigation by putting common sense
back into this important program.
In May 2001, the President's National Energy Policy Group
asked EPA to review the NSR program. During our review, we met
with more than 100 public officials, industry groups and
environmental and consumer groups. We held a series of public
meetings and public hearings around the country, and we
evaluated more than 130,000 public comments, although I should
mention that probably about 1,000 of those were substantive
comments; about 129,000 were postcards that were virtually
identical.
The review found that NSR, as it applies to new facilities,
works quite well and has provided substantial environmental
benefits. As the current program applies to existing
facilities, however, we found quite the opposite. It has become
a source of frustration that has impeded or caused the
cancellation of many projects that would have improved
reliability and energy efficiency in existing plants. Now,
perhaps this would be an acceptable price to pay if the program
were effective in improving air quality. As it relates to
existing sources, however, and again I want to state we are not
talking about how the program applies to new sources, but as
the program relates to existing sources, there is no evidence
that it actually has improved air quality. We know that in some
cases it has effectively prevented companies from making
changes at their plants that would have reduced emissions.
We also know, perhaps more importantly, that it has created
an artificial incentive for companies to keep their emissions
high because under the current program, this is the best and in
some cases the only way for a plant to preserve its operational
flexibility. This is entirely consistent with the current
regulations.
Now, no one should be surprised to hear that there are
problems with the current NSR program. Officials from the last
three Administrations, State and local government leaders,
Members of Congress from both political parties and consumer
and environmental groups have all acknowledged that the New
Source Review program is not working as well as it should. For
the past 10 years, practically half of the life of the program,
EPA under both Democratic and Republican Administrations has
been engaged in a formal process to figure out how to make the
NSR program better. I am pleased to say that we are finally
moving forward on this effort.
Last month, we announced major improvements to the New
Source Review program, and rather than summarize those, I would
just refer you to the documents that I believe that you already
have. But let me just mention that those are really two
different sets of improvements. The first several, as you have
mentioned, will be final rules that will adopt proposals that
were first made under the Clinton Administration back in 1996.
That accounts for, the way we count them, five of the eight
improvements to the program that we are making.
In addition, we are now at the initial stages of going
through I believe exactly what Senator Biden asked us to do,
which was to put these ideas out for public comment, to take
input from all of the interested stakeholders, and to decide
whether these are additional changes that need to be made. Let
me just emphasize that each of these changes, whether they are
the changes that we are going final on, or the changes that
will go through the full process, have undergone an extensive
public notice and comment process.
I believe that the changes we have made and those that we
will propose will make a real difference in the effectiveness
of the New Source Review program. By removing unnecessary
barriers to modernization and pollution prevention, we can make
our power plants, refineries and factories cleaner and more
energy-efficient.
Just a quick word if I can on power plants. We as an
Administration, and I personally, agree with the concerns that
have been raised by many of the members of the committee,
especially those of you in the Northeast. We understand that in
fact there are serious pollution problems that are caused by
coal-burning power plants. We also know how to address those
problems, and I commend Mr. Jeffords for his leadership on the
issue. We have spent an enormous amount of time in my Agency
over the last 18 months, and actually over the last 10 years,
trying to study how we can effectively reduce those emissions.
I will tell you that the answer is to do something like what
you all did in 1990, which is to not have a complex program
that allows facilities to decide when they are going to reduce
their emissions, but to have Congress enact legislation that
says you are now required to reduce your emissions by a certain
amount over a certain period of time, and that is what the
President's Clear Skies proposal would do, and we very much
look forward to working with all of you on that proposal and
passing this important piece of legislation.
One other thing, I would like to ask if I may that the
reports that are already in the public record on our
recommendations, as well as our report on the New Source Review
program, if those could be placed in the record, I would
appreciate that.
Senator Leahy. Without objection.
Mr. Holmstead. I look forward to answering any questions
you may have.
Senator Leahy. Thank you.
Mr. Sansonetti, in January, your department issued a report
which upheld the legal basis of the Clinton NSR lawsuits. In
March, you were quoted as saying about the NSR cases, ``We are
going full stream ahead. We are actively pursuing all cases.
When companies refuse to settle, DOJ will take them to trial.''
Tough words; I happen to agree.
But following these kind of tough words, the press reports
indicate that because of EPA's recent actions revising the NSR,
defendants who were close to settlement are now walking away
from the bargaining table and doing it with confidence. In
fact, defendants in courts are brandishing the EPA's own
documents in their court filings in support for dismissing the
multi-billion dollar lawsuits. All of a sudden, everything
seems to be going backward. Did you and your lawyers at DOJ see
that coming?
Mr. Sansonetti. First of all, I disagree with the
interpretation from press reports, because frankly, while
obviously I cannot get into the details of any of the ongoing
litigation, the details of the settlements, I can tell the
Senator that the folks in my division continue to work on all
these pieces of litigation and the settlements----
Senator Leahy. Without going into the particular press
reports, are there cases where they were close to settlements
and now they are backing away from those?
Mr. Sansonetti. No.
Senator Leahy. None? That is your statement here--your
statement here is that there are none.
Mr. Sansonetti. That is correct. We are going forward with
our attempts to settle and we continue to negotiate with the
attorneys.
Senator Leahy. Are defendants in courts brandishing the
EPA's own documents in their court filings as support for
dismissing the lawsuits? Are there any such cases?
Mr. Sansonetti. The only case that I am aware of is one
that is not within my shop. I read the report on the New York
State case brought with Niagara Mohawk. We are not involved in
that case. To my knowledge that is the only one----
Senator Leahy. Did you counsel EPA to refrain from
publishing a revision of NSR during the ongoing enforcement
actions?
Mr. Sansonetti. Did I counsel them not to do what?
Senator Leahy. Did you counsel them to refrain from
publishing a revision of NSR during these enforcements?
Mr. Sansonetti. No, that is not my business. I am in the
law and litigation business, not policy formation.
Senator Leahy. You don't think that their publishing that
might affect in any way the settlement discussions that are
underway?
Mr. Sansonetti. May, may not. It is a case-by-case basis.
Senator Leahy. But it is irrelevant to you whether it would
or not?
Mr. Sansonetti. Right, because the announcement does not
affect my cases. I am going forward with them regardless of
what ends up happening with this proposal.
Senator Leahy. But you don't think that changing a key
Clean Air Act regulation mid-stream might affect those legal
cases?
Mr. Sansonetti. It depends on the judge. One judge could
say that that does affect it, and maybe they go back and make a
certain decision; another judge may say ``I'm sorry''----
Senator Leahy. But as far as you are concerned, it is
irrelevant to your actions?
Mr. Sansonetti. Because, if I can use a baseball analogy, I
am in the game. I have got to go to the plate and bat. And some
people are saying----
Senator Leahy. But it is irrelevant to your actions?
Mr. Sansonetti. That is correct. I have got to go forward.
I have no choice.
Senator Leahy. In your report to the President on the
pending NSR cases, the concluding line of the summary reads,
``Any decision to withdraw, terminate or otherwise circumscribe
them would rest in the discretion of the ENRD''--DOJ's
Environment and Natural Resources Division--``which must assess
the relative strength and weaknesses of a given case.'' But
then in the same report, it concludes, ``Any decision to
withdraw, terminate or otherwise circumscribe them would
constitute policy determination as to Clean Air Act enforcement
strategy, or regulatory interpretation, determinations that
properly rest with EPA, the Agency charged by statute with the
responsibility to make such decisions.'' I just wanted to
understand for the record, does responsibility for the
enforcement of the Nation's environmental law lie with DOJ or
with EPA?
Mr. Sansonetti. DOJ.
Senator Leahy. Do you believe that it is appropriate for
defendants in ongoing NSR cases to use EPA's proposed NSR
revisions as support for dismissal of those cases?
Mr. Sansonetti. I have to leave that to the attorneys
representing the other side. I supposed if I were on the other
side and I thought that might help me, I might use that, but
that is up to them.
Senator Leahy. Do you think it is a good defense?
Mr. Sansonetti. I do not. I think that the courts are going
to look at what the existing law is at the time that the
matters come before the court, and the proposals are not going
to be anywhere near final by the time these trials come up.
Senator Leahy. But you do not think that there have been
any changes in the status of cases that were close to being
settled because of this?
Mr. Sansonetti. I cannot read somebody else's mind. All I
can do is go forward and listen to my attorneys.
Senator Leahy. Now, Mr. Sansonetti, that is not responsive
and that is beneath you and this committee. That is not the
question, nor are we asking you to be--but if you are going to
be in charge of this, you have to make some judgments for
tactics and otherwise. Do you get the impression that following
this, there was a backing off of settlement discussions?
Mr. Sansonetti. No. I might also note that in the testimony
that was given by EPA today, it says specifically that the
changes that they are making to the NSR program will be
prospective in nature. EPA will continue to vigorously pursue
its current enforcement actions.
Senator Leahy. I understand their testimony, but what I am
saying is, you have said you are in charge of the enforcement
of this. I am asking you whether it had an effect on you and on
your ability to enforce.
Mr. Sansonetti. So far, not, but let's see how the trials
come along and if the settlements end up on the courthouse
steps, as many times they are as you get close to the trial
date, settlements come up. That first case is about 90 days
away, a couple more in February, so we will soon know. Those
trials will come up before this regulation.
Senator Leahy. Mr. Holmstead, when EPA developed this 90-
day report on NSR, did you engage the Department of Justice's
NSR legal team in these deliberations?
Mr. Holmstead. At the time we were developing that report
and the list of recommendations, we worked extensively, my
staff worked not only with the Department of Justice, but also
with our own Office of Enforcement. And so there was
extensive--the answer is yes, there was extensive consultation.
Senator Leahy. Did you go into a question of how these
proposals would impact either prospective or retrospective NSR
enforcement cases?
Mr. Holmstead. Yes, that was one of the primary issues that
was discussed. What I can say is, based on numerous meetings
that I have had, which have included staff attorneys from Tom's
office as well as attorneys from our own enforcement office is
we do not believe these changes will have a negative impact on
the enforcement cases.
Senator Leahy. So you were advised by DOJ that they would
not have an impact?
Mr. Holmstead. I cannot say that I have had specific advice
from Tom, but----
Senator Leahy. By ``Tom,'' you mean Mr. Sansonetti?
Mr. Holmstead. I am sorry--Mr. Sansonetti. But based on
conversations between our staffs, I have been informed by our
enforcement folks as well as by people in Mr. Sansonetti's
office that they do not believe these will have a negative
impact on the enforcement cases.
Senator Leahy. On these multi-billion dollar cases that
have been filed, your understanding from DOJ is that this would
not have any effect?
Mr. Holmstead. That is correct. If I can also just mention,
I was interested to read this morning in the Washington Post
that there was an article that addresses this issue, and I know
that--and a spokesman from Attorney General Spitzer's office
said exactly the same thing. If I could just read from the
article, he says, this is from Attorney General Spitzer's
office, ``Nothing the Bush Administration does prospectively
will have any impact on the violations these plants committed
in the past,'' said Mark Violeta, spokesman for the Attorney
General's office. ``We feel we are pretty solid ground.'' I
think that represents our position on these cases as well.
Senator Leahy. Thank you.
Senator Jeffords.
Senator Jeffords. Mr. Holmstead, I understand that EPA
projects about 70 percent of the sources in several industry
sectors have not bothered to get NSR permits when they should
have. What would you estimate is the current rate of
noncompliance?
Mr. Holmstead. I have no idea. I have read that statistic
before. I believe that that comes also from our enforcement
office, and they believe that in some industry segments that
there is that sort of high rate of violation. I honestly do not
know what the violation rate may be. One of the things that I
know that you are interested in, as am I, is that we have
another way of regulating power plants, the Acid Rain program,
where we know we have effectively 100 percent compliance, and
we think that sort of a program where we get compliance and we
get the reductions is a much better way of going about these
things, but I do not have specific statistics on what we think
the compliance rate is.
Senator Jeffords. If these rules go final this year, which
you have proposed, when and by how much will pollution
decrease? Could you tell us with respect to each rule?
Mr. Holmstead. Yes, I would be happy to. As you mentioned,
there are five different rules that we plan to go final on. We
have analyzed each of those extensively and let me just go
through them quickly. The first one, as Senator Biden
mentioned, has to do with what we call plan-wide applicability
limits. We have done a number of pilot projects on these so-
called PALs, and have a study that we hope to publish within
the next few weeks, but it has found that in each of the cases
that we have studied, you get significant reductions that you
would not otherwise get under the program. It is very difficult
to quantify the extent of those reductions, but we are highly
confident that that reform will lead to much greater emission
reductions than we currently get. We can say the same thing
about something that we refer to as exclusion for pollution
control projects.
So we know of a number of cases where people have not
undertaken these sorts of projects, and we are going to
eliminate that barrier, and we know that that will also reduce
emissions. So again, quantifying exactly how much is very
difficult to do, but we do know that as with the PALs, that we
will get significant emission reductions.
The same is the case with respect to something we call the
clean unit test, which really for the first time provides
industries with an incentive to install the best available
control technology. Under the current program, if you go
through NSR and as a result of that you install the best
available controls, you can be in the same process again 2
months later or 6 months later next time you make a change. We
do not think that is the way the statute was really intended to
work, and we believe that if we can give people an incentive to
put on the best available controls, that will also reduce
emissions.
The last two changes, one of which has to do with a change
in the emissions test. Currently, the program uses something
called the actual to potential emissions test, which focuses
not on actual emissions, but theoretical emissions. We believe
that by focusing on actual emissions, that that will allow
people to go forward with projects that will reduce pollution.
Again, it is very difficult to quantify, but we know it is in
the right direction. And then the fifth one has to do with a
change in the baseline, and we do not see that that has a
difference on way or another.
So based on pretty extensive analysis of all of these
reforms, we know that they will result in emissions decreases,
but it is very difficult to say by how much.
Senator Jeffords. Well, we would like you to the best
extent possible to give us some specific objectives in tons so
that we can better understand the ramifications of what you are
doing.
Mr. Holmstead. We would be happy to do that. I will just
need to tell you it will need to be based on some assumptions
and we will be clear about those assumptions. For instance, one
of the things--we think PALs are a good idea and we wish States
would do what some States have done, and that is require PALs
for everyone. That is, for instance, what the State of Oregon
does that has a very effective program. Under our program, PALs
are optional and so we have to make some assumptions about how
many sources would adopt PALs. But we can make those sorts of
assumptions and provide that information to you, and we will be
happy to do that.
Senator Jeffords. Thank you.
Mr. Holmstead, when will the Agency provide us with a
quantitative analysis of the aggregate impact of the rules that
you intend to finalize this year on quality, public health and
emissions? I would note that a combination of the Congressional
Review Act and the Executive Order on Regulatory Review
requires such an analysis due to their significance. I would
like your comments on how you would be able to accommodate us
on that.
Mr. Holmstead. I am quite familiar with both the
Congressional Review Act and the Executive Order which was
signed by President Clinton which require what is called a
regulatory impact analysis or an RIA for regulations that
exceed a certain threshold in terms of their impact on the
economy. Back in 1996, the Clinton Administration determined
that these five regulatory changes that we are making now that
none of them exceed that threshold, and so therefore a
regulatory impact analysis was not required. As I know you
know, under both the Executive Order and the Congressional
Review Act, it is only major regulations that are subject to
the RIA requirements, so we have not prepared a formal RIA. In
the preamble to these final rules, we will be again discussing
why we know that these will improve the environment.
In terms of quantifying the emissions reductions that I
mentioned, that is hard to do. We will try to get something to
you that you can see, but again what we will have to do is just
make some assumptions about how many facilities will
voluntarily accept PALs because that does actually put a cap on
the emissions, something the current program does not do. We
will make some assumptions about that, and we will be happy to
provide that information to you.
Senator Jeffords. I think our view is that the impacts on
public health are very significant, and therefore it does
apply. We would appreciate it if you would look at it from that
perspective.
Mr. Holmstead. We will be happy to.
Senator Jeffords. Mr. Holmstead, I understand that the
informal interagency review of this package has begun, even
before it is sent to OMB. Will you agree to docket any written
comments from other agencies in this process?
Mr. Holmstead. Yes, I would be happy to. We will
certainly--and in fact, I am quite sure that we are doing that
already, yes.
Senator Jeffords. Mr. Holmstead and Mr. Sansonetti, have
you had any meetings with representatives of power companies or
TVA that are the subject of the NSR enforcement actions, in
which they suggested modifications to the NSR regulations that
would, if implemented, have prevented or precluded the filing
of those enforcement actions?
Mr. Sansonetti. In my case, no.
Mr. Holmstead. I believe that is the same for me. I am
trying to think if, because TVA is a Federal Agency, I have had
some discussions with TVA, but not in relation to any of the
enforcement actions. I certainly understand their perspective
on the NSR program on an overall basis, but I do not believe it
is fair to say that they have proposed changes that would have
any impact on the enforcement actions.
Senator Jeffords. Thank you, Mr. Chairman.
Senator Leahy. Thank you.
Senator Voinovich.
Senator Voinovich. Mr. Sansonetti, how long have you been
there, again?
Mr. Sansonetti. One-hundred and ninety-six days.
Senator Leahy. Liking it better every day.
Senator Voinovich. Are you familiar with when the lawsuits
started to be filed under NSR--about when?
Mr. Sansonetti. As I mentioned in my earlier testimony, I
remember that the initial cases were filed in the 1980's. Many
of the cases that are presently coming up for trial were filed
in the 1998-1999 period.
Senator Voinovich. Here is what I am trying to get at. I
think in 1996, President Clinton asked the EPA or the EPA in
conjunction with the President, to go forward with reform of
the regulations that dealt with New Source Review, and as a
matter of fact some of the regulations that are being now
considered are recommendations that have come out of the
Clinton Administration. Is that right, Mr. Holmstead?
Mr. Holmstead. That is correct, yes.
Senator Voinovich. OK. Something happened prior to 1998.
Some of the companies were doing routine maintenance and repair
and going on and doing a lot of things. Then something
triggered these lawsuits, and there were a lot of them that
were filed. The issue is, what was it? What change took place
at the EPA that caused these lawsuits to be filed in 1998 when
many of the things that were done were being done in 1991,
1992, 1993, 1994, and at that time nothing was done about them?
I suspect the people that were doing them understood that we
were doing routine maintenance and repair and this was OK, and
then all of a sudden, wow, a whole flurry, as I mentioned in my
opening statement, blossomed--all these lawsuits. It is my
understanding that it occurred because someone in the EPA
issued a guidance. Could either one of you shed light on just
what it was that caused the Agency to start to go after some
people on things that prior to that time they were not
bothering with?
Mr. Sansonetti. I am afraid I can't. During that period of
time, I was practicing law in Cheyenne, WY. So I am afraid I do
not have any personal knowledge of what was going on at EPA
during that time.
Mr. Holmstead. I am sorry, I cannot really help you either.
I don't know exactly what the thinking was within the EPA back
in those days, but I do know, as you say, that the current
round of cases was initiated I think back in the 1998-1999
timeframe, so exactly what precipitated those cases, I do not
know.
Senator Voinovich. Well, Mr. Chairman, I would like to ask
the EPA to do an investigation as to what it was that triggered
these lawsuits, as I mentioned, for things that had heretofore
been done by these companies and all of a sudden they now
became subject of lawsuits under New Source Review. I am very,
very interested. How did it happen?
Mr. Holmstead, there has been a number of--I would like to
get that in the next couple of weeks.
Mr. Holmstead. Yes, sir. I am sure we can provide that.
Senator Voinovich. Mr. Holmstead, there have been a number
of allegations in the media that the EPA has engaged in a
closed process. There are some allegations here from some of
the questions and statements made by members of the two
committees here, that somehow it was a closed process in
developing the NSR reform package; that this was done in a
sinister way in the dark rooms of the White House, with big
utility and other people. I would like you to comment. What
kind of process did you use in trying to come up with the
recommendations that you are making in terms of regulations?
Mr. Holmstead. If I can just make an initial observation.
One of the most interesting things about being at the EPA is to
be involved in an issue, and then read about that issue in the
press and realize that there is usually no relationship
between, at least in my experience, what is going on and what
is reported in the press as going on. I have heard these
accusations before about a secret process, a backroom process,
and I have to admit I am just sort of baffled because this has
been done in a very open, public way, going back to 1992. At
the very end of the first Bush Administration and then on
through the Clinton Administration, there was actually a formal
FACA, Federal Advisory Committee Act, committee that met dozens
of times to talk about NSR issues.
Senator Voinovich. Excuse me--were all these open hearings,
were they the ones--after those hearings was what triggered the
Clinton Administration's recommendations for regulations in
1996?
Mr. Holmstead. Yes. The five things that we are going final
on all stem directly from that process. So there were literally
dozens of public meetings. There was a formal proposal in 1996.
There were public hearings on that proposal. There was a series
of meetings. I think our files indicate there were something
upwards of meetings with 50 different groups on those
proposals. There was a supplemental notice published in the
Federal Register in 1998 and again additional public comment on
these very same reforms that we are talking about today.
Senator Voinovich. Have you changed those regulations that
came in 1996 in any way, from the Clinton Administration?
Mr. Holmstead. There were a number of regulations--there
were many, many things that were proposed. We are not
finalizing all of them, partly just because of manpower
concerns. So we are focusing on the five most important ones.
For those that were proposed, I cannot say that in every single
respect they are the same, but they are quite close to what was
proposed in 1996 by the Clinton Administration.
Senator Voinovich. I would like to see what was proposed
and what you are proposing with these regulations, and make
that available to this committee also.
Mr. Holmstead. That is something that we will do shortly.
When we issue the final regulations, we will be able to--one of
the things that of course we have to do under the
Administrative Procedure Act is explain any differences between
the proposal and the final rule, as well as our response to any
comments. So that will all be, again, available to you very
soon.
Senator Voinovich. So the regulations that we have been
talking about here, we are speculating about what those
regulations are going to be because you have not really issued
them, then. Is that right?
Mr. Holmstead. That is correct. We have provided, as I
think you know, an announcement where we did provide some
detail about what we are planning to go final on, but again
those are sort of one or two paragraphs of what are fairly
complicated regulatory packages.
Senator Voinovich. The question I have is if these
regulations have not been issued yet, how can we attribute them
being so terrible when we really do not know what they are yet?
Mr. Holmstead. I think that is a good question. As the
person who has been accused of gutting the Clean Air Act and
rolling back the Clean Air Act and various other things, I have
often asked that same question myself.
Senator Voinovich. So there has been a lot of speculation
here in this committee about how terrible they are and how they
are going to roll back the rules and regulations, and yet we
still don't have those in front of our face yet so that we can
really ascertain whether or not they do what some people say
they are going to do.
Mr. Holmstead. That is correct. The regulations are not--we
are still finalizing those within the Agency. That is correct.
Senator Voinovich. It might be good for this committee to
get together after the regulations have been issued so we
really know what we are talking about.
Mr. Holmstead. I will look forward to that.
Senator Voinovich. Thank you.
Senator Leahy. Thank you.
Senator Carper.
OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM
THE STATE OF DELAWARE
Senator Carper. Thank you, Mr. Chairman, and to our
witnesses, thank you for joining us today.
Like several members of this panel, I am a supporter of
legislation that seeks to cap and reduce the amount of
pollutants, four principal pollutants, including sulfur
dioxide, nitrogen oxide, mercury and carbon dioxide. Senator
Jeffords has sought to lead our panel, Environment and Public
Works panel, with legislation called Four P's, you are I am
sure familiar.
We reported the bill out of committee and it is, I guess we
are now positioned to go to the floor. There are those of us
who are interested in looking at an approach to a Four-P bill
that still sets targets and reduces pollution emissions in all
four areas, but also revisits New Source Review policy at the
same time.
Here is my question, and I will ask either of you to take a
shot at it if you would. I want to in focusing on New Source
Review ask, does it currently, as it is currently applied, does
it, and this is what I think it ought to do, and then I will
ask you do you think it does, and if not, how can we change it.
My view of New Source Review is that it ought to protect our
health and our environment. New Source Review should promote
energy efficiency and reduce our consumption of energy in this
country. New Source Review should provide the reliable,
affordable electricity to consumers. And finally, New Source
Review, in my own judgment, ought to provide some regulatory
certainty for utilities. Those are really the four things I
would hope it would help us to provide.
Here is my question, two-part. One, does it do those
things? If not, how can we change it in order to accomplish
those four goals?
Mr. Holmstead. I would like to address that if I can. Let
me make sure that I understand the four factors. One is energy
efficiency; one is regulatory certainty; one is energy
security.
Senator Carper. Yes.
Mr. Holmstead. And I am sorry, the fourth?
Senator Carper. Protecting a healthy environment.
Mr. Holmstead. OK. I have to say that as some of you know,
I have spent an enormous amount of time trying to understand
these very questions. I think the New Source Review program has
been quite effective for facilities that build brand-new
sources. As the program applies to the existing sources, and
people I think have misconstrued what the statute says. The
statute says that New Source Review applied if a facility makes
a change that would result in a significant emissions increase.
So they are free to make all the changes they would like to
make as long as it does not result in a significant emissions
increase, and there is a lot of debate back and forth as to how
you quantify that.
What we can say with some certainty on each of these four
factors is first of all, with respect to protecting human
health and the environment, it certainly has been a useful tool
that applies to new sources, but it does not really do anything
to reduce emissions from existing sources for the reasons that
I mentioned. As long as they do not increase their emissions,
they can keep going.
We actually have done a very extensive analysis of power
plants, and our basic conclusion is this: With respect to the
most harmful of these pollutants, and that is SO<INF>2</INF>,
which contributes to fine particles, the only way the New
Source Review program reduces those emissions is if a facility
violates the NSR program and then is subjected to a lawsuit and
through settlement or otherwise has to put on controls. If they
comply with the program, and again we have modeled this
extensively, and we have modeled any number of changes we could
make to the program, it does not get any reductions at all in
SO<INF>2</INF> emissions. As I say, the only way it gets those
reductions is to have people violate the program and then be
subject to an enforcement action. So we believe that in terms
of actually reducing the emissions that many people, including
ourselves, believe that are the most significant, it does not
really provide us with anything.
We also believe, for reasons I can explain--I do not want
to use up all of your time--but it has impeded energy
efficiency. We know of many cases where changes that a facility
could make that would improve its energy efficiency have been
prevented or canceled because of concerns about New Source
Review.
In terms of regulatory certainty, that is one of the big
issues. I think that one of the things we want to do is provide
that sort of certainty. The program has been in existence since
1977. We have never defined in our regulations what routine
maintenance, repair and replacement is. So that is something
that we are endeavoring to do now.
But if I could leave you with one thing, and I appreciate
your question, from an energy perspective, from an
environmental perspective, the most important thing that we can
do for the utility industry and for the public health,
especially in the Eastern United States, is to do something
along the lines of what you have talked about and Senator
Jeffords and the President's Clear Skies initiative which is to
say, we know that SO<INF>2</INF> emissions right now are at 11
million tons. We want them brought down to 4.5 million tons and
then 3 million tons, and that would provide us with certainty.
It would encourage energy efficiency. It would provide health
and environmental benefits that we cannot get under the current
program.
So I just have to say, judged on the four criteria that you
mentioned, I think the program really does not work as it
relates to existing sources.
Senator Carper. Mr. Chairman, has my time expired?
Senator Leahy. Go ahead.
Senator Carper. The second half of my question, how do we
need to change New Source Review in the context of a four-
pollutant bill, in order to better meet the four goals that I
described earlier?
Mr. Holmstead. I am sorry. I did not explain that very
well. In the context of a stringent cap program of the kind
that I know the President has proposed or others, the New
Source Review program becomes entirely redundant. It honestly
has no additional benefit for the environment. So our
recommendation is that once you have a cap program in place, as
long as those caps are at least as stringent as what the
President has proposed, then there is really no longer a role
for the New Source Review program as it relates to those
sources. You would still need it for--as you know, it applies
to many, many other sources besides power plants--but as it
relates to power plants, there is really no longer any role to
be played by the NSR program. It really is counterproductive.
Senator Carper. As we go forward, and I am still new at
this here, but the idea of doing away entirely with New Source
Review, as opposed to working with us to see if there is a
middle ground, I am going to encourage you to try to work with
us to find if there is a middle ground.
Mr. Holmstead. I appreciate your comment. And let me say,
and I may get carried away with my own rhetoric here, under the
President's proposal, which we hope will be introduced in both
the House and the Senate fairly soon, we have retained certain
features of the NSR program. For instance, under the current
program there is sort of a guaranteed level of technology that
any new plant would have to meet, and that would be retained.
There would also be a need for new sources, a new power plant
for instance, before it could be located anywhere, it would
have to do modeling to show that that would not cause an air
quality problem. That would be retained under the President's
proposal, as would some other protections for national parks
and what we call class-one areas.
So I think it would be really constructive to have a chance
to sit down with you and others and talk about the features of
the program that would still make sense in that context, and we
would be delighted to have the opportunity to do that.
Senator Carper. We look forward to that.
Mr. Chairman, is that my time? Is that it?
Senator Leahy. It is.
Senator Carper. Can I just ask one question for the record
and ask for a response in writing? Thank you very much.
About 4 years ago, Mr. Holmstead, when I was privileged to
be Governor of Delaware, our State submitted a section 126
petition to EPA, and we did it with regards to controlling NOx
emissions from upwind power plants. I was surprised to learn
the other day that EPA has not yet responded to Delaware's
petition. It has been about 4 years. I understand it is also
the case with petitions from the District of Columbia, New
Jersey and our neighbors in Maryland. Here is my question.
Don't answer them now, but I would like to have a followup if
you would. When do you expect EPA to respond to Delaware's 126
petition? And what can we do in the future to help ensure that
responses are more prompt?
Mr. Holmstead. We will be happy to respond to that
question, yes.
Senator Carper. Thanks very much, and thank you, Mr.
Chairman.
Senator Leahy. Senator Bond.
OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR
FROM THE STATE OF MISSOURI
Senator Bond. Thank you very much, Mr. Chairman. I
appreciate the opportunity to speak about the subject of the
hearing today.
As we have heard I believe in the testimony from these
witnesses, this is not really about clean air. It is about
litigation, policies, regulations, bureaucratic landmines and a
whole raft of other problems. Why are we here today? I think
there may be other factors in improving air quality, and for
the information of our good friends on the Judiciary Committee,
I think the Environment and Public Works Committee last month
scuttled further electric utility pollution cuts in NOx, SOx
and mercury in order to make a political point about carbon
dioxide. A four-pollutant bill is not going to go anywhere. A
three-pollutant bill should go somewhere and we continue to
support it.
Today, we have spent the morning discussing an obscure
program that was just an afterthought in the technical
amendments of 1977. As witnesses have testified, if you are
really serious about dealing with air pollution and continuing
to make progress, there are better ways to do it. We have not
even discussed those aspects of the NSR program that have been
successful, which will ensure that new facilities will not
further harm regional air quality.
The Clean Air Act has brought America major air quality
improvements. Since peaking in 1975, electric utility air
emissions of SO<INF>2</INF> are now five million tons lower per
year. In response to the 1990 Clean Air Act amendments, and I
played a role in that with the Bond-Byrd, as we call it in
Missouri, or they call it the Byrd-Bond emissions trading
proposal in Washington, we have seen progress. Utilities have
cut NOx by two million tons per year.
The major NSR enforcement cases begun by the last
Administration in 1999 are responsible for none--let me
emphasize none of these air pollution decreases. The recent
enforcement cases are most striking in that they do not involve
a single violation of air and air emissions permit. Many,
especially in the environmental regulatory community, like to
measure damage to the environment in terms of pollution
discharge or emissions permit violations. If that is the test,
these NSR cases are of no value to the environment.
Not one case alleges that a utility exceeded its
government-permitted air emissions levels. These are all
construction permits they are fighting over. Most cases involve
only potential increases in emissions. Those plants which
increase the actual emissions were still below the levels
allowed by the government in their emissions permits. The NSR
has produced bureaucratic confusion, conflicting and changing
regulations that leave this littered with traps for a utility
trying to improve efficiency and reduce environmental
pollution. As one witness later on will testify, EPA has issued
multiple and inconsistent interpretation over the years. So
much for regulatory certainty.
The other point that has already been brought out here in
testimony is that the debate--the greatest value to the
environment in NSR reform should be energy efficiency, but this
debate is leaving that out. We spent much of the spring in the
Senate debating an energy bill, an important issue for
environmental advocates was promoting greater energy efficiency
because the more efficiently we generate and use energy, the
less damage we do to the environment. However, advocates of the
NSR program abandon their environmental friends' energy
efficiency arguments. The fuel efficiency improvements we want
for cars, trucks and air conditioners now do not seem to matter
for electric utilities.
We also hear charges about rolling back environmental
protections. Nothing could be further from the truth. I was
interested to see a quote from a new administrator of EPA just
before she took office. One of her pledges was, ``examine ways
to simplify and streamline the New Source Review process to
reduce changes of legal challenge.'' That was not a statement
by Governor Whitman. That was a statement by Administrator-to-
be Carol Browner.
That should not be surprising since all the rules the
Administration announced in June essentially were finalizing
the proposed changes initiated by the Browner EPA, either the
rollbacks back in 1996 under the last Administration were the
substance, or maybe the substance is not so bad at all. They
just don't like the messenger. I smell a sickening odor of
political campaign rhetoric, which is the greatest potential
pollutant coming out of this hearing.
[Laughter.]
Senator Bond. And I think we ought to be aware of the
dangers of that to the health of our democracy.
Harsh letter to follow. I will submit the rest of my
statement for the record.
Thank you, Mr. Chairman.
[The prepared statement of Senator Bond follows:]
Statement of Hon. Christopher S. Bond, U.S. Senator from the
State of Missouri
Thank you, to both of the chairmen, for holding this joint EPW and
Judiciary Committee hearing on the New Source Review Clean Air program.
Unfortunately, for those who actually care about clean air, and not
just litigation, policies, and regulations, you will be sorely
disappointed.
So why are we hear today? I think it may have more to do with
factors other than improving air quality. For the information of my
Judiciary Committee colleagues, the Environment Committee last month
scuttled further electric utility pollution cuts in NOx, SOx, and
mercury in order to make a political point about carbon dioxide.
Today, we will spend time discussing an obscure program that was
just an afterthought in the technical amendments of 1977. We won't even
discuss the successful part of the program which ensures that new
facilities will not further harm regional air quality.
The Clean Air Act has brought America major air quality
improvements. Since peaking in 1975, electric utility air emissions of
SO<INF>2</INF> are now 5 million tons lower per year. In response to
the 1990 Clean Air Act amendments, utilities cut NOx 2 million tons per
year. The major NSR enforcement cases begun by the last Administration
in 1999 are responsible for none of these air pollution decreases.
The recent enforcement cases are most striking in that they do not
involve a single violation of an air emissions permit. Many, especially
in the environmental regulation community, like to measure damage to
the environment in terms of pollution discharge or emissions permit
violations. If that is the test, then these cases are of no value to
the environment.
Not one case alleges that a utility exceeded its government
permitted air emissions levels. These are all construction permits we
are fighting over. Most cases involve only potential increases in
emissions levels. Those plants which increased their actual emissions
were still below the levels allowed by the government in their
emissions permits.
The other point that amazes me about this debate is how the
greatest benefit of NSR reform, energy efficiency, suddenly has no
value to the environment. We spent much of the Spring in the Senate
debating the energy bill. One of the most important issues for
environmental advocates was promoting greater energy efficiency. The
more efficiently we generate and use energy, the less damage we do to
the environment.
However, advocates of the NSR program abandon their environmental
friends' energy efficiency arguments. Fuel efficiency improvements
recommended for cars, trucks and air conditioners now shouldn't apply
to electric utilities.
We will also hear charges today that the current Administration is
halting enforcement suits and rolling back environmental protections.
Nothing could be further from the truth.
I have a quote here from a new administrator before she took
office. One of her pledges was to, ``examine ways to simplify and
streamline the New Source Review process [and] to reduce chances of
legal challenge.'' No, this wasn't Governor Whitman; this was Carol
Browner.
This shouldn't be surprising since all of the rules this
Administration announced in June that it will finalize were proposed
under the Clinton Administration by the Carol Browner EPA. Either the
rollbacks began in 1996 under the last Administration or the substance
isn't so bad after all. It's just the new messenger they don't like.
Meanwhile, the Bush Administration continues to bring more NSR
cases. EPA announced just last week that it filed a notice of violation
for alleged NSR violations against two coal-fired plants in Colorado.
That is hardly taking the cop off the beat.
I urge my colleagues who are serious about improving air quality to
get back to the real work at hand--passing a three-pollutant bill that
will bring a new generation of air pollution cuts for nitrogen oxides,
sulfur dioxides and mercury. I look forward to working with my
colleagues on that measure.
Thank you.
Senator Leahy. I thank the Senator from Missouri, as
always, for being here.
[Laughter.]
Senator Leahy. I appreciate the opportunity to be on the
committee with him, as I am not a member of the committee that
he is representing here.
The next would be Senator Clinton, but I understand she is
willing to yield a minute to the Senator from North Carolina.
Senator Edwards. I think actually she is willing to go
further than that and let me go ahead, Mr. Chairman, which I am
very appreciate of Senator Clinton for doing.
Senator Leahy. I thank the Senator from New York.
The Senator from North Carolina?
OPENING STATEMENT OF HON. JOHN EDWARDS, U.S. SENATOR FROM THE
STATE OF NORTH CAROLINA
Senator Edwards. Thank you.
Let me say first, Mr. Holmstead, I agree with a lot of the
others, that I think our priority here should be about reducing
pollution that is killing senior citizens, causing kids to get
asthma and smogging up our national parks. Personally, this is
a huge issue for us in North Carolina. We have every year in
North Carolina 1,800 people who die from breathing pollution
and soot. I think that is actually the fourth-worst rate in the
country. We have got 46,000 kids with asthma in just 17
counties. We have got clouds that are literally more acidic
than vinegar.
Our State has actually made a real effort to do something
about this. Governor Easley got enacted the Clean Smokestacks
Act, which I think is a model and we are proud of it. The
problem for us is obvious. North Carolina is not an island.
Pollution travels across our mountains and across our borders,
and the Cumberland TVA plant in Tennessee for example, emits
about as much pollution every year as every car in North
Carolina together. A lot of that pollution, unfortunately, is
getting into the lungs of kids and our senior citizens.
I think we have got to do something about it. We have got
to do something about it not just in North Carolina, but for
the entire country. As you well know, New Source Review is an
important part of that. What I am concerned about is it seems
to me that what you are doing is gutting New Source Review
without any kind of adequate replacement for it.
Let me just ask you a couple of questions. I listened to
your testimony earlier. You talked about your rule changes and
you said it is your feeling that those rule changes do not
increase pollution, but you have difficulty quantifying it. Let
me ask you this question, can you quantify the effect of those
rule changes on human health?
Mr. Holmstead. Let me answer your question in two ways.
First of all, I agree completely and the Administration agrees
completely that the State of North Carolina has a significant
problem that is not caused by facilities in its own State.
Those problems, including premature deaths, including a
negative impact on children with asthma and others, are largely
the result of emissions that come in from neighboring States.
We absolutely believe that those emissions need to be
significantly reduced, and that is what the President is trying
to do with the Clear Skies initiative. Again, just to put that
in context----
Senator Edwards. I apologize for interrupting you, but I
have gotten in front of Senator Clinton. I want to see if I can
get an answer to my question. My question is, can you quantify
the effect of these proposed? You are proposing changing the
law. These will have the effect of laws, I understand it--these
rule changes. If you are proposing to change the law for the
country, can you quantify the effect of those changes on human
health?
Mr. Holmstead. What I can tell you is that the changes that
we are finalizing will have a positive impact on public health.
They will make the air cleaner than it otherwise would be.
Senator Edwards. Can you quantify those changes? Can you
tell us what the quantification of those changes on human
health would be?
Mr. Holmstead. Senator Jeffords asked us to try to do that,
and we will attempt to do that. The other thing----
Senator Edwards. You have proposed rule changes and you
have not yet attempted to quantify what the effect on human
health is?
Mr. Holmstead. Many times what we do in EPA, oftentimes is
when we make regulatory changes, we analyze those changes on a
number of different factors. For instance, some of the things
that we are proposing to do are just designed to bring some
clarity to the program and to make it work better. What we can
say is we have analyzed each and every one of these changes
that are the final changes that we are making, and on an
overall basis they will make things better. It is difficult to
quantify how much better because as I said before it depends on
how many people choose these options.
But let me say one other thing which I think is important.
The concerns that you have raised are largely--the health
impacts in North Carolina have to do almost entirely, or let me
say largely with power plant emissions. None of the changes
that we are making will have any impact on power plant
emissions one way or the other. Because of the way the program
works, as I said before, there are other programs that regulate
the power sector.
Senator Edwards. Can I ask you about that, what you just
said?
Mr. Holmstead. Yes, please.
Senator Edwards. One of the things--and this is related to
that--one of the things that you said earlier when you talked
about the rule changes is that you said the change in the
baseline for determining where there has been an increase in
emissions for purposes of determining whether an NSR is
triggered, that that change would have, I think you said, no
effect up or down--I am paraphrasing or something to that
effect.
Mr. Holmstead. Correct. Yes.
Senator Edwards. Now, I am having trouble making sense out
of that. As I understand the current law is that the baseline
for determining whether there has been an increase in emissions
and whether a New Source Review is triggered is the last 24
months, unless there is another more representative period. You
are changing that to say that they only have to undergo a New
Source Review if they have had an increase above, and I am
quoting now, the highest consecutive 24-month period within the
immediately preceding 10 years. So what you have said is, they
can choose the highest level of emissions over any 24-month
period for the previous 10 years for determining whether they
have in fact gone above that level to see if a New Source
Review can occur. It just defies common sense to me that that
does not improve the chances that an NSR is not going to be
triggered; that a period of greater emissions can be used for
purposes of determining the baseline. I would add to that at
least according to press reports, there are internal EPA
documents where your own career lawyers say that a change in
that 10-year baseline would substantially diminish, I am
quoting now, ``substantially diminish the scope of the
program.''
Do you disagree with them?
Mr. Holmstead. Let me answer your question. First of all,
and Senator Lieberman I think suffers from the same mis-
impression and talks about power plants that by changing the
baseline that somehow we are going to allow them to increase
emissions. We are not changing the way the baseline works for
power plants. The baseline issue for power plants is contained
in a separate rule. That rule was promulgated in 1992 and is
referred to as the WEPCO rule, and it creates a different way
for power plants to calculate whether there is an emissions
increase. We are not changing that. So in terms of the power
plant sector, what we are doing today is irrelevant on the
baseline issue.
With respect to other sectors, again there has been a great
deal of misunderstanding about what we are doing. As you
mentioned, under the current program the baseline that we refer
to is either the average of the two most recent years or
another period that is, ``more representative of normal source
operations.'' That subjective piece, what is more
representative of normal operations, has caused a lot of
controversy over the years for this reason. A lot of times when
someone goes in for an NSR permit, it is when they are coming
out of a downturn in the economy and they want to improve their
facility because they realize that demand is growing. That
means that the 2-years immediately preceding the change are
often a period when their utilization is very low.
So they go in to the permitting authority and they sort of
have this negotiation about really what is a period that is
more representative of normal source operations. We would like
to remove that subjective piece from the regulation altogether,
and just have a hard and fast rule which says you cannot look
back more than 10 years. There is no longer a question about
more representative source operations. You have to choose a 24-
consecutive-month period. I should mention that when the
Clinton Administration--the Bill Clinton Administration,
Senator--I didn't mean to confuse them----
Senator Clinton. I did not know there was another one.
[Laughter.]
Mr. Holmstead [continuing]. When they proposed this change,
they proposed a one-in-ten baseline. We were concerned that a
one-in-ten baseline would allow sort of unusual periods of high
emissions. So we have gone to a two-in-ten baseline. That was
not the source of a great deal of concern in the public comment
period, and here is why. We are allowing people to look back 10
years to 24 consecutive months, but then they have to reflect
additional pollution controls that have come online since that
time. You do not have to do that under the current program. So
as we look at this, in some cases our change will lead to a
higher baseline, as you suggest; in other cases, it will lead
to a lower baseline. But we do know that in all cases it will
just make the program a lot more clear and a lot more
understandable to people and there won't be the subjective
element anymore. So that is why I say in some cases the
baseline will be higher; in other cases, it will be lower.
Senator Edwards. I think in fact, the power plants are a
small fraction of the industries that are covered by the NSR,
when I asked you the question about the change in the baseline.
Mr. Holmstead. That is correct.
Senator Edwards. I appreciate your explanation. I still
have trouble making it make sense.
Let me just say this, and there are others who have been
waiting, I think that you are not able to quantify the effects
on human health of these proposed changes in the law, which is
what they are. It seems to me that at a minimum when we are
talking about senior citizens' lives, and we are talking about
kids getting asthma, when we are talking about protecting
people from the harmful effects, that if we are going to make a
change in the law, we ought to be certain that it is a positive
change and we ought to be able to quantify what that change is.
I am glad that Senator Jeffords has asked you to do that and I
would like to see whatever information you have about that. But
I will tell you that I believe that what you are proposing is
wrong. I intend to do everything I can to stop it in the
legislative process.
Thank you, Mr. Holmstead.
Senator Leahy. Senator Sessions.
OPENING STATEMENT OF HON. JEFF SESSIONS, U.S. SENATOR FROM THE
STATE OF ALABAMA
Senator Sessions. Thank you, Mr. Chairman.
Well, I think the Carol Browner goal, as Senator Bond said,
was a good one, that we need and have for some time needed to
simplify the rules of the New Source Review to avoid
litigation. Now we have attorneys general in New York and other
places suing power plants all over America asserting what they
think the rule means. You have the Federal Government
Department of Justice leading a battle here against utilities
that another agency of the Government thinks is not correct. So
we have obviously serious differences of opinion.
As I understand it, the EPA sat down with seven of the
major power companies and basically said either agree to what
we tell you or we are going to sue you. They just could not
feel like they could agree to it. And so now we are in
litigation. Who knows, but I will say this, a lawsuit in the
11th Circuit or any other Circuit in the country is not going
to come out with a comprehensive rule. It is only going to
answer the issues presented to the court. Isn't that correct?
Mr. Sansonetti. That is correct, Senator.
Senator Sessions. So you will end up with some partial
issue settled, and other issues never touched or ruled on by
the court. That is not a way to establish a procedure that
could cost of tens of billions, maybe $100 billion out there.
So we need to do this properly.
Mr. Holmstead, when did EPA come to learn that the sources
of power were violating what they now conclude to be the New
Source Review rules? How long had they known about that before
they filed a lawsuit?
Mr. Holmstead. I do not know the answer to that question,
because I was not in the Agency at the time those suits were
brought.
Senator Sessions. That is an important question, it seems
to me. It has been going on for 18 years, or really 16 years
before the lawsuit was filed. As a Judiciary Committee member,
what concerns me about this solely is are we following
appropriately the Federal administrative rules process and are
we handling this in a legal and fair manner? I believe that
grandfathered-in plants are not provided protection forever. We
can through legislation or rule change alter the rules or alter
the legislation, if we deem it is important to public health.
But if regulations are in place, they ought to be carried out
with integrity, Mr. Sansonetti, and ultimately when you file a
lawsuit you are responsible for that. You represent EPA and the
Department of Justice has to look a court in the eye with
integrity.
One of your attorneys in the 11th Circuit, when I asked
when the EPA knew about these NSR violations, the Department of
Justice attorney apparently said the EPA did not know about it
until they filed a lawsuit, the cop was in another block--did
not see the crime occur. And the chief judge there questioned
that. Surely, EPA for years has known how the power plants are
updating and modernizing their facilities, haven't they? That
is an important question because if they knew about it, they
may well be estopped to file a lawsuit and ask for damages back
to 1982.
Mr. Sansonetti. Obviously, this was before my time as well
in the department, but as I understand it the TVA case was
brought after the EPA had finished its negotiations with TVA,
had brought in an administrative compliance order issued by
EPA. When TVA did not like the result of that, it was TVA suing
EPA in that case. This is a matter of two Federal agencies
after each other, and of course it is the Department of
Justice's responsibility to defend EPA in this case. This one
is a little bit different from the other cases we were
discussing earlier where we were on the left-hand side of the
versus.
Senator Sessions. Well, this is an important, maybe even a
pivotal issue in this litigation. Is EPA estopped from pursuing
a suit against TVA because they knew about these improvements
and have been approving these procedures for 16 years? Isn't
that a significant issue in the case?
Mr. Sansonetti. It is a significant issue in the case.
Senator Sessions. Your attorney has now asserted on the
record that they did not know about it. That keeps the lawsuit
alive, but I wonder if you have had occasion to question that
attorney and if he was in error in that regard as a matter of
ethics, is he not required to correct the record?
Mr. Sansonetti. I obviously am not aware of the situation
you just described, but I sure will ask about it, yes sir.
Senator Sessions. I think what I am going to ask you to do
is to review that simple question, and if your attorney was in
error, to correct the record, because that has something to do
with it.
Mr. Holmstead, why did the EPA not notice a rule change
instead of commencing litigation? Why didn't they announce,
have public hearings, take the public input, go through the
process of just changing the rules if they thought that the
things were not working out well?
Mr. Holmstead. I know that the Agency believes that it did
not change the rule; that in fact what the Agency has argued is
that those rules have been in place for many years and people
were on notice of them. So I believe that is why they did not
think it was necessary to go through a notice and comment
rulemaking to do anything because they believe that those rules
were well-understood for a number of years.
Senator Sessions. So they understood, but they just allowed
it to continue, presumably?
Mr. Holmstead. Again, I know just in general that there is
a lot of controversy around this issue, whether the Agency was
aware that some of these changes were going on. I honestly do
not know. My impression is that for the most part, these
facilities were not the subject of EPA investigations or
inspections, and so the Agency may not have known that these
changes were going on, but I honestly do not know very much
about the record in that respect.
Senator Sessions. I hope that whatever rules you propose
you will do what you said and will make the air cleaner. I
think we can definitely do that, and I would support that, but
I also think we need to be careful about suing businesses for
damages back 16 years for things that it is pretty obvious to
anybody that is looking at their plants what has been going on.
Thank you, Mr. Chairman.
Senator Leahy. The order we will have now will be Senator
Clinton, Senator Durbin, and Senator Corzine.
OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, U.S. SENATOR
FROM THE STATE OF NEW YORK
Senator Clinton. Thank you very much, Mr. Chairman.
Well, I think as our witnesses can tell, there are numerous
questions that many of us will want to submit in writing,
because clearly we do not have the time to go into all of them.
I am also hoping that we will have a chance to hear from our
next panels, one of which includes our Attorney General from
New York, Eliot Spitzer, who has been extremely active on the
legal front in trying to determine how best to enforce the
rules that are in existence, that we are now hearing testimony
about changing with respect to power plant emissions. A number
of Senators have asked questions with respect to the EPA's
prior actions, especially with respect to enforcement. Eric
Schaeffer, who was the director of EPA's Office of Regulatory
Enforcement is also scheduled to testify and I am sure that he
can answer a number of the questions that have been raised.
One of the problems that we are having here, of course, is
that the reason this hearing is being held is that many of the
changes which are being discussed are intended to go directly
to final status. Therefore, we have to comment now because we
won't have the opportunity to comment if the Administration
carries forward on its intention to finalize these rule
changes. Now, many of us have these continuing questions and I
think that it would be appropriate, Mr. Holmstead, for us to
have more of an opportunity to comment than we have at the
moment. Would you commit to allowing us that opportunity to
comment going forward, before these rules are finalized?
Mr. Holmstead. What I will commit to is that we will
satisfy all of the requirements under the Administrative
Procedure Act to make sure that there has been a full and
complete opportunity for the public to comment on all rules
before they go final. So I can assure you that everything that
we promulgate will be in full compliance with all of the public
notice and comment requirements that are imposed upon the
Agency, yes.
Senator Clinton. In your testimony, you have repeatedly
said that you do not intend that these changes would be
retroactive. Will you commit that EPA will explicitly state in
the preamble to these proposed rule changes that the NSR
changes that the Agency is promulgating will not be
retroactive?
Mr. Holmstead. It is certainly our intent to make these
prospective only, and I believe that the preambles already make
that statement, that they are not retroactive, they are
prospective only, but I will go back and double-check on that
to make sure that that is the case.
Senator Clinton. Here is the problem that many of us are
having, and perhaps it is because the rules are being described
by some, including those within the Agency, somewhat
differently than your testimony seems to describe them. I was
taken aback by your testimony that your rule changes would not
have any effect on power plant emissions. Did I hear you
correctly?
Mr. Holmstead. What I said is, it will not have any effect
on SO<INF>2</INF> emissions from power plants, which are by far
the biggest issue, as you know, in New York because of the acid
rain. We actually have for the power sector a very
sophisticated computer model that allows us to look at the
response in the industry to any number of different rule
changes. That has been a relatively simple matter to conduct
the analysis using that computer model for SO<INF>2</INF>
emissions. We have not yet finished that for the other emission
of concern, which is NOx, but our preliminary indications are
that any change that we would make might have a modest impact
one way or the other, but we have not finalized that analysis.
When we do, we will make that public.
Senator Clinton. Mr. Holmstead, with all due respect,
others also have computer models and it is very difficult to
understand how you can claim that this is either neutral,
having no effect, or in some of the rest of your testimony
actually claiming it would be an improvement, when on the basis
of the change in the baseline that you discussed earlier with
Senator Edwards, there would be, as I understand your
testimony, the opportunity for a refinery to substitute its
current emission baseline, which is now equal to the average of
the last 2 years' emissions, with a new baseline consisting of
the average of the 2-years of highest emissions within the last
10 years. Now, based on modeling that others have done, this
would allow significant increases in SO<INF>2</INF> emissions
and I have before me some of the specific plants--a plant in
Detroit, MI; the Marathon Oil plant, current baseline 1,984.42
tons up to 4,194.55. You know, a three times increase, just
about.
There are other plants that have been modeled. These
baseline changes at least according to the modeling that I have
seen, these are oil refineries, obviously, not power plants,
but they are still going to add SO<INF>2</INF> to the air. So
you have got on the one hand a claim that the power plant
emissions stay even, then you have got a permission within the
baseline that will permit an added load of SO<INF>2</INF> into
the atmosphere.
I am not asking you to respond. I am just explaining that
many of us find your testimony very difficult to follow. Now,
maybe that is the purpose of it, but it does not provide much
benefit to those of us who are trying to understand the true
impact of these changes. I can only say, based on the
information provided to me and my staff, these are sweeping
changes. I would argue they are illegal changes; that they
violate the Clean Air Act; that they violate the capacity of
this Administration to rewrite legislation that is the province
of this Congress.
I certainly will be joining with my colleague, Senator
Schumer, and our Attorney General to join an amicus brief
against your ability to promulgate and enforce these illegal
changes.
Mr. Holmstead. I am actually sorry to hear that anybody
would do that before they have actually seen the changes that
we have made.
Senator Clinton. We have not seen them.
Mr. Holmstead. Right. That is my question.
Senator Clinton. But once they are promulgated--you know,
once--you have come up to testify about something that you
don't share information with us fully. We get contradictory
approaches about what it will or will not mean. You talk about
computer modeling. Other people, based on the information they
have available do different computer modeling. You are
essentially trying to change the law without informing this
Congress sufficiently so that it can make an informed decision.
Mr. Holmstead. Again, I would be happy to take however much
time you would like to walk through each of these things. On
the baseline issue, when I was talking about computer modeling,
I was specifically referring to power plants. I have said we
have modeled that very comprehensively and we can say that
almost regardless of what we did to the NSR program, it would
not make any difference with respect to SO<INF>2</INF>
emissions from power plants.
With respect to refineries that you have looked at, again I
have seen--and by the way, I think what you are referring to is
not a modeling study. It is some assertions made by some
environmental activists that again have not understood what we
are proposing to do. All of those plants have new emission
requirements that have come into place over the last 10 years,
and so you have to look at what those--for instance, we have
done a number of MACT standards that affect the refinery
industry. All of those now have to be included in the baseline.
So I cannot tell you, and I do not think anybody can tell
you right now for a specific plant, without doing the analysis,
whether the baseline will be higher or lower. That was the
point----
Senator Clinton. Why would we promulgate regulations in the
21st century that would lead to any higher baseline for any
SO<INF>2</INF> emissions? I don't care whether it is a refinery
or a power plant. All I know is that it lands in my lakes and
rivers and in the lungs in my people. Why on earth would you
even contemplate rule changes that would push us backward in
the wrong direction?
Mr. Holmstead. We are not. As I have said before----
Senator Clinton. You have said many things before.
Mr. Holmstead. I think I have been entirely consistent in
everything I have said, at least I certainly try to be, and I
am happy to take as much time as you or others would like,
because this is an important program, and those of us at EPA
who have worked on these changes feel pretty strongly that we
are making a dramatic improvement in a program that everybody
knows for more than 10 years is broken and needs to be fixed. I
can explain all of these in a great deal of detail if you would
like me to, but what I can say is this--the environment will
not be worse off because of these changes. In fact, it will be
better off, and I am happy to walk you through on each
individual thing and explain to you why that is the case, but
again, we have spent an extraordinary amount of time working on
these issues and we want to make the air better.
In fact, one of the things that amazes me about this whole
debate, the big issue that you have in your State is not
emissions from refineries, it is emissions from power plants.
Senator Clinton. Right.
Mr. Holmstead. We agree that is a huge issue, and that is
why we have proposed legislation, and I know you are supporting
similar legislation that would actually substantially reduce
those emissions in a way that NSR just doesn't do.
So I hope that for those of us that really care about
improving the environment will focus on----
Senator Clinton. What legislation? Are you talking about
the Clean Skies Act?
Mr. Holmstead. The Clear Skies Act, yes.
Senator Clinton. The Clear Skies Act, which we have not yet
received. So we are being asked to put our trust in legislation
whose language we have not received, that it will do what you
are claiming to do. And we are also asked to trust NSR changes
which are claiming, in conjunction with legislation that has
not yet been delivered to the Congress, will make our skies
better.
Mr. Holmstead. The Clear Skies proposal is not a complex
thing. It takes emissions from today's levels, reduces them by
73 percent----
Senator Clinton. That is not the way it is interpreted by
many of the rest of us. In fact, we think it does less than if
we just continued with the Clean Air Act right now. So there is
a dispute about that, Mr. Holmstead.
Mr. Holmstead. But anybody who I think has analyzed the
current Clean Air Act compared to, say, Clear Skies, and again
our career folks who work on the Clean Air Act, have worked on
the Clean Air Act for 30 years, have done a projection of the
emissions reduction we would get under the current Clean Air
Act, compared to the President's Clear Skies proposal, and
there is just no way under the current Clean Air Act to get
anywhere near the reductions. Again, we would be happy to
share--in fact, we have shared that information with everybody.
We want to clean up the air. We want to make it cleaner. We
want to do it as quickly as we can and as efficiently as we
can, and that is what we are trying to do.
Senator Jeffords. OK.
Senator Leahy. Someone said you do want to--you have been
very consistent in one thing. You have explained that the
Senators do not understand what is going on. You have explained
the press does not understand what is going on. And you have
explained that some of these environmentalists do not
understand what is going on. I appreciate your air of
infallibility, but I would also appreciate it if you would
answer some of the followup questions you will be getting.
Senator Durbin.
OPENING STATEMENT OF HON. RICHARD J. DURBIN, U.S. SENATOR FROM
THE STATE OF ILLINOIS
Senator Durbin. Thank you very much, Mr. Chairman.
I think it is appropriate that this is a joint hearing
between the Judiciary Committee and the Environment and Public
Works Committee. I am glad that you are both doing this because
all of us are concerned about the issues at hand and we
understand that it is not just a question of how the law is
written, but how it is enforced. For over 25 years, most of the
action when it comes to this issue has been in court. On the
Judiciary Committee, we have the responsibility of selecting,
at least initially selecting the judges who will interpret
these laws. So if there are those who think that those
decisions about the men and women who serve on the court are
not that consequential, consider the issue that we are talking
about today.
I come to this issue with a State that has a dramatic
investment in this debate. We had, and I underline had, a
substantial coal-producing industry in Illinois. It is all but
gone today. In the name of clean air, we have seen our high-
sulfur coal virtually disappear. There are good and sound
arguments that with the current technology, we had no choice.
But many of us feel that States like Illinois have given at the
office and given at the coal mine and given in the small
communities to the issue of clean air. That is why when we get
to this discussion about whether or not we will enforce the
laws that have closed down the industry, the coal-mining
industry in my State, many of us have a certain passion. If we
are going to close down that industry in the name of clean air,
for God's sake, we are not going to give up the battle in a
marathon court proceeding which this has turned out to be.
Mr. Holmstead, help me and see if I understand the basic
premise of this whole hearing. So in 1970 when we passed the
Clean Air Act, and in 1977 when we amended it, we said we want
you to have less air pollution, fewer emissions coming out of
industry in America, and we are going to set standards. Now, we
understand there are some 17,000 companies that are already in
business that have air emissions and we know we are going to
have to grandfather them in, but here is our notice to you in
1977.
When you start to change these plants, if you are going to
make any significant change in the plants, particularly one
that creates more air emissions, then you are going to have to
start complying with the new law. We will grandfather you as
long as you are dealing with the old plant, but when you start
making it a new or newer plant, you are going to have to come
into compliance. That seems to me to be a pretty fair and
reasonable standard.
But if I am not mistaken, for 25 years this has been the
source of nonstop litigation between the industry and the
government as to whether old plants, grandfathered in, were
ever going to clean up their acts. One of these issues got down
to the question of routine maintenance. Attorney General
Spitzer has in his testimony here an allegation to leaky pipes.
Well, if you fix a leaky pipe, you know, is that routine
maintenance?
But let me ask you this specifically, Mr. Holmstead, do you
feel that what you are proposing will broaden or narrow the
definition of maintenance so that older grandfathered plants
will have to meet new air quality standards?
Mr. Holmstead. Older plants right now have to meet new air
quality standards.
Senator Durbin. Yes.
Mr. Holmstead. There are dozens and dozens of programs that
Congress created that apply to these older plants. For
instance, the most important one that I think everybody, and
the one that has impacted the coal business in your State, is
the acid rain program under Title IV, that every power plant in
the country is subject to. So they are subject to that
regulation. Every power plant in the country is also subject to
the national ambient air quality standard. So if there is a
power plant or any other old facility that causes a violation
of the national ambient air quality standards, then those have
to be regulated.
Senator Durbin. Understood. But your proposal--let's get to
the question--your proposal, I am asking you, does it expand or
narrow the exception for routine maintenance so that older
plants, grandfathered plants, do not have to meet new standards
to reduce emissions of air pollution?
Mr. Holmstead. I think the specific issue you are asking
about has to do with the definition of routine maintenance,
repair and replacement.
Senator Durbin. I am asking a question--broaden or narrow?
Now, you can try to go somewhere between those, but I think
those are two fair standards. Does it broaden or narrow the
standard for old plants on routine maintenance?
Mr. Holmstead. On routine maintenance, we have not made any
changes yet. We are proposing a series of options. Some of them
would broaden the definition of routine maintenance; others
would basically leave it where it is now. We are putting that
proposal out for public comment so that everyone who is
interested in that specific issue can take a look at it.
Senator Durbin. Let me go to Mr. Spitzer's testimony and
ask you this. Is the EPA proposing to allow companies to treat
multi-million dollar, once-in-a-lifetime projects as routine
maintenance, even though as industry documents establish, the
power plant staff never considered the projects routine? Do you
feel that your new regulations would achieve that?
Mr. Holmstead. Our new regulations do not address that
issue. The regulations that we are proposing on routine
maintenance, repair and replacement--we propose or we will be
proposing a series of options on routine maintenance.
Senator Durbin. Narrow or broaden?
Mr. Holmstead. Some of them could broaden; some of them
would leave them where they are now.
Senator Durbin. Let me just close, because my time is up
and everybody has other things that they have to do and other
panels are coming. Pardon our skepticism as we sit on this side
of the table. Your refusal or failure or inability to answer
that question, which I think is about as basic as it gets----
Mr. Holmstead. I thought I just answered it.
Senator Durbin [continuing]. Does it broaden some, narrow
some, maybe we will let you see it sometime soon----
Mr. Holmstead. This is a proposed rule.
Senator Durbin [continuing]. Maybe it will come later. It
is a proposal, trust us, we love you.
[Laughter.]
Senator Durbin. I mean, all of these statements
notwithstanding, we are looking at an Administration that
struggled with the concept of arsenic in drinking water. We are
looking at an Administration that does not want to fund the
Superfund program again to clean up toxic waste. We are dealing
with an Administration that won't even disclose the names of
the industry leaders who sat down with the Vice President to
write the energy bill; an Administration that opposes any new
fuel efficiency standards to deal with our Nation's energy
crisis. I hope you understand our skepticism as we sit on this
side of the table and hear that kind of testimony.
Thank you, Mr. Chairman.
Senator Leahy. Thank you.
Senator Corzine.
OPENING STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM THE
STATE OF NEW JERSEY
Senator Corzine. Thank you, Chairmen, and I appreciate your
holding the hearing.
I can only say ``ditto'' to my colleague from Illinois'
underlying fundamental premises that bring skepticism, but I
will say one positive thing. I noticed in your response to
Senator Clinton you said that New York's, I presume that also
would include New Jersey's, air is negatively impacted most by
out-of-State power plants, as opposed to refineries. That is
certainly the case.
I want to start with the specific and move to the more
general. There is a lot of concern in our State, particularly
in the northwest portion of it, with regard to a power plant,
PPL's Martin's Creek Power plant in Pennsylvania. Asthma rates
have doubled in the last 10 years. This is an old plant that
has no scrubbers and contributes significantly to air pollution
problems in that sector of the State. Now, they are applying
for authorization for building a new plant on the same site. I
wonder if EPA is planning on conducting a review with regard to
that plant.
Senator Torricelli has written Administrator Whitman and a
number of us have inquired about this and we have not received
an answer with regard to that individual power plant. I think
it is symptomatic of a lot of what happens in general, but is
one where the public health impact is very measurable and clear
in a specific sector of our State, and there is a failure to
deal with NSR provisions, at least with the old parts of that
plant, and now they are trying to expand it.
So I wonder if you could comment on that specifically. Do
you know whether there has been an NSR review with regard to
it?
Mr. Holmstead. Here is what I know about that plant. I
believe that we are conducting, along with the State, an
investigation of possible NSR violations there. That is really
all that I know about it at this point, but yes, if it is
something that you have asked about, I am sure that that is
something that we will look into further.
By the way, what I have tried to say a number of times is,
we absolutely agree that we need to have an effective way to
reduce emissions from these older coal-fire power plants. We
agree completely that they contribute to serious health
problems in your State, and Senator Clinton, in your State. I
think all of us would like to find an effective way of reducing
those emissions as quickly as we can.
Senator Corzine. But if we do not address the specifics, if
there are not actions taken by EPA with regard to specifics
when actions are being taken to expand the business, then the
purpose of the NSR is not being fulfilled and we are not making
real progress on this. That is before we get to the cumulative
effect of the proposed changes in the rules, which a lot of us
are fairly skeptical, are intended to upgrade pollution
controls, but actually undermine them.
Has EPA referred any additional NSR enforcement cases to
the Justice Department since Administrator Whitman took office?
Mr. Holmstead. I might ask Mr. Sansonetti. I do not know
the answer to that question. I do not do the enforcement issues
at EPA. I do the policy issues.
Mr. Sansonetti. The Enforcement Administrator at EPA has
continued to have its investigators continue their work and we
are continuing to receive cases from them.
Senator Corzine. Have there been cases referred to the
Justice Department since Administrator Whitman took office?
Mr. Sansonetti. Yes.
Senator Corzine. Is Martin's Creek one of those?
Mr. Sansonetti. I would not know. Sorry.
Senator Corzine. I would like to request a list of those
references, if that is possible.
I was not here earlier, but I am under the impression that
there was a statement made by you, Mr. Holmstead, that NSR does
not produce benefits from existing sources unless it is
violated--hard to understand. Isn't it true that NSR has been
violated many times by existing sources like Martin's Creek?
Mr. Holmstead. I do not know about the Martin's Creek
Plant, but yes it appears that many existing sources have
violated NSR and that is the work that our enforcement office,
as well as Mr. Sansonetti's office, are working on right now.
We do believe that as a result of those cases, those are likely
to lead either to settlements or judgments that will result in
emissions reductions, yes.
Senator Corzine. But you are arguing that the NSR has no
benefits with respect to existing sources?
Mr. Holmstead. No, what I said was this. The big issue that
I think many of us in this room are concerned about are sulfur
dioxide emissions from power plants--by far the biggest single
pollutant emitted by any industrial source in the United
States. We have done an extensive analysis of that particular
issue, and what we can say is that if companies comply with the
NSR program, it does not reduce SO<INF>2</INF> emissions from
the utility sector at all. That is absolutely--we are happy to
share the analysis, and it is not that hard to understand. I
can walk you through it if you would like, but if companies
comply with the NSR program as it is right now, with a very
stringent, narrow definition of routine maintenance, repair and
replacement, it does not lead to any reductions in
SO<INF>2</INF> emissions from the power sector.
Here is the basic reason why. The Act says that a company
triggers NSR only if it makes a physical change that results in
a significant emissions increase. So as long as they keep their
emissions where they are now, they can make any changes they
would like to. So all of our analysis, and again we have some
very sophisticated computer modeling. We know more about this
industry than any other industry. We can analyze the impact of
the current rule versus any number of changes, and no matter
how we analyze that, the program does not reduce SO<INF>2</INF>
emissions from existing power plants.
As I said before, if companies violate the NSR program,
then at that point they are subject to enforcement action, and
through the enforcement process we can actually get some
reductions, although even there you only get reductions if a
company agrees as part of a settlement to retire some of the
SO<INF>2</INF> allowances that it has under the acid rain
program. But again, I am happy to provide anybody with that
analysis, but it is absolutely true that that is just the fact.
That is the way the law works.
[The prepared statement of Senator Corzine follows:]
Statement of Senator Jon S. Corzine, U.S. Senator from the State of
New Jersey
I thank both Chairmen for convening today's hearing.
Mr. Chairmen, air quality problems continue to plague New
Jerseyans. Some of these problems are of our own making. But according
to the New Jersey Department of Environmental Protection, one-third of
New Jersey's air quality problems originate outside of New Jersey.
That's why enforcement of Federal clean air laws is so important.
And that's one of the reasons why the Clean Air Act New Source Review
provisions are so important to my State.
So I look forward to hearing the Administration explain their New
Source Review proposals in more detail. Because as far as I can tell,
the proposals are rollbacks, pure and simple. They may be help
industry, but they're going to hurt public health in New Jersey and
across the country. In fact, Abt (pronounced Apt) Associates estimates
that that rolling back New Source Review will result in 160-220
premature deaths annually and between 3,000 and 4,300 asthma attacks
annually in New Jersey alone.
If the Administration disagrees with these numbers, then I invite
them to produce their own. Because to my knowledge, the Administration
has not conducted an analysis of the health impacts of their proposals.
For that matter, I don't think that the Administration has
conducted a rigorous analysis of the business impacts of the current
NSR rules that they are proposing to change. Today's EPA testimony
asserts that uncertainty about the current NSR rules ``has resulted in
the delay or cancellation of some projects that would maintain or
improve reliability, efficiency and safety of existing energy
capacity.'' This is vague, anecdotal evidence at best, and is no basis
for trading away the tangible health benefits that have been and can
yet be achieved by rigorously enforcing NSR.
Mr. Chairmen, I won't take up too much more time, as we have many
other members to hear from and many witnesses to hear from as well. But
I do want to run through just a few additional points, because this
issue is so important.
First, I am greatly concerned about the effect of the proposals on
pending NSR cases. In New Jersey, PSEG settled with EPA earlier this
year. But many of PSEG's competitors are stalling, betting that they
can wait out the Administration's changes. Now the Administration will
argue that its proposals will have no effect on ongoing NSR
enforcement. Yet we will hear testimony today that proves that the
proposals have already impacted ongoing cases.
Second, I am concerned about the impacts of the proposals on the
full range of pollution sources that they apply to. The Administration
offers its Clear Skies proposal as better way to achieve air quality
benefits than New Source Review. Yet Clear Skies applies only to power
plants, while New Source Review applies to thousands of other sources
of pollution such as oil refineries. What is the Administration's plan
for continuing to protect the health of families who live near
refineries?
Third, I am concerned that the Administration's proposals may run
counter to the intent of the Clean Air Act. In spite of claims to the
contrary, NSR has consistently been interpreted to allow for only de
minimis increases in pollution from grandfathered sources without
triggering installation of new pollution control technologies. But it
appears that the Administration proposals will have the effect of
allowing significant pollution increases without triggering NSR
requirements.
Mr. Chairmen, I think the question before us today is simple. Will
the Administration proceed with its NSR proposals? Will they allow
industry to continue to operate old, dirty plants indefinitely? Or will
the Administration fulfill the promise of the Clean Air Act by pulling
these proposals and vigorously enforcing New Source Review to protect
New Jerseyans and all Americans. Thank you.
Senator Leahy. Thank you.
If there are no further questions, I know that Mr.
Sansonetti and Mr. Holmstead would love to have this go on a
lot longer, but on the basis they may have other things to do,
Mr. Holmstead, thank you; Mr. Sansonetti, thank you.
Senator Jeffords. Yes, thank you both.
Senator Leahy. I turn it over to you.
Senator Jeffords. We will continue to continue. I will have
to leave shortly and be able to come back, but Senator Clinton
will take over. We will now go to the next panel.
Senator Leahy. Why don't we take about a 1-minute break
just to let the staff change the----
[Recess.]
Senator Jeffords [presiding]. I want to thank our next
panel. I will be here somewhat briefly. I have a meeting with
the Administration that I cannot change, but I want to thank
the panelists. I know they are all experts, and we are
appreciative of your guidance. I will ask each of the panelists
to introduce themselves and then we will proceed. I will start
with my good friend my Vermont.
Mr. Sorrell. Yes, thank you, Mr. Chairman. I am William
Sorrell, the Attorney General of Vermont.
Mr. Spitzer. I am Eliot Spitzer, the Attorney General of
New York State.
Mr. Pryor. I am Bill Pryor, the Attorney General of
Alabama.
Senator Jeffords. Fine. I believe you probably have opening
statements. Please, General Sorrell, will you commence?
STATEMENT OF WILLIAM H. SORRELL, ATTORNEY GENERAL, STATE OF
VERMONT
Mr. Sorrell. Thank you, Chairman Jeffords, Chairman Leahy,
members of the committees. Thank you very much for allowing me
this opportunity to share my thoughts regarding the New Source
Review program.
To the two Chairs, particularly, I bring greetings and
thanks from so many of your friends from home.
Let me be blunt, we need your help. The quality of our
Nation's air is of critical importance, not just to those of us
living in the Northeastern United States, but also to everyone
in this Nation, and most especially our children, the elderly
and those among us who suffer from respiratory illness.
We have worked very hard in Vermont to attain the quality
of life that is so important to us. We value our natural
resources and do our best to be sure we are not soiling our own
backyard. I believe it is fair to say that we join the dialog
regarding air pollution with clean hands.
Unfortunately, in Vermont we are living with the
consequences of pollution problems that are not of our making.
Our neighbors to the west are in some respects not being good
neighbors. To give you an idea of the scope of the pollution
caused by all dirty coal-fired power plants, I want to impress
upon you that in 1998 all Vermont sources of sulfur dioxide
pollutants, all sources--mobile, stationary, residential,
industrial, commercial--all sources in 1998 from Vermont, a
total of approximately 18,000 tons of SO<INF>2</INF>. We are
involved in the lawsuit that was filed by DOJ and EPA against
American Energy Electric Power Company, which operates about 11
plants in the Midwest. Just looking at one of the plants that
is in that litigation, it is the Cardinal Plant in Brilliant,
OH. That plant alone in 1998 emitted more than 152,000 tons of
sulfur dioxide. I might add that its stack-height, I am told,
is over 800-feet high. We did not pick the worst offender. The
Cardinal Plant is not the most heavily polluting of the plants
that are in the litigation I mentioned.
We have good reason to be deeply concerned about massive
amounts of air pollution being carried into our State by the
prevailing winds. The impacts attributable to this wind-borne
pollution in Vermont and regionally are sobering and bear
repeating. In Vermont, 20 percent of our lakes are moderately
to extremely sensitive to acid deposition, and several lakes
are critically acidic and thus unable to support fish and/or
other aquatic life. They are like swimming pools.
Various studies conclude that the percentage of acidified
lakes is expected to increase or even double over the next four
decades unless up-wind emissions of nitrogen oxide and
SO<INF>2</INF> are significantly reduced.
Acid deposition is a major cause of the widespread decline
of red spruce in high-elevation forests throughout the
Northeast. Since the 1960's, more than half of large canopy
trees in the Adirondack Mountains of New York and in our Green
Mountains, and approximately one-quarter of large-canopy trees
in the White Mountains of New Hampshire have died.
There is growing also evidence that the sugar maple decline
is linked to acid deposition. Senator Jeffords, I know you
realize how important sugar maples are to our maple syrup
industry. According to one analysis, with a more than 80
percent reduction in electric utility emissions beyond that
required under the 1990 Clean Air Act, recovery of certain
watersheds to non-acidic levels will take 20 to 25 years, and
recovery of the acid-neutralizing compounds in soils will not
occur until the year 2050. That is with an 80 percent reduction
in current emission levels, it will take that long for our
environment to recover.
Our children and grandchildren in generations to come will
know all of the devastating impacts resulting from decades of
air pollution and will not see the recovery of the forests and
lakes. Is this to be our legacy?
As a Nation, we must take swift and decisive action to
improve the quality of the air. We applaud the efforts of EPA
and DOJ in working cooperatively with the States to protect air
quality. Our shared successes have included important victories
affirming certain aspects of regulatory programs, and the
Agency's determinations regarding the long-range transport of
ozone-forming pollutants.
We also appreciate the ongoing efforts by the Agency and
DOJ in seeking full implementation of EPA's regional haze rule,
which will help to protect and improve visibility in our
Nation's pristine wilderness areas, including the Shenandoah,
Great Smoky Mountains, Yosemite and the Grand Canyon. This is
not just a Northeastern issue.
New Hampshire, Maine and Vermont, joined by Utah and New
Mexico, the National Tribal Environmental Council, and national
advocacy groups have been actively involved in supporting this
effort. We are hopeful that these efforts will lead to real
improvements in the quality of our Nation's air in years to
come.
The State of Vermont is also working cooperatively and
productively with the Environmental Protection Agency, the
Department of Justice, other States and national public
interest advocacy groups to enforce the existing New Source
Review program against corporations operating coal-fired power
plants. There is no question that implementation by EPA of the
reform package will seriously under-cut these efforts. Let me
repeat, there is no question in our mind that implementation by
EPA of the reform package will seriously under-cut the ongoing
litigation efforts.
Now is not the time to water down the laws needed to
protect air quality. The announced reforms of the New Source
Review program will take us 180 degrees in the wrong direction.
As one State regulator has put it, these reforms will assure
longer lives for old dirty coal-fired power plants and shorter
lives for Americans.
We very much hope that the Administration will change
course and not backtrack on existing environmental protections.
However, if it chooses to go forward with its announced
changes, we encourage the Congress to reject such efforts to
weaken the New Source Review program.
Thank you again for the opportunity to meet with you and to
provide these comments, and I hope that all of my prepared
comments will be made part of the record.
Senator Jeffords. They will be made part of the record.
I am going to make a little statement and do a little
question. I have got to go. Governor Ridge does not like my
opinion of what we should do with one of the parts of his
operation, so I have to go meet with him.
What kind of impact will these changes have on the States'
ability to have more stringent programs and protect local air
quality? And what effect will they have on the NSR cases where
Vermont has joined in filing?
Mr. Sorrell. I think they will have a significant impact on
the litigation, certainly in any attempts to negotiate a
settlement of the suits. In terms of your question on the
impact on the States going further than the Federal Government
to set or to maintain their own emissions standards or
pollution control standards that might be more stringent than
the Federal Government has set, it is my understanding that
just yesterday two organizations of State and local air
pollution control administrators wrote Administrator Whitman
expressing objection and concern that the EPA proposals will
set a standard and not allow States to maintain or to set
higher or more stringent emissions standards unless it is done
on some sort of a test-case basis that is affirmatively
approved by the EPA.
So we hope very much through this process that the EPA will
revisit that issue and allow individual--and to set stringent
standards for emissions, but if individual States wish to go
further and to set more stringent standards in their own
backyards, that they would be allowed to do that.
Senator Jeffords. Well, thank you very much. As I say, I
have to leave now, but I really appreciate your testimony and
being here. I know, obviously, being a resident of Vermont that
the problems we have had in the past, even some with New York
State, but I will not get into those.
Senator Schumer. Please do.
[Laughter.]
Senator Jeffords. So thank you. I will be back, I assure
you, probably before you are finished.
Senator Clinton will now take over.
Senator Clinton [presiding]. Attorney General Spitzer, we
are delighted that you are here and I can tell that this is of
great interest to New York since both my colleague Senator
Schumer and I have a great deal of interest in this issue and
feel that it directly impacts on the health and the environment
of our State.
I know you have a prepared statement, but I cannot help but
ask that--you sat through the entire first panel, for which you
should receive some kind of combat ribbon. I would love for you
to perhaps add your observations to the confusing testimony
that we heard from the Administration about the meaning and
potential impact of the proposed rules as you go forward. We
are delighted that you are here.
STATEMENT OF ELIOT SPITZER, ATTORNEY GENERAL, STATE OF NEW YORK
Mr. Spitzer. Thank you, Senator Clinton. Thank you, Senator
Schumer, also for being here.
I will take your lead and ask that my prepared testimony be
submitted for the record. I would like merely to respond to a
few of the points that were made this morning because I think
they do bear responding to. To the extent they were addressed
in my written testimony, I can be more succinct and more
pointed in my testimony right now.
First, Mr. Holmstead took a quotation from the Washington
Post this morning and completely misinterpreted it. He was
trying to argue that the proposed regs from EPA have not had an
impact on the pending litigation. He could not be further from
the truth. The quotation he used is from a spokesman from my
office. It says, ``Nothing the Bush Administration does
prospectively will have any impact on the violations these
plants committed in the past.'' The point is, they committed
violations. There were violations. They should be prosecuted
civilly for those violations. They cannot rewrite that law.
However, the fact that we are in regulatory limbo right now
has made it virtually impossible either to pursue finalizing
settlements that should have been finalized with Vepco and
Cinergy, or to pursue effectively ongoing litigations in the
myriad of other cases that are pending.
We are caught, I would suggest, in an intentional
regulatory limbo with the Administration having proposed and
made very public the fact over a year ago that it was going to
rewrite the NSR regs. They have refused to set forth the final
regs, so we are caught between the Scylla and Charybdis of
their not being any regs on the books that a court can rely
upon, and the inability to attack what they will finally issue.
I would suggest this is an intentional decision made by the
EPA, which has done everything it can do to hinder us. This is
not an effort to study more and further. As has been pointed
out, we do not even know with whom the Vice President met to
discuss these proposed regs.
So to the extent that Mr. Holmstead was arguing that there
has not been an impact on the pending litigations, I could not
disagree more fundamentally. In my prepared testimony today,
you can see how the judges who were presiding over the pending
cases feel that their hands are being tied because they have an
inability, or feel some hesitation, in imposing upon companies
a remedy that may no longer be feasible or authorized by the
regs that would be finally issued by the EPA. These proposal,
this regulatory limbo has had a devastating impact upon our
ability to ensure the cleanliness of the air that our children
breathe.
I would also like to respond to the allegation made by one
Senator that it was politics somehow underlying either our
skepticism of what EPA is doing or the litigation. I would like
to point out that when New York State filed these litigations,
we were joined, I am glad to say, by a significant number of
East Coast States, neighbors and those who are farther afield.
A decision was made specifically by the Governor of New Jersey
at the time to join these litigations. The Governor of New
Jersey then was Christie Todd Whitman.
These are litigations that are critical. And they are
based, and this is point three, upon a static interpretation of
statutes that has not changed. The notion of there being a
newfangled interpretation that emanated from the EPA in the
prior Administration is simply false. The case law in this
matter is crystal clear, and I would cite to you two documents.
I will read one, a letter that was sent by Administrator,
former Governor Whitman to Congressman Mascara on November 9 of
last year in which she said, ``The cases did not hinge on a new
interpretation of NSR rules.'' That is a direct quote.
``Rather, EPA's interpretation of routine maintenance is
consistent with both the statute and case law.''
You see it as well in a DOJ brief that was submitted last
week in which this Department of Justice felt constrained to
say, the interpretation EPA urges in this current case is the
same interpretation that the Seventh Circuit upheld more than a
decade ago in Wisconsin Electric Power v. Reilly in the Seventh
Circuit in 1990. There has not been a change in the law. It is
constant. It is understood. It is understood by the industry.
The documents obtained from the industry in discovery make it
crystal clear they know the law.
I do not deny their right to try to change the law. That is
their right. I respect it. That is what this process is about.
But let us not be fooled into believing that the law has been
ambiguous or that these lawsuits are predicated upon a new
interpretation of the law. That simply is not the case.
I am also rather beguiled by the argument that has been
made by several Senators this morning that because there has
been litigation since the statute has been promulgated in the
past few years, and therefore there must be a flaw in the
statute. It seems to me that enforcement actions show clearly
that the statute has teeth. They would force us to repeal most
of the statutes that have been passed by this Congress. The
very fact that we have enforcement actions means that we as
prosecutors are doing our job--nothing more, nothing less.
Let me make a few final points if I may. The proposed rules
have been publicized by the EPA. Yet, Mr. Holmstead likes to
hide behind the fact, and I lost count how many times he said
this morning, that, there may be proposals. They are not yet
final. Therefore, don't criticize us. However, it has been over
a year since this process began and they have very publicly and
in many discussions with industry discussed what these proposed
rules should look like. If the rules look anything like the
proposals, anything like what the public statements by this
Administration have been, I will go to court to overturn them.
I am proud, Senators Clinton and Schumer, that you will join in
that effort.
The point here is very simple. This Administration cannot
gut the Clean Air Act unilaterally. Congress passed the
statute. Congress wrote into the law a particular meaning that
was understood and has been understood since day one,
judicially articulated, understood by every participant since
day one. This Administration cannot by administrative fiat
repeal that statute. It would be an illegal act. We will go to
court to prevent it, and I think we will win.
The issue is who pays. Will the companies pay as the
statute said they should? And they may pass that cost back to
their ratepayers. That is a regulatory process. Or will we
continue to see people dying of cancer and asthma without doing
anything? That is the only question. I think the skepticism
that was evidenced by at least one side of this room this
morning toward Mr. Holmstead makes it very clear what the right
decision should be.
Thank you.
Senator Clinton. Thank you, Attorney General Spitzer.
Attorney General Pryor, we welcome you. There are two
attorneys general named Pryor, because I know you have a
colleague in Arkansas also named Pryor, so it must be a good
name to be elected Attorney General.
Mr. Pryor. That colleague, Senator Clinton, as you well
know, is trying to become one of your colleagues.
Senator Clinton. That is right.
Mr. Pryor. He is a great guy and a distinguished colleague.
STATEMENT OF BILL PRYOR, ATTORNEY GENERAL, STATE OF ALABAMA,
MONTGOMERY, AL
Mr. Pryor. Senator Clinton, Senator Schumer and Senator
Sessions, I appreciate the opportunity to be with you today,
along with my distinguished colleagues, General Sorrell and
General Spitzer, to discuss an important issue--Clean Air Act,
New Source Review.
As the Attorney General of a State that exports surplus
electricity, my point of view may be a little different from
that of my colleagues who represent States that import
electricity. I support the thrust of the report submitted to
the President by the EPA Administrator to revitalize the NSR
program and in so doing to restore the delicate balance of
cooperative federalism embodied in the Clean Air Act Amendments
of 1970.
Until the 1970's, the maintenance of clean air was viewed
as predominantly a State and local concern. In 1970, after a
series of smaller experiments, Congress adopted a new blueprint
for the battle against air pollution. The new plan created a
model of cooperative federalism.
This new model gave the Federal Government responsibility
for establishing national air quality standards, along with a
variety of enforcement tools for ensuring that those standards
are met.
The Clear Air Act reserved to each State, however, ``The
primary responsibility for assuring air quality within the
entire geographic region comprising such State by submitting an
implementation plan for such State which will specify the
manner in which national primary and secondary ambient air
quality standards will be achieved and maintained within each
air quality control region in such State.'' Underlying this
provision was the congressional finding that ``air pollution
prevention . . . is the primary responsibility of States and
local governments.''
In a series of decisions in the mid-1970's interpreting the
then-new statute, the Supreme Court laid out and clarified the
Act's division of responsibilities between the Federal
Government and the States. In the quarter-century since these
cases, the Federal Courts have staunchly protected the
federalist design of the Clean Air Act.
For example, in 1984 the Seventh Circuit struck down an
attempt by EPA to strengthen a State Implementation Plan
through a partial approval that was more akin to an amendment.
As Judge Posner explained, ``The Clean Air Act is an experiment
in federalism, and EPA may not run roughshod over the
procedural prerogatives that the Act has reserved to the
States, especially when, as in this case, the Agency is
overriding State policy.''
As these and other courts have acknowledged, the delegation
of implementation decisions to the States reflects not only its
spirit of comity, but also a recognition that State regulators,
well-versed in local needs and circumstances, are best able to
craft detailed programs to improve air quality while ensuring
the continued availability of energy and maintaining economic
prosperity.
In the late 1990's, EPA upset this sound design. EPA
commenced enforcement actions against a variety of companies,
including a cross-section of the Nation's utilities, declaring
that certain plan activities triggered the extensive NSR
permitting requirements.
For two decades, EPA, front-line State regulators and
regulated sources had all interpreted these activities as
falling within an exclusion for routine maintenance, repair and
replacement. Their common understanding was that NSR applied
only to major modification activities that are akin to new
construction. During the Clinton Administration, EPA advanced a
novel interpretation that would require the adoption of state-
of-the-art pollution controls at existing sources for
activities that State regulators had considered routine
maintenance, repair and replacement activities.
In several instances, State and local regulators inspected
the facilities that became the subject of EPA enforcement
actions--before or immediately after the maintenance
activities--without suggesting that a permit was necessary.
Indeed, some plants sought out and received explicit
determinations from State regulators that a particular
maintenance activity did not trigger the NSR requirements.
EPA undertook this abrupt reversal of course without notice
and comment rulemaking and without consulting the States, which
had the primary responsibility to implement NSR standards for
over 20 years. EPA's course eviscerated the cooperative
federalist approach that is the heart of Congress' design. EPA
invaded the province of the States and threw their respective
air pollution control programs into upheaval--my State's clean
air administrator uses the term ``chaos''--by reversing, with
the blunt tool of enforcement instead of collaborative
rulemaking, interpretations that are central to day-to-day
activities of State regulators. Clarity and consistency are
vital to State regulators, as well as power generators, and
must be restored. I urge these committees to work with the
President and the EPA in a bipartisan spirit to develop better-
defined standards of New Source Review consistent with the
original design of cooperative federalism in the enforcement of
the Clean Air Act. I will be happy to answer questions.
Senator Clinton. Thank you very much, General Pryor.
I am going to yield my time for questions to my colleague,
Senator Schumer.
OPENING STATEMENT OF HON. CHARLES E. SCHUMER, U.S. SENATOR FROM
THE STATE OF NEW YORK
Senator Schumer. Thank you, chairman.
I want to thank all of our witnesses, particularly my
Attorney General, who has been such a leader in this. We are
just amazed in New York. Here we had successful lawsuits which
our Attorney General spearheaded. You had companies finally
coming to the table, and boom, the rug was pulled out from
under it by this Administration policy.
The thing that galls me so about this, I have to tell
everybody, and particularly our fine Attorney General from
Alabama, it is, you know, State by State. Well, our State has
done a great job making sure its power plants comply and do a
better job. But we have wind, and we have a handful of plants
in the Ohio Valley that build their smokestacks way into the
air so the pollution that they spew will not fall on their
people, but gets blown over to us. If there was ever a need for
interstate action, it is here.
The fact that you have just a handful of plants poisoning--
that is the only word that can be used--poisoning not only our
lakes and our streams, a quarter of our beautiful Adirondack
lakes and streams are dead, no life. It will go to half in 10
years. This is now beginning to happen in other parts of the
country. We learned it first, but we have seen it elsewhere--
calls for strong action; does not call for saying to the
polluter, which is in economic Adam Smith terms, creating an
external negative good that has to be recaptured. It is their
responsibility. You do some good, you should get economic
credit. This is strict economic model. But if you do economic
harm, you should be forced to recapture, but just because it is
in the air does not mean you are immune from it. You created
that bad, as well as creating a good, and good economics says
the two should be reconciled.
That is what we have tried to do here. The anger that I
have on this issue is just large because it is a small group, a
small group of power plants that are destroying the environment
of a large part of my State, and actually at the bottom line,
killing people, making them less well, shorter. It is indirect.
It is not a standard of murder. But sure enough, if these
plants would clean up their acts, a lot of people would be
living longer and healthier.
So I just--you have answered the questions I have had in
the anticipatory round. I just want to say to our Attorney
General and to the others in the Northeast, Democrat and
Republican, that we are going to move forward here. We are not
going to let a small group of power plants who have enormous
political clout, poison our environment and poison our people.
It can be changed. It can be changed relatively easily, without
huge amounts of cost, and it ought to happen immediately.
I want to thank you for the good work you have done here,
Eliot, and yield back my time.
Thank you.
[The prepared statement of Senator Schumer follows:]
Statement of Hon. Charles E. Schumer, U.S. Senator from the State of
New York
I would like to thank Chairman Leahy and Chairman Jeffords for
holding this important and timely hearing on New Source Review. I would
also like to welcome New York State Attorney General Eliot Spitzer to
the hearing. Attorney General Spitzer has been leading the charge
against power plants that do not comply with New Source Review. Our
offices have worked together very closely on this issue and I
appreciate him testifying today.
It is a challenge to imagine a more aggressive attack on our clean
air protections or a more blatant disregard for the health of our
citizens and our environment than the announcement EPA Administrator
Whitman made on June 13 to effectively gut the Clean Air Act's New
Source Review program.
I know that many of my colleagues have already spoken about the ill
effects these proposed changes will have on our air, waterways and
forests. I would just like to take a minute to describe the effects
such changes will have on my home State of New York.
Ecosystems throughout New York have already been devastated by acid
rain created by pollution from factories in Ohio, Indiana, Virginia,
West Virginia, Kentucky and elsewhere. According to the EPA's own data
bases, the Gavin Plant in Ohio alone emits over one-half the NOx of all
power plants in New York combined.
The Adirondacks have endured the worst damage in the Nation from
acid rain, with over 500 of its lakes now unable to sustain life--a
number which is expected to double over the next 40 years.
The Administration has yet to put forth a comprehensive proposal
that would effectively improve air quality in the Northeast, reduce
unlawful emissions that produce acid rain and reverse the recent trend
of high ozone readings in New York. Instead, we have seen numerous
attempts to rollback any progress we have been making in this area.
This latest attempt, which will make it easier for power plants to
pollute our air at the expense of our citizens, raises numerous
questions. I am particularly concerned about the effects these changes
will have on pending enforcement cases and I look forward to having the
opportunity to pose some of these questions today.
These cases play a key role protecting the health and lives of tens
of millions of people. It is estimated that pollution from the targeted
plants shortens the lives of between 5,500 and 9,000 people each year.
I have already sent a letter to Administrator Whitman asking that
the EPA immediately review the grave consequences of its New Source
Review announcement and retreat from the dangerous path down which we
are headed.
We simply cannot allow this assault on our clean air to go
unnoticed.
Senator Clinton. Senator Sessions.
Senator Sessions. Thank you, Madam Chairman.
Attorney General Pryor, it is good to have you in
Washington.
Mr. Pryor. Thank you, Senator.
Senator Sessions. I appreciate your service. Attorney
General Pryor is just a tremendous Attorney General. He is one
of the finest lawyers I have ever known, and was editor-in-
chief of the Tulane Law Review and he cares deeply about public
policy and doing the right thing.
You know, General Spitzer, I admire your advocacy and your
passion for making things better for the people of New York. I
remain a bit troubled by one of the comments Attorney General
Pryor said that some of these companies that were being sued
actually had explicit approval for the activities they have
taken. Just on a matter of administrative procedures and due
process fairness in the court of law, isn't that something we
ought to concern ourselves with, that there has been an
understanding or in some cases an explicit recognition that
these kind of improvements in a plant do not constitute the
kind of modifications that violate the New Source Review?
Mr. Spitzer. Well, Senator, as I said in my testimony, I
think indeed there has been a very constant understanding of
what the definition of routine maintenance meant. I think when
we parse, and we have done this in our briefs that has been
submitted to many courts and the judicial opinions themselves,
and I would suggest that you read the WEPCO case and other
judicial opinions that have reviewed the history of what
routine maintenance means and the history of the Clean Air Act.
I think you will see a very constant strain of what that term
of art was meant to mean by the Congress, what it meant to EPA,
and what it has meant to the courts. That is why I quoted only
two of the many possible citations I could have pulled from,
because I thought they were recent and they came from this
Administration, and therefore they might be more probative.
With respect to your due process concern that perhaps a
State agency somewhere gave a seal of approval to an
improvement and that State agency or that administrative board
or that county supervisor or whomever said, well, I think this
means this does not violate that threshold and does not cross
the boundary of routine to non-routine--well frankly, this is a
statute that was passed by the Congress to be interpreted by
the courts. The fact that a waiver perhaps was given properly
or improperly by another individual is not going to be, to me,
dispositive over whether or not that is going to be a final
determination.
Now, should we be worried about government issuing
inconsistent decisions? Of course we should. That is something
we have been trying to mediate through the 200-plus years of
our federalism. Attorney General Pryor and I have had some
spirited and informed debates about federalism and how you
apply it in these different contexts. But I do not think there
is any question that right now we are dealing with a Federal
statute, Federal regs that are going to be interpreted by the
Federal Courts and have been interpreted in a way that has been
constant.
Senator Sessions. Well, you know, Attorney General Mike
Moore of Mississippi has written to Attorney General Ashcroft,
and of course Mike Moore has been a strong attorney general
also, a vigorous advocate.
Mr. Spitzer. Yes, sir, he has been.
Senator Sessions. He was a leader in the effort against
smoking and the State lawsuits against tobacco and he testified
before the Judiciary Committee a number of times. He has
written, and I will quote from his letter. I understand that
the Director of Virginia's Air Program has written to the EPA
that, ``If EPA wants to change the way they have historically
looked at routine maintenance, repair and replacement, they
should do it by rulemaking, rather than an enforcement
initiative that contradicts EPA's own policies for the last 25
years.'' Moore goes on to say, ``I strongly agree that any
significant departure from prior regulatory practice should be
preceded by notice and then applied prospectively only. I am
concerned that EPA has not historically applied the Clean Air
Act modification rule in the manner in which EPA is now
attempting to apply it through those enforcement actions. If
you find this is the case, I urge you to take whatever measures
are necessary to resolve the pending lawsuits in a manner that
is compatible with those basic principles of administrative law
and fundamental fairness.''
General Pryor, is that part of your concern? Is that what
you are saying?
Mr. Pryor. Absolutely. That concern is not a solo one. I
have a stack of letters from State attorneys general from
across the country--Utah, Colorado, North Dakota, South Dakota,
Nebraska, Indiana--a host of States--Virginia, and General
Moore from Mississippi who has that perspective and have
expressed it both to Administrator Whitman and to General
Ashcroft.
Senator Sessions. Well, thank you, Madam Chairman. I think
the best thing we could do for clean air, and it is something I
support, is the expansion of nuclear power. It is the only way
we are going to meet the kind of goals that many have set for
us. Alabama has one plant that never was completed, or was
coming on line or would be brought on line, and two others that
were 60, 70, 80 percent complete that could be brought on line.
That would have a tremendous reduction in pollutants into the
atmosphere. I just believe we have got to go back and give
thought to it, since France obtains 80 percent of their power
from nuclear sources. We have never had an American citizen
lose his life because of an accident at a nuclear power plant.
So there are some things we can do, but I think in the
course of what we do, we need to follow the basic law. I
respect my good advocates there that are testifying.
Senator Clinton. Thank you, Senator.
We are about to take a recess. Before I do, do any of the
Attorneys General have any final comments that they wish to
leave us with?
General Sorrell?
Mr. Sorrell. No, other than to repeat my thanks to the two
chairs and the two committees for convening and taking up this
issue that is so important to Vermonters.
Senator Clinton. General Pryor?
Mr. Pryor. No, thank you, Senator.
Senator Clinton. General Spitzer?
Mr. Spitzer. No, thank you, Senator Clinton.
Senator Clinton. The hearing will be in recess for a short
period until Chairman Jeffords returns at approximately 2 p.m.
Thank you all very much.
[Recess.]
Senator Jeffords [presiding]. The hearing will come to
order. We are pleased to welcome our third panel, consisting of
Eric Schaeffer, director of the Environmental Integrity Project
at the Rockefeller Family Fund; Bob Slaughter, president of the
National Petrochemical and Refiners Association; Mr. Hilton
Kelley of Port Arthur, TX; Mr. Steve Harper, director of
Environmental Health, Safety, and Energy Policy for the Intel
Corporation; John Walke, clean air director of the Natural
Resources Defense Council; and Mr. E. Donald Elliott, co-chair
of the Environmental Practice Group at the law firm of Paul,
Hastings, Janofsky & Walker. Gentlemen, please come forward.
Now, I am going to want to hear from you as to how we
handle the problems that we have and suggestions of what we
should do to improve the law. So I am going to start with Mr.
Schaeffer, then for opening statements I will go down through
for everybody's opening statement, and then come back to the
questions.
So Mr. Schaeffer, if you would start.
STATEMENT OF ERIC SCHAEFFER, DIRECTOR, ENVIRONMENTAL INTEGRITY
PROJECT, ROCKEFELLER FAMILY FUND
Mr. Schaeffer. Thank you, Mr. Chairman, for the opportunity
to testify today. I was the director of the Civil Enforcement
Program until March of this year, and now at the Rockefeller
Family Fund working on environmental issues. I am pleased to be
here.
I think it makes sense, given the hour and the fact that we
are bringing up the rear on this panel, to respond to some of
the points raised earlier, to see if we can shed some light on
some of the issues you discussed.
I would like to start with the question to Mr. Sansonetti,
I think from Senator Leahy: Have defendants raised the issue of
EPA changing the rules as a reason to put off lawsuits or stall
or walk away from settlements? I don't think you need to look
any further than the argument in front of the 11th Circuit in
the TVA case, which I think everybody recognizes is one of the
most important cases, and the first one we are likely to get a
decision on.
In that case, defendant lawyers walked right into court--
lawyers for TVA--waved a copy of the proposed changes, and said
very clearly that the court should consider putting off or
postponing hearing the case or making a decision because the
government was still making its mind up as to what the law was.
I am paraphrasing, but that was pretty close to what was said.
Senator Jeffords. I understand what you are saying.
Mr. Schaeffer. I can also say from my experience, sure,
defendants walked or left the settlement table when they heard
the law was changing. That is a rational decision in a way on
their part. I guess I would suggest that you put that question
to the Agency and to the enforcement officials and staff
lawyers who are handling these cases, and I think you will be a
clear answer.
Mr. Holmstead also said that enforcement in EPA, the
Enforcement Office I assume he meant, has told him and the Air
Program that his proposals and final changes would not affect
disposition of the enforcement actions. Without saying more, I
just strongly encourage you to check that statement out. You
might start by asking the Acting Director of the Enforcement
Program if that is in fact true, because I believe it is not. I
think Enforcement has consistently expressed concern about some
of these changes and their impact on the cases.
I think what is going on is, defense lawyers who are
working for utilities are playing a classic game. They are
taking a law that courts have said is pretty clear and they are
trying to turn it into so much wisp and smoke. And then when
you press the Administration about the direction it is going
in, although their purpose seems to be to add more clarity, you
get more wisp and smoke: ``We do not know what the impact on
emissions is going to be. We are just making proposals. We have
not made any decisions yet.''
I hope to shed a little bit of light on it, just starting
with the basic notion once again of what the law is. These
cases did not spring out of fevered minds of the EPA in the
late 1990's. They began in the early 1980's and go through the
early 1990's, with the Alabama Power and the WEPCO cases. The
courts looked at the law you wrote, which says you cannot
physically modify a plant in a way that increases emissions
without going in and getting a permit and putting on controls.
And the courts have said not once but several times, the law
means what it says. The law is very broad. There is an
exception for routine repair. That is not found in the statute.
That is an exception that EPA created out of concern that very
small projects would have to go through permitting. Courts have
said, when agencies create an exception to a general duty in
the statute, that exception must be read narrowly.
So the first question I hope you will put to the Agency is,
do you, in fact, agree with statements the courts have made,
that the law is broad and exceptions must be read narrowly? I
know Mr. Sansonetti agrees because he argued that in the
summary judgment motion in the Southern Indiana Gas and
Electric case. He argued it very forcefully and very well, and
that brief is worth reading.
If I could turn to what the Administration proposes to do
with what I think is a bright line that Congress has drawn for
grandfathered plants, and how they plan to change the
definition of routine repair--on my right, you will see a
reheater being replaced at a typical power plant. This is one
of the changes that we have talked about that has been
undertaken and it had the impact because they are replacing an
old part and replacing it with a more powerful unit of driving
emissions up. That is a crane you see on the left, moving the
part into place. We have more dramatic examples, too big,
actually, to fit on a chart. This is what the Administration is
proposing to call routine repair.
What the Administration is talking about, and you got what
I would treat as feigned ignorance today from Mr. Holmstead
about what these changes mean, when in fact, his
recommendations announced in June make very clear. What they
have said is, if you pull one of these units out and you
replace it with a more powerful unit, even if that drives
emissions up, we are going to treat it as routine repair.
They are free to deny that. I hope they will if you ask
them, but I do think you should ask them. We have taken a look
at all the parts in power plants, big parts that have been
pulled out and changed over once or twice in the lifetime of
the unit, and you can see that nothing is left of the law if
you go forward with these Administration-proposed changes.
My favorite thing in Washington is to hear lawyers who made
a lot of money arguing that we shouldn't have as many lawyers,
push ideas that essentially eliminate the lawyers by
eliminating the law. That is essentially what is going on here
in the Administration's proposal.
You heard I think from Senator Voinovich and from Senator
Inhofe, that all these utilities want to do, if you would just
let them, is to decrease their emissions. New Source Review is
getting in the way; they just want to decrease their emissions,
and why are we being so mean to them.
I want you to turn first to the chart on the right. These
are NOx, nitrogen oxide emissions at the plants tagged in EPA's
complaint. In one case, we saw a 21,000-ton increase. As Mr.
Holmstead said, and this is where I think the law draws a
bright line, don't increase your emissions, and you don't have
a problem. He said, and his words were, you can make any
changes you want as long as you do not increase emissions.
These guys increased their emissions and they did not do it by
the 40-tons that you are allowed under the Clean Air Act. They
did it by thousands of tons. So there is a real impact.
There is a lot of confusion, I think somewhat pretended,
about the impact of going to the dirtiest 24 months you can
find in the last 10 years, and then allowing the company to
keep that high-pollution level for the next decade and then
some. I think Senator Clinton did a good job pointing out an
example of a refinery where you can take a look at the before
and after; you can say, what are the emissions today; what
would they be if you went back and picked the dirtiest 24
months.
Here are three examples. The red charts that you see are
the highest 24-month period in the past 10 years. Mr. Holmstead
is suggesting, yes, but the emissions are not going to be that
high, but they do not quite know what they will be. And then I
think we ended up with, ``well, some will be higher and some
may be lower.'' I would ask you, just put them through the
exercise, call some of these refineries out, find these dirty
24-month periods in the past decade, lay it in front of the
Administration, lay it in front of EPA and ask them--is your
proposal--actually this is a final rule--is this going to
increase emissions or not for this plant? I think the people
who live around those facilities are going to want to know.
We have also heard that the law is not letting companies
make repairs. We are losing capacity; we are in danger of
having the lights go out and the air conditioners turned off on
really hot days. That is another game that has been played on
every issue that affects environmental control when it comes to
the power industry in the United States. I cannot think of a
single environmental debate where we have not heard from
utility argue, you are going to be colder or hotter or darker
if you keep going forward.
What we did is look at just the 43 plants that the
government has sued, that are named in complaints. We asked the
question, did those complaints so terrify you that you were
afraid of making repairs and you started losing capacity? This
is what we found. The charts are not totally complete through
2001. We have some missing gaps in 2001 because the data is not
yet available. But you can see from looking at these charts,
the plants sued, the very ones that should be the most
concerned about this supposed reinterpretation, have not lost
capacity.
Let me make one other quick point. Refineries, if we do not
change New Source Review, we are going to lose refinery
capacity. I give you this chart. Again, this is from the
Department of Energy. That spike, the red spike on the right
shows a sharp increase in refinery capacity after--after we
brought the New Source Review lawsuits. Again, we were so
successful in scaring the industry with our lawsuits that they
had a record increase in refinery capacity. They have grown at
a record rate. This is after we brought the lawsuits.
I think what you are getting in the Administration's
proposals, in an Administration that likes to talk ceaselessly
about good science, is government by anecdote. You have got the
same old war stories recycled over and over again about the
parade of horribles, the bad things that the law is doing to
them. The statistics just do not support that, and you deserve
that kind of data from the Agency. I think you deserved it this
morning. I hope you will insist on it. I invite you to verify
any of this.
Senator Jeffords. I can assure you we will, so you can
relax on that.
Mr. Schaeffer. That is very encouraging.
On the fair notice issue, I will not belabor this. This is
the question of, gosh, you know, we were all complying with the
law until EPA came along and changed its interpretation. If you
find those 4,000 pages of guidance that keep flying around like
the Flying Dutchman that the Agency has apparently put out on
New Source Review, let us know. I don't think they exist.
This is a fairly lean requirement. There are a number of
individual decisions the Agency has made. We have not cranked
out a lot of conflicting guidance. The Justice Department
looked at that issue; said we have been consistent; and I would
stand with Mr. Ashcroft on that question.
Let me tell you what we saw, and I hope you will look at
the same evidence that Enforcement looked at. When we asked
plant supervisors, the people who make the decisions, are these
big projects, like the first one I put up, are these considered
routine in your industry and at your company? Here is what Mr.
Hekking of the Tennessee Valley Authority said, and it is a
classic. This is Mr. Hekking of TVA, formerly a plant
supervisor.
The question was, ``Mr. Hekking, did the Tennessee Valley
Authority consider this project to be routine maintenance?''
``No, sir.'' ``Can you tell us why?'' ``A number of reasons.
First, we just talked about money. I give you an idea of what
my annual budget is to run the plant, operate it and maintain
it. The money spent on this one project alone exceeded my
annual budget. I think that is one reason it was not routine.
It was performed during an outage. I told you that a routine
scheduled outage for us was 4 weeks. This was a 12-week outage
that was not routine. The re-heater we put back in, we replaced
an entire component. It wasn't a tube or several tubes or a
couple of elbows. It was an entire component. That is not
routine.''
That is from the industry. We had the fun of having TVA's
lawyers, who have this sort of wisp and smoke confusion about
the law, keep pulling their own plant people back to the stand
to get them to correct those statements. Their plant people
would not cooperate. They kept returning to I think the plain
English and saying, ``We can't call these routine; these are
big changes; they cost a lot of money; they take a lot of time.
I am not going to sit here and testify they were routine.'' So
they knew.
I would like to return to the bottom line here, which is
the impact these changes have on human health and the
environment. Senator Lieberman referred to a study that we ran,
looking at the impact that power plant emissions from the eight
defendant companies have on human health and the environment.
I will say, tall stacks or no tall stacks, the impact is
not just in the Northeast. It is felt very heavily in the
Midwest. You can see some very high numbers in States like
Pennsylvania and Ohio when we are talking about premature
death. These are estimates after the acid rain emission
reductions kick in. This is not today's emissions. This is a
more conservative set of numbers.
I would invite you to ask the Agency, is this data correct?
Or if you have a model, and they are using a model to estimate
the benefit of Clear Skies, run the model for these companies;
run the model for my State. We have also broken the number out
by companies, and we fund the same impacts. I want to
emphasize, we had Harvard School of Public Health review this
and verify it. This was done using EPA models. I would invite
them to respond and explain how their proposal is going to make
this situation better when compared to enforcing current law.
I guess I would just close echoing what Mr. Spitzer said
most eloquently, which is everybody has the right to change the
law. This is America. It is a democracy. This is a big change
that the Administration has proposed. Changes of that scale,
especially when they affect enforcement of the law as you wrote
it, they ought to come before this Congress. They ought not to
be made unilaterally by an agency. That is your decision. I
hope you will take that issue under your jurisdiction. If you
do, I know you will do good things with it.
Thank you for the opportunity to testify.
Senator Jeffords. Thank you for an excellent statement. I
would urge witnesses to try to stay around 5 minutes so I can
get to some questions.
Mr. Slaughter.
STATEMENT OF BOB SLAUGHTER, PRESIDENT, NATIONAL PETROCHEMICAL
AND REFINERS ASSOCIATION
Mr. Slaughter. Thank you, Mr. Chairman.
I will summarize very quickly some points that I had in the
formal testimony, and then I just want to add a couple of
comments on something that was just said.
NPRA is pleased to testify again before you today. This is
the third time we have appeared before this committee on the
issue of the need for New Source Review reform. Our members own
or operate basically all U.S. refining capacity, with minimal
exceptions, and a number of petrochemical manufacturing
facilities as well.
I am Bob Slaughter. I am NPRA's president. I would like
just to make a few basic points. The NSR reform process has
been open and public. The previous Administration, as has been
pointed out earlier, made similar proposals to reform NSR.
Public hearings were held. Comments were taken on them.
Congressional hearings discussing the need for reform have been
held on at least four occasions. We have appeared at three of
them. EPA held an exhaustive public dialog on the issue during
its review, pursuant to the President's plan, and the issue has
been extensively discussed in the media, both before and since
EPA's June 13 announcement of its reform package. We have
attached to our formal statement copies of all our testimoneys,
plus our submission to EPA as part of the review, for your
information.
Two, we believe that NSR reform will improve the
environment. The uncertainty resulting from shifting NSR
interpretation has placed our members in retroactive
enforcement jeopardy, adding considerable delay and cost to
refinery projects. The ultimate effect has been to hamper our
industry's efforts to expand domestic refining capacity,
increase the supply of cleaner-burning fuels, and enhance
energy efficiency.
Three, NSR reform is needed to enable the refining industry
to implement significant environmental improvements in our
fuels and facilities throughout this decade. Attached to my
formal statement is our regulatory blizzard chart which
basically shows an intense series of new regulatory initiatives
which were required to undertake in refineries in this decade.
They include significant reductions, severe reductions in the
sulfur content of gasoline and diesel fuel, on-road diesel
fuel, also one upcoming regulation for equally severe
reductions in off-highway diesel fuel and a number of
stationary source controls as well.
This suite of environmental requirements which the industry
must comply with in this decade will require at least $20
billion in additional investment capital from our industry. All
of them result from the 1990 Clean Air Act Amendments, and they
will result in significant environmental improvements through
our fuels and our stationary sources--refineries and
petrochemical plants.
Four, the domestic refining and petrochemical industries
are essential to our economic growth and national security, but
they are under a lot of pressure. We have not been able to
build a new refinery in the United States since 1976. The only
source of additional capacity has been adding capacity at
existing sites. Confusion over NSR requirements disincentives
the addition of capacity at existing sites. Of equal concern,
the Oil Price Information Service recently reported that at
least 15 U.S. refineries in many regions of the country, with
more than 10 percent of U.S. refinery capacity, may change
hands or be closed down by January 2003. So there is
significant risk of loss of domestic refining capacity. We have
one refinery in the Midwest, in Illinois, scheduled to close
next month. There are others, according to the OPIS article and
according to word in the industry, that are in serious danger
of sale or closure.
The United States demand at the same time for our products
is increasing. EIA projects one to 2 percent growth per year in
demand for petroleum products at the same time that we are
unable to add significant domestic capacity to refine those
products. This means that they will have to be imported. EIA
projects a tripling of imports of light products into the
United States between now and 2020. They will come from Canada,
Venezuela, and the Middle East.
U.S. refineries as we know here have to run full-out to
meet the bulk of U.S. demand, much as they do today. We operate
at 90 to 95 percent of capacity at most times, pretty much 365
days a year, every day of the week, and we have to do that in
order to basically make the products that the economy demands.
So it is very important that the industry maximize its product
output, and the upcoming rulemaking which will give us greater
clarity on the meaning of routine maintenance, repair and
reform will help us do that.
The opponents of NSR reform imply that it is the source of
most basic environmental regulation of U.S. manufacturing
facilities, but this is really not the case. We attach to our
testimony a number of other Federal and State programs that
limit emissions at our facilities. NSR reform will not impact
these.
NSR reform has really been a bipartisan effort up to this
time. The previous Administration, as we have said, proposed
many of these same changes. A bipartisan group of U.S.
Senators, as Senator Voinovich pointed out this morning, wrote
this Administration urging NSR reform to move forward. The
National Governors Association and many State environmental
regulators have also urged that NSR be reformed.
So we urge Congress not to falter in its support for this
bipartisan effort. We think the changes will help our members
meet consumers' growing demand for better environmentally
sensitive processes and products, and we really do believe that
NSR reform is the most significant step that public
policymakers can make to maximize the domestic refining
capacity and petrochemical manufacturing capacity in the years
to come.
So I would urge you to put the discussion today in that
kind of frame of reference. I know it has been said that
there--at least Mr. Schaeffer has a personal theory that has
some clarity as to what NSR means, but I have sat through the
hearing today, too, Senator, and I believe--I know I listened
to three current attorneys general. I believe there are two
former attorneys general on the panel--you and Senator
Sessions. I heard a number of differences as to what this
current rule means. You know, if five attorneys general are not
really able to agree among themselves, and that was the strong
impression I got today, I would say there is serious evidence
that this particular program needs to be reformed.
Just one other point I would like to make about the chart
and the baseline which alleges that at least certain refinery
emissions might go up if you basically looked at any 24 months
within the past 10-year period. You know, refineries basically
produce all-out almost all the time. So if there has been a
significant reduction in emissions of one particular pollutant
from a refinery, it is probably because there has been a change
in the permitting requirements, because they are probably
producing more the last couple of years than they were at any
time during the last 10 years, particularly in the Midwest,
where there have been significant supply problems and the
refineries have really been producing all-out. So I urge you to
take a close look at some of these assertions that are based on
people's models. I think we really need to look at what the
facts are here.
Thank you.
Senator Jeffords. Thank you, Mr. Slaughter.
Mr. Kelley.
STATEMENT OF HILTON KELLEY, FOUNDER, COMMUNITY IN-POWER AND
DEVELOPMENT ASSOCIATION
Mr. Kelley. Yes, good evening. My name is Hilton Kelley. I
am the founder of a grassroots organization called the
Community In-Power and Development Association. I am also the
coordinator of the Southeast Texas Bucket Brigade, where we
stand with and for refinery reform.
I am grateful for the opportunity to speak out on behalf of
refinery communities across this Nation and tell the Senate the
truth about what pollution is doing to us and how much worse it
would be under the new EPA proposal to roll-back New Source
Review. For example, by allowing refineries to go backward 10
years to pick their baseline, pollution will increase. It makes
no sense to go backward. We need to move forward and keep
working to reduce pollution by enforcing the NSR fully.
Everybody needs to know that the Clean Air Act as it now
stands must be preserved, and the new EPA proposal is really a
death sentence for already-sick industrial neighbors. The Clear
Skies proposal of the Bush Administration would do nothing for
us because it deals only with power plants. It does not cover
refineries and chemical plants. Refineries are located in 36
States, 125 cities and up to 67 million people breathe air
polluted by oil refineries. This is a national problem and the
only solution we see is strict enforcement of the New Source
Review, not relaxation.
I grew up in Port Arthur, TX on the west side of town near
refineries and chemical plants. I know what it smells like on a
daily basis, and I say that it is time that we do something to
clean this up because a lot of kids are still living in these
neighborhoods where I grew up. I moved away about 18 years ago,
and I have recently come back in 2000. I am on a crusade to
empower local citizens to fight for their health and to help
them understand what they must do to get their air clean. I say
that we protect the Clean Air Act, and New Source Review is the
way to do it.
The rest of the country needs what Port Arthur makes. Just
like other refinery communities, the neighbors live with the
fall-out of pollution and health problems. Mr. Slaughter stated
that refineries are asked to provide this product. That may be
so, but the neighbors never ask for the poison that these
refineries put into our air. Texas is home to America's largest
oil refineries and chemical plants. While the State produces
the energy the Nation needs, it also produces more industrial
pollution than any other State according to the latest right-
to-know data. Our neighborhoods pay the highest price for the
rest of the Nation's cheap gasoline. Sometimes, it can take
your breath away. We have been losers in the bargain as we have
high unemployment, although the plants get a tax break from our
local government because they are located in empowerment zones.
Our people do not see the benefits of that.
It seems that these heavy industries concentrate on low
income communities and communities of color, where there is the
least bit of resistance from the citizens. They operate 24
hours a day, 365 days a year, expanding constantly. Right now,
we are challenging another expansion of the Premcor refinery
that wants to dump 525 more tons of pollution on us so that
they can make low-sulfur gasoline. It seems we never have a
chance to get cleaner air. They can do it without dumping more
pollution on us. NSR is one tool to make sure of that.
The problem has a human face. In Port Arthur almost every
day, 10-year-old Cullen Como and his sister suffer with a
severe asthmatic condition. Their mother suffered also from
upper respiratory problems when she was giving birth to them.
The plants emit a toxic soup of chemicals. These chemicals are
known to cause cancer, affect brain functions and hurt organ
development and reproductive systems.
We, like other refinery communities, have teamed up with
Denny Larson of the Refinery Reform Campaign to form a local
bucket brigade for Port Arthur, TX. The bucket is a simple, but
effective air sampler. It uses a special bag and vacuum pump.
Air samples taken during toxic releases have shown unhealthy
levels of hydrogen sulfide, benzine and other dangerous
chemicals. We were forced to do this because there are no real
air monitors in our community. We get more expansion, but we
get no air monitors in our communities.
Miss Annie Edwards is another victim of pollution. She has
to use two different types of air devices to breathe--one for
when she goes to bed at night to ensure that she will wake up
the next morning, and if she dares to go outside, then she has
one that she has to walk with.
I know from going door to door that these problems are
widespread. Too many people are dying from cancer. Too many
people have thyroid problems. We have two dialysis clinics in
this small town of mine, and it is time for the citizens to say
enough is enough, and it is time to do something about it.
We want to work with industry. We want them to put the
necessary controls on their stacks, put the necessary controls
on their valves, so that they will quit emitting so much
pollution into our community.
We also have a huge pollution problem with accidents,
fires, explosions, upset emissions releasing thousands of
pounds of chemicals into our air through flares, relief valves,
and dump stacks. It seems that after expansion, the plants have
more and more upsets so there weren't enough controls, from
what I can see, by our States. For example, Premcor Refinery,
Port Arthur, TX, February 19, 2002, about 5,660 pounds of
propane and 143 pounds of hydrogen sulfide were released during
a 219-hour upset. More examples are on the chart, if you look
to my right.
Premcor Refinery, January 2, 2002, upset--about 26 pounds
of hydrogen sulfide per hour, 2,479 pounds of sulfur dioxide
per hour, 295 pounds of volatile organic compounds per hour,
and 6 pounds of nitrogen oxide per hour were released. The
upset lasted 168 hours.
A recent health survey done by the University of Texas
toxicologist Dr. Marvin Legator compared people living in
housing projects in refinery communities like Port Arthur and
Beaumont to a non-industrial similar population. Preliminary
results show a vast difference between the health symptoms of
those two communities' reports. Seventy-five percent of the
people from Port Arthur complained of headaches, muscle aches,
compared to twenty percent in the controlled area. Eighty
percent of people in Port Arthur had ear, nose and throat
conditions, compared to twenty percent in the controlled area.
Eighty percent of those questioned had heart conditions and
respiratory problems in the refinery neighborhood, compared to
thirty percent in the non-refinery area.
Dr. Legator has made a strong correlation between the known
health effects between the emissions from the refineries and
the health symptoms we experience.
Another study conducted by MacArthur Genius Award-winning
scientist, Wilma Subra showed that health symptoms and
emergency room visits increase when there is a spill or
unexpected release from the plants. Whenever we leave Port
Arthur, it seems like our health gets a little bit better, but
whenever we return from vacation, it seems like the respiratory
problems and the skin rashes seem to reappear.
Glenn Alexander, a pediatric nurse practitioner in Port
Arthur, has been treating local children for 10 years. His
waiting room is nearly always full. He sees an unusually large
number of upper respiratory infections, allergies, skin rashes
and asthma. ``I do see things because I am a health care
provider. The air is not always clear here. Sometimes it is
hard for the children to breathe.'' Some of the effects are
irreversible and will be a life-long problems for these kids.
Mr. Alfred Dominic is a life-long resident of Port Arthur,
TX as well. He was born in 1928. He has seen a large number of
his friends die from cancer and various other respiratory
problems.
This is a national problem. This is not a problem just
concerned with Port Arthur. This is a national problem. I could
quote many other leaders in the Refinery Reform Campaign, but I
won't go on with that.
Mrs. Mabel Mallard lives in South Philadelphia, PA, and she
has a problem with the refineries out there as well. They are
dealing with pollution day-in and day-out and she says enough
is enough. Please do not tread all over the New Source Review.
In other words, stand with us and help support it.
In conclusion, New Source Review should be preserved and
fully enforced. It is a grave matter of environmental justice
to people who need the help of the U.S. Senate to protect their
health and the health of innocent children. Going backward to
allow refineries to pick a baseline and other such tricks are
unthinkable to people living on the fenceline suffering from
current levels of pollution. The Clear Skies plan won't help
us. We need the Federal protection and the right to know of the
New Source Review.
Thank you, and if there are any questions, I will take them
at this time.
Senator Jeffords. Thank you, Mr. Kelley, for an excellent
statement.
Mr. Harper.
STATEMENT OF STEPHEN HARPER, DIRECTOR, ENVIRONMENTAL HEALTH,
SAFETY AND ENERGY POLICY, INTEL CORPORATION, WASHINGTON, DC
Mr. Harper. Yes, thank you, Senator.
My name is Steve Harper. I am the environmental health,
safety and energy policy director for Intel. I am here to speak
about a portion of what EPA is seeking to promulgate and to
propose what was referred to a little bit earlier this morning,
but only in passing, it was very separate from in our minds
most of the rest of the issues before the committee, and that
is the PAL portion of the EPA's pending rule.
Intel for several years now has been part of a coalition
that has included Lilly, Daimler-Chrysler, DuPont and Merck.
Companies in our coalition have all experimented under EPA's
various reinvention programs with PALs. We believe that EPA's
promulgation of a PAL rule is the next logical step in
piloting, perfecting and proliferating this new approach.
Much effort has been spent in the last 10 years or so on
the reinvention of environmental protection under both
Democratic and Republican Administrations. We feel strongly
that PALs are one of the most successful, if not the most
successful, story to come out of, innovations to come out of
that process and we think it is time to mainstream this new
approach through regulatory action.
Why does Intel care about PALs? Semiconductor manufacturing
is characterized by quick product cycles and rapid innovation
in products and processes. The sort of tag-line in our company
is there are only two kinds of semiconductor companies--the
quick and the dead. We obviously would therefore prefer to be
quick. But the kinds of needs for rapid and speedy innovation
in our industry is not that different from that experienced and
needed by other companies in our coalition of other industries.
Intel operates 10 fabs, as we call our factories here in the
United States. Each of these costs on the order of $2-$3
billion per fab. They are characterized by constant innovation
and changes in product technologies, the chemicals that we use,
and the processes.
Given the capital cost of these factories, getting to and
maintaining full production is absolutely critical to their
profitability. Traditional New Source Review is therefore a
non-starter for Intel and for industries like ours because many
of the frequent changes we make would require under traditional
NSR permit modifications which entail uncertainty and
substantial delay.
What is a PAL? PALs feature an emissions cap that provides
a bright line for NSR applicability. It determines whether
changes made in our operations trigger or don't trigger NSR.
Changes that don't raise emissions beyond the cap are not
subject to NSR. In addition, within the cap or under the cap,
there are typically a series of pre-approved changes that you
can make at your facility without further permit modifications.
I want to make a distinction that is in the terminology I
use in my written testimony, Senator, I use both the term PAL
and PAL-type permits. I want to be clear on the distinction. A
PAL is a major source of NSR permit. A PAL-type permit is a
minor source State permit that features the cap and the
preapproved changes features of PALs, but lacks the NSR
applicability feature, but in every other respect they are
identical.
What are the benefits of PALs? First of all, there are
environmental benefits. PAL caps are set at levels typically
that reflect the air quality needs of an area. PALs that are
based on actual emissions involve sources giving up significant
emissions headroom that would otherwise be allowed under their
existing permits. Caps also provide emissions certainty to the
public and to the permitting authority. Caps provide powerful
pollution prevention incentives because if you have got a tight
cap and you want to grow your production, the only way you can
do so is by substantially reducing your emissions per unit of
production which is what we have done, as I will show. PALs,
simply put, free up facility engineers at facilities like
Intel's to pursue pollution prevention, rather than spend a lot
of time on NSR paperwork.
The second area of benefit over traditional NSRs is public
participation. PALs provide the public a much more holistic
view of the operations of a facility and its impact on the
environment. In traditional permitting, the public sees a
myriad of piecemeal changes that provide a piecemeal view of
what the impact of a facility is. However, with PALs, the
public gets to participate in the process by which the cap and
the preapproved changes are determined, providing a much better
understanding of the impact of the facility and a much more
meaningful opportunity for the public to participate in
determining the outcome of the permitting decision.
Indeed, although I am going to focus mostly on our Oregon
PAL, in one of our facilities that has a PAL in Arizona, our
Community Advisory Board is actually so happy with our
experience that they want the State of Arizona and Maricopa
County to make PALs mandatory for all sources because of the
environmental and public participation benefits.
The third benefit is to our facility--operational
flexibility. You have the bright line in terms of NSR
applicability. You also have the preapproved changes I made
reference to earlier.
So what has our experience been? We have entered into two
partnerships with EPA permitting authorities and the public to
pilot this approach, both begun under the Clinton
Administration. The Pollution Prevention and Permitting Program
at our Aloha campus in Oregon and a Project XL effort at our
Ocotillo campus in Arizona. In the interest of time, I am only
going to focus on the Aloha project in my remarks. My written
testimony provides data and experience about both.
The exhibit in my testimony at the end of the testimony
provides we think a very graphic illustration of the
environmental benefits. Motivated by a need to grow, but
remained under our cap at Aloha, we reduced our emissions of
volatile organic compounds per unit of production by more than
90 percent during the 1990's. Although our production went up
substantially by almost five times, we still stayed under our
cap. We were even able to add an additional factory within the
existing cap without having to go through and get an additional
modification.
Moreover, we voluntarily reduced our cap along the way in
order to help Portland, OR with its efforts, which ultimately
were successful, to get redesignated as an attainment area. The
cap that we worked under and lived under produced a very
powerful pollution prevention incentive that made that
possible.
In sum, PALs, in our view, are ready for prime time. As I
have shown, our experience with PALs has been dramatically
successful. Other companies in our coalition have also piloted
the approach successfully, as have an increasing number of
companies in other industries and other companies. I want to
emphasize that contrary to the thoughts of some, PALs are not a
niche-fix for companies like Intel. I think if you look at the
experience of PALs, and it is a growing experience in a number
of industries, they are not a one-size-fits-all solution to
everybody's problems with New Source Review, but we think they
are a win-win for both facilities and the environment.
PALs, in our view, are an example of the right way for EPA
to innovate, to try something out in a limited number of places
under controlled circumstances. You evaluate your experience,
and where successful, you mainstream that experience, you
mainstream the success through the rulemaking process.
I want to emphasize mainstreaming through a rule is very
important in our view. PALs are legal under current rules, and
under the current Clean Air Act, as my testimony goes into. But
many sources and States need clear guidance from EPA regarding
the value of PALs and they need clear guidance on the rules of
the road in applying this relatively new tool. So we believe
that EPA promulgating a rule will provide the certainty and we
think will make it a lot easier and a lot more likely that
other sources and States will use this new approach and will
realize the environmental public participation and flexibility
benefits that I have described earlier. Thank you.
Senator Jeffords. Thank you.
Mr. Walke.
STATEMENT OF JOHN D. WALKE, CLEAN AIR DIRECTOR, NATURAL
RESOURCES DEFENSE COUNCIL
Mr. Walke. Thank you, Chairman Jeffords, for the privilege
of testifying before you today.
My name is John D. Walke, and I am the director of Clean
Air Programs with the Natural Resources Defense Council. We are
a 500,000-member organization dedicated to protecting public
health and the natural environment. Prior to joining NRDC 2
years ago, I was an air pollution attorney with the EPA's
Office of General Counsel, where I worked for 3 years.
Allow me to go straight to the heart of the purposes and
consequences of the Administration's recent New Source Review
announcements. These rule relaxations will allow significant
increases in air pollution from over 17,000 of the Nation's
largest polluters, allowing them to escape pollution controls.
I want to emphasize this most basic point about the New
Source Review program that is often lost in the rhetoric and
misrepresentations that some use to mischaracterize the program
and its protections. The NSR program requires pollution
controls at new or existing facilities only when there are
significant increases in air pollution. Industry must clean up
its pollution under the NSR program only when the air gets
dirtier from anywhere from tens of thousands of pounds per year
to tens of thousands of tons per year. The corollary to this
point is even more important. Regulatory exemptions, so-called
industry flexibilities and other changes designed to avoid NSR
pollution controls will allow significant increases in air
pollution to escape clean up. Increases in air pollution, of
course, are what we all are about, whether the air gets
dirtier. It is that objective that drives the installation of
pollution controls under the New Source Review program.
It is highly revealing, however, how rarely if ever the NSR
program's opponents in industry, and now within this
Administration, mention the NSR program's purpose to control
air pollution increases. Instead, I submit that the talking
points of NSR opponents are carefully scripted to mention
several buzz words--routine maintenance, energy efficiency
projects, system reliability activities. The reason for this
selective focus is very simple. Every activity that industry
wants to pursue without being required to install pollution
controls under New Source Review will involve significant
pollution increases. I urge you and the committee to bear in
mind than whenever appeals in the name of these activities are
made, they are implicitly but necessarily accompanied by the
argument that industry should be allowed to increase air
pollution significantly without cleaning up that pollution.
As we all know, NSR pollution controls are required for
modifications that exist in pollution sources. This was added
in the 1977 amendments. Modification at an existing plant
requiring NSR pollution controls is a two-part test covering
first, any physical change or operational change at a facility.
Every court to address this question, as Mr. Schaeffer has
said, has found that this requirement is very broad, and they
have affirmed the inclusiveness of the concept of ``any
physical change'' meaning exactly that. The second part of the
test is that a facility must increase air pollution, as I noted
earlier. So you must have a physical change or an operational
change that must increase pollution.
I would like to speak just briefly to something that
Assistant Administrator Holmstead said earlier, because it is
something I have heard him say before, and it is something that
I find to be continually frustrating and even misleading. Mr.
Holmstead made the claim that NSR really does not do anything
to reduce emissions from existing sources. Because NSR applies
only to pollution increases, pollution controls are required in
order to minimize those pollution increases. For example, if a
modification at an existing facility increases pollution by
10,000 tons, NSR would require pollution controls that would
reduce emissions by, say, 95 percent using advanced technology.
Now, I would call keeping 9,500 tons out of the air to be a
pollution reduction. I would also call the positive steps that
Mr. Holmstead mentioned where sources minimize pollution to
keep them from even having significant pollution increases to
be emissions reductions. It is very telling that Mr. Holmstead
declines to refer to these as emissions reductions. I would
submit that it is because the Administration has in essence
abandoned the modification provisions of the statute. I would
submit further that the regulations and the changes that were
recently announced reflect that.
The five final rule changes, as well as the three proposed
rule changes that they announced would systematically undermine
and contradict the Clean Air Act's mandate that modifications
that exist in pollution sources require pollution increases to
be well-controlled. EPA announced new loopholes and exemptions
from clean up obligations that are nowhere to be found in the
statute; defined the plain breadth of the first part of the
modification definition. EPA also announced new accounting
gimmicks to ensure that increases from today's pollution levels
will not be considered increases under the second part of the
definition. My written testimony goes into the specific
examples and our views on them.
Let me be clear. What EPA has done with these announcements
is repudiate an act of Congress. We now know from internal EPA
documents that I refer to in my testimony that agency attorneys
had advised EPA political appointees that many of the changes
that were recently announced run afoul of the Clean Air Act.
The recent announcements make clear what Administration
officials did in response to that legal advice.
We also know that the rule relaxations will allow
significant pollution increases to escape control, thereby
degrading air quality and harming public health. I would like
to read to you just a single sentence from a letter issued by
the National Association of State Air Regulators in reaction to
the specific reforms that the Administration is pursuing. The
letter reads, ``The controversial reforms being pursued by EPA
will not only result in unchecked emissions increases that will
degrade our air quality and endanger public health, they will
also undermine the chances of any responsible changes to the
NSR program ever taking effect.'' With your permission, I would
like to enter those comments into the record.
Senator Jeffords. Without objection, they will be--and
since there is nobody else to object, they are in.
Mr. Walke. OK.
Let me note in passing, since it has come up several times,
just frankly how disingenuous it is for Administration
officials and others to point to previous general calls for NSR
reforms from Members of Congress and other quarters and support
of the very specific harmful reforms that they have announced.
My organization has supported NSR reforms, as have the State
regulators that I just referred to. But what we were seeking
were improvements to the NSR program that would protect air
quality while providing industry with responsible forms of
flexibility. This Administration has capitulated virtually
entirely to the industry demands for flexibility and abandoned
public health protections as an objective for the program. It
is not just my organization, it is this bipartisan group of
State regulators that is saying so.
I will end my comments there, and I would be happy to take
any questions afterwards.
Senator Jeffords. Mr. Elliott.
STATEMENT OF E. DONALD ELLIOTT, CO-CHAIR, ENVIRONMENTAL
PRACTICE GROUP, PAUL, HASTINGS, JANOFSKY & WALKER, LLP
Mr. Elliott. Thank you very much, Mr. Chairman.
I would ask that my revised statement be made part of the
record.
I would like to focus primarily on what I consider a very
disturbing fallacy that has effectively been part of the
hearing, and that is the notion that we should equate NSR with
reducing pollution. Of course, that is not really the case. As
Mr. Kelley said, it is really just one tool under the Act. I
guess my main point is I think NSR is really the wrong fight.
It is not a very effective program. It has not been effective,
and I think we know much better ways to deal with the problem.
As a former General Counsel of EPA, confirmed by this
committee over a decade ago, I do believe that EPA's many
changing interpretations of NSR over the years have really
created a legal mess of baffling complexity. The ultimate
solution in my view is to replace the antiquated, inefficient
NSR program for existing plants with a modern trading system,
which really has tripartisan support, as Jeff Holmstead,
Senator Smith and Senator Jeffords are all supporting something
like that. But in the meantime, I do applaud the
Administration's recent attempts to do what it can to resolve
the uncertainties by creating safe harbors through the
rulemaking process.
I have to admit that I was General Counsel of EPA in 1990
when the famous WEPCO case came down, which has done a lot to
create a lot of the current uncertainties. Although that case
has never been overruled, it creates a lot of uncertainty
because rather than having a bright line test, it identifies
multiple factors that have to be weighed. So I think a lot of
the uncertainty is how do you deal with the various WEPCO
factors.
Urged on by majorities in both Houses of Congress in 1990
to fix the WEPCO problem, both Houses of Congress passed the
WEPCO fix, they were just different. So in conference, the
Congress deferred to the Administration, passed the hot potato
to us, and we did in fact come out in the first Bush
Administration with an NSR interpretative rule in 1992 which I
thought had fixed the WEPCO problem, at least as far as the
electric utility industry was concerned.
The key provisions of that rule were that it interpreted
the language of the statute to require a causal relationship
between the physical operational change and the increase in
emissions, and that seemed to solve the problem. However, as a
prelude to the current EPA enforcement initiative in 1998,
without any notice and comment, the Clinton Administration in
the Federal Register renounced our previous 1992 interpretation
of NSR. It really is the conflict between the 1992 Bush
Administration interpretation and the 1998 Clinton
interpretation, both purporting to be interpretative rules that
have created a lot of this confusion.
I think the current Bush Administration did not really go
far enough in trying to clarify the problem. I admire their
courage in even touching the issue at all, but I think they
should have done two things, and I hope they will as the
process goes forward. First, in my opinion, the safe harbor
provisions of the NSR rule should have been made immediately
effective as an interim final rule under the good cause
provisions of the Administrative Procedure Act. EPA has done
that in numerous other situations where there is uncertainty in
the law, and after 130,000 public comments have already been
received, I do not think we should be waiting. The EPA-NSR
report documents that there are a number of adverse effects
taking place today as a result of the uncertainty.
Second, I believe the Administration should immediately
conform its litigating position in the pending NSR cases to the
policy positions that it is now taking in these proposed rules.
I disagree with my good friend, Assistant Attorney General Tom
Sansonetti, who I served with in the previous Bush
Administration, that it is going to be viable for the U.S.
Government to pursue multi-billion dollar cases based on the
premise that the same words in the law meant one thing in 1980,
something different in 1992, something different in 1996,
something different still in 1998, and that they are going to
mean something yet different in the future when these proposed
rules are finalized.
I also disagree strongly with those who imply that the
pending enforcement cases brought in the previous
Administration should somehow disable the new Administration
from implementing its views of good policy. Just as the Clinton
Administration in 1998 could change from the 1992 Bush
Administration interpretation, I think the second Bush
Administration is free to impose its own interpretation.
Of course, the Congress can make the Administration pay a
price politically for its actions, and I guess in a sense that
is what this hearing is about. But in my opinion, NSR is the
wrong issue. It is the wrong issue to make the touchstone for
good environmental policy. It has failed to work for 25 years.
I have lived in Connecticut for 30 years and I am very well
aware of the problems on the East Coast. But I think it is
important to emphasize that during that 25-year period, we have
had the NSR program on the books. The only place that I know of
that when something does not work it becomes an argument for
doing more of it is in government. We have had this program for
25 years. It has not worked.
Meanwhile, over the last 10 years, the acid rain program
has been wildly successful. Seventy-five people at EPA, less
than one-half of 1 percent, have gotten 50 percent of the total
pollution reductions over the last 10 years through the acid
rain trading program. Imagine a company like Intel that figured
out that one-half of 1 percent of its people were producing 50
percent of the profits. Wouldn't they want to figure out what
those few people were doing and do more of it? I think that is
the basic problem that we are really facing here.
The NSR program is an antiquated regulatory technology. The
notion that the way to regulate the environment is with case-
by-case litigation, suing plant-by-plant, having discovery, big
litigation and oppose best available controls--that is a 1960's
technology. We know much better how to do it, and I think that
is what we should do.
Much of the blame for the current NSR mess I think lies
squarely at the doorstep of Congress. Congress in its wisdom
enacted the requirement for modifications of existing plants in
1977, but it has really failed to define the key operative
concept of a modification in the statute. To date, it has
proved impossible for the rest of the legal system to come up
with any clear dividing line that will stand the test of time.
I certainly tried and failed when I was in the government.
EPA has repeatedly tried to resolve that controversy
through a variety of changing rules and interpretations. At one
point, EPA even came out in the Federal Register with a
statement that routine repair and replacement is what is
``routine in the relevant industrial category.'' EPA staff also
developed the fascinating theory of potential emissions, so
that a plant was considered to have increased its emissions
when its actual emissions went down. In fact, I disagree with
John's statement. Many of the enforcement cases, or at least
some of the pending enforcement cases, are being brought
against companies whose emission actually went down. So
emissions increases ought to be part of the definition, but
unfortunately has not been historically.
There have already been so many varied and shifting
interpretations by EPA that I seriously doubt that the courts
are ultimately going to give much deference to whatever
construction EPA now tries to place on the statutory terms.
That unpleasant fact really leaves us with only two real
options going forward.
First, we can slug it out with many more years of very
unproductive litigation, probably going to the Supreme Court at
least three times over the next 10 years before we finally
figure out what these delphic words about modification actually
mean in the Clean Air Act. I think that is really the course
that my friend Eric Schaeffer urges, that when he talks about
the concrete facts of individual cases and a common sense
interpretation and the testimony of utility executives, what he
is really calling for is that we embark on a 10-year process of
litigation. If we do that, eventually the courts, which are the
courts of last resort, will essentially write a law for us.
They will essentially define over time and a period of
litigation what these terms of the statute really mean.
I think that would be a mistake in course. I would much
prefer to see Congress take control of the situation and put a
merciful end to the NSR controversy by legislating a modern,
more efficient replacement for the program with regard to
existing plants. I think the way to do that is one that has
tripartisan support and I hope that is what you will do.
Thanks very much.
Senator Jeffords. Thank you very much, Mr. Elliott. I
assure you that we are concerned about the present situation
and will be doing hopefully a successful legislative answer.
Mr. Schaeffer, are there any ways that the Administration
could approach the NSR changes that might actually benefit
public health?
Mr. Schaeffer. Changes they could make that would benefit
public health?
Senator Jeffords. Right.
Mr. Schaeffer. Sure. The last Administration was thinking
about taking the plant-wide limit, which I think is a good one,
which is reflected in some of our settlements. I would refer
you to the Marathon-Ashland settlement for an example, and
making that a good type proposal that would have the effect of
bringing emissions down over time. What the current
Administration's proposal does, and this is an important
difference, is allow you to reach back, find an old baseline of
high emissions, and then keep that high level of emissions for
10 years going forward. The letter that Mr. Perciasepe wrote
which I think is attached to Mr. Slaughter's testimony, makes
clear when he was talking about plant-wide limits, he was
talking about an idea that would bring emissions down over
time. That is what the Clean Air Act is supposed to do, is to
create that downward slope. I think that is what you are trying
to do with the legislation you are considering.
So if they would take the PAL proposal, tighten the bolts
on it, and have the emission levels from companies that use
plant-wide limits step down over a period of time, instead of
stay constant, as though it were some kind of entitlement to
pollute, then I think it would be a great improvement, and it
would bring clarity to companies.
Senator Jeffords. Mr. Kelley, you had very dramatic
testimony. Could you describe the plastic bag you got in the
bucket brigades?
Mr. Kelley. Yes, I can. This bag is what we use to actually
go out and pick up the air samples. Here I have with me also,
as being a part of the bucket brigade, you can see why we call
it the bucket brigade. What it is, is literally a 5-gallon
bucket and there is a top that is usually accompanied with the
bucket that has an intake valve and an exert valve. What we do
is take a simple computer vacuum cleaner, and it is a tube that
is hooked to the top, and we create a vacuum inside the bucket
that will allow the air to go inside the bag because it is
attached to the top on the inside. Once that vacuum is created
in the bucket, the air automatically flows into the bag.
On a lot of occasions when I go out, what happens is I will
smell some type of sulfur or some type of strong chemical
order. I may get a call from a neighbor who is a part of the
bucket brigade as well, and other citizens that I have alerted
about the activity that is going on in our community. They will
call me up and say, well Hilton, there is a strong odor of some
sort in our community. So I will go to that particular
neighborhood. I will take an air sample. The samples are then
immediately rushed to a lab in a location outside of Texas--I
will say it that way--and the air is then analyzed and then
sent back to me or Denny Larson and then we give the results to
a lot of the citizens to let them know exactly what we found.
On many occasions, we have found that the refineries such
as Premcor, Huntsman, Motiva are well above the EPA standards
when it comes to what they can emit, how much they can emit
into the air. We have found sometimes they are somewhere in the
ballpark of 8 parts per billion over or 12 parts per billion
over the amount of chemicals that they are allowed to dump into
our air. This is something that is common in Port Arthur, TX.
This is why so many of the citizens there have respiratory
problems, and as I said earlier, we have two dialysis clinics
in Port Arthur and the population is somewhere in the ballpark
of 57,385.
I would like to state, No. 1, we are not really against
refineries, but what we are against is the amount of pollution
that is being dumped on this small community unfairly because
we bear the brunt of all the pollution and all the toxicities
for the rest of the Nation to have cleaner-burning gasoline. We
say enough is enough. It seems like we are being sacrificed for
the rest of the Nation to have cleaner air. I say, No. 1, it is
time that we stand together and come up with other solutions so
that one community does not have to bear the brunt of all this
pollution.
We understand that we need gasoline. We understand that we
need the products of crude oil and various products that come
off of it. But what we don't need is the pollution that they
dump into our communities and on our kids and everything else
in our community. What we are saying is clean up your act. What
we are saying is use the necessary controls on your
smokestacks; use the controls on your flares. The flares were
designed to burn gases as they come off, but I have pictures
that will show otherwise. Sometimes you can see flares 25-30
feet up in the air, and they are just burning wild, simply
because too much product was coming to the flare too soon, and
they had to burn off thousands of tons of gasoline and other
products because it would go all over the ground at the
refineries. And then the flare is just emitting all of this
smoke, black smoke, I mean day-in and day-out sometimes for
like 10-12 hours at a time, and tons and tons of sulfur dioxide
is dumped.
Sometimes you can just go outside and you could just rub
your hand across your car and then you have all this soot and
different chemicals on your fingers. So you can imagine what is
going on into our lungs.
Senator Jeffords. That is right. Thank you very much.
Mr. Slaughter, your testimony is that NSR reform can make
the difference between life and death for many facilities. It
is clear that Mr. Kelley and other members in the affected
communities feel that it will make the difference between life
and death for many people. Have you and your members tried to
meet with the community groups in the last year to see if there
are NSR reforms that everyone could support?
Mr. Slaughter. Well, one, the refinery industry, the owners
of the individual facilities quite pervasively have community
groups around individual facilities that they meet with and
have a continuing relationship with. I think one of the
problems here is that a number of these matters that are being
discussed today by Mr. Kelley are not involved in the NSR
issue. They are involved in these other regulatory controls
that actually deal with emissions at facilities. The toxic
emissions, for instance, would be subject to other controls.
The facilities are very heavily controlled. I can tell you that
the facilities that are in Texas are subject to some very
stringent new requirements that are part of the new State
implementation plan, and basically heavy industry facilities
across America are very closely monitored.
We have also shown the number of new proposals to change
fuels and also do additional things at our plants that are
required of us over the next decade. All of those will
basically require discussion of what the emissions
characteristics of the facilities are, and in most of those
cases there will be input from the local community.
Senator Jeffords. Mr. Harper, you said that PALs should be
set to reflect the air quality improvement needs of an airshed.
How would that work if a PAL is locked in for 10 years as
proposed by the Administration?
Mr. Harper. Mr. Chairman, what I understand is in the
Administration proposal, it is not actually all that different
in most respects from what was in the previous Administration's
proposals. In fact, in one respect it is more cautious, and
that is the previous Administration was willing up until the
very last moment to promulgate an allowables PAL provision,
which the current Administration has decided to put out for
further comment.
But part of what we understand to be the way the current
Administration's proposal would work is not that much different
than the way it has worked in our experience. The 10-year, you
know, highest 2 years in the last 10 years is the starting
point. It is a default or basic guideline for setting the cap
baseline. In our experience, because PALs are voluntary, that
is only the starting point for the negotiation. What States and
permit authorities at the local level do is they look at actual
emissions and from the start you are giving up the difference
between your actuals and your allowables. In our case, it has
often been a very substantial number. So that potential to
amend is taken off the table from the get-go.
Then you look at your baseline, whatever the baseline is in
the State program--the baseline that EPA is now proposing, the
highest 2 years in a 10-year period. We think that that is
reasonable. In our industry, cycles are pretty quick. In other
industries, cycles are much longer. So 10 years provides for
all different kinds of situations.
What you then do, at least in our experience and what we
think will happen under the current regulation or current
proposals as we understand it will operate, is the area will
take that baseline. They will look at their air quality
monitoring. They will look at their SEP and what is required.
They will set a baseline. They will set a cap. As Eric
mentioned, that is good for 10 years, but that is a little bit
of a misnomer. As we understand the process will work, and we
have no problem with this, over the lifetime of the PAL permit,
the 10-year period, adjustments can be made downward and we
have no problem with adjustments being made downward on the cap
if two conditions apply. No. 1, the air quality need of the
region is such that it requires emission reductions. As I
stated in my testimony, in Portland we gave up a substantial
percentage of our cap voluntarily. No. 2, PAL sources should
not be treated any differently than any other sources. So if a
permitting authority needs to reduce its emissions by 10
percent area-wide or whatever the number is, and they treat PAL
sources the same as non-PAL sources and ask everybody to pony
up emissions reductions, we do not have a problem. We
understand the Administration's proposal would allow the States
to make adjustments.
We also do not have a problem as Intel with downward
adjustments being made in the cap during that 10-year period if
new requirements come into play. So if there are new air
quality requirements that will apply to a facility, we have no
problem with those getting incorporated into the cap. We just
don't want to have a willy-nilly reduction or a reduction that
is targeted specifically at PAL sources and does not treat PAL
sources equivalent with others.
Senator Jeffords. Thank you.
Mr. Walke, I understand that the NRDC has been
participating in good faith and with the previous
Administration on NSR reforms that might actually benefit the
environment and industry. What happened to that process?
Mr. Walke. Well frankly, Chairman Jeffords, we had an
election in the year 2000, and the industry decided that they
could get a better deal with the new Administration, and those
discussions came to a halt. My organization had been in
constructive discussions with even some more progressive
members of industry to design PALs, as Steve has mentioned,
that would have declined over time, bringing needed air quality
benefits to areas. But those discussions fell by the wayside,
and instead this Administration has announced the intent to
adopt a PAL that would grant perpetual immunity from New Source
Review. We refer to this approach as the grandfather-on-
steroids, because it allows these grandfathered facilities to
pollute at the levels that they have been for time immemorial
without cleaning up. That is a far cry from the constructive
dialogs that we had.
By the same token, in those stakeholder discussions, there
was very strong agreement among State air regulators and NRDC
for the elimination of various loopholes that exist under the
New Source Review program. EPA under the Clinton Administration
shared those desires in part, and we were on a constructive
road to eliminate some of those loopholes in exchange for some
flexibilities for industry. That consensus has also fallen by
the wayside.
Finally, the provisions of the Clinton proposals that have
been mentioned so frequently here in ostensible support of the
argument that the Bush Administration is doing something no
different from the Clinton Administration is really quite
striking and disingenuous. The Clinton Administration did not
adopt the changes that the Bush Administration is going to. In
part they did not because there was considerable opposition
from State air regulators, which is reflected in the document
that I have submitted to the record in relation to the Bush
Administration's changes, and considerable opposition from
environmental and public health organizations.
The truth is that this Administration has adopted a package
that abandoned that stakeholder discussion process, the Federal
Advisory Committee process, abandoned progress that was being
made to reach consensus, and has adopted a set of so-called
reforms that are unilaterally favorable to industry and that
weaken the air quality protections of the New Source Review
program. That is what happened.
Senator Jeffords. Mr. Elliott, I will give you a chance to
make the last comment. Do you have something you would like to
add to your testimony, or from what you have heard from the
others in the last few minutes?
Mr. Elliott. Gee, Mr. Chairman, I was all prepared for all
the difficult questions you might ask me, but that one. I would
say that we can replace NSR with a trading system for the
electric utility industry for existing plants. The question
then becomes what are you going to do for the other plants. I
think there we either should make a judgment that their
contribution is sufficiently insubstantial that we really don't
need to regulate them in order to achieve our air quality
goals, which is basically the decision that as made in the NOx
SIP Call, as you are aware.
Or alternatively, I think if we are going to keep NSR for
plants outside the utility industry, we need both clear
triggers and clear safe harbors. If there is anything that is
unbalanced about the Bush Administration proposals it is that
it is very clear on some of the safe harbors, it is still not
equally clear about the triggers. I think that leaving aside
the past history of the last 40 years, the reason that the NSR
program does not work is that it is too confusing. It is too
uncertain as to when it really is triggered for a plant. I have
represented some plants outside of the utility industry in
Connecticut, and talked to the plant people. We have settled
those cases. People made changes to the plant and they just had
no idea if this triggered NSR.
So we have really got a trap for the unwary here. If you
are going to keep NSR as part of the overall toolbox for
existing plants, you need a very clear trigger. And you have
got a very clear trigger in your bill. I forget the last
section number--is it section 111 or section 711 or 743? I
don't remember--it is the very last one. But it basically says,
hey, after 40 years, you are subject in the electric utility
industry to BACT--best available control technology.
I think the flaw in the bill, if I may be so bold, is that
it also preserves the NSR program as it is currently written. I
think if we could get clear triggers to people as to at what
point an existing point is required to meet the same standards
as a new plant, this is something I think people could live
with. The electric utility industry as I understand it, and I
am not a spokesman for the electric utility industry, but as I
understand it they proposed a number of different off-ramps or
ways to deal with this. A lot of the States have legislated
ways to deal with it.
I think it is a good thing to have clear safe harbors, but
I also think we need clear triggers, and the only way the NSR
program is going to work if there is a very simple bright line.
Really, I do regard Eric Schaeffer as a friend and somebody
whose public service I very much respect, but I think the thing
that is wrong in Eric's approach, and it is very typical of
enforcement attorneys, is it is a retrospective approach. You
know, you go in and make a case after the fact. In order for
these programs to work and actually clean up the air, you have
to send very clear signals to people in advance. This is what
was wrong with the Superfund program until it was fixed by the
Clinton Administration. It was a very retrospective program.
You balanced nine factors. You dealt with each individual
Superfund site as if you had never seen one before.
We got nowhere. It was a tremendous morass. And then much
to their credit, the Clinton Administration administratively
fixed that program by having much, much clearer standards, much
clearer triggers. Once you have clear triggers for the
regulated community, I think by and large people will comply
with the law and you will get a lot of voluntary action to
comply with the law. The difficulty that we have got with the
NSR program, the reason that it does not work, is that when you
say that we are going to--you trigger NSR based on a balance of
multiple factors. Imagine if you had a tax deduction and
instead of having a very clear safe harbor for what it takes to
take a tax deduction, suppose the tax code says, well, we
decide whether or not you get this tax deduction by striking a
balance of four or five different factors and weighing and
balancing them in the individual case. Judges are inclined to
do that often because it makes it easy for them. They do not
have to decide something comprehensively. But I think the
problem with NSR and the reason that it does not work is as of
now, we have multiple factors. If it going to work and people
are going to be able to comply with it, it is going to need
both clear triggers and clear safe harbors.
Senator Jeffords. Well thank you very much for your
participation and the participation of all of you. It has been
a long day, longer for me, I think, but maybe sitting and
listening all that time is even harder.
We take our duty and obligation very seriously, and so I am
going to reserve the right to pepper you with questions by
mail, as the other members under our rules have to do, but I
would not sit by the mailbox, but you might expect some.
Thank you all. It has been extremely helpful and I assure
you that this committee is going to all it can to try to come
up with a rational program and make sure that the
Administration has all the help it needs to come up with the
right answers.
Thank you very much.
[Whereupon at 3:18 p.m., the committees were adjourned, to
reconvene at the call of their respective chairs.]
[Additional statements submitted for the record follow:]
Statement of Senator Baucus, U.S. Senator from the State of Montana
Chairman Leahy and Chairman Jeffords, I apologize for being
unable to attend this hearing today. I had to chair a hearing
in the Senate Finance Committee and attend another hearing in
the Senate Agriculture Committee. I just couldn't be in three
places at once. Thank you for allowing me to submit this
statement for the record.
The debate over New Source Review (NSR) has become
increasingly intense, confusing and complex. I applaud you
both, Chairman Leahy and Chairman Jeffords, for holding this
hearing to help us clarify what is truly at issue in this
debate, and to better understand EPA's proposed NSR reforms and
how those reforms could impact public health and the
environment.
I think we all can agree with the ultimate goals of the NSR
program, which put simply, are to encourage the continuous
evolution of pollution control technology, and to make sure
that as older power plants reach the end of their useful life,
they are gradually replaced by plants with the newest, and most
up to date pollution control technology. This has obvious
benefits for the environment and public health, as harmful
emissions are theoretically reduced over time. It also attempts
to level the playing field for new plants, while giving older
plants some flexibility in complying with stricter pollution
control requirements that involve significant capital
investments.
However, it does seem pretty clear that many folks believe
the Administration of the NSR program could be improved, that
currently, the program is complex and difficult for State
agencies to administer. Industry also claims the current
program blocks them from making necessary environmental or
energy efficiency improvements at their plants.
Therefore, maybe it is time for Congress to take a look at
the effectiveness of the current NSR program, and consider
whether it should direct EPA to make any changes. But, let me
very clear, if any changes to the NSR program are necessary,
they should relate to reducing the administrative burden on
States and industry, in order to make the program operate more
efficiently and effectively. In no way should administrative
changes to NSR lessen the impact of the NSR program on reducing
harmful air emissions over time. In no way should NSR
``reforms'' relieve industry of the basic obligation to install
the most up-to-date pollution controls if they modify their
operations and increase their emissions.
I know that the devil is in the details. But, I am
concerned that the Administration's proposed NSR reforms go too
far and will negate Congress' intent in crafting New Source
Review. Therefore, I am pleased we will have this hearing
record to better understand what the Administration believes
the impacts of its proposed NSR reforms will be on public
health and the environment and on current NSR enforcement
actions, and how States, industry and public interest groups
view the impacts of those reforms.
Thank-you again, Chairman Leahy and Chairman Jeffords, for
holding this hearing and allowing me to submit this statement
for the record.
----------
Statement of Hon. Ron Wyden, U.S. Senator from the State of Oregon
Businesses regulated by the New Source Review (NSR) program
have legitimate interests. They want certainty, streamlining,
and fairness in the permitting process.
But the only certainty I see in the Administration's New
Source Review proposal is increased air pollution.
EPA's proposal breaks the clean air commitment made by
industry, Congress and the first Bush Administration in the
1990 Clean Air Act Reauthorization. It also brazenly undercuts
key enforcement actions that EPA has brought against several
utilities. They are proposing a definition of a routine
maintenance, repair, and replacement that would allow, for
example, a $1-billion refinery to upgrade its plant by as much
as $150 million per year without triggering new emission
controls. EPA's proposal is another step back in the
Administration's ongoing retreat from our country's landmark
environmental laws.
EPA has missed an opportunity to provide a win-win
situation for industry and the environment. NSR done right
could both increase energy efficiency and reduce pollution. It
could provide certainty, quick turnaround, and protect the air.
I know this can be done because we do it in Oregon. For
over 20 years, Oregon's new source review program allows
sources to make changes quickly, and it protects air quality.
Oregon's system is a ``Plantwide Applicability Limit'' or PAL;
and it addresses all the problems that have been hashed back
and forth for the last 10 years in EPA's NSR reform process.
Intel has a plant in the Portland area and they are quite
happy with Oregon's program, as you will hear from Mr. Harper
today. In fact, Intel should be commended for their voluntary
donation of some of their emissions of volatile organic
compounds. Thanks to reductions from companies like Intel in
the Portland area, we have been able to be reclassified from an
ozone nonattainment area to an attainment area.
Let me be clear, however. EPA's proposal for PAL doesn't
offer the protections and improvements that Oregon's program
does. I think it's important to point out that Oregon wants to
keep this area in attainment, and has changed its PAL program
so that where companies make a substantial amount of emission
reductions, the emissions ``cap'' under a company's PAL is now
reduced so that company's emission reductions are ``locked
in''. The company's limit has been reduced.
In addition, Oregon's system doesn't let a company increase
its pollution based on phantom emission reductions nor does it
allow companies to ``inflate'' its baseline emissions by
selecting the highest 2 years over the past 10 years.
And unlike EPA's PAL, approach, all new sources or
modifications in Oregon must go through our system. EPA offers
the States a menu of options. Obviously, it should be a State's
choice to use a PAL system or not. But once a State chooses a
PAL system, it should apply uniformly. Companies should not be
given the option of picking the approach that allows them to
minimize reductions and controls as EPA would allow them to do.
I think the Bush Administration has missed the point, and
an opportunity. Rather than relaxing rules and weakening
enforcement, EPA should be ensuring that the State and local
agencies responsible for issuing NSR permits have the people
and resources to do the job right. Sound and reasonable
permitting decisions will both assure the regulatory certainty
that business is seeking and maintain clean air protections.
EPA said it themselves: an EPA official recently stated
many problems with NSR stem from the responsible personnel at
the State and local agencies being ``the last ones hired''.
They are very young, the NSR work assignment is frequently
viewed ``entry level'' and undesirable and at the earliest
opportunity the more ambitious personnel are ``promoted out''
of NSR. The result of this lack of experience, mentoring, and
institutional memory is a cumbersome regulatory process at some
State and local air permitting agencies.
EPA's solution amounts to a ``Mc-NSR'' approach, where EPA
is saying `We do it all for you' claiming its package makes the
process easier to understand for the State and local agencies.
Staff don't have to think anymore or make difficult decisions;
the regulations make it all automatic.
Rather than rewriting regulations and weakening clean air
protections, the Bush Administration should be looking at the
real issues associated with NSR, and real solutions. Giving
bigger exemptions to some emissions sources does not solve air
pollution problems. In fact, it makes it tougher for States as
well as industrial sources to meet air quality goals. I, along
with four other Senators, have recently signed a letter to the
appropriations subcommittee that funds EPA. We have urged the
subcommittee to increase funding for State and local air
pollution control agencies by $25 million above the President's
proposal.
These agencies are the gatekeepers with the difficult task
of balancing statutory environmental protection with economic
growth. Let's help them do this! Instead of dumbing down the
law by rewriting the regulations, and endorsing a Clear Skies
Initiative that essentially eliminates NSR for all power plants
in the United States, State and local air agencies and the
public would be better served by investing the resources to
find the smarter win-win solutions that achieve both our energy
and environmental goals.
Statement of Hon. Maria Cantwell, U.S. Senator from the
State of Washington
I would like to thank both Chairman Jeffords and Leahy for
holding this important hearing today and would like to thank
the members of our panel for taking the time to share their
expertise and views with us.
Protecting the air we breathe is fundamental to
environmental stewardship. When Congress passed the Clean Air
Act in 1972, it was a great step forward in protecting the
health and environment of our communities.
In 1990, Congress and President George H.W. Bush amended
the Clean Air Act by establishing the New Source Review (NSR)
program to enhance air quality by regulating pollution from
energy producers. The EPA set minimum national standards for
air quality, while States were given the primary responsibility
for enforcement. Under NSR, older power plants are required to
minimize pollution by harnessing new protective technology when
they modernize the rest of their operations.
In May 2001 Vice President Cheney's Energy Task Force
recommended a review of NSR, after which time such regulations
were not enforced. On June 13, 2002, the EPA recommended
changes in the NSR that would effectively weaken many
environmental protections. The changes would raise emissions
limits, selecting the highest base rate of the past 10 years
and only affecting plants that are currently increasing
emissions; let companies avoid installing the best available
pollution technology controls by drastically narrowing the
definition of ``modification;'' and delay the `Best Available
Control Technology' implementation by 10 to 15 years.
Despite the resistance of certain companies, many
businesses are successfully complying with the Clean Air Act.
In my State of Washington, the Centralia coal plant has focused
its efforts on upgrading facilities rather than litigating in
court. And there can be no doubt that the Clean Air Act has
improved the nation's air quality. According to a study by the
Congressional Research Service, the Clean Air Act has lead to
``noticeable improvements in air quality in recent years;''
there are now 42 more metropolitan areas meeting the 1-hour
ozone standard and 36 more areas achieving the carbon monoxide
standards (CRS Issue Brief, 7/8/02).
I am concerned that the Administration's Clear Skies
proposal ignores these successes and will undermine over a
decade of progress in protecting our nation's air.
I am also troubled that this Administration has encouraged
companies to avoid settlement of current cases in the hopes of
weaker regulations in the future. State Attorneys General
pursuing past infractions have been hindered by the
Administration's public interference. For example, the Federal
Government has a pending case against the Tennessee Valley
Authority's NSR violations, which EPA Administrator Christine
Todd Whitman has referenced as an excuse for other plaintiffs
to delay settlements. On March 7, 2002, she offered this legal
advice to the Senate Environment Public Works Committee: ``if I
were a plaintiff's attorney, I wouldn't settle anything until I
knew what happened to that case.'' This is unacceptable. The
EPA and the Justice Department's main focus should be upholding
and enforcing our environmental laws, not delaying or
circumventing them.
The Senate must carefully examine whether the
Administration's Clear Skies proposal will indeed improve air
quality. I look forward to the testimony today. Thank you Mr.
Chairmen.
----------
Statement of Thomas L. Sansonetti, Assistant Attorney General,
Environment and Natural Resources Division
introduction
Chairmen Jeffords and Leahy, and Members of the Committees, I am
pleased to be here today to discuss the Department of Justice's
enforcement activities on behalf of the Environmental Protection
Agency's New Source Review or ``NSR'' program. We take the health
impacts of air pollution seriously and view our enforcement activities
in this area as an important part of the effort to clean up the air
that Americans breathe and to protect public health and the
environment. Accordingly, we in the Department's Environment and
Natural Resources Division are continuing to prosecute vigorously a
variety of actions in connection with the NSR program.
In my testimony today, I will give you some background on the NSR
enforcement litigation in general and then discuss in greater detail
our enforcement activities in this area. One of the points that I want
to convey to you is that there is much more to this program than
regulation of power plants, and that we have taken a broad-based
enforcement approach encompassing a number of industries. This approach
has resulted in significant gains for public health and the environment
across the United States. In addition, although I will not be
discussing it in further detail, the Committees should be aware that
the NSR litigation is only one part of the Environment and Natural
Resources Division's enforcement docket. We have many other enforcement
actions focusing on other, non-NSR related portions of the Clean Air
Act, such as violations of permits, State implementation plans, New
Source Performance Standards, and National Emission Standards for
Hazardous Air Pollutants. In addition, we are also actively prosecuting
violators of the Clean Water Act, the Safe Drinking Water Act, the
hazardous waste laws and a variety of other environmental laws. We are
committed to vigorous enforcement of all of the environmental laws as
well as violations pertaining specifically to the NSR program.
history of nsr enforcement litigation
In 1977, Congress amended the Federal Clean Air Act to add certain
provisions which have come to be known as the New Source Review or
``NSR'' provisions. The NSR provisions actually have two parts--the
Prevention of Significant Deterioration provisions, which apply to
areas in attainment status for national ambient air quality standards,
and the New Source Review provisions proper, which apply to areas that
are in non-attainment status. See 42 U.S.C. Sec. 7470 et seq. and
Sec. 7501 et seq. Both sets of provisions require that both newly
constructed sources of air pollution and existing sources that undergo
``modification'' obtain an NSR permit and install state-of-the-art
pollution control technology. The Act defines a ``modification'' as
``any physical change in, or change in the method of operation of, a
stationary source which increases the amount of any air pollutant
emitted by such source or results in the emission of any air pollutant
not previously emitted.'' 42 U.S.C. Sec. Sec. 7411(a)(4), 7479(2)(C),
7501(4). If the source is in an attainment area, it must use the best
available pollution control technology, but if it is in a non-
attainment area, it must use the more stringent lowest achievable
emissions reduction technology. 42 U.S.C. Sec. Sec. 7475(a)(4),
7503(a)(2).
In the late 1980's, the Department of Justice began bringing
enforcement actions for NSR violations against facilities that made
``modifications'' without obtaining a permit or installing state-of-
the-art pollution controls. Our primary goal in these actions has been,
and continues to be, the protection of public health and the
environment by compelling facilities that are in violation of the law
to install state-of-the-art pollution controls. We also seek the
imposition of appropriate civil penalties for past violations, as an
important component of our efforts to discourage non-compliance and to
ensure a level playing field between those who comply with the law and
those who fail to do so.
Over time, working with our colleagues at EPA, we developed a
strategy of targeting industries that had significant compliance
problems with regard to NSR requirements and that were major sources of
air pollution. These industries included the wood products industry,
refineries, and coal-fired utilities. I would like to describe just a
few of our recent successes in these sectors.
Wood Products Industry
The first industry on which we focused in our NSR enforcement
efforts was the wood products industry. Our first actions concerned
single facilities. See U.S. v. Louisiana-Pacific Corp., 682 F.Supp.1141
(D. Colo. 1988). We subsequently filed another action against Louisiana
Pacific, which was resolved in 1993 by a consent decree that required
the company to install pollution controls at its facilities nationwide
and to pay a civil penalty of $11 million. Since that landmark
settlement, we have had a string of successes in obtaining similar
settlements from other major wood products manufacturers, such as
Georgia Pacific and Willamette Industries. In fact, I was privileged to
announce our most recent success in this sector just a few months ago.
In March of this year, we filed a consent decree with wood products
industry giant Boise Cascade Corporation that will require reductions
of up to 95 percent of the harmful emissions from the company's eight
plywood and particle board plants, located in Oregon, Washington,
Louisiana and Idaho. Boise Cascade will also pay $4.35 million in civil
penalties and has agreed to spend another $2.9 million in supplemental
controls to reduce emissions at various plants. The State of Louisiana,
which joined us in bringing this action, will receive a portion of the
civil penalty.
Refineries
We have also been very successful in reaching settlements for NSR
violations with several major refiners. After prevailing at trial on
the issue of liability, we joined with the EPA and the Wisconsin
Department of Justice in January to announce a settlement with Murphy
Oil USA, Inc., which will dramatically cut sulfur dioxide
(``SO<INF>2</INF>'') emissions from the company's Superior, Wisconsin
refinery, and will also improve Murphy Oil's programs to monitor and
repair leaks of volatile organic compounds and to prevent oil spills.
Murphy will also pay a $5.5 million civil penalty, the largest ever
leveled in Wisconsin in an environmental enforcement case; the State of
Wisconsin will receive $750,000.
Also, last December, we announced comprehensive environmental
settlements with Conoco Inc., Navajo Refining Company and Montana
Refining Company that are expected to reduce harmful air emissions from
seven U.S. petroleum refineries by more than 10,000 tons per year. One
consent decree required Conoco to spend an estimated $95-$110 million
to install the best available technology to control emissions from
stacks, wastewater vents, leaking valves and flares throughout its
refineries, while the other required Navajo and Montana Refining to
spend an estimated $16-$21 million to undertake similar projects. The
States of Louisiana, Oklahoma, Montana, Colorado and New Mexico joined
the settlements and are sharing in the civil penalties obtained.
Attorney General Ashcroft stated that ``[t]hese settlements are a
victory for the environment and the public,'' and that ``[t]hey
exemplify the U.S. government's commitment to protect our natural
resources, to promote cleaner air and to ensure that companies are
complying with environmental law.''
These are only a few of the many settlements that we have reached
with major refiners in the last 18 months and that will ensure cleaner
air nationwide. Cumulatively, these settlements cover 37 refineries and
30.6 percent of the nation's domestic refining capacity, and are
expected to reduce air emissions of nitrogen oxides and sulfur dioxide
by more than 150,000 tons per year. These settlements also include
provisions to facilitate the production of low sulfur gasoline and
diesel fuel, enhance flexibility, and expedite permitting necessary to
address future needs.
Coal-Fired Utilities
The Department filed seven enforcement actions in 1999 against the
owner and operators of coal-fired power plants located in Illinois,
Indiana, Ohio, West Virginia, Virginia, Georgia, Alabama, and Florida,
and three additional actions since then for plants located in North
Carolina, South Carolina, Alabama, and New Jersey. So far, we have
reached settlements with the Tampa Electric Power Co., and agreements-
in-principle with Virginia Electric Power Company and Cinergy, under
which these companies agreed to install and operate state-of-the-art
pollution controls on significant portions of their entire coal-fired
generating systems.
Our most recent success in this area came in January, when we
joined forces with the State of New Jersey by filing an action against
and reaching a settlement with PSEG Fossil LLC. Under that settlement,
PSEG will spend over $337 million to install state-of-the-art pollution
controls to eliminate the vast majority of sulfur dioxide and nitrogen
oxide emissions from its Mercer and Hudson coal-fired power plants in
Jersey City and Hamilton, New Jersey. The combined effect of the
pollution controls will reduce the company's emissions of sulfur
dioxide (SO<INF>2</INF>) by 90 percent and its emissions of nitrogen
oxides (NOx) by more than 80 percent. Overall reductions will be at
least 36,000 tons of SO<INF>2</INF> and 18,000 tons of NOx per year.
These decreases represent 32 percent of all the SO<INF>2</INF> and 20
percent of all the NOx emitted from stationary sources in New Jersey,
and 19 percent of all the SO<INF>2</INF> and 5 percent of all the NOx
from all sources in the State, including cars and trucks. In addition
to the pollution reductions secured by the settlement, PSEG Fossil
agreed to pay a civil penalty of $1.4 million and to spend at least $6
million on three pollution reduction projects that will partially
offset the impact of past emissions. As the Attorney General stated,
``This important settlement reflects our continuing commitment to
enforce vigorously the Clean Air Act to protect public health and the
environment.''
current status of pending nsr enforcement actions
We currently have 11 pending enforcement actions in which NSR
violations are the main issue. Eight actions involve coal-fired power
plants, and the remaining three involve other industries.
Of the eight pending power plant cases, five are currently in
active discovery on liability issues. The first of the five (U.S. v.
Southern Indiana Gas & Electric Co. (``SIGECO'')) is scheduled to go to
trial later this year in October. In the other three pending power
plant cases, the parties are either engaged in settlement negotiations
(U.S. v. Cinergy Corp. in Indiana) or discovery has been stayed because
the district courts are awaiting the Eleventh Circuit's decision in TVA
v. EPA. (U.S. v. Georgia Power Co. and Savannah Power Co. in Georgia
and U.S. v. Alabama Power Co. in Alabama). TVA v. EPA is a challenge by
TVA to EPA's 1999 administrative order directing TVA to install
pollution controls at coal-fired power plants in Kentucky, Tennessee
and Alabama that have undergone modifications. Although that case has
been fully briefed and was argued in May 2002, the Eleventh Circuit has
not reached a decision and recently referred the case to mediation
until the end of August.
Seven northeastern States (New York, New Jersey, Connecticut,
Vermont, New Hampshire, Massachusetts, and Rhode Island) and Maryland
have joined as plaintiffs in one of the enforcement actions against
coal-fired power plants (U.S. and State of New York et al. v. American
Electric Power Co. et al.) New York, New Jersey and Connecticut also
joined as plaintiffs in U.S. and State of New York et al. v. Ohio
Edison Co. et al. and in U.S. v. Cinergy Corp.
A number of citizen and environmental groups also have joined as
plaintiffs in four of the enforcement actions against coal-fired power
plants. Citizen plaintiffs in U.S. and State of New York et al. v.
American Electric Power Co. et al. include Ohio Citizen Action, Natural
Resources Defense Council, Sierra Club, Clean Air Council, U.S. Public
Interest Research Group, Izaak Walton League of America, National
Wildlife Federation, Citizens Action Coalition of Indiana, Hoosier
Environmental Council, Valley Watch, Inc., Ohio Valley Environmental
Coalition, West Virginia Environmental Council, Indiana Wildlife
Federation, and the League of Ohio Sportsmen. Citizen plaintiffs in
U.S. v. Duke Energy Corp. include the North Carolina Sierra Club, North
Carolina Public Interest Research Group, and Environmental Defense.
Citizen plaintiffs in U.S. v. Georgia Power Co. include Physicians for
Social Responsibility, Campaign for a Prosperous Georgia, U.S. Public
Interest Research Group, and the Alabama Environmental Council. The
Alabama Environmental Council is also a plaintiff in U.S. v. Alabama
Power Co. Finally, Hoosier Environmental Council and Ohio Citizen
Action have joined as plaintiffs in U.S. v. Cinergy.
the attorney general's new source review report
In May 2001 the National Energy Policy called for the Attorney
General to ``review existing enforcement actions regarding new source
review to ensure that the enforcement actions are consistent with the
Clean Air Act and its regulations.'' This review was conducted by the
Department of Justice's Office of Legal Policy, which issued its report
in January 2002 (``New Source Review: an Analysis of the Consistency of
Enforcement Actions with the Clean Air Act and Implementing
Regulations''). The Office of Legal Policy determined that ``the
existing enforcement actions are supported by a reasonable basis in law
and fact,'' and that the Department's Environment and Natural Resources
Division ``will continue, as it has during the pendency of this review,
to prosecute vigorously the EPA's civil actions to enforce the new
source review provisions.'' OLP New Source Review Report, January 2002,
p. vi. I should also note that our determination does not mean that EPA
cannot revise NSR regulations in the future. As OLP said in its report:
``The effect of the Department's conclusion is retrospective. It
examines only currently pending enforcement actions to determine their
lawfulness, and expresses no opinion on how the Clean Air Act should be
enforced in the future. Those policy determinations rest with the
EPA.''
conclusion
In closing, I would like to assure these Committees that the
Department of Justice takes very seriously its obligation to enforce
the existing laws and to protect public health and the environment. As
directed by the Attorney General, we will continue to vigorously
prosecute the NSR enforcement actions and to defend the action brought
by TVA against EPA to the full extent of the law. I would be happy to
answer any questions that you may have about my testimony.
__________
Responses of Thomas L. Sansonetti to Additional Questions from
Senator Jeffords
Question 1. Mr. Holmstead said that he met with DOJ attorneys
regarding the potential negative impact of the NSR reform announcement
on the enforcement cases. Who did he meet with and when?
Response. ENRD attorneys have discussed PSD/NSR issues primarily
with representatives of EPA's Office of Enforcement and Compliance
Assurance and Office of General Counsel. In addition, we have carefully
reviewed with EPA each brief filed on their behalf to ensure that the
brief was consistent with their position. Over time, my staff has also
answered specific questions on several occasions that were posed by EPA
staff concerning PSD/NSR issues. Aside from these discussions, my
Deputy has discussed PSD/NSR reform with Assistant Administrator
Holmstead and other EPA officials on a number of occasions.
Question 2. How many cases have been referred to DOJ by EPA for
prosecution in 2002? How does that compare to the average during the
Clinton Administration?
Response. During Fiscal Year 2002 to date, EPA has referred 287
cases to DOJ for filing civil enforcement actions. The average for a
similar time period in Fiscal Years 1993-2000 was 283.5 referrals.
Question 3. Please provide any legal analysis performed by the
Department in the 6 months prior to the announcement of the NSR Reform
Package with respect to the potential impact of any elements of the
announcement on the pending enforcement actions.
Response. Prior to the announcement being made, the Department did
not perform a legal analysis of the potential impact of the June 13
announcement on the pending enforcement actions. Before June 13, staff
communications took place on various issues raised by EPA staff
regarding potential issues associated with future reforms.
Question 4. In the filing on the Southern Indiana Gas and Electric
Company case, you stated that the entire utility industry had
constitutionally adequate and advance notice of EPA's interpretation of
``routine maintenance,'' long before EPA and the Department filed
enforcement actions in 1999. Is that still your position?
Response. This matter is currently in litigation, United States v.
Southern Indiana Gas & Electric Company, S.D. Ind. Civil Action No.
IP99-1692-C-M/S. Accordingly, the most accurate statement of the
position of the United States is contained in our briefs to the Court,
and we stand by those briefs.
Question 5. You also stated that this advance notice clarified that
the exemption for routine maintenance is only for trivial or ``de
minimis situations,'' and applies only on a case-by-case basis to
activities that are routine for a typical unit. Is that still your
position?
Response. This is a matter is currently in litigation, United
States v. Southern Indiana Gas & Electric Company, S.D. Ind. Civil
Action No. IP99-1692-C-M/S. Accordingly, the most accurate statement of
the position of the United States is contained in our briefs to the
Court, and we stand by those briefs.
Question 6. How many of the utility modifications which are
currently subject to DOJ-EPA enforcement actions would not be required
to install controls if they were allowed to take advantage of EPA's
announced proposed and final rules for routine maintenance and repair,
Plant Wide Applicability Limits, and the ``clean unit test''?
Response. Although EPA has announced that it intends to propose a
rule or issue a final rule regarding these issues, it has not announced
what the specific language of the proposed or final rules will be.
Proposed rules will also be subject to section 307(d) of the Clean Air
Act which requires formal public notice and an opportunity to comment
before they can become final. Accordingly, it is not possible to answer
this question. In any event, as Assistant Administrator Holmstead
testified at the July 16 hearing, the rule will be prospective in
nature and is not intended to affect current litigation.
Question 7. Has DOJ failed to pursue any new NSR enforcement cases
in fiscal year 2001 or fiscal year 2002 due to lack of resources?
Response. Within the budget restraints established by Congress, we
have pursued all new NSR enforcement cases that have been referred to
us in fiscal year 2001 and fiscal year 2002.
______
Responses of Thomas Sansonetti to Additional Questions from
Senator Leahy
Question 1. Please provide us copies of the briefs filed over your
signature, and referred to by Senator Lieberman in his opening
statement in which the Department of Justice reportedly argued in
Federal court that any exemption from the New Source Review
requirements should be ``narrowly construed'' and that utilities
``indisputably had notice of EPA's interpretation'' of those
requirements. Also, if those representations are indeed accurate please
explain why--if the interpretation has not varied and industry had fair
notice--the NSR requirements need clarification.
Response. Attached are representative briefs on the points
identified. As I testified, the Department of Justice's Office of Legal
Policy undertook a review of the existing enforcement actions regarding
new source review to ensure that the existing enforcement actions were
consistent with the Clean Air Act and its regulations. It determined
that those actions had a reasonable basis in law and fact. However,
that determination does not mean that EPA cannot revise NSR regulations
in the future. Because EPA is the Agency responsible for implementing
the Clean Air Act, it is charged with determining whether future PSD/
NSR reforms are necessary.
Question 2. In answer to my questions in the joint hearing, you
stated three times--and without caveat or qualification--that in none
of the pending NSR cases were defendants backing away from settlement
in light of the EPA's announcement of its proposed changes to the NSR
program. How do you reconcile your absolute statement that these
defendants are not retreating from possible settlements with those same
defendants' statements that, for example, ``The thinking was, how can
you do things that will influence NSR and the pending litigation? If
the Administration recants NSR provisions, the lawsuits fall apart.''
Response. I stand by my testimony that in the settlement
negotiation context, we are not aware of defendants backing away from
discussions in light of EPA's announcement of proposed changes. We have
consistently stated both publicly and in the context of settlement
discussions that we will vigorously litigate the NSR enforcement cases
while welcoming settlement as the preferred method to meet the legal
standards.
Question 3. You did not, however, answer my question that preceded
the discussion referred to in the question above--namely, whether you
and your lawyers anticipated that defendants in the pending NSR cases
would begin brandishing the EPA's proposals as support for dismissing
the suits against them. Did you, and if you did, how did you plan to
counter those efforts, and how, successful have those counter-efforts
been? And if you did not, why not, and what are you and your lawyers
doing in response to these tactics? How have they affected the conduct
of the on-going discovery, litigation, or settlement discussions, as
the case may be?
Response. Based on years of bringing enforcement actions, it is our
experience that defendants will raise a wide variety of issues in their
defense. Although we generally can anticipate such issues, e.g.
potential use of EPA's June 13 announcement, how we respond to them
depends, among other things, on the context in which they are raised.
At the time of my testimony, no defendant in any of our NSR cases had
raised EPA's June 13 announcement of its proposals as a basis for
dismissal, and that continues to be the case. Since then, one company
has raised the announcement in a brief, but not in the context of
requesting a dismissal.
Question 4. At one point in your testimony, you told me that
whether announced changes to a Clean Air Act regulation--namely NSR--
midstream in litigation would effect the pending cases would depend
upon the judge in the individual case. A moment later, you declared
that you believed that judges would look at existing law at the time
the issues came before them, and that the proposed changes to NSR would
not be final at the time of the NSR trials. I would appreciate a clear
answer: do you believe, as the nations' head environmental litigator,
that a court could properly consider the proposed changes to NSR
regulations and practices in determining the outcome, by trial or
settlement, of the pending cases?
Response. EPA has not announced what the specific language of the
proposed rule will be. Once proposed, EPA will follow section 307(d) of
the Clean Air Act, which requires formal public notice and an
opportunity to comment before the rule becomes final. As to rules that
become final in the future, what a particular judge makes of a
provision in the final rule will be in the context of a particular
case. However, EPA testified at the July 16 hearing that the changes
that it makes to the NSR program will be prospective in nature, and are
not intended to be used in, or have any impact on, current litigation,
including negotiations. Thus, for purposes of determining liability,
the existing enforcement actions should continue to be subject to the
law in place at the time of the violations at issue.
Question 5a. Mr. Holmstead testified regarding the development of
the Environmental Protection Agency's New Source Review Recommendations
and Report to the President. He stated that the Recommendations and
Report had been the product of ``extensive consultation'' between EPA
and the Department of Justice. You, however, testified that you are
``in the litigation business, not policy formation.'' Please answer
this basic question: How did the Justice Department (leadership and/or
staff) and the EPA (leadership and/or staff) work together on the
development of the policy behind, or the actual text of, the
Recommendations and Report?
Response. My staff have discussed PSD/NSR issues primarily with
representatives of EPA's Office of Enforcement and Compliance Assurance
(OECA) and Office of General Counsel (OGC). In addition, we have
carefully reviewed with EPA each brief filed on their behalf to ensure
that the brief was consistent with their position. Over time, my staff
has also answered specific questions on several occasions that were
posed by EPA staff concerning PSD/NSR issues. My deputy discussed the
NSR Report and accompanying list of recommendations with Mr. Holmstead,
but most of the staff discussions concerning PSD/NSR issues have been
with representatives of OECA and OGC. However, we did not work on the
particulars of the policy behind the Recommendations and Report.
Question 5b. Mr. Holmstead also testified that one of the ``primary
issues'' discussed in the ``extensive consultation'' between DOJ and
EPA was what impact the proposed NSR revisions would have on NSR
enforcement cases, and that his understanding from DOJ was that there
would be no effect on the cases. Who actually gave that advice?
Response. ENRD attorneys (have discussed PSD/NSR issues primarily
with representatives of EPA's Office of Enforcement and Compliance
Assurance and Office of General Counsel. However, our contact has
largely occurred in the context of ongoing litigation, including the
case brought by the Tennessee Valley Authority which was argued this
year before the 11th Circuit Court of Appeals. For instance, EPA
reviewed each brief for legal and factual accuracy in that case, and
attended moot courts and the oral arguments before the Court of
Appeals. Some of the EPA staff participating in this review were also
working internally in EPA on PSD/NSR reform. There were also informal
discussions about PSD/NSR reform between Assistant Administrator
Holmstead and other EPA officials with my Deputy on several occasions.
Prior to the announcement being made, the Department did not perform a
legal analysis of the potential impact of the June 13 announcement on
the pending enforcement actions.
Question 6. Mr. Holmstead testified, in answer to one of Senator
Carper's questions, that EPA had never defined ``routine maintenance,
repair, and replacement'' by regulation. What is your understanding of
what that term means?
Response. Please see the attached brief in which we discuss that
term.
Question 7. In answer to a question from Senator Sessions, you
declared that ``a significant issue'' in the TVA v. EPA case was
whether the EPA should be estopped from pursuing the case because the
Agency had been long aware of the alterations made to the power plants
at issue, and that you would inquire into whether the DOJ attorney
representing the EPA before the Eleventh Circuit was ethically obliged
to confess error on that point. What is the result of your inquiry on
this specific point? More generally, under what circumstances do you
believe the EPA would be ethically constrained from bringing an NSR
enforcement action based on the temporal concerns described by Senator
Sessions?
Response. Please see the attached letter to Senator Sessions
addressing this question.
Question 8. In this hearing, and certainly in the press,
Administration officials frequently seek to bolster their arguments for
acceptance of the announced proposed changes to NSR by referring to a
set of Clinton Administration proposals that are purportedly the basis
for the Bush Administration changes. Please explain precisely how the
two proposals differ.
Response. This appears to be a reference to statements in Assistant
Administrator Holmstead's testimony, and would be more appropriately
answered by EPA, the Agency that is responsible for the proposals.
______
Responses of Thomas L. Sansonetti to Additional Questions from
Senator Lieberman
Question 1. Your Department argued in the Southern Indiana Gas and
Electric Company case--in a brief to which you were counsel--that ``the
[routine maintenance] exemption is narrowly construed, in keeping with
its status as a de minimis exemption.'' Is it your reading of the law
that the ``routine maintenance'' exemption--which has no basis in
statute--must be narrowly construed?
This is a matter currently in litigation, United States v. Southern
Indiana Gas & Electric Company, S.D. Ind. Civil Action No. IP99-1692-C-
M/S. Accordingly, the most accurate statement of the position of the
United States is contained in our briefs to the Court, and we stand by
those briefs.
Question 2. Your Department also argued in the same brief that
``EPA [was] not seeking to apply a new interpretation to the
defendant's conduct. As described above, EPA's interpretation is the
same one upheld in WEPCO more than a decade ago, before the defendant
modified its plant.'' Is it your understanding that EPA's
interpretation of the NSR rules has not changed for more than 10 years?
This is a matter currently in litigation, United States v. Southern
Indiana Gas & Electric Company, S.D. Ind. Civil Action No. IP99-1692-C-
M/S. Accordingly, the most accurate statement of the position of the
United States is contained in our briefs to the Court, and we stand by
those briefs. It is our understanding that the EPA interpretation at
issue in the quoted sentence has not changed, and is the same
interpretation that was upheld in Wisconsin Electric Power Company v.
Reilly (``WEPCO''), 893 F.2d 901 (7th Cir. 1990).
Question 3. New York Attorney General Spitzer informs us that the
Federal judge handling his NSR lawsuit has asked for briefing on the
effect of these proposed rule changes on the case. Has any judge asked
for similar briefing in a case to which the United States is a party?
Is it the position of the United States that this package of final and
proposed rules should have no effect on the NSR lawsuits?
Response. No judge has asked for similar briefing in any of the NSR
enforcement actions in which the United States is a party. Although we
have not reviewed the proposed rules, Assistant Administrator Holmstead
stated in his testimony that the proposed rules will be prospective in
nature and that EPA does not intend for its future rulemaking or
proposed changes to be used in, or have any impact on, current
litigation. We note that this position is consistent with the position
taken by Attorney General Spitzer in response to the Federal judge's
request in the New York litigation.
Question 4. When Administrator Whitman testified before the
Government Affairs Committee on this issue last March, she contended
that you were ``vigorously enforcing'' these cases, but she was not
able to point to any enforcement action that did not have its roots in
the Clinton Administration. Have you initiated any New Source review
enforcement action, the investigation for which was started in the Bush
Administration?
Response. We are continuing to vigorously enforce NSR cases. As I
testified, the report by the Department of Justice in January
specifically indicated that we have been, and ``will continue . . . to
prosecute vigorously the FPA's civil actions to enforce the new source
review provisions.'' Office of Legal Policy New Source Review Report,
January 2002. As discussed in greater detail in my testimony, we have
brought numerous Clean Air Act enforcement cases involving PSD/NSR
violations. For example, in March of this year, we filed a complaint
and lodged a consent decree with wood products industry giant Boise
Cascade Corporation that will require reductions of up to 95 percent of
the emissions from the company's eight plywood and particle board
plants, located in Oregon, Washington, Louisiana and Idaho. Boise
Cascade will also pay $4.35 million in civil penalties and has agreed
to spend another $2.9 million in supplemental controls to reduce
emissions at various plants. Also, in January, the State of New Jersey
joined us in filing an action against and reaching a settlement with
PSEG Fossil LLC under which PSEG will spend over $337 million to
install state-of-the-art pollution controls to eliminate 90 percent of
its sulfur dioxide and more than 80 percent of its nitrogen oxide
emissions from two New Jersey coal-fired power plants. In addition to
these pollution reductions, PSEG will pay a $1.4 million civil penalty
and spend at least $6 million on three pollution reduction projects
that will partially offset the impact of past emissions. As the
Attorney General stated in connection with this case, ``This important
settlement reflects our continuing commitment to enforce vigorously the
Clean Air Act to protect public health and the environment.''
Question 5. Attorney General Spitzer also has informed us that he
has not been able to finalize settlements with VEPCO and Cinergy,
whereas he previously would have been able to. Has your department
found a greater reluctance on the part of NSR defendants to settle
lawsuits?
Response. As you know, the Department has reached agreements in
principle with VEPCO and Cinergy to settle NSR claims. Those agreements
have not yet been successfully translated into final consent decrees
because of substantive differences that pre-dated EPA's announcement of
proposed NSR changes. Accordingly, we do not believe that EPA's June 13
announcement is preventing settlements in the NSR cases. We remain
willing to settle any case on terms that would meet all legal
requirements while protecting human health and the environment.
______
Responses of Thomas L. Sansonetti to Additional Questions from
Senator Voinovich
Question 1. As I questioned during the hearing, I am very
interested in finding out what preceded the Department of Justice's
lawsuits. Overnight many companies had become the subject of lawsuits
under NSR for things that they had been doing for years. Specifically,
what action caused DOJ to file these lawsuits? Please list and describe
the details surrounding the 1998 filings.
Response. With regard to the NSR enforcement actions, as I stated
in my testimony and as noted in the Department's Office of Legal
Policy's report on these actions, we began bringing enforcement actions
under the Clean Air Act's PSD/NSR provisions in the late 1980's. The
first industry on which we focused our NSR enforcement efforts was the
wood products industry. See U.S. v. Louisiana-Pacific Corp., 682 F.
Supp. 1141 (D. Colo. 1988) (action focused on a single facility). We
subsequently filed another action against Louisiana Pacific, which was
resolved in 1993 by a consent decree that required the company to
install pollution controls at its facilities nationwide and to pay a
civil penalty of $11 million. These actions, and our civil cases more
generally, are based on analysis and inspections by EPA and state
agencies. EPA reviews industry and company compliance with the law and
recommends enforcement actions based on research identifying particular
industrial sectors as significant sources of air pollution and on
investigations identifying particular plants as being in violation of
the Clean Air Act. The wood products, and pulp and paper industries
were the subject of major enforcement efforts before the actions
against the utilities were commenced, and the utility and oil refining
sectors are more recent industrial sectors identified in this way. In
accordance with the process that we have followed in all of our PSD/NSR
cases, the current lawsuits against the utility companies were the
result of an extensive investigation and analysis by EPA and an
extensive legal and factual review by the Department's attorneys.
Question 2. How did the Department of Justice choose which
industries and plants to bring enforcement actions against? Is the
Department planning more action?
Response. Please see the response to the preceding question. The
Department of Justice will continue to evaluate and analyze referrals
by the Environmental Protection Agency that involve violations of the
law to determine whether the case is appropriate for filing.
______
Responses of Thomas L. Sansonetti to Additional Questions from
Senator Graham
Question 1. Given the Administration's proposed NSR changes, how
will EPA and DOJ interpret the application of NSR to existing lawsuits
and signed consent decrees, which have been based on previous NSR
policy?
Response. As Assistant Administrator Holmstead testified on EPA's
behalf, ``the changes that [EPA] make[s] to the NSR program will be
prospective in nature, and EPA will continue to vigorously pursue its
current enforcement actions. Accordingly, EPA does not intend for its
future rulemaking or proposed changes to be used in, or have any impact
on, current litigation.'' The existing lawsuits and signed consent
decrees will continue to be subject to the law in place at the time of
the violations at issue.
Question 2. If the proposed NSR changes permit sulfur dioxide and
nitrogen oxide trading and these changes are included in the final rule
how will this affect existing consent decrees and/or negotiations where
limitations on emissions trading is planned?
Response. We have been advised by EPA that it does not intend to
include such provisions as part of the proposed NSR changes.
______
Response of Thomas Sansonetti to Additional Questions from
Senator Cantwell
Question 1. During your testimony, you said that you did not
believe the behavior and public comments of Administration officials
has done any harm to enforcement actions and current trials. But
Secretary Whitman previously told this committee that ``if I were a
plaintiff's attorney, I wouldn't settle anything until I knew what
happened to the case [TVA].'' Do you think that discouraging settlement
of Federal cases in the hopes of new, weaker regulations interferes
with your enforcement abilities?
Response. I was not present at the hearing in question and do not
know the context of the Administrator's response. In Tennessee Valley
Authority v. EPA, currently pending in the 11th Circuit Court of
Appeals (No. 00-15936), the Department of Justice has argued on behalf
of EPA in significant briefs during this Administration, and in oral
argument before the Court on May 21, 2002, that TVA has violated the
Clean Air Act PSD/NSR requirements. The Administrator has clearly
stated on other occasions her firm support for enforcement of all laws,
her support for the ongoing litigation, and her continued emphasis that
a prompt settlement would be in the best interest of all parties. In
support of this view, a utility, PSEG Fossil LLC, has settled a case
this year. In that case, PSEG will spend over $337 million to install
state-of-the-art pollution controls to eliminate 90 percent of its
sulfur dioxide and more than 80 percent of its nitrogen oxide emissions
from two New Jersey coal-fired power plants. In addition to these
pollution reductions, PSEG will pay a $1.4 million civil penalty and
spend at least $6 million on three pollution reduction projects that
will partially offset the impact of past emissions. Further, as I
stated at my hearing and elsewhere, we will continue to vigorously
prosecute the NSR enforcement actions, which are moving forward to
trial on schedules established by the courts independent of any hopes
that defendants might harbor about potential new regulations. We stand
ready to resolve those actions by settlement as appropriate.
______
U.S. Department of Justice,
Washington, DC., August 9, 2002.
Hon. Jeff Sessions,
U.S. Senate,
Washington, DC.
Dear Senator Sessions: Thank you for your July 17, 2002 letter to
Assistant Attorney General for Environment and Natural Resources Tom
Sansonetti regarding the recent Eleventh Circuit Court of Appeals oral
agument in the case of Tennessee Valley Authority, et al. v.
Environmental Protection Agency. During Mr. Sansonetti's recent
testimony before the Senate Judiciary Committee, and in your letter,
you asked that he confirm the accuracy of certain statements attributed
to Department of Justice (DOJ) attorneys during the oral argument on
May 21, 2002.
Your letter does not contain a specific quote, but indicates a
comment was made during oral argument regarding the Environmental
Protection Agency's (EPA) knowledge of the Tennessee Valley Authority's
(TVA) projects that are at issue in the litigation. We have discussed
this matter with the attorneys who handled the oral argument, as well
as with DOJ and EPA attorneys who attended the argument. The issue you
describe was the subject of a very short colloquy between a DOJ
attorney and the Court regarding EPA's enforcement activities during
the 1990's, and why the administrative action against TVA was not
initiated earlier.
At Mr. Sansoneti's request, the Section Chief with responsibility
for the TVA matter, reviewed this statement and the briefs submitted by
the United States concerning this specific issue. After reviewing this
matter with her, he is convinced that the very limited statements made
by DOJ attorneys to the Court on this matter were consistent with the
arguments on this point set forth in the briefs filed in the case, and
are accurate. For your convenience, I am enclosing a copy of the brief
filed on behalf of EPA (see pages 79-86).
Because the New Source Review (NSR) program is a preconstruction
permitting program, a pollution source is required to provide
information to EPA before the source undertakes a proposed major
modification--either through a permit application, a request for an
applicability determination, or other inquiry to the Agency--so that
EPA and State authorities can assess the information and determine if
emissions will be increased and if the NSR requirements apply. Our
brief describes how EPA was generally aware of some improvement
projects like TVA's in the utility industry in the late 1980's;
however, the administrative record demonstrates that the utility
industry (including TVA) did very little to provide EPA or State
authorities with critical information about the nature and extent,
purpose, frequency, and cost of those projects, especially with regard
to the projected emissions from those projects. Such information is not
typically obtained through general permit compliance inspection by the
Agency or State authorities. The Agency only obtained the necessary
information about these large-scale projects after specifically
requesting it from several utility companies and TVA; the current
enforcement actions were commenced thereafter.
During the oral argument colloquy noted above, our attorneys
explained that EPA turned its NSR enforcement resources to coal-fired
power plants in the mid-to-late 1990s after first pursuing a series of
NSR enforcement actions in other industry sectors, including wood
products, pulp and paper, steel mini-mills, and refineries beginning in
the late 1980s. For your convenience, I am enclosing the relevant
portion of the Attorney General's January 2002, Report to the President
that addresses EPA's past industry-by-industry NSR enforcement
efforts\1\. Of course, regardless of EPA's level of knowledge about
utility industry projects at a particular point in time, the law is
clear that, except in extremely limited circumstances typically
involving affirmative misconduct of a government employee, the
doctrines of estoppel and laches do not prevent the government from
taking enforcement actions to protect human health and the environment.
---------------------------------------------------------------------------
\1\ See ``New Source Review: An Analysis of the Consistency of the
Enforcement Actions with the Clean Air Act and Implementing
Regulations,'' at 10-14.
---------------------------------------------------------------------------
I appreciate your interest in these matters, and am happy to be of
further assistance if you have any additional questions.
Sincerely,
Daniel J. Bryant.
Assistant Attorney General.
__________
U.S. Department of Justice, Office of Legal Policy
New Source Review: An Analysis of the Consistency of Enforcement
Actions with the Clean Air Act and Implementing Regulations, January
2002
executive summary
The Clean Air Act Amendments of 1970 required major stationary
sources of air pollution to install devices to reduce pollution.
Sources existing at the time were not required to retrofit pollution
controls, but would be required to install such controls if and when
they modified their facilities. In 1977, Congress amended the Clean Air
Act to establish the new source review program, which requires
preconstruction review and a permit for almost any major new source or
modification of an existing source (if air pollution.
The current controversy over the new source review program centers
on what constitutes a ``modification.'' If a facility's construction
project is a modification, then it is subject to the new source review
process and the requirement that pollution controls be installed. If
the project is not a modification, then there is no need for a permit
or new pollution controls. The Clean Air Act defines ``modification''
to be ``any physical change in, or change in the method of operation
of, a stationary source which increases the amount of any air pollutant
emitted by such source or which results in the emission of any air
pollution not previously emitted.''\1\
---------------------------------------------------------------------------
\1\ 42 U.S.C. Sec. 7411(a)(4)(1994).
---------------------------------------------------------------------------
Between 1975 and 1980, the Environmental Protection Agency
(``EPA'') promulgated regulations which elaborate on the meaning of
``modification'' under the Clean Air Act. Together, the various
statutory and regulatory requirements provide that physical changes
that constitute routine maintenance, repair, or replacement are not
modifications subject to the new source review permitting process. In
addition, even physical changes considered to be modifications do not
trigger new source review requirements if they do not result in a
significant emissions increase.
[copy missing]
enforcement actions that a particular plant modification is
``major,'' or encompasses more than ``routine maintenance.''
In light of this review's conclusions, the Department's Environment
and Natural Resources Division (``ENRD'') will continue, as it has
during the pendency of this review, to prosecute vigorously the EPA's
civil actions to enforce the new source review provisions. And it will
continue, as it has during the pendency of this review, to pursue talks
to settle those actions where appropriate on mutually acceptable terms.
Because the existing enforcement actions are supported by a reasonable
basis in law and fact, any decision to withdraw, terminate, or
otherwise circumscribe them would rest in the discretion of ENRD, which
must assess the relative strengths and weaknesses of a given case.
Frequently Used Abbreviations
------------------------------------------------------------------------
------------------------------------------------------------------------
AAR....................................... Association of American
Railroads
APA....................................... Administrative Procedure Act
CAA....................................... Clean Air Act
ENRD...................................... Environment and Natural
Resources Division
EPA....................................... Environmental Protection
Agency
FERC...................................... Federal Energy Regulatory
Commission
FRA....................................... Federal Railroad
Administration
NAAQS..................................... National Ambient Air Quality
Standards
NSPS...................................... New Source Performance
Standards
NSR....................................... New Source Review PSD
Prevention of Significant
Deterioration
PSD....................................... Prevention of Significant
Deterioration
TECO...................................... Tampa Electric Company
TRAC...................................... Telecommunications Research
Action Center
TVA....................................... Tennessee Valley Authority
VEPCO..................................... Virginia Electric Power
Company
WEPCO..................................... Wisconsin Electric Power
Company
------------------------------------------------------------------------
The CAA of 1977 also established a program for major emitting
facilities located in nonattainment areas of the country (known as the
``nonattainment NSR'' program).\42\ The nonattainment NSR requirements
parallel the PSD requirements described above, but require more
stringent pollution controls for major emitting facilities in
nonattainment areas.\43\ In 1980, EPA promulgated regulations to
implement the nonattainment NSR requirements regarding major
modifications.\44\ These regulations also provided an exception for
``routine maintenance, repair, and replacement.''\45\
---------------------------------------------------------------------------
\42\ See 42 U.S.C. Sec. Sec. 7501-15 (1994).
\43\ See generally 40 C..F.R. Sec. 52.24 (2001).
\44\See 45 Fed. Reg. 52,676, 52,747 (Aug. 7, 1980).
\45\ 40 C.F.R. Sec. 52.24(f)(5)(2001). This regulation states, in
pertinent part: Major modification means any physical change in or
change in the method of operation of a major stationary source that
would result in a significant net emissions increase of any pollutant
subject to regulation under the Act. . . . A physical change or change
in the method of operation shall not include: (a) Routine maintenance,
repair, and replacement . . .
---------------------------------------------------------------------------
EPA has not promulgated any regulations specifying what types of
projects should be considered routine, and therefore exempt from the
new source review process. In 1994, EPA staff circulated an informal
draft proposal that would have equated ``routine'' with ``minor''
modifications.\46\ This draft stated that ``routine activities would
generally include . . . minor maintenance or repair of parts or
components and the replacement of minor parts or components with
identical or functionally equivalent items.\47\ Industry participants,
however, apparently objected to this suggested definition, and EPA
chose not to propose this language in any subsequent rulemakings.
---------------------------------------------------------------------------
\46\ See New Source Review Reform 106-09 (EPA, Preliminary Staff
Draft 1994).
\47\ Id.
---------------------------------------------------------------------------
B. Previous Enforcement Actions
The CAA's basic enforcement provisions are found in section
113,\48\ which provides for both administrative and judicial
enforcement proceedings. EPA has the authority to issue administrative
compliance and penalty orders for violations of, among other things,
the CAA, its implementing regulations, or a permit. In addition, EPA
can seek injunctive relief and civil monetary penalties by referring
matters to the Department for filing in the appropriate U.S. District
Court. Courts may impose penalties of up to $27,500 per day for each
violation. CAA Sec. 113(e) specifies the criteria to be used by EPA and
the courts in determining the appropriate amounts of penalties,
including ``the economic benefit of noncompliance, and the seriousness
of the violation.''\49\
---------------------------------------------------------------------------
\48\ See 42 U.S.C. Sec. 7413 (1994).
\49\ Id. Sec. 7413(e)(1).
---------------------------------------------------------------------------
EPA's enforcement of the new source review program through judicial
proceedings began in the late 1980's. The earliest cases involved
violations at individual facilities. For example, an enforcement action
was filed against the Louisiana Pacific Co., which constructed a new
wood-products manufacturing facility, because it neither applied for a
PSD permit nor installed pollution control technology. In United States
v. Louisiana-Pacific Corp.,\50\ the court ruled that the company had
violated the applicable PSD requirements.
---------------------------------------------------------------------------
\50\ 682 F. Supp. 1141 (D. Colo. 1988).
---------------------------------------------------------------------------
EPA then investigated other wood-products manufacturers and
concluded that some had committed similar PSD violations. As a result,
enforcement actions were brought and settlements were reached that
required multiple facilities owned and operated by Louisiana Pacific,
Georgia Pacific, and Willamette Industries to obtain PSD permits and
install pollution controls in 1993,\51\ 1996,\52\ and in 2000.\53\
Further, in 2000, EPA issued a Notice of Violation for alleged new
source review violations to Boise Cascade, and entered into settlement
negotiations.
---------------------------------------------------------------------------
\51\ See United States v. Louisiana Pacific, No. CV 93-0869 (W.D.
La. 1993).
\52\ See United States v. Georgia Pacific, 960 F. Supp. 298 (N.D.
Ga. 1996).
\53\ See United States v. Willamette, No. CV 00-1001 HA (D. Or.
2001).
---------------------------------------------------------------------------
The seminal decision on the issue of PSD applicability to
modifications by electric utilities, however, is the Seventh Circuit's
1990 ruling in Wisconsin Electric Power Company v. Reilly
(``WEPCO'').\54\ The WEPCO petitioners challenged the EPA's position
that modifications intended to restore lost capacity at a coal-fired
steam generating facility triggered new permitting requirements. The
company wanted to renovate the plant so it could operate beyond its
planned retirement date of 1992.\55\ To that end, the company needed to
repair or replace the turbine-generators, boilers, rear steam drums,
air heaters, mechanical and electrical auxiliaries, and common plant
support facilities. To make these repairs, the facility would have to
take various units out of service for 9-month periods.\56\ The court
found that EPA was not arbitrary and capricious in considering the
cost, magnitude, frequency, and nature of these repairs and upheld
EPA's determination that these changes were not routine.\57\
---------------------------------------------------------------------------
\54\ 893 F.2d 901 (7th Cir. 1990).
\55\ See id. at 906.
\56\ See id. at 906-08.
\57\ See id. at 913.
---------------------------------------------------------------------------
One of the key disagreements between EPA and certain electric
utilities relates to the Agency's enforcement of the CAA between the
time of the WEPCO decision and the filing of the recent enforcement
actions in 1999. In the early 1990's, EPA began to evaluate sources of
significant pollution in a number of major industrial sectors. The EPA
issued ``Sector Notebooks'' describing these industries and their
various sources of pollution. In particular, Sector Notebooks were
issued for the refinery industry in 1995 and for the fossil-fuel fired
electric generating industry in 1997.\58\
---------------------------------------------------------------------------
\58\ These notebooks are available via the internet at http://
es.epa.gov/oeca/sector.
---------------------------------------------------------------------------
In the mid- to late-1990's, EPA began investigations of several
industrial sectors that were emitting high levels of pollution and that
were suspected of possible new source review violations. These
investigations focused on coal-fired power plants, refineries, steel
mini-mills, wood products manufacturers, and pulp and paper
manufacturers. As a result of these investigations, a number of
referrals for judicial enforcement action were sent to the Department
for consideration.
EPA began its investigation of the coal-fired electric utility
industry in 1996. The Sgency sent information requests under CAA
Sec. 114\59\ to a number of utilities, particularly in the Midwest and
Southeast, seeking access to the power plants' facilities and their
documents. EPA believed that the documents were necessary to ascertain
the facilities' modification histories and to provide information that
would allow EPA to conduct an emission increase analysis. After
considering the utilities' records, EPA concluded that a large number
of facilities had made modifications that triggered the new source
review permit and pollution control requirements, but had failed to
seek PSD permits or install pollution controls. EPA notified the
companies and asked them to enter into settlements to cure these:
violations without litigation. The facilities, however, strongly
disputed EPA's allegations.
---------------------------------------------------------------------------
\59\ 42 U.S.C. Sec. 7414 (1994).
---------------------------------------------------------------------------
Beginning in 1999, EPA sent a number of referrals to the Department
for civil judicial enforcement action against the owners and operators
of some of the largest coal-fired power plants in the country, alleging
widespread violations of new source review, NSPS, and ``minor source''
permitting and pollution control requirements. EPA had made no
referrals pertaining to the electric utility industry prior to that
time. The Department's Environmental and Natural Resources Division
(``ENRD'') reviewed and evaluated the information provided by EPA,
conducted legal research into the basis for the proposed allegations,
consulted with EPA and independent experts regarding the proposed legal
and factual allegations, and concluded that the referrals should be
filed as enforcement actions.
After ENRD's review, the Department in November 1999 filed seven
enforcement actions in U.S. District Courts against: (1) American
Electric Power Co. (S.D. Ohio); (2) Ohio Edison and First Energy (S.D.
Ohio); (3) Cinergy Corp. (S.D. Ind.); (4) Southern Indiana Gas &
Electric Co. (S.D. Ill.); (5) Illinois Power Co. (S.D. Ind.); (6)
Southern Company affiliates including Alabama Power Co. and Georgia
Power Co. (N.D. Ga.); and (7) Tampa Electric Co. (M.D. Fla.). The
complaints alleged that defendants made major modifications to their
coal-fired power plants without applying for required new source review
permits and installing required pollution controls. The complaints
alleged violations at more than 25 power plants located in Ohio,
Indiana, Illinois, West Virginia, Georgia, Alabama, and Florida. The
complaints seek both injunctive relief and civil monetary penalties.
The injunctive relief sought would require the facilities to remedy
alleged past new source review violations by installing appropriate
pollution control technology and by applying for permits.
Due to an adverse jurisdictional decision, Alabama Power Co. was
dismissed from the case brought against subsidiaries of the Southern
Company in United States v. Alabama Power Co.
______
TVA, et al. v. EPA. et al.
Consolidated Docket Nos. 00-12310-E, 00-12459-E, 00-12311-E, 00-
12458-E, 00-12349-E, 00-12457-E, 00-15936-E, 00-16234-E, 00-16235-E,
00-16236-E (consolidated under lead Docket No. 0012310-E)
certificate of interested persons
Pursuant to 11th Cir. Rules 26.1-1 through 1-3, 27-1(a)(9), and 28-
1(b), Respondents Christine Todd Whitman, Administrator, United States
Environmental Protection Agency, and the United States Environmental
Protection Agency hereby list the following persons and entities that
Respondents believe, based upon Respondents' knowledge or
representations by such person or entity, may have an interest in the
outcome of this case. Respondents have not listed persons or entities
with regard to which Respondent has no direct indication of potential
interest other than such person or entity having been listed on the
Certificate of Interested Persons and Corporate Disclosure Statement of
another party.
Alabama Power Company, Petitioner
American Chemistry Council, Amicii
John Ashcroft, U.S. Attorney General
Balch & Bingham LLP, Counsel for Alabama Power Company
R. Bruce Barze, Jr., Counsel for Alabama Power Company
Angelia Souder Blackwell, Counsel for Respondents
F. William Brownell, Counsel for the Tennessee Valley Authority
Margaret C. Campbell, Counsel for Georgia Power Company
Harriet A. Cooper, Counsel for the Tennessee Valley Authority
James C. Cope, Counsel for Petitioner TVPPA
statement regarding oral argument
Respondent United States Environmental Protection Agency (``EPA'')
has raised substantial jurisdictional arguments both in its merits
briefs and in its pending Motions to Dismiss, which were carried with
the case for resolution by the merits panel. Given that the Court must
satisfy itself of its jurisdiction as a prerequisite to review on the
merits,\1\ EPA has proposed that argument be structured to hear, first,
full argument by the parties on the multiple jurisdictional issues, and
to then hear full argument by the parties on the merits of this matter.
See EPA Response and Cross Motion Regarding Format for Oral Argument,
filed. Dec. 20, 2000.
---------------------------------------------------------------------------
\1\ See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 93-
94 (1998) (courts must resolve jurisdictional issues before considering
the merits of a dispute); Region 8 Forest Service Timber Purchaser's
Council v. Alcock, 993 F.2d 800, 807 n.9 (11th Cir. 1993) (same).
---------------------------------------------------------------------------
__________
Statement of Jeffrey Holmstead, Assistant Administrator, Office of Air
and Radiation, U.S. Environmental Protection Agency
Good morning Chairmen and members of the committees. Thank you for
the opportunity to talk with you about the New Source Review (NSR)
program under the Clean Air Act and the proposed improvements we have
announced.
There has been longstanding agreement among virtually all
interested parties that the NSR program can and should be improved. For
well over 10 years, representatives of industry, State and local
agencies, and environmental groups have worked closely with EPA to find
ways to make the program work better. In 1996, EPA proposed rules to
amend several key elements of the program. In 1998, EPA sought
additional public input on related issues. Since 1996, EPA has had
countless discussions with stakeholders and has invested substantial
resources in an effort to develop final revisions to the program.
Between the 1996 proposal and January 2001, EPA held two public
hearings and more than 50 stakeholder meetings. Environmental groups,
industry, and State, local and Federal agency representatives
participated in these many discussions. Over 600 detailed comments were
submitted to EPA between 1992 and 2001.
In 2001, the National Energy Policy Development Group asked EPA to
investigate the impact of NSR on investment in new utility and refinery
generation capacity, energy efficiency and environmental protection.
During this review, the Agency met with more than 100 groups, held four
public meetings around the country, and received more than 130,000
written comments. EPA issued a report to President Bush on June 13 in
which we concluded that the NSR program does, in fact, adversely affect
or discourage some projects at existing facilities that would maintain
or improve reliability, efficiency, and safety of existing energy
capacity. This report lends strong support to the decade-long effort to
improve the NSR program.
We now believe that it is time to finish the task of improving and
reforming the NSR program. At the same time that we submitted our
report to the President, we published a set of recommended reforms that
we intend to make to the NSR program. These reforms are designed to
remove barriers to environmentally beneficial projects, provide
incentives for companies to install good controls and reduce actual
emissions, specify when NSR applies, and streamline and simplify
several key NSR provisions. We plan to move ahead with this rulemaking
effort in the very near future. We look forward to working with you
during this important effort.
background
The NSR program is by no means the primary regulatory tool to
address air pollution from existing sources. The Clean Air Act provides
authority for several other public health-driven and visibility-related
control efforts: for example, the National Ambient Air Quality
Standards (NAAQS) Program implemented through enforceable State
Implementation Plans, the NOx SIP Call, the Acid Rain Program, the
Regional Haze Program, the National Emissions Standards for Hazardous
Air Pollutants (NESHAP) program, etc. Thus, while NSR was designed by
Congress to focus particularly on sources that are newly constructed or
that make major modifications, Congress provided numerous other tools
for assuring that emissions from existing sources are adequately
controlled.
The NSR provisions of the Clean Air Act combine air quality
planning, air pollution technology requirements, and stakeholder
participation. NSR is a preconstruction permitting program. If new
construction or making a modification will increase emissions by an
amount large enough to trigger NSR requirements, then the source must
obtain a permit before it can begin construction. To obtain the permit,
the owners must meet several requirements, including applying state-of-
the-art control technology. States are key partners in the program.
Under the Act, States have the primary responsibility for issuing
permits, and they can customize their NSR programs within the limits of
EPA regulations. EPA's role has been approving State programs and
assuring consistency with EPA rules, the State's implementation plan,
and the Clean Air Act. EPA also issues permits where there is no
approved NSR program, such as on some Tribal lands.
The NSR permit program for major sources has two different
components--one for areas with air quality problems, and the other for
areas where the air is cleaner. Under the Clean Air Act, geographic
areas, such as counties or metropolitan statistical areas, are
designated as ``attainment'' or ``nonattainment'' for the NAAQS, which
are the air quality standards used to protect human health and the
environment. Preconstruction permits for sources located in attainment
or unclassifiable areas are called Prevention of Significant
Deterioration (PSD) permits and those for sources located in
nonattainment areas are called nonattainment NSR permits.
A major difference in the two programs is that the control
technology requirement is more stringent in nonattainment areas and is
called the Lowest Achievable Emission Rate (LAER). In attainment areas,
a source must apply Best Available Control Technology (BACT). The
statute allows consideration of cost in determining BACT.
Also, in keeping with the goal of progress toward attaining the
NAAQS, sources in nonattainment areas must always provide or purchase
``offsets''--decreases in emissions which compensate for the increases
from the new source or modification. In attainment areas, PSD sources
typically do not need to obtain offsets. However, under the PSD
provisions, facilities are required to undertake an air quality
modeling analysis of the impact of the construction project. If the
analysis finds that the project contributes to ambient air pollution
that exceeds allowable levels, the facility must take steps to reduce
emissions and mitigate this impact. In addition to ensuring compliance
with the NAAQS, States track and control emissions of air pollution by
calculating the maximum increase in concentration allowed to occur
above an established background level--that change in concentration is
known as a PSD increment.
Another key requirement is the provision in the PSD program to
protect pristine areas like national parks or wilderness areas, also
referred to as Class I areas. If a source constructs or modifies in a
way that could affect a Class I area, the law allows a Federal land
manager, for example, a National Park Service superintendent, an
opportunity to review the permit and the air quality analysis to assure
that relevant factors associated with the protection of national parks
and wilderness areas are taken into consideration, and, if necessary,
that harmful effects are mitigated.
current status of the nsr program
Let me give you a few statistics about the NSR program to put
things in perspective. Estimates based on our most recent data indicate
that typically more than 250 facilities apply for a PSD or
nonattainment NSR permit annually. The nonattainment NSR and PSD
programs are designed to focus on changes to facilities that have a
major impact on air quality.
EPA has worked for over 10 years to make changes to the NSR program
to provide more flexibility and certainty for industry while ensuring
environmental protection. In 1992, EPA issued a regulation addressing
issues regarding NSR at electric utility steam generating units making
major modifications. This is referred to as the ``WEPCO'' rule. And in
1996, EPA proposed to make changes to the existing NSR program that
would significantly streamline and simplify the program. In 1998, EPA
issued a notice of availability where we asked for additional public
comment on several issues.
EPA held public hearings and more than 50 stakeholder meetings on
the 1996 proposed rules and related issues. Environmental groups,
industry, and State, local and Federal agency representatives variously
participated in these discussions. Despite widespread acknowledgment of
the need for reforms, EPA has not yet finalized these proposed
regulations.
In May 2001, the President issued the National Energy Policy. The
Policy included numerous recommendations for action, including a
recommendation that the EPA Administrator, in consultation with the
Secretary of Energy and other relevant agencies, review New Source
Review regulations, including administrative interpretation and
implementation. The recommendation requested EPA to issue a report to
the President on the impact of the regulations on investment in new
utility and refinery generation capacity, energy efficiency, and
environmental protection.
In June 2001, EPA issued a background paper giving an overview of
the NSR program. EPA solicited public comments on the background paper
and other information relevant to New Source Review. In developing the
final report responding to the National Energy Policy recommendation,
EPA met with more than 100 industry, environmental, and consumer
groups, and public officials, held public meetings around the country,
and evaluated more than 130,000 written comments.
On June 13, 2002, EPA submitted the final report on NSR to
President Bush. At that time, EPA also released a set of recommended
reforms to the program. With regard to the energy sector, EPA found
that the NSR program has not significantly impeded investment in new
power plants or refineries. For the utility industry, this is evidenced
by significant recent and future planned investment in new power
plants. Lack of construction of new greenfield refineries is generally
attributed to economic reasons and environmental or other permitting
restrictions unrelated to NSR.
With respect to the maintenance and operation of existing utility
generation capacity, there is more evidence of adverse impacts from
NSR. EPA's review found that uncertainty about the exemption for
routine activities has resulted in the delay or cancellation of some
projects that would maintain or improve reliability, efficiency and
safety of existing energy capacity. Reforms to NSR will remove barriers
to pollution prevention projects, energy efficiency improvements, and
investments in new technologies and modernization of facilities.
EPA announced that it intends to take a series of actions to
improve the NSR program, promote energy efficiency and pollution
prevention, and enhance energy security while encouraging emissions
reductions.
These improvements include finalizing NSR rule changes that were
proposed in 1996 and recommending some new changes to the rules. The
1996 recommendations and subsequent notice of availability were subject
to extensive technical review and public comment over the past 6 years.
EPA will conduct notice-and-comment rulemaking for changes not proposed
in 1996.
Our actions are completely consistent with the strong public health
protection provided by the Clean Air Act. The key provisions of the
Clean Air Act include several programs designed to protect human health
and the environment from the harmful effects of air pollution and all
of them remain in place. Moreover, the changes that we make to the NSR
program will be prospective in nature, and EPA will continue to
vigorously pursue its current enforcement actions. Accordingly, EPA
does not intend for its future rulemaking or proposed changes to be
used in, or have any impact on, current litigation.
summary of improvements
Congress established the New Source Review Program in order to
maintain or improve air quality while still providing for economic
growth. The reforms announced last month will improve the program to
ensure that it is meeting these goals. These reforms will:
<bullet> Provide greater assurance about which activities are
covered by the NSR program;
<bullet> Remove barriers to environmentally beneficial projects;
<bullet> Provide incentives for industries to improve environmental
performance when they make changes to their facilities; and
<bullet> Maintain provisions of NSR and other Clean Air Act
programs that protect air quality.
The following NSR reforms, all of which were originally proposed in
1996, have been subject to extensive technical review and public
comment:
<bullet> Pollution Control and Prevention Projects.--To encourage
pollution control and prevention, EPA will create a simplified process
for companies that undertake environmentally beneficial projects. NSR
can discourage investments in certain pollution control and prevention
projects, even if they are environmentally beneficial.
<bullet> Plantwide Applicability Limits (PALs).--To provide
facilities with greater flexibility to modernize their operations
without increasing air pollution, a facility would agree to operate
within strict sitenwide emissions caps called PALs. PALs provide
clarity, certainty and superior environmental protection.
<bullet> Clean Unit Provision.--To encourage the installation of
state-of-the-art air pollution controls, EPA will give plants that
install ``clean units'' operational flexibility if they continue to
operate within permitted limits. Clean units must have an NSR permit or
other regulatory limit that requires the use of the best air pollution
control technologies.
<bullet> Calculating Emissions Increases and Establishing Actual
Emissions Baseline.--Currently, the NSR program estimates emissions
increases based upon what a plant would emit if operated 24 hours a
day, year-round. This can make it difficult to make certain modest
changes in a facility without triggering NSR, even if those changes
will not actually increase emissions. This common-sense reform will
require an evaluation of how much a facility will actually emit after
the proposed change. Also, to more accurately measure actual emissions,
account for variations in business cycles, and clarify what may be a
``more representative'' period, facilities will be allowed to use any
consecutive 24-month period in the previous decade as a baseline, as
long as all current control requirements are taken into account.
EPA also intends to propose three new reforms that will go through
the full rulemaking process, including public comment, before they are
finalized. These include:
<bullet> Routine Maintenance, Repair and Replacement.--To increase
environmental protection and promote the implementation of routine
repair and replacement projects, EPA will propose a new definition of
``routine'' repairs. NSR excludes repairs and maintenance activities
that are ``routine'', but a multi-factored case-by-case determination
must currently be made regarding what repairs meet that standard. This
has deterred some companies from conducting certain repairs because
they are not sure whether they would need to go through NSR. EPA is
proposing guidelines for particular industries to more clearly
establish what activities meet this standard.
<bullet> Debottlenecking.--EPA is proposing a rule to specify how
NSR will apply when a company modifies one part of a facility in such a
way that throughput in other parts of the facility increases (i.e.,
implements a ``debottlenecking'' project). Under the current rules,
determining whether NSR applies to such complex projects is difficult
and can be time consuming.
<bullet> Aggregation.--Currently, when multiple projects are
implemented in a short period of time, a detailed analysis must be
performed to determine whether the projects should be treated
separately or together (i.e., ``aggregated'') under NSR. EPA's proposal
will establish two criteria that will guide this determination.
It is important to note that we are undertaking changes in the NSR
program at the same time as we are moving forward on the President's
historic Clear Skies Initiative. The Clear Skies Initiative is the most
important new clean air initiative in a generation, and will cut power
plant emissions of three of the worst air pollutants--nitrogen oxides,
sulfur dioxide, and mercury--by 70 percent. The initiative will improve
air quality and public health, protect wildlife, habitats and
ecosystems. By using a proven, market-based approach, Clear Skies will
make these reductions further, faster, cheaper, and with more certainty
than the current Clear Air Act. In the next decade alone, Clear Skies
will remove 35 million more tons of air pollution than the current
Clean Air Act.
In summary, the NSR reforms will remove the obstacles to
environmentally beneficial projects, simplify NSR requirements,
encourage emissions reductions, promote pollution prevention, provide
incentives for energy efficient improvements, and help assure worker
and plant safety. Overall, our reforms will improve the program so that
industry will be able to make improvements to their plants that will
result in greater environmental protection without needing to go
through a lengthy permitting process. Our actions are completely
consistent with key provisions of the Clean Air Act designed to protect
human health and the environment from the harmful effects of air
pollution.
__________
Responses of Jeffrey Holmstead to Additional Questions from Senators
Jeffords and Leahy
Question 1. Please provide the Committee with an explanation of the
differences between the regulatory proposals regarding New Source
Review that were considered by the Clinton Administration and those
that EPA is forwarding to the OMB for interagency review or plans to
publish in final form.
Response. In 1996, the Clinton Administration proposed numerous
changes to the existing New Source Review (NSR) regulations. We will be
acting to finalize five of these changes to the regulations at this
time. All five of these provisions will be within the scope of the 1996
proposal. In addition, we intend to propose, solicit public comment on,
and eventually promulgate several other provisions, including a
proposal to address ``routine maintenance, repair and replacement''
(RMRR). These provisions were not addressed in the 1996 proposal.
Question 2. In a briefing for congressional staff, EPA OGC
personnel said that a tremendous amount of time and money is being
spent on the NSR enforcement cases. Approximately how much time and
money has been spent since those enforcement actions were announced?
Response. While EPA does not separately track enforcement
expenditures for NSR, we have reviewed the level of effort involved in
NSR enforcement since November 1999. We estimate that the Agency has
invested more than 200 full-time equivalents (FTEs) in employee time,
as well as over a million dollars in contract expenditures and over
half a million dollars in travel expenditures to investigate, negotiate
and prosecute all cases that have NSR components. This does not include
the significant resources that DOJ expended on these cases.
It is worth noting that a significant portion of EPA's effort on
NSR cases has been devoted to addressing discovery requests from
defendants pursuant to prosecution of filed cases in court.
Furthermore, the filing of the power plant suits in 1999 was the
culmination of 2 years of effort by dozens of EPA Headquarters and
Regional personnel, who investigated and developed the cases.
Question 3. In an interview on National Public Radio, Governor
Whitman indicated that the announced NSR regulation changes ``. . . are
intended to get at the pollution from those dirty old power plants or
those `grandfathered' plants.'' Please explain how these changes will
affect pollution, quantitatively and qualitatively, from these
``grandfathered'' facilities.
Response. In the Governor's interview with National Public Radio,
she stated: ``What we're proposing gets precisely at those plants that
have not been successfully dealt with under the current program.'' In
this comment, the Governor was referring to the Administration's Clear
Skies Initiative. The Clear Skies Initiative sets strict, mandatory
emissions caps for three of the most harmful air pollutants--sulfur
dioxide, oxides of nitrogen, and mercury. Clear Skies will cut power
plant emissions of these pollutants by 70 percent, eliminating 35
million more tons in the next decade than the current Clean Air Act.
Question 4. How many facilities are potentially covered by NSR's
major source category, and minor source category? Please specify
industry sector, and the total emissions from those covered facilities.
Response. EPA does not have comprehensive data regarding the number
of major and minor NSR sources in the country or total emissions from
these sources. We know that there are close to 19,000 sources subject
to title V. These 19,000 sources include all major NSR sources and some
minor NSR sources. In addition, there are many more minor sources that
are not subject to title V.
Question 5. How many utilities are not required currently to apply
New Source Performance Standards to their facility by the Clean Air
Act? Please provide their generation capacity and the tons of
pollutants emitted for each in the latest year.
Response. EPA is working to provide a data base listing units that
were not subject to NSPS when they came on line. EPA does not maintain
a data base that lists all utility units not subject to the NSPS. We
will provide this information and any necessary followup information as
soon as possible.
Question 6. How many tons of pollution has the New Source Review
program, including Prevention of Significant Deterioration, prevented,
either through application of technology, process changes to avert
major source category status, or other means, since it's inception?
Response. Please see the response to question number 7.
Question 7. How many tons of pollution do the NSR and PSD programs
prevent or control annually?
Response. EPA does not have a current official estimate of the
number of tons of pollution prevented or controlled annually by the NSR
and PSD programs.
Question 8. EPA's 90-day report on NSR indicates that companies go
to great lengths to avoid triggering NSR. If EPA believes the principle
reason is potential cost of pollution controls, please provide a
discussion of the control costs per ton of pollutant for various types
of facilities where NSR might apply.
Response. The 90-day NEP review found that NSR is having an adverse
impact on investment in existing utility and refinery capacity for some
of the following reasons. The cost of offsets and pollution control
technology is certainly one factor. For example, in California, one
facility incurred costs for offsets of more than $100,000 per ton of
NOx when NSR was triggered. Facilities also try to avoid NSR because
NSR permitting can delay the implementation of projects. It takes
anywhere from a few months to, on occasion, a couple of years to get an
NSR permit, and additional time is required to prepare the permit
applications. Because a permit must be obtained before construction can
commence, projects sometimes are delayed by the permit process. For
example, in the semiconductor chip industry, entire generations of
technology span periods of only a few months. In such circumstances, a
permitting delay of a few months could serve as an insurmountable
obstacle. Another important factor is certainty. It is often difficult
to predict the specific control measures or other requirements that
ultimately are imposed by an NSR permit and this uncertainty can impact
project planning.
Question 9. Please provide a table showing the performance
standards for new stationary sources as required to be developed under
section 111(b) of the Clean Air Act, and the relevant timetable for
reviewing and revising, as appropriate, those standards.
Response. The NSPS currently applicable to electric utility steam
generating units are presented below. For each of the pollutants, there
may be certain additional requirements for specific cases (e.g.,
anthracite coal, noncontinental area) but these limits are those that
are most widely applicable. Section 111(b)(1)(B) provides that the
``Administrator shall, at least every 8 years, review and, if
applicable, revise such standards . . .'' The Administrator need not
review any NSPS ``if the Administrator determines that such review is
not appropriate in light of readily available information on the
efficacy of such standard.'' The date of last review of each of the
standards is also shown in the table.
Electric Utility Steam Generating Units; 40 CFR Subpart Da
------------------------------------------------------------------------
Pollutant Emission limit Last reviewed
------------------------------------------------------------------------
Particulate matter:
Solid, liquid, or gaseous fuel 0.03 lb/MMBtu..... June 11, 1979
Sulfur dioxide:
Solid fuel.................... 1.2 lb/MMBtu and June 11, 1979
90 percent
reduction OR 0.6
lb/MMBtu and 70
percent reduction
<SUP>a</SUP>.
Liquid or gaseous fuel........ 0.8 lb/MMBtu and June 11, 1979
90 percent
reduction OR 0.6
lb/MMBtu<SUP>a</SUP>.
Nitrogen oxides:
Solid, liquid, or gaseous fuel 0.15 lb/MMBtu<SUP>a</SUP>.... September 16, 1998
------------------------------------------------------------------------
<SUP>a</SUP>30-day rolling average
Question 10. If New Source Performance Standards were applied to
all electric generating facilities above 25 MW, how many tons of
pollutants (NOx, SOx,
PM<INF>2.5</INF>) would be reduced? What would be the average cost per
ton and most common control technologies?
Response. Emissions of SO<INF>2</INF> from coal-fired electric
generating facilities in 2000 were estimated to total 10,708,692 tons.
Estimated emissions if all units met the current NSPS are 3,397,662
tons. Information is not readily available on emissions of NOx and fine
particulate matter (PM<INF>2.5</INF>) should all electric generating
facilities meet the applicable NSPS levels. The control technologies
used to meet the NSPS would be flue gas desulfurization (FGD) units,
both wet and dry, for coal-fired units and low-sulfur oil for oil-fired
units. Control technologies used to meet NSPS levels for PM would be
electrostatic precipitators (ESP) for oil- and coal-fired units and
fabric filters for coal-fired units. Technologies used to meet NSPS
levels for NOx would be low-NOx burners, selective catalytic reduction
(SCR) and selective non-catalytic reduction (SNCR) for all types of
units. Information is not readily available to determine the average
cost of pollutant ton removed should every electric generating facility
meet the applicable NSPS.
Question 11. Connecticut's NSR program is currently more stringent
than the Federal equivalent. What is EPA's position with respect to
reconciling elements of their proposal with that program, and is EPA
going to require states to revise their NSR programs to mirror the
Federal program, even in cases where the state program remains more
stringent?
Response. EPA believes that its final rules will significantly
improve the NSR program. We will include these rules in our base NSR
programs and we will encourage States to adopt these changes into their
own programs. We think that most States will want to make these
changes. However, any State may depart from our base program as long as
it demonstrates that its program is at least as effective as our base
program.
Question 12. In its 1996 proposal, EPA clearly indicated that the
program elements (e.g. PALs and Clean Unit Exemption) would be in such
a form that states could adopt none, some or all of the elements. The
proposal did not imply that states would have to ``demonstrate'' their
programs were equal to or more stringent without some or all of these
new ``elements''. Is this still the case?
Response. Over the past 10 years, we have been involved in an
extensive stakeholder process in an effort to reform the existing NSR
regulations. There has been general agreement among most of these
stakeholders that the regulations can and should be improved. The final
NSR rules that we hope to finalize in the near future are the product
of this decade-long effort. We believe that these rules will, in fact,
significantly improve the program. Thus, we will include these rules in
our base NSR program and will be encouraging States to adopt these
changes into their own programs. We think that most States will want to
make these changes. However, any State may depart from our base program
as long as it demonstrates that its program is at least as effective as
our base program.
Question 13. Given that the Administration considered changes will
result in fewer modifications being subject to NSR, would State/locals
have to submit SIP revisions at all?
Response. We believe that our final rules will add new incentives
for reducing emissions to States' NSR programs and eliminate existing
disincentives to maintain higher levels of emissions. For example,
under a plantwide applicability limit (PAL), a facility would accept
strict plantwide emissions caps and then may choose where to apply the
most cost effective controls (achieving the highest possible emission
reductions for the lowest cost). Morever, facilities with PALs will
have a strong incentive to keep actual emissions well below their caps
in order to maximize operational flexibility under the cap. Under the
Clean Unit Test, a facility is encouraged to install state-of-the-art
emission controls. We believe many who would not otherwise be subject
to the modification provisions will install controls to gain the added
flexibility under PALs and the Clean Unit test. These examples show
that the total benefits of the NSR program cannot be accurately
measured solely by the number of modification permits that are issued;
we must also consider others ways in which the program encourages
emission reductions.
Question 14a. EPA's proposed changes to the baseline calculation
will allow for a baseline equal to a plant's highest usage in the last
10 years. How will this improve air quality?
Response. To begin, we believe that it is important to correct an
apparent misconception that many stakeholders continue to hold about
this option. The misconception is that the option would apply to all
industry types. We do not currently intend to apply the 10-year
baseline to the utility industry because an industry specific baseline
was established for the utility industry in the 1992 ``WEPCO'' rule.
The baseline calculation is an integral part of the procedure for
determining whether a physical or operational change made to an
existing emissions unit will result in a significant net emissions
increase at the facility. We are currently considering an approach
under which the 10-year baseline would allow a source to identify a
level of operation that it has actually achieved during the course of
its normal business cycle (within which emissions typically fluctuate),
and to calculate an emissions baseline associated with that level of
operation as long as the resulting emissions level continues to be
allowed under currently enforceable emissions factors. If the emissions
level, in tons per year, under the selected level of operation is not
currently allowed (for example, a more stringent limit has been placed
on the sulfur content of fuel or a control device has been installed),
then a downward adjustment to the emissions must be made accordingly.
While the existing regulations require that the preceding 2 years
be used for calculating the baseline emissions, the permitting
authority has the ability to determine that another period is more
representative of normal operation. This could conceivably result in a
look back of 10 years or more in certain cases. However, this approach
typically involves case-by-case determinations that have resulted in
confusion, inconsistent implementation and lengthy debates as to the
most appropriate period of time to select in any particular case. EPA's
new approach would provide a bright line for facility owners and
operators to use to determine their baseline emissions.
It is also worth noting that the new approach, involving the
selection of a consecutive 24-month period within the preceding 10
years, represents a more stringent approach than the 12-month period in
the preceding 10 years proposed during the previous Administration. By
averaging a source's annual emissions over a 24-month period, rather
than a 12-month period, short-term peaks are less influential in
calculating the baseline emissions rate.
Question 14b. Should the baseline for emissions in nonattainment
areas be designed to decline in future years to help provide
attainment?
Response. We think that baseline for emissions in nonattainment
areas should not automatically be designed to decline in future years.
Instead, States must have the discretion to determine where future
emissions reductions will be required from one source to the next. This
decision will be based on the nature and extent of the nonattainment
problem in a particular area. State and local air pollution control
authorities are in the best position to determine which sources need to
be controlled and which control measures should be applied.
Question 15. EPA's proposal will allow sources to establish an
emissions baseline with a test that considers any 2 years out of the
previous 10 as representative. As many sources have substantially
reduced their emissions in the last 10 years, in cases where this
mechanism is granted, how is EPA going to evaluate the effect on State
SIPs where emissions increase as a result of these proposed baseline
changes?
Response. A source's emissions may have been reduced through the
imposition of more stringent emissions limits (including new pollution
control devices) or by specific operating restrictions (e.g.,
restrictions on fuel use, hours of operation, etc.) In either case, as
mentioned in the response to question No. 14, the calculation of the
source's baseline emissions, under the approach we are currently
considering, must take into account these current factors. Thus, when a
source selects a particular 24-month period within the last 10 years to
define its representative operations, it must also factor in the most
current emission limits and operating restrictions.
Question 16. Why is it necessary to provide a 10-year window to
establish actual emissions baselines? Why is it better than defaulting
to the previous 2 years, and giving the States the discretion to adjust
this period when it is demonstrated that it is not representative?
Response. The typical industry business cycle involves recurrent
ups and downs in level of economic activity over a period of several
years. To determine the length of a reasonable look back period, we
contracted a study to determine the length of a typical business cycle
for a number of industry categories. Based on this study, we determined
that a 10-year look back would adequately cover the business cycle for
any industry in the study. Further, we determined that a consecutive
24-month period (rather than the 12-month period originally proposed)
within the 10-year look back would appropriately capture the source's
average annual operating level and emissions rate. By averaging the
source's operation over a 2-year period, rather than using just 12
months of operating history, unusually high peaks occurring during a
short period will not skew the result.
We believe that the use of a uniform 10-year look back period will
help simplify the process and eliminate questions that can occur when
an applicant and the permitting authority have to determine on a case-
by-case basis what timeframe provides the period ``most representative
of normal source operation.'' The new requirements also provide
certainty to the look back period, since there is no opportunity to
select another period of time outside this 10-year period. In addition,
we have placed certain restrictions on when the full 10-year look back
period may be used. That is, the source must have available in its
records adequate data for the particular 24-month period that is
selected. This data must be used for calculating the average annual
emissions that form the basis for the baseline actual emissions. In
addition, the baseline emissions rate must be adjusted downward to
reflect emissions or operational limitations adopted in the interim.
Question 17. With a non-declining PAL, how does air quality ever
improve? Has EPA thought about ways to maintain the incentive for
voluntary early reductions while not locking in current emission levels
indefinitely?
Response. Until such time as the NSR Reform rulemaking package is
published, it would be premature to describe specific attributes of the
new PAL system; however, we have received comments similar to your
question and will be considering them as we move forward.
Question 18. If each company can select whether to use a PAL or
not, won't each company choose the option that minimizes the chances of
triggering NSR? Won't that result in increased emissions as compared to
the State choosing one approach or the other?
Response. We do not believe that companies will not select an
option solely based on the chances of triggering NSR under that option.
In a study of sources with PALs, EPA found that those sources lowered
their emissions.
Question 19. For a State that decides to require all facilities to
use a PAL, many of the other changes are not relevant. Will the rules
make it clear which changes do not apply under the PAL?
Response. We expect that few States will require all sources to use
the PAL program. For States that decide to do so, EPA agrees that
sources with PALs would generally not seek or be subject to any of the
other changes. We intend to finalize all the changes identified in our
Recommendations Report as part of our base program; however, States
that require all sources to have a PAL will have the opportunity to
depart from the base program upon a showing that their programs are
equivalent to or more stringent than the base program.
Question 20. Why is it necessary to add an ``operating margin'' up
to the significance level (e.g., 25 TPY in a severe ozone nonattainment
area) when setting a PAL?
Response. Until such time as the NSR Reform rulemaking package is
published, it would be premature to describe specific attributes of the
new PAL system; however, we have received comments similar to your
question and will be considering them as we move forward.
Question 21. Why is it appropriate to make the Clean Unit test
retroactive? If the argument for clean units is premised upon creating
incentives to control, why are incentives needed for units that
controlled up to 10 years ago and have already installed good controls?
Response. We will not be applying the Clean Unit Test
retroactively. Although emissions units that have applied state-of-the-
art controls in the past may qualify to use the test after the
effective date of the final rules, the test will only be used to
determine whether future changes at the unit will result in an
emissions increase. Any changes that were made at such emissions units
before the effective date of the final rules will be subject to the NSR
requirements as they existed at the time of the change.
Moreover, although the creation of incentives for sources to
install controls is an important part of the clean unit test, it is not
the sole basis for it. The clean unit provision also makes sense
because it avoids the need for sources with state-of-the-art controls
to engage in an NSR review that ultimately would not require the
installation of better controls. Also, it reduces the burden on
permitting authorities of having to process permit applications that we
believe will result in no additional control.
Question 22. Given that the purpose of the clean unit exclusion is
to exempt from review units where current technology would not achieve
reductions beyond existing technology, what is EPA's basis for allowing
such a long exclusion period (i.e., up to 15 years)? Why is a look-back
period necessary at all?
Response. The clean unit duration is based on a combination of the
average life expectancy of control equipment (as published in
engineering journals) and the improvement in control equipment
performance over a given period of time. For example, using existing
information about the control efficiency of flue gas desulfurization
(FGD), we can see that in a period of about 20 years, the removal
efficiency of the device has only improved marginally. As a result, a
FGD system that was installed 10 years ago, would still be achieving
good reductions and it would not be justifiable to replace it with a
very costly unit that would only improve pollutant removal efficiency
by only a small amount.
Question 23. Why does it make sense to define routine maintenance
based on the percent of capital costs, as opposed to the function of
the construction? How can EPA reconcile allowing a source to spend
hundreds of millions of dollars over the course of 4-5 years, increase
emissions significantly, and still not trigger NSR and the installation
of controls?
Response. EPA will be in a better position to address these issues
after the rulemaking package has been published. At that time the
Agency will also be seeking public comment on the proposal.
Question 24. Why isn't the amount of emission increases considered
in the Administration's development of a new definition of routine
maintenance?
Response. The Clean Air Act provides that, for existing sources,
NSR applies only to projects that constitute a physical change or
change in the method of operation. By definition, routine maintenance
projects are not physical changes or changes in the method of
operating, therefore, such projects are not subject to NSR.
Question 25. According to EPA's proposed recommendations, ``the
changes are intended to provide greater regulatory certainty,
administrative flexibility and permit streamlining, while ensuring the
current level of environmental protection and benefit derived from the
program.'' This statement seems counter-intuitive in that with fewer
new emission units installing state-of-the-art emissions controls, it
seems logical that emissions will increase. What data are available to
show that the proposed changes will indeed ensure the current level of
environmental protection? How is less control better for the
environment?
Response. The data EPA has accumulated during the 10-year
rulemaking effort will be placed in the docket.
Question 26. A number of the proposed NSR changes will result in
modifications that were previously subject to NSR no longer being
subject. These include pollution control projects; projects on clean
units; modifications on units with high emissions in the past but low
actual emissions today; projects that don't plan to use all of their
capacity initially; projects that are less than a certain percent of
the cost of replacing the plant; projects that allow downstream units
to increase production; and projects that are separated into
independent parts. EPA claims that the changes remove disincentives in
the NSR program, but has not produced hard evidence that the cumulative
effect of the disincentives is greater than the cumulative effect of
the exemptions. Is EPA prepared to present solid information to
substantiate their claims?
Response. The final rule will be fully supported by an extensive
public record as a matter of fact, policy and law. The reforms we
intend to finalize in the near future have been the subject of 10 years
of analysis and public comment. These rulemakings are well-founded. The
facts and information that have been accumulated during the 10-year
rulemaking effort will be available in the rulemaking docket.
Question 27. If these projects are exempted from NSR application
through the proposed changes, does EPA plan to require the exempted
sources to at least evaluate the air quality impact of the emission
increases and address them if needed to ensure no impact on NAAQS,
increments or visibility?
Response. We do not agree that our planned changes will result in
increased impacts on NAAQS, increments, or visibility as compared to
the current program. The proposed changes do not alter existing
requirements that provide States with ample authority to ensure
protection of the NAAQS, increments and visibility.
Question 28. How does EPA's plans to revise NSR ensure that
reductions in stack heights or reductions in stack gas temperature will
not cause adverse local impacts?
Response. The existing NSR program contains only one provision
specifically addressing stack height. We do not plan to change this
requirement. The current program does not specifically address exit gas
temperature. A project involving only a stack height change and/or an
exit gas temperature change almost always will be regulated under State
or local ``minor'' NSR programs. This will remain the case after our
reforms are promulgated.
Question 29. Will a modification that increases actual hourly or
daily emissions be modeled and proven to cause no adverse air quality
impacts before the modification is done?
Response. Under the current NSR program, emissions increases are
measured on a ton-per-year basis. We do not plan to change this aspect
of the program.
Question 30. How will States identify and correct air quality or
public health problems that occur due to major modifications that have
been exempted from NSR by the EPA proposed changes? Will this be more
expensive and time-consuming than addressing these matters prior to
modifications?
Response. As explained in the response to question 13, we believe
that the new NSR regulations will create additional incentives to
reduce emissions and eliminate the disincentives under the current
program that prevent facilities from undertaking emission reduction
projects. We do not expect the new regulations to result in added air
quality or public health problems.
Question 31. Recently, experts have estimated that direct emissions
of fine particulate matter from coal-fired power plants are being
underestimated significantly, perhaps by a factor of 10. This is not
surprising because there is so little testing of particulate emissions
from coal-fired power plants and what testing there is reflects optimal
operation of the plant. This is a public health concern because those
particulate emissions are mostly fine particulates and because they
contain heavy metals that are carcinogenic, as well as particulate
organic matter, which is also carcinogenic. All these factors
contribute to the adverse health effects of the fine particulates in
our air.
The major modification provisions of the New Source Review program
currently address particulate emissions. If existing NSR rules are
enforced, companies would improve the control of particulates to meet
the best available control technology requirements of NSR. This was
demonstrated in the EPA settlement with PSEG in New Jersey where a
baghouse is being added to the Hudson Generating Station to improve
particulate control. How does EPA plan to address direct emissions of
particulates from coal-fired power plants through the regulatory
process, if EPA's proposed changes eliminate or substantially reduce
the applicability of NSR to existing power plants?
Response. EPA will be in a better position to discuss specific NSR
changes applicable to power plants when the NSR rulemaking packages
have been published. We also note that we believe the President's Clear
Skies proposal provides an efficient and effective mechanism for
substantially reducing fine particle pollution from coal-fired power
plants to levels far below those that NSR could ever currently
accomplish. We encourage Congress to enact the Clear Skies Legislation
expeditiously.
Question 32. The preamble to Part 70 Title V Operating Permits
states: ``Once a PAL is established, a change at a facility is exempt
from major NSR and netting calculations, but could require a Title V
permit modification, as could any other change. Whether a Title V
permit modification would be required, and which permit modification
process would be used, is governed by the current part 70 rule as
implemented by the permitting authority.'' What is the effect of the
proposed NSR changes on the Title V program? Is it possible for a plant
to make changes exempted by the NSR reforms and yet be prohibited from
operating the new or modified units until changes were made to the
Title V permit?
Response. The NSR reforms that we plan to implement will not result
in any change to our Part 70 and Part 71 operating permits programs. If
a particular activity in a plant does not trigger NSR, it may
nevertheless be subject to other CAA applicable requirements, such as a
Section 112 ``MACT'' standard. The applicability of other requirements
could trigger the need for a Title V permit revision, even though NSR
is not triggered.
Question 33. To what extent will seasonal programs, like the NOx
SIP Call, be considered in the proposed changed rules for baseline
calculations, PAL's and clean units (where controls are not operated
year round)?
Response. The new requirements provide that the emissions baseline
for calculating the emissions increase resulting from a modification
cannot exceed the emissions level that would occur under currently
enforceable emissions limitations. Thus, the new procedures require
that the calculation of baseline emissions for a modification must
consider current Federal and State restrictions, as well as enforceable
limits resulting from voluntary reductions. Assuming that the
utilization level selected from any consecutive 24-month period is
still allowed, this level would be used along with current emissions
limits and operational restrictions to calculate an adjusted emissions
baseline.
Question 34. EPA is proposing to provide a 10-year window to
establish actual emission baselines, where a source can use the 2-year
high value during that period. Yet, when a State performs its
photochemical modeling as part of the SIP process, it uses current
actual emission rates from existing sources. Such modeling would
continue to use current actual emission rates even though for NSR
purposes sources may now use the 2-year high over a 10-year past period
to represent baseline. Has EPA considered requiring those States that
elect to adopt the 10-year window in its regulations, to use the higher
baseline values in its photochemical modeling to ensure consistency in
its planning process?
Response. We do not plan to change the emissions baseline for
calculating source impacts. The purpose of selecting a different actual
emissions baseline for NSR applicability purposes is to better
determine the amount of any increase that will result only from the
change itself.
Question 35. For the Clean Unit Exemption, EPA is presuming that a
control technology approved within 10 years will generally be the same
as a current control technology determination. Yet 10 years ago
combustion technologies could achieve 9 ppm NOx for large turbines and
25 ppm NOx for small turbines. Today, catalytic combustion technologies
have dropped these emissions down to approximately 3 ppm. Why is EPA
making its presumption in the face of such contradictory evidence?
Response. EPA is not presuming that the control technology
determination made within the past 10 years will generally be the same
as the current control technology determination. We expect the state-
of-the-art to continue to progress, but generally not at a rate that
would require a source to upgrade its current controls if the source
had initiated state-of-the-art controls within the prior 10 years
(i.e., it is likely that no additional control requirements would be
required in a PSD determination because the incremental and average
cost effectiveness between the current level of control and
retrofitting to achieve a greater level of control are likely to be
determined to be too high compared to the added environmental benefit).
In addition, we also based the timeframe for which an emissions unit is
eligible to use the clean unit test on the average life expectancy of
pollution control equipment. It is reasonable to allow the clean unit
test for the average length of time it takes industry to recoup the
capital investment in the controls.
Question 36. Comments Opposing or Supporting Administration's NSR
Changes.--In your announcement of the Administration's intended changes
to the NSR regulations, you stated that the ``reforms'' being adopted
by the Administration enjoyed ``broad-based support.'' EPA materials
also implied that previous statements from Governors and State
environmental commissioners offered support for the reforms being
pursued by the Administration.
For the following specific changes to the NSR regulations announced
by the Administration, please identify all comments or statements
supporting those specific changes submitted by Governors; State
environmental commissioners; any other State officials or their
representatives, especially State air program officials; and
environmental and public health organizations. Please quote the
specific passages supportive of each respective change below and
identify the author(s) of those passages. Separately, please identify
any comments or statements from these same parties opposing these
changes or similar changes.
Finally, please identify all comments or statements supporting
those specific changes submitted by industry representatives, following
the same format as above. If there are numerous industry comments that
are responsive, you may provide a representative selection. However, if
you do so, please provide information on the group from which the
representative selection was taken (for example, ``These comments
represent comments made by approximately 50 petroleum refining
companies.'')
A. Plantwide Applicability Limits (PALs):
(ix) An actual emissions baseline based upon ``the highest
consecutive 24 month period within the immediately preceding 10
years, taking into account the current emissions factor (which
would reflect emissions limitations, other required emissions
reductions, and permanent shutdowns since the baseline period)
in combination with the utilization level from the 24-month
time period selected.''
(x) A 10-year term for a PAL, in attainment or nonattainment
areas.
(xi) A PAL that remains static during the 10-year term, i.e.,
one whose plant-wide cap is not required to decline during its
term.
(xii) A PAL that does not require installation of pollution
controls qualifying as BACT or LAER (or their equivalents) on
emissions units covered by the PAL.
(xii) The ability to increase a PAL's cap levels provided
EPA's criteria are met.
(xiv) Requiring States to provide for PALs in their State
implementation plans.
B. Clean Unit Exclusion:
(i) Eligibility for the exclusion based upon whether an
emissions unit has undergone ``a valid BACT/LAER process or
State minor source BACT since 1990.''
(ii) Ability of significant emissions increases to escape new
source review and further control for a period of 10 years, or
a period of 15 years.
(iii) Eligibility for the exclusion based upon whether an
emissions unit ``installed Maximum Achievable Control
Technology (MACT), Reasonably Available Control Technology
(RACT) or undertook pollution prevention that required capital
expenditures . . ., provided the results are determined to be
comparable to BACT or LAER that would have been employed at the
time the control measures or devices were originally
installed.''
(iv) Eligibility for the exclusion based upon whether sources
``invest capital to purchase equipment or implement processes
that are inherently clean or lower emitting and which achieve
emission reductions comparable to BACT or LAER at the time the
investment was made.''
(v) Requiring States to include the Clean Unit Exclusion in
their State implementation plans.
C. Pollution Control and Prevention Project Exclusion:
(i) A source's ability to qualify for the exclusion merely by
providing notice to the permitting authority and ``maintaining
records supporting the source's determination onsite.''
(ii) The ability of pollution prevention projects to qualify
for this exclusion.
(iii) Requiring States to include the pollution control and
prevention project exclusion in their SIPs.
D. Actual to Projected Future Actual Methodology:
(vi) The concept of a demand growth exclusion, including
making this exclusion available for non-utilities and
continuing to make it available for utilities.
(vii) Allowing sources owners or operators to determine
themselves whether an activity resulted in a significant net
increase in emissions, without requiring the permitting
authority to be involved.
E. Emissions Baseline:
For sources other than electric utility steam generating
units, an ``actual'' emissions baseline based upon ``the
highest consecutive 24-month period within the immediately
preceding 10 years, taking into account the current emissions
factor (which would reflect emissions limitations, other
required emissions reductions, and permanent shutdowns since
the baseline period) in combination with the utilization level
from the 24-month time period selected.''
Response. There is nearly universal agreement among stakeholder
groups that the NSR program should be reformed. Thus, the Administrator
articulated that the NSR reform effort enjoys a ``broad-based
support.'' This does not mean that all stakeholders agree with all
aspects of the reform effort.
A complete summary of all the comments we received and our
responses to them will be available when we finalize the regulations.
We currently are working to finish this ``response to comments''
document. We would be happy to provide you with a copy when it is
finalized. In the meantime, please refer to the complete set of the
comments we received on the NSR proposed rules provided to you
previously.
Question 37. Statutory Authority.--For the specific issues and
measures listed below, please quote all words in the Clean Air Act that
provide legal authority to EPA to adopt the announced changes to NSR
regulations--final and proposed--implementing the statutory PSD and
nonattainment NSR programs of the Act. Provide statutory citations for
these quotations as well. Finally, explain any other legal authorities
upon which EPA is relying to adopt the Administration's announced
changes to NSR and PSD rules, policies, or interpretations. Please
ensure that the responses follow the numbering system below.
A. Plantwide Applicability Limits (PALs):
(viii) The concept of PALs.
(ix) An emissions baseline for PALs based upon ``the highest
consecutive 24 month period within the immediately preceding 10
years, taking into account the current emissions factor (which
would reflect emissions limitations, other required emissions
reductions, and permanent shutdowns since the baseline period)
in combination with the utilization level from the 24-month
time period selected.''
(x) A 10-year term for a PAL, in attainment or nonattainment
areas.
(xi) A PAL that remains static during the 10-year term, i.e.,
one whose plant-wide cap is not required to decline during its
term, for example, to reflect installation of BACT and LAER
that otherwise would be required for modifications that occur
at the source.
(xii) A PAL that does not require installation of pollution
controls qualifying as BACT or LAER (or their equivalents) on
emissions units covered by the PAL.
(xiii) The ability to increase a PAL's cap levels provided
EPA's criteria are met.
(xiv) Renewal of a PAL, and requirements governing that
process.
(xv) The likelihood that a PAL could be renewed at the end of
10 years without being reevaluated, even if the level of the
PAL was based on actual emissions from up to 20 years
previously.
(xvi) The likelihood that a facility located in a serious or
severe ozone non-attainment area could, with a PAL, increase
emissions of ozone precursors more than 25 tons over a 5-year
period.
(xvii) Requiring State implementation plans to allow PALs.
B. Clean Unit Exclusion:
(i) The concept of the clean unit exclusion.
(ii) Eligibility for the exclusion based upon whether an
emissions unit has undergone ``a valid BACT/LAER process or
State minor source BACT since 1990.''
(xviii) Ability of significant emissions increases to escape
new source review and further control for a period of 10 years,
or a period of 15 years.
(xiv) Eligibility for the exclusion based upon whether an
emissions unit ``installed Maximum Achievable Control
Technology (MACT), Reasonably Available Control Technology
(RACT) or undertook pollution prevention that required capital
expenditures . . . , provided the results are determined to be
comparable to BACT or LAER that would have been employed at the
time the control measures or devices were originally
installed.''
(xx) Eligibility for the exclusion based upon whether sources
``invest capital to purchase equipment or implement processes
that are inherently clean or lower emitting and which achieve
emission reductions comparable to BACT or LAER at the time the
investment was made.''
(xxi) The apparently self-implementing nature of this
exclusion.
(xxii) Requiring States to provide for the Clean Unit
Exclusion in their State implementation plans.
C. Pollution Control and Prevention Project Exclusion:
(i) The concept of the pollution control and prevention
project exclusion.
(ii) The exemption from new source review of pollution
control and prevention project physical changes or changes in
the method of operation that result in emissions increases
above the significance threshold.
(xxiii) A source's ability to qualify for the exclusion
merely by providing notice to the permitting authority and
``maintaining records supporting the source's determination
onsite.''
(xxiv) The eligibility of pollution prevention projects for
this exclusion.
(vi) Requiring States to provide for the pollution control
and prevention project exclusion in their State implementation
plans.
D. Actual to Projected Future Actual Methodology:
(i) The concept of a demand growth exclusion, including
making this exclusion available for non-utilities and
continuing to make it available for utilities.
(ii) Allowing sources owners or operators to determine
themselves whether an activity resulted in a significant net
increase in emissions, without requiring the permitting
authority to be involved.
E. Emissions Baseline:
For sources other than electric utility steam generating
units, an ``actual'' emissions baseline based upon ``the
highest consecutive 24 month period within the immediately
preceding 10 years, taking into account the current emissions
factor (which would reflect emissions limitations, other
required emissions reductions, and permanent shutdowns since
the baseline period) in combination with the utilization level
from the 24-month time period selected.''
F. Routine Maintenance, Repair and Replacement Safe Harbor:
(i) The concept of the routine maintenance, repair and
replacement exemption as it exists under current EPA
regulations, as an exemption from consideration as a
``modification'' under the NSR program. Please reference in
your response any relevant documentation, including
applicability determinations, guidance documents, statements
made by Agency representatives in litigation, briefs or
memoranda of law filed with a court, etc.
(ii) The concept of the routine maintenance, repair and
replacement safe harbor announced by the Administration, as a
threshold for exclusion from consideration as a
``modification'' under the NSR program.
(iii) The concept of the routine maintenance, repair and
replacement safe harbor as a threshold for exclusion from
consideration as a ``modification'' under the New Source
Performance Standard (NSPS) program.
(iv) For the NSPS program, the ``capital replacement value of
an affected source [as] a relevant basis for determining the
need for installing modern pollution controls when a project is
implemented.''
(v) For the NSPS program, an exclusion for projects that
``increase utilization at an affected source if they come below
`annual asset guideline repair allowance' percentage thresholds
(defined by the IRS for specific industry categories) ranging
from 1.5 to 15 percent.''
(vi) Whether ``the aggregate cost of maintenance expenses and
capital repair and replacement projects'' for relevant units
exceeding specified dollar thresholds is a basis for not
subjecting emissions increases from those activities to NSR.
(vii) Whether such an NSR safe harbor may be based upon
``annual dollar cost thresholds, averaged on a rolling basis
over a 5-year period (except where maintenance cycles in a
particular industry dictate a different period) established for
entire utility stationary sources and refinery and other
industry processing and production units . . . .''
(viii) EPA's basis for excluding from this calculation costs
incurred for installing and maintaining pollution control
technology.
Response. The legal basis for the final and proposed rules that EPA
plans to issue in the next few months will be set forth in the
preambles to the Federal Register notices for those rules.
Question 38a. Internal EPA Disagreements Over Directions of
Administration NSR Rule Changes.--In January of this year, EPA staff
prepared several charts detailing a series of topics and elements
associated with PALs; the clean unit exclusion; and a revised ``major
modification'' test for existing emissions units. The charts set forth
the initial directions by EPA's Office of Air and Radiation (OAR)
concerning these topics or elements; identified ``Resolved and Non-
Elevation Issues''; and ``Issues That Need Resolution.'' This last
category, in turn, set forth areas of serious disagreement among OAR,
EPA's Office of Enforcement and Compliance Assurance (OECA), and EPA's
Office of General Counsel (OGC) about the legality, validity and
consequences of OAR's initial directions. In an alarming number of
instances, OECA or OGC raised highly troubling objections to the legal
basis for certain of those directions, or to the air quality harms that
would result from those directions. Based upon a comparison between the
issues and objections in these charts, on one hand, and the intended
changes to the NSR rules recently announced by the Administration on
the other, it appears that the Administration has ignored, overridden
or otherwise rejected the objections reflected in these charts.
In light of the very serious concerns reflected in these documents,
which go the heart of whether EPA is correctly carrying out its
statutory responsibilities, and implementing the NSR program
requirements in a way that best protects the nation's air quality and
public health, respond to the following questions. For ease of
reference and where relevant, the questions are followed by page
numbers on these charts where the issues are discussed.
Identify all current or former EPA staff that participated in the
meetings that resulted in the creation of these charts, including the
offices for which these staff work or worked. Also identify the staff
that contributed to the creation of these charts.
Response. The following is a list of EPA staff (SES and political)
who participated in the meetings resulting in the creation of the
referenced NSR summary charts:
William Harnett, division director, Information Transfer and
Program Integration Division, Office of Air Quality Planning and
Standards.
Bruce Buckheit, director, Air Enforcement Division, Office of
Enforcement and Compliance Assurance.
Alan Eckert, principal associate general counsel, Office of General
Counsel.
William Wehrum, counsel to the assistant administrator, Office of
Air and Radiation.
Question 38b. Plantwide Applicability Limits (PALs). (i) Legal
rationale:
(a) Is the PAL approach planned for adoption by EPA
consistent with OGC's legal advice that ``Pals should work
within a netting frame work''? (1) What legal rationale has
been advanced by OAR that would not work within ``a netting
framework''? If PALs are not governed by a netting framework,
then what are PALs under the Clean Air Act and what legal
rationale justifies PALs?
(b) Disagreeing with OAR, OGC states that ``A PAL with no
adjustments are not comparable to current system, citing
industry study showing that current system results in loss of
32 percent of allowable emissions every 10 years.'' (1) What
studies, analysis or other experience is OAR relying upon to
support the claim that PALs are comparable to the current
system? Attach the industry study referenced above, as well as
any studies or analysis relied upon by OAR.
(c) Considering that PALs were first proposed by EPA in 1996,
that EPA has instituted or approved many PALs since then, and
that EPA now plans to move forward with adoption of a PAL
approach, how is it that ``no agreement'' existed on the
``legal rationale'' for PALs as of the drafting of this chart
in January 2002? (d) Was the issue of the ``legal rationale''
behind PALs elevated to EPA management, as suggested by this
chart, and what was the outcome of that elevation? (1)
(ii) PAL in conflict with section 182(c)(6):
(a) OGC states that a PAL ``is in conflict'' with Clean Air
Act section 182(c)(6), and notes that the ``[s]tatute requires
a 5-year rolling aggregation of net increases.'' (2) Did EPA
reject the legal advice of OGC in allowing 10-year PALs in
serious and severe ozone nonattainment areas and, if so, why?
What is the legal authority for 10-year PALs in serious and
severe ozone nonattainment areas? How does EPA reconcile a PAL
whose term exceeds 5 years in serious and severe ozone
nonattainment areas with section 182(c)(6)? Provide any
legislative history or quotes of statutory language to support
your responses.
(b) The chart indicates that ``[t]here was no resolution of
this issue pending outcome of further legal discussions. May be
an elevation issue.'' (2) Was this issue elevated to EPA
management and how was it resolved?
(iii) Basis for 10-year PAL:
(a) Disagreeing with OAR that a 10-year PAL is reasonable,
OGC states that ``PAL must be based on reasonably
contemporaneous period, which is more consistent with a 5-year
period.'' (3) What evidence in the Clean Air Act, its
legislative history, court decisions, or English usage is EPA
relying upon to support the claim that 10 years is a
``contemporaneous period'' within a netting framework? What
legal authority is EPA relying upon as the basis for a 10-year
PAL? Why was there ``no agreement on this issue'' as of January
2002? Was this issue elevated to EPA management, as suggested
by the chart, and how was the disagreement resolved?
(b) How does EPA reconcile the Federal 5-year statute of
limitations governing Clean Air Act violations with EPA's
ability to enforce Clean Air Act requirements associated with a
10-year PAL? (3)
(iv) PAL adjustments for newly applicable requirements:
(a) OGC states that it will elevate to EPA management ``issue
of not considering future applicable rules that are known at
the time the PAL is set.'' (4) Was this issue elevated and what
was the resolution?
(b) Will a PAL that is not adjusted for newly applicable
requirements be dirtier, that is allow more pollution, than one
that is? Why would OAR support the dirtier outcome of not
requiring the PAL to be adjusted downward to account for new
emissions limits that become effective during the PAL's
effective period?
(c) If a new emissions limit becomes effective during a PAL
term, requiring emissions at a given unit to be reduced, does
that not allow other units at the facility to pollute more so
long as the PAL is not exceeded, thereby undermining the air
quality benefit of the new emissions limit? What is the legal
basis, and policy rationale, for not requiring downward
adjustment of the PAL for Reasonably Available Control
Technology (RACT) and Maximum Achievable Control Technology
(MACT) requirements? What evidence does EPA find in the statute
or its legislative history for the apparent belief that
Congress did not intend air quality to benefit by the emissions
reductions achieved by RACT and MACT requirements?
(d) Under today's rules governing netting, may a source use
emissions reductions required by applicable requirements as
netting credits? [Check: Is the answer to this Yes? If so, then
drop this question.]
(v) Control requirements for new and existing units under the PAL:
(a) OAR expresses the intent to require no controls for new
and existing units under the PAL. (5) Identify all comments
from State and local officials, environmental groups, and
public health organizations supporting and, separately,
opposing, this approach. Identify all comments or statements
supporting this approach submitted by industry representatives.
If there are numerous industry comments that are responsive,
you may provide a representative selection.
(b) The failure to require controls for new or existing units
under a PAL would appear to produces a dirtier outcome than
requiring such controls; if you disagree, please explain. In
light of this, what is the policy rationale for refusing to
require new or existing units under a PAL? What is the legal
rationale? By failing to require such controls, how does EPA
believe it is carrying out the statutory purpose of requiring
grand fathered existing facilities to clean up over time?
(c) OGC disagrees with OAR's claim that a ``P4 study'' and
EPA's experience with PALs can be generalized given the ``self-
selecting nature'' and ``limited number'' of the sources
covered. What evidence is OAR relying upon in support of its
apparent belief that all sources eligible for the PAL recently
announced by EPA will control new units when not required to do
so? What differences exist between the sources covered by EPA's
P4 study and the universe of sources eligible for the PAL
planned for adoption by EPA? Does EPA believe that sources
given a choice between a PAL and the traditional form of NSR
regulation for modifications will select the option with the
greater air quality benefits? What evidence is EPA relying upon
in support of its belief? What evidence is EPA aware of that
contradicts this belief?
(vi) PAL renewal-setting level: The chart reveals OAR's intention
to require no adjustment downward to the PAL upon renewal. OAR also
intends to allow PALs to be renewed at the same level as the original
level, and therefore not use the actual emissions baseline existing at
the time of renewal. (7)
(a) Would this approach allow a source with actual emissions
well below the PAL to increase its emissions at any time in the
future without control, consuming increment in an attainment
area, for example, so long as other applicable requirements
were not violated (e.g., no NAAQS violation)?
Response. We believe that intra-agency discussions and
correspondence are internal and non-discoverable. Our policy and legal
justification for these rules will be set out in the final packages.
The data and information accumulated during the 10-year rulemaking
effort will be included in the public docket.
Question 38c. Clean Unit Test:
(i) What triggers NSR:
(ii) Duration:
(iii) Availability:
(iv) Process to Qualify:
(v) Application of Clean Unit designation to past
determinations:
Response. We noted in our June 13th Report and Recommendations that
EPA plans to finalize a 10-year duration for the Clean Unit provision,
but also propose to later revise the duration to 15 years. We will not
take final action on the 15-year proposal until after providing ample
opportunities for public comment.
Question 38d. Revised ``Major Modification'' Test For Existing
Emissions Units
(i) [Several categories of inquiries to include from chart]
Response. This question makes reference to categories of inquiries
from a chart. We did not receive a chart with such inquiries, so are
not able to provide a response.
Question 39a. Modification as Any Physical Change or Change in the
Method of Operation.--For the NSPS and NSR programs, the Clean Air Act
defines ``modification'' as ``any physical change in, or change in the
method of operation of, a stationary source which increases the amount
of any air pollutant emitted by such source or which results in the
emission of any air pollutant not previously emitted.'' 42 U.S.C.
Sec. 7411(a)(4) (emphasis supplied). As the United States Court of
Appeals for the 7th Circuit noted in its decision, Wisconsin Electric
Power Company v. EPA, 893 F.2d 901, 908-909 (Jan. 19, 1990), referring
to the views of one of the congressional architects of the 1977 Clean
Air Act amendments:
The Supreme Court reported in Chevron that Senator Muskie, one of
the principal supporters of the Clean Air Act, remarked: ``A source . .
. is subject to all the nonattainment requirements as a modified source
if it makes any physical change which increases the amount of any air
pollutant. . . .'' 467 U.S. at 853, 104 S.Ct. at 2787 (quoting 123
Cong. Rec. 26847 (1977)) (emphasis supplied). And other courts
considering the modification provisions of NSPS and PSD have assumed
that ``any physical change'' means precisely that 893 F.2d at 908. The
court concluded that to adopt WEPCO's more narrow definition of
``physical change'' would ``open vistas of indefinite immunity from the
provisions of NSPS and PSD.'' Id. at 909.
What evidence, if any, does EPA find in the Clean Air Act's
language or legislative history to contradict the conclusion that the
language ``any physical change in, or change in the method of operation
of, a stationary source'' is meant to be read as broadly as this
language reads on its face, as broadly as the 7th Circuit did in the
WEPCO decision, and as broadly as numerous other courts have read this
language?
Response. Please see the response to Question 37.
Question 39b. EPA has made the claim that Congress did not intend
for pollution control projects to be a physical change or change in the
method of operation subject to NSR, notwithstanding whether pollution
increases, including significant or toxic pollution increases, resulted
from such projects. See 57 Fed. Reg. 32319. The ``pollution control and
prevention project'' exclusion announced by the Administration appears
to rest on this same assertion. In addition, several other pollution-
increasing activities excluded from NSR under the Administration's
announced plans also appear to rest on the claim that those activities
are not physical changes or changes in the method of operation at a
stationary source within the meaning of the Clean Air Act.
For the following activities and measures, what evidence, if any,
does EPA find in the Clean Air Act's language or legislative history to
support the claim that these activities are not covered by the language
``any physical change in, or change in the method of operation of, a
stationary source''? Please quote that language and provide all
necessary citations.
(i) Pollution control and prevention projects, as defined by
EPA in its WEPCO rulemaking or June 13, 2002 announcements,
including those that ``increases the amount of any air
pollutant emitted by such source or which results in the
emission of any air pollutant not previously emitted.''
(ii) Changes, investments or processes occurring at a ``clean
unit'' as defined by EPA in its June 13, 2002 announcement
about a ``clean unit exclusion,'' including any activity
associated with those units that ``increases the amount of any
air pollutant emitted by such source or which results in the
emission of any air pollutant not previously emitted.''
(iii) ``Routine maintenance, repair, or replacement''
activities as set forth in the Code of Federal Regulations,
including those that ``increase the amount of any air pollutant
emitted by such source or which result in the emission of any
air pollutant not previously emitted.''
(iv) Activities covered or potentially covered by the
``routine maintenance, repair, and replacement'' safe harbor
proposal described by EPA on June 13, 2002.
Response. Please see the response to Question 37.
Question 40a. Public Participation in Permit Actions for Pollution-
Increasing Activities in Their Communities
The announced changes appear likely to drastically reduce the
number of modifications to existing major sources that undergo NSR,
particularly in nonattainment areas. By avoiding major NSR, these
changes will also avoid the public scrutiny provided through NSR.
Has EPA done any analysis to determine how many of those source
activities--previously treated as modifications subject to NSR/PSD but
now exempt from NSR/PSD as a result of EPA's planned changes will be
subject to State minor NSR programs pursuant to Clean Air Act section
110(a)(2)(C)? If so, please provide the Agency's best estimate; if not,
please explain why.
Response. EPA will be prepared to discuss these issues as they
relate to the final rules upon publication. There may also be subjects
we can appropriately explore on aspects of the proposed rule once a
Notice of Proposed Rulemaking has been published.
Question 40b. EPA regulations require Federal, federally delegated,
and SIP-approved State minor NSR programs to provide opportunities for
public comment and review for all new minor sources and ``minor
modifications'' at existing sources. See 40 CFR Sec. Sec. 51.161
51.164. How many State SIP-approved minor NSR programs, and federally
delegated State minor NSR programs currently provide opportunities for
public comment and review consistent with these Federal regulations?
How many do not? How many ``SIP calls'' or other corrective actions has
EPA undertaken with respect to State minor NSR programs that are
inconsistent wit these Federal regulations? Does EPA plan to require
States to take corrective actions to their State minor NSR programs
that are inconsistent wit these Federal regulations, by the time EPA
adopts final changes to its NSR regulations?
Response. At the current time, most States have minor NSR programs
that have been approved into the States' SIPs. We are aware that there
are concerns that some of these SIPs (which we approved through notice
and comment rulemaking) may not comport with the requirements in our
regulations. However, we have not made any determination that any
specific program is inadequate. We plan to review this issue in the
future and, if appropriate, take the appropriate actions to ensure that
all programs comport with our regulations.
Question 41a. Federalism, State Preemption, and Criticisms by State
Air Regulators.--In its 1996 NSR rulemaking proposal, EPA proposed to
adopt the rule changes ``as a menu of options from which a State may
pick and choose in order to customize a specific approach for its
individual needs.'' 61 Fed. Reg. 38250, 38253 (July 23, 1996). EPA
explained this approach as follows : ``For instance, if EPA adopts in
its final rulemaking both the 'Clean Unit' exclusion and the PAL
option, a State could retain its current federally approved
applicability approach without making changes, retain its existing
approach and add a Clean Unit Test, or retain its existing approach and
add both a Clean Unit Test and an option for PAL.''
How many comments from State or local officials did EPA receive
opposing the proposal to allow States the option to adopt or decline to
adopt the various rule changes? How many comments from State or local
officials did EPA receive supporting this proposal? Please attach both
supportive and non-supportive State and local comments.
Response. EPA has already provided a complete set of all comments
received on the NSR proposed rules. We are currently preparing a
complete summary of these comments and our responses. This ``response
to comment'' document will be available when the regulations are
published.
Question 41b. Will EPA reject the approach set forth in its 1996
proposal and force States to adopt any or all of the changes to the NSR
regulations, regardless of whether a State wishes to adopt those
changes, regardless of whether a State believes the changes will weaken
their current regulations, or regardless of whether a State believes
one or more of the changes would degrade air quality or hamper State
efforts to attain or maintain the NAAQS? If EPA has not reached a final
decision on this question, is EPA considering forcing these changes
upon States opposed to adopting them? If EPA has decided this or is
considering doing this, how does EPA reconcile this position with Clean
Air Act section 116, which (1) retains State authority to adopt or
enforce ``any standard or limitation respecting emissions of air
pollutants or any requirement respecting control or abatement of air
pollution, and (2) prohibits States or political subdivisions from
adopting or enforcing any emission standard or limitation which is less
stringent than standards or limitations under an applicable
implementation plan or sections 110, 111 or 112 of the Act?
Response. Until such time as the NSR Reform rulemaking package is
published, it would be premature to say what the Agency will reject or
accept relating to State regulations.
Question 41c. In a January 23, 2002 letter to Administrator Whitman
from the State and Territorial Air Pollution Program Administrators
(STAPPA) and Association of Local Air Pollution Control Officials
(ALAPCO), the nation's State air regulators expressed deep concerns
about the closed process conducted by EPA in the all-important months
preceding announcement and adoption of changes to the NSR program
regulations. These State officials also expressed serious concerns
about the directions of EPA's changes and ``the impact that these
changes will have on our nation's ability to achieve and sustain clean,
healthful air.'' The serious concerns held by these officials were not
assuaged by EPA's June 13, 2002 announcements, with a response
statement released by STAPPA/ALAPCO on that date noting that
``[n]othing in EPA's announcement today indicates that the Agency has
revised its NSR reform plans to address our concerns.'' This statement
reiterated the States' displeasure over EPA's refusal to ``convene a
broad stakeholder meeting to allow for an open dialog on the reforms
under consideration.'' The State air regulators' statement ended with
this chilling conclusion: ``we believe the controversial reforms being
pursued by EPA will not only result in unchecked emission increases
that will degrade our air quality and endanger public health, they will
also undermine the chances of any responsible changes to the NSR
program ever taking effect.''
Please explain why the Administration has failed to address the
concerns of State regulators with respect to the issues identified
below. In addition, provide a detailed response to the specific
criticisms that STAPPA & ALAPCO levels at these issues; if you disagree
with these criticisms, explain in detail why STAPPA & ALAPCO are wrong.
Finally, explain all analysis undertaken by EPA with respect to these
issues that contradicts the conclusion by STAPPA & ALAPCO that ``the
controversial reforms being pursued by EPA will . . . result in
unchecked emission increases that will degrade our air quality and
endanger public health.'' Attach all documents reflecting or supporting
that analysis.
Response. In 1992, EPA empaneled a Federal advisory committee
(FACA) for the sole purpose of investigating whether NSR could be
improved and, if so, how. STAPPA and ALAPCO were charter members of
this FACA. After nearly 4 years of extensive consultation and hard
work, EPA published a proposed rule addressing many of the ideas
developed during this multi-year effort. Between the 1996 proposal and
January 2001, EPA held two public hearings and more than 50 meetings
with a variety of stakeholders including environmental groups,
industry, and State, local and Federal Agency representatives. Over 600
detailed comments have been submitted to EPA between 1992 and 2001.
In response to the President's recent request for EPA's review of
the NSR program, the Agency met with more than 100 groups, held four
public meetings around the country, and received more than 130,000
written comments. Moreover, over the years, EPA has seldom turned down
a request to meet with any stakeholder group that wishes to discuss
improving NSR. STAPPA and ALAPCO have been long-time and active
participants in this process. The claim that this has been a ``closed
process'' are obviously baseless.
We disagree that our NSR reforms will result in ``unchecked
emissions increases.''
Question 42a. Air Quality Impacts.--In the 1996 rulemaking
proposal, EPA stated that it had prepared a draft Regulatory Impact
Analysis (RIA) for the proposed regulations and included that draft RIA
in the docket for the proposed regulations. 61 Fed. Reg. at 38318. With
that document as background and context, please explain the bases for
the following estimated impacts:
(i) Revising the period for establishing the baseline for actual
emissions from which to calculate emission increases to the highest
consecutive 12 months in the previous 10 years would cause 20 percent
fewer sources to be classified as major;
(ii) Adding exemptions for pollution control projects and clean
units would cause another 6 percent of sources to be classified as
major;
(iii) Allowing sources to use projected future actual emissions in
calculating whether increases in emissions resulting from physical or
operational changes trigger NSR would exclude an additional 25 percent
of sources from major NSR.
Please identify differences between the proposed regulations and
the planned final regulations that could alter these estimated impacts
(for example, if every permitting authority were required to adopt a
pollution control project exclusion, the number of exempt sources would
likely be higher than it would have been if the exclusion were
optional).
Response. (i) & (ii) In preparation of the 1996 RIA for the
proposed NSR Reform package, the Agency had several choices for its
analytical baseline. Since it was the most recent analysis of the NSR
process at the time, the Agency chose to use the baseline from the ICR
prepared in 1994. From that baseline, to determine the expected number
of permits affected by the NSR Reform rule, EPA analyzed Standard
Industrial Code (SIC) groups which tend to have the greatest number of
NSR permits each year. Three major changes impacted the number of
sources which must undergo major NSR in the 1996 RIA: a new
applicability test for ``Clean Units'', a change in the netting
baseline, and an exemption for Pollution Control Projects (PCPs). The
number of sources not subject to permitting under the major NSR through
these programs is not additive. However, the Agency expected the effect
of this double-counting to be negligible and therefore double counting
was ignored. Combining all the applicability changes above, the Agency
estimated there are approximately 340 sources that would have been
subject to major NSR and would not have needed an NSR permit as a
result of the proposed changes. We note that the environmental benefits
of the NSR programs are not necessarily tied to the number of permits
actually issued or that on the basis of certain assumptions, might be
required under the program.
(iii) The 1996 RIA for the NSR Reform program also claimed an
actual-to-future-actual applicability test, in conjunction with an
extension to the actual emissions baseline, could reduce the number of
affected sources (from the 1995 baseline) by 25 percent. As with the
determination of the expected effect of the other programs addressed in
this question, there are no data available upon which the Agency could
rely for its initial assessment of that impact. EPA polled industry
experts and State and local permitting experts on the potential impact
of the actual-to-future-actual applicability test and included a
representative (and conservative) estimate from that polling process in
the 1996 RIA.
Question 42b. Please explain how EPA has revised its RIA and
provided an opportunity for permitting authorities, members of the
public, and regulated entities to comment on the revised RIA.
Response. The public was afforded an opportunity to comment on this
RIA at the time of the 1996 proposal. Very few comments were received.
The RIA for the final rule and additional analyses of the final rule
will be placed in the docket when EPA publishes the rule.
Question 42c. Please explain how EPA has responded to comments on
the additional analysis conducted to assess the impacts of the
regulations as the Agency plans to finalize them.
Response. EPA considered the comments submitted on the 1996
proposed rule. A complete summary of these comments and our responses
will be available when we publish the rules.
Question 42d. If the Agency does not plan to conduct further
analysis relevant to the rules that the Agency has announced plans to
finalize, on what basis would the Agency justify that decision?
Response. Until we publish the proposed regulations, EPA continues
to work on analyzing the impacts of different regulatory options. All
analyses that are conducted will be available at the time the rules are
published.
Question 42e. Have any EPA offices, personnel, or contractors
worked to estimate the impacts of changing the NSR regulations (either
as proposed or in any other way) more recently than the draft RIA
described in the proposal? If so, please describe those activities and
their subject, scope, work product, conclusions, and outcome.
Response. EPA continues to work on analyzing the impacts of
different regulatory options. All analyses that are conducted by EPA
offices, personnel, or contractors will be available at the time the
rules are published.
Question 43. The ``clean unit exclusion'' announced by the
Administration would provide that emissions increases from a qualifying
unit ``would only trigger NSR if permitted allowable emissions
increase.'' The Administration claims that ``[t]he Clean Unit Exclusion
would provide greater certainty and flexibility for changes at clean
emission units without sacrificing the environmental benefit provided
by the current program or meaningful public participation.'' In stark
contrast, EPA previously has noted the following about NSR exemptions
turning upon whether a source's potential to emit increases:
An exclusion of projects that do not increase a source's potential
to emit would create an exclusion that could considerably reduce the
effectiveness of the NSR program. Almost any modernization that a
source undertakes has the incidental effect of lowering emissions. A
new emissions unit or modernization generally has fewer emissions than
one built 40 years earlier. Since these types of changes would not
likely increase a source's potential to emit, industry would claim this
as a pollution prevention project--even though its pollution prevention
aspects are likely to be negligible and actual emissions may increase
dramatically due to increased utilization. ``Responses to Issues Raised
by Industry on Clean Air Act Implementation Reform,'' (May 30, 1995),
at 20 (Response to Issue 3: Pollution Prevention Exemption)
On what basis does EPA now conclude that a clean unit exclusion,
applied retroactively and prospectively, and turning upon whether the
unit's permitted allowable emissions increase, would not ``considerably
reduce the effectiveness of the NSR program.'' What analysis has EPA
undertaken to support this conclusion and to contradict its earlier
conclusion?
Response. In 1996, EPA proposed and took comment on an alternative
applicability test based on a ``potential-to-potential'' test. The
Agency expressed many concerns with the environmental impact of such an
approach. However, we also received many comments that support this
approach based on the benefits such an approach provides. For example,
commenters stated that it would reduce the complexity of the NSR
applicability determination, reduce unnecessary costs and delays,
prevent the confiscation of unused capacity, and improve compliance and
enforcement. The Clean Unit test we are currently considering would
capture the benefits of a potential-to-potential test but adds
additional safeguards to ensure environmental protection because the
installation of clean units represent state-of-the-art emissions
controls that will have undergone public review and a review for
impacts on air quality.
Question 44. If the 1.5-15 percent capital investment threshold
being contemplated for the changes to the definition of routine
maintenance, repair and replacement safe harbor were in place at the
time of the alleged NSR violations by utilities and refineries, how
many, if any, of the alleged violations prosecuted since initiation of
EPA's NSR enforcement initiative would have qualified for the safe
harbor? For any activities qualifying for the safe harbor and avoiding
NSR pollution controls, how many tons of pollution, on an annual and
total basis, would have been allowed to increase potentially
uncontrolled since the time of the modification?
Response. The capital investment threshold concept is still in the
pre-proposal stage. The issues presented in this question will be
addressed in the proposal.
______
New Source Review: Report to the President, June 2002
Recommended Improvements to the New Source Review Program
The President's National Energy Policy Report directed the U.S.
Environmental Protection Agency (EPA), in consultation with the
Department of Energy (DOE) and other relevant agencies, to review the
New Source Review (NSR) program and to issue a report on the impact of
the program on investment in new utility and refinery generation
capacity, energy efficiency and environmental protection. Having
carefully considered the comments received during this review and other
relevant information, EPA has identified the following ways in which to
reform existing rules and guidance to improve and streamline NSR
applicability provisions. Also, with respect to electricity generators
and refiners, these changes will help to address the extreme demands
being placed on our nation's energy supply infrastructure. These
changes would assure that the NSR program operates in a manner that
provides greater regulatory certainty and flexibility for business
investment decisions, while at the same time protecting the
environment.
(1) plantwide applicability limits (pals)
EPA would finalize its 1996 NSR reform proposal for PALs by
allowing source owners to make changes to their facilities without
obtaining a major NSR permit, provided their emissions do not exceed
the plantwide cap. A source could apply for and obtain a PAL based upon
its actual emissions baseline. The actual emissions baseline would be
determined according to the method described in Section 4, below. The
framework of the actual PAL requirements is as follows: PALs would be
valid for a term of 10 years. Once a PAL is established at a facility,
the company may make any change without undergoing major NSR provided
the emissions do not increase above the PAL level. Upon renewal of the
PAL, the emissions levels set by the PAL may be reevaluated by the
State or local permitting authority to determine the need for an
adjustment based on air quality needs, advances in technology and
control cost effectiveness considerations. A PAL may be increased
provided certain criteria are met. If the area is nonattainment, the
State must provide an opportunity for public participation, model the
increase as appropriate, apply control technology to the changed or new
emissions unit and secure the necessary offsets. If the area is in
attainment, the State must provide an opportunity for public
participation, model the increase, apply control technology to the
changed or new emissions unit and undertake any mitigation measures
that might be required. Using this approach, we also plan to develop an
alternative that would give a source the option of obtaining a PAL
based on allowable emissions.
We believe that PALs offer a number of advantages for industry,
permitting authorities and the environment. First, PALs provide
certainty and operational flexibility. Source owners would be able to
make any change to their facilities without obtaining a major NSR
permit, provided their emissions do not exceed the plantwide cap. We
believe the cap ensures environmental protection and that facility
owners that use PALs will have the incentive to install good controls
to maximize their flexibility and certainty. Finally, the public
obtains a complete picture of the emissions profile of the source and
is assured that there is an opportunity for public participation in the
event emissions are increased in the future.
(2) clean unit exclusion
EPA would finalize its 1996 proposal for the Clean Unit Exclusion.
A unit would be considered to be ``clean'' if it underwent a review
process that resulted in its achieving Federal Best Available Control
Technology (BACT) or Lowest Achievable Emission Rate (LAER) control
levels or comparable State minor source BACT. A clean unit would only
trigger NSR if permitted allowable emissions increase. This exclusion
would provide an incentive for source owners to install the best
emission controls on new or modified emission units. Specifically, a
source that underwent a valid BACT/LAER process or State minor source
BACT since 1990 would be entitled to the exclusion. The exclusion would
be valid for 10 to 15 years and would run from the date the control
technology was installed or the project was implemented. Sources that
installed Maximum Achievable Control Technology (MACT), Reasonably
Available Control Technology (RACT) or undertook pollution prevention
that required capital expenditures could also qualify for the
exclusion, provided the results are determined to be comparable to BACT
or LAER that would have been employed at the time the control measures
or devices were originally installed. Finally, sources that invest
capital to purchase equipment or implement processes that are
inherently clean or lower emitting and which achieve emission
reductions comparable to BACT or LAER at the time the investment was
made would also qualify for the exclusion. The Clean Unit Exclusion
would provide greater certainty and flexibility for changes at clean
emission units without sacrificing the environmental benefit provided
by the current program or meaningful public participation.
(3) pollution control and prevention projects
The EPA's policy is to promote pollution control and prevention
approaches and to remove regulatory disincentives to companies seeking
to develop and implement these solutions to the extent allowed under
the Clean Air Act. As part of finalizing its 1996 NSR reform
rulemaking, the Agency will revise its Prevention of Significant
Deterioration (PSD) and nonattainment NSR regulations to exclude from
NSR projects that will result in a net overall reduction of air
pollutants, including where a source switches to a cleaner burning
fuel, regardless of the primary purpose of the project. Specifically,
the Agency will revise its PSD and nonattainment regulations to exclude
from NSR the addition, replacement or use at an existing emissions unit
of any system, process, control or device whose overall net impact on
the environment is beneficial, subject to certain conditions. As an
overarching safeguard, a project cannot result in an emissions increase
that will cause a violation of a National Ambient Air Quality Standards
(NAAQS) or PSD increment or result in an adverse impact on Class I
areas. Moreover, the complete replacement or reconstruction of an
existing emissions unit will not qualify under this exclusion. For
example, replacement of a pulverized coal boiler with an atmospheric
fluidized bed combustion unit, with inherent NOx and SO<INF>2</INF>
reduction technology, would not be treated as a pollution control
project for purposes of this exclusion. Projects qualifying for this
exclusion will not be considered to be a ``physical or operational
change'' within the definition of major modification under the Act.
EPA will provide a list of environmentally beneficial technologies
that will be presumptively eligible for the exclusion. This list shall
include those technologies identified in the WEPCO pollution control
exclusion (40 CAR Section 52.21(B)(32)) and those set forth in EPA's
1996 proposed NCR reform rulemaking (61 far 38250, 38261 (1996)).
Unless covered under another NCR exclusion, pollution prevention and
control projects that are not on this list must be determined to be
environmentally beneficial before such projects can qualify to be
excluded from NCR. Furthermore, new pollution control and prevention
technologies that are not on the list also can qualify for case-by-case
approval for this exclusion if their effectiveness in reducing
emissions is demonstrated in practice, they are determined to be
environmentally beneficial and their application will not cause a
violation of a NAAQS or PHD increment or result in an adverse impact on
Class I areas. EPA will establish a process through rulemaking for
adding pollution control and prevention technologies to the list of
projects that will be presumed to be environmentally beneficial.
A source may qualify for the exclusion by providing prior notice to
the permitting authority and maintaining records supporting the
source's determination onsite. A source would have the option of
seeking a determination from its permitting authority prior to
implementing the exclusion.
(4) actual to projected future actual methodology
EPA would finalize its 1996 NCR reform rulemaking by using an
actual to projected future actual methodology for calculating emissions
increases for all industrial sectors. Owners and operators of
facilities would calculate emissions increases for a physical change or
change in method of operation at an existing unit by comparing
representative pre-change actual emissions with projected post-change
actual emissions. The ``actual to future actual'' test would be applied
to all physical or operational changes at existing sources, except
those that are an addition of a new unit or constitute a complete
replacement of an existing unit. Records supporting the source's
determination and records of actual emissions for the following 5 years
must be maintained on site.
Causation.--Consistent with pre-existing statutory and regulatory
requirements, only emissions increases caused by a given change are
considered in measuring the emissions increase associated with the
change. In particular, as part of the actual to projected future actual
methodology, EPA will continue to apply the causation test incorporated
into the WEPCO rule. EPA will exclude from the emissions increase
calculation that portion of the post-change emissions that both: (1)
could have been accommodated before the change within the
representative baseline period; and (2) is attributable to an increase
in projected capacity utilization at the unit that is unrelated to the
particular change.
Actual Emissions Baseline.--For sources other than electric utility
steam generating units, the actual emissions baseline will be the
highest consecutive 24-month-period within the immediately preceding 10
years, taking into account the current emissions factor (which would
reflect emissions limitations, other required emissions reductions, and
permanent shutdowns since the baseline period) in combination with the
utilization level from the 24-month time period selected.
(5) routine maintenance, repair and replacement (rmr&r)
Safe Harbor Test: Through notice and comment rulemaking, EPA will
set forth cost-based thresholds using well-established precedents from
the Agency's longstanding New Source Performance Standard (USPS)
regulations. Projects whose aggregated costs are below the threshold
would automatically be given RMR&R treatment. Projects whose costs
exceed the threshold would remain eligible for RMR&R treatment if they
otherwise qualify, without any presumption that they did not qualify by
virtue of their being outside the safe harbor.
In approaching this test, we have considered two different
provisions in the USPS standards. First, the reconstruction provisions
of 40 CAR Section 60.15 clearly provide that capital replacement value
of an affected source is a relevant basis for determining the need for
installing modem pollution controls when a project is implemented.
Second, the USPS excludes projects that increase utilization at an
affected source if they come below ``annual asset guideline repair
allowance'' percentage thresholds (defined by the IRS for specific
industry categories) ranging from 1.5 to 15 percent.
These USPS provisions would be adapted to operate in the NSR
context. For example, the NSPS limits operate on specific projects, but
in the context of an RMR&R safe harbor, annual dollar cost thresholds,
averaged on a rolling basis over a 5-year period (except where
maintenance cycles in a particular industry dictate a different period)
established for entire utility stationary sources and refinery and
other industry processing and production units, might be more
appropriate. These thresholds would be applied so that if the aggregate
cost of maintenance expenses and capital repair and replacement
projects for the relevant unit do not exceed the specified dollar
threshold then the activities would be deemed to be ``routine
maintenance'' and, thus, not subject to NSR.
The cost threshold for the relevant source or unit would be set so
as to cover RMR&R capital and non-capital costs incurred to facilitate
the safety, efficiency, and reliability of the operation of the unit.
In the context of the NSPS increase in production rate exclusion, these
are set by reference to historical invested basis. In the context of
establishing a safe harbor for routine maintenance, repair, and
replacement, however, a more appropriate comparison point might be
capital replacement cost or another measure that sets a consistent
threshold for all facilities in a given industry.
As noted above, under the NSPS exclusion for increases in
production rate, the annual cost thresholds are set on an industry-by-
industry basis, with an ``annual asset guideline repair allowance''
percentage assigned to each industry. These percentages range from 1.5
percent to 15 percent. There is good reason to think that the industry-
specific basis and the specific percentages are appropriate in the
RMR&R context as well. EPA would also entertain comment, however, on
the appropriateness of the industry-specific approach and the
appropriateness of the particular thresholds for the various industries
in this context.
Excluded Costs: Costs incurred for installing and maintaining
pollution control technology would not be included in calculating costs
under the safe harbor threshold test. EPA also would consider excluding
certain costs associated with forced outages involving the
unanticipated failure of one or more major components.
Expenses Beyond the Safe Harbor: If aggregate maintenance costs of
work undertaken exceed the applicable cost threshold, that work would
not thereby be presumed to be non-routine.
Other Considerations: EPA also would take comment on particular
safe harbor implementation issues. For example, as noted above, the
Agency intends to set thresholds at levels that will cover the RMR&R
costs needed to facilitate the safety, efficiency, and reliability of
operations at industrial facilities. Because expenditures that fall
below these thresholds would automatically be excluded from NSR, the
Agency is concerned that, in some cases, such thresholds might allow a
facility to undertake relatively low-cost projects (such as
installation of new burners or painting equipment) that can increase
emissions significantly and should not automatically be excluded from
NSR. As part of the rulemaking for setting cost-based thresholds, EPA
could identify specific types of projects that cannot be excluded from
review by virtue of the thresholds. However, for some types of sources,
such as electric utilities and refineries, the better approach may be
to utilize maximum achievable hourly emissions rate as the mechanism
for addressing this concern.
Definitional Issues.--Through notice and comment rulemaking, EPA
will propose that the replacement of existing equipment with equipment
that serves the same function and that does not alter the basic design
parameters of the unit (for example in the case of utilities this means
maximum heat input and fuel consumption specifications) typically would
be considered RMR&R. In addition, this rulemaking will provide clear
guidelines for RMR&R activities undertaken to facilitate, restore, or
improve efficiency, reliability, availability, or safety within normal
facility operations. EPA also will consider provisions identifying the
types of projects that are undertaken as RMR&R activities in particular
industrial sectors. The absence of a project from such a list would not
disqualify it from being considered RMR&R but would simply result in
its being evaluated on a case-by-case basis as to whether it was
routine.
In the case of the utility sector, equipment that is maintained,
repaired and replaced can be categorized along functional lines (for
example, boiler tube assemblies, air heaters, coal handling equipment,
pumps, fans, etc.) Using these categories, EPA could identify RMR&R
activities undertaken to facilitate reliability, availability,
efficiency, or safety within normal facility operations. In particular,
the EPA would focus on projects where the consequences of delaying or
foregoing the work could lead to lower availability or the failure of
the generating unit and create or add to safety concerns. For example,
DOE suggests that such a rule could be informed by maintenance, repair
and replacement activities identified as common practice by the North
American Electric Reliability Council.
Along the same lines, EPA could identify routine maintenance,
repair and replacement undertaken by refineries during ``turnarounds.''
Also in the context of RMR&R, EPA will address energy efficiency
projects. EPA will affirm that existing NSR rules are not intended to
discourage activities that increase efficiency. The Agency will propose
that energy efficiency improvements undertaken through routine
maintenance, replacement and repair activities will be considered to be
RMR&R. In this context, energy efficiency projects will be considered
to be routine if the improvement results from the replacement of
existing equipment with equipment that serves the same function and
that does not alter the original design parameters of the unit (for
example in the case of utilities this means maximum heat input and fuel
consumption specifications).
EPA will also take steps to provide additional certainty about
RMR&R activities during the pendency of this rulemaking.
(6) debottlenecking
Through notice and comment rulemaking, EPA will clarify that, when
calculating actual emissions associated with a physical change or
change in the method of operation, sources generally should look only
at the unit undergoing the change. Emissions from units ``upstream'' or
``downstream'' of the unit being changed should be considered only when
the permitted emissions limit of the upstream or downstream unit would
be exceeded or increased as a result of the change.
(7) aggregation
Through notice and comment rulemaking, EPA would clarify its
nonaggregation policy as follows. For purposes of determining NSR
applicability, a project would be considered separate and independent
from any other project at a major stationary source unless (1) the
project is dependent upon another project to be economically or
technically viable or (2) the project is intentionally split from other
projects to avoid NSR. Also, EPA generally would defer to the States to
implement the Agency's aggregation rule.
NEW SOURCE REVIEW: REPORT TO THE PRESIDENT
Overview
The New Source Review (NSR) program is one of many programs created
by the Clean Air Act to reduce emissions of air pollutants--
particularly ``criteria pollutants'' that are emitted from a wide
variety of sources and have an adverse impact on human health and the
environment. Other key programs include the Title IV Acid Rain Program,
``MACT'' standards and other air toxics standards, New Source
Performance Standards, the 22-state NO, ``SIP Call,'' the Regional Haze
Program, numerous mobile source programs, and other State and local
SIP-based emissions standards. Government officials from both major
political parties and industry groups have expressed the belief that
the NSR program is unnecessarily complicated and often serves as an
unnecessary obstacle to environmentally beneficial projects in the
energy sector, such as those that improve energy reliability and
efficiency and promote the use of renewable resources.
The President's National Energy Policy Development Group asked EPA
to investigate whether the NSR program does, in fact, have such
impacts. The Agency's review of the NSR program was broad-based. EPA
held four public hearings, had individual meetings with over 100 groups
representing the public, industry and State and local agencies, and
reviewed over 130,000 comments from private citizens, environmental
groups, State officials and industry representatives.
With regard to the energy sector, EPA finds that the NSR program
has not significantly impeded investment in new power plants or
refineries. For the utility industry, this is evidenced by significant
recent and future planned investment in new power plants. Lack of
construction of new greenfield refineries is generally attributed to
economic reasons and environmental restrictions unrelated to NSR.
As applied to existing power plants and refineries, EPA concludes
that the NSR program has impeded or resulted in the cancellation of
projects which would maintain and improve reliability, efficiency and
safety of existing energy capacity. Such discouragement results in lost
capacity, as well as lost opportunities to improve energy efficiency
and reduce air pollution.
For the refining and other industries, EPA concludes that NSR as
applied to existing plants discourages projects that would have
provided needed capacity or efficiency improvements and would not have
increased air pollution--in fact in some cases air pollution may have
decreased. EPA believes this can result in lost capacity or foregone
opportunities to increase capacity without increasing emissions.
Finally, with regard to environmental protection, EPA concludes
that preventing emissions of pollutants covered by NSR does result in
significant environmental and public health benefits. Specifically
quantifying the NSR program's contribution to these benefits is very
difficult because of the variety of Clean Air Act programs that address
these pollutants and because there is no tracking by any government
agency of the reductions in emissions that sources make due to the
program. Moreover, EPA recognizes that the Agency does not currently
have other information that would be necessary to quantify risk
reduction benefits associated with the program. However, EPA believes
that the inability to make exact estimates does not mean that the
benefits of the NSR program are insignificant. EPA also believes,
however, that for particular industry sectors the benefits currently
attributed to NSR could be achieved much more efficiently and at much
lower cost through the implementation of a multi-pollutant national cap
and trade program. In particular the President's Clear Skies initiative
is a much more certain and effective way of achieving emissions
reductions from the power generation sector.
For virtually the entire history of the NSR program,
representatives of industry, State and local agencies, and
environmental groups have worked with EPA on developing improvements to
the NSR program. These efforts came to a head in 1996, when EPA
proposed a rule to ``reform'' the NSR program. Even after the proposal,
stakeholders have invested countless hours in trying to find ways to
make the program better. Based on the conclusions of this study and the
recommendations from the State Governors and Environmental
Commissioners\1\ and other stakeholders, EPA now plans to finish the
task of improving and reforming the NSR program.
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\1\ See, Resolution Number 01-12, Environmental Council of States
on Reform of the New Source Review Regulations dated August 28, 2001,
National Governors Association Policy Position, NR-18 Comprehensive
National Energy Policy; Section 18.6.
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i. the charge to epa
In its May 2001 National Energy Policy Report, the National Energy
Policy Development (NEPD) Group recommended that the Administrator of
the Environmental Protection Agency (EPA), in consultation with the
Secretary of Energy and other Federal agencies, ``review New Source
Review regulations, including administrative interpretations and
implementation, and report to the President within 90 days on the
impact of the regulations on investment in new utility and refinery
generation capacity, energy efficiency, and environmental protection.''
Consistent with this recommendation, EPA conducted its examination and
is now issuing this report. This report describes EPA's conclusions
about the impacts of NSR on these three issues based on its review of
the available information and comments.
ii. background
EPA assembled an interagency team for this project, including
representatives from the Department of Energy (DOE), Department of the
Interior (DOI), Office of Management and Budget (OMB), White House
Council on Environmental Quality (CEQ), and the National Economic
Council (NEC). In consultation with this group, EPA prepared a
background paper, which was released on June 22, 2001 (EPA Background
Paper). This paper described available data relevant to the three
issues EPA was charged with reporting on: investment in utility and
refinery capacity, energy efficiency, and environmental protection. The
background paper included EPA's own data, as well as data provided in a
supporting report by ICF Consulting Inc. (ICF Report), which summarized
ICF's survey of the available literature and public statements on NSR
issues. The background paper presented the data to facilitate public
comment, and to provide the opportunity for external reviewers to
provide additional relevant data. The background paper did not draw
conclusions or make recommendations.
Following the background paper's release, EPA initiated an
intensive public outreach effort, consisting of three components: (1) a
30-day public comment period; (2) a series of four public hearings held
in locations across the country; and (3) a series of meetings with more
than 100 stakeholder groups, including environmental organizations,
industry representatives, and. State and local governments. During this
public outreach period, EPA received written comments from over 130,000
individuals and organizations. A total of 255 people testified at the
four hearings. All of the materials received during the public outreach
period, including written comments, transcripts of the hearings, and
attendance lists and written materials in connection with the
stakeholder meetings, are available in public docket number A-2001-19
at the EPA's Office of Air and Radiation Docket and Information Center.
This report discusses the statutory and regulatory provisions of
the New Source Review (NSR) pre-construction permitting program. While
the report explains the views of many parties regarding the
requirements of the NSR program, it is not intended to affect the NSR
program or actions that EPA has taken to implement or enforce the NSR
program\2\. This report does not substitute for statutory provisions or
regulations, nor is it a guidance document reflecting EPA's
interpretation of statutory or regulatory provisions. Its purpose is to
summarize information that EPA has received relating to the NSR program
and to report on EPA's findings concerning whether the NSR program has
affected investment in new utility and refinery generation capacity,
energy efficiency, and environmental protection.
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\2\ Note that many parties submitted comments concerning issues
unrelated to the NEPD's recommendation for EPA to review on the impact
of the regulations on investment in new utility and refinery generation
capacity, energy efficiency, and environmental protection. For example,
numerous parties offered comments as to the merits of pending NSR
enforcement cases. This report does not summarize issues unrelated to
the NEPD's charge.
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New Source Review
EPA is strongly supportive of the goals of the NSR permitting
program, whose basic requirements are established in parts C and D of
Title I of the Clean Air Act (CAA). The purpose of the NSR program is
to protect public health and welfare, as well as national parks and
wilderness areas, as new sources of air pollution are built and when
existing sources are modified in a way that significantly increases air
pollutant emissions. Specifically, NSR's purpose is to ensure that when
new sources are built or existing sources undergo major modifications:
(1) air quality improves if the change occurs where the air currently
does not meet Federal air quality standards; and (2) air quality is not
significantly degraded where the air currently meets Federal standards.
The fundamental philosophy underlying the NSR program is that a source
should install modern pollution control equipment when it is built (for
new sources) or when it makes a major modification (for existing
sources). Congress believed that incorporating pollution controls into
the design and construction when new units are built, or when major
modifications occur, is generally more efficient than adding on
controls after construction.
The NSR program is by no means the primary regulatory tool to
address air pollution from existing sources. The Clean Air Act provides
for several other public health-driven and visibility-related control
efforts: for example, the National Ambient Air Quality Standards
Program implemented through enforceable State Implementation Plans, the
NOx SIP Call, the Acid Rain Program, the Regional Haze Program, etc.
Thus, while NSR was designed by Congress to focus particularly on
sources that are newly constructed or that make major modifications,
Congress provided numerous other tools for assuring that emissions from
existing sources are adequately controlled. For example, the national
cap on SO<INF>2</INF> emissions established under the Acid Rain Program
applies to all existing electricity generating units, without regard to
the date of construction or whether a given source has been modified.
NSR operates by requiring a source to obtain a permit prior to
construction or major modification. The permit establishes various
actions that the source must undertake to control its emissions of air
pollution. However, NSR only applies if the construction project will
emit air pollution that exceeds threshold levels established in the NSR
regulations. For a new source, NSR is triggered only if the potential
emissions qualify as major. For an existing major source making a
modification, NSR is only triggered if the modification will result in
a significant net increase in emissions.
The major NSR program comprises two separate parts: Nonattainment
NSR and Prevention of Significant Deterioration (PSD).\3\ These two
programs have separate requirements to address the differing air
quality planning needs in the areas where they apply. Nonattainment NSR
applies in areas where air is unhealthy to breathe--i.e. where the
established national ambient air quality standards (NAAQS) for a CAA
criteria pollutant are not being met. These areas are called
nonattainment areas. Nonattainment NSR for major sources of certain
pollutants also applies in the federally designated ozone transport
region (OTR), which consists of 11 northeastern States and Washington,
D.C.\4\ PSD applies to major sources located in areas where air quality
is currently acceptable--i.e., where the NAAQS for CAA criteria
pollutants are being met. These are called attainment areas. Because
nonattainment areas have poorer air quality, nonattainment NSR
requirements are generally more stringent than PSD requirements.
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\3\ The term NSR usually refers to the overall program, but is
sometimes also used as shorthand to refer to nonattainment NSR, which
may be a source of confusion. In this document, we will use NSR to
refer to the general program (both nonattainment NSR and PSD), and will
use nonattainment NSR when referring specifically to NSR for
nonattainment areas.
\4\ Connecticut, Delaware, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont,
and Washington, DC.
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iii. impact on investment in new and existing utility and refinery
generation capacity--and energy efficiency
The EPA begins by examining the question of whether the NSR program
has an impact on investment in projects that would increase or preserve
utility and refinery generation capacity or that would improve energy
efficiency. We received extensive comments on this issue, reflecting
widely varying views on whether there is an impact and, if so, on its
nature and extent.
In general, comments made by both the electric utility industry and
the petroleum refining industry consistently assert that the NSR
program has a significant and adverse impact on investment in expanding
and preserving capacity, as well as on energy efficiency.\5\ These
commenters assert that the program is in need of fundamental reform.
Other industries (as discussed in Section IV below) made similar
assertions, as did some State permitting authorities. These commenters
said that investment is hindered by (1) regulatory uncertainty and lack
of flexibility resulting from alleged recent policy ``re-
interpretations'' related to the applicability of the program's
requirements; and (2) the added costs and delays imposed by the NSR
process.\6\ Other commenters, including environmental groups and some
State and local permitting authorities, expressed the opposite view.
They assert that NSR does not appear to be significantly hindering such
investment, adding that NSR has resulted in large benefits to the
environment while allowing for increased energy and/or fuel
supplies.\7\ One environmental commenter does not believe that there is
sufficient information to conclude that NSR is a primary factor driving
decisions to invest or not to invest in capacity.\8\
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\5\ These comments were consistently raised by companies
representing virtually all types (e.g., coal-fired; oil-fired or gas-
fired) and sizes of electric generating facilities. See, e.g., Comments
of the Clean Energy Group (CEG) [II-D-291]; Comments of the Utility Air
Regulatory Group (UARG) [II-D-303]; Comments of Class of `85 Regulatory
Response Group (Class of 1985 Group) [II-D-268]; Comments of National
Rural Electric Cooperative Associations (NRECA) [II-D-322]. The members
of these groups, as well as individual utilities that filed comments
expressing the same conclusion, span the entire United States. See,
e.g., Comments of Northeast Utilities Service Company (NUSCO) [II-D-
331]; Comments of Cinergy [II-D-270]; Comments of Sunflower Electric
Power Corporation [II-D-292]; Comments of Tri-State Generation and
Transmission Association [II-D-335]; Comments of West Associates [II-D-
216]; Comments of Salt River Project (SRP) [II-D-320]. Even waste-to-
energy facilities agreed with this conclusion. See e.g., Comments of
American Ref-Fuel [II-D-214]. The refining industry offered similar
comments. See NPRA Letter to Stephanie Daigle, EPA, 7/23/2001.
\6\ See comments by Michigan Department of Environmental Quality,
representing a workgroup including Alabama, Michigan, North Carolina,
South Carolina, Virginia and West Virginia permitting staff. [II-E-09].
\7\ For other State comments, see STAPPA/ALAPCO, [II-D-313], CARB
[II-D-468], RAPCA [II-D-302], Wisconsin, Missouri, et. al. For
environmental groups, see, Clean Air Task Force [II-D-236], NRDC,
Sierra Club [II-D-437], et. al.
\8\ See Natural Resources Defense Council (NRDC) comments [II-D-
267] at 1.
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This section discusses our conclusions based on a review of the
available data and comments received regarding investment in new
capacity and energy efficiency. Because the issues associated with new
and modified source permitting differ, this paper will discuss
separately the impact on new sources and the impact on existing sources
undergoing changes.
A. New Sources
Focusing first on the impacts of NSR on investment in new capacity,
the EPA finds that NSR does not appear to have a significant impact on
investment in new utility or refinery plants. The discussion below
indicates that, for utilities, significant new capacity has been
permitted in recent years and substantial additional greenfield
capacity is planned. For refiners, decisions about whether to construct
new greenfield refineries are primarily driven by economic and
environmental considerations. It does not appear that NSR has a
significant impact on these considerations.
1. Utilities
For electric utilities, significant new sources were permitted in
recent years (dominated by natural gas-fired systems) and more are
planned. The background paper noted current plans of certain companies
to bring into service units producing more than 120 Gigawatts (GW) in
the coming years. An analysis by the NorthBridge group, prepared for
the Clean Air Task Force, uses RDI's NewGen data base to estimate that
it is likely that 214 GW--and possibly as much as 400 GW--of new
generating capacity will come online before 2005, based on a survey of
data on plants at various stages of development.\9\ Several State
commenters presented similar data. For example, New Jersey stated that
it had permitted over 2500 MW of new electric generation since July
1999, and had proposed to approve another 1700 MW in July of 2001\10\.
Another 5800 MW of applications were under review, and another 2000 MW
of projects were in the pre-application meeting stage. These projects
cover 22 facilities and 49 units. This 12,000 MW will result in a 60
percent increase over the 18,000 MW of existing generating capacity in
New Jersey.\11\ Other States and environmental group commenters
presented similar data.\12\ Although most of these projects will be
subject to NSR, the program does not appear to be hindering their
development.
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\9\ This 214 GW increase would represent a 30 percent increase over
the current installed capacity level, and would restore national
reserve margins to about 25 percent, from a low of 8 percent in 1999.
\10\ See New Jersey DEP comments [I1-D-310].
\11\ The State of Kentucky, in fact, put a hold on any new permit
applications for electrical generation sources until it can analyze the
environmental impacts of the large volume of pending permit
applications.
\12\ See, e.g., California Air Resources Board (CARB) [II-D-468],
Georgia Department of Natural Resources (DNR) [II-D-341], Wisconsin DNR
[II-G-71], STAPPA/ALAPCO [II-D-303], Clean Air Task Force [II-D-236],
NRDC [1I-D-267] and other similar comments.
---------------------------------------------------------------------------
In general, the DOE's experience is that far more capacity is
planned than is ever actually realized. As it related to the analysis
by the NorthBridge group, the DOE projects in its 2001 Annual Energy
Outlook that only a small fraction of the capacity estimates by
NorthBridge will actually come on line by 2005. For the period of 1999
to 2005, DOE estimates the following:
<bullet> Overall generation will increase from 3386 billion
kilowatt-hours (BKWH) to 3810 BKWH.
<bullet> Overall capacity will increase by 74 GW (from 745
gigawatts (GW) to 819 GW).
<bullet> For coal-fired power plants, capacity will decrease
slightly (from 306 GW to 301 GW), while generation increases from 1833
BKWH to 2085 BKWH, as existing units increase their hours of operation.
<bullet> For gas-fired plants, combined-cycle units will increase
in capacity from 20 GW to 50 GW, while generation increases from 371
BKWH to 584 BKWH.
While these data indicate continued expansion in new generating
capacity, some industry commenters assert that NSR can nevertheless
introduce costs and delays to the process of bringing new generating
units online, as well as have an impact on fuel supply flexibility.
Utilities cited implementation of the requirements for preconstruction
monitoring, modeling, and consultation with Federal Land Managers,
saying that the processing time by Federal, State and local governments
and potential permit appeals can result in significant costs and delays
in obtaining a permit. In particular, industry commenters, as well as
some State permitting authorities, attribute a significant portion of
the delay in obtaining NSR permits to the large body of NSR guidance
that has been issued over the course of many years, by both EPA and
State agencies administering delegated programs. This guidance
frequently is case-specific in nature. Many commenters consider the
guidance to be ambiguous and, in some cases, inconsistent.
Among the various aspects of the NSR program that industry
commenters more specifically identified as concerns for new sources
included the following:
<bullet> How to determine which emissions control technologies
qualify as best available control technology (``BACT'') or lowest
achievable emissions rate (``LAER'') technology using EPA's ``top
down'' policy and the Agency's BACT/LAER clearinghouse.
<bullet> Procedural concerns about guidance issued by Federal Land
Managers related to permitting near Class I areas.
<bullet> The limitation on construction activities prior to
issuance of a permit, which is of particular concern when (1) the
permit undergoes lengthy appeals processes, or (2) the climate is cold
and the construction season is thus shorter.
<bullet> The cost and availability of offsets in nonattainment
areas. Commenters, particularly in California and New York, noted that
shortages in available offsets have the potential to significantly
increase the cost of NSR permitting in certain limited areas.
Permitting authority commenters noted that offsets represent from 1-6
percent of the cost of a new power plant.\13\
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\13\ STAPPA/ALAPCO comments [II-D-313] at 6.
---------------------------------------------------------------------------
Commenters further stated that NSR control requirements affect fuel
supply choices for new installations. They point out that the cost of
air pollution control represents a much greater proportion of the cost
of construction at coal-fired facilities than at gas-fired plants.\14\
Operation and maintenance costs are also higher. They believe this
discourages investment in new coalfired plants.
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\14\ The primary air pollution control requirement commonly imposed
on natural gas combustion is selective catalytic reduction, which adds
about $30 per kilowatt to the cost of a combined cycle generation
system. New pulverized coal systems require electrostatic precipitators
or fabric filters for particulate matter control, scrubbers for sulfur
dioxide control, selective catalytic reduction for nitrogen oxide
control, and perhaps additional control technology for air toxics.
Cumulatively, the systems needed for coal-based generation cost over
$200 per kilowatt, and add about 20 percent to the cost of a new coal-
fired system. For a 1000 MW unit, these translate into a cost of $200
million.
---------------------------------------------------------------------------
Other stakeholders offered a different view. Several State and
local permitting authorities noted that the NSR process can generally
be accomplished in a reasonable time, and within the same timeframe as
the other elements involved in planning of a typical electric generator
project.\15\ Some States reported acceleration of permitting times for
new utility sources consistent with that reported in the EPA Background
Paper.\16\ One State commenter suggested that the perception that NSR
is lengthy, cost-intensive, and uncertain is really not the norm,
though it can be true in exceptional cases.\17\
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\15\ See, e.g., STAPPA [II-D-313] at 3, New Jersey DEP [II-D-310]
at 2.
\16\ See CARB [II-D-468] at 4.
\17\ Wisconsin DNR comments [II-G-71] at 1.
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In EPA's experience, NSR has, in some individual cases, impeded new
power projects. However, as a general matter, available information
indicates that NSR typically does not represent a significant barrier
to the construction of new electricity plants. As for the impact of NSR
on fuel choices for new facilities, EPA notes that NSR typically does
not require significantly greater levels of control at new coal-fired
plants than the recently updated NSPS for large electric generating
units. Thus, NSR itself is not the only driver with regard to air
pollution control costs at new coal-fired units and does not appear to
significantly influence fuel choices at new facilities.
2. Refineries
As noted earlier, the construction of new ``greenfield'' petroleum
refineries in the near future seems unlikely for various economic and
regulatory reasons, primarily unattractive profit margins. Industry has
reported that the rates of return for refineries have averaged about 5
percent in the last decade, roughly equivalent to the return from a
passbook savings account, but with much greater risk. As a result,
building new plants at new sites is highly unlikely.\18\ The EPA agrees
with this assessment. Moreover, while any new refinery would be
required to obtain an NSR permit, the available information does not
indicate that NSR permitting is among the most significant impediments
to the construction of new refineries. Refinery commenters indicate
that any additional U.S. refinery capacity must come from either
efficiency improvements or expansion at existing refineries (discussed
below).
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\18\ See, Testimony of the National Petrochemical and Refiners
Association (NPRA) before the Senate Subcommittee on Clean Air,
Wetlands, Private Property and Nuclear Safety on Apr. 5, 2001.
---------------------------------------------------------------------------
B. Existing Sources
The vast majority of concerns about NSR raised during the review
pertained to existing sources. As discussed below, the EPA believes
that commenters have identified areas where NSR can discourage
investment in both preserving and maintaining utility and refinery
generating capacity as well as in improving energy efficiency and
expanding capacity.
1. Utilities
With respect to existing sources, comments from across the spectrum
of the utility industry consistently asserted that the NSR program
imposes significant burdens on the utility practices necessary to
maintain the safety, availability, efficiency and reliability of the
electricity supply at existing sources. They further assert it can have
a highly negative impact on the nation's power supply. The result, they
conclude, is that the program hinders investment in projects intended
to expand and preserve generating capacity at existing electric
generation units. In addition, as discussed below, many utility
commenters believe that the current NSR program has actively
discouraged efficiency improvement projects, which they believe not
only can have net environmental benefits, but also can provide an
effective short-term response to tight reserve margins at many
locations in the United States. On the other hand, environmental groups
do not believe that there is sufficient information to conclude that
NSR is the primary factor driving decisions to invest in new capacity
at existing sources or that, absent NSR, significant investments would
have been made that are presently not being made in recapturing lost
existing capacity due to deterioration of equipment. This section
examines more closely the capacity issues at electric utilities,
followed by the energy efficiency issues.
a. Impact on Utility Projects to Maintain the Availability,
Reliability, and Safety of the Electric Power Supply
(i) NSR Applicability.--The utility industry comments predominantly
focused on the exclusion from major NSR permitting requirements for
activities that represent ``routine maintenance, repair and
replacement.'' They asserted that, in recent years, EPA has narrowed
its interpretation of this exclusion to the point where NSR potentially
applies to repair and replacement activities that are customarily
undertaken within the industry to assure the availability, reliability,
and safety of power plant operations. Commenters believe that under
such an interpretation NSR would be required whenever the work
involved: (1) a component that is replaced infrequently in the life of
an industrial facility; (2) a component that is large and expensive (in
absolute terms); or (3) a replacement component that is better designed
and will improve the availability or efficiency of the facility.
Thus, according to the utility commenters, because electricity
generation units are inherently large, complex, and expensive (in
absolute terms), most power plant repair and replacement activity would
not be covered by the exclusion. Because of the costs and potential
delays associated with NSR, they believe that this has discouraged
activities intended to maintain the reliability, availability, and
safety of existing power plants; and/or has required generators to
limit the output of their power plants to avoid triggering NSR,
regardless of their capacity, in order to maintain the units during
their normal useful lives. NSR costs and delays are of particular
concern to commenters for such changes at existing units because (1)
while certain projects might be relatively inexpensive absent NSR, they
believe the cost of controls resulting from NSR can make them cost-
prohibitive to undertake, which, in turn, can adversely affect the
availability and reliability of plant operations and discourage such
projects, and (2) they believe that units may need to be offline until
permitting can occur, so delays in permitting can have significant
impacts on energy supply through lost generation during this time.
Although utilities stated that NSR-required controls are expensive
relative to the gains associated with projects that might trigger NSR,
other commenters noted that these costs are small compared to the
company's revenue. The Clean Air Task Force submitted a study by MSB
Energy Associates performed on a sample of 51 existing coal-fired
utility units. The study concludes that if these units triggered NSR
and had to install BACT-level controls, the cost would be modest
relative to the size and revenue level of the companies.\19\ In the
commenters' view, this impact is exchanged for significant
environmental benefits, estimated at 2.8 million tons per year of
sulfur dioxide (SO<INF>2</INF>) (22 percent of all power plant
SO<INF>2</INF> emissions in the United States) and 1.0 million tons per
year of NOx (19 percent of all power plant NOx emissions in the United
States).
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\19\ See Clean Air Task Force Comments [II-D-236], Appendix D.
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According to industry, thousands of repair and replacement projects
are undertaken by facilities each year and that, as a result, NSR
permitting is potentially triggered early in the life of virtually
every electric utility plant, and then repeatedly thereafter.\20\ The
industry commenters submitted information about the types of projects
they stated that they typically undertake, which they maintain are
required to ensure reliability, availability, or safety of their
facilities, but which they believe EPA would classify as non-routine
and therefore would potentially be subject to NSR if they resulted in a
significant net emissions increase.\21\
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\20\ UARG Comments [II-D-303] at 29-32.
\21\ UARG Comments [II-D-303] Attachment C.
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For example, a survey undertaken by the Tennessee Valley Authority
(TVA) reported the frequency with which particular repair and
replacement projects are undertaken within the electric utility
industry.\22\ The, TVA survey covered approximately 20 percent of the
electric utility industry--219 units totaling about 80,000 MW--and
included a review of case studies and statistics regarding cyclone
replacement, balanced-draft conversion, reheater replacement, and
economizer replacement. For example, their survey States that, at the
190 units in the survey that had reheaters, there were 213 reheater
replacement projects (some reheaters were replaced more than once). At
the 202 units in the survey that had economizers, there were 98
economizer replacement projects. For both components, replacements
occurred as early as 5 years after initiation of a unit's commercial
operation, or as late as 40 to 50 years. Similarly, at 151 boilers
originally constructed as forced draft systems, utilities replaced 79
systems with balanced draft systems, primarily to address ``equipment
degradation, maintenance problems, health and safety concerns, and
pollution control requirements.''\23\ Finally, the TVA survey reported
that, since 1979, 300 cyclones out of 701 had been replaced at the 96
electricity-generating stations in the United States powered by cyclone
boilers. UARG similarly reported a more complete, recent census of the
entire coal-fired steam electric generating industry.\24\ This census
sought industrywide information regarding the frequency of maintenance,
repair and replacement activities that they believe EPA considers non-
routine. The census results are reported to show:
---------------------------------------------------------------------------
\22\ See Jerry Golden, TVA, Routine Maintenance of Electric
Generating Stations (February 2000) (``TVA 2000 Report''), described in
UARG Comments [II-D-303] at 29-31.
\23\ TVA 2000 Report at 25.
\24\ UARG Comments [II-D-303] at 31-32.
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<bullet> The industry has undertaken tens of thousands of such
maintenance, repair or replacement activities;
Every unit in the industry has undertaken such activities;
<bullet> Approximately 50 percent of the units in the industry will
have undertaken such activity within 5 years of the unit's in-service
date;
<bullet> Each unit in the industry undertakes on average annually
at least one such activity.
In short, in the view of many industry commenters, an
inappropriately narrow routine maintenance exclusion would not exclude
many common maintenance projects. According to these commenters, this
would leave nearly every coal-fired generating unit in a constant state
of obligation to evaluate whether each of these numerous projects would
trigger NSR, and if so, whether the costs associated with NSR
(including, if applicable, the costs of add-on controls and potential
downtime) would render such projects cost-prohibitive. As discussed
below, if such projects are found to be cost prohibitive, commenters
predict steady deterioration of existing capacity, and limited
investment in the recovery of such capacity at existing sources. Many
industry commenters echoed this conclusion and asserted that the
situation is unacceptable and must be corrected to reflect the real
environment surrounding routine maintenance within the electrical
utility industry.''\25\
---------------------------------------------------------------------------
\25\ NRECA Comments [II-D-322] It 14-15; see also Class of 1985
Group Comments [II-D268] at 9 (``Electric generating plant personnel
have been placed in the untenable position of not being able to correct
and improve the reliability and efficiency of their plants, resulting
in compromised safety to plant employees and the general public,
without risking an enforcement action.''); Dairyland Comments (II-D-
324) at 4 (EPA's current ``interpretation may compromise the
reliability and efficiency of existing plants and could undermine the
preservation of a diverse energy supply.'').
---------------------------------------------------------------------------
On the other hand, environmental group commenters and some
permitting authorities felt that the routine maintenance exclusion is
appropriate. They believed that a less narrow exclusion would allow the
exception to swallow the rule. In this vein, commenters expressed
concerns that large-scale capital projects, such as major life
extension projects, should not qualify as routine.\26\ One of these
commenters expressed concern that a facility could be virtually rebuilt
without triggering NSR under industry's preferred interpretations of
the routine maintenance exemption\27\.
---------------------------------------------------------------------------
\26\ See, e.g., RAPCA [II-D-302], Adirondack Council [II-D-136],
Public Citizen [II-D327].
\27\ Public Citizen [II-D-327].
---------------------------------------------------------------------------
After reviewing the comments, the EPA notes that there are
differing opinions amongst the commenters about the appropriate scope
of the routine maintenance exemption and the resulting NSR impacts. In
determining whether an activity is ``routine'' for purposes of being
excluded from NSR, EPA consistently has taken a case-by-case approach,
weighing the nature, extent, purpose, frequency and cost of the work,
as well as other relevant factors. Nevertheless, the Agency recognizes
that many industry commenters expressed uncertainty about the scope of
the routine exclusion and argued that this uncertainty will cause them
to delay or forego projects critical to maintaining the availability,
reliability and safety of their facilities. In light of the volume of
anecdotal evidence presented, the EPA concludes that concern about the
scope of the routine maintenance exclusion is having an adverse impact
on projects that affect availability, reliability, efficiency, and
safety. Changes to the NSR program that add to the clarity and
certainty of the scope of the routine maintenance exclusion will
improve the process by reducing the unintended consequences of
discouraging worthwhile projects that are in fact outside the scope of
NSR.
(ii) Energy Impacts.--According to utility commenters, the energy
impact of an inappropriately narrow NSR routine maintenance exclusion
would be adverse and potentially quite significant. In addition, the
industry commenters stated that an inappropriately narrow exclusion
would leave many activities potentially subject to NSR. This
circumstance, they believe, would result in limited alternatives for
utility managers. They describe three alternatives.
First, utilities could go through the NSR pre-construction
permitting process. The principal complaints against this alternative
were protracted processing delays and the attendant costs, including
the costs of pollution control retrofits.\28\ In addition, commenters
feared that, if the interpretation of routine were to be narrowed,
thousands of projects would trigger NSR per year, and would result in
even more substantial delays by flooding the permit process with more
permit applications than it has the capacity to process quickly.
---------------------------------------------------------------------------
\28\ See, e.g., Class of 1985 Group Comments [II-D-268] at 9-10.
---------------------------------------------------------------------------
Second, a company could accept enforceable emissions limits
(through a ``minor'' NSR permit) in the form of a cap on emissions from
the affected units.\29\ Commenters stated, however, that acceptance of
such a cap would require a utility to limit the affected unit's hours
of operation and production rates to representative emission levels
just prior to the change, which could restrict the electricity supply
in a particular area.\30\ Commenters also could limit emissions by
adding pollution control technology, but commenters felt this was also
not a workable NSR avoidance strategy because it also could be
infeasible, cost-prohibitive, and would only be a temporary
solution.\31\ Moreover, commenters stated that the delays associated
with the minor NSR process required to create the limit still severely
impact a unit's ability to replace components necessary to get back
online quickly after a forced outage.\32\ For example, when a turbine
rotor shaft cracks or slag falls and destroys a boiler floor, the
utility must repair the component as quickly as possible and restore
the unit to service. Commenters claim that, if the necessary repairs
were not considered routine maintenance, repair and replacement, the
repair could not be made until the source obtained an NSR permit. In
the meantime, the commenters believe that the utility could lose the
entire capacity of the unit, which could endanger the stability of the
electrical grid and create a risk of regional blackouts.\33\
---------------------------------------------------------------------------
\29\ Commenters also complained of delays in the minor NSR
permitting process (an average of 3-8 months in one utility's service
area.) See Jerry L. Golden & Donald P. Houston, TVA, Impacts of EPA's
Reinterpretation of New Source Review Requirements--Potential Loss of
Generating Capability on the TVA System, at 8 (July 19, 2001) (``TVA
2001 Report'') (Attachment E to UARG Comments [II-D-303]).
\30\ See UARG Comments at 39-42; see also EPA Background Paper at
7.
\31\ See UARG comments at 39-42.
\32\ See, e.g., Class of 1985 Group Comments [II-D-268] at 7, TVA
2001 report at 7 (Attachment E to UARG Comments [II-D-303]).
\33\ See, e.g., id.
---------------------------------------------------------------------------
Commenters also argued that avoiding NSR by accepting caps on
emissions through operational limits would constrain electrical system
operators' flexibility to deliver necessary electricity at the least
cost. In this regard, several utilities analyzed their systems to
estimate the restrictions on their ability to produce electricity, had
what they consider to be a narrow interpretation of the routine
exclusion been applied over the last 20 years and had the utilities
elected to obtain minor NSR permits limiting generation to recent
levels in every instance they undertook certain replacement projects.
For example, TVA (serving approximately 2.3 million homes in the
Tennessee River Valley),\34\ reported that, over the last 20 years, it
would have lost 32 percent of its coal system's energy capability, or
34 million megawatt-hours (MW-hr) annually. In a similar analysis, the
Southern Company found that, by the year 2000, it would have had an
energy shortfall of 57.5 million MW-hr, and that it would not have been
able to meet 38 percent of its customer demand.\35\ Similarly, First
Energy estimated that it would have lost 39 percent of its coal-fired
generating capacity between 1981 and 2000.\36\ West Associates (a
western utility with a younger fleet of generating units) estimated a
loss of 27 percent of generating capacity of one of its plants just in
the next 6 years. West Associates also estimated that, after 10 years
of operation under this ``cap system,'' the Western System Coordinating
Council (WSCC) would have lost 65 million MW-hr of generating capacity,
or the equivalent of 32 power plants with a net capacity of 250 MW
each.\37\ The National Rural Electric Cooperative Association (NRECA)
estimated that, in one maintenance cycle, the loss of capability for
the approximately 21,000 MW of cooperative-owned plants would be 12
percent to 24 percent.\38\ Nationally, using this analysis method, one
commenter stated that it would take 200 new 500 megawatt power plants
just to make up the lost capacity, that is, to stay at the current
levels of available supply.\39\ Maximizing the utilization of existing
generation capacity can be critical to ensuring the ability of
utilities to meet consumer demand in peak periods.
---------------------------------------------------------------------------
\34\ TVA 2001 report at 12-14.
\35\ Southern Company, The Dismantling of Energy Supply Capacity
Through New Source Review (Attachment D to UARG Comments [II-D-303]).
\36\ First Energy Comments [II-D-261 ] at 1.
\37\ West Associates Comments [II-D-216] at 7.
\38\ NRECA Comments [II-D-322] at 7. Other commenters that
submitted similar analyses include: Minnesota Power Comments [II-D-165]
(25 percent lost production); Dairyland Comments [II-D-324] at 7 (41
percent lost generating capacity); SRP Comments [II-D-320] at 6 (18.5
percent loss).
\39\ See UARG Comments [II-D-303] at 39.
---------------------------------------------------------------------------
Third, according to industry commenters, a company could simply
choose not to undertake the needed maintenance, repair and replacement
projects in question, so as to avoid triggering NSR. They believe this
would result in a loss of electricity generating capacity, because
delayed and foregone maintenance leads to a decrease in availability
and reliability.
In addition, commenters suggest that such a decrease also could
have a negative impact on the energy efficiency of the unit and the
overall efficiency of a utility system. This is because, if a larger
utility unit becomes unavailable during a period when it would have
been utilized to meet consumer demand, then multiple smaller, less
efficient units often must be utilized in its place.\40\ One utility
commented that only through maintenance of highly efficient low-cost
baseline generation is the retirement of more inefficient units
possible.\41\ The commenter asserted that less efficient units are more
costly to operate and generally produce more pollution per unit of
electric output.
---------------------------------------------------------------------------
\40\ See Ralph L. Roberson & Richard D. McRanie, Thoughts on Power
Plant Efficiency, at 7 (Attachment F to UARG Comments [II-D-303]) (RMB
Report); see also Class of 1985 Group Comments [II-D-268] at 5-6
(noting that utilization of base-loaded units displaces less efficient,
more polluting plants).
\41\ First Energy Comments [II-D-261] at 1.
---------------------------------------------------------------------------
EPA notes that the possible energy impacts predicted by industry
commenters appear to flow from the industry's reported uncertainty
regarding the scope of the routine maintenance exclusion. Consistent
with our conclusion in the previous section of this report, we conclude
that concern about the scope of the routine maintenance exclusion is
having an adverse impact on projects that would improve the reliability
and availability of existing electric generating facilities. We also
note that, when catastrophic forced outages have occurred in the past,
the Agency has consistently worked with industry and State and local
permitting authorities to allow the facility to get the unit back and
running quickly.
b. Impact on Efficiency Improvement Projects
(i) NSR Applicability.--With respect to the issue of energy
efficiency, a significant number of industry commenters stated that an
inappropriately narrow routine maintenance, repair and replacement
exclusion would prevent electricity generators from taking advantage of
opportunities to improve their generating efficiency. One measure of
such efficiency is ``heat rate,'' or the amount of fuelbound energy
required to produce a unit of electrical power (typically expressed in
million BTU per kW-hr). Improving an electric unit's efficiency--e.g.,
its heat rate--means that less fuel is required to produce the same
amount of electrical power, reducing pollution per unit of production
output. Alternatively, improved efficiency may allow a unit to produce
more electricity for the same amount of fuel burned (i.e., with no
greater amount of emissions). New electric generation technologies
often lead to energy efficiency improvements, but industry raised
concerns that applying these new technologies (i.e., replacing boiler
or turbine components with components of better design and materials)
often could trigger NSR--in some cases even if the unit's emissions
rate does not increase--because the source uses the more efficient unit
more than it used the old one.
These commenters stated that the turbine blade project that was the
subject of the Detroit Edison applicability determination is a good
example of such a project.\42\ Industry reports that, under a voluntary
self-reporting program initiated by the Energy Information
Administration (EIA), utilities have reported numerous projects that
are expected to increase efficiency.\43\ Commenters cited as examples
projects ranging from load optimization programs and improved boiler
controls to replacing turbine blades and rotors, to upgrades or
replacements of components like superheaters and condensers.\44\
---------------------------------------------------------------------------
\42\ EPA Background Paper at 28.
\43\ RMB Report at 6 (Attachment F to UARG Comments [II-D-303]).
\44\ Industry commenters state that most energy efficiency
improvements can be linked with tangible benefits to the environment
and that unless the power source is in close proximity to the process
in which energy efficiency is improved, the emissions benefits are not
necessarily local. If the power source is a grid, it may not be
possible to predict where all the benefits will occur, nor what their
magnitude would be. Nevertheless, commenters believe that energy
efficiency should be an important aspect of meeting national air
pollution goals because the energy saved is energy that would have
otherwise been generated.
---------------------------------------------------------------------------
Industry commenters noted that EPA views such energy efficiency
projects as the Detroit Edison turbine blade upgrade as ``markedly
different from the frequent, inexpensive, necessary, and incremental
maintenance and replacement'' of deteriorated components and,
therefore, not within the scope of the routine maintenance
exclusion.\45\ Industry commenters expressed concern that this could
result in the discouragement of energy efficiency improvements because
they could be subject to NSR. For utilities, this is a particular
concern in any jurisdiction that has not incorporated the WEPCO rule
emission increase methodology because the ``actual-to-potential'' test
applies in these jurisdictions.\46\ In non-WEPCO jurisdictions, and in
all jurisdictions for nonutility activities, industry commenters said
that NSR could apply to any project that both corrects availability/
reliability problems and improves efficiency (because of the belief
that any project that corrects availability/reliability problems could
result in an emissions increase under the actual-to-potential test),
and to any efficiency improvement project at a unit that is not at the
very top of a system's loading order. Even for units that are at the
top of the loading order of a particular system, like Detroit Edison's
Monroe units, industry commenters expressed concern about whether any
efficiency improvement could be shown not to increase emissions,
because an efficiency improvement almost always makes the improved unit
more attractive to run.
---------------------------------------------------------------------------
\45\ EPA Background Paper at 28 (citing Detroit Edison
Applicability Determination, May 23, 2000.
\46\ Under EPA's ``WEPCO rule,'' NSR is not triggered for existing
utility sources unless there is a significant net increase in actual
emissions using an actual to predicted future actual methodology.
---------------------------------------------------------------------------
Utility commenters stated that the Detroit Edison applicability
determination discourages utilities from undertaking efficiency
improvement projects.\47\ They suggested that utilities are likely to
forego efficiency improvements in order to avoid the uncertainty,
delays and potential costs associated with NSR applicability. One
commenter sought to illustrate this point in responding to the EPA
Background Paper's inquiry regarding whether NSR applicability alters
the economics of efficiency improvement projects by evaluating a
typical turbine efficiency improvement project. This evaluation showed
that such a project would cost approximately $937,000 for a 250 MW
unit, and would be expected to yield additional revenues of $21.5
million (present value). For such a unit, however, the commenter
determined that NSR applicability would result in expensive retrofits,
with a capital cost (i.e., excluding operation and maintenance of the
retrofits) approximating $68.4 million.\48\
---------------------------------------------------------------------------
\47\ See, e.g., Class of 1985 Group Comments [11-D-268] at 5; UARG
Comments [II-D-303] at 45.
\48\ See Comments of Xcel Energy [II-D-213] at 6-7.
---------------------------------------------------------------------------
Industry commenters said that discouraging efficiency improvement
projects also results in more emissions than if the projects could go
forward without NSR. They argue that, on a megawatt basis, efficiency
improvements reduce pollution,\49\ and that, even if utilization
increases at the unit with improved efficiency, the dynamics of
economic dispatch of electric generating units mean that the increased
utilization at that unit necessarily displaces less efficient, and
therefore more-polluting, plants.\50\ Thus, the industry concludes that
discouraging efficiency improvements almost always results in higher
emissions than if these improvements had been made. As an example, the
Detroit Edison case was again cited, where the use of the more
efficient blades would have permitted each generating unit to produce
the same amount of electricity as it had in 1994 while burning 112,635
fewer tons of coal. The result, according to commenters, would have
been a reduction of 1,826 tons per year (tpy) in SO<INF>2</INF>
emissions, 1,402 tpy in NOx emissions, and 259,111 tpy in carbon
dioxide (C0<INF>2</INF>) emissions, assuming that input design
parameters (maximum heat input and fuel consumption specifications)
remained the same. Detroit Edison estimated that more than 1,000 other
electric utility units in the United States have the capability to
achieve similar reductions through similar turbine blade replacements
and other projects; thus, extrapolating based upon these estimates,
they predict that by encouraging the adoption of blading efficiency
improvements, CO<INF>2</INF> emissions would be reduced by 81 million
tons per year or more, provided input design parameters (maximum heat
input and fuel consumption specifications) remained the same. They
predict that SO<INF>2</INF> and NOx emissions would also be reduced
significantly.
---------------------------------------------------------------------------
\49\ EPA Background Paper at 28.
\50\ See Class of 1985 Group Comments [II-D-268] at 5-6; see also
FirstEnergy Comments [11-D-261] at 1-2.
---------------------------------------------------------------------------
In contrast, commenters from environmental groups believe that NSR
treats energy efficiency improvement projects appropriately. They
stated that NSR only applies when a project results in an emissions
increase and that the types of projects discussed above where
significant reductions are achieved would not trigger NSR. However, if
an energy efficiency project also results in a significant emissions
increase, these commenters felt that it would be inappropriate to
exempt the increase from review under NSR.\51\ One commenter also
questioned whether NSR is the predominant factor in influencing a
decision about whether to proceed with an efficiency project, noting
that some analysts believe that the regulation of utility rates--and
specifically their treatment of cost recovery--has lessened the
incentive for heat rate improvements.\52\
---------------------------------------------------------------------------
\51\ See, e.g., July 20 testimony of John Walke, NRDC.
\52\ NRDC Comments [II-D-267].
---------------------------------------------------------------------------
In reviewing the information regarding energy efficiency projects,
the EPA concludes that NSR may discourage some energy efficiency
improvements. EPA notes that as long as utilization remains constant,
energy efficiency improvements can result in significant emissions
reductions. Such projects would not trigger NSR if there were not a
significant emissions increase.\53\ Because such projects are not
subject to the NSR regulations, NSR generally has a negligible impact
in such cases. However, as noted above, energy efficiency improvements
are often associated with increases in utilization, because the more
efficient generating units are dispatched more often. Efficiency
improvements can also result in an increase in capacity or
availability. In such cases, there can be local emissions increases
that trigger NSR if the projects are not routine maintenance. For
example, in Detroit Edison, if a 5 percent increase in operation were
to result, actual increases on the order of 800 tons of NOx and 2000
tons of SO<INF>2</INF> would occur. Even if these emissions increases
occur at the same time as emissions decrease somewhere else, some
commenters expressed concerns about the localized impacts of
potentially large emissions increases, and felt that review under NSR
was needed to address them.
---------------------------------------------------------------------------
\53\ This was the case in Detroit Edison, where there was no
expected increase and therefore the proposed project did not trigger
NSR. [See Detroit Edison Applicability Determination]
---------------------------------------------------------------------------
Congress provided that where physical changes at a plant result in
significant increases in air pollution, these plants should go through
NSR and take steps to control emissions. Even if a physical change is
relatively inexpensive when compared to the cost of the controls that
are projected to result from NSR, the change could still result in
emissions increases that Congress believed should undergo review.
However, as noted in the example turbine efficiency improvement project
above, and echoed throughout many comments, the costs associated with
NSR, particularly the costs to retrofit pollution controls, can render
these projects uneconomical. Thus, the EPA finds that NSR discourages
some types of energy efficiency improvements when the benefit to the
company of performing such improvements is outweighed by the costs to
retrofit pollution controls or to take measures necessary to avoid a
significant net emissions increase. The EPA recognizes the need to
promote the development of efficient and more environmentally friendly
designs.
On the other hand, it is also clear that a wide range of activities
at an electric utility can have energy efficiency benefits, from
everyday maintenance to major capital projects. In general, the EPA
encourages efficiency improvements wherever feasible. However, the
scope and magnitude of some of the kinds of changes, their impact on
recovering capacity that had been lost to deterioration of equipment,
their impact on significantly extending the life of the boiler,
turbine, etc., and the resulting significant emissions increase,
necessitates that certain projects which may result in efficiency
improvements, must be reviewed under NSR. Though projects of this
magnitude still may go forward once their air quality impacts are
addressed, the EPA finds that NSR can discourage companies from
undertaking them.
(ii) Energy Impacts.--The ICF report in support of the EPA
Background Paper referred to various data, such as those of the
National Coal Council (NCC) May 2001 report, which estimate that
repairs and replacements that improve efficiency at existing coal-fired
facilities could result in an increase in capacity of 5 percent to 10
percent. Applied across the entire coal-fired electric generation
capacity of the United States (over 300 GW) this would result in an
additional capacity of 15,000-30,000 MW. This is the equivalent to 30-
60 new 500 MW plants or enough power for 10-20 million homes.
Similarly, as noted in the EPA Background Paper, the NCC report
found that coal-fired units over 20 years of age had been substantially
derated, and concluded that: ``If all existing conditions resulting in
a derating could be addressed, approximately 20,000 MWs of increased
capacity could be obtained from regaining lost capacity due to unit
deratings.'' Likewise, the NCC reported that 20,000 MW of additional
capacity could be gained by ``increasing heat input and/or electrical
output from [existing] generating equipment.'' Moreover, the NCC found
that this restoration and increase of capacity from existing units
could only be economically viably pursued by the facility owners if,
among other factors, the increased availability and/or electrical
output would clearly not trigger NSR. Other industry representatives
supported this estimate.
Conversely, environmental group commenters expressed the view that
such investments are not as profitable as investments in completely new
electric generation capacity and that this is why the industry is not
pursuing them, as opposed to NSR being the major impediment.\54\ They
also estimate that the emissions reductions from efficiency improvement
projects would be small compared to the reductions that would be
achieved if NSR applied.
---------------------------------------------------------------------------
\54\ Clean Air Task Force comments [II-D-236] at 49 and App. C.
---------------------------------------------------------------------------
In conclusion, for the utility industry, with respect to existing
sources, and in contrast to new sources, the EPA finds that the
available information indicates that the NSR program is having an
adverse impact on investment in both electric generation capacity and
energy efficiency. While there are only limited data that prove that
NSR has resulted in the cancellation of otherwise economical projects
of either type, a significant number of industry commenters presented a
variety of projects at existing sources that could have increased
capacity, improved reliability, or enhanced efficiency, but were made
uneconomical due to delays and costs associated with NSR. The EPA finds
many of these cases to be credible and based on real-world examples,
and believes that they demonstrate that NSR has an adverse impact on
such investment at existing sources. It is reasonable to conclude that
the foregone investment has resulted in foregone capacity increases
through decreased reliability and availability that are not recovered,
and through foregone efficiency improvements.
2. Refineries
Turning to the question of NSR impacts on investment in capacity at
existing refineries, the EPA finds that the comments again highlight
areas where NSR may adversely impact investment in capacity and energy
efficiency projects. These areas are examined further in this section
in order to assess their nature and extent.
Refinery commenters observe that the refining industry differs
considerably from the electric utility industry in several respects.
For example, it is operating much closer to full capacity than the
utility industry, and it is not transitioning from an economically
regulated basis to a market basis. Even while operating at very high
utilization rates, commenters noted that the industry must be able to
respond rapidly to changes in raw material availability, market
demands, and environmental requirements. API explained that,
``[r]efiners are required by law to make adjustments to fuel
specifications from one season to another, produce fuels meeting
multiple specifications in various regions of the country, and
reconfigure to refine cleaner burning low sulfur diesel and gasoline,
all while being able to supply fuels to meet constantly changing
customer demand.''\55\ API suggested that these requirements
necessitate frequent and rapid responses that may involve changes to a
refinery's facilities and processes. Moreover, they note that, to meet
demand for petroleum products and avoid market disruptions that can
lead to shortages and price volatility, the refining industry must be
able to maintain the availability, reliability, and safety of its
facilities. NPRA's comments noted, ``Refining operations are continuous
and complex. They depend on the simultaneous operation of many
individual, but inter-related, pieces of equipment (``units''). A delay
or inability to change or improve operations of a single unit can have
a significant cumulative impact on the refinery's ability to produce
the fuels that its customers, and the national economy, rely upon.\56\
To meet increasing demand without major construction of new refining
facilities, commenters believe that the industry must improve the
efficiency of its existing facilities, and it must engage in what one
industry commenter described as a ``continuous incremental improvement
in production capacity.''\57\ Finally, as noted in the Background
Paper, and above, with no new refineries likely to be built in the near
future, assessing the impact of NSR on existing sources is particularly
critical.
---------------------------------------------------------------------------
\55\ API Comments [II-D-134] at 1-2.
\56\ See NPRA Comments [II-E-27] at 2.
\57\ See BP America comments [II-D-307] at 2.
---------------------------------------------------------------------------
As with utilities, refineries maintain that the exclusion for
``routine maintenance repair and replacement'' has been narrowed by EPA
in recent years and undercuts their ability to respond quickly to
market changes and raw material availability. In addition, refinery
industry commenters expressed concern about the test used to determine
whether a change results in an emissions increase at non-utility source
categories (i.e., the ``actual to potential'' test). In the view of
many refinery commenters, the NSR program has the effect of
constraining the industry's ability to (1) expand domestic refining
capacity, (2) increase the supply of cleaner burning fuels, and (3)
enhance energy efficiency.\58\ The commenters said that under the NSR
program, numerous common activities at a refinery--whether required to
respond to demand changes, to repair or replace a broken piece of
equipment, to improve efficiency, to expand refining capacity, or even
to respond to environmental requirements--are potentially subject to
NSR permitting.\59\ One industry commenter states that hundreds of such
activities are undertaken each year at existing U.S. refineries.\60\
According to commenters, the lengthy, costly, and uncertain nature of
the current NSR permitting process discourages those activities to
which it potentially applies, or at least introduces significant delays
in and constraints on the ability of the operator to make the required
changes in an efficient and timely manner.
---------------------------------------------------------------------------
\58\ NPRA letter to Stephanie Daigle, EPA, 7/23/2001.
\59\ See API Comments [II-D-134] at 2; ExxonMobil Comments [II-D-
418] at 2; NPRA Comments [II-E-27] at 3.
\60\ See Marathon Ashland Petroleum LLC (MAP) Comments [II-D-253]
at 2.
---------------------------------------------------------------------------
Refining industry commenters also noted that, in their opinion, the
NSR emissions increase test for non-utilities (the ``actual-to-
potential'' comparison) presumes that virtually any activity at a
refinery increases emissions within the meaning of NSR, even if the
activity were, in fact, to result in decreased actual emissions.\61\
Thus, these commenters stated that, of the activities undertaken at a
given refinery, only those activities ultimately deemed to constitute
``routine maintenance, repair or replacement'' might avoid NSR.
However, according to industry commenters, few activities beyond the
most mundane maintenance activities that may be undertaken each year at
a given facility would be deemed ``routine'' under the NSR
regulations.\62\ One commenter maintained that the NSR program would
apply NSR to any change that: (a) results in an increase in capacity or
capacity utilization of an existing process unit; or (b) increases the
efficiency or lowers the unit operating costs; or (c) extends the
useful life of that unit . . .''[or (d)] increase[s] unit
reliability.''\63\ According to industry, these are precisely the types
of activities that U.S. refineries must constantly undertake to meet
demand and minimize fuel supply disruptions and price volatility.
Moreover, commenters suggest that the use of an actual-to-potential
test encourages industry to maximize current actual emissions within
permit limits, rather than providing incentives for emissions
reductions.\64\
---------------------------------------------------------------------------
\61\ See, e.g., ExxonMobil Comments [II-D-418] at 11 (commenting
that actual-to-potential test ``fabricate[s] emission increases'' where
no increases actually occur).
\62\ See ExxonMobil Comments [II-D-418] at 12; BP America Comments
[II-D-307] at 2; MAP Comments [II-D-253] at 2.
\63\ See BP America Comments [II-D-307] at 2.
\64\ NPRA Comments [II-E-27] at Attachment 1, No. 1.
---------------------------------------------------------------------------
Industry commenters provided a list of activities that they
reportedly undertake to maintain reliability, improve efficiency, and
expand capacity that, in their view, are typically undertaken in the
industry but, nevertheless, are potentially subject to NSR under the
current program.\65\ According to industry, the potential applicability
of NSR, which they believe could encompass virtually any given project,
tends to discourage operators from undertaking particular projects
because NSR would add significant delays and costs.\66\ Industry
commenters observed that the EPA Background Paper's estimate for the
length of time typically necessary to obtain an NSR permit did not
include the time spent prior to submittal of a complete application. If
such time is included, the length of the NSR permitting process in the
experience of refinery commenters is at least 7 to 22 months, excluding
any post-issuance appeals and challenges.\67\ An industry commenter
further predicted that, if the listed activities are viewed as non-
routine, the refining industry, as well as other U.S. industries, would
experience much longer lead times in obtaining NSR permits than already
occur.\68\
---------------------------------------------------------------------------
\65\ See, e.g., NPRA comments [II-D-400] and API comments [II-D-
134].
\66\ NPRA Comments [II-E-27] at 2.
\67\ See API comments [II-D-134] at 8.
\68\ See ExxonMobil Comments [II-D-418] at 16.
---------------------------------------------------------------------------
Like utilities, refiners also raised the concern that there would
be limited options for projects that are potentially subject to
NSR.\69\ They described three options. First, the operator could seek
to obtain an NSR permit, accepting the delays, uncertainties, and
potentially significant costs that commenters say are associated with
such permits.\70\ Alternatively, an operator could seek to ``avoid''
NSR by limiting emissions to past, actual levels through a minor NSR
permit (a permit which, according to industry, can take 3-12 months to
obtain), thus giving up refinery capacity and ``deprive[ing] the source
of the `headspace' between actual and allowable emissions that is
crucial to long-term operating flexibility and the ability to respond
quickly to changes in demand.''\71\ A third option would be to simply
cancel the project, and forego the projected benefit that was the
reason for the project in the first place.
---------------------------------------------------------------------------
\69\ See BP America Comments [II-D-307] at 2.
\70\ See id.; see also ExxonMobil Comments [II-D-418] at 18 (noting
both the cost and scheduling impacts of NSR on project economics).
\71\ See BP America Comments [II-D-307] at 2-3.
---------------------------------------------------------------------------
Overall, the comments submitted by refinery and other commenters
during this review process emphasize their belief that by imposing
significant costs and delays, the NSR program discourages investment in
projects that are necessary to maintain the reliability of existing
refineries, improve their efficiency, expand capacity, and respond
flexibly to rapidly changing consumer demand for petroleum products.
According to one commenter, what the industry most needs is certainty
and flexibility in its efforts to meet both the energy needs of the
Nation and environmental requirements.\72\
---------------------------------------------------------------------------
\72\ See API Comments [II-D-134] at 2.
---------------------------------------------------------------------------
In contrast, NRDC's comments suggest that poor return on investment
is more important than environmental considerations (of which NSR is
only a small part, and is not specifically named by sources examined in
the EPA Background Paper) in any decisions not to invest in new
capacity.\73\ They point to information presented in the Background
Paper showing that, in recent years, there has been significant
investment in refinery capacity at existing sources.
---------------------------------------------------------------------------
\73\ NRDC comments [II-D-267] at 5.
---------------------------------------------------------------------------
As discussed above for utilities, the EPA notes that for refineries
there are also differences of opinion amongst the commenters about the
scope of the routine maintenance exclusion and the resulting impacts.
In determining whether an activity is ``routine'' for purposes of being
excluded from NSR, EPA consistently has taken a case-by-case approach,
weighing the nature, extent, purpose, frequency and cost of the work,
as well as other relevant factors. However, EPA acknowledges, as it did
for utilities, that the comments report significant uncertainty about
the scope of the ``routine'' exemption. Such uncertainty can result in
the delay or cancellation of projects. Changes to the NSR program that
add to the clarity and certainty of the scope of the routine
maintenance exclusion will improve the process by reducing the
unintended consequences of discouraging worthwhile projects that are in
fact outside the scope of NSR.
A key difference between utilities and refineries is the fact that
refineries use the ``actual-to-potential test'' for determining NSR
applicability, while utilities generally do not. The EPA has reviewed a
number of examples where projects could have provided capacity
increases or energy efficiency improvements, and likely could have done
so without increasing actual emissions, and in some cases the projects
appear likely to decrease actual emissions. Such projects, if they
occur at units operating below capacity, could trigger NSR or, at
least, trigger a need to cap the units below capacity or install
pollution controls to avoid NSR. Again, the determination of whether a
change results in an emissions increase is a case-by-case
determination, but the EPA believes that the commenters' examples make
a credible case that some capacity or efficiency projects that do not
increase actual emissions are not undertaken because they trigger NSR
under the actual-to-potential test. Although the information is mostly
anecdotal in nature, the EPA believes that the information presented is
based on real world experience, and makes a credible case that some
projects are not going forward in part because of NSR. The EPA believes
that this results in lost refining capacity, or foregone opportunities
to increase capacity without increasing emissions.
iv. impact on industries other than electric utilities and petroleum
refineries
In addition to the information supplied to EPA by utility and
refinery commenters, the Agency received numerous comments from other
industries regarding the NSR program's impact on energy use,
efficiency, and capacity. These comments came principally from a
variety of industry associations and coalitions of manufacturers
representing the automobile, aerospace, chemical, electronics, food,
aluminum and steel, packaging, paper, printing, pharmaceutical, and
other manufacturing sectors. Like the utility and refining industries,
these commenters were primarily concerned with the current application
of the NSR program to existing sources. They noted many anecdotal
instances where projects would have reduced energy demand and/or
increased energy efficiency, but were abandoned because of NSR
permitting delays and/or costs associated with the retrofit of existing
equipment with the BACT or LAER emissions controls mandated by NSR
rules. Other commenters presented similar examples of pollution control
and pollution prevention projects abandoned because of potential NSR
applicability. According to the commenters, the cancellation of
projects that would have improved energy efficiency or decreased
pollution means that NSR is having an adverse impact on investment in
both energy efficiency and environmental protection.
Among the general concerns voiced by commenters in addition to
pollution control costs were claims that (1) the NSR program is complex
and gives rise to uncertainty and associated delays, (2) it hinders
flexibility for industry to quickly make needed changes, and (3) that
it results in the loss of production capacity where NSR is triggered
based on the application of the actual-to-potential test, even if
emissions will not actually increase. Furthermore, commenters argued
that if a source wants to avoid NSR, it faces the undesirable outcome
of accepting new emissions limits in the NSR permit that, according to
commenters, effectively reduce a plant or unit's productive
capacity.\74\
---------------------------------------------------------------------------
\74\ See, e.g., Comments of NEDA/CARP [II-D-272] at 9-10.
---------------------------------------------------------------------------
A. NSR Applicability
1. Routine Maintenance, Repair & Replacement
As with utilities and refineries, many commenters from other
industry sectors focused on the NSR ``routine maintenance, repair and
replacement'' exclusion. Like the industries discussed above, they
believe that EPA has narrowed the exclusion in recent years. Thus, they
stated this was the day-to-day largest problem in maintaining the
availability, reliability, and safety of production equipment.\75\ In
particular, commenters asserted that projects involving repair or
replacement components incorporating ``state-of-the-art'' improvements
in materials or design may be subject to NSR since they may not qualify
as routine maintenance, or may result in more efficient utilization of
fuel and/or raw materials that may potentially increase a facility's
emissions. For instance, at one plant, a company states that it elected
not to replace spray nozzles in a process dryer, even though it
determined that significant energy savings could result, because it
concluded that the new Teflon coated nozzles would not be equivalent
parts and, therefore, the project would not be exempt from NSR as
routine. According to the commenter, the new nozzles would have
resolved the repeated need to replace the existing equipment, and may
have provided a safer and more reliable operating environment.\76\
---------------------------------------------------------------------------
\75\ See, e.g., FPA Comments [II-D-271] at 2-3.
\76\ NEDA/CARP Comments [II-D-272] Attachment A, Example #1.
---------------------------------------------------------------------------
Similarly, commenters complained that NSR application discouraged
engineering design innovations that provide better quality and control
assurances during sometimes-dangerous production processes. One
example, provided by the chemical industry, was the installation of a
temperature regulating system on a thermal jacket around a dryer that
is equipped with a heated jacket that uses a temperature control system
in the jacket. The temperature control system works by regulating the
flow of steam or hot liquids similar to radiator fluids in the jacket
that surrounds the dryer. The current system uses an older design and
is relatively ineffective because of the system's wide temperature
variation, which causes risks of explosion and lengthens the drying
process time. Both problems could be eliminated with the installation
of a temperature regulating system, which would also reduce energy
demands on the process by 20 percent. Although work is often performed
on the jacket regulating system, the company suggested that it did not
go forward with the change because work on the temperature regulating
system, utilizing a unique new system, would not be considered
``routine.\77\
---------------------------------------------------------------------------
\77\ NEDA/CARP Comments [II-D-272] Attachment A, Example #4.
According to this example, only 2 tons per year of regulated emissions
would have resulted from the change, but potential emissions could have
increased over 100 TPY of VOC because operation of an incinerator with
a 98 percent control efficiency voluntarily installed by the company is
not considered to be ``federally enforceable.''
---------------------------------------------------------------------------
It was also suggested that application of the NSR program impeded
the ability of companies to undertake projects to ensure the
reliability of their equipment that might also result in significant
energy efficiency gains. Commenters presented a number of examples of
such projects, including examples from the chemical, packaging,
aluminum and general manufacturing sectors. One illustration from the
American Forest and Paper Association described replacement of outdated
analog controllers at a series of six batch digesters. The original
controllers were no longer manufactured, although new digital
controllers, costing approximately $50,000, are capable of receiving
inputs from the digester vessel temperature, pressure and chemical/
steam flow. The new controllers would have more precisely filled and
pressurized digesters with chips, chemicals and steam (whereas the old
controllers added materials in timed sequence), thus bringing a batch
digester on line faster. However, the source determined that under the
NSR program this project would not be considered to be routine because,
although repairs to the analog system might have been frequent at the
company involved, replacement of the system with a digitalized,
computerized system would not qualify as ``routine.''\78\
---------------------------------------------------------------------------
\78\ AFPA Comments [II-E-15], Tab 3, Case in Point #4.
---------------------------------------------------------------------------
As with utilities and refineries, EPA notes that there are widely
differing views on the scope of the routine maintenance exclusion on
other industries. As before, we therefore conclude that concern about
the scope of the routine maintenance exclusion is having an adverse
impact for industries outside the energy sector. It also is credible to
conclude that projects have been discouraged that might have been
economically and/or environmentally beneficial without increasing
actual emissions. Changes to the NSR program that add to the clarity
and certainty of the scope of the routine maintenance exclusion will
improve the process by reducing the unintended consequences of
discouraging worthwhile projects that are in fact outside the scope of
NSR.
2. Pollution Prevention Projects
Another series of examples provided by commenters from the
manufacturing sector involved pollution prevention projects, many with
significant energy savings potential. Pollution prevention projects at
manufacturing facilities may qualify for exemption under the NSR
program. This determination is made on a case-by-case basis under EPA's
1994 guidance which addresses pollution control projects and NSR
applicability. Although this guidance was intended to create incentives
for industry to undertake such projects, some comments suggested that
it might actually discourage such projects. One example comes from the
chemical industry. In that case, a chemical facility considered
installation of a new, more efficient CFC refrigeration system.
Completion of this project, according to the commenter, would have
resulted in decreased CFC emissions and less electricity demand,
reducing overall emissions from the facility's power generating plant.
However, this project would not have qualified for the pollution
control project exclusion because the primary purpose of the project
was not to reduce emissions. Therefore, because the project otherwise
would have triggered NSR, the company elected not to undertake it.\79\
---------------------------------------------------------------------------
\79\ Comments of American Chemistry Council [II-D-416] example 1.
---------------------------------------------------------------------------
In a second example, an aerospace company suggested that it was
unable to avoid NSR, using EPA's 1994 pollution control project policy,
because the purpose of a particular project was to improve energy
efficiency, although significant pollution control benefits would also
have resulted. The company had proposed to speed up its manufacturing
process (for parts and subassemblies) by using a new adhesive that
would dry (or cure) faster. The company stated that the project would
have resulted in pollution prevention both because the new adhesive had
a lower volatile organic compound (VOC) content than the one in use and
because more parts could be processed in less time, consuming less
energy overall. However, this project could not qualify for the
pollution control project exclusion because its purpose was to improve
efficiency, rather than to abate pollution and because the new adhesive
system would have increased the utilization of production equipment at
the plant. Because the project otherwise would have triggered NSR
applicability, the company declined to make the change.\80\
---------------------------------------------------------------------------
\80\ NEDA/CARP Comments [II-D-272] Attachment A, Example #14.
---------------------------------------------------------------------------
EPA believes that these examples indicate that NSR is having an
adverse impact on some pollution control and prevention projects.
B. Energy Efficiency
The Agency also received a number of industry comments explaining
the NSR program's effect on energy efficiency and demand. These
comments suggest that the delays and costs associated with NSR have
discouraged the adoption or implementation of various energy
conservation and efficiency measures. Examples provided by commenters
included efforts to conserve fuel and programs that will result in
energy demand reductions at major industrial plants. The commenters
allege that, in many cases, the projects would ultimately reduce actual
emissions, but nonetheless trigger NSR under the actual-to-potential
test.
For instance, NSR was cited as a principal reason for not
undertaking energy efficiency projects for the installation of heat
exchangers and overfire air by various manufacturing sectors including
the electronics and appliance industries, plastics, and paper
industries. Heat exchangers recover heat from boiler flue gas streams
to heat water used in the system's deaerator units. By preheating the
water used in the deaerator units, the heat exchanger reduces the steam
needed to run the deaerators. This increases the overall efficiency of
the boiler house and reduces fuel usage. It also reduces annual boiler
emissions. At a plastics plant, a commenter pointed out that
installation of a heat exchanger would be expected to reduce natural
gas consumption by 7.5 percent, NOx emissions by 7.5 percent,
SO<INF>2</INF> emissions by 5.8 percent and carbon monoxide (CO)
emissions by 7.6 percent, particulate matter (PM) emissions by 9
percent, and VOC emissions by 9.3 percent. The project achieves these
benefits through pollution prevention rather than add-on controls.\81\
In this case, the industry applicant sought exclusion from NSR
applicability under the pollution control project exclusion. However,
this project did not qualify as a pollution control project because its
primary purpose was not pollution control or prevention. Moreover,
because the boilers required back-up firing with oil during the winter
to ensure operation, the ``actual to potential'' emission test would
have caused the project to trigger NSR. To avoid the installation of
new controls that would be mandated as the result of NSR applicability,
the source states that it is considering burning more fuel oil over the
next 2 years to increase base level of emissions (actual emissions).
---------------------------------------------------------------------------
\81\ NEDA/CARP Comments [II-D-272] Attachment A, Example #15.
---------------------------------------------------------------------------
Another example from a boiler at a pulp and paper mill illustrates
a similar problem. According to the comment, the mill's industrial
boiler currently experiences extensive, internal erosion as a result of
the carryover of solids such as sand and wire from the burning of tire-
derived fuel, and burned bark particles, which have led to decreased
boiler efficiency. As a result, the mill proposed to install a new
overfire air system to allow for more complete combustion of the bark
fuel. By getting more heating value from the same amount of bark
burned, less natural gas would be required to provide supplemental heat
at an annual natural gas savings of about $1 million (in July, 2001
dollars). According to the comment, future actual emissions of NO, CO
and VOCs would decrease after completion of this project. However,
because the boiler is currently operating below its rated capacity, the
potential emissions after completion of the project would increase over
past actual emissions, triggering NSR. The commenter estimates that the
cost of NSR controls would be $17 million.\82\ At the time this project
was under consideration, the relevant company estimated that the annual
savings in natural gas usage equated to roughly 200 million cubic feet
of natural gas. This amount of gas has a heating value of approximately
0.2 trillion Btu.
---------------------------------------------------------------------------
\82\ AFPA Comments [II-E-15], Tab 3, Case in Point #1.
---------------------------------------------------------------------------
The Department of Energy has estimated that overfire systems could
be installed on 20 percent of the 200 coal fired boilers in the
industry, resulting in 680,000 MW-hr in energy savings annually.
Additional energy savings reportedly are possible if overfire air
provides similar benefits in wood-fired systems. Potential reductions
in NON, SO<INF>2</INF>, CO, PM, VOCs and other pollutants such as
mercury would accompany such energy savings.
Commenters also expressed a need for operational flexibility, and
asserted that NSR delays can limit such flexibility, with the result
that if changes are projected to trigger NSR, even changes that improve
energy efficiency, they are no longer economically viable. Because some
industries must make rapid changes in their product lines it is very
difficult for them to manage NSR compliance. One such example was
provided by the flexible packaging industry. In that case, the industry
has been moving steadily toward the replacement of solvent-based inks
and coatings with water-based inks and coatings in the production of
packaging for foods, drugs, cosmetics, and other household goods.
However, certain product orders reportedly require, from time-to-time,
solvent-based inks or coatings, and these operations are required to
operate large thermal oxidizers by their permits. In addition many of
the low VOC coatings contain materials that can poison a thermal
oxidizer's catalyst. Therefore, the plant asked its permitting agency
to change its permit to run the oxidizer only when it runs VOC-based
coatings.\83\
---------------------------------------------------------------------------
\83\ FPA Comments [II-D-2711 at 6-7.
---------------------------------------------------------------------------
In this instance, the operator calculated that the change could
save approximately 15,000 cubic feet of gas and 650 kWh of electricity
each day. However, the commenter felt that the change would probably be
a change in the plant's method of operation, triggering NSR, even
though actual emissions were expected to be reduced by the change.
Because of the nature of its operations, involving product batches
sometimes constituting only hours of a day's run, the company did not
feel it could accept limits on its hours of operation. Therefore, the
project, which according to the commenter was conceived as a way to
create large energy savings, did not go forward.\84\
---------------------------------------------------------------------------
\84\ Id.
---------------------------------------------------------------------------
A number of commenters claimed to have abandoned energy
conservation projects because they determined that NSR would apply and
make the project cost-prohibitive. For instance, at one commenter's
automobile assembly plant, the company wanted to eliminate one shift of
a two-shift operation due to downward market fluctuations. This would
have resulted in a reduction of roughly 30 percent (0.4 billion cubic
feet) of annual natural gas usage in the plant's boilers, ovens,
thermal oxidizers and other fuel combustion equipment at a cost savings
of greater than $2 million annually. In addition, electrical power
consumption would have been reduced by roughly 10 percent, at a cost
savings of greater than $700,000 annually. In order to accommodate this
change, however, the facility needed to install certain pieces of
equipment, consisting mostly of assembly motors to increase the
production capability of a single shift by two automobiles per hour.
According to the comment, because of the actual-to-potential test, and
the source's reluctance to take a cap limiting it to one-shift
operation, the project would have triggered NSR and the project would
no longer have been economically viable.\85\
---------------------------------------------------------------------------
\85\ NEDA/CARP Comments [II-D-272] Attachment A, Example #12.
---------------------------------------------------------------------------
Overall, the comments received from industries other than utilities
and refineries also provide additional evidence suggesting that the
current NSR program is having an adverse impact on energy efficiency by
discouraging projects that may improve energy efficiency, or may
increase capacity and reliability without actually increasing pollutant
emissions. In some cases it may even be discouraging projects that
decrease emissions, because of the ``actual-to-potential'' test used
for these industries.
v. impact on environmental protection
Overall, EPA believes that preventing emissions of pollutants
covered by NSR does result in significant environmental and public
health benefits. Attempting to specifically quantify the NSR program's
contribution to these benefits is very difficult because of the variety
of Clean Air Act programs that address these pollutants and because
there is no tracking by any government agency of the reductions in
emissions that sources make due to the NSR program. Moreover, EPA
recognizes that measuring risk reduction benefits associated with any
given reduction in emissions requires complex risk assessments that
would, in turn, require more specific information than has been
gathered in the context of this review.
We note that NSR is implemented in the context of several other
significant Clean Air Act programs. Available information indicates
that these other programs result in substantial emissions reductions.
For example, the Title IV Acid Rain Program has reduced SO<INF>2</INF>
emissions from the electric utility industry by more than 7 million
tons per year. The Tier 2 motor vehicle emissions standards and
gasoline sulfur control requirements will ultimately achieve NO,
reductions of 2.8 million tons per year. Standards for highway heavy-
duty vehicles and engines will reduce NO, emissions by 2.6 million tons
per year. Standards for non-road diesel engines are anticipated to
reduce NO, emissions by about 1.5 million tons per year. The NO, ``SIP
Call'' will reduce NO, emissions by over 1 million tons per year.
Altogether, these and other similar programs achieve emissions
reductions that far exceed those attributable to the NSR program.
Moreover, most of these other programs are much more efficient,
streamlined, and simple than NSR because they do not entail the same
resource-intensive, case-by-case review that is required under NSR.
It would be very difficult to estimate or quantify the benefits of
the NSR program. However, EPA believes that the inability to make exact
estimates does not mean that these benefits are insignificant or
nonexistent. Notably, industry concerns about NSR focused almost
exclusively on problems associated with applying the program to
existing sources. These comments illustrated a potential dichotomy in
that the benefits of the NSR program are largely attributable to new
sources while the existing sources reportedly are more burdened by the
program.
Electric utilities and petroleum refineries are significant sources
of air emissions. The major regulated air pollutants emitted from power
plants are SO<INF>2</INF>, NOx, PM, and mercury. Refineries primarily
emit SO<INF>2</INF> and NOx, as well as VOCs. Based on 2000 emissions,
the electric utility industry is the single largest source of
SO<INF>2</INF> emissions and the second largest source of NOx emissions
(on road mobile sources are the largest). In 2000, the electric utility
industry emitted 11.2 million tons of SO<INF>2</INF>, 5.1 million tons
of NOx, and 302,000 tons of PM. In 1999, refineries emitted 479,000
tons of SO<INF>2</INF>, 299,000 tons of NOx and 161,200 of volatile
organic compounds. Emissions of these pollutants from all sectors in
1999 totaled 18.9 million tons SO<INF>2</INF>, 25.4 million tons NOx,
18.1 million tons VOC, and 23.7 million tons PM.
There is a significant body of scientific literature linking air
pollution to several health effects. These include: premature
mortality, chronic asthma and increased asthma attacks, chronic and
acute bronchitis, other chronic respiratory diseases and damage,
increased airway responsiveness to stimuli, inflammation in the lung,
respiratory cell damage, premature aging of the lungs, increased
susceptibility to respiratory infection, decreased lung function,
developmental effects, infant mortality, low birth weight, cancer,
decreased time to onset of angina, other cardiovascular effects.
Additional effects include decreased worker productivity; increased
emergency room visits for respiratory and cardiovascular effects, and
more hospital admissions for respiratory and cardiac diseases.\86\
---------------------------------------------------------------------------
\86\ In response to public requests for more such information, the
Agency has added to the docket some general benefits information about
reductions in emissions of pollutants likely to be impacted by the NSR
regulations. (A) U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards. Regulatory Impact Analysis for the NOx
SIP call, FIP, and Section 126 Petitions: Volume 1, Cost and Economic
Impacts. September, 1998. Located on the Internet at www.epa.gov/ttn/
oarpg/otag/sipriavl.zip; (B) U.S. Environmental Protection Agency,
Office of Air Quality Planning and Standards. Regulatory Impact
Analysis for the NOx SIP call, FIP, and Section 126 Petitions: Volume
2, Health and Welfare Benefits. December, 1998. Located on the Internet
at www.epa.gov/ttn/oarpg/otag/sipriav2.zip; (C) U.S. Environmental
Protection Agency, Office of Air Quality Planning and Standards.
Regulatory Impact Analysis for the Final Regional Haze Rule. April,
1999. Located on the Internet at www.epa.vov/ttnioarpv/tl/reports/
riaes.pdf; and (D) U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards. Regulatory Impact Analysis for the
Final Section 126 Petition Rule. December, 1999. Located on the
Internet at www.epa.gov/ttn/oarpg/t1 /reports/riaes.pdf.
---------------------------------------------------------------------------
Potential effects beyond human health effects include direct damage
to plants and forests, decreased yields for crops and forest products,
damage to ecosystem functions, decreased visibility, corrosion and
soiling of buildings and monuments, eutrophication (i.e., explosive
algae growth leading to a depletion of oxygen in the water), acidic
deposition and acidification of water bodies, and impacts on
recreational demand from damaged aesthetics and decreased visibility.
The EPA Background Paper provided some preliminary estimates of the
amount of emissions prevented by the NSR program for all industries in
``clean'' areas (e.g., emissions that would have otherwise occurred
from construction/modification). The NSR program in such clean areas is
known as the PSD program. The Paper stated that for the period 1997
through 1999, new or modified source compliance with PSD for all
industries prevented approximately 1.4 million tons of air pollution
from being emitted per year. The vast majority of these reductions are
attributable to the application of NSR to new gas fired electric
generating units. The Background Paper also reported that this number
underestimates total emission. reductions because it does not include
estimates of emissions prevented in nonattainment areas through
nonattainment NSR permitting requirements during that same time period.
Several commenters reiterated this position and noted that as a
general rule these reductions would be greater because the control
requirements are more stringent and the offset requirements essentially
result in a net emissions decrease. Although EPA agrees that there are
additional emission reductions that result from compliance with the
offsets requirements of nonattainment NSR program, at this time the
Agency does not have information quantifying those emissions
reductions. Finally, other commenters noted that the EPA Background
Paper failed to address the emission reductions of SO<INF>2</INF> and
NOx that occur as a result of sources reducing their emissions so as to
avoid the applicability of NSR altogether. On the other hand, since
SO<INF>2</INF> emissions from the utility industry are capped by the
Title IV acid rain program, NSR does not produce overall net reduction
in SO<INF>2</INF> emissions from the industry. Similarly, in
nonattainment areas, Title I effectively caps emissions of the
nonattainment pollutant. To a degree, the same is true for seasonally
or geographically limited cap and trade programs, such as the ``NOx SIP
call.'' Furthermore, as noted below, industry commenters note that
these estimates of emission reductions attributed to NSR do not account
for foregone emissions reductions that they allege would have occurred
in the absence of NSR's disincentives to proceed with projects that
increase efficiency.\87\
---------------------------------------------------------------------------
\87\ First Energy Corporation testimony on NSR, 7/10/2001, stated
that current interpretations of NSR would have prevented projects now
resulting in a reduction of 40,000 TPY of SO<INF>2</INF> and NOx
emissions.
---------------------------------------------------------------------------
A large number of commenters, primarily citizens and environmental
groups, expressed strong support for the benefits that derive from
reducing emissions from these industrial sectors, either by installing
pollution reduction controls on new sources as they are built, or on
existing sources as they are modified. Many groups argued that the
public health threat from the air emissions of power plants and
refineries is urgent and further reductions are needed. Noting
environmental justice concerns, one commenter stated that 80 percent of
the refineries in the Texas oil refinery communities are either
populated by minority citizens or contain significant minority
representation and reported that approximately three million minority
citizens live in these Texas communities.
The EPA Background Paper also presented previous estimates of the
health benefits per ton of pollutant reduced for SO<INF>2</INF> and NOx
emissions based on a study of emissions at utilities. The work cited in
the EPA Background Paper is based on the benefits of reducing premature
mortality associated with long-term exposure to PM. However, many
citizen and environmental group commenters requested a more detailed
discussion of additional health benefits like the avoidance of reduced
lung function, asthma attacks, lost work days and premature death,
which have been linked to these air pollutants. For example, one
commenter representing 43 environmental groups cited a study by Abt
Associates presenting their estimate that national power plant
emissions accounted for more than 6,000 asthma attacks, 30,000
premature deaths, and 5 million lost work days per year, noting that
elderly people with respiratory disease and children are at the
greatest risk.
Commenters requested that EPA present information on the benefits
due to avoided emissions of other pollutants, including pollutants that
are reduced collaterally when criteria pollutants are controlled (e.g.,
mercury). One commenter notes that EPA documents identify coal-fired
power plants as the largest industrial emitters of mercury, another
pollutant with well-documented health and environmental effects. Thus,
without addressing the benefits that derive from reductions of these
pollutants as well, several commenters argue that the EPA Background
Paper significantly underestimates public health and environmental
benefits of NSR.
Many commenters also mentioned numerous other benefits that result
from lower emissions from power plants and refineries. They presented
information about impacts primarily of power plant emissions on the
environment, particularly in National Parks. For example, several
groups provided information regarding the adverse impact of power plant
emissions in particular on visibility in National Parks. Some
commenters also note that ground level ozone (smog) not only impacts
vegetation (more than 50 species of plants and trees allegedly harmed
by ozone), but also the health of visitors to National Parks.
Additionally, commenters note the impact of SO<INF>2</INF> and NOx
emissions on the formation of acid rain and its impact on ecosystems
(e.g., red spruce decline, fish killed). Finally, many commenters were
also concerned about CO<INF>2</INF> emissions and their potential to
affect climate, and believed that NSR plays a role in preventing these
emissions as well. Commenters urged EPA to discuss the benefits
generally of reduced emissions in all these areas more explicitly, and
quantify them as they relate to the NSR program.
In addition, several commenters noted that in nonattainment areas,
a source's failure to reduce emissions through NSR places the burden on
other sources to reduce emissions. In other words, because the State
has to reduce emissions somewhere in order to attain air quality
standards, it will target other sources (e.g., construction
activities), or even consumers in order to create those reductions.
Even in attainment areas, compliance with PSD requirements can help
maintain the area's ability to continue to grow.
Some state and local governments supported the role NSR plays in
preventing emissions from new and modified sources.\88\ They believe,
based on their experience, that without NSR, emissions from new and
modified sources would severely interfere with their efforts to attain
and maintain air quality standards. While there are several important
programs that reduce emissions from existing sources, they felt NSR was
a critical complementary program because it minimized emissions from
new sources.
---------------------------------------------------------------------------
\88\ See, e.g. STAPPA/ALAPCO comments.
---------------------------------------------------------------------------
Some commenters also expressed support for the technology-forcing
aspect of the NSR program, arguing that it is the only CAA program that
automatically mirrors improvements in control technology over time, and
therefore encourages continued development of cleaner technology.
Commenters urged EPA to estimate the benefits of this effect as well.
Industry commenters felt that the current NSR program actually acts
as a barrier to improved environmental protection in certain instances.
Although NSR is only triggered when emissions increase, these
commenters argued that the way EPA calculates an increase in emissions
can actually have the effect of subjecting a project to NSR that would
decrease actual emissions. Because of the delay and costs associated
with applying NSR to a project, NSR renders these environmentally
beneficial projects uneconomical, and they may be rejected. Similarly,
again because of the way that NSR calculates emissions increases,
several industry commenters noted an incentive to keep actual emissions
high because the closer actual emissions are to a source's maximum
capacity to emit, the less likely it is to trigger NSR.
vi. conclusion
Based upon the information examined during this review of the NSR
program, there appears to be little incremental impact of the program
on the construction of new electricity generation and refinery
facilities but a more dramatic impact on investment in utility and
refinery generating capacity and energy efficiency at existing utility
and refinery plants. Looking at industry as a whole, there also is
clear evidence of NSR's benefits for environmental protection.
With respect to environmental protection, the EPA finds that NSR is
not designed to play the primary role in reducing emissions from
existing sources. In fact, for pollutants covered by a national cap and
trade program (such as the Title IV acid rain program), the NSR program
does not necessarily produce any overall emissions reductions.
Furthermore, EPA believes that in particular industry sectors--
especially the utility sector--the benefits currently attributed to NSR
could be achieved much more efficiently and at much lower cost through
the implementation of a multi-pollutant national cap and trade program.
Nevertheless, the NSR program plays a role in attainment and
maintenance of the NAAQS, particularly with regard to new sources. It
helps ensure that as industry continues to grow and expand, air quality
is managed appropriately (i.e., by helping assure that clean areas do
not worsen and that dirty areas get cleaner). It also helps to protect
sensitive areas like national parks and wilderness areas, and promotes
new and more effective pollution controls. As described in this report,
and thoroughly detailed in the comments and other references provided,
NSR also provides health and ecological benefits.
With respect to new facilities, the NSR program's principal impacts
are in the form of delays and additional costs, but there is little
evidence that these delays and costs are preventing new source
construction in the utility industry. Indeed there is substantial
evidence that significant new generating capacity is being brought
online within normal timeframes for planning such projects.
With respect to the maintenance and operation of existing utility
generation capacity, there is more evidence of adverse impacts from
NSR. Credible examples were presented of cases in which uncertainty
about the exemption for routine activities has resulted in delay or
cancellation of projects which sources say are done for the purposes of
maintaining and improving the reliability, efficiency and safety of
existing energy capacity.\89\ Such discouragement results in lost
capacity, as well as lost opportunities to improve energy efficiency
and reduce air pollution.
---------------------------------------------------------------------------
\89\ Very few commenters provided sufficiently detailed examples
for EPA to make definitive judgments as to whether the given projects
would have been considered nonroutine or ultimately triggered NSR. As a
result, EPA cannot quantify the number of projects affected or the
corresponding impacts on capacity, reliability, efficiency, safety, or
other relevant factors. Based on the information presented, it appears
unlikely that many of the examples discussed would trigger NSR either
because they would qualify for the routine exclusion or they would not
increase emissions significantly. Nevertheless, the anecdotal
information was sufficient to support our conclusions with regard to
the overall impact of the NSR program.
---------------------------------------------------------------------------
There appeared to be little impact of NSR on planning for new
greenfield refineries, because new refineries are not being built for
economic and environmental reasons unrelated to NSR. For existing
refineries, the points raised above about the routine maintenance
exclusion apply equally well to refineries as they do for utilities--
the EPA observed that commenters expressed uncertainty about the
application of the exclusion to any particular project. Existing
refineries, however, face an additional issue: the actual-to-potential
emissions test. The EPA found credible examples of projects at existing
units that would have provided needed capacity or efficiency
improvements and would likely not have increased and in some cases may
have decreased--actual emissions. Due to the actual-to-potential test,
such projects, if they occur at units operating below capacity, could
trigger NSR unless the company committed to continue operating the
units below capacity or installed pollution controls. The EPA believes
that this potentially results in lost refining capacity, or foregone
opportunities to increase capacity without increasing emissions, which
could contribute to price volatility and shortages in fuel supply.\90\
---------------------------------------------------------------------------
\90\ The EPA notes that its conclusions for refiners are equally
valid for the numerous nonutility/non-refinery sources that commented
during the review.
---------------------------------------------------------------------------
With respect to energy efficiency, the EPA recognizes that the NSR
program applies to certain projects that have the effect of increasing
efficiency (e.g., projects that increase electricity output for a given
fuel input). The ordinary costs and permitting times associated with
NSR may, in the EPA's judgment, result in the delay or cancellation of
certain projects that could, improve energy efficiency. EPA encourages
energy efficiency improvements wherever feasible. However, the EPA
notes that some changes that improve energy efficiency also can result
in significant emissions increases that have adverse air quality
impacts that must be reviewed, even though the proposed project could
reduce regional or national emissions. Thus, of the universe of
possible efficiency improvements, the appropriate focus of the NSR
program is on those that are non-routine and that significantly
increase emissions. At non-utility source categories, the ``actual to
potential'' emissions test can discourage efficiency improvement
projects even where there would not be an increase in actual emissions.
It is clear that some of these efficiency improvements can still go
forward (by going through NSR or taking steps to avoid NSR); however,
it also is clear that others are in fact canceled due to the costs and
delays associated with NSR.
As noted at the beginning of this report, representatives of
industry, state and local agencies, and environmental groups have
worked with EPA for over a decade on developing improvements to the NSR
program. Our findings in this report ratify a longstanding and broadly-
held belief that parts of the NSR program can and should be improved.
For example, we conclude above that changes to NSR that add to the
clarity and certainty of the scope of the routine maintenance exclusion
will improve the program by reducing the unintended consequences of
discouraging worthwhile projects that are in fact outside the scope of
NSR. For these reasons, EPA is recommending a number of changes to the
NSR program that will address the concerns raised during this NSR
review as well as many other concerns presented to EPA about NSR over
the past decade.
United States Environmental Protection Agency,
Research Triangle Park, NC, June 20, 2001.
MEMORANDUM
SUBJECT: Benefits Associated with Electricity Generating Emissions
Reductions Realized Under the NSR Program
TO: File
FROM: Bryan Hubbell, Senior Economist, Innovative Strategies and
Economics Group
As part of the EPA analysis of the impact of the NSR program on
energy investment and supply, I did a calculation of the monetized
benefits of the NSR program. The details of this calculation are
contained in the attachment to this memo. Based on the estimated
emissions avoided due to PSD BACT permitting, I estimated the magnitude
of the benefits associated with this program. This estimate is lower
than the actual benefits of the NSR program because I do not quantify
all the health and environmental benefits, nor do I capture the
benefits of the nonattainment NSR program. Also, my estimate does not
capture the benefits of the reductions in emissions of pollutants other
than SO<INF>2</INF> or NOx. However, my calculation does show that the
benefits of this program are substantial.
Based on the information provided to me, there are roughly 400,000
tons of SO<INF>2</INF> and 822,000 tons of NOx emission reductions
avoided annually as a result of the PSD program. Ninety percent of
these reductions are thought to be from electricity-generating
facilities. Based on previous EPA analyses, the average mortality-
related benefits per ton of NOx reduced are around $1,300 and the
average benefits per ton of SO<INF>2</INF> reduced are around $7,300
for electricity-generating units. For simplicity, I provided estimates
only for mortality impacts which generally account for over 90 percent
of monetary benefits in previous analyses. Using these estimates as the
basis for my calculation, total mortality-related benefits of these
avoided emissions of SO<INF>2</INF> and NOx are around $3.6 billion
(1999$). This is due to an estimated reduction of 586 incidences of
premature mortality from reduced exposure to these electricity-
generating unit emissions.
Attachment
______
Benefits Associated with Electricity Generating Unit Emissions
Reductions Realized Under the NSR Program
There is a well-established body of evidence on the harmful health
and environmental effects of SO<INF>2</INF>, NOx (as primary pollutant
emissions) and their related atmospheric transformation products,
termed ``secondary pollutants'' (such as sulfates, nitrates, fine
particles, and ozone). The scientific studies on health and
environmental effects of sulfur dioxide, nitrogen dioxide, particulate
matter and ozone have been amply documented and peer reviewed in the
comprehensive Criteria Documents and Staff Papers prepared for recent
National Ambient Air Quality Standards reviews (EPA 1982a, 1982b,
1986a, 1986b, 1993, 1994a, 1994b, 1995, 1996a, 1996b, 1996c, 1996d).
Sulfur dioxide and nitrogen oxides act as precursors in the
development of fine particles and acid rain; nitrogen oxides also
contribute to the production of ozone. This discussion first summarizes
the general nature of health and certain environmental effects expected
from the presence of such emissions, and then outlines existing
quantitative estimates associated with large-scale regional emissions
reductions from multiple sources, as well as relevant material on
potential benefits of reductions at individual power plants. Finally,
annual benefits of the NSR program over the period from 1997 to 1999
are calculated by applying benefit-per-ton estimates obtained from
previous analyses of the benefits of emission reductions from
electricity-generating utilities.
human health
Fine particle exposure has been associated with health effects such
as decreased lung function, increased hospital admissions and emergency
room visits, increased respiratory symptoms and disease, and premature
mortality at a number of locations throughout the United States as well
as in other countries (EPA, 1996a). A number of the locations where
such associations have been observed are included in the eastern part
of the Nation, which is subject to regionally-elevated concentrations
of fine particles that are in large measure derived from utility
emissions (EPA, 1996d). While there are well-recognized uncertainties
in any such studies, EPA has concluded, with the concurrence of its
scientific advisors, that the associations seen even at the lower
concentrations that occur in the eastern United States are ``likely
causal'' (EPA, 1996a). Increased hospital admissions and emergency room
visits for respiratory causes have been associated with ambient ozone
exposures, which also are elevated on a regional scale in the eastern
United States (EPA, 1996b). Exposures to ozone can make people more
susceptible to respiratory infection, result in lung inflammation, and
aggravate preexisting respiratory diseases such as asthma. Other health
effects attributed to short-term and prolonged exposures to ozone,
generally while individuals are engaged in moderate or heavy exertion,
include significant decreases in lung function and increased
respiratory symptoms such as chest pain and cough (EPA, 1996b).
Short-term exposure to high levels of sulfur dioxide while at
moderate exertion may result in reduced lung function that may be
accompanied by symptoms such as wheezing, chest tightness, or shortness
of breath. People with asthma are more sensitive than the general
population to this effect. Other effects that have been associated with
longer-term exposures to higher concentrations of SO<INF>2</INF>, in
conjunction with high levels of PM, include respiratory illness,
alterations in the lungs' defenses, and aggravation of existing
cardiovascular disease (EPA, 1982a,b, 1986a,b, EPA 1994a,b). Health
effects associated with exposure to nitrogen oxides include increases
in airway responsiveness and decreases in pulmonary function in
individuals with preexisting respiratory illness and increases in
respiratory illness in children (EPA, 1993, 1995).
animal life and vegetation
Nitrogen oxides and SO<INF>2</INF> contribute to a wide range of
harmful effects on public welfare and the environment. This section
focuses on the harmful effects to animal life and vegetation of NOx and
SO<INF>2</INF> separately, in combination, and as precursors to other
secondary pollutants (i.e., ozone and particles).
Nitrogen oxides are important precursors of ozone. Ozone is
considered to be the most toxic of the ambient air pollutants to
vegetation. Specifically, ozone has been shown to reduce agricultural
and commercial forest yields, reduce survivability of sensitive tree
seedlings, and increase plant susceptibility to disease, pests, and
other environmental stresses such as harsh weather. In long-lived
species, these effects may become evident only after several years or
even decades. As ozone-sensitive species are out-competed by more
tolerant ones, long-term changes to forest ecosystems and habitat
quality for wildlife occurs. Additionally, ozone injury to the foliage
of trees and other plants decreases the aesthetic value of ornamental
species as well as the natural beauty of national parks and recreation
areas.
Deposition of nitrogen to terrestrial, wetland and aquatic (e.g.,
fresh, estuarine, and/or coastal) systems can lead to harmful effects
on vegetation and animal populations from fertilization,
eutrophication, or acidification. For example, fertilization of
nitrogen-limited terrestrial systems alters competition between
existing plant species, leading to. changes in the number and type of
species (composition) present within a community. Species specifically
adapted for nitrogen-poor environments (e.g., insectivorous plants
found in wetlands) may be replaced by species better adapted to take
advantage of the higher nitrogen levels. Since the animal population in
a community is closely tied to the type of vegetation present, this in
turn, affects which animals can successfully thrive in that habitat. As
a result, the overall nutrient cycles of the system may change.
Additionally, eutrophication of some aquatic systems can produce
explosive algae growth leading to low oxygen levels in the water and/or
an increase in levels of toxins harmful to fish and other aquatic life,
leading to large fish and shellfish kills. Nitric acid
(HNO<INF>3</INF>) is also a contributor to the acidification of soils
and both chronic and episodic or acute acidification of water bodies in
the United States. Acidification of soils can alter the availability of
plant nutrients and expose tree roots to toxic levels of aluminum and
manganese. If sufficient levels of aluminum are mobilized and leached
from the system into waterways, it can be toxic to fish. Many species
of aquatic animal and plant are adapted to live within a narrow range
of water conditions, including acidity. As waters become more acid,
many species of aquatic animals and plants can no longer survive in
them and so are displaced by more acid-tolerant species.
SO<INF>2</INF> and its derivatives have also been implicated in the
acidification of terrestrial and aquatic ecosystems, so many of the
harmful impacts described for NOx above apply for SO<INF>2</INF> as
well. In addition, SO<INF>2</INF> emissions contribute to the formation
of acid rain, clouds and fog. In some high elevation sites, acid clouds
or fog (which can be more acidic than acid rain) have been shown to
damage trees. Sulfur dioxide exposure to vegetation can increase foliar
injury, decrease plant growth and yield, and decrease the number and
variety of plant species in a given community.
recent estimates of the health benefits of reducing emissions from
electric utilities
Power plant emissions contribute to ambient air concentrations of
the primary pollutants SO<INF>2</INF>, NOx, as well as secondary
pollutants such as sulfates, nitrates, ozone and fine particles.
Further, the characteristic transport distances for fine particle and
acid rain-related pollutants can range as high as 500 to 1000 km (300
to 600 mi) or more, meaning--that emissions from plants in States such
as Indiana and Illinois can reach a large part of the East. Therefore,
it is reasonable to expect that emissions from power plants in the NSR
program would contribute significantly to regional air pollutant
problems associated with the elevated SOx and NOx emissions in the
eastern United States.
Substantial quantitative evidence do the regional effects of power
plant emissions impacts in the United States is available from the
Regulatory Impact Analyses (RIA) that have been prepared for a number
of recent rules or EPA actions. In each case, the RIA was intended to
generally inform the public about the potential costs and benefits that
may result using an illustrative State implementation scenario,
recognizing that specific State actions would ultimately determine the
actual costs and benefits of the rule. It is essential to recognize the
uncertainties as documented in the RIM that are inherent in any such
assessments. Also, the health and environmental impacts outlined in an
RIA represent only those endpoints that can be quantified or monetized;
thus, the findings may well represent an underestimate of the total
health and environmental impacts.
A regional analysis was conducted to estimate the benefits
associated with reducing SO<INF>2</INF> and NOx emissions from all
coal-fired electricity-generating units (Abt Associates, Inc., 1996).
Very substantial health and environmental impacts were estimated to
result from a scenario that called for significant reductions beyond
that required by the acid rain provisions of the Clean Air Act
Amendments of 1990. National emissions reductions of about 3 million
tons of SO<INF>2</INF> and 900 thousand tons of NOx were modeled to
predict consequent reductions in ambient concentrations of those
pollutants and related secondary pollutants, ozone and particulate
matter. These annual health benefits include 11 thousand lives
prolonged, 3,700 avoided hospital admissions for heart or lung
diseases, and 161 thousand occurrences of respiratory symptoms. The
environmental benefits of these SO<INF>2</INF> and NOx emissions
reductions were estimated on a monetary basis, and included $160
million per year in reduced household soiling and $1,700 million per
year in improved visibility (Abt Associates, Inc., 1996).
A second recent analysis estimated (the benefits of reduced ambient
ozone and PM concentrations that would result from similar regional
reductions in summertime NOx emissions; as stated previously, nitrogen
oxides serve as a precursor for both ozone and fine particles. This
analysis is based on an estimated emission reduction from 1.1 million
tons of NOx, including over 900 thousand tons of NOx emissions from
electricity-generating units. Resulting decreases in ambient
particulate matter concentrations were estimated to result in annual
benefits of 370 lives prolonged. Decreased ozone and particulate
concentrations resulted in an estimated 1,200 avoided hospital
admissions for heart or lung diseases per year and over 62 thousand
avoided incidences of chronic or acute bronchitis or respiratory
symptoms per year. In addition, environmental benefits of reducing NOx
emissions, expressed as monetary benefits, were estimated to include
$280 million commodity crop benefits, and $210 million in commercial
forest benefits, and $7 million in household soiling benefits. In
addition, a number of benefit categories were discussed as potentially
significant, but unquantifiable, including residential and recreational
visibility impairment, materials damage, and damage to ecosystems,
nitrates in drinking water (EPA 1998).
Another recent analysis was based on emissions reductions estimates
of 659,000 tons of NOx, including 611,000 tons of NOx emissions
reductions from electricity-generating units. Annual health benefits
associated with ambient particulate matter concentration changes
expected to result from this rule include 200 avoided premature deaths,
400 avoided cases of acute bronchitis in children, 3800 avoided lower
respiratory symptoms in children, 3900 avoided upper respiratory
symptoms in children, and 29,000 avoided work loss days (EPA, 1999b).
Annual health benefits associated with the ambient ozone concentration
changes expected to result from the final rule were estimated to
include 371 avoided cases of chronic asthma, 529 avoided hospital
admissions for respiratory causes, 136 avoided hospital admissions for
dysrhythmias, and 165 emergency room visits for asthma. Reductions in
both ozone and particulate matter concentrations resulting from this
rule were estimated to result in nearly 2 million avoided minor
restricted activity days for acute respiratory symptoms. An estimated
$51 million/year in welfare benefits, on a monetary basis, was
estimated on the basis of improved visibility and decreased commercial
agricultural losses, with recognition of many welfare and ecosystem
effects (e.g., commercial forestry benefits, decreased worker
productivity, residential visibility, household soiling and materials
damage, nitrogen deposition) that could not be quantified on a monetary
basis (EPA, 2000a).
Finally, a recent analysis of emission reductions associated with
the provisions of Senate Bill 172 (S. 172) calculated the benefits of
reducing emissions of SO<INF>2</INF> and NOx from electricity-
generating units by 3,740 thousand tons and 3,192 thousand tons,
respectively (EPA, 2000). This analysis projected annual health
benefits of 10,600 avoided premature deaths, 5,400 avoided new
incidences of chronic bronchitis, over 5,000 avoided hospital and
emergency room visits, hundreds of thousands of avoided respiratory
symptoms in children, 1.5 million avoided lost work days, and over 8
million minor restricted activity days. Most of these benefits (89
percent) occur in the Eastern United States. In addition to health
benefits, reductions in SO<INF>2</INF> and NOx emissions were also
projected to provide over $1.2 billion in benefits from improved
visibility in Eastern Class I national parks.
Analyses of the Health Impacts of Individual Power Plants
In addition to the national or regional analyses discussed above,
several recent studies have assessed public health impacts associated
with changes in emissions from specific power plants. Substantial
public health impacts were also found in these analyses, as described
below:
<bullet> Levy et al. (2000) evaluated public health impacts of
emissions from two power plants in Massachusetts, Salem Harbor (805 MW)
and Brayton Point (1611 MW), for the surrounding population of
approximately 32 million people. According to EPA Emissions Trends data
for 1996, emissions from the Salem Harbor plant in 1996 included 4,900
tons NOx and 24,000 tons SO<INF>2</INF>, and emissions from the Brayton
Point plant included 14,000 tons NOx and 44,000 tons SO<INF>2</INF>.
The authors estimated that reductions in emissions of SO<INF>2</INF>,
NO<INF>2</INF> and PM<INF>10</INF>, from actual emissions to emissions
estimated from application of Best Available Control Technology, would
result in substantial public health benefits, including 124 avoided
premature deaths per year, 1330 avoided emergency room visits per year,
and 33,600 avoided asthma attacks per year. (Average actual and target
emission rates are presented by the authors for each unit of each
plant, and the reductions range from about 60 percent to over 90
percent).
<bullet> A similar analysis was cited by Levy et al. (2000), on the
public health impacts of emissions from the Centralia power plant (1340
MW capacity) in Washington State. The same general methodology was
used, with some differences in air quality model and dose-response
coefficients. Levy et al (2000) cite an estimate of 34 annual deaths
due to particulate matter exposure resulting from the power plant
emissions, based on estimates of the effect of long-term pollutant
exposure on mortality.
<bullet> An earlier analysis by Levy and colleagues (1999)
evaluated risks associated with emissions from a 62MW co-generation
plant in Massachusetts. Annual emissions for 1994 were 2,100 tons of
NOx and 330 tons of SO<INF>2</INF>, and risks were calculated based on
ambient pollutant concentration changes between areas near to and
distant from the plant. The increased mortality risk was calculated to
be 0.3 deaths per year, based on short-term pollutant exposures, and
0.9 deaths per year, based on estimates of risk with long-term
exposure.
EPA has not conducted, nor are we aware of any studies or
publications that have quantified health or environmental risks
associated specifically with emissions reductions from the set of power
plants covered by the NSR program. Nevertheless, the scale of the
potential benefits can be approximated by making reasonable
interpolations from previous regional and local scale assessments. As
discussed above, power plant emissions have been associated with
substantial health and environmental effects. For discussion purposes,
the results of these analyses discussed above are summarized in the
following table. It must be noted that these analyses were done for
differing purposes, to answer different questions, and often using
differing models or analytical methodologies, so the results cannot be
directly compared but are illustrative of the health and environmental
effects that might be associated with power plant emissions.
______
----------------------------------------------------------------------------------------------------------------
Examples of Annual
Study Population Size/ Health and
Estimated Emissions Changes Geographic Area Environmental Benefits Reference
Estimates
----------------------------------------------------------------------------------------------------------------
2,965,000 tons of SO<INF>2</INF>, 938,000 tons nationwide............. 11,00 premature deaths Abt Associates, Inc.,
of NOx. 3700 hospital 1996)
admissions 160,000
respiratory symptoms
$160 million household
soiling $1,700
million visibility.
1,141,000 tons NOx (938,000 from 22 Eastern United 370 premature deaths EPA 1998
utilities). States. (long-term) 150
premature deaths
(short-term) 1200
hospital admissions
for heart or lung
disease >62,000
incidences of acute or
chronic bronchitis
$280 million commodity
crop benefits $210
million commercial
forest benefits.
659,000 tons NOx (611,000 from 12 Eastern United 200 premature deaths EPA 1999b, 2000a
utilities. States. 400 cases of acute
bronchitis 530
hospital admissions
for respiratory
diseases 2 million
minor restricted
activity days $40
million improved
visibility $11
million commercial
agricultural losses.
3,740,000 tons of SO<INF>2</INF>, 3,192 tons of nationwide............. 10,600 premature deaths EPA, 2000b
NOx. 5,400 incidences of
chronic bronchitis
5,100 hospital/
emergency room visits
475,000 respiratory
symptom days 1.5
million work loss days
8 million minor
restricted activity
days $1.2 billion
improved visibility.
Reductions up to 90 percent from 2 32 million people...... 124 premature deaths Levy et al., 2000
plants with combined 1996 emissions 1330 ER visits 33,600
of 19,000 tons NOx and 68,000 tons asthma attacks.
SO<INF>2</INF>.
Reductions from emissions of 2095 9.5 million people..... 0.3 deaths (short-term Levy et al., 1999
tons NOx and 333 tons SO<INF>2</INF>, (amount exposure) 0.9 deaths
reduced not clear). (long-term exposure).
----------------------------------------------------------------------------------------------------------------
quantified health benefits of reduced emissions of so<INF>2</INF> and
nox from utilities affected by the nsr program
As shown above, the health and environmental effects associated
with power plant emissions reductions are indeed substantial. In order
to provide an idea of the magnitude of health benefits that might be
associated with emissions reduced by the NSR program, average benefits
per ton, of precursor pollutant can be derived from previous analyses
and applied to the NOx SO<INF>2</INF> emission reductions from the NSR
program. For the purpose of this calculation, the Analysis of the Acid
Deposition and Ozone Control Act (S. 172), completed in July 2000 will
be used to derive the benefit per ton estimates. For simplicity, we are
providing estimates only for PM<INF>2.5</INF> related mortality
impacts, which account for over 90 percent of monetized benefits.
The analysis of S. 172 examined the impacts of reducing
SO<INF>2</INF> emissions by 3,740 thousand tons and NOx emissions by
3,192 thousand tons. Based on, an earlier analysis of the NOx SIP call
rule, we expect that NOx emission reductions will have only \1/10\ the
impact on PM<INF>2.5</INF> concentrations as SO<INF>2</INF> emission
reductions. As such, we multiply the 10,600 estimated premature
mortalities by 0.9 to get the 9,540 attributable premature mortalities
for the SO<INF>2</INF> emission reductions. Adjusting the estimated
mortality to account for the change in C-R function from the Pope et
al. (1995) estimate to the HEI/Krewski (2000) estimate results in an
updated estimate of 7,100 attributable incidences of premature
mortality. Dividing updated attributable incidences by tons results in
an estimated 1.90 incidences of premature mortality per thousand tons
of SO<INF>2</INF> reduced in 2010. On a per-person basis, this is
0.0064 mortality incidences per thousand tons per million people.
To obtain a similar estimate for NOx reductions, we multiply the
10,600 estimated premature mortalities by 0.1 to get the 1,060
attributable premature mortalities for the NOx emission reductions (319
thousand tons) used to derive the benefit/ton estimates. Adjusting the
estimated mortality to account for the change in C-R function to the
HEI/Krewski (2000) estimate results in an updated estimate of 773
attributable incidences of premature mortality. Dividing updated
attributable incidences by tons results in an estimated 0.33 incidences
of premature mortality per thousand tons of NOx reduced in 2010. On a
per-person basis, this is 0.0011 mortality incidences per thousand tons
per million people.
In order to calculate the potential benefits of the NSR program,
three pieces of information are needed: (1) population expected to
benefit from reductions in ambient PM<INF>2.5</INF> concentrations, (2)
tons of NOx and SO<INF>2</INF> reduced, and (3) benefits per ton per
million population for NOx and SO<INF>2</INF> There were 400,000 tons
of SO<INF>2</INF> reductions, and 822,000 tons of NOx reductions that
occurred annually from 1997 to 1999 as a result of NSR activities in
States in the Eastern United States. Most of these reductions occurred
at utility plants; however, some portion of these emission reductions
occurred at refineries and other non-utility sources. However, it is
likely that at least 90 percent of the SO<INF>2</INF> and NOx
reductions come from utilities nationwide. For illustrative purposes,
it is assumed that there were 0.9*400,000=360,000 tons of
SO<INF>2</INF> reduced and 0.9*822,000=740,000 tons of NOx reduced at
utilities due to the NSR program. Based on a population of around 188
million in the Eastern United States (east of Minnesota, Iowa,
Missouri, Arkansas, and Louisiana, inclusive), the average mortality-
related benefits per ton of NOx reduced are around $1,300 and the
average benefits per ton of SO<INF>2</INF> reduced are around $7,300.
Applying these estimates to the reductions in utility emissions due to
the NSR program yields total mortality-related benefits of $2,628
million (1999$) for SO<INF>2</INF> emission reductions and 962 million
(1999$) for NOx emission reductions. Thus, total mortality-related
benefits of utility emission reductions of SO<INF>2</INF> and NOx could
potentially be around $3.6 billion (1999$). This is due to an estimated
reduction of 586 incidences of premature mortality related to
PM<INF>2.5</INF> exposure. It is important to keep in mind the
uncertainties that are inherent in these estimates. The estimates are
intended to provide an order of magnitude approximation to the benefits
rather than a precise estimate. There are many factors which may cause
actual benefits to deviate from these estimates. These factors include
whether the sources of emissions, meteorology, transport of emissions,
initial PM concentrations, population density, and population
demographics are reasonably consistent with those used in generating
the benefit transfer values. A general rule is that as these factors
diverge, the likelihood of significant error in the estimated benefits
values will increase.
References:
Abt Associates, Inc. 1996. Clean Air Power Initiative (CAPI)
Benefits Analysis. Memorandum from Leland Deck and John Voyzey to
Allyson Siwik, November 22, 1996. Abt Associates, Inc., Bethesda, MD
[included in PM NAAQS review docket, A-95-54, II-F-26]
EPA. 1982a. Air Quality Criteria for Particulate Matter and Sulfur
Oxides. U.S. Environmental Protection Agency, Office of Research and
Development, Washington, DC 20460. EPA/600/882-029
EPA. 1982b. Review of National Ambient Air Quality Standards for
Sulfur Oxides; Assessment of Scientific and Technical Information. U.S.
Environmental Protection Agency, Office of Air Quality Planning and
Standards, Research Triangle Park, NC 27711, EPA-450/5-82-007
EPA. 1986a. Second Addendum to Air Quality Criteria for Particulate
Matter and Sulfur Oxides. U.S. Environmental Protection Agency, Office
of Research and Development, Washington, DC 20460. EPA/600/8-86-020F
EPA. 1986b. Review of National Ambient Air Quality Standards for
Sulfur Oxides; Updated Assessment of Scientific and Technical
Information; Addendum to the 1982 OAQPS Staff Paper. U.S. Environmental
Protection Agency, Office of Air Quality Planning and Standards,
Research Triangle Park, NC 27711, EPA-450/05-86-013
EPA. 1993. Air Quality Criteria for Oxides of Nitrogen. U.S.
Environmental Protection Agency, Office of Research and Development,
Washington, DC 20460. EPA/600/8-91/049cF
EPA. 1994a. Supplement to the Second Addendum (1986) to Air Quality
Criteria for Particulate Matter and Sulfur Oxides (1982): Assessment of
New Findings on Sulfur Dioxide Acute Exposure Health Effects in
Asthmatic Individuals. Environmental Criteria and Assessment Office,
Research Triangle Park, NC. EPA/600/FP-93-002
EPA. 1994b. Review of National Ambient Air Quality Standards for
Sulfur Oxides; Updated Assessment of Scientific and Technical
Information; Supplement to the 1986 OAQPS Staff Paper. U.S.
Environmental Protection Agency, Office of Air Quality Planning and
Standards, Research Triangle Park, NC 27711, EPA-452/R-94-013
EPA. 1995. Review of National Ambient Air Quality Standards for
Nitrogen Dioxide; Assessment of Scientific and Technical Information;
OAQPS Staff Paper. U.S. Environmental Protection Agency, Office; of Air
Quality Planning and Standards, Research Triangle Park, NC 27711, EPA-
452/R-95-005
EPA. 1996a. Air Quality Criteria for Particulate Matter. U.S.
Environmental Protection Agency, Office of Research and Development,
Washington, DC 20460. EPA/600/P-95/001cF
EPA. 1996b. Air Quality Criteria for Ozone and Related
Photochemical Oxidants. U.S. Environmental Protection Agency, Office of
Research and Development, Washington, DC 20460. EPA/600/P-93/004cF
EPA. 1996c. Review of National Ambient Air Quality Standards for
Ozone; Assessment of Scientific and Technical Information; OAQPS Staff
Paper. U.S. Environmental Protection Agency, Office of Air Quality
Planning and Standards, Research Triangle Park, NC 27711, EPA452/R-96-
007
EPA. 1996d. Review of National Ambient Air Quality Standards for
Particulate Matter; Assessment of Scientific and Technical Information;
OAQPS Staff Paper. U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards, Research Triangle Park, NC 27711, EPA-
452/R-96-013
EPA. 1997. National air pollutant emission trends, 1900-1996. U.S.
Environmental Protection Agency. Office of Air Quality Planning and
Standards, Research Triangle Park, NC 27711. EPA-454/R-97-011
EPA. 1998. Regulatory impact analysis for the NOx SIP call, FIP and
Section 126 petitions; Volume 2: Health and welfare benefits. U.S.
Environmental Protection Agency, Office of Air and Radiation,
Washington, DC 20460. EPA-452/R-98-003
EPA. 1999b. Regulatory impact analysis for the final Section 126
petition rule. U.S. Environmental Protection Agency, Office of Air and
Radiation, Washington, DC 20460
EPA. 2000a. Regulatory impact analysis for the final Section 126
petition rule: supplementary volume--ozone-related benefits of regional
NOx emission reductions. U.S. Environmental Protection Agency, Office
of Air and Radiation, Washington, DC 20460
EPA. 2000b. Analysis of the Acid Deposition and Ozone Control Act
(S. 172). Prepared for the Senate Subcommittee on Clean Air, Wetlands,
Private Property, and Nuclear Safety. U.S. Environmental Protection
Agency, Office of Air and Radiation, Washington, DC 20460
Flagler RB., editor. 1998. Recognition of Air Pollution Injury to
Vegetation: A Pictorial Atlas (second ed.) Air and Waste Management
Association, Pittsburgh, PA.
Hubbell B. 1999. Estimated NOx and SO<INF>2</INF> emissions
damages--incidences and monetary benefits; Memorandum from Bryan
Hubbell to Bill Harnett, October 30, 1999.
Levy J., Spengler JD, Hlinka D, Sullivan D. 2000. Estimated public
health impacts of criteria pollutant air emissions from the Salem
Harbor and Brayton Point Power Plants. Harvard School of Public Health,
May 2000.
Levy JI, Hammitt JK, Yanagizawa Y, Spengler JD. 1999. Development
of a new damage function model for power plants: methodology and
applications. Environ Sci Technol 33:4364-4372.
Statement of William H. Sorrell, Attorney General of the
State of Vermont
Chairman Jeffords, Chairman Leahy, and members of the Committees:
Thank you very much for allowing me this opportunity to share my
thoughts regarding the New Source Review program.
The quality of our nation's air is of critical importance--not just
to those of us living in the northeastern United States, but also to
everyone in this great Nation and most especially our children, the
elderly, and those among us who suffer from respiratory illness.
We have worked hard in Vermont to attain the quality of life that
is so important to us. We value our natural resources and do our best
to be sure we are not soiling our own backyard. I believe it is fair to
say that we join the dialog regarding air pollution with clean hands.
To give you an idea of the scope of the pollution caused by old,
dirty coal-fired power plants, I want to impress upon you that in 1998,
all Vermont sources of sulphur dioxide emitted a total of approximately
17,000 tons of SO<INF>2</INF>. Just one of the plants at issue in the
New Source Review enforcement case that Vermont has joined, the
Cardinal Plant in Brilliant, Ohio operated by American Electric Power
and its affiliated companies, emitted more than 152,000 tons of
SO<INF>2</INF> in the same year--and this plant is not even the largest
of the American Electric Power plants.
We have good reason to be deeply concerned about massive amounts of
air pollution carried into our State by the prevailing winds. The
impacts attributable to this wind-borne pollution, in Vermont and
regionally, are sobering and bear repeating:
<bullet> In Vermont, 20 percent of lakes are moderately to
extremely sensitive to acid deposition and several lakes are critically
acidic and, thus, unable to support fish and/or other aquatic life.
<bullet> Federal studies conclude that the percentage of acidified
lakes is expected to increase or even double over the next four decades
unless upwind emissions of NOx and SO<INF>2</INF> are reduced
extensively.
<bullet> Acid deposition is a major cause of the widespread decline
of red spruce in high elevation forests throughout the Northeast. Since
the 1960's, more than half of large canopy trees in the Adirondack
Mountains of New York and the Green Mountains of Vermont and
approximately one quarter of large canopy trees in the White Mountains
of New Hampshire have died. There is also growing evidence that sugar
maple decline is linked to acid deposition.
<bullet> According to one analysis, even with an 80 percent
reduction in electric utility emissions beyond that required under the
1990 CAA, chemical recovery of certain watersheds to non-acidic levels
will take 20-25 years and recovery of the acid--neutralizing compounds
in soils will not occur until the year 2050. Biological recovery will
take decades if not generations beyond that.
Our children and grandchildren and generations to come will know
only of the devastating impacts resulting from decades of air pollution
and will not see the recovery of the forests and lakes. Is this to be
our legacy?
As a Nation, we must take swift and decisive action to improve the
quality of the air. We applaud the efforts of EPA and the Department of
Justice in working cooperatively with States to protect air quality.
Our shared successes have included important victories affirming
certain aspects of regulatory programs and the Agency's determinations
regarding the long-range transport of ozone-forming pollutants.
We also appreciate the ongoing efforts by the Agency and DOJ in
seeking full implementation of EPA's regional haze rule, which will
help to protect and improve visibility in our nation's pristine
wilderness areas, including Shenandoah, the Great Smokey Mountains,
Yosemite and the Grand Canyon. New Hampshire, Maine and Vermont, joined
by Utah and New Mexico, the National Tribal Environmental Council and
national advocacy groups have been actively involved in supporting this
effort. We are hopeful that these efforts will lead to real
improvements in the quality of our nation's air in years to come.
The State of Vermont also is working cooperatively and productively
with the Environmental Protection Agency, the Department of Justice,
other States and national public interest advocacy groups to enforce
the existing New Source Review program against big corporations
operating numerous old, dirty coal-fired power plants. There is no
question that implementation by EPA of the reform package will
seriously undercut these efforts.
Now is not the time to water down the laws needed to protect air
quality. The announced reforms of the New Source Review program will
take us 180 degrees in the wrong direction. As one State regulator has
put it, these reforms will assure longer lives for old, dirty coal-
fired power plants and shorter lives for Americans.
We very much hope that the Administration will change course and
not backtrack on existing environmental protections. However, if it
chooses to go forward with its announced changes, we encourage Congress
to reject such efforts to weaken the New Source Review program.
Thank you again for the opportunity to meet with you and to provide
these comments.
______
Supplemental Comments by Attorney General William H. Sorrell
The New Source Review program has been the Act's most effective
tool for reducing air pollution. However, the Administration's proposed
changes announced June 13, 2002, will change this. These changes will
amount to the largest and most significant weakening of clean air
regulations in the history of the Act.
The weakening of these regulations is a major public health and
environmental mistake. A rollback in the NSR program will result in
increased respiratory disease, premature death, smog, acid rain, and
degradation of our waters and forests. Pollution from power plants in
the form of nitrogen oxides, sulfur dioxide, carbon dioxide and mercury
costs Americans thousands of lives and billions of dollars each year.
We need to reduce power plant emissions, not allow them to increase in
the way proposed by the Administration.
When it originally established the program, Congress recognized
that the most cost-efficient time to install new controls was when a
power plant was being built or modified. Congress also recognized that
many power plants were nearing the end of their useful lives and that
requiring new pollution controls on these plants would not be effective
or efficient. However, Congress declared that new or modified plants
should be as clean as technologically feasible. The Administration's
decision departs from this bedrock principle and will have grave
consequences for each and every American.
power plant pollution
In terms of the volume and variety of pollutants emitted, and the
resulting adverse impacts, no source can compare to coal-burning power
plants. These facilities emit the ``worst'' of our air pollutants--
carbon dioxide, sulfur dioxide, nitrogen oxides, particulate matter and
mercury. Coal-fired power plants collectively account for about 70
percent of annual sulfur dioxide (SO<INF>2</INF>) emissions and 30
percent of nitrogen oxide (NOx) emissions in the United States.
SO<INF>2</INF> interacts in the atmosphere to form sulfate aerosols.
These aerosols often travel long distances in the air and contribute to
acid rain and haze. NOx also is carried long distances and is a major
contributing factor to the formation of ground level ozone, or smog.
Coal-burning power plants are also a major source of particulate
matter. All of these pollutants cause serious health and environmental
impacts.
adverse human health effects from power plant pollution
The health effects caused by these pollutants are well known and
bear repeating:
Premature Death.--Fine particulate matter pollution in the eastern
United States is composed primarily of sulfate aerosols. Because these
fine particles can be inhaled more deeply into the lungs than larger
particles, they are associated with certain types of respiratory
diseases and premature death. Particulate pollution claims the lives of
over 30,000 Americans per year.\1\
---------------------------------------------------------------------------
\1\ The Particulate-Related Health Benefits of Reducing Power Plant
Emissions (``Particulate Report''), Abt Associates Inc., October 2000,
at 5.1.
---------------------------------------------------------------------------
Asthma.--Ozone or ``smog'' pollution, formed from nitrogen oxides,
is increasing at an alarming rate. Smog pollution severely affects this
country's 15 million asthmatics. A recent study found that coal-fired
power plant emissions trigger 600,000 asthma attacks per year and are
responsible for sending 20,000 Americans to the emergency room.\2\
Power plant pollution results in 5 million lost workdays.\3\
---------------------------------------------------------------------------
\2\ Particulate Report, at 5.3.
\3\ Id.
---------------------------------------------------------------------------
Neurological and Developmental Damages from Mercury
Contamination.--Americans should not have to worry about eating fish
from rivers, lakes and oceans. Yet, over 40 States have advised their
citizens to reduce their consumption of fish from contaminated
waterways. Mercury contamination can cause serious neurological and
developmental damages in children and infants, including subtle loss of
sensory or cognitive ability, delays in developmental milestones, such
as walking and talking, and even birth defects.\4\
---------------------------------------------------------------------------
\4\ Power Plants, Your Health and the Environment (``Power
Plants''), Clean the Air, Washington, DC, at 1.
---------------------------------------------------------------------------
The most troublesome aspect of power plant pollution is that our
children are the most vulnerable to its effects. Many factors increase
the risk of children to air pollution as compared to adults. Due to the
higher activity level of children, ``pound for pound'' they breathe
more air for their size than adults do. In addition, their increased
time spent playing outdoors further increases their exposure to outdoor
air pollution. Studies suggest that children suffer a higher prevalence
of asthma than adults, and, thus, asthma makes our children far more
susceptible to impacts of air pollution. The lung's defense systems in
children are still developing, and are unable to defend against the
effects of pollutants as effectively as the lungs in adults.\5\
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\5\ Children at Risk; How Air Pollution for Power Plants Threatens
the Health of America's Children, Clean Air Task Force, April 2002, at
1.
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human health effects attributed to power plants charged with
nsr violations
A recent report delivered the sobering reality regarding the human
health effects that are caused by the power plants that have been
charged with NSR violations.\6\ The key findings of this report
include:
---------------------------------------------------------------------------
\6\ Power to Kill, Clean Air Task Force, July 2001, at 4;
Preliminary Analysis of the Benefits and Costs of Current New Source
Review Litigation, Clean Air Task Force, June 2002.
---------------------------------------------------------------------------
<bullet> Pollution from the 51 plants that are targets of the NSR
enforcement actions shortens the lives of between 5,500 and 9,000
Americans each year;
<bullet> Requiring these plants to meet standards required by law
would avoid 4,300 to 7,000 of these deaths;
<bullet> Pollution from the 51 NSR plants leads to between 107,000
and 170,000 asthma attacks each year;
<bullet> Between 80,000 and 120,000 of these asthma attacks could
be avoided by requiring these plants to meet pollution standards as
required by law;
<bullet> Although all of the plants that are current targets of NSR
enforcement are located in the Midwest or Southeast, there is a
``transport of death and disease.'' Pollution from these plants affects
downwind Northeastern States resulting in 1,500 to 2,100 premature
deaths and 30,000 to 39,000 asthma attacks per year in those States;
<bullet> Between 1,200 and 1,700 of the deaths, and between 23,000
and 31,000 of the asthma attacks in downwind Northeastern States would
be avoided if the plants met standards required for new plants;
<bullet> Requiring the 51 NSR plants to meet pollution standards
required by law would yield total estimated monetary benefits of $27 to
$45 billion per year.
harm to natural resources
Emissions of NOx and SO<INF>2</INF> from power plants also cause
extensive harm to natural resources. In the atmosphere, the NOx and
SO<INF>2</INF> are converted into acids, including nitric and sulfuric
acids, and other acidifying compounds. These compounds fall to the
ground as wet deposition (acid rain, fog, cloud water, sleet and snow)
and dry deposition (gases, aerosols and particles). These acids and
acidifying compounds are cycled through the soil, vegetation, and
surface waters setting off a cascade of adverse ecological impacts.
Acid deposition has altered, and continues to alter, soils in areas
of the Northeast in a number of ways. First, acid deposition has
leached base cations, including calcium and magnesium, out of the soil,
thereby reducing the soil's acid-neutralizing capacity and
fundamentally altering soil processes. The depletion of these compounds
has, in turn, resulted in the accumulation of sulfur and nitrogen in
the soils. When leached out of the soil, sulfur and nitrogen contribute
to the acidification and nitrogen loading of streams and lakes.
Additionally, acid deposition facilitates the mobilization of dissolved
inorganic aluminum, an ecologically harmful form of aluminum, into soil
waters, vegetation, lakes and streams. High concentrations of aluminum
can be toxic to fish, plants and other organisms.
Acid deposition also continues to impair the quality of water in
lakes and steams throughout the Northeast by lowering pH levels,
decreasing acid-neutralizing capacity and increasing aluminum
concentrations. Power plant emissions are largely responsible for the
fact that 20 percent of the lakes in New York's Adirondack Park region
are too acidic to support fish life. In Vermont, 20 percent of lakes
are moderately too extremely sensitive to acid deposition and several
lakes are critically acidic and, thus, unable to support fish and/or
other aquatic life. Similarly, in New Hampshire, nearly half of the
lakes have been acidified with some so acidic that they do not support
naturally reproducing fish populations. Federal studies conclude that
that percentage of acidified lakes is expected to increase or even
double over the next four decades unless upwind emissions of NOx and
SO<INF>2</INF> are reduced extensively. Similar impacts are seen in the
lakes and streams of other northeastern States that lie downwind of the
defendants' power plants.
Decreases in pH and elevated concentrations of aluminum have
reduced the species diversity and abundance of plankton, invertebrates,
fish and other aquatic life in many streams and lakes in acid sensitive
areas of the Northeast. Although chronically high acid levels stress
aquatic life, acid episodes are particularly harmful. Spring runoff
from snowmelt creates an annual pulse of acidified water, which enters
lakes and streams in huge volumes. This phenomenon, known as acid
shock, is particularly harmful to aquatic communities because it occurs
during spawning or the early life-cycle stages of many species. Studies
have shown that high acidity and aluminum levels disrupt the salt and
water balances in a fish's blood, causing red blood cells to rupture
and increasing blood viscosity, thereby resulting in a lethal heart
attack.
In addition, acid deposition is a major cause of the widespread
decline of red spruce in high elevation forests throughout the
northeast. Since the 1960's, more than half of large canopy trees in
the Adirondack Mountains of New York and the Green Mountains of Vermont
and approximately one quarter of large canopy trees in the White
Mountains of New Hampshire have died. Recent research suggests that
acid deposition leaches calcium directly from cell membranes in spruce
needles. This renders the needles more susceptible to freezing damage,
thereby reducing a tree's cold tolerance and increasing the occurrence
of winter injury. In addition, elevated aluminum levels in the soil,
discussed above, limits the ability of red spruce to take up water and
nutrients through its roots, leading to reduced tolerance for
environmental stress.
There is also growing evidence that sugar maple decline is linked
to acid deposition. Extensive mortality among sugar maples in
Pennsylvania appears to result from deficiencies of base cations,
together with other stresses such as insect defoliation or drought.
Acid deposition, and its effect on soil chemistry is a predisposing
factor in sugar maple decline.
Total power plant emissions of sulfur dioxide, and consequent
deposition in the northeast of sulfuric acid and other sulfur
particles, has declined since 1990. However, emissions of nitrogen
oxides have remained essentially unchanged. Because of this and given
the extensive loss of acid-neutralizing base cations, the mobilization
of aluminum, and the accumulation of sulfur and nitrogen in the soil,
the chemical and, in turn, biological recovery of forest and aquatic
ecosystems will require extensive reductions of emissions. According to
one analysis, even with an 80 percent reduction in electric utility
emissions beyond that required under the 1990 CAA , recovery of certain
watersheds to non-acidic levels will take 20-25 years and recovery of
soil base cation and aluminum levels will not occur until the year
2050. Many ecosystems are more sensitive to the additional input of
acids and acid forming compounds.
Nitrate deposition also contributes to the eutrophication of
coastal bays and estuaries, which occurs when an excess of nitrogen
causes algae growth that threatens the survival of other aquatic
species.
Another significant effect of power plant pollution is the
impairment of visibility throughout the Nation, including in our
national parks and wilderness areas. Electric utility boilers are the
predominant source of sulfur dioxide and a principal cause of reduced
visibility.\7\ Power plants annually release about 13 million tons of
sulfur dioxide into the atmosphere, more than 60 percent of the
national total. Data show that ``visibility impairment caused by air
pollution occurs virtually all the time at most national park and
wilderness area monitoring stations.''\8\ States are impacted by the
problem of impaired visibility not only because it affects their
residents' quality of life, but also in more concrete economic terms
due to lowered tourism, diminished appeal for new business activity,
and adverse affects on businesses dependent on visitors to national
parks and wilderness areas.
---------------------------------------------------------------------------
\7\ Protecting Visibility in National Parks and Wilderness Areas,
National Academy of Science's National Research Council (National
Academy Press, 1993) at 2.
\8\ 62 Federal Register 41,138-41,139 (July 31, 1997).
---------------------------------------------------------------------------
climate change
Coal-burning power plants also emit CO<INF>2</INF> which
contributes to global climate change. This is the most pressing
environmental challenge of the 21st century. The global nature of the
climate change problem would be most efficiently addressed by
comprehensive regulatory action at the national level.
The Administration's recent report, U.S. Climate Action Report
2002, projects that emissions of greenhouse gases--primarily carbon
dioxide produced from the combustion of fossil fuels--will increase by
43 percent by 2020. The Report also makes it clear that the question of
whether global climate change is occurring is no longer in doubt, only
the precise rate of change and the specific impacts of that change.
Some States are now initiating measures to achieve reductions in
greenhouse gas emissions. For example, Massachusetts last year adopted
State regulations requiring carbon dioxide reductions by power plants,
and New Hampshire recently enacted ``cap and trade'' legislation.
California's legislature has just passed a bill that will lead to the
``maximum feasible'' reductions of carbon dioxide emissions from
vehicles. New York is also considering a carbon cap. While individual
States are prepared to lead the way, a strong national approach will
allow for more efficient solutions that will better protect the
American economy in the long run.
conclusion
In sum, I urge the respected members of these Committees to review
critically the Administration's actions on environmental issues,
especially the New Source Review program. Congress intended the NSR
program to protect and improve air quality and to encourage the
installation of cleaner plants. Congress should reaffirm these goals
and reject efforts to weaken the New Source Review program.
__________
Statement of Eliot Spitzer, Attorney General of the State of New York
Chairman Leahy and Chairman Jeffords, Senator Schumer and Senator
Clinton, and distinguished members of the committees: Thank you for
convening this hearing and thank you for providing me with the
opportunity to testify about the need to maintain and enforce the New
Source Review (NSR) provisions of the Federal Clean Air Act.
New York State has been hard hit by air pollution from coal-burning
power plants. Hundreds of lakes and ponds in the Adirondack and
Catskill Mountains have been ravaged by acid rain. Ground level ozone
has triggered asthma attacks and other respiratory diseases in every
corner of our State, particularly in New York City. In addition,
nitrate and sulfate particulates cause respiratory and cardiac illness,
lung cancer and thousands of deaths in the regions downwind from
polluting plants.
The New Source Review provisions of the Clean Air Act constitute a
powerful tool to reign in this harmful pollution. For years, power
plants have been exploiting an exemption, added to the Clean Air Act in
1977, which temporarily excused existing power plants from having to
install modern pollution control devices. This exemption, however, was
not intended to be permanent. Congress understood in 1977--25 years
ago--that existing plants could not operate indefinitely without having
to undertake expensive life extension projects. At that time, Congress
mandated, power plants would have to install state-of-the-art pollution
controls. But now, decades later, many of these power plants continue
to spew huge quantities of air contaminants and operate with no
pollution controls, in blatant violation of the Clean Air Act.
The aim of the Clean Air Act litigation brought by New York, other
northeast States, the Federal Environmental Protection Agency (EPA) and
various environmental organizations is to address these harms by going
to their source. In 1999, working in partnership with EPA and other
Attorneys General from the northeast, my office identified various
power plants that were in violation of the New Source Review
requirements. These coal-burning power plants had undergone major
multi-million dollar improvements without installing NSR-dictated
pollution controls. To date, I have filed lawsuits with respect to 17
of these power plants--which are located in Ohio, West Virginia,
Virginia and Indiana--under the citizen suit provision of the Clean Air
Act. Each of these cases has been joined by EPA and other States. The
plants involved emit tons of nitrogen oxides and sulfur dioxide every
day, harming New York's air quality and damaging its natural resources.
My office also has taken enforcement action against several power
plants located in New York State even though they are generally
responsible for much less pollution than their counterparts in the
Midwestern and southern States. Working with the New York State
Department of Environmental Conservation, we have identified seven
power plants that were in violation within New York, and we have filed
a lawsuit against the owner of the two largest plants. The Commissioner
of the State Department of Environmental Conservation and I are
currently in negotiations with the owners of the other five plants.\1\
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\1\ Attached to my testimony (Exhibit 1) is a list of the 24
plants, within and outside of New York, against which we have taken
action, along with the amounts of air pollution they emit.
---------------------------------------------------------------------------
Unfortunately, however, our efforts to enforce the Clean Air Act
have prompted the Bush Administration to propose a set of illegal
regulatory changes that would essentially neutralize New Source Review
as an enforcement mechanism and deprive the public of the benefits of
this laudably farsighted legislation. The Administration's efforts to
dismantle NSR must be defeated, and I will go to court, if necessary,
to stop them. I also urge Congress to ensure that the proposed changes
do not come to fruition. In the meantime, however, the Administration's
retrenchment on clean air already has jeopardized all of the existing
NSR cases brought by the States and the Federal Government, and
threatens to thwart any future NSR enforcement efforts.
My testimony today addresses four points. First, I explain how the
Administration's proposed changes would, if enacted, illegally
contravene the Clean Air Act. I intend to go to court to challenge
these illegal changes if the Administration puts them into effect. And
I intend to win. Second, I demonstrate that the Administration's plans
to gut the NSR provisions are already--before the changes even become
effective--jeopardizing our existing enforcement cases and depriving us
of the millions of tons in pollution reductions that those cases would
yield. Third, I refute both the Administration's claim that the NSR
program needs ``clarification'' and industry's contention that it was
``unfairly surprised'' by our enforcement cases. Finally, I offer my
recommendations as to how Congress should respond to the
Administration's assault on the Clean Air Act.
i. the administration's proposed changes are illegal
The Administration's proposed changes--so far as we know them
through EPA's press statements--are illegal because they purport to
amend the Clean Air Act. I will first explain the existing law, as
enacted and enforced under the prior Reagan and Bush Administrations. I
will then review the changes and explain why they are illegal.
A. New Source Review Law and Regulations
In 1977, Congress created the Prevention of Significant
Deterioration (PSD) program to ensure that increased pollution from the
construction of new emissions sources or the modification of existing
emission sources would be minimized, and to ensure that construction
activities would be consistent with air quality planning requirements.
This program only applied to areas of the country where the air quality
met or exceeded the national ambient air quality standards. The non-
attainment New Source Review program, also created in 1977 contains
virtually identical requirements applicable to facilities in non-
attainment areas. (I refer to both programs together as the NSR
program.)
Generally, the NSR program requires such sources to obtain permits
from the permitting authority before the sources undertake construction
projects if those projects will result in an increase in pollution
above a de minimis amount. In addition, the NSR regulations usually
require that sources install state-of-the-art controls to limit or
eliminate pollution. Congress required and fully expected that those
older existing sources would either incorporate the required controls
as they underwent ``modifications,'' or would instead be allowed to
``die'' and be replaced with new, state-of-the-art units that fully
complied with pollution control requirements.
The Clean Air Act defines ``modification'' as any physical change
or change in the method of operation that increases the amount of an
air pollutant emitted by the source. 42 U.S.C. Sec. 7411(a). Courts for
many years have interpreted the Clean Air Act term ``modification''
broadly. Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir.
1979) (the term `` `modification' is nowhere limited to physical
changes exceeding a certain magnitude''); Wisconsin Electric Power Co.
v. Reilly, 893 F.2d 901, 905 (7th Cir. 1990) (``WEPCO'' (``[e]ven at
first blush, the potential reach of these modification provisions is
apparent: the most trivial activities--the replacement of leaky pipes,
for example--may trigger the modification provisions if the change
results in an increase in the emissions of a facility.'') The WEPCO
court noted that Congress did not intend to provide ``indefinite
immunity [to grandfathered facilities] from the provisions of [the
Clean Air Act],'' id. at 909, and that ``courts considering the
modification provisions of [the Clean Air Act] have assumed that `any
physical change' means precisely that.'' Id. at 908 (emphasis added)
(citations omitted).
EPA recognized, however, that interpreting ``modification'' to
include literally ``any physical change'' could become administratively
unworkable (``the definition of physical or operational change in
Section 111(a)(4) could, standing alone, encompass the most mundane
activities at an industrial facility (even the repair or replacement of
a single leaky pipe, or a change in the way that pipe is utilized)'').
57 Fed. Reg. 32,314, 32,316 (July 21, 1992). To exclude these trivial
activities from the scope of the NSR provisions, EPA regulations have
exempted routine maintenance, repair, and replacement from the
definition of modification since 1977. 40 C.F.R. Sec. 52.21(b)(2)(iii).
EPA historically has analyzed and applied the ``routine
maintenance'' exemption to modification by using a common sense test
that assesses four primary factors, the (1) nature and extent, (2)
purpose, (3) frequency, and (4) cost of the proposed work. See, e.g.,
Memorandum from Don R. Clay, EPA Acting Assistant Administrator for Air
and Radiation, to David A. Kee, Air and Radiation Division, EPA Region
V (Sept. 9, 1988). This approach was upheld by the U.S. Court of
Appeals for the Seventh Circuit in WEPCO, a case brought under the
first President Bush. Our cases follow these standards.
Although Congress did not authorize EPA to create this ``routine
maintenance'' exemption, the Court of Appeals for the D.C. Circuit
ruled, in a challenge to the exemption in the PSD regulations for minor
emission increases, recognized that EPA may exempt de minimis activity
from the scope of the modification provisions. Alabama Power Co. v.
Costle, 636 F.2d at 360-61. See also Natural Resources Defense Council
v. Costle, 568 F.2d 1369 (D.C. Cir. 1977) (similar holding regarding
the Clean Water Act). Thus, as long as it is construed narrowly, the
routine maintenance exemption is legal.
Another change EPA made over a decade ago was to limit the scope of
the modification provisions to those modifications that generate a
significant increase in pollution. This requirement is essential when
one considers the justifications offered by the present Administration
for its NSR ``reforms.'' In announcing the NSR changes, EPA has claimed
repeatedly that NSR requirements have deterred emissions-reducing
projects. In offering this justification, EPA appears to have bought
into one of the power industry's favorite arguments against the NSR
program--that the program somehow prevents companies from making
efficiency improvements that would benefit the environment. However,
efficiency improvements that are environmentally beneficial and reduce
emissions do not trigger NSR: if emissions decrease--or even increase
only slightly--existing NSR requirements are inapplicable.\2\
---------------------------------------------------------------------------
\2\ That NSR applies only when both a modification is large enough
and the emission increase is significant was clearly demonstrated in
EPA's May 23, 2000 applicability determination concerning a proposal by
the Detroit Edison Company to replace and reconfigure the high pressure
section of two steam turbines at its Monroe Power Plant. There, EPA
determined that, although the modification was significant enough to
trigger the NSR provisions, because the project would not lead to an
increase in emissions, it was not subject to the pollution control
requirements of the PSD program. Applicability Determination, p. 20.
Indeed, as Detroit Edison explained to EPA, ``because the change would
increase efficiency, it would allow increased electricity generation
using the same amount of coal, boiler heat input and steam flow while
producing the same level of emissions as currently emitted.'' Id. Thus,
contrary to the Administration's rhetoric, EPA's existing
implementation of the NSR program does not weaken the utility
industry's incentive to undertake efficiency programs (or any other
projects for that matter) that do not involve increased pollution.
---------------------------------------------------------------------------
B. The Bush Administration's Proposals
The Bush Administration proposed changes would sanction plant
modifications that are far from de minimis. For example, EPA proposes
to allow large facilities to operate under a single plant-wide
emissions cap (plant-wide applicability limit or PAL) for a period of
10-15 years. Unlike what some who support plant-wide caps would
require--that the caps decline over time--the Administration would
allow the caps to remain high. Emissions at such a plant would remain
the same throughout the 10-15-year period, regardless of changes in air
quality, technology, or air quality standards. Because the plant's
emissions are set for the duration of the PAL, States likely would be
prohibited from imposing emission reduction requirements beyond what
the PAL required, regardless of air quality needs.
Similarly, EPA proposes that any unit that has installed ``Best
Available Control Technology'' (BACT) or BACT equivalent since 1990
would not be required to undergo NSR review for a period of 10-15
years, unless ``allowable'' emissions increase. Again, this limit on
review of the source's emissions fails to consider evolving air quality
needs, and may prevent a State from imposing more stringent emission
reduction requirements, even if air quality considerations would
justify such measures. Congress's clear intention to have the Clean Air
Act stimulate technology improvement will be frustrated.
EPA also proposes several significant revisions in the method by
which NSR-triggering emissions increases are calculated. For example,
EPA proposes that the baseline for measuring emissions (for facilities
other than power plants) become the highest emission level achieved
over any 2 year period during the last 10 years. By allowing a source
to use a baseline that extends back 10 years, EPA is proposing to
permit inflation of the source's baseline, because many regulations in
the last 10 years have forced sources to reduce emissions. These
required emission reductions, however, may not be reflected in the
source's baseline generated under the Administration's proposal. Thus,
a source would actually be allowed to increase emissions from current
levels without any attendant pollution control upgrade.
The most alarming revision proposed by EPA is the wholesale
expansion of the Routine Repair and Maintenance (RRM) exception.
Specifically, EPA is proposing to allow companies to treat multi-
million dollar once-in-a-lifetime projects as ``routine maintenance,''
even though, as industry documents establish, power plant staff never
considered the projects routine. EPA is planning to forego pollution
control requirements for virtually limitless ``like-kind'' replacements
that would restore and perhaps expand an old plant's capacity and
dramatically prolong its life. To accomplish this, EPA proposes to
include in the definition of RRM projects that are below a specified
cost threshold (inflated to reflect facility replacement cost, not
original cost), and that involve installation of replacement equipment
that serves the same function and does not alter basic design
parameters. The cost threshold test fails to consider air quality and
places no limit on any emissions increase the project might produce.
Thus, significant increases in emissions could occur with no attendant
pollution control requirement. Similarly, the equipment replacement
exemption could essentially allow a company to rebuild a source without
undergoing any governmental review and without meeting pollution
control requirements. Significant emission increases could result.
These impacts have severe consequences for the American public and
particularly for the States. EPA's proposal would severely blunt one of
the States' most important anti-pollution tools, placing the States in
an extraordinarily difficult position regarding their responsibilities
under the Clean Air Act. It is the States--not EPA, not the Federal
Government--that have the responsibility for insuring that National
Ambient Air Quality Standards (NAAQS) are met. 42 U.S.C.
Sec. Sec. 7404; 7410. Under EPA's proposed revisions, the States stand
to lose flexibility in determining how best to achieve or maintain air
quality because the largest sources of pollution--which generally are
the most efficient to control--will essentially be exempted from
regulation.
C. States Will Sue to Prevent this Illegal Rollback of Clean Air
Protections
I will do all in my power to prevent the Administration from
unilaterally gutting the Clean Air Act. The Administration cannot
change the law retroactively as it is seeking to do,\3\ it cannot
change regulations without adequate notice and comment. And, most
importantly, the Administration cannot eviscerate the Clean Air Act
without getting Congress to pass legislation allowing such a rollback.
As explained above, the CAA itself contains no exemption for routine
maintenance. Nor does it exempt like-kind replacement activities, no
matter how massive or infrequent, from the definition of modification.
With the statute so clear, the permissible scope for agency-created
exemptions is very narrow. When in the Alabama Power case the D.C.
Circuit held, following ample Supreme Court and D.C. Circuit precedent,
that EPA can exempt de minimis activity, it emphasized that EPA could
only exempt the most minor of activities so that the program would be
workable administratively. Indeed, the court stated in very strong
terms that ``there exists no general administrative power to create
exemptions to statutory requirements based upon the Agency's
perceptions of costs and benefits.'' Alabama Power, 636 F.2d at 357.
The court also held that the power to create exceptions ``is not an
ability to depart from the statute, but rather a tool to be used
implementing the legislative design.'' Id. at 359.
---------------------------------------------------------------------------
\3\ To the extent EPA has indicated it will make retroactive
changes to the Act, any such changes would be of questionable validity.
The D.C. Circuit, which would have exclusive jurisdiction of such
changes under 42 U.S.C. Sec. 7607(b)(1), prohibits retroactive
application of interpretive rules absent authority delegated by
Congress, see Health Ins. Ass'n of America v. Shalala, 23 F.3d 412, 423
(D.C. Cir. 1994) (``[I]nterpretive rules, no less than legislative
rules, are subject to Georgetown Hospital's ban on retroactivity.''),
and such authority is entirely lacking here.
---------------------------------------------------------------------------
That is not what the Administration proposes to do. The
Administration's proposed changes are far from de minimis. EPA's
changes would have the effect of essentially eliminating the
applicability of New Source Review to modifications, contrary to the
express language of the statute. EPA's announced changes will confer on
existing, dirty power plants indefinite immunity from the requirements
of the Clean Air Act, contrary to Congress's clear intention when it
enacted the NSR provisions 25 years ago. This is illegal and for that
reason, I--and I expect to be joined by may other States--intend to sue
EPA if it carries out its plans.
ii. the proposed changes and the administration's hostility to nsr are
already jeopardizing the enforcement cases
If enacted, the Administration's proposed changes would
impermissibly undercut existing law and reduce the scope of the Clean
Air Act. Simply by signaling its hostility to the NSR program, however,
the Administration already has compromised our existing enforcement
cases. Indeed, from the day Administrations in Washington changed,
industry has sought to avail itself of its enhanced bargaining
position.
A. The Administration is Overtly Hostile to NSR
Fifteen months ago, the Administration released President Cheney's
``National Energy Policy: A Report of the National Energy Policy
Development Group.'' The report directed Attorney General Ashcroft to
``review existing enforcement actions regarding NSR to ensure that the
enforcement actions are consistent with the Clean Air Act and its
regulations.'' That directive immediately undercut the Department of
Justice's lawyers; yet, on January 15, 2002, DOJ concluded that the NSR
cases were legally sound.
The Vice President also directed the EPA ``in consultation with the
Secretary of Energy and other relevant agencies, to review NSR
regulations, including administrative interpretations and
implementation, and report to the President within 90 days on the
impact of the regulations on investment in new utility and refinery
generation capacity, energy efficiency, and environmental protection.''
Over a year later, EPA finally announced its illegal, wholesale
administrative rollback of NSR.
In its press statements, EPA claims to be simply ``clarifying'' the
existing regulations and maintains that its proposed rewriting of the
law will not affect the filed cases. Indeed, on the day of EPA's
announcement, Administrator Whitman explained that EPA would continue
its enforcement efforts against past violations, ``because you can't
get away with violating the law just because the law gets changed.''
See June 14, 2002 Atlanta Journal and Constitution article ``Air
Proposals Irk Environmentalists; Bush Plan a `Massive Gift' to Energy
Industry, Critics Say.''
Earlier, on March 27, 2002, the Justice Department's environmental
chief, Thomas Sansonetti, said that pursuing NSR cases was one of his
top priorities. Quoted in the ``Daily Environment Report,'' Mr.
Sansonetti stated: ``We're going full steam ahead. We're actively
pursuing all cases. When companies refuse to settle, DOJ will take them
to trial.'' He predicted that DOJ would prosecute two or three NSR
cases in court in the coming year. He also said that DOJ had budgeted
$3 million in the current fiscal year to pursue such cases. I'd like to
believe Mr. Sansonetti; his attorneys at the Justice Department have
done excellent work on the pending cases and I want to continue our
partnership. But his statements were made before EPA announced its
retrenchment. Since then, DOJ has been silent as to its future
intentions regarding NSR.
B. The Existing NSR Cases are in Jeopardy
Although we agree with the Administration that any new regulations
should not be retroactive, it would be naive to believe that industry
will not try to use the ``NSR reforms'' in court to justify their past
conduct. We are already seeing the effects of this Administration's
misguided and illegal policy changes: settlements are stalled, judges
are wondering about the impact of the reforms on their cases, and
industry lawyers are already arguing in court that the cases should not
go forward. Whether or not the rollback will affect the existing cases
is an issue of first impression for the courts because of the
unprecedented nature of EPA's action. Never before has EPA--or
Congress, for that matter--undertaken such a clear retreat on
environmental protection. Conducting such a rollback while enforcement
cases under the old rules are pending is not only unprecedented but was
unimaginable, at least before this Administration came to power. Simply
put, the existing NSR cases are in jeopardy and we are fooling
ourselves if we believe that the Federal Government will be filing more
cases after rewriting the regulations to legalize the conduct at issue.
I would like to focus my comments now on three concrete examples of
how the Administration's policies are adversely affecting our pending
enforcement cases.
1. Cinergy and VEPCO
On November 16, 2000, my office and the EPA reached a $1.2 billion
settlement in principle covering eight coal-fired power plants run by
the Virginia Electric Power Company (VEPCO)--one subject to New York's
pending lawsuit and seven others that VEPCO brought into the
settlement. The settlement would have reduced air pollution by more
than 270,000 tons annually. VEPCO was to spend $1.2 billion over 12
years to reduce its sulfur dioxide emissions by 70 percent and its
nitrous oxides emissions by 71 percent from pre-existing levels.
Further, VEPCO was to pay $5.3 million in penalties to the Federal
Government and an additional $13.9 million to fund environmental
benefit projects, with a portion going to New York State. The intent at
the time was to finalize the agreement within 60-90 days. Eighteen
months later, this agreement remains unexecuted. My staff has spent
countless hours in meetings with VEPCO and the Federal Government, but
the regulatory uncertainty has prevented any final agreement. This is a
terrible loss for the people of this Nation, who expect, and deserve,
cleaner air.
Similar delay has beset our effort to reach a final agreement with
the Ohio-based utility Cinergy. In December 2000, I joined the Federal
Government and the States of Connecticut and New Jersey in reaching a
settlement in principle covering ten of Cinergy's coal-fired power
plants (one subject to New York's lawsuit and nine others). We were to
see over 300,000 tons in emission reductions, and $30 million in
penalties and environmental projects. Like VEPCO, the Cinergy agreement
remains in limbo. After tolerating 2 years of settlement discussions,
the Cinergy court has placed the case back on the litigation track.
Although DOJ advised the court that it intended to file an amended
complaint by July 10, it has not yet done so, raising questions about
DOJ's willingness to pursue NSR enforcement cases when its client, EPA,
is in the process of changing the rules.
Although Cinergy and VEPCO have continued to express their interest
in settlement, their actions speak louder than words. As might be
expected, the softening of EPA's regulatory posture has only hardened
Cinergy's and VEPCO's positions on the remaining issues to be worked
out. I now see no way for these settlements to become final unless the
States and DOJ capitulate on the remaining issues, something that I am
not prepared to do.
2. Tennessee Valley Authority case
In 2000, EPA issued a final determination that TVA had violated the
NSR requirements of the Act by undertaking enormous and expensive
modification projects at several of its power plants. TVA appealed to
the Eleventh Circuit, briefs were submitted and oral argument was held
this past May. Like many others involved in these cases, I was hopeful
that the Eleventh Circuit would issue a quick decision, affirming EPA's
determinations. A decision from the Eleventh Circuit would be an
extremely important precedent for the other NSR cases.
Instead, in the wake of EPA's recent announcement on NSR
``reform,'' the Eleventh Circuit took the extraordinary step of
ordering the parties to mediation. Although we cannot be certain that
this order was issued in direct response to the EPA announcement, it is
unlikely that the timing of the two events is coincidental.
3. Niagara Mohawk case
On January 10, 2002, Governor Pataki and I filed a lawsuit in
Federal court against Niagara Mohawk Power Corporation and NRG (the
current owner of the power plants) for violating NSR at two power
plants in western New York. The Dunkirk and Huntley coal-burning power
plants account for more than 20 percent of the nitrogen oxide emissions
and 38 percent of the sulfur dioxide emissions released by all power
plants in New York State.
The defendants filed a motion to dismiss all or portions of the
case on jurisdictional grounds. Briefing was completed and my attorneys
were preparing to argue the case. But shortly after EPA's announcement,
the judge called us in to explain how the Administration's announced
intention to change the NSR rules would affect the existing case. In
its brief on this issue (see Exhibit 2), Niagara Mohawk has described
EPA as ``reconsidering'' its position on NSR and recommended that the
Court put the case on hold until EPA takes final action on the NSR
changes:
In order to consider the merits of the case, the Court would
ultimately have to decide whether EPA's interpretation of the
Act and regulations, as applied by DEC, is reasonable and in
accordance with law. The Court cannot properly make that
decision until the EPA decides finally what its interpretation
is.
In short, EPA has said that its recommendations involve
clarification of existing law and policy, and definition of a
regulatory concept (routine maintenance, repair and
replacement) that derives from EPA's interpretation of the
Clean Air Act. Accordingly, to the extent that EPA's final
action follows its recommendations, its action may affect not
only the State's request for prospective injunctive relief, but
also its request for penalties for alleged past violations.
Niagara Mohawk also contends that even if the new rules were purely
prospective, ``they would still affect the State's request for
injunctive relief.'' We think this argument is wrong. When a business
breaks the law--no matter how much influence it may now have in
Washington--the rule of law requires courts to order compliance.
However, Niagara Mohawk's argument evidences a practical problem that
judges will face if the Administration succeeds in implementing its
``reforms.'' We expect the courts to find with relative ease that the
utilities violated the law. But when it comes time to select a remedy,
will they require substantial emission reductions even though the
Administration's proposed policy would not require such reductions?
Will a practical judge require a company to spend millions of dollars
on pollution controls for actions that EPA is now saying do not require
such controls? Indeed, now can EPA even ask for that relief with a
straight face? If any of these cases go to trial, we might see the
payment of some fines for past wrongdoing, but we may be deprived of
the emission reductions we so desperately need. More money in the State
and Federal coffers, while welcomed, will not help us reverse the
ravages of acid rain and respiratory disease in New York State and
elsewhere.
I intend to continue to press forward on this important case.
Niagara Mohawk violated the law and we need the remedy of dramatic
emission reductions. Unless EPA tries to take away the States'
authority to reject the regulatory changes--something I hear may be in
the works--New York can continue to implement the law as it has existed
for 25 years within New York. But we enjoy no such comfort in our out-
of-state cases, where it will be difficult to proceed if EPA pulls the
rug out from under us.
iii. nsr needs no ``clarification''
The power industry has always understood the scope of NSR and has
never considered the modifications at issue to be routine maintenance.
These modifications were large-scale capital projects that required
significant advance planning and typically cost millions of dollars;
they were intended to fix problems that routine repair or replacement
had been unable to address. By contrast, activities considered by
industry to be ``routine'' include relatively mundane actions, such as
the day-to-day repair of leaky or broken pipes. In short, the record
supplies no basis for the Administration's claims that the law was
somehow unclear and that industry was somehow ambushed by our
enforcement cases.
A. Industry Officials Originally Distinguished Routine Activities from
Upgrades
Industry documents establish that industry officials appreciated
the potential applicability of the NSR provisions to their power plant
life extension projects. Because of protective orders entered in our
various cases, I am unable to quote from most of these documents in my
testimony. However, despite the utilities' attempt to cloak their plant
life extension projects in secrecy, publicly available industry
documents amply demonstrate industry's acknowledgment of the routine
maintenance exemption's limited scope. For example, the Babcock and
Wilcox company, in its definitive power plant treatise, Steam, Its
Generation and Use, distinguished some of the very plant life extension
activities at issue in our NSR cases from routine maintenance
activities as follows: ``Older boilers represent important resources in
meeting energy production needs. A strategic approach is required to
optimize and extend the life of these units. Initially, routine
maintenance is sufficient to maintain high availability. However, as
the unit matures and components wear, more significant steps become
necessary to extend equipment life.'' Id. at 46-1 (Exhibit 3). Our
cases involve such ``more significant,'' as opposed to the routine
maintenance activities that the plants conduct on a day-to-day basis.
Similarly, the American Electric Power Company (AEP) explained to
the Ohio Public Utilities Commission that life extension activities go
beyond routine maintenance: ``As time goes on, the cumulative effects
of operation affect more components, and affect those components more
severely. Finally, the major subsystems and components reach a stage at
which ``normal'' maintenance and repair become inadequate to support
satisfactory continued operation.'' Direct Testimony of Myron Adams,
AEP's Manager of Integrated Resource Planning, filed with the Public
Utilities Commission of Ohio on July 20, 1994 at 20 (Exhibit 4).
Publicly available information likewise demonstrates the magnitude
of the projects we have cited in our cases. For example, modifications
performed by TVA include projects costing $57 million, $23 million, and
$29 million. These modifications required that the affected units be
shut down for 13 months, 3 months and 6 months respectively. Another
TVA project costing $11 million required construction of a railroad
track and a monorail to facilitate the replacement of 44 percent of the
234,000 square feet of total boiler surface area. At Ohio Edison, the
NSR violations include installation of an entirely new and redesigned
furnace and burner system--the core of any power plant--at the W.H.
Sammis plant, as described in the accompanying article (Exhibit 5).
Documents produced by Niagara Mohawk show that the company
originally used the term ``routine maintenance'' to apply to only a
narrow category of work done at the plant. (Exhibit 6A). In another
company document, Niagara Mohawk made clear that work done at the plant
for the purpose of extending the life of an electric generating unit
concerned ``components that are not routinely replaced.'' (Exhibit 6B).
Indeed, Niagara Mohawk requested that its contractor not include
``maintenance'' type recommendations in a life extension report for one
of the generating units. (Exhibit 6C).
Industry's complaint that EPA suddenly changed its interpretation
of the NSR requirements during the Clinton Administration is similarly
contradicted by industry documents dating from the 1980's, which cite
particular plant life extension projects as exceeding routine
maintenance and therefore triggering the NSR requirements. Thus, in
1984--seven years after the enactment of the NSR requirements--the
Electric Power Research Institute (EPRI) held a conference that
included the topic of extending the lives of old power plants The
conference literature explicitly recognized that ``a fossil fuel power
plant is designed for a 30-year life,'' meaning that all plants
existing when the NSR/PSD requirements were enacted would reach the end
of their useful lives by 2007. (Exhibit 7). Conference attendees then
discussed the life extension activities that would be needed. A Duke
Power representative stated that keeping the old plants running
``necessitated us developing a different approach than routine
maintenance'' which only keep ``the plant in service until the end of
its design life.'' (Exhibit 8).
Similarly, at 1985 and 1986 EPRI conferences, industry
representatives recognized that life extension activities transcend
routine maintenance:
If plant life extension serves the balanced interests of
stockholders and ratepayers, capital improvements and increased
attention to equipment above and beyond routine maintenance may
be warranted. . . .
It is of primary importance to define the distinction between plant
life extension work and routine maintenance.
(Exhibit 9).
B. Industry was Fully Aware that its Activities were not Exempt from
NSR
Not only did industry recognize that plant life extension
activities failed to qualify as ``routine maintenance,'' industry also
understood that NSR requirements would likely be applicable. For
example, an article entitled ``Regulatory Aspects of Power Plant Life
Extension''--which was presented at a 1985 industry conference--
expressly discussed the circumstances under which life extension
projects could require NSR permits. (Exhibit 10). As a result, EPRI
recommended ``that corporate counsel be consulted as a part of life
extension planning activities, particularly for the interpretation of
regulatory and environmental issues when such activities are clearly
beyond the scope of what might be considered typical maintenance.''
(Exhibit 11)
Rather than seeking EPA's guidance, however, industry simply
attempted to conceal its activities. For example, a 1984 EPRI workshop
on life extension recommended that life extension projects be described
as maintenance activities in order to avoid triggering NSR
requirements:
[T]here are a number of issues which require clarification.
Several of these are: What is considered `routine' repair,
replacement, or maintenance for the purpose of qualifying for
an exemption to the NSPS modification provisions? Some aspects
of life extension projects may not be considered routine
repair/maintenance/replacement. To the extent possible these
projects should be identified as upgraded maintenance programs.
. . .
Life extension projects will result in increased regulatory
agency sensitivity to facility retirement dates. . . .
Regulatory agencies may contend that since life extension
projects will defer the need for new generation, additional
pollution control should be required for the older, higher
emitting affected plants.
It may be appropriate to downplay the life extension aspects
of these projects (and extended retirement dates) by referring
to them as plant restoration (reliability/availability
improvement) projects. To the extent possible, air quality
regulatory issues associated with these projects should be
dealt with at the State and local level and not elevated to the
status of a national environmental issue.
To the extent possible, project elements should be stressed
as maintenance related activities to maximize chances for NSPS
exemptions. Utility accounting practices play a significant
role here.
(Exhibit 12).
In 1988, EPA issued an applicability determination to the Wisconsin
Electric Power Company, or WEPCO, in which EPA determined that WEPCO's
multi-million dollar life extension projects were not covered by the
routine maintenance exemption. The issuance of the WEPCO interpretation
conclusively disabused industry of any notion that it might avoid
compliance with NSR requirements. Shortly after EPA issued its WEPCO
applicability determination concerning the life extension projects at
issue there, the Utility Air Regulatory Group (UARG), a leading
industry group, advised its members that ``Life Extension is [now] an
unpopular term in the wake of WEPCO.'' (Exhibit 13, p. 2.). Consistent
with other industry missives at the time, the memo further recommended
against using ``the term `life extension' to describe any project.''
Id., at 5. The same industry memorandum demonstrates that UARG and its
members fully understood EPA's interpretation limiting the routine
maintenance exception:
According to UARG, EPA equates `routine' with `frequent' . . . .
UARG believes that under present EPA policy, in order to qualify for
the routine maintenance exemption, the activity would have to be:
<bullet> frequent,
<bullet> inexpensive,
<bullet> able to be accomplished at a scheduled outage,
<bullet> will not extend the normal economic life of the unit,
<bullet> be of standard industry design.
Id., at 4. UARG also advised its members that if the WEPCO
applicability determination were upheld by the courts, it ``will set a
serious precedent if it is adverse.'' Id., at 5.
After the WEPCO determination, one of Ohio Edison's in house
attorneys and one of the lawyers at the law firm representing Ohio
Edison wrote an article explaining that, under the EPA interpretation
reflected in WEPCO, Ohio Edison's own plant improvements would be
subject to NSR, since: ``[a]fter WEPCo, virtually any physical change
to an existing facility, even pollution abatement activities and an
unpredictable array of repair, replacement, and maintenance projects,
can trigger new source control obligations.'' See June 18, 1990 letter
from David Feltner, Senior Attorney for Ohio Edison, to Ms. Cheryl
Romo, with enclosed draft article entitled ``Is There Life Extension
After WEPCo?.'' (Exhibit 14). (I note that the authors of this article
overstate the reach of the NSR requirements by overlooking that the
requirements apply only if an emissions increase is projected.) Despite
the opinions of its attorneys, Ohio Edison continued to undertake
expensive life extension activities at its plants without applying for
an NSR permit or otherwise notifying the permitting authorities.\4\
---------------------------------------------------------------------------
\4\ Likewise, a decade ago, one of the attorneys at Porter, Wright,
Morris & Arthur, counsel for AEP and Ohio Edison, wrote:
The ``Routine maintenance, repair, and replacement'' exclusion may
be available only if: (1) the repair/replacement is immediate after
discovery of deterioration; (2) the replaced equipment is standard in
the industry and fails frequently; (3) the repair/replacement is
inexpensive; and (4) the repair/replacement does not appreciably
prolong the life of the unit.
---------------------------------------------------------------------------
``What You need to Know About Modifications/Major Modifications''
by Robert Meyer at p. 28. (Exhibit 15).
iv. the role of congress
Congress need not sit idly while the Administration unilaterally
ignores its earlier mandates and jeopardizes public health and the
environment. As I've said, I will fight these changes; I urge you to do
so as well.
First, while I can go to the courts, you have a greater ability to
ensure this rollback does not occur. Any litigation I bring may take
years to be resolved. You can act strongly and quickly. I urge you to
pass specific legislation, this session, that would expressly prohibit
the Administration from proposing or finalizing any new exemptions from
NSR, including those that EPA has announced.
Second, I urge you not to be seduced by the Administration's claim
that NSR can be replaced by the Administration's so-called ``Clear
Skies'' initiative. That plan is an inadequate substitute for existing
law and a wholly unsatisfactory alternative to Senator Jeffords's
``Clean Power Act.'' At the outset, I note that ``Clear Skies'' is
still no more than a press release. Although months have elapsed since
the ``Clear Skies'' replacement for NSR was announced, no plan has even
been introduced in Congress. Many of us took note of Administrator
Whitman's criticism of the ``Clean Power Act,'' which she dismissed on
the grounds that it is unlikely win congressional approval. I would
point out that Senator Jeffords's legislation has been introduced, and
has passed the Senate Environment and Public Works Committee--so it is
at least two steps ahead of ``Clear Skies.''
Even if the Administration were serious about ``Clear Skies,'' the
pollution reductions that program would offer are too little, too late:
the caps are too high and would not take affect until the distant
future.
To be blunt, the ``Clear Skies'' caps are based on little more than
politics. They do not guarantee compliance with air quality standards.
The caps certainly are not based on sound science. Every month, another
study shows the need to reduce pollution more aggressively. For
example, a recent study finds new links between fine particulate matter
(PM) and cancer. Nor does technical feasibility stand in the way of
higher caps. More aggressive SO<INF>2</INF> and NOx cuts are clearly
technically feasible even with existing technology. Nor is it a
question of rates that consumers must pay for power. The Department of
Energy itself determined that the country could cut NOx and
SO<INF>2</INF> by 60-80 percent by 2010 with virtually no rate impact.
See Energy Information Administration, Analysis of Strategies for
Reducing Multiple Emissions from Power Plants: Sulfur Dioxide, Nitrogen
Oxides, and Carbon Dioxide (December 2000).
The Administration tries to sell its plan by using faulty
comparisons to current emissions. Don't be deceived. Even at their end
point, the Bush pollution caps would be 50 percent higher than, for
example S. 556, the Clean Power Act, or EPA's own initial proposal.
This 50 percent is roughly equivalent to all emissions produced within
the State of Ohio, a leading producer of emissions. This difference
alone could lead to hundreds, and perhaps thousands, of additional
deaths each year. Under the Administration's program, States will find
it far more difficult, if not impossible, to attain their mandated air
quality standards.
Under the Administration's program, many dirty old plants will
remain uncontrolled. In 1977, when it enacted the NSR provisions,
Congress clearly expected that all plants would be controlled by 2018--
over 40 years after the 1977 amendments made the NSR requirements
applicable to plant modifications. However, if all plants were
controlled with ``best available control technology'' by 2018, the
SO<INF>2</INF> cap would be below 2 million tons, not 3 million tons as
contemplated by ``Clear Skies.''
Moreover, the ``Clear Skies'' caps would not be fully phased in
until the 2020's. Even EPA's own graphs acknowledge that pollution
levels will not reach the cap level by the Administration's announced
target dates. While EPA speaks instead of incentives for early
reductions, the flip side of early reductions is late compliance. Under
the Administration's program, any cuts now can be banked, ton-for-ton,
to offset subsequent emissions. We should insist on early reduction and
caps that are lower and take effect sooner.
Finally, the Administration's claim that the President's plan
achieves more reductions than current law is directly contrary to what
EPA and the Department of Energy found when they included the emission
reductions attributable to full enforcement of the New Source Review
provisions. See, e.g., Energy information Administration, Analysis of
Strategies for Reducing Multiple Emissions from Power Plants: Sulfur
Dioxide, Nitrogen Oxides, and Carbon Dioxide (December 2000).
Furthermore, in its analysis, EPA ignores the emission reductions that
will result under current law from other programs, such as the regional
haze rule, the mercury Maximum Available Control Technology (MACT)
requirements and the new ozone and particulate matter standards. Thus,
the Administration is not comparing its proposal to the Clean Air Act
as it is now written and as it should be implemented and enforced.
Comparing Clear Skies to a Clean Air Act that is ignored or eviscerated
is WorldCom-style math at best.
I support the ``Clean Power Act'' because we need swift and
significant reductions in sulfur dioxide, nitrous oxides, mercury and
carbon emissions. I am especially supportive of including carbon in the
four pollutant legislation and commend Senator Jeffords for working so
hard on this legislation. The Administration finally admits that global
climate change is happening. Unlike the Administration, however,
Senator Jeffords has a plan of action. I urge you to pass the Jeffords
``Clean Power Act.''
conclusion
Allow me, and others who are serious about environmental law
enforcement, to continue to use the Clean Air Act to reduce pollution.
That is what Congress intended when it adopted New Source Review 25
years ago. Don't allow the most serious attack on the Clean Air Act
since it was adopted to succeed. Don't allow the product of 30-plus
years of bi-partisan cooperation on clean air to be cast aside.
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Responses of Eliot Spitzer to Additional Questions from Senator
Voinovich
Question 1. On July 12, 2002, the New York Times published an
article entitled ``In a Switch, Utilities Say Power Is Low'' that
describes the summer power shortages that New York is experiencing.
Reportedly, there have been brownouts on Long Island and in
Connecticut, and mobile gas-turbine generators have had to be installed
in Chelsea and Long Island. The article cited several causes of the
shortages including aging equipment, maintenance delays, and the
difficulties that power-generating companies have had in obtaining
permits for new plants and substations in the affected areas. Due to
the maintenance delays and aging equipment, do you think NSR is a
problem in providing the needed electricity to New York?
Response. I do not believe that NSR inhibits the ability of
generators to provide a reliable supply of electricity in New York.
Indeed, the referenced article does not suggest such a link, or even
mention NSR. Utilities may lawfully undertake ``routine maintenance''
to keep their plants running without having to go through the NSR
process. Moreover, utilities may make even major efficiency
improvements that increase the amount of electricity generated by the
same amount of fuel consumed without undergoing NSR review as this
would not increase emissions. Finally, although utilities may also make
major modifications that do increase emissions, if they choose to do
so, they must--and should be required to--obtain a preconstruction
permit and install state-of-the-art pollution controls. The requirement
not to increase pollution is not a barrier to electricity generation.
I note in addition that according to the New York Public Service
Commission's compilation of applications for new power plants in New
York (revised 7/30/02), 3630 MW of new electricity generation has been
approved in New York and applications for another 5377 MW are pending.
Question 2. From this article, it seems that routine maintenance is
a major issue. If it is not a problem, what are the short and long term
solutions for New York?
Response. I do not see any indication in the article or elsewhere
that ``routine maintenance is a major issue.'' It is only those
companies that have evaded the law for years and wish to continue doing
so that have cited the NSR provision as a stumbling block to achieving
an adequate energy supply.
Nonetheless, I appreciate your interest in New York's short term
and long term electricity needs. It is a very important issue, one that
my staff and I have spent considerable time considering. Let me briefly
respond to your question, and, by separate cover letter, forward to you
a copy of my Action Plan for a Balanced Electric Power Policy in New
York State (March 20, 2001). Briefly, we must ensure that we have
sufficient electricity supply in the New York City area (where demand
is greatest and transmission constraints the worst) by increasing clean
sources of electricity generation and by reducing the growth of demand
through aggressive conservation and efficiency measures. To achieve
these objectives, we will need to develop and pursue policies that (1)
expedite the siting process for new power generation, (2) upgrade the
transmission and distribution system, (3) increase renewable energy and
clean distributed generation sources, (4) protect the consumer, and (5)
protect the environment. I firmly believe that each of these objectives
is reconcilable with the others, and that all can be pursued
simultaneously.
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ATTORNEY GENERAL'S ACTION PLAN FOR A BALANCED ELECTRIC POWER POLICY IN
NEW YORK STATE
Introduction
Electric power is in the news and on everyone's mind these days,
with good reason. While we usually take for granted this invisible but
vital force that permeates our daily lives and provides the power
without which our modern society could not exist, recent events in New
York and elsewhere demand our close attention and immediate action.
As the economy has grown rapidly in New York over the last decade,
so has the demand for electricity. Demand has risen so dramatically
over the past several years that it is now outstripping available
supply in New York, particularly in New York City and Long Island where
transmission constraints require most power to be generated locally.
Moreover, in New York's restructured market--where the price of power
no longer reflects a regulated price, but rather a market price--the
current supply/demand imbalance has caused dramatic price spikes in
electricity bills. For example, Con Edison's customers saw their bills
increase an average 30 percent last summer, even though it was the
coolest summer in years. California's forced rolling blackouts, soaring
energy prices, and threatened bankruptcy of several major utilities'
have also heightened New Yorkers' concerns.
At the same time as New York confronts price spikes and potential
shortages, we are faced with continuing reports of the impacts of
electricity generation. Power plant emissions contribute greatly to
acid rain and urban smog, which, in turn, cause tremendous damage to
our health and our environment. Urban smog exacerbates asthma, which is
increasing rapidly in New York City and other urban areas--especially
among children. Acid rain is killing entire ecosystems in the
Adirondacks and other treasured natural areas. Mercury emitted by coal-
fired plants contaminates fish, and greenhouse gases such as carbon
dioxide change the climate. Power plant cooling water intake systems
injure fisheries upon which many New Yorkers depend.
Clearly, New York needs to find better ways to meet its electricity
demands at a reasonable cost while also protecting its citizens' health
and the State's natural resources. To meet growing electricity demand,
the State has had to rely largely on existing power plants, many of
which are old, inefficient, highly polluting, and insufficient to meet
projected demand. New York policymakers would be foolhardy to ignore
the lessons of California, and our own experience, in developing energy
policy.
We must move now on two fronts to develop a sustainable, balanced
energy policy that ensures customers a reliable and reasonably priced
power supply and that preserves our environment and protects our
health. We must meet our immediate short-term needs by increasing clean
supply and reducing the growth in demand through conservation and
efficiency. We must also secure the longer term by using electricity
more efficiently and shifting our dependence on fossil fuel toward
renewable sources of electricity.
For the short term, New York must plan for the summer of 2001.
Summer is when the demand for power is the greatest in our region, as
more air conditioning is used in response to hot weather. We must have
enough power supply available downstate to meet expected demand without
skyrocketing prices. The power generators the New York Power Authority
(``NYPA'') is placing downstate--among the cleanest and most efficient
available--are a sound approach to accomplish those goals. At the same
time, investments in energy efficiency must be significantly increased.
The New York Independent System Operator (``NYISO'') must enhance the
design and operation of the state's electricity markets to avoid price
spikes based on abusive market power, and to ensure the integrity of
the wholesale power market. Unless these markets work competitively,
deregulation cannot achieve its goals, and consumers, the economy, and
the environment will suffer as windfalls are reaped by the few at the
expense of the many.
For the longer term, we must address not only how much power we
have available, but how that power is generated. To protect our health
and natural resources, the State must move to a cleaner electricity
supply and contain the ever-expanding growth of demand. Relying more on
renewable energy and using electricity efficiently should also lower
bills for consumers.
To assure reliable electricity at steady prices we must build new
sources of electric power, expand transmission capacity to reach more
existing sources of power, and create more flexible demand during peak
demand periodsthrough demand-side management, conservation and more
efficient consumption. We can achieve this new, balanced energy
portfolio by improving the plant siting process, by enacting policies
that promote clean distributed generation and the use of renewable
energy sources, and by increasing transmission capacity to allow market
sited plants to serve the entire state. We must also ensure that new
clean generating capacity displaces older, dirtier, and less efficient
power plants.
These goals are achievable if we work together and act with care
and speed. New York is one of the largest energy users in the United
States, which is the largest energy user in the world. Thus, our
choices can have a major influence on global as well as local energy
policies and environmental impacts. The following recommendations are a
first step toward a balanced strategy on electric power.
Executive Summary
The demand for electricity in New York has grown dramatically over
the past several years, primarily due to a rising economy. Supply
however, has not kept up, raising reliability concerns for the future.
New York has also recently restructured its electric power markets, and
the current supply/demand imbalance has been reflected in the price of
power, sometimes leading to dramatic price volatility in electricity
bills downstate. As we confront our energy needs, we must recognize the
impacts of electricity generation. Power plant emissions contribute to
acid rain, smog, toxic pollution and climate change, all of which have
a serious deleterious impact on our health and environment. These facts
raise both short-term and long-term concerns for New York about the
price, reliability, and impacts of electric power. New York needs to
find better ways to meet its electricity demands at a reasonable cost
while also protecting its citizens' health and the State's natural
resources.
Recommendations
The Attorney General's Bureaus of Telecommunications & Energy and
Environmental Protection recommend the following measures:
a. short-term measures
Currently, New York's growing imbalance in supply and demand is
greater downstate than upstate, due to the nature of transmission
constraints, which make it difficult for significant power to be sent
downstate. We must be sure we have enough electric power supply this
summer to meet the anticipated peak demand downstate by increasing
clean sources of electricity generation and by reducing demand through
aggressive conservation and efficiency measures. Not only must we make
sure that the lights stay on this summer, but also that there is enough
supply so that electricity prices do not skyrocket.
2. New supply is needed, particularly in downstate areas.--
Estimates of peak supply shortfall downstate in the summer of 2001
require the additional generation proposed by the New York Power
Authority (``NYPA'') and others.
3. Immediate efforts to reduce demand will improve reliability,
lower price and reduce the need for more supply.--Funding for the three
existing State programs that promote energy efficiency, conservation
and renewable energy must be increased. The Attorney General is
directing a portion of its future power plant settlement funds--
totaling approximately $20 million--to the New York State Energy
Research and Development Authority (``NYSERDA'') for efficiency,
conservation and renewable energy programs. Funding for NYPA efficiency
programs should be increased immediately from its current level of $60
million annually to $160 million per year, with an emphasis on projects
to reduce peak demand in New York City and Long Island. Funding for
Long Island Power Authority (``LIPA'') efficiency programs should be
increased this spring from $32 million per year to $50 million per
year. With increased funding for these demand-reducing programs, it is
estimated that over 600 MW of generation capacity needs could be
avoided statewide over the next 2 years.
b. long-term measures
In the longer term, we must address not only how much power we have
available, but how that power is generated and used. To ensure
environmental protection, a reliable electricity system, and reasonable
prices for electricity, we must develop policies today that (1) improve
the siting process for new power generation, (2) upgrade the
transmission and distribution system, (3) increase renewable energy and
clean distributed generation sources, (4) protect the consumer, and (5)
contain the growth of demand and protect the environment.
1. We must increase our supply for the long term.--The State needs
to recognize that an increase in supply is necessary to keep up with
demand. We need to be innovative and forward-looking in considering how
to increase supply while protecting our environment.
a. The siting process must be improved.--The Siting Process must be
improved to ensure that necessary new generating facilities come on
line expeditiously, with the least possible impact on the environment
and public health:
<bullet> The Legislature should require the Siting Board and New
York State Department of Environmental Conservation (``DEC'') to decide
which siting applications merit a preference for earlier review.
<bullet> The Siting Board should designate a project manager for
each application.
<bullet> The Siting Board should require applicants to file
environmental permit applications with DEC before filing a siting
application.
<bullet> The Siting Board should establish a 30-day time limit to
negotiate voluntary stipulations.
<bullet> The Siting Board should appoint an ombudsman for each
project to be a focal point of contact for community groups and to
mediate disputes.
<bullet> The New York State Independent System Operator (``NYISO'')
should set deadlines for Transmission and Distribution Owners to
contribute to system reliability impact studies.
<bullet> The PSC and the NYISO should assign responsibility for
transmission system upgrades necessary for new generating capacity.
b. New and upgraded transmission lines are needed.--New York needs
additional high voltage transmission capacity to move large quantities
of power from places with surplus power to areas that currently contain
limited generating capacity. For decades, transmission bottlenecks have
restricted the efficient use of New York's overall existing generating
capacity as well as access to supplies from out-of-state. Despite these
infrastructure flaws, investment in transmission has declined
significantly since 1988. Steps have been taken to establish a
federally sanctioned regional transmission organization (``RTO'') to
address New York's transmission needs. However, whether or when such an
RTO will begin operations remains uncertain. The PSC and the NYISO have
the authority to begin the work needed to relieve New York's
transmission bottlenecks, and should begin immediately.
c. Renewable generation and clean distributed generation sources
should be increased.--Until recently, solar and wind generation were
not economically competitive with fossil fuel power generation. New
technologies for solar and wind generation, combined with increased
fossil fuel costs, have narrowed the cost gap considerably. The
Legislature should join New Jersey, Massachusetts, Connecticut, Texas,
and many other states by adopting a Renewable Portfolio Standard
(``RPS'') requiring retailers of electricity to include in their
portfolio of supply an increasing percentage of renewable generation.
Policies are also needed to increase clean distributed energy
sources. The need for large power plants and the strain on the
transmission system could be lessened by distributing small-scale
generation units (i.e. fuel cells, wind generators, small-scale hydro,
solar cells, and cogeneration facilities) that use minimally polluting
technologies directly on the site where the electricity is to be used.
The Legislature should (i) expand tax credits for the purchase of clean
distributed generation technologies, and (ii) expand the Solar Net
Metering Law to include wind and small hydro power--allowing owners of
such generation to sell excess power generated back to the grid. In
addition, NYPA should work with local governments across the State to
install fuel cells at landfills and wastewater treatment facilities,
which produce large quantities of methane that can be used to power
fuel cells.
2. The consumer must be protected during the transition to
competitive markets.
a. The NYISO must enhance its market monitoring and price
mitigation functions.--Electricity prices must not be permitted to soar
during the transition to competitive markets for this vital service.
The NYISO has made significant progress toward developing competitive
power markets and in monitoring the markets for potential abuses of
market power. However, more needs to be done to ensure stable prices
for the summer of 2001 and beyond, whenever supply and demand are
severely out of balance. The NYISO must implement its proposed
``automatic'' mitigation, which seeks to ensure that prices reflecting
potential abusive exercise of market power do not set the market-
clearing price. The NYISO must also strengthen its current forward-
looking market mitigation, by obtaining approval from the Federal
Energy Regulatory Commission (``FERC'') to order retroactive refunds
when abuses of market power are timely identified. The current $1,000
per megawatt-hour cap on the price of wholesale power should be
retained, and should be kept in line with any price caps in adjoining
markets, until a judgment is made that New York's markets are
reasonably competitive, especially during times of peak demand.
b. Consumers must be protected from extremely volatile electricity
prices while receiving necessary market price signals.--During the
transition to deregulation, utilities should bear some of the risk of
high wholesale market prices with customers, rather than completely
passing through such prices to consumers. This will incentivize
utilities to better manage their risk, while affording consumers price
signals upon which to make decisions about electricity use.
3. Demand must be contained over the long term and the environment
must be protected.--As the economy and population grows, so will
demand. We must meet growth without increasing degradation. Aggressive
measures to reduce demand, together with construction of clean and
renewable power plants, will greatly increase the probability that
older, highly polluting power plants will be displaced.
The NYSERDA, NYPA and LIPA programs that fund efficiency and
renewable projects are not required by law. NYSERDA's funding expires
in 2006, NYPA's funding is year-to-year, and LIPA's funding expires in
2004. The Legislature should mandate that these programs be funded at a
higher level for at least the next 10 years. In addition, the
Legislature should enact other financial incentives to reduce demand,
such as exempting the most energy efficient products from sales tax.
The PSC should improve pricing and revenue signals to encourage
flexible demand and conservation. Utilities should promote offers for
different time-of-day rates to residential customers to encourage load
shifting, and master-metered buildings in New York State should be
converted to direct metering or submetering. The PSC should also
consider changing the way it regulates the price of electricity
distribution. If the rate structure rewarded retailers for reductions
in demand, energy conservation would more likely become a priority.
State government can bring utilities into the State's energy
efficiency efforts by enacting an Efficiency Portfolio Standard,
requiring retail sellers of electricity to achieve certain levels of
demand reductions in their service area. The Federal Government can
similarly act to implement stringent minimum energy efficiency
standards for appliances and other electrical products to reduce demand
for electricity nationwide.
No one proposal within this report stands alone. This package of
proposals recognizes the need to address both supply and demand. In so
doing, the State will best promote the growth of competitive electric
power markets while also protecting both consumers and the environment.
Taken together, these recommendations are a balanced approach to
address the State's short-term and long-term electric power needs and
to lay the foundation for a sustainable energy policy for the future.
i. new york must address its growing imbalance in electric supply
and demand
A. Electricity Supply and Demand are Out of Balance
The recent rapid and welcome growth in New York's economy has
spurred a dramatic increase in demand for electricity. Statewide, peak
demand for electricity is estimated to be increasing at an annual rate
of 1.4 percent, with demand increasing in some regions at more than
twice the state-wide rate.\1\ Growth in generating capacity and
investments in efficiency have not kept pace. Indeed, addition of new
electric power sources in New York State has slowed dramatically over
the last 5 years, even compared to the limited amount of capacity built
between 1990 and 1995,\2\ and state-mandated demand-side management
investments (and their associated savings in needed generating
capacity) have declined from a high of $330 million in 1993\3\ to
approximately $170 million in 2000.\4\ This growing imbalance between
supply and demand, if unaddressed, can lead only to ever-soaring
electric power prices and eventual blackouts. However, increasing
capacity without regard to environmental considerations, will
exacerbate our state's air pollution problems.
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\1\ See, NYISO Installed Capacity Load Forecast Study for Summer
2001. Http: //www.nyiso.com/markets/icapinfo.html#summer--2001.
\2\ Only 308 MW of power were added between 1996-2000, compared
with 3,410.7 MW added between 1990 and 1995. This data is based on
NYISO registration dates for New York power plants currently operating.
\3\ New York State Energy Planning Board (``NYSEPB''), New York
State Energy Plan and Final Environmental Impact Statement. November
1998. p. 3-60, 3-62.
\4\ State-mandated DSM Funding in 2000 came from three sources: (1)
SBC; See Order Continuing and Expanding the System Benefits Charge for
Public Benefit Programs, Case NO. 94-E-0952, et. al., (January 26,
2001); (2) NYPA, see NYPA press release, November 30, 2000; and (3)
LIPA, see LIPA Clean Energy Initiative, May 3, 1999.
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The present facts are stark. New York State has a geographical
mismatch between generating capacity and where electricity is used.\5\
Physical limitations on the amount of electricity that can be
transported from one part of the state to another over the existing
high voltage transmission system mean that western New York has
surpluses of power whereas eastern New York, particularly downstate in
New York City and Long Island, are short. Moreover, additional capacity
is required to ensure that the lights can be kept on even if a major
generating unit or transmission line fails. These reserve levels are
required to be 18 percent above the projected peak demand for
electricity statewide and in given areas.
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\5\ New York State's total summer electric generation capacity is
35,098 MW. NYISO 2000 Load And Capacity Data Report, July 1, 2000,
Table 111-2, p. 55. Seasonal effects change capacity levels for certain
generators, resulting in a state-wide winter capacity of 36,649.8 MW.
One megawatt is the amount of power required to light 10,000 100-watt
light bulbs. Because demand for electricity peaks in the summer, the
winter capacity has less significance for system reliability concerns.
The summer peak electricity demand for New York State in 2001 is
projected to be 30,620 MW. See, NYISO Installed Capacity Load Forecast
Study for Summer 2001. Http://www.nyiso.com/markets/icapinfo.
html#summer 2001.
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New York City is projected to have a summer 2001 peak demand of
10,535 MW,\6\ up 4.6 percent from the record peak demand of 10,076 MW
during the July 1999 heat wave.\7\ The NYISO estimates that New York
City will be a glaring 397 MW short of required capacity during the
upcoming summer. Electricity supply on Long Island is only slightly
better. For Long Island, the NYISO projects a summer 2001 peak demand
of 4,733 MW and a capacity shortfall of 131 MW.\8\
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\6\ NYISO February 15, 2001 Locational Installed Capacity
Requirements Study.
\7\ The power outages experienced in parts of New York City and
Westchester County that began on July 6, 1999 were caused by failures
in Con Edison's distribution network, not insufficiency in supply. See,
New York State Attorney General's report, Con Edison's July 1999
Electric Service Outages, March 9, 2000.
\8\ These estimates do not take into account the proposed NYPA
generating units or additional projected capacity increases on Long
Island. NYISO February 15, 2001 Locational Installed Capacity
Requirements Study. See also, NYISO, Power Alert: New York's Energy
Crossroads, March 2001, p. 19, and NYISO March 14, 2001 press release,
Expedited Power Plant Development & More Customer Choices Needed To
Avoid California-Type Energy Crisis, Says NYISO Report.
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For 2001 NYISO forecasts a 1.7 percent annual increase for New York
City and a 2.3 percent annual increase for Long Island.\9\ Thus,
projected summer peak demand in 2002 and 2003 for both New York City
and Long Island may well exceed available generating capacity unless
supply and demand are quickly aligned.\10\ As shown in Table 1, if
current demand growth continues unchanged for the next 2 years, no more
generation capacity is added, and efficiency and conservation are not
improved, both New York City and Long Island risk being unable to
supply sufficient power.\11\
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\9\ See, NYISO Installed Capacity Load Forecast Study for Summer
2001. Http://www.nyiso.com/markets/icapinfo.html#summer--2001.
\10\ See, NYISO Press Release, New York Independent System Operator
Finds That New York City Faces Electricity Shortage, February 14, 2001.
See also, NYISO, Power Alert: New York's Energy Crossroads, March 2001,
p. 19.
\11\ Source: NYISO, Power Alert: New York's Energy Crossroads,
March 2001, p. 19.
Table 1.--Downstate New York Shortage Without More Generation Or Reduced Demand*
(MegaWatts)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2001 Zone 2001 2001 2002 Zone 2002 2003 Zone 2003
Zone Capacity Current Current Capacity Projected Capacity Projected
Required Capacity Deficit Required Deficit Required Deficit
--------------------------------------------------------------------------------------------------------------------------------------------------------
NYC.......................................................... 8428 8031 -397 8560 -529 8680 -649
LI........................................................... 4638 4507 -131 4709 -202 4776 -269
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Source: NYISO, Power Alert: New York's Energy Crossroads, March 2001, p. 19.
In addition to these estimates, the Public Service Commission
(``PSC'') has identified a ``statewide need for 600 MW plus per year of
capacity additions to satisfy the demands of a growing economy'' and
``an immediate need for 300 MW [of added capacity now in New York
City], and an additional 200 MW each year thereafter.''\12\ PSC
Chairman Helmer has also stressed that New York must use effective
strategies to cut demand, comparing building power plants alone to
trying to clap with one hand.\13\
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\12\ See, August 2, 2000 testimony of PSC Chairman Maureen Helmer
before the Assembly Standing Committee on Energy, Http://www.dps.state.
ny.us/testimony--8--2--2000.htm, p.3.
\13\ See, Albany Times Union, Demand the Key to Power Supply, March
6, 2001, p. E1.
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While electricity conservation and demand management programs could
substantially reduce the amount of additional generation needed, it is
clearly imperative that clean supply be increased, both for the short-
term downstate, and for the long-term throughout the state. Indeed, new
clean and efficient power plants, combined with aggressive demand-side
management and renewable energy investments, should displace older,
dirtier power plants and yield reduced emissions and increased
generating capacity.
B. Supply Must be Greater than Demand to Avoid Power Outages, and Keep
Electricity Prices from Skyrocketing
In competitive markets, when demand is inflexible and approaches
the limits of available supply, the price paid for a product will climb
dramatically. This characteristic is especially salient in the case of
wholesale electricity markets, where demand currently is relatively
inflexible, and where the physical properties of electrical generation
and flow are such that electricity cannot be stored in any significant
quantity, but is generated, transmitted, and used virtually
instantaneously.\14\ The amount generated and put into the transmission
grid must be balanced with the amount consumed second by second, or the
entire system could break down.\15\ When demand threatens to outstrip
supply during periods of peak use, price spikes will occur. Electricity
will be less expensive if surplus capacity is sufficient not simply to
keep the lights on, but to keep wholesale prices competitive.
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\14\ Buyers in other power markets, including natural gas, can ride
out peak demand periods by drawing down storage supplies and avoid
paying volatile spot prices.
\15\ Different generation plants have vastly differing production
costs, according to their size, design, operation, and fuel source.
Large steam powered generators and nuclear power plants (in the 500-
1,000 MW range--called ``base load'' units), cannot be activated
quickly, nor can they rapidly adjust electricity output. Therefore,
owners of such units normally offer their power into the market at
relatively low prices, to ensure that it will be dispatched and they
will not have to dump excess output. At the other end of the spectrum,
small gas turbines (ranging from 20 to 60 MW) are designed to allow for
quick startup and output adjustment and, due to their high operating
costs, are most often used during peak hours. Peaking units, including
gas turbines, experience greater wear and maintenance costs if run for
extended periods. To recover their investment and operating expenses
over a relatively limited number of unpredictable hours of use, owners
of such units usually offer power at high prices.
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Once a sufficient number of private sector new generation projects
are approved to be brought on line, market forces can be expected to
bring supply into better balance with demand, yielding greater
wholesale market price stability.
Until we have more experience with market participant behavior, it
is difficult to ascertain what specific amount of capacity would
provide sufficient surplus to not only assure reliability but also
stabilize market prices during peak demand periods. As much as 10-20
percent surplus during peak demand may be required to avoid the steep
end of the price curve. The NYISO projects that by 2005, if no new
generation is added in New York, ``statewide prices could be expected
to increase by about 14 percent from present levels'', but ``[i]f
supply is allowed to grow . . . Statewide prices should actually
decrease and could be 20-25 percent lower than if no new generation is
added,'' resulting in statewide ``savings of over $1.4 billion annually
in 2005.''\16\ Because the mix of generator types and sizes varies in
each of the 11 zones where NYISO administers market prices, the surplus
capacity needed to avoid volatile prices will necessarily differ for
each zone.
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\16\ See, NYISO, Power Alert: New York's Energy Crossroads, March
2001, p. 9. This NYISO projection assumes that 8,600 MW would be added
to New York's supply, and does not include inflation or fuel cost
increases.
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C. NYPA's Proposed Generators for New York City are Necessary to Meet
Peak Demand for Summer 2001
For the immediate term, by the summer of 2001, we have no choice
but to increase the available power downstate by at least 528 MW, i.e.,
397 in New York City and 131 MW in Long Island. The NYPA has received
approval to construct 11 new gas turbines in New York City with a
combined output of 443.5 MW, most of which are expected to be
operational at the start of the upcoming summer cooling season. In
addition, the Astoria No. 2 plant (a former Con Edison generator fueled
by natural gas) is expected to be repowered by Orion Power Holdings,
Inc. and available sometime during summer 2001, which would add 170 MW.
Another 60 MW to the generating capacity in New York City is
anticipated from Con Edison's planned reactivation of the Hudson Avenue
No. 10 plant (Brooklyn).\17\ These new NYPA and repowered units, if
completed in time, should address the risk that New York City might
otherwise have insufficient power supply if demand peaks at forecast
levels.\18\
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\17\ While a number of other small-scale potential capacity
additions to existing units in New York City are being pursued at
various sites, it is difficult to determine with certainty which
efforts will be brought on line and whether they will meet the need
when demand peaks.
\18\ The Attorney General supports this effort, but takes no
position on the particular sites selected for the NYPA generators.
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The NYPA units, which burn natural gas as a fuel, are considered
relatively clean in terms of emissions\19\--they emit virtually no
sulfur dioxide (``SO<INF>2</INF>'') and less nitrogen oxide (``NOx'')
than oil or coal-fired plants. Thus, the potential air quality impact
of this supplemental generation capacity should be limited.\20\ In
addition, the NYPA has committed to reducing air emissions at other New
York City plants so overall air emissions will not increase.\21\ Each
new unit is comparatively small' in scale, which should minimize impact
on local communities.\22\
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\19\ Power plants emit significant quantities of pollutants,
especially sulfur dioxide, nitrogen oxides, particulate matter, carbon
dioxide, and mercury. These emissions contribute to acid rain and
regional haze, and are dangerous to human health as well as to the
health of fish and wildlife.
\20\ The NYPA has stated that they will use the best available
emission control technology to reduce NOx, particulate matter, sulphur
dioxide and carbon monoxide emissions. In addition, the NYPA performed
an analysis of the turbines' fine particulate (PM<INF>2.5</INF>)
pollution and determined the increase to be insignificant. The DEC has
issued air pollution control and acid rain permits limiting emissions
for each of the sites.
\21\ DEC Press Release, dated January 12, 2001. The State's
Department of Environmental Conservation (``DEC'') and the NYPA should
formalize an agreement on reduction of overall area emissions.
\22\ The NYPA has also committed to noise mitigation measures at
some of the new sites.
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On Long Island, the NYPA is installing one 44 MW capacity gas
turbine at the former site of Pilgrim State Hospital. In addition,
Keyspan is upgrading its Holtsville unit to increase output by 5 MW,
and other gas turbines that will add 35 MW more generating capacity on
Long Island. A merchant generator turbine is slated for Far Rockaway
with 44-50 MW of capacity. Together, these planned additions will
barely satisfy the 131 MW capacity needed for Long Island reliably to
meet forecast demand. Some of these new units are not expected to be
operational by the May 1, 2001 start of the peak season, but instead
may not be available until July 1. Even with the anticipated new
generating unit upgrades and additions, Long Island electric power
resources are likely to be stretched to their limit during peak demand
periods this summer.
D. Current State Programs that Promote Energy Efficiency and Renewable
Energy Should be Expanded
Several programs in New York State currently encourage energy
efficiency and renewable energy. Most are implemented by the New York
State Energy Research and Development Authority (``NYSERDA''), the
NYPA, and the Long Island Power Authority (``LIPA'').\23\ They have
proven to be highly successful and offer a good starting point for an
expanded state efficiency effort.
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\23\ The NYPA and LIPA are publicly owned not-for-profit utilities,
whose programs are funded by rates charged their customers.
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1. The Attorney General is Directing Power Plant Settlement Funds to
Supplement NYSERDA Programs
The Attorney General, through his authority to enforce Federal and
state environmental protection laws, has embarked on a number of clean
air initiatives. The Attorney General sued out-of-state coal-fired
power plants that upgraded or expanded their old power plants without
installing the pollution controls required by the Clean Air Act. The
Attorney General, with the DEC, is also pursuing legal action against
similar plants in New York. Recognizing the priority the people of New
York have assigned to clean air and a balanced energy policy, the
Attorney General is negotiating to ensure that settlements are directed
to enhancing renewable energy development and efficiency.
The Attorney General is working with the NYSERDA and DEC to ensure
settlement funds are spent most effectively to promote energy
efficiency and renewables. The settlement funds may also be used to
fund some of the transmission infrastructure needed to make available
additional wind resources. While agreements-in-principal have not been
finalized--and other cases are in negotiation or litigation--the
lawsuits are likely to yield $20 million or more that can provide the
catalyst for an additional 10-30 MW of renewable energy and perhaps 10
MW of savings through efficiency.
The Legislature Should Ensure Funding for NYSERDA Programs by Extending
the System Benefits Charge
The NYSERDA's programs, under the umbrella of the New York Energy
Smart program, are designed to improve energy efficiency through
education, improved operations, purchases and use of energy efficiency
equipment and services, and technology development and demonstration.
The 38 New York Energy Smart programs, range from market transformation
(e.g. ensuring retail stores offer efficient products to their
customers) to low-income assistance (e.g. direct installation of
efficiency measures in low-income households) and renewable energy
development (e.g. production incentives to wind farm developers).
The NYSERDA's programs are funded by the System Benefits Charge
(``SBC'').\24\ The SBC is a small, non-bypassable charge per kilowatt-
hour to all customers buying electricity transmitted and distributed by
the State's investor-owned utilities. Currently, the SBC rate is just
over one-tenth of one cent per kilowatt-hour and collects $150 million
per year.\25\ The existence of the SBC derives from a PSC Order that
expires in 2006.\26\ The Legislature should codify the SBC and extend
it 5 years to ensure a long-term, reliable source of funding for energy
efficiency and renewables. In addition, the Legislature should make
permanent programs funded by the SBC that improve efficiency in low-
income households.
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\24\ In Opinion and Order Regarding Competitive Opportunities for
Electric Service, Case NO. 94-E-0952, et. al., (May 20, 1996), the PSC
created the SBC to mitigate the potential adverse environmental impact
of restructuring the electric industry.
\25\ See, Order Continuing and Expanding the System Benefits Charge
for Public Benefit Programs, Case NO. 94-E-0952, et. al., (January 26,
2001), p. 12. A small percentage of the funding is administered by the
utilities.
\26\ Ibid.
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The NYSERDA has used over $71.8 million SBC funds since 1998 to
encourage efficiency and renewable power investments. These investments
have resulted in estimated electric savings of 486,000 MWh annually;
demand reduction of at least 125 MW; reductions to electric, fuel oil,
and natural gas bills of $54 million annually; reductions to annual air
emissions of 464 tons of NOx, 774 tons of SO<INF>2</INF>, and nearly
335,000 tons of CO<INF>2</INF>; and the creation of over one thousand
jobs.\27\ While the $71.8 million was paid out once, the savings are
annual. Based on this experience, a one-time investment of $100 million
in energy efficiency reduces consumer bills by about $75 million per
year. This annual savings accumulates over the lifetime of the
efficiency measure, yielding a net savings of $375 million over the
first 5 years for just the first year's investment.
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\27\ NYSERDA, New York State Energy Smart Program Evaluation and
Status Report, Report to the System Benefits Charge Advisory Group.
Interim Report, September 2000.
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The NYSERDA estimates that the total effect of SBC expenditures
through the summer of 2002 will reduce peak demand between 600 and 660
MW and between 1,200 and 1,300 MW through 2006.\28\ These programs, so
critical to New York's energy and environmental future, should be
codified.
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\28\ NYSERDA, Proposed Operating Plan for New York Energy Smart
Programs (2001-2006), February 15, 2001, pp. 2,3.
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3. NYPA Should Work With its Customers to Reduce Demand by an
Additional 200 MW Over the Next Two Years Beyond Its Current
Goals
The NYPA currently provides about $60 million annually to its
customers for demand-side management projects and recovers its costs by
sharing in the electric bill savings. These projects cost taxpayers
nothing to implement, but realize approximately $65 million annually in
energy bill savings, and save enough energy each year to service
300,000 people, and avoid 360,000 tons of CO<INF>2</INF> emissions.\29\
While the NYPA's demand-side management initiatives currently achieve
capacity savings of between 20 and 60 MW per year,\30\ significant
opportunities exist for greater savings.\31\ The NYPA's customers, many
of which are public entities, consume over 20 percent of the State's
electricity, making this Agency well situated to advance the State's
need for more aggressive energy efficiency efforts. By reducing the
government's demand for electricity, The NYPA can save taxpayers
hundreds of millions of dollars in electricity costs. The NYPA should
work with its governmental and business customers to reduce demand and
increase clean distributed generation and renewable energy by at least
an additional 100 MW per year over the next 2 years and commit to fund
its demand-side management programs at an increased level over the next
10 years.
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\29\ The NYPA's efficiency programs have successfully reduced
electricity use and electricity bills. For example, the NYPA is working
with the New York City Housing Authority (NYCHA) to replace 180,000
refrigerators with more efficient varieties over 8 years. After this
project is completed in 2003, NYCHA will reduce energy consumption by
103,000 MWh per year and save over $7 million annually in energy costs.
Similarly, its High Efficiency Lighting Program provides energy-
efficiency improvements such as new lighting and upgrades to heating,
ventilation and air-conditioning systems with no up-front costs to
government and educational institutions. These measures can cut up to
25 percent on electric consumption. See, Http://www.nypa.gov/html/
es.htm. See also NYPA press release, November 30, 2000.
\30\ The NYPA currently spends approximately $60 million per year
on demand-side management (``DSM''), but information regarding the
amount of generating capacity saved is unavailable. Capacity savings
were estimated based on past DSM investments. Between 1990 and 1996,
the NYPA spent $255 million on demand-side management programs and
reported saving 84 MW (0.33 MW per million dollars spent). Between 1990
and 1997, Investor-Owned utilities spent $1,277 million on DSM and
reported saving 1,377 MW (1.08 MW per million dollars spent). Thus, an
annual $60 million investment could result in a capacity savings of
between 20 and 60 MW per year.
\31\ For example, one of the NYPA's largest customers, the
Metropolitan Transportation Authority, uses approximately 1,800,000 MWh
per year. By updating its lighting and signal systems and other
efficiency/conservation projects, it is conservatively estimated that
the MTA could reduce its electricity use by 2 percent. (The NYPA
reports that they can achieve up to a 25 percent reduction in energy
consumption for each efficiency project they undertake. Thus a 2
percent overall reduction is a conservative target.) This project alone
could reduce peak demand in New York City--a load pocket--by at least 4
MW, saving 36,000 MWh per year and $2,520,000 in annual energy costs
(based on a rate of 7 cents per kWh--the NYPA's rates vary). See NYPA
1998 Annual Report.
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Because of the dual benefit of reducing demand and reducing the
electricity bills of public entities, the Governor should direct all
State agencies to report on energy use and recommend how to reduce both
base and peak demand within 6 months. The NYPA should work closely with
the State agencies to develop and implement those recommendations,
including providing the financing necessary to obtain technical
assistance, conducting energy audits, and purchasing and installing
more efficient motors, lights, and other appliances or devices.
The NYPA should also expand its existing efficiency programs to
include more local governments and school districts statewide, further
reducing electricity costs for taxpayers. The Legislature should direct
the NYPA to provide funding for local governments to assess their
energy efficiency opportunities within 6 months (for New York City and
Long Island) or 12 months (for upstate areas) and reach agreements for
their implementation.
The NYPA sells approximately 40,000,000 MWh of electricity per
year, much of it to government and educational institutions.\32\ For
the NYPA to achieve 200 MW in additional savings beyond its current
program, it will need to reduce energy consumption from all of its
customers by 7 percent over 2 years.\33\ This would save the NYPA's
government customers (i. e. taxpayers) and business customers
$196,224,000 in energy costs annually.\34\ The environmental gains
would be commensurately large--an estimated 2.7 million tons of
C0<INF>2</INF>, 14,280 tons of SO<INF>2</INF>, and 5,320 tons of NOx,
would be avoided.\35\ Finally, energy savings of this magnitude would
reduce stress on the existing system, improving reliability.
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\32\ New York Power Authority 1998 Annual Report, p. 19.
\33\ The NYPA would need to achieve 320 MW savings over 2 years to
meet the Attorney General's proposal, assuming the NYPA already
achieves 60 MW savings per year through its existing $60 million per
year program. A 7 percent reduction in electricity use = 5,600,000 MWh.
320 MW x 17,520 hours per 2 years = 5,600,000 MWh.
\34\ Based on a rate of 7 cents per kWh. The NYPA's rates vary.
\35\ Based on average statewide emission rates according to PSC
Historical Fuel Mix and Emissions Data. Http://www.dps.state.ny.us/
fuelmix.htm.
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4. The Legislature Should Direct LIPA to Increase Its Investments in
Demand Side Management
Shortly after the LIPA acquired the Long Island Lighting Company,
its Board of Trustees issued a Clean Energy Policy Statement that
declared the LIPA would establish a Clean Energy Initiative to support
energy efficiency, clean distributed generation and renewable
technologies. The LIPA funded the Clean Energy Initiative at $32
million per year for 5 years and began implementation in mid-1999.\36\
In light of the current demand/supply imbalance on Long Island, the
Legislature should direct the LIPA to increase its funding for the
Clean Energy Initiative from $32 million to at least $50 million per
year for 10 years.
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\36\ The LIPA's Clean Energy Initiative offers many programs,
including rebates for energy efficient products in their ``EnergyWise''
catalog. More than 37,000 lighting products have been ordered through
the program and an additional 170,000 compact fluorescent lights have
been sold in home improvement stores. Together, they represent
potential electric savings of nearly $9 million and over 2,970 MWh of
electricity. The LIPA's Residential Energy Affordability Partnership, a
low-income energy efficiency program much like the NYSERDA's, directly
installs energy efficiency measures, such as compact fluorescent
lighting, refrigerators, wall and attic insulation, and programmable
thermostats. The Solar Pioneer Program offers direct consumer
incentives toward the installation of qualified photovoltaic systems
between 250 and 10,000 watts, as well as a $3 per watt rebate for
installing approved solar equipment.
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The LIPA's existing Clean Energy Initiative--projected to obtain
144 MW of demand-side energy capacity savings by the time it expires in
2004\37\--will not realize all of the potential for capacity savings on
Long Island. A 1999 study that examined opportunities to meet expected
increases in demand on Long Island found that expanded energy
efficiency, distributed generation, wind power, fuel cells, and
photovoltaics could yield 690 MW by 2010, including 465 MW from energy
efficiency alone.\38\
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\37\ Estimated peak load reductions during the first year of the
Clean Energy Initiative, totaled approximately 39 MW. Energy reductions
resulting from the Clean Energy Initiative during 1999 were estimated
to total approximately 16,000 MWh. These savings were achieved within 1
year of the LIPA's approval of the Clean Energy Initiative,
demonstrating how quickly efficiency measures can be effective. At the
end of the 5-year, $160 million program, the LIPA estimates that it
will save 191,000 MWh of energy per year and avoid the need for 144 MW
of capacity. See, LIPA, Clean Energy Initiative, May 3, 1999.
\38\ Pace Law School Energy Project and Long Island Citizens
Advisory Panel, Power Choices: 21st Century Energy Alternatives for
Long Island, October 1999, p. 3.
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If the Clean Energy Initiative were expanded to $50 million per
year until 2010, as recommended, capacity savings over the next 10
years could be greater than 450 MW.\39\ If the funding were increased
immediately, and programs were expanded this year, an additional 30 MW
could be avoided over the next 2 years and an additional 45 MW savings
over the remaining 3 years of the LIPA program. Given the cost savings
from efficiency programs in the past, the investment of $50 million per
year would save Long Island ratepayers approximately $35 million in
each succeeding year, leading to dramatic cumulative savings (perhaps
$60 million after 3 years). Again, significant environmental and
reliability gains can also be expected.
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\39\ Estimate based on LIPA's current projections of 144 MW per
$160 million spent over 5 years (0.9 MW per million dollars spent).
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II. The Review Process for the Siting of New Generation Facilities Must
be Streamlined
The need for new supply underscores the importance of the power
plant siting process, yet significant problems in that process affect
the ability to respond quickly to increased demand with increased
supply. Power plants cannot simply be built whenever and wherever
someone decides they would like to do so. Rather, because of their size
and environmental impacts, plans to build power plants are subject to
an extensive and careful state approval process. This state-mandated
review has been fraught with delay and uncertainty, impeding the
ability of aspiring generators to proceed as expeditiously as would be
optimal. Oddly, no process exists by which to rank the relative
environmental impact of the proposed power plants. To increase the
supply of electrical power to meet our economy's needs while protecting
human health and the environment, the process must be dramatically
improved.
Ideally, the siting process should provide one-stop shopping for
generators. Indeed, when the Legislature enacted Article X of the
Public Service Law (``PSL'') in 1992, the goal was for one entity, the
New York State Board On Electric Generation Siting And the Environment
(``Siting Board''), to have authority over the entire review
process.\40\ However, the U.S. Environmental Protection Agency
(``EPA'') authorizes the state DEC to issue permits under the Clean
Water Act and the Clean Air Act. Since such permits are necessary
before a generating facility may be built, the process does not readily
fit the one-stop shopping model. Additionally, the siting of a power
plant is often controversial, so the review process appropriately
provides an opportunity for extensive input by interested parties. For
these reasons, siting a new plant is neither easy nor quick .\41\
Nevertheless, more can and must be done to coordinate and expedite the
process if New York is going to meet the expected increase in demand
with sufficient increase in supply, while at the same time ensuring
that the added capacity results in a cleaner environment. Toward that
end, the Attorney General urges the following:
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\40\ Under Article X, any utility, public authority or merchant
generator wishing to build a new generator in New York State with a
capacity of 80 MW or more must comply with and obtain a Certificate of
Environmental Compatibility and Public Need (``Certificate'') from the
Siting Board approving the plant's construction and operation. See
also, 16 NYCRR Chapter X, Subchapter A, Sec. 1000 et seq., which sets
forth the Board's rules and procedures. The five permanent members of
the Siting Board are the PSC chairman, who serves as the Siting Board
chairman, the Commissioner of Environmental Conservation, Commissioner
of Health, chairman of NYSERDA and the Commissioner of Economic
Development. The Governor appoints two members of the public as ``ad
hoc members'' for each generator application: one must reside within
the judicial district and the other must be from the county where the
proposed plant is to be located.
\41\ Article X requires an entity seeking approval for a generating
facility to file an application with the Siting Board. At least sixty
(60) days before filing its application, an applicant must file a
preliminary statement with the Siting Board and various offices within
the PSC. An applicant must also obtain environmental air and water
permits from the DEC and acceptance of its interconnection study from
the NYISO. The PSC and DEC assign staff members to review the
application, and each also assigns a project manager to coordinate
review within their agencies.
Before filing the application, the applicant, the PSC, DEC, and
others may voluntarily engage in negotiations regarding environmental
and other studies needed. Once theapplicant files its Article X
application with the Siting Board, the chairman of the PSC has 60 days
to determine if the application is complete, or needs to be
supplemented. Once the application is deemed complete, the Siting Board
has 12 (12) months to decide whether to approve it, during which time
the DEC and PSC jointly conduct public hearings in which expert
witnesses are examined and evidence submitted. The hearing officers
make specific statutory findings and recommend a decision to the Siting
Board, which has the ultimate decisionmaking authority.
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A. Decide Which Siting Applications Merit A Preference for
Earlier Review
Currently, the Siting Board reviews each application in the order
received, on a first-come first-served basis. The Siting Board does not
now give a reviewing priority based on relative need for generation at
the location of the proposed site or on environmental attributes. The
Legislature, however, could and should direct the Siting Board and DEC
to give a preference in the review process to applications for plants
that:
<bullet> Are located in areas that have an acute need for new
generating capacity, and thus would have the greatest incremental
impact on New York's structural supply deficit;
<bullet> Repower existing plants so overall emissions are reduced
and community impacts minimized, or otherwise displace electrical
generation that produces greater air emissions in the same air basin;
<bullet> Achieve a lower emission rate for particulate matter, NOR,
and SO<INF>2</INF> than legally mandated or than other proposed plants,
in addition to obtaining the largest offsets (proportional to the plant
size);
<bullet> Are the most efficient generators, producing the least
CO<INF>2</INF> per MWH generated;
<bullet> Include active controls for mercury emissions;
<bullet> Are sited on former industrial ``brownfields,'' which thus
would be redeveloped, cleaned and put to use; or
<bullet> Utilize dry-cooling techniques to minimize water impacts.
Since the Siting Board reviews applications as they come in, all
other things being equal the first applications will be reviewed,
approved and built first. As new supply comes on line, later proposals
for plants may be withdrawn. However, the later proposed plants may, in
fact, be preferable from the perspective of the State's energy needs or
the environment.
To ensure that the State's needs are best served by proposed
plants, and to encourage the private sector to propose such plants, the
Legislature should require the Siting Board to give both procedural and
substantive preference to plants that meet the above criteria. A
preliminary review of any application should establish whether the
plant is located in an existing electricity load pocket, repowers an
existing plant, and what its emissions rates are.\42\ The Siting Board
and DEC staff could be preferentially allocated to plants that meet the
criteria listed. That alone would speed the review and approval of such
plants given existing staff constraints. Similarly, the Siting Board
could, in making approval decisions, give a substantive preference to
plants that meet these criteria.
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\42\ To ease the initial screening process, the application form
could require a cover page that indicates which, if any, of the
preference criteria are met by the proposed plant.
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B. Designate a Project Manager for Each Application
The time to review a siting application could be sharply reduced if
the Siting Board designated a central Project Manager to be responsible
for monitoring and ensuring the progress of an application's review at
all agencies, rather than relying on separate agency project managers.
The lack of coordination among the state agencies, especially the
DEC and PSC, has often made it difficult for applicants to get clear
direction to move forward. A central project manager for each
application would keep the process from getting bogged down through
conflicting or confusing directions.
C. Require Applicants to File Environmental Permit
Applications with the DEC Before Filing a Siting
Application
Initially, applicants filed siting applications and the DEC permit
requests at the same time. This led to delays because DEC, subject to
EPA requirements in its permit process, cannot generally decide within
the Siting Board's 60-day period whether the environmental permit
applications are complete. As a result, many applications were rejected
by the Siting Board at the 60-day deadline as incomplete, and the
process had to be restarted.
Applicants should be required to submit their DEC permit requests
well ahead of their siting application.\43\ The aforementioned Project
Manager could coordinate this ``front-loading'' of the approval process
so that an applicant will have negotiated with the PSC and DEC, secured
the required environmental permits, and performed the necessary studies
prior to filing the siting application.
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\43\ Underscoring the necessity for a formal rule, the Siting Board
recently adopted an informal policy that it will not consider a siting
application to be complete unless the DEC has proposed a draft permit.
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D. Establish a 30-Day Time Limit to Negotiate Voluntary
Stipulations
The Siting Board encourages, but does not require, applicants to
negotiate voluntary stipulations with state agencies and interested
parties to identify the issues of public concern and the studies or
analyses appropriate for the project under review.\44\ This ``scoping
process'' is intended to speed review by enabling parties to reach
early agreement on which issues need to be addressed in the
application, thereby reducing later objections or litigation. With no
current timeframe for completion, these negotiations are often
protracted--causing unnecessary delay and uncertainty. To address this
problem, the scoping process should be made mandatory and should be
overseen by the Project Manager, who should establish a 30-day
timeframe for the parties, the DEC and PSC to negotiate stipulations.
The Project Manager should clarify the details of the environmental and
other reviews required by the Siting Board and DEC. Adherence to well-
established and understood descriptions of the detailed studies
necessary for permitting under the State Environmental Quality Review
Act (SEQRA) will also result in greater clarity and expedite the
process.
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\44\ See, PSL Sec. 163. These studies include those describing the
expected environmental impact and safety of the facility, both during
its construction and its operation, that identify ``(i) the anticipated
gaseous, liquid and solid wastes to be produced at the facility
including their source, anticipated volumes, composition and
temperature, and such other attributes as the board may specify and the
probable level of noise during construction and operation of the
facility; (ii) the treatment processes to reduce wastes to be released
to the environment, the manner of disposal for wastes retained and
measures for noise abatement; (iii) the anticipated volumes of wastes
to be released to the environment under any operating condition of the
facility, including such meteorological, hydrological and other
information needed to support such estimates; (iv) conceptual
architectural and engineering plans indicating compatibility of the
facility with the environment; and (v) how the construction and
operation of the facility, including transportation and disposal of
wastes would comply with environmental health and safety standards,
requirements, regulations and rules under state and municipal laws, and
a statement why any variances or exceptions should be granted. . . .''
PSL Sec. 164(c).
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E. Appoint An Ombudsman For Each Project
The Siting Board should appoint an ombudsman to be a focal point of
contact for community groups seeking to be involved in the siting
process and to work with the Project Manager to mediate issues
concerning the scope of necessary studies. Citizens often identify
community and environmental concerns about which the DEC and Siting
Board members are unaware. Earlier identification and mediation of the
issues could speed the permitting process by avoiding the need for
amended applications, supplemental hearings, and subsequent litigation.
F. Set Deadlines for Transmission and Distribution Owners
to Contribute to System Reliability Impact Studies
A siting applicant must submit to the NYISO a System Reliability
Impact Study (``SRIS'') that identifies both the impact a new or
modified plant would have on existing transmission and distribution
systems, and the changes needed to accommodate the proposed additional
generating capacity. NYISO approval of an SRIS is necessary.
To prepare an SRIS, an applicant needs essential technical
information that only the owners of transmission and distribution
systems can supply. Currently, these entities are not required to
provide the information within any particular deadline. The PSC and
NYISO should quickly correct this deficiency. New York transmission and
distribution owners are either subject to PSC jurisdiction or are
members of the NYISO. The PSC and NYISO should establish an efficient
process for SRIS applicants to obtain information from transmission and
distribution system owners, including the deadline by which a system
owner must comply with an applicant's request for information.
Additionally, formal deadlines for the NYISO to complete its required
review should be set.
G. Assign Responsibility for Transmission System Upgrades
Necessary for New Generating Capacity
New generators may require costly upgrades or modifications of
transmission system facilities to carry the increased power.
Transmission facility owners and generators often disagree as to
whether a transmission system reinforcement is needed to serve new
capacity and which of them should bear an expense. Disputes have the
potential to delay or restrict the availability of new capacity.
Currently, no clear rule governs as to who should bear this
responsibility.
However, between them, the PSC and NYISO have jurisdiction over all
possible parties. To ensure expeditious resolution of such disputes,
the PSC and NYISO should quickly decide disputes over transmission
reinforcement obligations.
III. Additional High Voltage Transmission Capacity is Needed
New York must augment the network of high voltage transmission
lines used to move bulk power from places with surpluses to areas where
the power is needed. Major transmission bottlenecks in central New York
(``Central East bottleneck''), around New York City (``In-City
bottleneck'') and at our borders with other states and Canada limit the
amount of power that can be moved.\45\ While minimizing the
environmental and aesthetic impact of transmission lines, these
bottlenecks must be opened.
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\45\ See generally, New York State Energy Planing Board, Report on
the Reliability of New York's Electric Transmission and Distribution
Systems (November 2000) (hereinafter ``Planning Board Report'') and New
York State Department of Public Service, Analysis Of Load Pockets And
Market Power In New York State, Final Report (October 1, 1996)
(hereinafter ``PSC Analysis'').
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High-voltage transmission lines enable large amounts of power to
move over long distances, provide flexibility in the location of
plants, and increase access to diverse sources of electricity,
including sources hundreds of miles away.\46\ Long distance access is
especially important in New York, which has cheap hydroelectric and
Canadian power sources at the extreme western and northern borders of
the state.
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\46\ Dependence on power plants fueled by natural gas has
contributed to the recent increase in the price of natural gas, which
in turn has increased the wholesale price of electric power. Augmenting
transmission capabilities would facilitate access to electricity
generated by other sources.
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A. Bottlenecks in New York Transmission Cut Off Access to
Cheap Power
New York's transmission network contains segments that are not able
at all times to carry the optimum amount of power. Each such inadequate
segment forms a ``bottleneck.''\47\ Near Utica, the transmission lines
from western New York and Ontario converge with the transmission lines
from the north and Quebec to form the Central East bottleneck. Whatever
power is available to the west or north, Central East can pass along
only 5,995 megawatts.\48\ When the demand for power soars in
southeastern New York during the summer, the Central East bottleneck
may limit access to surplus power west and north of this bottleneck.
The In-City bottleneck works similarly to set an even lower limit
(4,979 megawatts)\49\ on the amount of power New York City and Long
Island can import from western and northern New York, Canada and plants
in the Hudson Valley.
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\47\ A transmission bottleneck resembles a section of highway
carrying traffic merging from two or more other highways with the same
number of lanes. As long as the traffic is light, the merge flows
smoothly. But if the merging traffic is heavy, all lanes slow and
movement can cease.
\48\ PSC Analysis, p. 235. This description of power flows in the
New York transmission system is highly simplified and is not intended
to take into consideration numerous technical factors that make the
movement of bulk power difficult.
\49\ Id., p. 123.
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B. New York's Transmission System has been Neglected
Despite the potential for transmission upgrades to lower our
electricity costs and avoid having to build new power plants,
fundamental infrastructure is sorely lacking in New York. Measured in
constant dollars, between 1988 and 1998 capital improvements to New
York's transmission system dropped from $307.7 million per year to
$90.0 million per year.''\50\ The Central East and In-City bottlenecks
have existed for at least 20 years. Today only one major project to
ease a New York transmission bottleneck is under active regulatory
considerations.\51\
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\50\ Planning Board Report, p. 26.
\51\ The LIPA has applied to the PSC for approval of two
transmission lines under Long Island Sound to Connecticut. If
constructed, these new lines would ease but not eliminate both the In-
City bottleneck and the constraints on importing power from New
England. The PSC reviews transmission construction proposals under
Article VII of the Public Service Law.
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Building a transmission upgrade, such as a new high voltage line,
is complex and expensive. Once the PSC approves a project, an applicant
may then have to negotiate or litigate with possibly hundreds of
landowners for rights of way, and obtain dozens of local building
permits. Uncertainty about who is responsible for transmission under
deregulation and how the cost of transmission construction is to be
recovered in a deregulated marketplace has undoubtedly affected
decisionmaking on transmission upgrades.
C. Upgrades to New York Transmission Capacity Should not
Await Approval of a Regional Transmission
Organization
The Federal Energy Regulatory Commission (``FERC'') has proposed
the creation of disinterested Regional Transmission Organizations
(``RTOs'') to improve transmission capability\52\ and has asked
electric utilities to submit proposals for RTOs that would, inter alia,
have authority to prepare and enforce plans for optimizing transmission
systems. A disinterested RTO could weigh the interest of all, decide
what transmission network upgrades are in the public interest and then
enforce its decisions by ordering appropriate utilities and others to
construct improvements. On January 16, 2001, the NYISO and the six
private New York electric utilities submitted a joint RTO proposal
requesting that the FERC designate the NYISO the RTO for New York.\53\
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\52\ Regional Transmission Organizations, Order No. 2000, III FERC
Stats. & Regs. para.31,089 (1999); Order No. 2000-A, III FERC Stats. &
Regs. para.31,092 (2000).
\53\ FERC, Docket No. RT01- ---- 000, Order No. 2000 Compliance
Filing (January 16, 2001). The NYPA and the LIPA supported the filing
but did not join as applicants. Id.; p. 2, fn 3.
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While an RTO is welcome, we should not wait for an RTO to be up and
running before addressing New York's transmission needs. The PSC and
the NYISO must immediately begin working with the transmission facility
owners to assess what transmission upgrades are warranted. In
particular, this joint effort should examine what can be done within
the next 2 years to ease the Central East and In-City bottlenecks, and
increase our ability to import power from other states and Canada. If
the FERC approves the application to designate the NYISO an RTO or
brings New York under another RTO, the new RTO could take over this
work and not have to start from scratch.
IV. New York Should Encourage New Sources of Generation
While our electricity supply brings innumerable benefits and drives
our economy, electricity generation also significantly impacts public
health and the environment. Existing electricity generation in the
United States produces: one-third of the nitrous oxide emissions that
cause urban smog; two-thirds of the sulfur dioxide emissions that cause
acid rain; one-third of the mercury emissions that poison fish and
wildlife; and one-third of the greenhouse gas emissions, particularly
C0<INF>2</INF>, that are warming the planet.
The impacts of these problems are very severe in New York State,
which is characterized by an asthma rate 2-5 times the national
average, and 20 percent of Adirondack lakes too acidic to support life.
Though up to 40 percent of New York's air pollution comes from sources
out of state, it is essential that New York lead by example in creating
a sustainable electricity policy.
Not all conventional power plants pose the same level of health and
environmental hazards. Modern combined-cycle gas-fired generators,
which are most of the units proposed for new generation in New York,
are far more efficient than power plants built in the past, and are
equipped with controls that greatly reduce emissions. To the extent
that more efficient units come on line and displace older, less
efficient and dirtier units, air emissions problems in New York will
decrease.\54\ To minimize the adverse impacts of even the cleanest
fossil generation plants, alternatives such as enhanced transmission,
renewable source generation, clean distributed generation, conservation
and increased efficiency must have a major role in a balanced package.
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\54\ In the short run, even the most modern gas units will likely
increase total air pollutants, until the older units become too
uneconomical to operate.
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A. Renewable Generation Sources Should Provide at Least an
Additional 10 Percent of New York's Electricity
For many decades, New York has benefited from hydro power, a
renewable source that does not release air emissions and uses no
imported fossil fuels. Hydro power currently produces up to one-fifth
of the electricity needs of the State. While ecological and
sociological impacts limit the usefulness of further expansion of hydro
power, recent developments in solar and wind power generation promise
new means of clean electricity generation.\55\
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\55\ Large scale hydropower can adversely affect fish and other
aquatic life and can displace indigenous populations. While solar and
wind power cause no air or water emissions problems, wind power can
raise aesthetic concerns.
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Commercial scale electricity generation from wind and solar
(photovoltaic) sources are unlikely to come on line in significant
amounts (over 100 MW) by this summer, however they can meet a
significant portion of New York's electricity needs in the medium to
long term, while reducing air emissions and reliance on imported fossil
fuels.\56\ Indeed, some argue that renewables could satisfy virtually
all of New York's need for increased capacity.
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\56\ Electric generators in New York State rely on fuels that
originate elsewhere in the U.S. or abroad. Increasing renewable
generation sources in New York State will produce jobs in-state and
keep electricity expenditures in-state.
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New York is particularly well-suited for renewable generation. A
study by the State University of New York Atmospheric Sciences Research
Center concluded that solar power could significantly reduce sharp
demand peaks because the state gets most of its sunlight during the
same time as electricity demand peaks--hot summer days.\57\ Similarly,
many areas across the State have strong wind resources. It is estimated
that up to 5,000 MW of electric capacity could be produced from large
scale wind generation sites in New York, enough to generate about 13
million MWh, or 10 percent of the State's electricity consumption.\58\
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\57\ New York Times, New York Ranks Near the Top For Efficient Use
of Energy, October 21, 2000, pp. B1, B6.
\58\ Bailey, B. and Marcus, M., AWS Scientific, Wind Power
Potential in New York State: Wind Resource and New Technology
Assessment, May 1996. ESEERCO Project EP 91-32, p. 36.
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In the past, solar and wind generation were not economically
competitive with fossil fuel power generation. However, new
technologies for solar and wind generation combined with increased
fossil fuel costs narrow the cost gap considerably.\59\ During most of
the 1990's, wind energy was the world's fastest-growing energy source,
expanding by 20-30 percent per year; in the last 24 months, nearly
1,000 MW of wind have been installed in the United States.\60\
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\59\ According the U.S. Department Of Energy (``DOE''), today's
cost of generating electricity from wind is about $0.05 or less per
kilowatt-hour, which represents an 85 percent drop over the past 15
years. Http://www.eren.doe.gov/wind/fags.html.
\60\ American Wind Energy Association, The Global Wind Energy
Market Report, February 2001.
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The following steps should enhance use of solar and wind power to
produce clean electricity for New York:
7. The Attorney General Will Use Settlement Funds to
Develop Wind Power
The Attorney General's Office sued a number of out-of-state coal-
fired power plants that upgraded or expanded their old power plants
without installing the pollution controls required by the Clean Air Act
and whose pollution significantly harmed New York State. The Attorney
General has directed that a major portion of the settlement money
arising from the Clean Air Act power plant enforcement cases be used as
incentives to develop 10-30 MW of renewable wind generation. The Office
is also pursuing legal action against similar plants in New York. These
cases will likely generate tens of millions of dollars in payments in
lieu of penalties that the State can use for clean air and efficiency
projects.
8. The Legislature Should Enact a Renewable Portfolio
Standard
The Legislature should join New Jersey, Massachusetts, Connecticut,
Texas, and many other states by adopting a Renewable Portfolio Standard
(``RPS''). The RPS would require retailers of electricity to include in
their portfolio of supply an increasing percentage of renewable
generation. This would increase demand for renewables such as wind and
solar, that would, in turn, create a competitive market for supplies of
renewable generation.
A bill to create an RPS has been introduced in the State
Assembly.\61\ The Legislature should pass, and the Governor should
sign, the Assembly proposal to require 0.5 percent of all retail
electric sales to come from non-hydro renewables (650,000 MWh;
equivalent to about 300 MW of installed capacity, or enough to power
90,000 homes) by 2003. The percentage grows by a half-percent per year
until renewables reach 6 percent of sales. Thereafter it grows by 1
percent per year until it reaches 10 percent. The bill includes a cost
cap of 2.5 cents/kWh. If renewables at this price cannot be found,
retailers have the option of making payments into a ``Clean Electricity
Fund,'' calculated as 2.5 cents times their RPS obligation. This fund
would incentivize the development of renewable generation.
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\61\ See, A. 8506-Englebright.
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An aggressive RPS could create well over 3,000 MW of renewable
generation at little to no additional cost to consumers. For example, a
recent study of Massachusetts' RPS (similar to what the Attorney
General recommends for New York) found that it would add only 0.4
percent to consumer bills by 2003, rising to 2.2 percent in 2012.\62\
An Iowa study--which assumed that the cost of fossil fuels would rise,
while wind's costs would decline--showed customers could save $300
million over a 25-year period if the state met 10 percent of its
electric demand through wind generation.\63\
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\62\ Massachusetts Division of Energy Resources., Massachusetts
Renewable Portfolio Standard Cost Analysis Report. December 21, 2000,
p. 37.
\63\ Wind, Thomas, Wind Utility Consulting, The Electric Price
Impact of an RPS in Iowa, May 1, 2000.
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Much of the renewable supply needs in New York could be met with
wind power, providing significant environmental and economic benefits.
It is estimated that for every 100 MW of wind development about $1
million is generated in property tax revenue. New York could see 2,000
MW of wind power by 2010 with an aggressive RPS and financial
incentives, generating $20 million annually in tax revenues to rural
communities. In addition, since wind farms are generally located on
privately owned land, the development of 2,000 MW in New York means
annual payments of approximately $4 million to farm and forest
landowners.\64\
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\64\ Estimated benefits according to American Wind Energy
Association RPS Fact Sheet, Http://www. awea.org/pubs/factsheets/
nyrps001.pdf.
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The reduced emissions of pollution and greenhouse gases resulting
from wind power is significant. A single 1.65 MW wind turbine will each
year displace emissions of 2,161 tons of CO<INF>2</INF>, 11 tons of
SO<INF>2</INF>, and 4 tons of NON, based on the New York State average
utility fuel mix.\65\
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\65\ Assumes wind turbine generates electricity 30 percent of the
year. Historical fuel mix data and emission rates according to the DPS
at Http://www.dps.state.ny.us/fuelmix.htm.
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B. Policies are Needed to Increase Clean Distributed Energy
Sources
The need for large power plants could be lessened by distributing
small-scale generation units that use minimally polluting technologies
directly on the site where the electricity is to be used. Electric
power can be efficiently generated at small-scale facilities located on
or near the consumer's property. Generation options include fuel cells,
wind generators, small-scale hydro, solar cells, and cogeneration
facilities that combine heating and cooling with electric generation.
Because distributed generation facilities may not always provide the
exact amount of power needed, the facility is usually connected to the
electric power grid. The grid can provide additional power if the
facilities run short, or can take the excess power generated. To the
extent that local sources of electricity reduce the demand placed on
traditional generating plants, they can reduce both (i) the need to
build new power plants, and (ii) the wholesale market scarcity
conditions that produce price volatility.
Distributed generation's smaller scale often enables new sources of
power to be obtained in less time than with conventional power plants.
Another advantage is the greater diversity of generation sources,
including renewables such as sunlight and wind, decreasing dependency
on fossil fuels. As demonstrated by the current rise in natural gas and
oil prices, excessive reliance on fossil fuels subjects New York to
risk of fuel shortages and cost volatility. Distributed generation also
avoids further strain on the transmission and distribution system.
Many forms of distributed generation are also environmentally
cleaner than conventional power plants.\66\ Moreover, their smaller
scale can minimize the impact on neighborhoods and open space. However,
uncontrolled diesel generators--sometimes used for distributed peak
supply--emit many times the pollution of modern, large-scale power
plants or any form of renewable generation. Thus, public policies
encouraging distributed generation must not include incentives for
environmentally detrimental onsite generation facilities.\67\
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\66\ Wind and solar power are cleaner. Fuel cells that operate on
hydrogen fuel emit only water vapor. Other fuel cells use natural gas,
and thus emit carbon dioxide.
\67\ For example, LIPA's recent action to promote the use of onsite
back-up generation does not differentiate between clean onsite
generation and diesel generators. This action should be revisited to
ensure that financial incentives to use diesel generators are removed.
See, LIPA Supplemental Service Tariff. Http://www.lipower.ore/
supservtalkvoints.html.
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If more commercial, industrial and multi-family residential
buildings installed modern onsite generation facilities, the balance
between supply and demand in tight regions such as downstate New York
could be improved, reducing the need to construct large new power
plants or transmission lines. In the past, many onsite generators did
not economically compete with traditional sources of electricity.
However, recent technological advances have lowered the costs of
distributed generation. In addition, the transition to wholesale market
pricing and the ability of distributed generation to shave peak demand
levels (thereby relieving all power buyers from prices set at the
steepest part of the supply/demand curve) further increase the relative
economic benefit of distributed generation.\68\
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\68\ When customers are billed on a real-time basis, such that
their bills reflect the power used during peak and off-peak hours, the
economic value of solar generation will be maximized, as it is most
productive during periods when demand and market prices are highest.
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The following policies should reduce barriers to, and promote
additional distributed generation:
1. The Legislature Should Offer Financial Incentives to Develop
Clean Distributed Generation. The NYSERDA should provide low-cost loans
to finance the investment necessary to install onsite facilities, and
the Legislature should expand New York State's tax credit for
residential solar power systems to clean distributed technologies such
as fuel cells, wind, and small hydro power projects.\69\ Government
incentives are necessary to jump-start development of supplemental
electricity generation in New York. If the initial investment barriers
are reduced, many distributed generation units could be installed in
time to help meet New York's electricity needs for 2002.
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\69\ New York State residents can claim a state income tax credit
of 25 percent on the cost of their Photovoltaic system, up to a maximum
credit of $3,750.
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2. The Legislature Should Expand the Solar Net Metering Law to
Include Wind and Small Hydro Power.--The Legislature should expand the
Solar Net Metering Law (Public Service Law Section 66-j) to include
wind and hydro power. The New York State Legislature enacted the net
metering law in 1997, allowing customers who install solar power to use
excess electricity produced by the solar panels to spin the electricity
meter backwards, effectively banking the electricity until it is needed
by the customer. This provides the customer with full retail value for
all electricity produced. In its current form, the net metering law
applies only to facilities powered by solar generation. Of the thirty
states with net metering opportunities, New York is the only state
where small wind generation systems are ineligible.\70\
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\70\ American Wind Energy Association. Http://www.awea.org/
smallwind/newyork.html.
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3. The PSC Should Eliminate Unjustifiable Barriers to Clean
Distributed Generation.--Distributed generation facilities typically
require connection to the utility grid. Utilities therefore need to
maintain technical safeguards to prevent distributed generation from
adversely affecting the transmission system. Formerly, utilities
imposed burdensome insurance requirements on independent generators
seeking to connect to the power grid. The PSC recently reviewed such
tariff conditions, and adopted improved interconnection standards
designed to lower this and similar barriers.\71\ However, insurance is
still required for solar power systems that are netmetered. The PSC
should removes this existing barrier and the NYSERDA should provide
low-cost insurance or bond coverage to meet utility interconnection
requirements. Furthermore, the PSC should review utility policies and
practices to ensure that any unjustifiable barriers to distributed
generation are eliminated.
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\71\ See, New York State Standardized Interconnection Requirements,
Application Process, Contract & Application Forms For New Distributed
Generators, 300 Kilo Volt-Amperes Or Less, Connected In Parallel With
Radial Distribution Lines, issued November 9, 2000.
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4. NYPA Should Work With Local Governments to Install Fuel Cells at
Landfills and Wastewater Treatment Facilities.--The NYPA should build
on its success with fuel cells and work more aggressively with local
governments to install them, particularly local governments in load
pockets such as New York City and Long Island. Landfills and wastewater
treatment plants produce large quantities of methane, which can be used
to power fuel ells to generate electricity. If not used to generate
power, the gas is either flared or released, significantly contributing
to climate change.
In 1998, the NYPA and the EPA installed the world's first
commercial fuel cell powered by waste gas, located at the Westchester
County Wastewater Treatment Plant in Yonkers. In its first year, the
200 kilowatt fuel cell converted over 20 tons of waste gas into over
1.2 million kWh of electricity.\72\ The NYPA has also installed fuel
cells at NYPD's Central Park Station and North Central Bronx Hospital,
both of which run on natural gas.
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\72\ March 23, 1999 EPA press release. Http://www.epa.gov/nheerl/
ordpr/1999/pr032399.pdf.
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Other prospects for fuel cells have not materialized. The New York
City Department of Environmental Protection (``DEP'') has estimated
that it flares or releases enough anaerobic digester gas at its 14
wastewater treatment facilities to fuel between 15 and 25 fuel
cells.\73\ But a proposal to install two NYPA fuel cells at one of
DEP's wastewater facilities did not move forward largely because of the
high cost of fuel cells, which are not yet commercially available.\74\
The myriad environmental benefits of fuel cells, and the improved
reliability to the grid resulting from distributed generation, must not
be overlooked in cost/benefit analyses. To fully realize the potential
of fuel cells, the NYPA should seek new opportunities for fuel cell
installation across the State, and offer attractive financing to its
local government partners to ensure the projects are implemented.\75\
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\73\ February 15, 2001 conversation between OAG Policy Analyst Tom
Congdon and Energy, Air and Laboratory Services Division Chief Fred
Sachs, DEP Bureau of Wastewater Treatment.
\74\ Ibid. DEP 's electric bill would have increased significantly
to repay the NYPA for the cost of the fuel cells. The fuel cells
installed at Yonkers Wastewater Treatment Plant and the North Bronx
Hospital were subsidized by the DOE.
\75\ As with other NYPA efficiency and renewable programs, these
fuel cells would be financed from the NYPA's existing rate revenue.
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V. Power Prices Must Not Be Permitted To Skyrocket During the
Transition to Competitive Markets
A. New York Wholesale Power Markets Must be Significantly
Reformed
Since New York's wholesale power markets began operating in
November 1999, significant flaws in the design of these markets have
been identified. The markets are not fully competitive at all times in
all locations, and thus the opportunity to exercise abusive market
power often arises. When improper market power is exercised,
electricity prices can suddenly rise to noncompetitive and, indeed,
stratospheric, levels. This creates windfalls for generators, as well
as unreasonably high bills for energy purchasers. It also impedes the
development of truly competitive markets. All possible means must be
used to ensure competitive pricing in the NYISO's markets, thwart the
abusive exercise of market power, and provide redress for purchasers
when market power leads to noncompetitive pricing.
1. NYISO Background
In January 1999, independent power generators, utilities, public
authorities and others interested in competitive electricity markets
and open access to power transmission requested from the FERC authority
to create an ``independent system operator'' to manage New York's high-
voltage transmission grid, operate competitive short-term markets for
power, and undertake other tasks essential to establishing a
competitive wholesale market for electricity.\76\ The NYISO began
operations in November 1999.
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\76\ FERC approval was required because the FERC regulates
interstate transmission of power and has mandated open access to
transmission services.
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Today the NYISO manages the transmission grid that moves bulk power
around New York, and operates the short-term Day Ahead (``DAM'') and
Real Time (``RTM'') markets that together supply half the power used
each day in the state. (The other half is supplied through bilateral
contracts between generators and users.) On a typical day, the DAM
accounts for about 45 percent of the total power used in New York,
while the RTM typically accounts for 5 percent of the power. The DAM
and RTM determine the price per megawatt-hour to be paid for wholesale
power and the order in which generating plants will be scheduled to
run. In highly simplified terms, the NYISO accepts confidential bids
stating how much power each utility or other electricity retailer\77\
wishes to purchase during each hour of the next day (in the DAM).
Simultaneously, each power supplier submits confidential offers stating
for each generating plant it owns how much power at a given price it is
willing to provide. The NYISO, using complex software, totals the bids
and ranks the offers in ascending price order. The most expensive offer
that must be scheduled to run to provide the total amount of power
requested for a given hour sets the price per megawatt-hour paid to all
suppliers for power delivered during that time (referred to as ``the
market clearing price'').\78\ The RTM operates similarly.''\79\
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\77\ In New York, independent electricity supply businesses, termed
``energy service companies'' or ``ESCOs,'' may compete with traditional
utilities for customers.
\78\ Alternatives to market clearing prices to set wholesale
electricity prices have been proposed. One approach is to pay each
seller its asking price, rather than pay all sellers the highest offer
taken. Other proposals would peg each offer price to actual costs.
\79\ The NYISO also operates competitive markets for generating
reserves and other services related to supplying electricity, and
monitors the power markets to ensure that they operate competitively.
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NYISO membership today consists of private generators, utilities,
public authorities, power marketers, representatives of commercial and
industrial customers, consumer advocates and others, as well as a paid
professional staff. A 10-member Board of Directors sets policy for the
professional staff and determines the actions the NYISO will take in
its relations with the FERC and other government agencies. By NYISO
rule, Board members must be disinterested and may not have a financial
interest in any aspect of the electric power industry.
A NYISO Management Committee and two other NYISO committees discuss
issues and propose actions to the NYISO Board of Directors. The FERC
exercises regulatory authority over the NYISO and other independent
system operators. The NYISO has sought the FERC's approval of numerous
proposed changes in the way NYISO operates and exercises its authority.
While many of the changes involve technical and ``housekeeping''
matters, several have addressed competition problems identified by the
NYISO staffs Market Monitoring Unit (``MMU''). Most notable are the
NYISO's June 30, 2000 petition for a $1,000 per megawatt-hour cap on
the price of power in the short term markets, and its March 27, 2000
petition for a cap on the price of reserve generation capacity. The
FERC approved the power price cap petition on July 26, 2000 and the
reserves price cap petition on May 31, 2000. These and other FERC-
approved changes in NYISO operations have moderated but not eliminated
the potential for exercise of market power.\80\
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\80\ The NYISO professional staff has taken the position that the
NYISO Board does not need to seek the FERC's approval of every
operational change intended to strengthen the NYISO's efforts to deter
uncompetitive actions. Not all NYISO members agree.
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2. The NYISO Must Ensure That Energy Sellers Cannot Unfairly Exercise
Market Power to Raise Electricity Prices
At least two instances have been identified in which the NYISO
markets were not competitive in 2000. During certain hours of high
demand on June 26, 2000, the price of power in the Day Ahead Market
spiked to $1,000 per megawatt-hour due to bidding practices leading to
excessively high prices. This behavior cost energy buyers an estimated
$100 million in excessive power prices that day. The NYISO has also
identified instances of market power in the sale of generating capacity
reserves from January to March 2000. The Attorney General has urged the
FERC, which has jurisdiction over power transmission and independent
system operators, to provide the NYISO the authority it needs to
address such exercises of market power.\81\
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\81\ October 31, 2000 Letter from Attorney General Eliot Spitzer to
FERC Chairman James J. Hoecker.
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The NYISO must ensure that design and operational flaws are
addressed quickly, before the demand for electricity rises with the
start of the summer cooling season in May 2001. In particular, the
NYISO must enhance its ability to identify and correct noncompetitive
prices and practices. The Attorney General supports a three part
approach: (1) ``automatic mitigation'' of DAM prices as soon as
possible; (2) strengthening after-the-fact market monitoring, including
retroactive mitigation of noncompetitive prices; and (3) retaining the
$1,000 cap on power prices.
Finally, the NYISO should follow through on plans to open its
markets to increased participation by non-generators and non-load
serving entities, so as to enhance competition and liquidity in the
power markets.
a. Automatic Mitigation Must be Implemented Quickly
On February 20, 2001, the NYISO Board voted to extend its current
forward looking market mitigation to the DAM in a way that is intended
to prevent the exercise of market power until competition fully takes
hold.\82\ To effect this mitigation, also referred to as a ``circuit
breaker,'' the NYISO will reprogram the software it uses to operate its
power markets so that the software automatically analyzes bids before
they set the market-clearing price. If the analysis indicates a
potential exercise of market power in the DAM, the suspect power prices
will be replaced with competitive prices. The NYISO expects to
implement the software changes before the 2001 summer cooling season,
i.e., by May 2001.\83\
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\82\ New York Independent System Operator Approves Automated
Process For Reviewing Supply Bids--Measure Enhances NYISO's Ability To
Prevent Market Abuse--, NYISO press release (February 22, 2001).
\83\ Automatic mitigation will use as triggering levels the price
threshold values in the NYISO's current forward-looking market
monitoring procedures. Each day NYISO software will automatically
review Day Ahead offers for evidence of market power and recompute
excessive offers before they can set the market clearing price. In
grossly simplified form, automatic mitigation works as follows: if upon
matching offers with bids, the Day Ahead Market in any zone would yield
a market clearing price that exceeded $150 per megawatt-hour, a price
analysis will be triggered. Depending on where in New York the over-
$150 market clearing price appeared, the NYISO software would examine
every offer in any zone in the state deemed competitively relevant to
the affected zone, and compare it to a predetermined ``reference
price'' associated with the generating facility whose output is
represented by each offer. If the difference between any offer and its
associated reference price exceeds $100, the NYISO software would
substitute the reference price for each offer and recompute a
``reference market clearing price'' for each affected zone. This
recomputed reference market clearing price hen would be compared to the
initial ``unanalyzed'' market clearing price in each affected zone. If
the difference between the two market clearing prices is more than $100
in any zone, the NYISO software would then automatically set aside any
offer in the affected zone that was initially greater than $100 above
its reference price and replace that offer's price with the reference
price. These recomputed offers would then be used in the calculation of
the official market clearing price for that zone.
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While agreeing with the general framework, some have objected that
the NYISO automatic mitigation would still allow considerable exercise
of market power, primarily because the triggering levels in the NYISO
proposal are too high. Among other changes, the objectors would lower
the initial trigger to $100 per megawatt-hour and the market comparison
triggers to $50 per megawatt-hour. Lowering the triggers could more
accurately capture the times and places in which market power may be
exercised. For this reason, the Attorney General supports lower
thresholds for automatic mitigation.
While lowering the triggers would make automatic mitigation more
effective, such a refinement would likely constitute a material change
from the current NYISO market monitoring standards and thus might
require the FERC's authorization before it could be implemented, with
the concomitant risk of delay or denial.\84\
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\84\ Others object to the idea of automatic mitigation as an
unnecessary tampering with competitive markets. The markets, however,
are not always competitive. Automatic mitigation should prevent
excessive prices from occurring in the first instance.
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Another objection to the current automatic mitigation is that it
does not apply to the RTM. The NYISO staff's explanation is that the
logistics of the RTM operate on such a short timeframe that it is not
practical to design an automatic mitigation mechanism for the RTM.
Experience with Day Ahead mitigation may suggest ways to make automatic
mitigation of the RTM practical. Deployment of Day Ahead automatic
mitigation should not be delayed, but the NYISO should continue to
evaluate capability for automatic mitigation of the RTM as well.
b. Existing Forward-Looking Market Monitoring Must be Strengthened
i. The NYISO's Market Monitoring Triggers Must be Refined.--The
NYISO staff has a 14-member Market Monitoring Unit (``MMU'') that
examines the offers, bids and market clearing prices in the various
electricity markets to determine whether noncompetitive prices or
practices have occurred. Once it identifies such a price or practice,
the MMU takes actions to prevent a repetition. The major difference
between automatic mitigation and the current MMU efforts is that the
MMU addresses prices and practices after the market has cleared; it
does not prevent the initial exaction of noncompetitive prices. As part
of its effort, the MMU compares the market clearing prices in the DAM
and RTM to numerical triggers. If a market clearing price exceeds a
trigger, the MMU then employs procedures to identify potential
noncompetitive behavior and fashion forward-looking means for
preventing its repetition.
Because the current MMU threshold values may not identify
accurately enough all situations in which competition is impaired, the
NYISO should seek from the FERC, and the FERC should grant, authority
for the NYISO to lower these triggers. This refinement would increase
the NYISO's ability to discern noncompetitive market behavior leading
to noncompetitive prices. It could also lead to the identification of
loopholes in NYISO rules that the current market monitoring protocol
does not detect.
ii. Authority for Retroactive Mitigation Must be Obtained.--The
FERC has not authorized the NYISO to recapture excess profits obtained
through the exercise of market power. When the MMU identifies a
noncompetitive pricing or practice, the NYISO can at most order the
offending act or practice to cease prospectively. Thus, currently, one
exercising market power in a NYISO market gets at least ``one bite at
the apple,'' risking nothing more than being admonished not to do it
again. Such limited enforcement capability is inadequate.
Noncompetitive market conditions for even a few hours on a single day
can exact large sums in excessive prices.
Adding automatic mitigation to the MMU's tools and tightening the
MMU's surveillance triggers will reduce the likelihood of
noncompetitive prices, but no preventive system is perfect. The NYISO
needs the authority to recover excessive noncompetitive profits if and
when market power slips past the NYISO's preventive measures.
As the Attorney General urged in the October 31 letter to FERC
Chairman Hoecker, the NYISO should request from the FERC, and the FERC
should grant, authority retroactively to mitigate noncompetitive prices
identified in the course of its forward-looking market monitoring. The
window for identification of possible exercises of market power and for
retroactive refunds should be short, both to maximize the value of
refunds as a deterrent and to provide the wholesale power market with
certainty. Both consumers and wholesale market participants have an
interest in the speedy resolution of market monitoring inquiries, as
well as in not being forced to pay noncompetitive prices for electric
power.
iii. The Current $1,000 Per Megawatt Hour Price Cap Must be
Retained.--A $1,000 per megawatt-hour cap on the price of wholesale
power currently exists in the NYISO's Day Ahead Market and Real Time
Market, as well as in relevant markets in the adjacent New England and
PJM power pools.\85\ The NYISO should ask the FERC, and the FERC should
agree, to retain this cap until the wholesale electric market in New
York is fully competitive. While NYISO market monitoring can be the
first line of defense against market power, and retroactive mitigation
may recover excess profits exacted by market power, there may be
circumstances in which neither is able to prevent extreme wholesale
power price spikes. The current NYISO price cap thus provides a crucial
final safeguard against extreme price spikes. It should be retained
until a change in circumstances justifies modifying or retiring it.
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\85\ The current price cap is set to expire on April 30, 2001
unless extended by the FERC upon request.
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To be effective, a price cap must be compatible with conditions in
neighboring power pools. Otherwise, power suppliers may have a
financial incentive to sell preferentially into the power pool with the
highest price cap. Today, both power pools neighboring New York have a
$1,000 per megawatt-hour price cap. This, compatibility of price caps
should be maintained.
iv. The NYISO Should Implement Virtual Bidding to Expand
Competition.--Today the only parties that may buy or sell electricity
through the NYISO are utilities and other entities that provide retail
service to end users, and those who own or control generating plants.
This limits the number of participants in the NYISO markets.
Competition would be enhanced if power marketers, brokers and others
not directly involved in generating or retailing electricity could buy
and sell power through the NYISO markets. In addition to increasing
competition, market participation by new types of parties would add
liquidity to these markets by increasing the number of ways that power
purchases can be contracted for and financed. The downside of opening
the NYISO markets to new classes of participants is the increased
potential for gaming the markets, especially during times of tight
electricity supply.
The NYISO currently plans to implement power trading by parties
other than generators and retailers, participation termed ``virtual
bidding,'' by November 1, 2001.\86\ The NYISO's explanation for the
delay in instituting virtual bidding is that it needs to correct flaws
in its current operating procedures and to develop appropriate software
before adding virtual bidding to an already complex system.\87\ FERC
has accepted the NYISO's explanation.\88\ The NYISO should develop the
necessary software and make the operational improvements needed to
implement virtual bidding as soon as practicable. At the same time, the
NYISO should address the increased complexity that virtual bidding will
add to its markets and strengthen its market monitoring capability to
accommodate the additional market surveillance that will be needed.
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\86\ See, e.g., NYISO, New York Independent System Operator, Inc.'s
Report on the Implementation of Virtual Bidding and Zonal Price-Capped
Load Bidding in Docket No. EL00-90-000,----FERC para.-------- (February
2, 2001), p. 6.
\87\ Id., p. 4.
\88\ Some have protested to FERC that the NYISO's implementation of
virtual bidding is taking too long. FERC rejected the initial protests
as inconsistent with the prudent development of the NYISO's operations.
FERC Docket No. EL00-90-000, Order On Complaint, Morgan Stanley Capital
Group, Inc. v. New York Independent System Operator, Inc., 93 FERC
para. 61,107 (October 5, 2000). Certain parties have renewed their
protests. See, e.g., Morgan Stanley Capital Group, Inc., Motion For
Immediate Commission Action Regarding Virtual Bidding Implementation
Schedule, Docket No. E100-90-000 (March 5, 2001).
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c. Exposure to Volatile Prices Must be Minimized Without Shielding
Customers From Market Price Signals
We have seen in New York that highly volatile wholesale electricity
prices can accompany the transition from regulated monopoly to
competitive commodity markets, especially during times when supply is
limited and demand irreducible. During the summer of 2000, Con Edison's
customers experienced electricity rates 30 percent higher than during
the comparable period in 1999, despite cooler weather in 2000 resulting
in lower peak usage levels than usual. In addition to the increased
cost of oil and natural gas, an almost 12-month outage at Con Edison's
Indian Point 2 nuclear plant tightened supply in the downstate markets
significantly, leading to higher wholesale prices in times of high
demand\89\ If New York's summer weather in 2001 or 2002 is normal or
hotter, wholesale price spikes remain a threat.
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\89\ The Attorney General has taken NYISO analyses and examined the
impact of the Indian Point 2 outage on the price of power in the
wholesale markets. The unavailability of Indian Point 2's 941 MW
capacity output from February 16, 2000 through early January 2001
required the NYISO to rely upon more expensive generators during times
of greater demand, and thus increased the market clearing price for
peak-hour power purchased by Con Edison. Indeed, it increased the
market price throughout the state. The Attorney General, in a motion
filed with the PSC has estimated that the outage cost Con Edison's
customers $176.5 million and urged that Con Edison be required to
reimburse customers for this increase in wholesale power costs. See,
PSC Case 00-E-0612--Proceeding on Motion of the Commission to
Investigate the Forced Outage at Consolidated Edison Company of New
York, Inc.'s Indian Point No. 2 Nuclear Generating Facility, December
4, 2000 Motion by New York State Attorney General Eliot Spitzer For
Complete Quantification Of Consolidated Edison's Liability For Alleged
Imprudent Management Of Its Indian Point 2 Nuclear Plant.
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Con Edison's and Orange & Rockland's current rate structures permit
them to pass through to their customers nearly all of the commodity
cost of electricity, no matter how high.\90\ Con Edison is a multi-
billion dollar company serving over three million customers, and
therefore has much more bargaining power than any of its residential or
small business customers to control price volatility through
negotiation of long-term contracts with generators, and through other
hedges that manage risk.\91\ To give an electric utility like Con
Edison an incentive to hedge its risks in the wholesale market, the
company must pay the price for bad market decisions.
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\90\ Con Edison passes through to its electric customers 90 percent
of the difference between the company's forecasted and actual purchased
power costs. (Con Edison, P.S.C. No. 9 Electricity, Leaf No. 163,
Effective September 11, 2000) Central Hudson Gas & Electric's rates
permit an automatic pass-through, but this is ameliorated by the
utility's long term supply contracts with the companies that purchased
their former generation units. Rochester Gas & Electric has not yet
progressed as far as the other utilities toward restructuring, and
currently retains most of its own generating plants. LIPA, as a public
authority, is not regulated, but instead sets its own rates. LIPA thus
ultimately recovers from its customers any increased cost of power it
purchases from generators, although the lack of automatic pass-through
likely delays the impact.
\91\ Other New York utilities, such as Niagara Mohawk Power
Corporation and New York State Electric & Gas Corp. currently operate
under fixed consumer retail rates, and have been able to obtain long-
term supply contracts.
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Recent experience in California demonstrates that completely
insulating consumers from wholesale electricity prices can financially
devastate the affected utilities, especially if, as in California, they
must buy all their energy requirements in the spot market. While the
New York market rules permit and encourage bilateral contracts and
other hedging strategies, we cannot ignore the warning of the
California experience.
As electric power supplies increase, customers ought gradually to
receive more complete price signals to encourage more flexible and
efficient demand.\92\ Until we reach that point, however, we must
ensure price stability for customers during volatile markets. The
complete pass-through of energy costs, such as Con Edison and Orange &
Rockland currently enjoy, must be modified. The PSC should cap Con
Edison's rates once power prices reach a certain per kilowatt hour
level. Below that level, customers would pay the passed-through market
price. Above that level, Con Edison would swallow a substantial portion
of the difference. Such billing would limit customers' exposure to
market volatility extremes while sending them appropriate price signals
reflecting the market price of the electricity they use. At the same
time, Con Edison would have an incentive to employ long-term supply
contracts and other hedges to moderate the cost of power should market
prices exceed the rate ceiling established.\93\
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\92\ Evidence shows that customers react to price signals by
reducing demand, and often do so relatively quickly. For example,
according to Hal R. Varian, economics professor and Dean at the
University of California at Berkeley, when the electric bills of San
Diego residents more than doubled last summer, power consumption
dropped 5 percent within a few weeks. See, The New York Times, January
11, 2001, p. C2.
\93\ The Attorney General opposes alternative bill mitigation
proposals that would not accomplish these goals. One. proposal would
permit customers to postpone payment of that portion of their electric
bills representing extremely high levels, and make up the difference
during months when prices are below a certain threshold. This proposal
would still expose customers to the full cost of power, albeit leveled
over a year's bills. Others have proposed to keep rates at or below a
certain pre-determined level throughout the year by offsetting higher
summer peak market price levels with a variety of customer credits
otherwise owed by Con Edison. Since customers are entitled to these
rate offsets whether or not power prices rise, this approach to rate
mitigation is unsatisfactory, and would conceal from customers what is
occurring in the power market.
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VI. Demand for Electricity Must be Reduced to Minimize the
Environmental and, Public Health Impacts of Generation and to
Assure Market Competition and Stable Prices
Aggressive measures to reduce demand, together with construction of
clean and renewable power plants, will greatly reduce the environmental
and public health impacts of electricity generation and foster
competitive markets and lower electricity bills. Reducing electricity
use avoids the need for existing power plants to produce that amount of
electricity, and the corresponding emissions. Over the long-term, an
energy policy is sustainable only if it includes environmental factors
among its objectives. When new, more efficient power plants start
supplying electricity to the grid, the need for existing, dirtier power
plants should be reduced. But only if demand is simultaneously reduced
while clean supply is increased will the State ensure a net gain for
the environment and for the consumer.''\94\
---------------------------------------------------------------------------
\94\ If the growth in demand is not reduced, there will be a need
for both the existing power supply and new capacity. The addition of
even the cleanest natural gas plant will result in a net addition of
emissions if the State does not ensure that older, dirtier plants are
displaced by cleaner new ones.
---------------------------------------------------------------------------
What appears like a small action to reduce demand can have a large
impact. For example, replacing just one incandescent light bulb with a
compact fluorescent bulb (which uses 70 percent less energy to produce
the same amount of light) can save a consumer over $38, save 337 kWh of
electricity, and avoid over 300 pounds of the greenhouse gas
CO<INF>2</INF> in 3 years. If all 6,766,000 households in New York
State replaced just one bulb, over $260 million would be saved, 2.2
billion kWh would be saved (more than the electricity generated at an
100 MW power plant), and over one million tons of CO<INF>2</INF>
emissions would be avoided in 3 years. (See Appendix.)
New York already ranks as the second most efficient state in per
capita energy use nationwide (in large part due to the natural
efficiency of apartment living).\95\ Nonetheless, opportunities for
improved efficiency and conservation abound. A 1997 study claims that
cost-effective investments in energy-efficient technologies could
reduce New York's electricity use by 34 percent.\96\
---------------------------------------------------------------------------
\95\ American Council for an Energy Efficient Economy. National and
State Energy Use and Carbon Emissions Trends. September 2000, Http://
www.aceee.org/pubs/e001.pdf.
\96\ American Council for an Energy Efficient Economy. Energy
Efficiency and Economic Development in New York, New Jersey and
Pennsylvania. February 1997.
---------------------------------------------------------------------------
New York State has several programs to compensate for market
barriers that discourage energy efficiency. But existing programs are
not sufficient to create the environmentally sound, reliable, and
balanced energy portfolio that is in the State's best interests. The
Attorney General recommends significantly expanding these programs (see
Section I.D.). The Attorney General is similarly using his legal
authority to direct litigation settlement funds to energy efficiency
and renewable power investments. In addition, utility portfolio
standards would over the long-term lead to significant savings--perhaps
1,000 MW through efficiency and 3,000 MW through renewable energy--that
will shift New York's energy policy to a more sustainable framework.
Together, the funding proposals below would direct approximately an
additional $120 million per year (on top of existing programs) to
energy efficiency, conservation, and renewable energy programs in New
York State. (See table 2.) This expansion could result in a savings of
over 600 MW over the next 2 years--an amount sufficient to avoid
capacity shortfalls--and a necessity if New York State's electric grid
is to maintain reliability and to minimize price spikes. At the same
time, these energy savings will avoid enormous quantities of harmful
pollutants--millions of tons of NOx, SO<INF>2</INF>, and CO<INF>2</INF>
lead to substantial consumer savings.
If New York's funding levels for efficiency and renewables were
increased from the current level of $242 million per year to $360
million per year, as recommended, New York will still spend less per
capita than many other states in the Northeast. (See Table 3.)
Table 2.--Summary of Attorney General's Proposals to Expand Funding for Current Efficiency and Renewable
Programs
----------------------------------------------------------------------------------------------------------------
Estimated Annual Estimated Annual
Current Funding Capacity Savings Proposed Funding Capacity Savings
Programs (in millions of from Current Level from Proposed
dollars) Funding Funding
----------------------------------------------------------------------------------------------------------------
System Benefits Charge $150 million per 200 MW............ $150 million per 200 MW
(NYSERDA's EnergySmart year until 2005. year until 2010.
Program)\1\.
NYPA Energy Services\2\......... $60 million per 20-60 MW.......... $160 million per 53-160 MW
year. year until 2010.
LIPA Clean Energy Initiative\3\. $32 million per 28 MW............. $50 million per 45 MW
year until 2004. year until 2010.
Power Plant Settlements......... $0................ 0 MW.............. Approximately $20 20-40 MW
million.
-------------------------------------------------------------------------------
TOTAL......................... $242 million per 248-288 MW........ $360 million per 318-445 MW
year. year plus
settlement funds.
----------------------------------------------------------------------------------------------------------------
<SUP>1</SUP> Estimated savings from the funding proposals are based upon NYSERDA projections, see SBC Proposed Operating
Plan For New York EnergySmart Programs (2001-2006) February 15, 2001, p. 2.
<SUP>2</SUP> Estimated savings are based upon the past experience in New York and other states. Between 1990 and 1997, the
State's investor-owned utilities spent $1.2 billion on efficiency or demandside management (DSM) programs,
avoiding the need for over 1,300 MW of capacity. These programs included rebates for efficient appliances and
lighting, consumer education, and low-income weatherization projects. The NYPA spent $255 million on DSM
investments between 1990 and 1996, avoiding the need for 84 MW of capacity. See, NYSEPB, New York State Energy
Plan and Final Environmental Impact Statement. November 1998. p. 3-60, 3-62.
<SUP>3</SUP> Estimated savings based on LIPA's current projections of 144 MW per $160 million spent over 5 years. See,
LIPA, Clean Energy Initiative, May 3, 1999, p. 21.
Table 3.--Comparison of Demand Side Management and Renewable Energy
Spending Per Capita By State\1\
------------------------------------------------------------------------
State Annual DSM Spending Per Capita
------------------------------------------------------------------------
Connecticut......................... $35.95
Massachusetts....................... $25.91
New Jersey.......................... $28.85
New York............................ $13.30
------------------------------------------------------------------------
<SUP>1</SUP> American Council for an Energy-Efficient Economy. A Review and Early
Assessment of Public Benefit Policies Under Electric Restructuring,
Volume 2. Summary Table of Public Benefit Programs and Electric
Utility Restructuring. Http://www.aceee.org/briefs/mktabl.htm. See
also, U.S. Census 1999 population estimates, Http://
quickfacts.census.gov/qfd/index.html.
Attorney General's Proposed Funding Level
------------------------------------------------------------------------
------------------------------------------------------------------------
New York....................................... $19.78
------------------------------------------------------------------------
E. Market Barriers to Energy, Efficiency
Despite the financial and environmental benefits of efficiency,
many opportunities are not taken due to the numerous market barriers to
energy efficiency investments. Efficiency often requires a higher
capital outlay (e.g. to better insulate a home, get a more efficient
refrigerator or motor) and many consumers look only to the up-front
cost rather than to the lifetime cost when making purchasing
decisions.\97\ Within companies, purchasing agents may be responsible
only for initial costs while another person is responsible for utility
bills. In home or office building and renovations, the person making
the capital outlay (e.g. the builder) rarely pays the monthly energy
bills, and thus has no incentive to build in efficiency. Stores with
limited shelf space often do not offer more efficient products because
they are usually more expensive, and thus take longer to sell.
---------------------------------------------------------------------------
\97\ Most consumers lack information on the energy, cost, and
environmental savings that would enable them to comparison shop for
more efficient appliances.
---------------------------------------------------------------------------
Efficiency investments are also diffuse. Unlike a power plant,
which can generate 100 or 500 MW, efficiency savings come in small
increments of a few kilowatts or less. Thus, to ``generate'' efficiency
savings of 100 or 1,000 MW, many actors must be involved, and each must
reject the incorrect assumption that his/her actions won't make a
difference. For these reasons, most programs to stimulate efficiency
focus on information disclosure and subsidies (such as tax credits,
mail-back rebates to consumers, or payments to sellers) to lower the
initial cost, as well as efforts to encourage retailers to sell
efficient products.
B. The Legislature Should Enact Tax Incentives to Purchase
Efficient Appliances
Since major home appliances account for approximately one-third of
residential energy consumption, the Legislature should pass a sales tax
exemption\98\ for all major home appliances having the EnergyStar
label.\99\ Past experience with short-term sales tax exemptions
suggests that retailers could show significant interest in this
initiative.\100\ During last year's sales tax exemption on clothing,
for example, many stores offered a matching 8 percent-off sale.
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\98\ The Senate Majority Leader has introduced legislation that
includes a sales tax exemption for efficient products and other
products that promote conservation. See, S.0002-Bruno.
\99\ EnergyStar is a voluntary partnership between the EPA, DOE,
manufacturers, utilities and retailers. Partners promote energy
efficiency by labeling qualifying products with the EnergyStar logo.
EnergyStar-approved products are 10-75 percent more efficient than the
Federal efficiency standard. The NYSERDA is an EnergyStar partner and
promotes EnergyStar products.
\100\ The sales tax exemption could also encourage consumers in
neighboring states to buy appliances from New York State businesses.
---------------------------------------------------------------------------
If implemented before the coming summer, this incentive could
impact air conditioner sales and thus summer peak demand. Other major
appliances and products (i.e. refrigerators, clothes washers, dish
washers, furnaces, efficient windows, and lighting) also use
significant amounts of energy. While not purchased by any individual
very often, the cumulative annual sales of these appliances in New York
are significant. For example, according to the Association of Home
Appliance Manufacturers, 440,700 room air conditioners, 481,800
refrigerators, 297,700 clothes washers, and 133,400 electric clothes
dryers were sold in New York State in 1996.\101\
---------------------------------------------------------------------------
\101\ Association of Home Appliance Manufacturers, Major
Appliances--Estimated Distributor Sales by State. See http://
www.aham.org/indextrade.htm.
---------------------------------------------------------------------------
While it is nearly impossible to predict with precision the cost or
impact of the sales tax exemption on efficient products, conservative
estimates suggest a positive outcome. If, for example, an exemption
steered only 10 percent of air conditioner purchases to more efficient
models, it could save 8,814 MWh per year and would cost the state (in
lost tax revenue) perhaps $1,762,800 per year, while saving ratepayers
$1,181,076 per year.
The sales tax exemption would additionally draw attention to
efficient products and show the environmental and economic benefit of
purchasing such products. Consumer education on the impacts of energy
conservation and each individual's ability to contribute is critical to
implementation of energy efficiency programs.
C. The Legislature Should Create an Efficiency Portfolio
Standard
Electricity retailers, unlike electricity generators, have direct
contact with electricity consumers through monthly bills . This contact
provides an opportunity to educate consumers. However, absent a
legislative mandate, retailers lack incentive to conserve energy
because the more they sell, the greater they profit.\102\ The
Legislature should bring retailers into the State's energy efficiency
efforts by enacting an Efficiency Portfolio Standard, requiring retail
sellers of electricity to achieve certain levels of efficiency
improvements in their service area.
---------------------------------------------------------------------------
\106\ Since distribution costs are essentially fixed, higher sales
lead to both higher revenue and proportionately higher profits. See
also Section VI.E.3. for proposal to correct these existing market
disincentives against efficiency.
---------------------------------------------------------------------------
Retailers could achieve these gains through direct installation of
efficiency measures and include the cost of the installation in their
prices. They could also provide rebates, promotions, or education. For
example, using bill inserts and instructing employees (such as those
answering telephone inquiries or installing equipment) to highlight
efficiency and conservation opportunities, retailers could accomplish
significant savings. A re-institution of the utility compact
fluorescent bulb rebate program could be an important promotion.\103\
---------------------------------------------------------------------------
\103\ Replacement of incandescent bulbs with energy efficient
compact fluorescents has the potential to significantly reduce energy
consumption and consumer costs. See Appendix A-1.
---------------------------------------------------------------------------
While an EPS is a new concept, it has two strong antecedents. Many
states have implemented a Renewable Portfolio Standard that requires
utilities to buy a minimum percentage of electricity from renewable
sources. In addition, before restructuring, utilities were required to
achieve certain energy savings through rate conditions that effectively
acted like an EPS. Indeed, before restructuring, utilities were able to
reduce electrical usage through efficiency measures by over 1,300 MW
over 7 years when State regulations granted utilities incentives to
accomplish that result.\104\ (A further precedent is provided by New
York City's program to install--at its expense--water conservation
devices in hundreds of thousands of homes and apartments. This program
successfully reduced water use significantly.)
---------------------------------------------------------------------------
\104\ NYSEPB, New York State Energy Plan and Final Environmental
Impact Statement, November 1998, p. 3-62. The demand-side management
programs cost the utilities $1.277 billion between 1990 and 1997.
---------------------------------------------------------------------------
D. The Comptroller Should Report Annually on Energy
Efficiency and Renewable Energy Programs
Both to enhance public support for and understanding of efficiency
and renewable programs, as well as to ensure that the money in these
programs is spent most effectively, the Legislature should direct the
Comptroller to prepare an annual report on the implementation of
efficiency and renewable programs. As noted above, three major State
programs currently operate: the NYSERDA's EnergySmart program (using
SBC funds), the NYPA's Energy Services programs, and LIPA's Clean
Energy Initiative. While the PSC requires the NYSERDA to report on the
implementation of EnergySmart, the NYPA and LIPA have no reporting
requirement. In addition, there should be verification of progress on
the Renewable and Efficiency Portfolio Standards.
The Comptroller's annual report, prepared in coordination with the
NYSERDA, NYPA, LIPA, PSC and retailers, should include:
<bullet> total funds expended on efficiency, conservation and
renewable energy;
<bullet> total MWh and MW saved as a result of the programs;
<bullet> a running list of all completed projects and a list of all
planned projects;
<bullet> total energy cost savings to consumers;
<bullet> comparative effectiveness of programs; and
<bullet> remaining barriers to additional efficiency, conservation
and renewable energy projects.
Accurate accounting of efficiency and renewable energy projects is
essential to understanding how future energy needs should be met. The
Attorney General would commit to assisting the Comptroller with this
report and in investigating opportunities to remove remaining legal
barriers to a sound energy policy.
E. The PSC Should Improve Pricing and Revenue Signals to
Encourage Flexible Demand and Conservation
In addition to tax incentives, Portfolio Standards, and direct
subsidies through the NYSERDA, NYPA and LIPA, significant opportunities
exist to amend pricing mechanisms to foster efficiency and
conservation:
1. Utilities Should Widely Advertise Offers for Different Time-of-Day
Rates to Residential Customers to Encourage Load Shifting
The Public Service Law requires large electric utilities to offer
residential customers the option of paying different rates for
different times of day of instead of paying one rate for all
electricity used.\105\ For example, instead of paying 13 cents per
kilowatt-hour 24 hours a day, a customer could pay 6 cents during the
night and 15 cents during the day. Despite this law, it appears that
few utilities effectively offer this service to customers.\106\ Since
this pricing could shift demand away from peak times, the PSC should
require utilities to advertise its availability.
---------------------------------------------------------------------------
\105\ See, PSL Sec. 66(27). This law applies only to corporations
with annual gross revenues in excess of $200 million.
\106\ In a December 20, 2000 Order, the PSC required electric
utilities to file a report identifying measures that could be taken to
reduce peak demand. While several of the utilities indicated that
``real time pricing'' for their very large users of electricity (i.e.
commercial and industrial) might be included in their portfolio of
strategies to reduce demand, very few identified programs that could
reduce peak demand from residential customers. Only New York State
Electric and Gas (NYSEG) offers residential customers both time of use
pricing (to customers who use 35,000 kWh or more annually) and day-
night pricing (to customers who use 1,000 kWh or more per month). ConEd
indicated that residential customers would be eligible to participate
in its Direct Load Program which would reward customers who voluntarily
allow ConEd remotely to control their central air conditioning units
during peak.
---------------------------------------------------------------------------
Time of use pricing reduces electricity bills for customers who
have the flexibility to use certain appliances, such as the clothes
washer and dryer, dishwasher, or water heater, at times when the price
is cheapest. This pricing also sends truer price signals to the
customer, as it is far more expensive for the utilities to buy
electricity during peak periods than in off-peak periods.
Given the failure of utilities to offer or advertise time of use
pricing, significant peak demand reductions may be achievable if the
PSC requires more aggressive efforts. The PSC should ensure that each
retailer offer reasonable time-of-day (or at least day-night) pricing
to all customers, and provide consumers an analysis of the possible
savings from such pricing. Appropriate means of financing time-of-day
meters will need to be analyzed.
2. Direct Metering or Submetering Should be Expanded
While time-of-day meters would enable direct metered customers to
shift some power use to off-peak periods, consumption is not measured
individually in many apartments, but rather through the building's
``master'' meter. Studies have indicated that residents in master-
metered buildings tend to consume significantly more electricity than
residents with direct meters or submeters. Consideration should be
given to the possibility of converting master-metered buildings in New
York State to direct metering or submetering.\107\ In master-metered
buildings, individual residents do not pay for their electricity
directly. Rather, electricity charges are included in the rent. These
tenants thus have no direct price signal associated with their
electricity consumption.
---------------------------------------------------------------------------
\107\ Current Energy Code requires all residential new construction
to have separate meters for each dwelling (See, 9 NYCRR
Sec. 7813.52(b)). Between 1951 and 1979, however, the PSC banned
submetering. Thus, much of the housing built during this time--
including most public housing and other publicly assisted co-ops--have
master meters. The Energy Code states that whenever more than 50
percent of a residential building's electrical system is replaced in a
12 month period, each dwelling unit is to be provided with a separate
meter. See, 9 NYCRR Sec. 7810.6.
---------------------------------------------------------------------------
Direct metering and submetering use direct market forces to
encourage conservation. For example, a NYSERDA pilot project in 1981
showed an energy savings potential of 18-26 percent from
submetering.\108\ If comparable energy savings were achieved in the
approximately 400,000 apartments in 1,800 master-metered buildings in
the Con Ed service area,\109\ demand in the New York City load pocket
would be reduced significantly. The considerable costs involved when
converting to direct metering or submetering can be offset by the
savings in the electricity bills over time.
---------------------------------------------------------------------------
\108\ NYSERDA, Facilitating Submetering Implementation, Report 96-
7, May 1996, p. A-2.
\109\ Ibid., p. S-1.
---------------------------------------------------------------------------
Efforts to expand direct metering and submetering are ongoing, and
should continue. For example, as part of its Residential Innovative
Opportunities program, the NYSERDA has pilot projects to enhance
submetering of cooperative apartment buildings, and has provided
technical advice to building operators interested in converting to
submetering.
3. Utilities Should be Given Incentives to Encourage Energy Efficiency
and Clean Distributed Generation
While generators of electricity are allowed to sell their power at
market value in the current restructured environment, the transmission
and distribution retailers--the utilities--have remained regulated
monopolies. That is, the rates received by the utilities from their
customers for the transmission and distribution of electricity is still
set through rate agreements with the PSC. Among the most central issues
raised by the restructured marketplace is whether the utilities'
profits should be linked directly to sales.
Under the current rate structure there is a rate cap, which means
the more electricity a retailer sells, the greater the retailer's
profits. But, a retailer's fixed costs for distribution do not increase
substantially when marginally more electricity is sold, and thus the
rate of profit increases for each additional kilowatt-hour of
electricity sold. As a consequence, clean distributed generation,
energy conservation or efficiency--all of which reduce a retailer's
sales--is usually not in a retailer's best interests despite its
significant benefits to consumers and the public.
If the rate structure rewarded retailers for reductions in demand,
energy conservation would more likely become a priority for retailers
and consumers. The PSC should develop a formula for the distribution
charge that rewards (or at least does not discourage) efficiency,
distributed generation, and similar efforts.
F. The Federal Government Should Implement New Appliance
Efficiency Standards
The DOE should implement the new appliance energy efficiency
standards\110\ to reduce energy use in an important sector. Not only
would this help New York's energy efficiency efforts, but since New
York receives significant pollution from upwind states, efficiency
efforts elsewhere can improve New York's air.
---------------------------------------------------------------------------
\110\ See, 66 Fed. Reg. 3313-33, January 12, 2001 (clothes
washers); 66 Fed. Reg. 3335-56, January 12, 2001 (commercial heating
and cooling equipment); 66 Fed. Reg. 4473-97, January 17, 2001 (water
heaters); and 66 Fed. Reg. 7169-7200, January 22, 2001 (residential air
conditioners).
---------------------------------------------------------------------------
In 1977, the DOE promulgated efficiency standards for residential
refrigerators, residential room air conditioners, and fluorescent lamp
ballasts. These standards have been very successful in leading
manufacturers to produce far more efficient products, often 25 percent
or more efficient than previous models. The DOE estimates that the
standards already promulgated will save enough energy to eliminate the
need for over 13,000 MW of generation capacity nationwide.
In early 2001, the DOE announced the adoption of new energy
efficiency standards for four additional types of appliances--
residential central air conditioners and heat pumps, residential
clothes washers, residential water heaters, and commercial heating and
cooling equipment. These new standards are projected to save consumers
and businesses more than $19 billion through the year 2030 and to
alleviate the need to build 91 new 400-megawatt power plants. The
residential central air conditioner standard alone is estimated to
avoid the need for 53 of these plants.\111\ It is critical that these
standards be adopted by the new Administration and fully implemented.
---------------------------------------------------------------------------
\111\ See, New Efficiency Rules Cut Need for 91 New Power Plants,
Environment News Service, Washington, DC, January 19, 2001. A more
complete description of the standards can be found at Http://
www.eren.doe.gov/buildings/codes--standards/stkappl.htm.
---------------------------------------------------------------------------
VII. Challenge and Encourage New Yorkers to Assist in Reducing Demand
Every New Yorker can help to save energy, clean the air, and
prevent climate change. By implementing these measures, consumers will
also save on their electricity bills. State officials should use
available opportunities to educate the public on efficiency, renewable
power and conservation options.
An average U.S. family spends close to $1,500 a year on its home
utility bills (both heating fuel and electricity bills). Businesses
spend much more. Unfortunately, not even including inefficient
appliances, a large portion of that energy is wasted through actions
such as running an almost empty dish or clothes washer, or uninsulated
attics, walls, floors, and basements. Lights left on when no one is
around, at home or in stores or offices after hours, consume
electricity needlessly. The DOE estimates that the amount of energy
wasted nationwide is about the same amount of energy that we get from
the Alaskan pipeline each year.\112\
---------------------------------------------------------------------------
\112\ DOE, www.eren.doe.gov/comsumerinfo/energy--savers/
introbody.html. Electricity generated by fossil fuels for one home plus
the energy that is generated in the home (for example, a boiler) emits
twice as much carbon dioxide as does one typical car in 1 year. Every
kilowatt hour of electricity avoided in New York State saves almost one
pound of CO<INF>2</INF> from entering the atmosphere.
---------------------------------------------------------------------------
Individual consumers can do many things at home to save
electricity, reduce air pollutants, and reduce their energy bills.
Table A-2 in the Appendix illustrates ways, many of which are free and
available immediately, to save electricity. For example, if a household
increases the air conditioner thermostat in summer by merely three
degrees, it would save 937 kWh/yr., and $126 annually. If all New York
households did the same, then 6.3 million MWh of energy would be
avoided, along with over 3 million tons of carbon dioxide. Avoiding
this amount of carbon dioxide is tantamount to removing 600,000 cars in
1 year.
______
APPENDIX
Table A-1.--Electricity Savings: Incandescent vs. Compact Fluorescent Lights
Savings show result of replacing one incandescent bulb with a compact fluorescent bulb in one household and in
each of the 6,766,000 households in NYS.
----------------------------------------------------------------------------------------------------------------
23 watt compact Savings Over 3 Years by
Bulb Type 100 watt incandescent fluorescent Replacing Bulb
----------------------------------------------------------------------------------------------------------------
Purchase Price....................... $0.75.................. $11.00.................
Life of the Bulb..................... 750 hours.............. 10,000 hours...........
Number of Hours Burned per Day....... 4 hours................ 4 hours................
Number of Bulbs Needed............... about 6 over 3 years... 1 over 6.8 years.......
Lumens............................... 1,690.................. 1,500..................
Total Cost of Bulbs.................. $4.50.................. $11.00.................
Total energy used over 3 years....... 438 kWh per household.. 100.74 kWh per 337.26 kWh per
household. household
2.964 billion kWh if 682 million kWh if all 2.282 billion kWh if
all households. households. all households
100 w (4 hrs/day) (365 23 w (4 hrs/day) (365 (equivalent to the
days/year) (3 years) days/year) (3 years) power generated from
= 438000 watt-hours or = 100740 watts-hours an 86.8 MW power
438 kWh. or 100.74 kWh. plant, 24 hours every
day.)
438 kWh (6,766,000) = 100.74 kWh (6,766,000)
2.964 billion kWh. = 682 million kWh.
Total Cost of Electricity for 3 years $58.69................. $13.50.................
(avg price in 1999: 13.4 cents/kWh).
Total Cost over 3 years (cost of $63.19 per household $24.50 per household $38.69 per household
energy + cost of bulbs). $427,543,540 if all $165,767,000 if all $261,776,540 if all
households. households. households
Total CO<INF>2</INF> emissions over 3 yrs (avg 436.56 lbs per 100.41 lbs per 336.15 lbs. per
emission rate: 996.7 lbs/MWh or household 1,476,882 household 339,687 household 1,137,195
0.9967 lbs/kWh). tons if all households tons if all households tons if all households
438 kWh (.9967 lbs/ 100.74 kWh (.9967 lbs/
kWh) = 436.56 lbs kWh) = 100.41 lbs
436.56 lbs (6,766,000)/ 100.41 lbs (6,766,000)/
2000 = 1,476,882 tons. 2000 = 339,687 tons.
Total S0<INF>2</INF>, emissions over 3 yrs (avg 22.38 lbs per household 0.52 lbs per household 21.86 lbs. per
emission rate: 5.1 lbs/MWh or 75,711 tons if all 1,759 tons if all household 73,952 tons
0.00511 lbs/kWh). households 438 kWh households 100.74 kWh if all households
(.00511 lbs/kWh) = (.00511 lbs/kWh) =
22.38 lbs. 0.52 lbs.
Total NOx emissions over 3 years (avg 0.83 lbs per household 0.19 lbs per household 0.64 lbs. per household
emission rate: 1.9 lbs/MWh or 2,807 tons if all 643 tons if all 2,164 tons if all
0.0019 lbs/kWh). households 438 kWh households 100.74 kWh households
(.0019 lbs/kWh) = 0.83 (.0019 lbs/kWh) = 0.19
lbs. lbs.
----------------------------------------------------------------------------------------------------------------
Table A-2.--Electricity Savings, Electricity Cost Savings, and Carbon Dioxide Emissions Avoided By Implementing
Efficiency and Conservation Measures in One Household and in All New York Households
----------------------------------------------------------------------------------------------------------------
Electricity Electricity
saved for saved for Money saved CO<INF>2</INF> avoided CO<INF>2</INF> avoided
Household Measure one all NY for one for one for all NY
household households household household households
(kWh/yr) (MWh/year) (lbs/yr) (tons/yr)
----------------------------------------------------------------------------------------------------------------
Replace a 1970's refrigerator w/a new 2,197 14.9 $294 2,190 7,408,770
EnergyStar refrigerator....................... million
Increase AC thermostat by 3F degrees for 937 6.3 million $126 934 3,159,410
cooling.......................................
Replace 5 incandescent light bulbs with compact 562 3.8 million $75 560 1,894,480
fluorescent...................................
----------------------------------------------------------------------------------------------------------------
Source: U.S. Energy Information Administration, Household Energy Consumption and Expenditures 1993, and Rocky
Mountain Institute's calculations at www.rmi.org (1999)
______
Response of Eliot Spitzer to an Additional Question from Senator
Cantwell
Question 1. Would you expand on the de minimis arguments that you
made on pages eight through 12 of your testimony? Specifically, which
parts of the Clean Skies Initiative go beyond acceptable executive
changes, and what do you believe is the best way to make such a
judgment?
Response. As a general rule, administrative agencies are expected
to promulgate regulations that implement congressional intent as
reflected in the statute. As explained below, in implementing the
statutory design, agencies may exempt de minimis activity but only when
doing so is consistent with congressional intent and would not reduce
the benefits of the legislation being implemented. Because the NSR
provisions of the Clean Air Act are triggered by ``any physical
change'' that results in increased emissions, the existing exemption
for ``routine maintenance'' must be read narrowly and EPA cannot
greatly expand that exemption or create other exemptions that reduce
the air quality benefits to be achieved by the NSR requirements.
The de minimis doctrine is reflected in numerous Federal court
decisions. In Alabama Power Co. v. Costle, 636 F.2d 323 (D.C.
Cir.1979), the U.S. Court of Appeals for the D.C. Circuit held the EPA
did not adequately justify the exclusion from the PSD requirements of
modifications that resulted in relatively low emission increases. The
Court stated that the Agency has the authority to exempt de minimis
activity when applying the literal terms of a statute would result in
pointless expenditures of time and effort. Id. In other words, agencies
are entitled to craft exemptions from the scope of a statute when
literal application of the statute would lead to ``absurd or futile
results.'' Id at 360. The Agency will bear a heavy burden to prove that
the exempted matters are of a de minimis nature. Id at 360.
Other Clean Air Act cases decided after Alabama Power confirm the
limited scope of EPA's authority to depart from the reach of the
statute. Most recently, in Environmental Defense Fund v. EPA, 82 F.3d
45.1, 466 (D.C. Cir. 1996), the D.C. Circuit explained that de minimis
exemptions are derived from the commonplace idea that ``the law does
not concern itself with trifling matters.'' The power to craft de
minimis exemptions does not create the ability to depart from the
statute, but rather is a tool used to implement legislative intent. Id.
De minimis authority should be used when the burdens of the regulation
greatly outweigh the value of enforcing it, not merely when the Agency
concludes the costs exceed the benefit. Id.
Exemptions not found in a statute can also be based on
``administrative necessity.'' Sierra Club v. Environmental Protection
Agency, 719 F.2d 436, 462 (D.C. Cir. 1983). In Environmental Defense
Fund, the Court listed examples of such de minimis or administrative
exemptions available under the Clean Air Act: ``judicial and
legislative proceedings, recurring activities such as permit renewal
where the activities to be conducted will be similar in scope and
operation to activities already being conducted, rulemaking and policy
development and issuance, routine maintenance and repair activities,
civil and criminal enforcement activities, actions related to foreign
affairs, and so on.'' 82 F. 3d at 465.
In light of this case law, EPA's authority to depart from the plain
language of the statute is very limited. The statutory reach of the NSR
provisions covers any modifications that increase emissions. To the
extent that EPA's regulations have the effect of exempting any activity
that does result in increased emissions, EPA must be able to establish
that the exemption is called for by administrative necessity or that
the burdens of applying the requirements greatly exceed the benefits
under those circumstances.
Many aspects of EPA's rulemaking proposals appear to exceed this
authority. Most significantly, its proposal greatly to expand the scope
of the routine maintenance exemption cannot be justified. Indeed, the
current exemption for routine activity must be construed narrowly to
exempt only the routine maintenance activities of a plant, such as
replacement of valves and flanges and patching of leaking pipes. It
appears that EPA's NSR ``reforms'' will significantly expand the
current exemption to exclude once-in-a-lifetime projects costing
millions of dollars. Such projects are not de minimis within any plain
understanding of the term. Moreover, EPA cannot demonstrate that the
burdens of regulation greatly outweigh the benefits. In fact, the
benefit of applying the NSR requirements to the activities that EPA
hopes to exclude is very significant: it will lead to substantial
decreases in air pollution--pollution that, as I and others have
stated, is causing people to get sick and die and is harming the
environment. All studies that have been done show that the benefits of
this pollution reduction greatly exceed the costs.
Other aspects of EPA's ``reform'' proposal may fall outside of
EPA's authority to craft de minimis exemptions, at least under some
circumstances. For example, the clean unit exemption would satisfy a de
minimis analysis only when control technologies applicable to the clean
unit have not improved significantly since the plant was equipped with
the controls. If control technologies do improve significantly,
benefits can still be achieved by subjecting the unit to more effective
controls when a modification that would otherwise trigger the NSR
requirements is made. It is only when the burdens of upgrading the
existing controls greatly exceed the benefits that an exemption is
appropriate. Under those circumstances, however, there is no need for
the clean unit exemption under the PSD program because the cost-
effectiveness of controls is already figured into the determination of
Best Available Control Technology.
If EPA proceeds to create broad exemptions that will plainly reduce
or postpone the air quality benefits to be achieved by the NSR program,
EPA will have exceeded its authority. Based on what we have seen, it
appears that EPA is rewriting the scope of the statutory provisions
rather than effectuating congressional intent. This EPA may not do.
__________
Statement of Attorney General Bill Pryor, Attorney General of the
State of Alabama
Chairman Jeffords, Chairman Leahy, and distinguished members of the
Committees, my name is Bill Pryor, and I am the Attorney General of the
State of Alabama. It is my pleasure to be here today to discuss the
important issue of Clean Air Act New Source Review.
I support the thrust of the report submitted to President Bush by
the EPA Administrator to revitalize the New Source Review Program and
in so doing to restore the delicate balance of ``cooperative
federalism'' embodied in the Clean Air Act Amendments of 1970.
cooperative federalism
Until the 1970's, the maintenance of clean air was viewed as
predominantly a State and local concern. In 1970, after a series of
smaller experiments, Congress adopted a new blueprint for the battle
against air pollution. The new plan--set forth in the Clean Air Act
Amendments of that year (42 U.S.C. Sec. Sec. 7401-7671 (1994 & Supp. V
1999))--created a model of ``cooperative federalism.''
This new model gave the Federal Government responsibility for
establishing national air quality standards, along with a variety of
enforcement tools for ensuring that those standards are met. It
reserved to each State, however, ``the primary responsibility for
assuring air quality within the entire geographic region comprising
such State by submitting an implementation plan for such State which
will specify the manner in which national primary and secondary ambient
air quality standards will be achieved and maintained within each air
quality control region in such State.''
Clean Air Act Sec. 107(a), 42 U.S.C. Sec. 7407(a). Underlying this
provision was the congressional finding that ``air pollution prevention
. . . is the primary responsibility of States and local governments.''
Clean Air Act Sec. 101(a)(3), 42 U.S.C. Sec. 7101(a)(3).
In a series of decisions in the mid-1970's interpreting the then-
new statute, the Supreme Court laid out and clarified the Act's
division of responsibilities between the Federal Government and the
States. Train v. National Resource Defense Council, 421 U.S. 60, 79
(1975); Union Electric Co. v. EPA, 427 U.S. 246 (1976); EPA v. Brown,
431 U.S. 99 (1977) (per curiam). In the quarter century since these
cases, the Federal courts have staunchly protected the Federalist
design of the Clean Air Act.
For example, in 1984, the Seventh Circuit struck down an attempt by
EPA to strengthen a State Implementation Plan (or ``SIP'') through a
partial approval that was more akin to an amendment. Bethlehem Steel
Corp. v. Gorsuch, 742 F.2d 1028, 1036 (7th Cir. 1984). As Judge Posner
eloquently explained, ``The Clean Air Act is an experiment in
federalism, and EPA may not run roughshod over the procedural
prerogatives that the Act has reserved to the States, especially when,
as in this case, the Agency is overriding State policy.''
Id. at 1036-37 (citations omitted).
Similarly, and more recently, the D.C. Circuit relied on the same
principles and precedents to vacate an EPA rule that purported to
require 12 States and the District of Columbia to amend their SIN to
adopt a particular method of controlling pollution. In so holding, the
court emphasized that Section 110 of the Clean Air Act ``does not
enable EPA to force particular control measures on the States . . . .''
Virginia v. EPA, 108 F.3d 1397, 1410, amended on other grounds, 116
F.3d 499 (D.C. Cir. 1997).
As these and other courts have acknowledged, the delegation of
implementation decisions to the States reflects not only a spirit of
comity but also a recognition that State regulators--well-versed in
local needs and circumstances--are best able to craft detailed programs
to improve air quality while ensuring the continued availability of
energy and maintaining economic prosperity.
the clinton epa enforcement campaign
In the late 1990's, the United States Environmental Protection
Agency upset this sound design. EPA commenced enforcement actions
against a variety of companies, including a cross-section of the
nation's electric utilities, claiming that certain plant activities
triggered the extensive New Source Review pre-construction permitting
requirements under the Clean Air Act.
For two decades, EPA, frontline State regulators, and regulated
sources had all interpreted these activities as falling within an
exclusion for routine maintenance, repair, and replacement. Their
common understanding was that New Source Review applied only to major
modification activities that are akin to new construction. During the
Clinton Administration, EPA advanced a novel interpretation that would
require the adoption of state-of-the-art pollution controls at existing
sources for activities that State regulators had considered routine
maintenance, repair, and replacement activities.
The Clinton EPA's new interpretation conflicted with prior Federal
and State guidance. In several instances, State and local regulators
inspected the facilities that are the subject of EPA's enforcement
actions--before or immediately after the maintenance activities upon
which EPA has based its actions--without suggesting that a permit was
necessary. Indeed, EPA's enforcement net was so broad as to encompass
certain plants that sought out and received explicit determinations
from State regulators that a particular maintenance activity did not
trigger the New Source Review requirements.
The Clinton-era EPA undertook this abrupt reversal of course
without notice-and-comment rulemaking and without consulting the
States, which have had the primary responsibility to implement New
Source Review standards for over 20 years. EPA's course eviscerated the
cooperative Federalist approach that is the heart of Congress's design,
in which the Federal Government has the authority to set national air
quality objectives and standards but the States have the authority and
the responsibility to implement them. EPA invaded the province of the
States and threw their respective air pollution control programs into
upheaval by reversing--with the blunt tool of enforcement instead of a
collaborative rulemaking process--interpretations that are central to
the day-to-day activities of State regulators.
I urge these committees to work with the President and the EPA in a
bipartisan spirit to develop better-defined standards of New Source
Review, consistent with the original design of cooperative federalism
in the enforcement of the Clean Air Act.
______
Responses of Bill Pryor to Additional Questions from Senator Voinovich
Question 1. How would you recommend that NSR be reformed to ensure
that the ``cooperative federalism'' that you described in your
testimony remains the cornerstone of the Clean Air Act?
Response. I should note that my testimony was devoted to the
subject of routine maintenance, repair, and replacement (``RMR&R'')
activities, and the problems that have been caused by the decision of
EPA during the Clinton Administration to ignore roughly a quarter-
century of established practice with regard to state regulators'
responsibility for oversight of these activities. We should return to
the maximum extent possible to the situation that existed before the
Clinton Administration's reversal of policy. The long-standing approach
that the EPA abandoned in the 1990's was consistent with the Clean Air
Act, and that approach preserved a sensible division of labor among
state and Federal enforcement authorities. As I understand the
recommended improvements to the NSR program, as announced in June of
this year, EPA wishes to conduct rulemaking proceedings that will set
cost-based safe harbor thresholds for RMR&R activities, and the new
rules will provide a clearer definition of what activities fit within
RMR&R--and thus do not trigger NSR--and what activities do not fit.
These EPA recommendations are consistent with both the original
understanding of the Clean Air Act that I outlined in my testimony and
the long-standing enforcement practice before the 1990's. I believe
that clearer rules would protect the states' role in the regulation of
air pollution and, as a consequence, lead to better enforcement
outcomes.
Question 2. In your testimony, you call for the President and the
EPA to develop better defined standards of the NSR program. Can you
comment on the announcement by EPA to finalize several NSR rulemakings
and to propose other rules?
Response. In the course of answering the first question, I have
answered the second question to the extent of my endorsement of the
RMR&R recommendations. Because I do not claim any expertise in the
other areas of policy that are covered by the EPA's June 2002
recommendations, I do not wish to offer an opinion, either positive or
negative, with respect to the other elements of the Agency's proposed
course of action. I know that the air quality regulators of my state
are prepared to enforce and abide by the final NSR rulemakings, which
were initiated by the Clinton Administration.
Statement of Eric Schaeffer Director, Environmental Integrity Project/
Rockefeller Family Fund
Thank you, Mr. Chairman and members of the Senate Environment and
Judiciary Committees, for the opportunity to testify today. I am
presently director of the Environmental Integrity Project at the
Rockefeller Family Fund, a nonprofit organization dedicated to fair
enforcement of our nation's environmental laws. Until this February, I
was director of EPA's Office of Regulatory Enforcement, a position I
held for 5 years.
Last month, the Administration unveiled its program to effectively
repeal the New Source Review (NSR) provisions of the Clean Air Act. I
would like to briefly highlight why the Administration's proposal is
unlawful, threatens public health, is premised on an energy shortage
that does not exist, and undermines enforcement of the Clean Air Act.
Twenty-five years ago, Congress exempted existing coal-fired power
plants, refineries, and other facilities from the strict permit and
pollution control requirements all new operations had to meet. Under
the law, the exemption for these so-called ``grandfathered plants''
ends whenever a facility is physically modified in a way that increases
its potential to emit above a minimal amount. EPA has recognized an
exemption for routine repairs to prevent ordinary maintenance
activities from triggering permit review. Because this exception was
created by EPA and does not appear in the law itself, it must be read
narrowly under the Federal rules of statutory construction.
Federal courts have taken this law much more seriously than the
Bush Administration, beginning with the landmark Alabama Power decision
by the D.C. Circuit Court of Appeals more than 20 years ago. That
decision rejected EPA's effort to carve out an exemption for certain
sources, holding:
Implementation of the statute's definition of
``modification'' will undoubtedly prove inconvenient and costly
to affected industries; but the clear language of the statute
unavoidably imposes these costs except for de minimis
increases. The statutory scheme intends to ``grandfather''
existing industries; but the provisions concerning
modifications indicate that this is not to constitute a
perpetual immunity from all standards under the PSD program. If
these plants increase pollution, they will generally need a
permit.
The 7th Circuit Court of Appeals adopted the same broad reading of
the law in finding that Wisconsin Electric Power Company had violated
New Source Review. And the Justice Department, when enforcing the
rules, reminds defendants that their exemption is temporary and ends
when a physical modification increases pollution.
Why does New Source Review matter? Because older plants still
claiming to be exempt from the law after 25 years are responsible for
the lion's share of some of our worst pollution. For example, coal
fired power plants, almost all built before 1977, are responsible for 2
out of 3 tons of sulfur dioxide and a quarter of the nitrogen oxide
from all sources. According to national epidemiological studies by the
American Cancer Society, the Health Effects Institute, the Harvard
School of Public Health and others, these pollutants form fine
particles now associated with high levels of premature death among
exposed populations.
In 1999, the Justice Department filed lawsuits against eight power
companies responsible for over 20 percent of the sulfur dioxide
emissions in the United States for violating NSR requirements. An Abt
Associates study, using EPA models and the most conservative of a range
of choices, estimates 5,900 premature deaths a year from power plants
owned by just these eight companies. That analysis has recently been
validated by Jonathan Levy of the Harvard School of Public Health.
EPA's expert witness, Professor Morton Lippman of the New York
University School of Medicine, estimates more than 420 premature deaths
a year are caused by the Illinois Power Baldwin plant alone--then
cautions that this is likely an underestimate. The steady drumbeat of
bad news from public health experts should push the EPA to treat this
matter with some urgency by stepping up its enforcement against big
polluters responsible for this problem.
What has the Bush Administration done instead? It has announced
changes to New Source Review last month to carve new loopholes, turn
the law on its head, and promise eternal life to some of the worst
polluters in the country. For example, the Agency proposes to treat as
routine repair, ``replacement of existing equipment with equipment that
serves the same function and does not alter the basic design parameters
of a unit.'' In other words, you can rip out and replace all the major
components of a utility boiler--over and over--no matter how expensive,
complex, or time consuming these modifications are. And if that's not
enough, you'll also get an exemption for any project to, ``facilitate,
restore or improve efficiency, reliability, availability or safety
within normal facility operations.'' Contrary to the plain meaning of
the law, almost every project would be exempt from the definition of a
physical modification that requires permit review and pollution
control. These changes take an administrative exception for routine
repair not found in the law that courts insist must be read narrowly,
and expands it until it swallows the law whole.
Almost as bad, the Administration has turned back the clock by
allowing companies to look back 10 years, pick the 24 months in which
their pollution peaked, then keep polluting at those levels for the
next decade and beyond. Rather than ratcheting pollution down, this
proposal creates a kind of property right in pollution that can be used
to avoid permit review and pollution control. Given what we know about
the damage to human health, why create a new entitlement to actually
increase pollution above current levels?
EPA offers several half-hearted explanations for this gutting of
the Clean Air Act. My personal favorite is that NSR gets in the way of
energy growth, and keeps power companies from maintaining their
capacity. But according to the Department of Energy, 2001 set a new
record for power plant growth, and we have so much capacity that new
plants are being delayed or canceled. Another Department of Energy
Report, prepared for Congress in 2000, found that electricity prices
would not increase even if all coal-fired plants above 20 megawatts had
to put on modern pollution controls within 5 years. Power companies
keep telling us that they will lose generating capacity because NSR
makes them afraid to keep their plants in repair. But even the 43 power
plants targeted by EPA in its complaints show no real decrease in
capacity between 1998 and 2002, according to information available on
the companies' own websites.
What about refineries? Again, the Department of Energy tells us
that distillation capacity in U.S. refineries has increased from less
than 16 million barrels a day in the mid 1980's to nearly 18 million
barrels today. And U.S. refineries have expanded 50 percent over the
same period, from an average capacity of 46,000 barrels a day to 73,000
barrels. In other words, the greatest periods of growth in our capacity
to generate electricity and refine oil have occurred exactly when
enforcement of New Source Review requirements was at its peak. So much
for the argument that NSR inhibits energy supply.
Another argument you'll hear is that New Source Review gets in the
way of projects that decrease emissions. But the law doesn't even apply
unless your project is expected to increase emissions, which is why the
Agency doesn't offer much more than innuendo and a couple of anecdotes
to support this red herring. EPA's enforcement cases demonstrate that
many of these projects increased emissions many times above the minimal
amounts allowed by law. And the Administration's proposals--by
exempting every project as routine no matter how much emissions
increase, and by allowing refineries to ratchet pollution back up to
their highest levels in 10 years--hardly provide an incentive to reduce
pollution.
The Administration would have us believe that New Source Review
does little for the environment. But the reductions in sulfur dioxide
from refinery enforcement cases, and from just two power plant
settlements (TECO and PSE&G) come to 220 thousand tons a year, as much
as the emissions from all power plants in the State of New York. Add
the Dominion and Cinergy agreements, on track until derailed by the
Bush Administration, and you get another 400,000 tons of sulfur dioxide
a year. That's more than 600,000 tons from just a handful of cases in
less than a 2-year period. So much more could be accomplished if the
Administration weren't so determined to stop enforcing the law.
The Bush Administration and the energy lobby argue that New Source
Review is just too confusing to comply with. I invite you to read the
transcript of the TVA trial, as well as the many documents that EPA has
gathered in the course of its investigations. When asked if the some of
the gigantic projects targeted by EPA's enforcement qualified as
routine repair or ordinary maintenance, TVA's own plant supervisors
admitted they did not. Read the court's decision in the Murphy Oil
case, in which the judge blasted refinery managers for hiding emissions
increases to avoid NSR requirements. The evidence shows that these
companies knew full well the risks they were taking. They gambled with
the law and lost. Now they have the arrogance to demand that the
government cover their losses by changing the rules to their liking.
Finally, there's the Bush ``Clear Skies'' proposal, featuring a
snazzy website and colorful charts, but no actual legislative language.
Clear Skies, of course, applies only to power plants and asks nothing
of refineries, pulp mills, and other factories that will benefit from
EPA's new, polluter-friendly interpretation of the Clean Air Act. For
power plants and refineries, EPA enforcement actions would cut sulfur
dioxide emissions about 70 percent over the next 10 years, as does
North Carolina's new State law. The Bush Administration thinks we
should take about 20 years to get that much from power plants, and
proposes nothing but Clean Air rollbacks for refineries and other
polluters. The Administration is free to make its case, but ought not
to blackmail Congress and the public by refusing to enforce the law
until it is changed to the energy industry's liking.
Given the Administration's policy changes and vague and conflicting
statements by the Administrator of EPA, what is to become of the cases
filed by the Justice Department? Mr. Sansonetti, the Assistant Attorney
General for Environment and Natural Resources at the Justice
Department, has argued that the Clean Air Act is broad and the
exemptions narrow, but the Bush Administration now suggests exactly the
reverse. Mr. Sansonetti and the Justice Department have argued that
industry understood well the requirements of the law, while his own
Administration is insisting the law is too complex to understand. Mr.
Sansonetti and the Justice Department have argued that New Source
Review is fundamental to environmental protection, while the Bush White
House pretends it doesn't matter at all.
At you can tell from my testimony, I don't think much of the
Administration's proposals or the arguments its offers to support them.
President Bush has the right to recommend that Congress weaken the
Clean Air Act. What is most disturbing is the spectacle of large
companies--some of the biggest and wealthiest in America--avoiding
enforcement of the law by getting their friends in power to change it
in their favor. By all means, let's have an honest debate on the future
of the Clean Air Act. But in the meantime, I hope you will insist that
the environmental laws you have written be enforced when they are not
obeyed.
______
Tennessee Valley Authority Actual Emission Increases Resulting From
Modifications at Power Plants Located in Alabama, Tennessee, and
Kentucky
------------------------------------------------------------------------
Plants NOx (tpy)
------------------------------------------------------------------------
Allen Unit 3................................... 1,732
Colbert Unit 5................................. 1,774
Cumberland Unit 1.............................. 21,187
Cumberland Unit 2.............................. 4,192
John Sevier Unit 3............................. 298
Paradise Unit 1................................ 1,007
Paradise Unit 2................................ 421
Paradise Unit 3................................ 10,674
Shawnee Unit 1................................. 720
------------------------
Total........................................ 42,005
------------------------------------------------------------------------
Source: Final Order of the Environmental Appeals Board, United States
Environmental Protection Agency, Washington, DC, In re: Tennessee
Valley Authority, Docket No. CAA-2000-04-008, Decided September 15,
2000.
Capacity of Power Plants Identified in NRS Lawsuits 1998-2001 (Megawatts)
----------------------------------------------------------------------------------------------------------------
Combined Winter Capacity of Power Plants Identified in NSR Lawsuits
----------------------------------------------------------------------------------------------------------------
Utility Company Capacity 1998 Capacity 1999 Capacity 2000 Capacity 2001
----------------------------------------------------------------------------------------------------------------
Alabama Power (Southern)............ 9027.1 9027.1 9846.4 N/A*
Cinergy/PSI......................... 3888.8 3634.8 3649.8 N/A*
Georgia Power (Southern)............ 7103.4 6953.4 7068.7 N/A*
Edison.............................. 2233 2233 2233 2233
SIGECO.............................. 406 406 406 406
AEP................................. 13480 13480 13480 N/A*
Duke................................ 8087 8087 8087 N/A*
TVA................................. 12280.8 12262 11931 11176**
----------------------------------------------------------------------------------------------------------------
*Not Available
**Reflects Units not in use due to decline in demand
Source: Energy Information Administration
Selected State-Level Estimates of PM-Related Health Effects Attributable to Eight Electric Utility Systems
----------------------------------------------------------------------------------------------------------------
Chronic
State Mortality Bronchitis Acute Bronchitis Asthma Attacks
----------------------------------------------------------------------------------------------------------------
Alabama............................. 240 160 540 5,400
Florida............................. 230 160 410 4,700
Georgia............................. 360 300 1,000 10,000
Illinois............................ 290 210 690 6,800
Indiana............................. 250 180 610 5,900
Maryland............................ 170 140 410 4,400
Michigan............................ 250 190 660 6,400
New York............................ 340 260 750 8,200
North Carolina...................... 400 310 890 10,000
Ohio................................ 480 340 1,100 11,000
Pennsylvania........................ 550 360 1,000 11,000
Tennessee........................... 340 240 720 7,700
Virginia............................ 230 180 550 6,000
----------------------------------------------------------------------------------------------------------------
Source: Abt Associates, Particulate-Related Health Impacts of Eight Electric Utility Systems (April 2002).
National Estimates of PM-Related Health Effects Associated with Eight Electric Utility System
----------------------------------------------------------------------------------------------------------------
Chronic
Electric Utility System Mortality Bronchitis Acute Bronchitis Asthma Attacks
----------------------------------------------------------------------------------------------------------------
AEP................................. 1,400 1,000 3,200 32,000
Cinergy............................. 730 530 1,700 17,000
Duke................................ 550 420 1,300 14,000
Dynergy............................. 450 330 1,100 10,000
First Energy........................ 610 450 1,400 14,000
SIGECO.............................. 50 36 120 1,200
Southern............................ 1,200 900 3,000 29,000
TVA................................. 780 590 1,800 20,000
---------------------------------------------------------------------------
Total............................. 5,900 4,300 14,000 140,000
----------------------------------------------------------------------------------------------------------------
Source: Abt Associates, Particulate-Related Health Impacts of Eight Electric Utility Systems (April 2002).
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Responses of Eric Schaeffer to Additional Questions from
Senator Voinovich
Question 1. Did you support the NSR reforms that the Clinton
Administration proposed?
Response. I was not directly involved in the development of the
Clinton Administration's proposed reforms to the New Source Review
program. I was, however, encouraged by the Administration's interest in
conditioning increased flexibility for industry upon serious and long-
term reductions in emissions from old ``grandfathered'' power plants
and other facilities that continue to claim an exemption from the
pollution control requirements that have long been in place for new
facilities. The Bush Administration's June announcement seems instead
to widen the loophole while sacrificing the emission reductions the
Clinton proposals sought to obtain.
Under the Clean Air Act, electric utilities, refineries, and other
industries must apply for a permit and install state-of-the-art
controls when their plants are modified in a way that increases
emissions above a de minimus amount. The Clinton Administration asked
for comment on a number of proposals in 1996 and 1998 Federal Register
Notices designed to simplify the program and encourage innovative
approaches to emission reductions. The Bush Administration announced in
June this year that it would shortly publish final regulations to
``reform'' New Source Review, and has claimed that it is merely
implementing proposals made by the Clinton Administration. A closer
review of the proposals reveals striking differences between the
Clinton proposals and the final actions the Bush Administration has
announced. Here are three of the most important:
Elimination of Enforceable Permit Limits.--Companies can avoid New
Source review so long as physical improvements to their plants do not
increase emissions, so the method used to calculate emissions is
important. Electric generators may estimate future emissions based on
the projected actual use of the specific unit where a modification has
occurred. For example, it may determine that a boiler will only be used
a limited number of hours to meet peak demand for electricity, and
adjust emissions downward to the point where NSR no longer applies.
Refineries and other industries may also adjust emissions downward
based on similar operational restrictions (e.g., by assuming that a
unit will only operate at 75 percent of capacity).
Unlike utilities, refineries and other industries can lower
emission estimates based on operational restrictions only if those
estimates are reflected in enforceable emission limits. In other words,
you are not allowed to exceed the emission levels that you calculate
assuming unused capacity or reduced hours of operation. This
requirement for enforceable limits does not apply to utilities under
today's rules. When a utility's emissions rise above its original
estimates, EPA and State agencies must look back in time to determine
if those estimates were in good faith and based on sound engineering
judgment.
Because this is confusing for both industry and the government, the
Clinton Administration's 1998 Federal Register Notice proposed
requiring utilities to accept the same enforceable permit limit to
reflect expected capacity or operational restrictions. The Bush
Administration reverses this by eliminating the requirement that
refineries and other factories accept enforceable emission limits based
on operating restrictions that such companies claim will keep emissions
below the NSR radar. Allowing companies to avoid permit review by
operating without enforceable emissions limitations, then forcing
government and citizens to undertake an after-the-fact analysis to
determine whether original estimates were reasonable, hardly provides
the kind of ``bright line'' the Administration claims to be seeking. It
also encourages companies to continue to lowball emissions in the hope
that they won't get caught (or see below) or if they are, to fall back
on arguments that their earlier estimates were reasonable.
Out of Sight, Out of Mind.--Under today's law, a company can ``net
out of'' (or avoid) NSR permit and control requirements if emissions
increases associated with one project are offset by reductions
elsewhere in the plant. Companies are supposed to submit their
calculations to the permitting authority for review. EPA investigations
and a recent court decisions (Murphy Oil) found that some companies did
not make these submissions and deliberately underestimated emission
increases.
The Bush Administration proposal eliminates the requirement that
companies that ``net out'' of NSR submit their emission estimates to
the appropriate Federal or State agency. While records would have to be
kept on the plant site, they would not be accessible to the public.
This restriction, which does not appear at all in the Clinton proposal,
would make it much harder for a community group to find the information
needed to review the impact of a proposed plant expansion on the
environment. It would also block access to evidence needed to file
citizen suits, and make it harder for States like New York and
Connecticut to file Federal lawsuits against out-of-State polluters,
since such cases rely on citizen suit authority.
Pollution as a property right.--Properly designed, a plant-wide
emission limit (PAL) can give industry the room it needs to make
operational changes by providing one overall emission target. The
Clinton Administration's 1998 proposal made clear that EPA was
considering making such flexibility depend on a company's commitment to
reduce its emissions over the lifetime of the permit. The Bush
announcement, in contrast, would allow a company to avoid NSR pollution
control restrictions for 10 years (or longer) so long as it did not
exceed its worst levels of pollution in the previous decade. As with so
many other of the Bush Administration ``reforms,'' the industry gets to
keep its flexibility, but public health benefits from lower emissions
get sacrificed. The 25-year loophole from state-of-the-art pollution
controls for old, ``grandfathered'' plants would be automatically
extended for at least another decade, and even beyond based upon other
provisions allowing extension of these inflated PALS, without requiring
any reductions in air pollution.
Question 2.--Under the Clean Air Act and apart from NSR, what
permit and pollution control requirements must all existing coal-fired
plants, refineries and other facilities meet?
Response. Absent NSR, plants built before 1977 are exempt from one
of the most fundamental requirements of the Clean Air Act: to install
the best available control technology to control pollution. That is why
25 years after the Clean Air Act became law, a plant built before 1977
can still emit over 100,000 tons of sulfur dioxide a year, while a new
plant of comparable size and burning the same type of coal, is limited
to less than 5,000 tons, or under 5 percent of that amount. The other
permit requirements that do exist have been relatively ineffective in
limiting this gross disparity, or curbing the kind of pollution that
the American Cancer Society, the Harvard School of Public Health, and
the Health Effects Institute estimate leads to tens of thousands of
premature deaths every year.
There are three basic requirements that grandfathered power plants
may be subject to, in addition to the New Source Review requirements
the Administration has proposed eliminating. Some facilities are
subject to emission rates, e.g., allowing a certain level of pollution
per unit of energy created. While useful, these allow utilities,
refineries and other old plants to increase total emissions
proportionately when demand grows or capacity is increased. In short,
they do not set a ceiling (as NSR does) on the amount by which
grandfathered plants can increase their production as a result of plant
modifications.
Title IV of the Clean Air Act does require modest annual reductions
in the amount of sulfur dioxide that can be released nationwide by
power plants, on average about 2 percent a year. But it does not apply
at all to refineries or other industries that would benefit from the
Bush Administration rollback of New Source Review. Nor does it compel
the kind of reductions (85 percent for NOx and 95 percent for SOx)
required of the biggest emitters subject to NSR. Finally, it allows
power plants to continue to run at high levels of pollution if they
have been able to by credits from cleaner facilities that may operate a
thousand miles a way. That is small comfort to the citizens living near
the dirty plant.
EPA or the States can force changes based on tighter air quality
rules, but these changes are fought by industry at the Federal, State
and local level. It seems particularly unfair to take away one of the
most important tools for requiring the dirtiest, oldest plants to
upgrade pollution controls right at the moment that States and counties
must begin preparing to meet tough new, health-based standards for fine
particle pollution. And the Administration's Clear Skies proposals
compounds the problem by erecting extreme and unnecessary hurdles to
prevent a State from petitioning EPA to take action against polluters
outside its boundaries when those polluters are jeopardizing that
State's air quality.
__________
Statement of Bob Slaughter, President, on Behalf of the National
Petrochemical & Refiners Association
Chairman Jeffords, Chairman Leahy, Senators Smith and Hatch and
other members of the committees, I am Bob Slaughter, president of the
National Petrochemical & Refiners Association (NPRA). NPRA thanks you
for asking us to appear before you today on the subject of reform of
the New Source Review (NSR) program. NPRA is a national trade
association which represents nearly all owners or operators of U.S.
refining capacity, as well as petrochemical manufacturers with
processes similar to refiners. The petroleum and chemical products made
by our members are vital to continued U.S. economic health and national
security, and we welcome the opportunity to underscore the importance
of NSR reform to maintaining a secure and adequate supply of those
products.
nsr review has been a public process
This is our third appearance before the Senate Environment and
Public Works Committee on this subject. On February 28, 2000, I
appeared before a hearing of the Subcommittee on Clean Air, Wetlands,
Private Property and Nuclear Safety to explain many of the problems
that our members were experiencing under the NSR program. On April 5,
2001, I appeared before the same subcommittee to stress our members'
continued need for NSR reform and our hope that this matter would be
reviewed as part of the Administration's forthcoming recommendations
for changes in national energy policy. The problems with and concerns
about the NSR program we expressed at those times are already on the
record, but we have included them as an appendix to this statement for
ease of access by committee members and staff.
In May 2001, the National Energy Policy Development Group, in its
National Energy Policy report, recommended that ``the Administrator of
the Environmental Protection Agency, in consultation with the Secretary
of Energy and other relevant agencies, review New Source Review (NSR)
regulations, including administrative interpretation and
implementation, and report to the President on the impact of the
regulations on investment in new utility and refinery generation
capacity, energy efficiency and environmental protection.'' That review
was to be concluded by August 15, 2001.
On July 10, 2001, NPRA appeared at one of the four public hearings
held by EPA across the country. The hearings were held to accept
comments on industry experience with the NSR program in general, and
specifically on the EPA paper (published June 22, 2001) providing
background and a preliminary overview of NSR performance and related
issues. Some of our member companies also appeared during these EPA
public hearings. We have attached the statement delivered on behalf of
NPRA in Cincinnati as part of the appendix to this testimony.
On June 27, 2001, NPRA and representatives of 12-member companies
met with the Environmental Protection Agency Office of Policy,
Economics and Innovation. This meeting was held to discuss specific
problems with the NSR program and our suggestions for ways in which the
program could be improved in order to maintain environmental progress
while promoting energy efficiency, the production of cleaner fuels and
the installation of improved technology. On July 23, 2001 NPRA sent EPA
a written summary of the points brought forward at that meeting. This
material is a part of EPA's docket of the review process, but we are
attaching a copy as part of the appendix to today's testimony.
On June 13, 2002, EPA Administrator Whitman sent a letter to the
President transmitting EPA's report to the President and a separate New
Source Review Recommendations document summarizing actions to improve
the NSR program. It should be noted that the Administration took 10
months beyond the originally anticipated August 15, 2001 date to
receive and review input and to formulate its recommendations. NPRA
issued a press release supporting the Administration's decision to move
forward with NSR reform; a copy is attached as part of the appendix.
nsr reform is necessary
NPRA continues its strong support for reform of the New Source
Review program. Our members need both increased certainty as to the
application of that program and greater flexibility in meeting its
requirements. Considerable uncertainty still exists about the NSR
program, and our members tell us that State regulators who actually
administer most of the program's requirements have expressed their
concern about its many complexities and shifting interpretations.
refiners have a heavy regulatory agenda
Refiners in particular are in urgent need of NSR reform. The
industry is facing a blizzard of new regulatory requirements in this
decade, all of which are environmental in nature. The number and
compressed timing of these requirements are compellingly demonstrated
on the attached chart which we call the Regulatory Blizzard.
To mention only the most significant of these programs: refiners
must implement a greater than 90 percent reduction in gasoline sulfur
content outside of California in the 2004-2006 timeframe, at an
estimated cost of $8 billion. By mid-2006 the industry must achieve a
97 percent reduction in the sulfur content of 80 percent of highway
diesel fuel, at an additional cost approaching that of the gasoline
sulfur reduction. EPA is currently considering severe sulfur reductions
in the off-road diesel pools, which will also be quite expensive and,
which will be partially implemented in this decade as well.
Additional and expensive gasoline specification changes involving
the use of MTBE in reformulated gasoline must be implemented in the
same timeframe. At the same time, stationary source programs such as
the MACT hammer and compliance with the new 8-hour ozone standard will
require additional environmentally related investments at refineries
and petrochemical facilities.
Many industry experts have told us that they believe that the
refining industry faces a total of $20-25 billion in additional
investments before 2010. The vast majority of these requirements are
related to mandatory environmental programs. Other experts think that
the $20-25 billion price tag may be underestimated.
The unfortunate fact is that most, if not all of these regulatory
requirements were imposed in relative isolation and with little
attention paid to their cumulative effect on the domestic refining
industry. In 1999 a study done by the National Petroleum Council (NPC),
a joint government-industry body co-chaired by the then Secretary of
Energy, warned about the impact of these uncoordinated investment
requirements on the refining industry. In its Report, the NPC
recommended more reasonable timing and better sequencing of these
requirements to avoid domestic refinery closures and reduced supply of
petroleum products. The NPC's recommendation has been largely ignored
to date.
nsr reform is needed to meet this regulatory agenda
Confusion and controversy over NSR requirements and applicability
contribute to the problems facing our industry. Assuming their ability
to secure sufficient investment capital to meet these regulatory
requirements, refiners still face many logistic challenges in meeting
the ambitious goals and deadlines of these new regulations. Refiners
must make infrastructure and process changes to comply with these
regulations. The current NSR program makes it extremely difficult for
refiners to determine just what the legal requirements are as they do
so. This situation illustrates why the unreformed NSR program hinders
our industry's efforts to produce the cleaner fuels that consumers want
and which are needed for continual environmental progress.
Current disarray in the NSR program has had an even more direct,
negative effect on refiners. Enforcement actions against the refining
industry based upon unanticipated and shifting NSR interpretations have
sought to add significant and uncoordinated new investment requirements
to those already mandated in this decade. Given the magnitude of the
tasks facing the refining industry, and the cost of contesting these
claims, some of our members have decided to settle these enforcement
actions rather than to contest them. Other members are still discussing
these matters with agency personnel.
It is NPRA's position that the enforcement activity against
refiners is inappropriate and should cease. We believe that the NSR
program's application and requirements must be clarified and the
industry allowed to proceed with the many challenges it faces in
complying with its vast suite of new regulatory requirements with the
help of a reformed NSR. Regulatory improvements resulting from NSR
reform should be made available to those companies which have already
settled at their option. Given the immense job ahead of the industry it
is inconceivable that this would have anything but a positive effect on
the environment.
the u.s. refining industry is essential, but faces challenges
Domestic refining is an essential industry. It is also a tough
business. Refining is a heavily regulated, capital-intensive industry
that requires huge amounts of capital to continue its significant
environmental progress and to maintain and expand production capacity.
Thus, it is very important to provide clear and efficient means to
comply with environmental regulation. Unnecessary costs mean reduced
domestic production of crucial energy supplies and further reductions
in the number of U.S. refineries.
No new refinery has been built in the United States since 1976. It
is unlikely that any new grassroots refinery will be built in the
United States in the foreseeable future. This is due to the industry's
relatively low return on capital invested (which is in part
attributable to the costs of environmental compliance) and to the NIMBY
factor, which makes it difficult to site new heavy industry facilities.
petroleum product demand is increasing
No new U.S. refineries have been built, but our demand for
petroleum products continues to increase. The Energy Information
Administration (EIA) projects continued growth in demand for petroleum
products at roughly 1.5 percent per year through 2020. As the number of
U.S. refineries declines, overall U.S. capacity has increased at
existing sites just enough to offset the reduction in capacity. But
this is not enough to keep pace with the growing demand for petroleum
products, which must be met through more product imports. In order to
maintain--and hopefully increase--domestic production of basic fuels,
NSR reform is needed to continue capacity additions and other
efficiencies at existing sites. Otherwise, we will gradually but
inexorably become more dependent on imports of key petroleum products
like gasoline, diesel fuel, home heating oil, and jet fuel, with a
significant impact on national security. Currently, the United States
imports large quantities of crude oil, but the useful petroleum
products are largely made in the United States at domestic refineries.
NSR reform will not remove all the challenges facing domestic
refiners, but it will eliminate unnecessary and counterproductive costs
of unnecessary regulation and uncertainty that can make the difference
between life and death for many facilities.
This is not an idle concern. The Oil Price Information Service
(OPIS) recently reported that at least 15 U.S. refineries that
represent more than 10 percent of U.S. production may change hands or
be closed down by January 2003. The facilities identified by OPIS are
in every region of the country other than the West Coast, which already
suffers from a sharply reduced refinery population. OPIS adds ``It's
the rare unit these days that is sought after by qualified buyers.''
EIA is projecting that U.S. refineries capacity will continue under
pressure, even with capacity utilization at levels of 94-95 percent
which is far more than in other industries, where maximum utilization
is considered to be 75-85 percent of capacity. EIA forecasts: ``Imports
of light products are expected to nearly triple by 2020, to 4.5 million
barrels per day. Most of the projected increase is from refiners in the
Caribbean basin and in the Middle East, where refining capacity is
expected to expand significantly.''
Given such warnings, and the impact on U.S. national security, it
is hard to argue that NSR reform should not proceed expeditiously. And
U.S. petrochemical production, also directly linked to U.S. economic
progress and national security, confronts challenges equal in magnitude
to those of the refining industry and could also operate more
efficiently and economically with NSR Reform.
many other regulatory programs control plant emissions
Opponents of NSR reform attempt to leave the impression that the
current NSR program is the source of all industry environmental
regulation; this is not the case. The refining industry, for example,
is heavily regulated through many other programs. (A compilation of
those programs is included in the appendix. It was prepared by the
American Petroleum Institute.) NSR, on the other hand, was intended to
require the use of up-to-date emission control technology on new or
substantially rebuilt facilities; and routine maintenance, repair and
replacement activities were specifically exempted from NSR
requirements.
NSR reform will also help enable the refining industry continue its
strong record of environmental progress. The industry has dramatically
reduced its direct and indirect emissions since Clean Air Act
regulation began. According to EPA's figures, between 1980 and 1996 the
refining industry reduced its criteria pollutant air emissions by 74
percent. Congress and the EPA have required the industry to attain
additional dramatic emission reductions in the next few years, largely
through rulemaking activities taken under the authority of the 1990
Clean Air Act amendments.
The refining industry's contributions to improved air quality
reflect the progress made by the Nation as a whole. On June 26, 2001
the EPA announced that between 1970 and 1999 total emissions of the
Clean Air Act's six criteria pollutants decreased 31 percent at a time
of considerable growth in both the economy and population. The Agency
attributed the improved air quality to effective implementation of
clean air laws and regulations and improved efficiency of industrial
technologies. Updating and improving the NSR program should be viewed
in the context of improving air quality and considered as a way to
maintain its environmental progress.
nsr reform has been a bipartisan effort
Finally, NSR reform has been urged by a bipartisan group of
executive branch and congressional policymakers over the past several
years. In 1996 during the previous Administration, EPA initiated a
rulemaking to revise NSR, proposing what appear to be the same changes
that are the core of the present Administration's recommendations.
Former EPA Air Administrator Bob Perciasepe, who served until the end
of the previous Administration, publicly stated his support for NSR
changes which are similar to those recommended by this Administration.
A memo expressing Mr. Perciasepe's opinions is attached in the
appendix. Also, in May 2002 a bipartisan group of U.S. Senators wrote
to the Administration strongly urging NSR reform.
In closing, NPRA urges Congress to continue its support for this
bipartisan effort to modernize and reform the NSR program. Additional
regulatory flexibility in the form of plant wide applicability limits
(PALS), clean-unit treatment, and clarification of the definition of
routine maintenance will help our members improve energy efficiency,
produce cleaner fuels, and install the latest technology. NSR in its
current form impedes, rather than advances, achievement of these goals.
We hope that we can count on continued congressional support for
reforming NSR, so that our members can meet the growing need for
environmentally sensitive products and procedures in ways that are both
effective and efficient. I look forward to responding to your
questions.
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Responses of Bob Slaughter to Additional Questions from
Senator Voinovich
Question 1. Could you provide some examples that illustrate the
impact of the current NSR program on the domestic refining industry's
ability to perform maintenance?
Response. On July 23, 2001, NPRA submitted the attached letter to
the Environmental Protection Agency as a followup to an earlier meeting
held with EPA during its ongoing NSR review. As part of that
submission, NPRA stated: ``Uncertainties about the program's
interpretations have often placed our members in a state of retroactive
'enforcement jeopardy' while adding considerable delay and cost to
refinery projects. The ultimate effect has been to constrain the
industry's ability to (1) expand domestic refining capacity, (2)
increase the supply of cleaner burning fuels, and (3) enhance energy
efficiency. The unavoidable conclusion is that recent Administration of
the NSR program has had an adverse impact on the nation's fuel supplies
and that the program merits careful review and reform.''
Uncertainty resulting from shifting interpretation of the ``routine
maintenance, repair and replacement'' exemption has been an important
contributor to the problems cited in the paragraph cited above.
The July 23, 2001 letter to EPA cited numerous examples in which
NSR reinterpretation has adversely affected industry operations and
improvements. The relevant section of the transmittal letter reads as
follows:
``To demonstrate NSR's `real' world'' impact, we have collected
from our members some concrete examples of refining projects affected
by NSR-related uncertainties. Attachment 1 contains more than 30
examples showing how NSR reinterpretations in the recent past have had
a chilling effect on desirable investments or added considerable delay
and cost.'' We are attaching Attachment 1 to that letter, for your
complete information. In summary, the impact of the examples contained
therein is as follows: Example # Impact:
1. Restrictions place an artificial limit on the refinery's
capacity to produce clean fuels.
2. The permitting uncertainty created by EPA's current
interpretation of NSR, and the threat of EPA overfilling resulted in
delay and the use of extraordinary measures and resources by the
refinery to obtain a permit for clean fuels.
3. Foregone production of clean fuels.
4. Regulatory uncertainty may cause a reliability project to be
abandoned. Fuel supply could be impacted.
5. These steps would increase fuel production and improve
environmental compliance (delayed by NSR reinterpretation and costs
increased).
6. Foregone increase in refinery capacity and fuel supply.
7. Foregone production of clean fuels. 10,000-12,000 B/D of RFG
supply lost or delayed.
8. Foregone increase in refinery capacity.
9. Additional gasoline and diesel fuel would have resulted if the
investment were made. Propane deasphalting yields FCCU and coker feed,
which is converted in part to gasoline and diesel fuel.
10. Forgone increase in refinery capacity.
11. Forgone increase in refinery capacity.
12. Forgone increase in refinery capacity.
13. Forgone increase in refinery capacity and fuel supply.
14. Additional gasoline production was foregone. Alkylate is a key
blendstock for cleaner, lower sulfur gasoline.
15. If PSD review had been undertaken, gasoline production would
have been curtailed.
16. If PSD review had been undertaken, gasoline production would
have been curtailed.
17. Enforcement action by EPA on an existing permit. This permit
meets the goal of PSD--it prevents deterioration of air quality. EPA
has included a similar provision in its recent consent decree with
Marathon Ashland.
18. Loss of 50,000 BPD of refining capacity because of EPA's
reinterpretation of NSR.
19. If PSD review had been undertaken, gasoline production would
have been curtailed. If the project had not been done, an energy
efficiency gain and NOx reduction would not have been realized.
20. Refinery capacity increase delayed.
21. Project delayed by 4 months.
22. The difficulties in determining debottlenecking and aggregation
issues have resulted in the long delay of a project that could have put
more gasoline into the marketplace during the summers of 2001, 2002 and
2003. Since the actual emission increases would have been negligible,
there was no benefit to the environment associated with delaying this
project.
23. Gasoline supply foregone.
24. Supply of clean fuels delayed.
25. Capacity increase foregone.
26. Gasoline production increase foregone.
27. Gasoline production and energy efficiency improvements
foregone.
28. Air quality improvement delayed or foregone.
29. Gasoline production increase and air quality improvement
delayed or foregone.
30. Energy efficiency and air quality improvement foregone.
31. Gasoline production increase delayed or foregone.
32. Gasoline production increase foregone.
Question 2. Could you share with the Committee some of the concerns
that state program's many complexities and shifting interpretations?
Response. Several NPRA member companies have told us that state
regulators have expressed concern over shifting interpretations of NSR
requirements. These regulators have cited EPA reinterpretations as a
reason for some delay in what would have otherwise been routine
requests for review and approval under formerly longstanding NSR
interpretation. This situation is doubly problematic. State regulators
are integral to the NSR oversight and permitting process, and the
refining industry is facing an unprecedented number of new regulatory
requirements which will in many instances require changes to
facilities. Many of these regulatory changes must be implemented by
early 2006. Because of the nature of the NSR process, our information
on these expressions of state regulators' misgivings is anecdotal, but
we can assure you that several of our refining members have told us of
these experiences.
__________
Response of Bob Slaughter to an Additional Question from Senator Wyden
Question. Mr. Slaughter, you have testified that refiners are in
``urgent need'' of NSR reform and refer to the requirement to reduce 90
percent of sulfur in gasoline and that the program hinders your
industry's efforts to produce the cleaner fuels needed. But in April at
a hearing on gasoline pricing, we heard testimony from Mr. Reeves from
Chevron Texaco that they have made and are making significant
expansions at their Pascagoula, Mississippi refinery. He also states
that ``it will be one of the first refineries in the Nation capable of
producing both low sulfur gasoline and on-highway diesel fuel outside
of California. The project will be completed in advance of national
deadlines for these requirements.'' It doesn't sound as if the Chevron
Texaco refinery was hindered by NSR. Please clarify your statement in
light of Mr. Reeves' testimony.
Response. Because this question refers specifically to Chevron
Texaco's experience at its Pascagoula, Mississippi refinery, Mr. Reeves
has sent a letter to the Committee and Senator Wyden in response to
this question. That letter supports and explains the continued need for
NSR reform, and I have attached a copy for your easy reference.
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Statement of Hilton Kelley, Community In-Power and Development
Association and the Refinery Reform Campaign
My name is Hilton Kelley, Port Arthur, TX. Community In-Power and
Development Association and the Refinery Reform Campaign.
I am grateful for the opportunity to speak out on behalf of
refinery communities across the Nation and tell the Senate the truth
about what pollution is doing to us and how much worse it would be
under the new EPA proposal to rollback New Source Review. For example,
by allowing refineries to go backward 10 years to pick their baseline,
pollution will increase. It makes no sense to go backward; we need to
move forward and keep working to reducing pollution by enforcing NSR
fully.
Everyone needs to know that the Clean Air Act, as it now stands,
must be preserved and the new EPA proposal is really a death sentence
for already sick industrial neighborhoods. The Clear Skies Proposal of
the Bush Administration will do nothing for us because it deals only
with power plants. It doesn't cover refineries and chemical plants.
Refineries are located in 36 States, 125 cities and up to 67
million people breathe air polluted by oil refineries. This is a
national problem and the only solution we see is strict enforcement of
the New Source Review, not a relaxation.
I grew up in Port Arthur's Westside in the Carver Terrace housing
project right next to the cluster of refineries. I moved away, but in
2000, I returned. I am on a crusade to empower local citizens to fight
for their health and a key element of that crusade is to protect the
Clean Air Act's New Source Review.
The rest of the country needs what Port Arthur makes, just like
other refinery communities. The neighbors live with the fallout,
pollution and health problems. Texas is home to America's largest oil
refineries and chemical plants. While the State produces the energy the
Nation needs, it also produces more industrial pollution than any other
State according to the latest Right To Know data. Our neighborhoods pay
the highest price for the rest of the nation's ``cheap gasoline''.
Sometimes it can take your breath away. We benefit the least in this
bargain as we have high unemployment. Although the plants get tax
breaks by being in an ``Empowerment Zones'', our people don't see the
benefits.
It seems that these heavy industries concentrate in low income
communities and communities of color where there is the least
resistance. They operate 24 hours a day, 365 days a year and expand
constantly. Right now we are challenging another expansion of the
Premcor refinery that wants to dump 525 more tons of pollution on us so
that they can make low sulfur gasoline. It seems we never have a chance
to get cleaner air.
This problem has a human face. In Port Arthur, almost every day,
10-year-old Cullen Como gets a breathing treatment for asthma. The
illness causes him to miss school often. His mother and sister also
have trouble breathing. The family lives right across the street from
the refineries. Cullen's sister, Kendra Prince, says, ``It's dangerous,
and everybody around here is sick, everybody. It's just killing off
people.''
The plants emit a toxic soup of chemicals. These chemicals are
known to cause cancer, affect brain functions, and hurt organ
development and reproduction. We, like other refinery communities, have
teamed up with Denny Larson, of the Refinery Reform Campaign to form a
local ``Bucket Brigade'' for Port Arthur. The bucket is a simple, but
effective air sampler. It uses a special bag and vacuum pump. Air
samples taken during toxic releases have shown unhealthy levels of
hydrogen sulfide, benzene and other dangerous chemicals. We were forced
to do this because there are no real air monitors in our community.
Annie Edwards, who suffers from breathing problems, has two
breathing machines and has a terrible reaction to the neighborhood
atmosphere. ``Like I panic and I can't catch enough air, and if I go
outside, it's worse. I have to strap on my breathing machine at night
so I don't pass on while I sleep.''
I know from walking door to door that these problems are
widespread. Too many people are dying from cancer. Too many people have
thyroid problems. We have two dialysis clinics in this small town, and
it's time for the citizens to say, `Enough is enough,' and it's time to
do something about it.
We want to work with industry. We want them to put the necessary
controls on their stacks, put the necessary controls on their valves,
so they will quit emitting so much tons of pollution in the community.
We also have a huge pollution problem with accidents, fires,
explosions and upset emissions releasing thousands of pounds of
chemicals into our air through flares, relief valves and dump stacks.
Some Examples are:
March 2002, Premcor Refining, Port Arthur.--80,000 pounds of
propane/butane mix, 7,704 pounds of VOCs per hour, 207,112 pounds of
sulfur dioxide, 2,218 pounds of hydrogen sulfide, 163 pounds of
nitrogen oxides.
February 2002, Premcor Refining, Port Arthur, February 19, 2002.--
About 5,650 pounds of propane and 143 pounds of hydrogen sulfide were
released during the 219-hour upset.
January 2002, BASF Corp., Port Arthur, January 21, 2002.--The plant
experienced an upset, during a 14-hour period, about 57,000 pounds of
benzene, 1,055,000 pounds of ethylene, 675,000 pounds of propylene,
462,000 pounds of butylene, 2,200 pounds of butadiene and 2,200 pounds
of toluene were released.
January 2002, Premcor Refining, Port Arthur, January 2, 2002.--
Upset, about 26 pounds of hydrogen sulfide per hour, 2,479 pounds of
sulfur dioxide per hour, 295 pounds of VOCs per hour and 6 pounds of
nitrogen oxides per hour were released. The upset lasted 168 hours.
A recent health survey done by University of Texas toxicologist
Marvin Legator compared people living in housing projects in refinery
communities like Port Arthur and Beaumont to a non-industrial similar
population. Preliminary results show a vast difference between the
health symptoms these communities report.
<bullet> Seventy-five percent of the people from Port Arthur
complained of headaches and muscle aches compared to twenty percent in
the control group.
<bullet> Eighty percent of Port Arthur people had ear, nose and
throat conditions compared to twenty percent in the control area.
<bullet> Eighty percent of those questioned had heart conditions
and respiratory problems in refinery neighborhoods compared to thirty
percent in non-refinery areas.
Dr. Legator has made a strong correlation between the known health
effects from the emissions from the refineries and the health symptoms
we experience.
Another study conducted by MacArthur Genius Award winning
Scientist, Wilma Subra, showed that health symptoms and emergency room
visits increase when there is a spill or unexpected release from the
plants.
Glenn Alexander, a pediatric nurse practitioner, has been treating
local children for 10 years. His waiting room is nearly always full. He
sees an unusually large number of upper respiratory infections,
allergies, skin rashes and asthma. ``I do see things because I am a
health care provider. The air is not always clear here. Sometimes it's
hard for children to breathe.'' Some of the effects are irreversible
and a life long problem.
Alfred Dominic was born in Port Arthur in 1928: ``Many of my
friends have died of cancer, and many of them are sick at the present
time, because of the emissions.''
Mabel Mallard a SUNOCO refinery neighbor of South Philadelphia, PA,
States: ``How can we live in constant fear not knowing what we will be
forced to breathe next from these refineries? Don't tread on our New
Source Review, we need the protection.''
conclusions
1. New Source Review should be preserved and fully enforced. It is
a grave matter of environmental justice to people who need the help of
the U.S. Senate to protect their health and the health of innocent
children. Going backward to allow refineries to pick a baseline from
the last 10 years is unthinkable to people living on the fenceline
suffering from current levels of pollution.
2. The Clear Skies Plan won't help us. We need the Federal
protection and right to know of the New Source Review.
Thank you. I would be happy to answer any of your questions.
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Response of by Hilton Kelley to Additional Question from
Senator Voinovich
Question. Like you, I care deeply about the impact of these
programs on disadvantaged people. As you may know, two researchers from
the University of North Texas issued a report in May on ``The EPA's
Reinterpretation of New Source Review Rules: Implications for Economic
Development in Rural America.''
The report concludes that the changes in EPA's interpretation of
NSR in 1998 have had a greater negative impact on rural America. Among
their findings are:
<bullet> Population, job growth, and average earnings have all
decreased in rural areas as compared to urban areas.
<bullet> While overall our Nation depends on coal for 55 percent of
its electricity generation, electric cooperatives serving rural areas
are 76 percent dependent on coal for electricity.
Businesses operating in non-metropolitan areas already spend more
for electricity than businesses operating in metropolitan areas. As a
representative of part of Appalachia, which is one of the most
economically distressed areas in this country, I am concerned about how
the study's findings apply to my region and to other portions of the
country like Texas. Would you support any kind of reform to NSR to help
these people?
Response. Pollution from power plants cuts short the lives of
thousands of Americans every year, according to EPA studies through
heart disease, lung cancer and other illnesses. In my out community of
Port Arthur, Texas--where you won't find any of the industry's
lawyers--I have seen first hand how the pollution from refineries and
chemical plants has damaged the health of my neighbors, with high rates
of cancer, asthma and other diseases. These illnesses hurt poorer
people the most, since they are much less likely to have adequate
health insurance or the money to afford long-term care. I do not
understand why, in the richest society in history, we should ask low-
income families to sacrifice their health to make a living.
Also, materials available on the Department of Energy's own website
show that is a false choice. Apparently, last year was the biggest year
ever for power plant expansion, and we have so many new plants that
some of them are being canceled. In North Carolina, State law will
require Duke Power to cut its emissions 70 percent in 10 years, with no
increase in electric rates for consumers. That seems to fit with
another study by the Department of Energy in 2000 (also on the
website), which shows that requiring companies to put on modern
pollution controls will not raise rates for consumers, because it will
make it more economical to build plants that are not only cleaner, but
much more efficient. And I don't understand how allowing old power
plants to keep running without good pollution control equipment helps
rural communities--doesn't that just discourage companies from
replacing old plants with more modern (and cleaner) power plants that
would bring construction and operating jobs to rural areas?
Refineries are experiencing record growth, and in Port Arthur the
Premcor plant wants to grow to 475 million barrels a day, making it one
of the largest in the world. And that's on top of the recent expansion
of the BASF plant. Unfortunately, both these plants have plagued the
community with high levels of pollution and a series of accidents. It
doesn't seem unfair to ask companies to clean up their act, and not to
expand in a way that makes the air even harder to breathe.
__________
Statement of Stephen Harper, Director of Environment, Health, Safety
and Energy Policy, INTEL Corporation
Thank you, Chairman Jeffords and Chairman Leahy, for the
opportunity to address this joint hearing regarding New Source Review
policy issues. My name is Stephen Harper. I serve as the director of
Environment, Health, Safety, and Energy Policy for the Intel
Corporation. I am here to address the committees today about one
specific aspect of New Source Review (NSR), namely Plantwide
Applicability Limit (PAL) permitting approaches. Intel has been part of
an informal coalition of companies from the pharmaceutical, chemical,
automotive, and electronics industries that have been advocating
promulgation of a PAL rule by the U.S. Environmental Protection Agency
(EPA) for several years now. Many of our coalition members have
experience with PAL-type permits at their facilities and believe
strongly that EPA should promulgate a PAL rule as a logical next step
in a long process of piloting, perfecting, and proliferating flexible
permitting approaches that protect the environment and provide
operational flexibility to facilities.
Much effort has been expended over the last 10 years by industry,
States, EPA, and the public--under both Democrat and Republican
Administrations--to ``reinvent'' or innovate new approaches to
environmental protection. Intel has participated in many of these
efforts and is intimately familiar with the mixed result of successes
and failures from these endeavors. We feel strongly that PAL-type
permits are one of the most successful innovations to emerge from these
many reinvention efforts. The time has come to build on this success
and take PALs into the mainstream of NSR permitting.
semiconductor manufacturing requires flexible permitting
Why does Intel care about PALs and other forms of flexible
permitting under the Clean Air Act? In simplest terms because of the
importance of operational flexibility in being able to innovate new
products and processes and quickly respond to market conditions. As in
many other industries, there are only two types of semiconductor
companies--``the quick and the dead.'' We feel strongly, therefore,
about being quick.
Intel operates 10 semiconductor ``fabs'' or fabrication facilities
in the United States, producing Pentium<Register> processors and other
semiconductor products. These facilities employ many thousands of
highly skilled US workers. The capital investment required to bring a
new fab into full production is in the $2-3 billion range. The life-
cycle of a semiconductor fab involves numerous upgrades and innovations
in production technology, chemicals, and processes. A ``typical'' Intel
fab, for example, experiences two or more technology generations over a
5-year period; as many as 75 upgrades and innovations each year in
process steps, methods, and chemicals; and the installation of between
175 and 500 new process tools over a 2-year technology transition.
Once a fab has commenced production, profitability depends upon
reaching and maintaining high levels of production as quickly as
possible. Traditional air quality permitting approaches, under NSR and
other EPA and State programs, would require potentially hundreds of
permit revisions to implement the upgrades and innovations that are
critical to successful startup and ramp-up of a fab. The potential
delays attendant to such revisions are--simply put--incompatible with
the profitable operation of U.S.-based semiconductor fab that must
compete in a global marketplace where success hinges upon being quick-
to-market. Traditional permitting approaches would require numerous
permit modifications and threaten significant delays for companies like
Intel as we install new manufacturing tools, convert to new
manufacturing processes, change chemicals, and expand production
capacity to respond to market conditions.
Driven by the incompatibility of traditional permitting approaches
with semiconductor manufacturing requirements, Intel has long pursued
an objective of minimizing our permitting burden. We have done this in
two ways. The first is to reduce our emissions of all pollutants as
much as we can so as to achieve ``minor source'' status under the Clean
Air Act. The second priority has been to work with EPA and the States
to pilot and prove new, innovative, and more flexible permitting
approaches.
what is a pal?
A PAL permit provides an emissions cap or caps for an industrial
facility. The cap provides a clear method for determining whether
changes at a PAL-covered facility trigger NSR permitting requirements.
The need to obtain an NSR permit revision only applies when a
facility's emissions increase beyond the PAL cap. In addition to the
cap, a PAL or PAL-type permit typically specifies certain kinds of
facility changes that are ``pre-approved.'' A facility with a PAL can
undertake a pre-approved change without becoming subject to NSR as long
as the facility's emissions remain below the cap(s).
It is important to clarify the difference between a PAL permit
under the NSR program and what I am terming a ``PAL-type'' permit. PALs
per se relate only to facilities that qualify as ``major'' under the
Clean Air Act by virtue of the magnitude of their emissions. I am using
the term ``PAL-type'' permits to refer to minor source permits
involving both an emissions cap and pre-approval of certain operational
changes. As I will make clear shortly, Intel has experience with both
types of permit.
what are the benefits of pal-type permits?
There are three categories of benefits provided by PAL and PAL-type
permits. Most importantly, PALs provide significant environmental
benefits. PAL emissions caps provide certainty regarding the emissions
impact of a facility. Moreover, since these emissions caps are set at
levels that reflect the air quality improvement needs of an airshed,
PAL caps typically entail emission reductions compared to traditional
permitting approaches. Emissions caps, moreover, provide a very
powerful incentive for pollution prevention. The only way a facility
can increase its production and still stay under its cap is to reduce
its emissions per unit of production. PALs allow facility environmental
engineers to spend less time dealing with the burdens of permitting
paperwork and free them up to concentrate on reducing emissions through
pollution prevention.
A second benefit PALs provide is enhanced public participation.
Under traditional approaches, air quality permitting authorities notify
the public of numerous changes, big or small, at facilities, providing
opportunities for public input into whether or not permit modifications
should be granted. At best, what the public sees in the traditional
case is a series of incremental changes and piecemeal information about
facility operations that provide little understanding regarding the
overall impact of a facility on local air quality. Under a PAL,
however, the public has the opportunity to be involved in the initial
process of establishing the PAL permit and emissions caps. In this
setting the public can gain a much better sense of the overall
operations of a facility, the kinds of operational changes that are
contemplated, and the likely air quality impacts of the facility over
the term of the permit. The public has a much enhanced opportunity to
view the facility holistically, rather than in a fragmented way.
A third type of PAL benefit accrues to the permitted facility in
the form of operational flexibility. For major sources concerned about
NSR applicability, PALs provide a ``bright line'' that eliminates
ambiguity about whether or not operational changes trigger NSR
requirements. PAL-type permits provide minor sources the same type of
flexibility regarding State minor source NSR requirements.
intel's experience with pal-type permits
A major part of our corporate commitment to innovating new
permitting approaches has involved partnership with EPA, the States,
and members of the public to pilot the basic concepts underlying the
PAL rule that EPA currently is finalizing. The first of these
partnership commitments came in the 1992-1995 timeframe where Intel,
EPA, and Oregon developed a PAL permit for Intel's Aloha, Oregon fab as
part of EPA's ``Pollution Prevention in Permitting Program'' (P4). The
second major partnership involved Intel, EPA, and Maricopa County,
Arizona jointly undertaking one of the first pilot projects under EPA's
``Project XL'' program at its Ocotillo campus in Chandler, Arizona.
Intel's P4 permit was a PAL permit under the Federal NSR program
because our Aloha fab was a major source at the time the permit was
issued. Our XL permit for the Ocotillo fab is not, strictly speaking, a
PAL, because that facility is a minor source under the Clean Air Act
and, thus, no NSR ``applicability'' issues arose. Nonetheless, our
Ocotillo permit functionally is the same as the Aloha permit and has
provided another valid test of the emissions cap and pre-approved
changes features of a PAL.
I previously described the environmental benefits of PAL permits.
Let me now show how those benefits were realized in practice in our
Oregon and Arizona pilot projects. The environmental benefits at our
Aloha, Oregon fab are very dramatic. The attached exhibit provides a
graphic demonstration of the powerful incentive PALs provide for
aggressive pollution prevention programs. This chart shows facility VOC
emissions per production unit and total production units. Motivated by
the need to find room for growth under our PAL cap, our Aloha fab
reduced emissions of VOCs by over 90 percent per unit of production
since 1990. Some of this reduction occurred prior to 1995 under an
Oregon PAL-like permitting program. Even more dramatic reductions
occurred after our NSR PAL came into effect in 1995.
The combination of the pressure of an emissions cap and the
operational flexibility under our Aloha PAL fueled an aggressive
pollution prevention program. The success of that program allowed Intel
to add an additional fab at our Aloha campus without the need to
increase our cap. Indeed, we reduced overall VOC emissions and
voluntarily lowered our VOC cap from 160 tons per year to 130 tons per
year. This was done to support the successful efforts of Oregon and the
Portland region to reduce overall regional emissions and qualify
Portland for re-designation as an Ozone Attainment area in 1997.
Intel's consistent reductions over time, combined with this area
redesignation, allowed our Aloha fab to itself achieve minor source
status under the Clean Air Act in 1999.
The environmental results under our PAL-type permit at our Ocotillo
campus have been equally dramatic. Through our aggressive pollution
prevention program, the Ocotillo facility--which sits on 720 acres,
employs approximately 5,000 people, and produces a high volume of
semiconductor devices--emits approximately 25 tons of VOCs annually.
This emissions level is in the neighborhood of what several large gas
stations would produce. Our emissions reductions at Ocotillo have been
so dramatic that we have constructed and are now operating a second fab
on this campus--all under the XL cap.
pals are proven and ready for prime time
As I have shown, Intel's experience piloting PALs and PAL-type
permits with EPA and State and local permitting authorities has been
dramatically successful. Other companies that have worked with EPA and
the States to test the PAL approach also can tell similar success
stories. Several of the other companies in our informal ``PAL
coalition''--including DaimlerChrysler, DuPont, and Merck--have
successfully piloted the PAL approach at one or more of their
facilities. Other companies in other industries are applying the PAL
approach as we meet today, including BMW, GM/Saturn, and several oil
refineries. At this point, PALs have been demonstrated successfully in
a number of very different industrial sectors.
Intel believes, as I mentioned at the outset of my testimony, that
PALs are one of the most significant regulatory innovations to emerge
from the last 10 years of regulatory reinvention activities at the
Federal and State level. Indeed, PALs are an example of the right way
for a regulatory agency like EPA to innovate. First you try some pilot
projects. You evaluate your experience and, where success has been
demonstrated, you build on that success by mainstreaming the innovation
in your regulatory program.
``Mainstreaming'' the PAL success story will be aided greatly by
EPA promulgation of practical PAL provisions either discretely or as
part of a larger NSR rule. Regulatory action is not necessary as a
legal matter. The successful PAL pilot projects at Intel and other
companies have utilized existing legal authority. On the other hand,
regulatory action by EPA will promote the PAL concept by providing
greater guidance to permitting authorities and sources regarding the
benefits of PALs and PAL-type approaches. With the promulgation of
clear ``rules of the road,'' sources and States will be better able to
craft PAL permits that realize the environmental, public participation,
and operational flexibility benefits I have cited.
In sum, Congress should be encouraging flexible permitting
approaches like PALs. I will be glad to answer any questions the
committee members might have.
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Responses by Stephen Harper to Additional Questions from Senator
Voinovich
Question 1. How important is ``operational flexibility'' to a
company that must compete in a global marketplace? Can you provide
examples of how NSR has affected your company's ability to compete?
What would be the economic impact and loss of jobs if Intel could no
longer compete due to these cumbersome regulations?
Response. Operational flexibility is critical to the ability of
Intel, and companies like Intel, in fast changing international
markets, to compete. Traditional NSR permitting requires permit
modifications for many of the hundreds of production changes Intel
makes at each of its fabs during the several year cycle of a process or
product generation. The application process alone can threaten delays
that hinder the ability of a facility to respond to changes in market
demand or install improvements that reduce cost or increase output.
Intel has been able to avoid these effects of NSR because we have
rigorously employed pollution prevention to become a Clean Air Act
``minor'' source at all of our facilities. Our interest is preventive:
We seek to codify, as part of the Federal NSR program, the type of
flexible plantwide applicability limit (PAL) permits we operate under
through State minor source programs. We want to make sure that, should
we become a major source at any of our sites--through growth and/or
reclassification of an area under the Clean Air Act--we can continue to
enjoy this type of flexibility under major source NSR. At the present
time, PALs are legal under NSR, but clear ``rules of the road'' are
necessary to make it easier for sources and States to know how best to
craft major source PAL permits. The threat of becoming a major source,
and not being able to enjoy PAL flexibility, would influence our future
decisions re siting of new facilities here in the United States.
Question 2. In your testimony, you detail Intel's experience with
PAL-type permits. What was the timeline and process that has led up to
the Administration's announcement to finalize the PAL rule?
Response. I cannot speak definitively to the Administration's
timeline. I can say only what I know from Intel's direct participation
in a long multi-stakeholder process to reform NSR. What has become the
current version of the PAL concept was proposed in EPA's 1996 NSR
rulemaking. Although we have not seen the Administration's specific
rulemaking language, we believe that everything the Administration
currently seeks to finalize/propose with respect to PALs was
foreshadowed in that proposal, or is a logical outgrowth of the 1996
proposal and the comments received on that proposal. Subsequent to the
1996 proposal, the Clinton EPA held a lengthy series of consultations,
both formal and informal, with a wide variety of stakeholders to refine
the PAL concept. Part of this early process included Intel's project
piloting the PAL concept at our Ocotillo fab in Arizona, as part of the
Administration's flagship reinvention effort, Project XL. The process
picked up in February 1999, when EPA held a formal NSR reform workshop
in Washington, where PALs and many other NSR reform ideas were
discussed. Following that workshop, and leading right up to the final
days of the Clinton Administration, numerous more informal meetings
were held by EPA with various stakeholders to discuss PALs. In sum, the
process was extensive and deliberative. Upon leaving office, Assistant
Administrator Perciasepe recommended to the incoming Bush
Administration taking action to finalize PALs among other NSR reforms.
__________
Statement of John D. Walke, Director, Clean Air Program, Natural
Resources Defense Council
i. introduction
I would like to thank the chairmen of these committees for inviting
me to testify on behalf of NRDC's 500,000 members. As an organization
dedicated to safeguarding public health and the natural environment,
NRDC has for over 30 years promoted actions to implement the Clean Air
Act. For just as long, NRDC has opposed efforts to turn the government
away from fulfilling Congress's commitment to protect Americans from
harmful air pollution.
The chairmen have convened these hearings to investigate the
changes that the Environmental Protection Agency has announced it will
make to the regulations that implement the Clean Air Act. This
investigation will reveal that the attempted changes represent the most
sweeping and aggressive attack that the Clean Air Act has faced in its
thirty-year history. Through the mechanism of administrative
rulemaking, EPA is attempting, in effect, to repeal an act of Congress.
These changes are not only unlawful, but also deadly. They will result
in tens of thousands of premature deaths, asthma attacks, and
hospitalizations that would have been prevented had EPA elected to obey
the law rather than break it.
This testimony will summarize the data that the public health
community has presented to EPA showing that the impending rollbacks
will result in illness and death on a massive scale. The agency has not
even attempted to rebut this evidence; its staff has performed no
analysis of the impact that the announced changes will have on air
quality and public health. But EPA is going forward with the changes
anyway.
Why is EPA doing this? The agency's top officials admit that it is
making these changes because industry has called for them. The owners
of the country's dirtiest power plants claim that the portion of the
Clean Air Act known as New Source Review prevents them from undertaking
routine maintenance at their plants and from upgrading their facilities
to generate more electricity with less fuel. But when asked for facts
showing that the operation of New Source Review has had this negative
effect, industry offers only undocumented anecdotes and sketchy
hypotheticals. This testimony will summarize the evidence demonstrating
that the New Source Review provisions of the Clean Air Act do not
hinder industry from carrying out routine maintenance or from meeting
the country's energy needs. The only thing New Source Review prevents a
company from doing is evading its duty to install pollution controls
when it modifies its plants in ways that increase pollution. The
nation's worst polluters resent the lawsuits that the Federal
Government and the States have brought to enforce this statutory
obligation, so they have instructed the current Administration to
eliminate it.
EPA has blindly adopted the polluters' self-serving,
unsubstantiated claims about New Source Review and initiated an
unprecedented rollback without any analysis of the public health
impacts. Because the rollback will violate an act of Congress and
adversely impact the health of tens of thousands of Americans, I ask
that these committees do everything in their power to prevent the
changes from taking effect.
ii. background
A. What NSR Is\1\
---------------------------------------------------------------------------
\1\ The description of the New Source Review program provided in
this section derives largely from the U.S. Department of Justice's
January 2002 report entitled ``New Source Review: An Analysis of the
Consistency of Enforcement Actions with the Clean Air Act and
Implementing Regulations'' (``OLP Report'').
---------------------------------------------------------------------------
In 1970, Congress amended the Clean Air Act to require that new
industrial sources of air pollution be built with state-of-the-art
pollution controls.\2\ The amendments did not require existing sources
to install modern controls immediately. Instead, they required existing
plants to install controls when and if the sources underwent
modification.\3\ Congress believed that the most efficient time to
retrofit a facility was when the plant was already undergoing
construction activity,\4\ and it assumed that many existing sources
would soon be retired and replaced anyway.\5\
---------------------------------------------------------------------------
\2\ See Pub. L. No. 91-604, 84 Stat. 1676, Section 111 (codified at
42 U.S.C. Sec. 7411).
\3\ See id., Section 111(a)(2) (codified at 42 U.S.C.
Sec. 7411(a)(2)).
\4\ See H.R. Rep. No. 95-294, at 185-86 (1977), reprinted in 1977
U.S.C.C.A.N. 1077, 1264-65 (``Building control technology into new
plants at time of construction will plainly be less costly than
requiring retrofit when pollution ceilings are reached.''). See also
Wisconsin Electric Power Co. v. Reilly (``WEPCO''), 893 F.2d 901, 909
(7th Cir. 1990) (finding that the purpose of the ``modification'' rule
is to ensure that pollution control measures are undertaken when they
can be most effective, at the time of new or modified construction).
\5\ See H.R. Rep. No. 95-294, at 186 (``For some of the older and
smaller sources, it is not physically or economically feasible to
retrofit sulfur oxide control technology.'').
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The 1970 amendments failed to achieve the Act's goal of healthy air
in all areas of the country by 1975. In response to this failure,
Congress passed a new set of amendments in 1977.\6\ These amendments
established the New Source Review (``NSR'') program, which requires a
preconstruction review and the issuance of a permit for the
construction of any new ``major emitting facility,'' or the
modification of any existing facility.\7\ The program is designed to
prevent modified or new facilities from causing increased emissions
that could cause or contribute to violations of applicable air quality
standards.\8\ Before a company can receive a permit to commence
``construction,'' it must show that the proposed project would not
result in the violation of an air quality standard or any other
applicable limit in any local or downwind area, and that the resulting
facility would be ``subject to the best available control technology
for each pollutant subject to regulation under this chapter emitted
from, or which results from, such facility.''\9\
---------------------------------------------------------------------------
\6\ Pub. L. No. 95-95, 91 Stat. 685 (codified at 42 U.S.C.
Sec. Sec. 7401-7642).
\7\ See 42 U.S.C. Sec. Sec. 7475, 7501-7503.
\8\ See id. Sec. 7470(5).
\9\ Id. Sec. 7475(a).
---------------------------------------------------------------------------
The Act defines ``construction'' to include ``modification.''\10\
The term ``modification'' is in turn defined as ``any physical change
in, or change in the method of operation of, a stationary source which
increases the amount of any air pollutant emitted by such source or
which results in the emission of any air pollutant not previously
emitted.''\11\ The statute does not further limit the definition of
``modification''; however, EPA regulations promulgated after 1977
exclude ``routine maintenance, repair, and replacement'' from the
term's scope.\12\
---------------------------------------------------------------------------
\10\ Id. Sec. 7479(2)(C).
\11\ Id. Sec. 7411(a)(4). In the words of Senator Edmund Muskie,
one of the principal supporters of the 1977 amendments, ``A source . .
. is subject to all the nonattainment requirements as a modified source
if it makes any physical change which increases the amount of any air
pollutant . . . .'' 123 Cong. Rec. 26,847 (1977).
\12\ 40 C.F.R. Sec. Sec. 51.166(b)(2)(I); 52.21(b)(2)(iii)(a);
52.24(f)(5)(iii)(a); 60.14(e)(1).
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Industry representatives often complain of difficulty determining
what kinds of activity qualify as ``routine.'' Although EPA has issued
guidance in the form of individual applicability determinations, it has
not promulgated any regulations specifying what types of projects are
always ``routine'' and thus exempt from New Source Review. In
evaluating industry's complaints about lack of clarity, it is important
to keep in mind the fact that, as early as 1994, EPA staff circulated
draft regulatory language that would have equated ``routine'' with
``minor.''\13\ The draft stated that ``routine activities would
generally include . . . minor maintenance or repair of parts or
components and the replacement of minor parts or components with
identical or functionally equivalent items.''\14\ In response to
industry comments, including a recommendation that ``routine'' be
defined as ``undertaken in an industrial category,''\15\ EPA abandoned
the effort to craft a regulatory definition of the term.
---------------------------------------------------------------------------
\13\ See New Source Review Reform 106-09 (EPA, Preliminary Staff
Draft 1994).
\14\ Id.
\15\ Letter from Mary Nichols to Bill Lewis, May 30, 1995, at 19.
---------------------------------------------------------------------------
EPA thus continues to determine what is ``routine'' on a case-by-
case basis. In making these determinations, the agency weighs several
factors, including ``the nature, extent, purpose, frequency and cost of
the work.''\16\
---------------------------------------------------------------------------
\16\ WEPCO, 893 F.2d at 910.
---------------------------------------------------------------------------
The U.S. Court of Appeals for the D.C. Circuit has observed that
``[i]mplementation of the statute's definition of ``modification'' will
undoubtedly prove inconvenient and costly to affected industries.'' The
court nevertheless held that ``the clear language of the statute
unavoidably imposes these costs except for de minimis increases.''
While ``[t]he statutory scheme intends to `grandfather' existing
industries[,] the provisions concerning modifications indicate that
this is not to constitute perpetual immunity . . . .''\17\
---------------------------------------------------------------------------
\17\ Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir.
1980). See also Legislative History of the Clean Air Act Amendments of
1990, 6675-76, Senate Debate on S. 1630, Remarks of Senator Baucus
(``The issue is whether old facilities that are substantially renovated
and refurbished should continue to be allowed to emit at much higher
rates or to emit more pollution, and with little or no pollution
control equipment, compared to new sources. The obvious answer is that
they should not, so long as common sense exceptions to the rules de
minimus exceptions and exceptions for pollution control equipment]
continue to apply . . . .'').
---------------------------------------------------------------------------
B. The History of NSR Enforcement
The regulations implementing the 1977 New Source Review provisions
were not fully in effect until the early 1980's, after several rounds
of judicial review and re-promulgation. Thereafter followed a period,
coinciding with the Reagan Administration, in which EPA did little
enforcement of any kind. During this period of non-enforcement, the
utility industry essentially ignored the New Source Review
requirements.
One company, Wisconsin Electric Power (``WEPCO''), did approach EPA
in 1988 to ask whether the construction planned at one of its coal-
fired power plants could be considered ``routine maintenance, repair,
and replacement.'' WEPCO wanted to undertake renovations so that its
plant could operate beyond its planned retirement date of 1992. To that
end, the company wanted to repair or replace the turbine-generators,
boilers, rear steam drums, air heaters, mechanical and electrical
auxiliaries, and common plant support facilities. These refurbishments
would require the company to take various units of the plant out of
service for 9 months.\18\
---------------------------------------------------------------------------
\18\ WEPCO, 893 F.2d at 906-08.
---------------------------------------------------------------------------
When EPA told WEPCO that the planned renovations could not be
considered routine, the company petitioned for review by the U.S. Court
of Appeals for the Seventh Circuit. In court, WEPCO argued that
``Congress did not intend for simple equipment replacement to
constitute a physical change for purposes of the Clean Air Act's
modification provisions.''\19\ The Seventh Circuit held, however, that
``to adopt WEPCO's definition of `physical change' would open vistas of
indefinite immunity from the provisions of NSPS and PSD [the latter
being the version of New Source Review that applies in areas that are
in attainment of air quality standards].''\20\ The court found that EPA
had not acted arbitrarily or capriciously in determining that the
proposed changes were not routine.\21\
---------------------------------------------------------------------------
\19\ Id. at 908.
\20\ Id. at 909. See also id. (``The legislative history suggests
and courts have recognized that in passing the Clean Air Act
Amendments, Congress intended to stimulate the advancement of pollution
control technology. . . . The development of emission control systems
is not furthered if operators could, without exposure to the standards
of the 1977 Amendments, increase production (and pollution) through the
extensive replacement of deteriorated generating systems.'') (citations
omitted).
\21\ Id. at 913.
---------------------------------------------------------------------------
The electric power industry's response to the WEPCO decision was to
stop seeking applicability determinations from EPA. The power companies
did not, for the most part, apply for NSR permits before undergoing
construction at their existing plants, nor did they report the
resulting emissions increases.
At the same time, the industry prevailed upon the Office of
Management and Budget to kill a broader examination of industry
practices initiated by EPA. The industry also pressured Congress to
amend the Clean Air Act to create broad new exemptions for modification
projects at power plants. When they did not get new statutory
exemptions, the power companies lobbied the first Bush Administration
for regulatory loopholes. In 1992, the Administration amended the NSR
rules to give the electric utilities a more generous formula for
calculating whether an emission increase had occurred. The rule did not
change the definition of routine maintenance, however. When EPA
initiated a new investigation to determine why so few NSR applications
had been filed, industry again sought intervention by OMB, using the
Paperwork Reduction Act as a pretext. While this effort succeeded in
delaying EPA's investigation, OMB ultimately dismissed the industry's
claims.
In the mid 1990's, EPA focused its NSR enforcement efforts on
refineries and pulp and paper mills.\22\ Budget cuts and congressional
attacks associated with the 104th Congress limited EPA's ability to
mount serious enforcement efforts against the power industry. Moreover,
efforts to revise the national ambient air quality standards for ozone
and particulate matter, to address interstate ozone transport problems,
and to strengthen mobile source controls dominated EPA's air pollution
control activity.
---------------------------------------------------------------------------
\22\ OLP Report at 17-19, 31, Appendix II.
---------------------------------------------------------------------------
Finally, in 1996, EPA began to investigate the electric power
industry in earnest.\23\ That investigation uncovered a capital
investment strategy, starting in the 1980's, to upgrade existing coal-
fired power plants to run longer and harder rather than letting them
retire and be replaced by new, cleaner facilities (as Congress had
anticipated). Not only was the utility industry deliberate in pursuing
this strategy, but industry representatives were even candid about it,
or at least they were in non-environmental proceedings. For instance,
in January 1995, a plant manager for Ohio Power (``OPCo''), a
subsidiary of American Electric Power (``AEP''), testified about his
company's ``life-optimization programs'' to the Public Utilities
Commission of Ohio:
---------------------------------------------------------------------------
\23\ Id. at 13.
The company has recognized for some years the benefits of
extending or optimizing the lifetimes of several of its older
coal-fired generating units . . . and has developed and begun
to implement life-optimizations programs to accomplish that
objective. The life-optimization programs extend over several
years, and require significant capital expenditures during
those years. Without those expenditures, the units' lives could
not be extended, and they would most likely achieve more
traditional lifetimes, on the order of 35-40 years. As a direct
result of the life-optimization programs, the company expects
those units to achieve, instead, lifetimes on the order of 50
years for certain of those units and of 60 years for others . .
. .\24\
---------------------------------------------------------------------------
\24\ Public Utilities Commission of Ohio, Case No. 94-996-EL-AIR,
Supplemental Testimony of Myron D. Adams on behalf of Ohio Power
Company, July 20, 1994, at 6-7.
---------------------------------------------------------------------------
Utilities today, including OPCo, have much greater incentives
than in the past to keep existing generating units operating as
long as possible beyond their nominal lifetimes, even at
considerable expense, so as to put off the need for incurring
the even greater expense of adding costly new replacement
capacity.\25\
---------------------------------------------------------------------------
\25\ Id. at 23.
---------------------------------------------------------------------------
[T]he achievement of lifetimes in excess of 40 years is
directly dependent on carrying out the life optimization
program; such lifetimes simply could not be achieved without
the unit modernization program, and without incurring the
program's considerable capital cost.\26\
---------------------------------------------------------------------------
\26\ Id. at 25.
In light of the industry's ``life-optimization'' strategy, it is
not surprising that EPA's investigation of coal-fired power plants
---------------------------------------------------------------------------
uncovered myriad construction projects that were anything but routine:
<bullet> At the Tennessee Valley Authority's Allen plant, the
replacement of a reheater and other large components involved
cutting a twenty-five-foot hole in the boiler wall at a
location 10 stories off the ground and constructing a mono-rail
line and trolley system to transport the old components out of
the boiler. The project required a work force of over 70
people.\27\
---------------------------------------------------------------------------
\27\ In re: Tennessee Valley Authority: Transcript of Proceedings
at 240-242; Direct Testimony of Plant Manager Alan Heckking at 17.
---------------------------------------------------------------------------
<bullet> AEP modified its Big Sandy plant in Kentucky in ways
that allegedly led to an annual increase in sulfur dioxide
emissions of 18,000 tons--more than the total emissions from a
new coal-fired plant.\28\
---------------------------------------------------------------------------
\28\ September 15, 1999 letter from Eliot Spitzer, Attorney General
of New York, to William J. Lhota, president of Kentucky Power Company.
---------------------------------------------------------------------------
<bullet> At its Tanners Creek plant in Indiana, AEP replaced
11 furnaces.\29\
---------------------------------------------------------------------------
\29\ United States v. AEP, Complaint.
---------------------------------------------------------------------------
<bullet> At its Scherer plant in Georgia and its Miller plant
in Alabama, the Southern Company constructed entirely new
units.\30\
---------------------------------------------------------------------------
\30\ United States v. Alabama Power Co. and Georgia Power Co.,
Complaint.
The companies did not apply for NSR permits before undertaking any
of these upgrades and reconstruction projects.
Beginning in 1999, EPA sent a number of referrals to the Department
of Justice for civil enforcement actions against the owners and
operators of some of the largest coal-fired power plants in the
country, including those identified above, alleging widespread
violations of the New Source Review provisions. After reviewing the
referrals, the DOJ in November 1999 filed seven enforcement actions in
U.S. District Courts against nine companies. That same month, EPA
issued an administrative compliance order to the Tennessee Valley
Authority alleging multiple NSR violations at nine of TVA's 11 coal-
fired power plants located in Alabama, Kentucky, and Tennessee. The
following May, TVA petitioned for review of the EPA order by the U.S.
Court of Appeals for the Eleventh Circuit. In December 2000, the DOJ
filed an additional NSR enforcement action against Duke Energy alleging
major modifications at the company's coal-fired power plants in the
Carolinas.\31\
---------------------------------------------------------------------------
\31\ OLP Report at 13-17.
---------------------------------------------------------------------------
One of these enforcement actions--against Tampa Electric--has been
resolved with a consent decree. The rest are still in litigation.\32\
---------------------------------------------------------------------------
\32\ Id. at 15, 17.
---------------------------------------------------------------------------
C. The Backlash Against NSR
In response to the enforcement actions, industry renewed its
political assault on New Source Review. Lawyers and lobbyists for the
coal and oil companies descended once again on Washington with claims
that NSR was having a host of pernicious effects. A review of the facts
reveals each of these industry claims to be specious.
t, the lobbyists have asserted that NSR subjects companies to an
expensive and interminable permitting process whenever they seek to
undertake even the most minor maintenance at their facilities. A
popular claim is that NSR could potentially apply to the replacement of
a single light bulb at a plant.
The reality is that NSR's permitting requirements are only
triggered by modifications that significantly increase air pollution
emissions. What is more, EPA's regulations already calculate the
baseline against which increases are measured in a way that is generous
to industry. Only if emissions increase significantly above these
generous levels does a facility trigger NSR.
The Department of Justice has not filed enforcement actions against
companies for replacing light bulbs. As the examples presented above
demonstrate, the instances in which the government has asserted that
NSR applied are ones in which companies undertook large-scale
construction projects at their plants, refurbishing, replacing, and
upgrading equipment in ways that greatly increased the amount of air
pollution emitted from those facilities.
The second claim the lobbyists make is that NSR's onerous
requirements prevent industry from meeting the country's power needs.
Nothing could be farther from the truth.
First of all, energy market analysts do not see environmental
regulation as a driver of recent trends in electricity capacity
expansion and utilization relative to other factors.\33\
---------------------------------------------------------------------------
\33\ See, e.g., Economists Tell Senate Committee that FERC May Need
More Economic Expertise to Monitor Power Markets Effectively, Foster
Electric Report, June 20, 2001 (comments by Severin Borenstein); Power
Companies and Regulators Must Take Steps to Avoid Spread of California
Power Virus, Business Wise, April 24, 2001; Charles J. Cicchetti and
Colin M. Long, Politics as Usual: A Roadmap to Backlash. Backtracking
and Re-Regulation, Public Utilities Fortnightly, October 1, 2000, at
34.
---------------------------------------------------------------------------
Moreover, all signs indicate that this country will produce more
than enough electricity to satisfy its needs. PA Consulting has
estimated that more that 245 GW of new capacity is under development;
and that it is likely that 175 GW to 230 GW of that planned capacity
will come on line by 2006. To put that growth in perspective, the group
states that 215 GW of capacity additions would be equivalent to ``what
the entire rest of the world built in 3 years.'' PA Consulting
emphasizes that the total includes 11 GW of coal-fired generation
capacity under development and that 20,000 MW of new coal-fired
capacity had been announced in the 6 months preceding the report alone.
Finally, the group observes:
With the current wave of new plant announcements, it is even
likely that the industry will overbuild, as players seek to
increase market share by displacing older capacity. By 2006,
some 30-50 GW of `excess' capacity might become operational and
some regional markets might experience excess capacity and very
low prices in the next 3-4 years.\34\
---------------------------------------------------------------------------
\34\ PA Consulting Group, The President's 2001 US Energy Blueprint:
What Does It Mean For the Utility Industry? (May 25, 2001) (emphasis in
original).
Likewise, the Cato Institute has estimated that 150 to 200 GW of
new capacity is scheduled to come on line by 2004, threatening an
``electricity glut.''\35\ Clearly, the current NSR regulations have not
hindered the construction of new generating capacity.
---------------------------------------------------------------------------
\35\ Jerry Taylor, Just Say ``No'' to the Energy Plan, May 19,
2001, at http://www/cato.org/dailys/05-19-01.html.
---------------------------------------------------------------------------
The fact is that a great deal of new capacity is being built, even
with NSR requirements in place. According to the North American
Electric Reliability Council,\36\ ``Near term generation adequacy is
deemed satisfactory.'' The NERC expects reserve margins in the 15-27
percent range, with 15 percent generally considered adequate.\37\ These
estimates may need to be adjusted to account for recent investor
reluctance owing not to NSR, but rather to disclosures of corporate
fraud in the energy industry and elsewhere.
---------------------------------------------------------------------------
\36\ ``Reliability Assessment 2000-2009'', North American Electric
Reliability Council, October 2000.
\37\ Clean Air Task Force, et al., Comments on Review of
Interpretation, Implementation, & Enforcement of Clean Air Act New
Source Review Programs, EPA Docket No. A-2001-19, July 24, 2001
(``Environmental Comments on NSR Background Paper''), at 47.
---------------------------------------------------------------------------
With respect to oil production, refiners have affirmed that the
reason they did not build new refineries in the 1990's is that the low
profitability of the business simply did not justify the investment.
Valero's senior vice president has emphasized that it was ``the poor
margins that had the biggest impact, not the environmental rules.''\38\
Refiners and analysts also point to low profitability--not to NSR or
other environmental requirements--when explaining why companies are not
investing in new refineries. For example, Exxon Mobil's chairman and
chief executive recently stated that no oil company is prepared to
build a new refinery because they cannot make money from doing so.\39\
Finally, environmental requirements cannot be blamed for the low
profitability of the industry and the resulting reluctance to invest in
new refineries. The EIA has concluded that environmental requirements
accounted for only a very small share of the refining industry's
decline in profitability in the early 1990's.\40\
---------------------------------------------------------------------------
\38\ Nelson Schwartz, Is Dick Cheney the New Hillary? Fortune, June
11, 2001, at 37.
\39\ Alexei Barrionuevo, Exxon-Mobil CEO Doubts Anyone Would Build
US Refinery, Dow Jones News Service (May 30, 2001).
\40\ ICF Consulting, Review of Data on the Impact of New Source
Review on Investment Decisions: Power Generation and Refinery Sectors,
Draft Report (June 22, 2001), at 53. See also Energy Information
Administration, The Impact of Environmental Compliance Costs on US
Refining Profitability.
---------------------------------------------------------------------------
The third industry claim is that requiring older power plants meet
modern pollution standards will mean higher electricity prices for
consumers. An analysis by MSB Energy Associates analysis demonstrates
that the cost of requiring best available control technology on the
fifty-one plants that have been charged with NSR violations is quite
modest relative to industry revenues. The annual cost (including the
amortization of the capital cost) would be about $4 billion. This
amounts to about 8 percent of the revenues for the companies involved.
On average, the cost impact would be 0.5 cents per kWh based on year
2000 reported sales for the companies involved. This must be compared
to the health benefits, which are four-to-five times the cost of
controls.\41\
---------------------------------------------------------------------------
\41\ Environmental Comments on NSR Background Paper, Appendix D.
---------------------------------------------------------------------------
The other important point to take away from MSB's analysis is that
the lion's share of the cost of the clean up will be eaten by the plant
owners, who in a competitive power market cannot automatically pass-
through those costs to consumers. In fact, the Energy Information
Administration in its recent Analysis of Strategies for Reducing
Multiple Emissions from Power Plants found that requiring best
available control technology at all of the nation's grandfathered power
plants would not increase electricity prices appreciably. Indeed, EIA
found that relative to 1998 prices, even requiring modern controls at
all power plants, electricity prices will fall. This is the so-called
``McIntosh Report'' that President Bush used as justification to
reverse his pledge to control carbon dioxide from power plants.\42\
---------------------------------------------------------------------------
\42\ See id., Appendix K.
---------------------------------------------------------------------------
The fourth claim that the power companies make is that NSR prevents
them from making improvements to increase the efficiency of their
plants. Specifically, they argue that fear of triggering NSR keeps
power plant owners from making investments in heat rate improvement
that would reduce emissions from those plants.
To check this claim, environmental groups calculated the potential
impact of heat rate improvements at coal-fired power plants on
emissions and compared that to the potential emission reductions from
enforcement of New Source Review standards.\43\
---------------------------------------------------------------------------
\43\ Id. at 49-50.
---------------------------------------------------------------------------
The comparison is striking. The actual potential for heat rate
improvement is small. The Electric Power Research Institute
investigated this a number of years ago and reported its findings in a
1986 report, ``Heat-Rate Improvement Guidelines for Existing Fossil
Plants.'' In this report EPRI found that, if cost were no object, there
could be, on average, an improvement in heat rate of about 400 BTUs per
kWh (about 4 percent). Cost, however, is very much an important
consideration. Work done by a major northeast utility in the early to
mid-1990's found that a fair amount of the heat rate improvement
potential at their plants had already been tapped, and that any further
improvements were extremely non-cost-effective.\44\
---------------------------------------------------------------------------
\44\ Id. at 49.
---------------------------------------------------------------------------
Nevertheless, to give heat rate improvement the benefit of the
doubt, the environmental groups assumed that half of the average heat
rate improvement potential could actually be achieved in a cost-
effective manner at every major coal-fired generating unit (over 1,000
generating units with a total installed capacity of almost 300,000
MW).\45\
---------------------------------------------------------------------------
\45\ Id.
---------------------------------------------------------------------------
Even under these generous assumptions, heat rate improvement at
coal-fired power plants would only reduce SO<INF>2</INF> emissions by
about 218,000 tons out of a total of 11.2 million tons (about 2
percent). NOx emission would be reduced by 88,000 tons out of a total
of 5.1 million tons (less than 2 percent).\46\
---------------------------------------------------------------------------
\46\ Id. at 50.
---------------------------------------------------------------------------
In contrast, NSR enforcement at the 51 plants currently subject to
enforcement actions under Federal law would reduce SO<INF>2</INF> by
2.8 million tons--over 12 times as much as the heat rate improvements,
and NOx by one million tons--over 11 times as much as the heat rate
improvements. NSR enforcement at all coal-fired power plants would
reduce SO<INF>2</INF> by 8.8 million tons and NOx by 3.3 million
tons.\47\
---------------------------------------------------------------------------
\47\ Id.
---------------------------------------------------------------------------
Heat rate improvements would reduce CO<INF>2</INF> emissions by
about thirty-eight million tons out of 2,454 million tons (1.5
percent). It is more difficult to compare this to CO<INF>2</INF>
reductions from NSR enforcement, because those would be a byproduct of
other actions taken. However, we have estimated that NSR enforcement at
all coal-fired power plants would reduce CO<INF>2</INF> by 95 million
tons, and NSR enforcement at the 32 plants initially charged with
violations would reduce CO<INF>2</INF> by 40 million tons.\48\
---------------------------------------------------------------------------
\48\ Id.
---------------------------------------------------------------------------
In a speech before the National Association of Manufacturers on
June 12, 2001, EPA Administrator Whitman said, ``I have heard too many
instances where we interpreted [NSR] so literally in the field that we,
in fact, are hindering environmental progress . . . .''\49\ When NRDC
submitted a Freedom of Information Act request seeking all
documentation of those ``instances,'' EPA responded that
``Administrator Whitman was referring to oral statements that had been
made to her by various industry stakeholders'' and that the agency did
not have any information to substantiate the oral statements.\50\ In
light of the analysis presented above, it is not surprising that
industry has not been able to provided EPA with documentary evidence to
support its claim that NSR undermines efficiency.
---------------------------------------------------------------------------
\49\ Remarks by Christine Todd-Whitman, Administrator of the U.S.
Environmental Protection Agency, at the National Association of
Manufacturers, June 12, 2001.
\50\ Letter from William T. Harnett, director, EPA Information
Transfer and Program Integration Division, to NRDC, October 1, 2001.
---------------------------------------------------------------------------
Finally, the industry lobbyists assert that the operation of NSR
means higher electricity prices for consumers, and that those costs
overwhelm the environmental benefits of the law. The facts explode this
specious claim as well.
First, an analysis by MSB Energy Associates demonstrates that the
cost of requiring best available control technology on the 51 plants
that have been charged with NSR violations is modest relative to
industry revenues. The annual cost (including the amortization of the
capital cost) would be about $4 billion. That is approximately 8
percent of the revenues for the companies involved. On average, the
cost impact would have been 0.5 cents per kWh based on year 2000
reported sales for those companies.\51\
---------------------------------------------------------------------------
\51\ See Environmental Comments on NSR Background Paper, Appendix
D.
---------------------------------------------------------------------------
The lion's share of this cost is borne by the plant owners, who in
a competitive power market cannot automatically pass those costs
through to consumers. In fact, the Energy Information Administration
found in its Analysis of Strategies for Reducing Multiple Emissions
from Power Plants that requiring state-of-the-art control technology at
all of the nation's grandfathered power plants would not increase
electricity prices appreciably. Indeed, EIA concluded that even if
best-available controls are required at all power plants, electricity
prices will fall.\52\
---------------------------------------------------------------------------
\52\ See id., Appendix K.
---------------------------------------------------------------------------
Although money is not the measure of everything, monetized value
provides one metric of the efficacy of these actions. Data collected by
Abt Associates on the 51 plants charged with NSR violations shows $27
billion to $45 billion in annual benefits from requiring those plants
to implement best available control technology.\53\ That figure dwarfs
the $4 billion estimated by MSB Energy Associates as the annual cost of
clean up.
---------------------------------------------------------------------------
\53\ See id. at 49.
---------------------------------------------------------------------------
The lack of support for industry's claims about New Source Review
has not stopped the nation's worst polluters from making them. With the
election of President Bush and the convening of Vice President Cheney's
Energy Task Force, the polluters found themselves with a friendly
audience and a forum in which to make their pitch for the effective
elimination of NSR.
Documents that NRDC has obtained from the Department of Energy, the
lead agency on the Cheney Task Force, reveal that the companies and
industry groups who most sought the demise of New Source Review enjoyed
extraordinary access to the task force:\54\
---------------------------------------------------------------------------
\54\ See http://www.nrdc.org//media/pressreleases/020521.asp.
<bullet> Edison Electric Institute had contact with the task
force at least 14 times (EEI contributed $598,169 to Republican
candidates and the GOP from 1999 to 2002).
<bullet> North American Electric Reliability Council had
contact with the task force at least 11 times.
<bullet> National Mining Association had contact with the task
force at least nine times (NMA contributed $575,496 to
Republican candidates and the GOP from 1999 to 2002).
<bullet> Westinghouse had contact with the task force at least
nine times (Westinghouse Electric Company contributed $65,060
to Republican candidates and the GOP from 1999 to 2002).
<bullet> Electric Power Research Institute had contact with
the task force at least eight times.
<bullet> Southern Company had contact with the task force at
least seven times (Southern contributed $1,626,507 to
Republican candidates and the GOP from 1999 to 2002).
<bullet> American Petroleum Institute had contact with the
task force at least six times (API contributed $44,301 to
Republican candidates and the GOP from 1999 to 2002).\55\
\55\ Industry's intimate access to the Cheney Task Force stands in
stark contrast to the limited access afforded environmental groups. See
http://www.nrdc.org/air/energy/taskforce/bkgrd2.asp.
These firms made the most of their access. On March 23, 2001, an
executive of the coal giant, Southern Company, sent the task force
coordinator at the Energy Department a memorandum arguing that ``EPA
has re-interpreted [the NSR] regulations in extreme ways that not only
places [sic] in legal jeopardy past work conducted at facilities but
also threatens the safe, reliable and efficient operation of energy
production facilities across the country.'' The paper urged the
Administration to undertake a ``reaffirmation of historical
interpretations'' of the New Source Review provisions.\56\
---------------------------------------------------------------------------
\56\ See http://www.nrdc.org/air/energy/taskforce/doc150.html.
---------------------------------------------------------------------------
The previous day, an official with the National Petroleum Refiners
Association had written in a message to the same Energy Department
official that ``[t]he EPA's enforcement campaign against U.S.
refineries should be halted and reexamined.'' He characterized EPA's
enforcement actions as ``nothing more than an attempt to discredit the
industry and collect tribute in the form of fines on order to allow
refiners to get on with their business.'' In concluding, he wrote that
``this activity goes far beyond the pale of reasonable enforcement
action and should cease.''\57\
---------------------------------------------------------------------------
\57\ See http://www.nrdc.org/air/energy/taskforce/doc6368.html.
---------------------------------------------------------------------------
This heavy-handed lobbying bore fruit in the form of two final
recommendations issued by Vice President Cheney on May 16, 2001:
<bullet> The NEPD Group [the task force] recommends that the
President to [sic] direct the Administrator of the Environmental
Protection Agency, in consultation with the Secretary of Energy and
other relevant agencies, to review New Source Review regulations,
including administrative interpretation and implementation, and report
to the President within 90 days on the impact of the regulations on
investment in new utility and refinery generation capacity, energy
efficiency, and environmental protection.\58\
---------------------------------------------------------------------------
\58\ Report of the National Energy Policy Development Group, ch. 7,
at 14 (May 16, 2001).
---------------------------------------------------------------------------
<bullet> The NEPD Group recommends that the President direct the
Attorney General to review existing enforcement actions regarding New
Source Review to ensure that the enforcement actions are consistent
with the Clean Air Act and its regulations.\59\
---------------------------------------------------------------------------
\59\ Id.
---------------------------------------------------------------------------
President Bush issued both of the recommended directions. In
January 2002, the Department of Justice responded to the second one
with a report concluding that ``EPA may reasonably argue that the new
source review enforcement actions against coal-fired power plants are
consistent with the C[lean]A[ir]A[ct], as well as with the
A[dministrative]P[rocedure]A[act].''\60\
---------------------------------------------------------------------------
\60\ OLP Report at 4.
---------------------------------------------------------------------------
EPA issued its report 6 months later. The report concluded that the
NSR program has not significantly impeded investment in new power
plants or refineries. For the utility industry, this is evidenced by
significant recent and future planned investment in new power plants.
Lack of construction of new Greenfield refineries is generally
attributed to economic reasons and environmental restrictions unrelated
to NSR.\61\
---------------------------------------------------------------------------
\61\ EPA, New Source Review: Report to the President, at 1 (June
13, 2002).
---------------------------------------------------------------------------
EPA also found that ``preventing emissions of pollutants covered by
NSR does result in significant environmental and public health
benefits.''\62\ At the same time, however, it concluded that, with
respect to existing power plants and refineries, the NSR program has
impeded or resulted in the cancellation of projects which would
maintain and improve reliability, efficiency and safety of existing
energy capacity. Such discouragement results in lost capacity, as well
as lost opportunities to improve energy efficiency and reduce air
pollution.\63\
---------------------------------------------------------------------------
\62\ Id. at 2.
\63\ Id. at 1.
---------------------------------------------------------------------------
This conclusion is based largely on self-serving, anecdotal
evidence submitted by industry commenters. For example, EPA relies on
one company's complaint that it did not install new Teflon-coated
nozzles in a process dryer for fear of triggering NSR. EPA blindly
accepts as true the company's claims that the change it forwent would
have actually triggered NSR, that the desire to avoid NSR was really
the motivation for abandoning the change, and that the change would
have improved the reliability, efficiency, and safety of the facility
in question.\64\
---------------------------------------------------------------------------
\64\ Id. at 34.
---------------------------------------------------------------------------
EPA concedes that industry has offered little more than
undocumented anecdotes and sketchy hypotheticals to support its
critique of NSR. The agency nevertheless takes the position that such
material can substitute for verifiable data if industry shovels enough
of it into the administrative record:
In light of the volume of anecdotal evidence presented, the
EPA concludes that concern about the scope of the routine
maintenance exclusion is having an adverse impact.\65\
\65\ Id. at 17.
---------------------------------------------------------------------------
Under the leadership of John Graham, the Office of Regulatory and
Information Affairs at the Office of Management and Budget has
repeatedly returned to agencies for reconsideration regulations that,
in OIRA's view, lacked adequate data to substantiate the purported
grounds for the rulemaking. For example, the office returned one
regulation to the Office of Veteran Affairs because, ``[w]hile VA staff
have argued that there are currently inconsistencies in billing
practices, OMB has not been presented with evidence of this problem or
evidence of how this rule would reduce, rather than increase
inconsistency.''\66\ It returned to the Department of Transportation a
rule requiring the retrofitting of exterior piping on tanker trucks
carrying hazardous substances, because while the Department presented
an estimate of what the retrofitting would cost, the estimate was
itself based upon ``anecdotal evidence.''\67\ To date, OIRA has only
returned rules that the private sector finds too onerous. Dr. Graham
insists, however, that he will apply the same standards to regulations
that are criticized as not providing adequate protection to the public.
If this is in fact the case, then he will return EPA's proposed changes
to New Source Review, for EPA has failed to present adequate data to
substantiate the purported problems that supposedly justify
eviscerating the program.\68\
---------------------------------------------------------------------------
\66\ Letter from OIRA Administrator John Graham to VA General
Counsel Tim McClain, October 3, 2001 (posted at http://
www.whitehouse.gov/omb/inforeg/va--medical--care--rtnltr.html).
\67\ Letter from OIRA Administrator John Graham to DOT General
Counsel Rosalind Knapp, August 8, 2001 (posted at http://
www.whitehouse.gov/omb/inforeg/wetlines--return--letter3.html).
\68\ See Exec. Ord. 12866, Section 1(b)(7) (Sep. 30, 1993) (``Each
agency shall base its decisions on the best reasonably obtainable
scientific, technical, economic, and other information concerning the
need for, and consequences of, the intended regulation.'').
---------------------------------------------------------------------------
iii. the announced rollbacks
On June 13, the day that EPA released its report on NSR, the agency
announced that it would be making eight regulatory changes. If these
changes are allowed to take effect notwithstanding their
incompatibility with the Clean Air Act, the New Source Review
requirements will in effect no longer apply to the modification of
existing facilities.
A. Dirtiest Two Years in Ten Baseline
The New Source Review requirements are only triggered by changes
that cause air pollution emissions to increase significantly, i.e., by
at least 40 tons per year. To determine whether pollution will increase
significantly, it is necessary to compare a source's pre-change
emissions, known as its ``baseline,'' with its post-change emissions.
With respect to the approximately 15,500 major industrial facilities in
this country that are not electric utilities, EPA currently interprets
the Clean Air Act to require that the baseline be calculated as the
average of the source's last 2 years of emissions, unless the source
can demonstrate that another period is more representative of its pre-
change emissions.
On June 13, EPA announced that it will promulgate a final rule
allowing the baseline to be calculated as the average of the source's
emissions during any 2-year period that the company chooses from the
last 10 years.\69\ If this rule takes effect, a plant that currently
emits 1,000 tons-per-year of an air pollutant could institute a change
causing its emissions to go up to 1,640 tons-per-year without
triggering NSR, provided that its emissions nine and 10 years ago
averaged 1,600 tons-per-year. Under EPA's new rule, in other words, a
change that causes a source's emissions to go from 1,000 tons-per-year
to 1,640 tons-per-year will not be deemed a ``modification,'' even
though the Clean Air Act defines that term to mean ``any physical
change in, or change in the method of operation of, a stationary source
which increases the amount of any air pollutant emitted by such
source.''\70\
---------------------------------------------------------------------------
\69\ EPA, New Source Review: Recommendations (June 13, 2002), at 4.
\70\ 42 U.S.C. Sec. 7411(a)(4).
---------------------------------------------------------------------------
During internal EPA discussions leading up to the June 13
announcement, officials within the agency included this change to the
baseline calculation among the ``proposals present[ing] a risk of
significantly diminished program benefits.'' The officials elaborated
on what they meant by ``significantly diminished'':
Based on our review . . . , moving to a ``high 2 in 5'' from
a ``last 2 years'' as the pre-change baseline will have some
reduction (perhaps 20 percent) on the scope of the NSR program
as it impacts non-utility sources . . . . A 10-yr baseline
would substantially diminish the scope of the program. Our best
estimate is that it would reduce the number of facilities
subject to NSR by 50 percent or more compared to a high 2 in 5
baseline.\71\
\71\ Internal EPA document provided to NRDC.
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B. Using Accounting Gimmicks to Low-Ball Projected Future Emissions
As noted above, one must compare a source's pre-change emissions
with its post-change emissions to determine whether the change is
causing a significant increase in emissions. EPA's change to the
baseline calculation will exaggerate pre-change emission levels. The
agency has also announced that it will take final action on a rule that
will under-represent the post-change emissions attributable to the
change. Specifically, the new rule will allow a company to exclude from
the calculation of post-change levels those emissions that can be
attributed to old capacity, even if the source would not be able to
continue using that capacity without making the proposed change.\72\ In
essence, this rule will enable companies to cook the books in order to
hide significant emissions increases that should trigger the New Source
Review requirements.
---------------------------------------------------------------------------
\72\ New Source Review: Recommendations at 3-4.
---------------------------------------------------------------------------
C. Exemption for Units That May Once Have Been Considered Clean
EPA also announced on June 13 that it would promulgate a final
rulemaking any source that goes through an NSR review for best
available control technology exempt from having to go through the
review again for a period of 15 years--regardless of what changes the
source undergoes and how much its emissions increase. What is more, the
exemption would apply retroactively, meaning that if, 10 years ago, a
source installed pollution controls that have long since been rendered
obsolete by more effective technology, the source could nevertheless
undergo dramatic renovations today that significantly increase
emissions without installing new controls, and it could continue making
such changes with impunity for 5 years into the future.\73\
---------------------------------------------------------------------------
\73\ Id. at 2.
---------------------------------------------------------------------------
In the pre-announcement internal agency discussions, EPA's
attorneys noted the lack of a ``solid legal rationale'' for this
change.\74\ Indeed, there is no authority whatsoever in the Clean Air
Act for allowing a company to ignore the New Source Review
requirements--when it undertakes radical changes that significantly
increase emissions--just because the company long ago installed control
equipment that may now be obsolete.
---------------------------------------------------------------------------
\74\ Internal EPA document provided to NRDC.
---------------------------------------------------------------------------
D. Exemption for Plantwide Applicability Limits
In Alabama Power Co. v. Costle, the U.S. Court of Appeals for the
D.C. Circuit concluded that ``EPA ha[d] properly exempted from best
available control technology (BACT) and ambient air quality review
those `modifications' of a source that do not produce a net increase in
any pollutant.\75\ The court noted that, under the Clean Air Act, ``any
offset changes claimed by industry'' to demonstrate the lack of a net
increase ``must be substantially contemporaneous.''\76\
---------------------------------------------------------------------------
\75\ 636 F.2d at 401.
\76\ Id. at 402.
---------------------------------------------------------------------------
In response to the ruling in Alabama Power, EPA solicited public
comment on whether the agency should ``specify that no emission
reductions which occurred more than 3 years before the date a [pre-
construction] application was complete may offset the increase that
would result from the change proposed in the application.''\77\ After
reviewing the voluminous industry comments submitted on this proposal,
EPA selected 5 years as the outer limit of contemporaneity.\78\
---------------------------------------------------------------------------
\77\ 45 Fed. Reg. 6802, 6803 (January 30, 1980).
\78\ 45 Fed. Reg. 52676, 52701 (August 7, 1980).
---------------------------------------------------------------------------
In 1996, EPA proposed a rule pursuant to which ``a source, if
authorized by a State in a SIP, may base its NSR applicability on a
plantwide emissions cap, termed a plantwide applicability limit
(``PAL''). So long as source activities do not result in emissions
above the cap level, the source will not be subject to NSR.''\79\
Although EPA never finalized this proposal, further analysis brought
recognition that a PAL could not be a means for escaping the
contemporaneity requirement enunciated in Alabama Power and quantified
in the agency's 1980 netting rule. This recognition is reflected in a
1998 Federal Register notice, in which EPA renewed its proposed to
authorize PALs:
---------------------------------------------------------------------------
\79\ 61 Fed. Reg. 38249, 38264 (July 23, 1996).
Having again reviewed Alabama Power and the Agency's
subsequent interpretation of the case, the Agency is concerned
that, because PAL's may be characterized as a form of netting
and result in the avoidance of major NSR, the contemporaneity
requirement for netting set forth in Alabama Power may also
need to be applied to PAL's. Therefore, EPA is soliciting
comment on whether and when to provide for subsequent
adjustment of PAL's to address contemporaneity issues
associated with Alabama Power.\80\
---------------------------------------------------------------------------
\80\ 63 Fed. Reg. 39857, 39863 (July 24, 1998).
Although the Clinton Administration never finalized its 1998 PAL
proposal, the Bush Administration has now, 4 years later, decided to
promulgate a final PAL rule. Despite the 5-year netting limit
promulgated in 1980 and EPA's 1998 recognition that PALs are subject to
the same legal requirement of contemporaneity that governs netting, the
agency is now planning to finalize a rule under which a PAL could
remain unchanged for 10 years or more.\81\ This stretches the meaning
of ``contemporaneity'' past the breaking point. What is more, EPA's
rule would allow the plant-wide limit to be renewed at higher levels
under certain circumstances.\82\
---------------------------------------------------------------------------
\81\ New Source Review: Recommendations at 1.
\82\ Id.
---------------------------------------------------------------------------
Internal EPA documents reveal that as late as January 2002, EPA
lawyers still did not have a legal rationale for the Administration's
new PAL rule. In fact, during a 2-day meeting held that month at EPA
headquarters, the agency's lawyers informed their clients that the new
PAL proposal was ``in conflict'' with the Clean Air Act. The attorneys
argued that any PAL approach must adhere to the legal framework of
netting, a stricture which the political appointees refused to accept.
According to a memorandum memorializing the meeting, the lawyers also
insisted that a ``PAL must be based on [a] reasonably contemporaneous
period, which is more consistent with a 5-year period.'' Again, the
political appointees resisted. The final PAL rule announced June 13
reveals that, in the end, the political appointees at EPA elected to
ignore the law.
If the change takes effect, a company will be allowed to pretend
that a significant pollution increase at its facility in, say, 2010 is
not occurring on account of a decrease that happened at the plant in
2001. What is more, EPA has announced that its new method of
calculating baselines will apply to PALs, meaning that the limits will
be set so high as to allow massive pollution increases over current
levels.
E. Exemption for ``Pollution Control and Prevention Projects''
The last of the final rules that EPA announced on June 13 would
exempt a proposed change to a source from the New Source Review
requirements even if the change would cause a significant increase in
the emissions of an air pollutant, so long as EPA deemed the change
environmentally beneficial in the aggregate. EPA has announced,
moreover, that it will consider as environmentally beneficial a project
that reduces emissions per unit of energy output, even if the project
causes the source's emissions to increase.\83\ In a recent
applicability determination, EPA itself recognized the flaw in this
type of exemption:
---------------------------------------------------------------------------
\83\ Id. at 2-3.
[V]irtually any major capital improvement project at an
existing source is designed in part to increase efficiency of
production, and this will in turn almost always have the
collateral effect of reducing emissions per unit of production,
even though it may provide an economic incentive to increase
total production, with the net result that actual emissions of
air pollution to the atmosphere could increase significantly.
There is nothing in the statutory terms or structure or in
EPA's regulations which suggests that such major changes should
be accorded exempt status under the NSR program. To the
contrary, major capital investments in industrial equipment,
where they could result in an increase in emissions, appear to
be precisely the type of change at an existing source that
Congress intended should be subject to PSD and nonattainment
area NSR permitting.\84\
---------------------------------------------------------------------------
\84\ Detroit Edison Applicability Determination, at 5-6, n.1 (May
23, 2000). See also Puerto Rican Cement Co. v. EPA, 889 F.2d 292, 297-
98 (1st Cir. 1989) (modification of emissions unit that decreases
emissions per unit of output, but may result in sufficient production
increase such that actual emissions will increase, is subject to the
New Source Review requirements).
The Clean Air Act has not changed in the 2 years since EPA made the
above determination. The exemption for improved heat rate projects
announced June 13 is as unsound and unlawful now as it was in 2000.
F. Defining ``Routine Maintenance, Repair, and Replacement''
In addition to announcing final rules on June 13, EPA announced
that it would be submitting proposed rules for notice and comment. Most
significantly, the agency announced that it would propose to define
certain parameters that industry will be able to follow safe in the
knowledge that its activities will be deemed ``routine maintenance,
repair, and replacement.''\85\
---------------------------------------------------------------------------
\85\ New Source Review: Recommendations at 4-6.
---------------------------------------------------------------------------
Under the first set of proposed parameters, any changes that a
company makes at a facility--irrespective of how much increased
pollution results--will be per se ``routine'' as long as the annual
cost of the changes does not exceed 15 percent of the cost of the
entire plant. Costs attributable to the installation of pollution
control equipment and the remedying of unanticipated equipment failures
would be excluded from the annual cap.\86\ The upshot would be that a
company could replace every single part of its facility over the course
of five or 6 years and never trigger NSR, regardless of the amount by
which the plant's emissions increased.
---------------------------------------------------------------------------
\86\ Id. at 4-5.
---------------------------------------------------------------------------
Under the second set of parameters, the replacement of existing
equipment with new equipment that serves the same function and does not
alter the heat input and fuel consumption specifications of the unit
would never trigger New Source Review. In other words, a power plant
could replace all of its deteriorating boilers with new ones, and as
long as the new ones had the same specifications as the old ones when
they were new, the plant would not need to install state-of-the-art
pollution controls.\87\ This rule would thus open the ``vistas of
indefinite immunity'' that the WEPCO court found to be impermissible
under the Clean Air Act.\88\
---------------------------------------------------------------------------
\87\ Id. at 5-6.
\88\ WEPCO, 893 F.2d at 909.
---------------------------------------------------------------------------
Under the third set of parameters, any change that fell within a
set of categories identified by EPA would automatically be deemed
``routine,'' no matter how much new pollution the change caused. EPA
has announced that it is considering allowing its list of per se
routine activities to be informed by ones that industry itself
identifies as common practice.\89\
---------------------------------------------------------------------------
\89\ New Source Review: Recommendations at 6.
---------------------------------------------------------------------------
In its June 13 announcement, EPA took pains to emphasize that
changes falling outside the proposed parameters would not be
disqualified as ``routine.'' All of the other announced limitations on
NSR's applicability (dirtiest 2 years in 10 baseline calculation, new
method of calculating post-change emissions, etc.) would still be
available to industry.\90\
---------------------------------------------------------------------------
\90\ Id. at 4.
---------------------------------------------------------------------------
It is impossible to miss the fact that if this proposed rule were
allowed to become final, the New Source Review requirements would never
apply in the case of modifications at existing facilities.
G. Exemption for ``Debottlenecking''
EPA also announced that it would propose a new rule that would
provide a company with additional leeway to under-represent the
emissions increase caused by a change to a source. Specifically, if a
change to one emissions unit at a plant caused emissions to increase at
an ``upstream'' or ``downstream'' unit at the same plant, that increase
would not be considered in determining whether the change had caused a
significant emissions increase such to trigger the NSR
requirements.\91\
---------------------------------------------------------------------------
\91\ Id. at 6.
---------------------------------------------------------------------------
During the deliberations of the Cheney Task Force, EPA enforcement
officials estimated that the ``debottlenecking'' proposal would reduce
the effectiveness of New Source Review by approximately 5 percent.\92\
---------------------------------------------------------------------------
\92\ Internal EPA document provided to NRDC.
---------------------------------------------------------------------------
H. Allowing Dis-aggregation of Modifications
Finally, EPA announced that it would propose a new rule that would
make it easier for a company to evade NSR by taking a change that does
cause a significant pollution increase, and treating it as a collection
of sub-changes, no one of which causes a significant increase.\93\
---------------------------------------------------------------------------
\93\ New Source Review: Recommendations at 7.
---------------------------------------------------------------------------
iv. what the effects of the rollbacks will be
After some details of EPA's regulatory plans became public in
January 2002, the State and Territorial Air Pollution Program
Administrators and the Association of Local Air Pollution Control
Officials (``STAPPA/ALAPCO'') wrote to Administrator Whitman expressing
``considerable trepidations regarding what we understand the reforms
will allow and the impact that these changes will have on our nation's
ability to achieve and sustain clean, healthful air.'' STAPPA/ALAPCO
pointed out that, ``when taken in combination, these reforms will allow
most source modifications to avoid NSR, resulting in unchecked emission
increases that will degrade our air quality and endanger public
health.''\94\
---------------------------------------------------------------------------
\94\ Letter from STAPPA President Lloyd Eagan and ALAPCO President
Arthur Williams to EPA Administrator Christine Todd-Whitman, January
23, 2002.
---------------------------------------------------------------------------
EPA has ignored STAPPA/ALAPCO's request for ``a broad stakeholder
meeting to allow for an open dialog on the reforms under
consideration''\95\ and announced rollbacks every bit as extreme as the
ones rumored to be under consideration in January. The announced
changes threaten, by operation of ``no more stringent than'' provisions
in State statutes, to force States to weaken their air quality measures
at a time when they will be struggling to achieve attainment of
stricter national ambient air quality standards for ozone and
particulate matter. Indeed, EPA has indicated that it will require
State implementation plans to include the announced changes to NSR
program. As a result, even States that do not want to adopt the changes
will be forced to in order to retain control of their permitting
programs.
---------------------------------------------------------------------------
\95\ Id.
---------------------------------------------------------------------------
EPA has long been on notice of the devastating impact that the
changes the agency has now announced would have on public health and
the environment. In his February 2002 resignation letter, former
director of EPA's Office of Regulatory Enforcement Eric Schaeffer
reminded Administrator Whitman that the agency stood to keep more than
five million tons per year of combined SO<INF>2</INF> and NOx pollution
out of the air by means of the compliance orders and enforcement
actions it had brought under the New Source Review provisions.\96\
Since all of those cases involve modifications, and the announced rules
would effectively end NSR for modifications, it follows that the new
rules would allow millions of tons more pollution to be emitted into
the air every year than the proper application and enforcement of NSR
as it exists today.
---------------------------------------------------------------------------
\96\ Letter from Office of Regulatory Enforcement Director Eric V.
Schaeffer to Administrator Christine Todd-Whitman, February 27, 2002.
---------------------------------------------------------------------------
A report by the Clean Air Task Force reveals the stakes, in terms
of public health, of the NSR enforcement cases alone.\97\ Key findings
of this report include:
---------------------------------------------------------------------------
\97\ Power to Kill, Clean Air Task Force, July 2001. The report
draws upon data from Abt Associates, Inc., The Particulate-Related
Health Benefits of Reducing Power Plant Emissions (October 2000). See
also, Clean Air Task Force, Death, Disease, and Dirty Power: Mortality
and Health Damage Due to Air Pollution from Power Plants (October 2000)
(posted at www.cleartheair.org).
---------------------------------------------------------------------------
<bullet> Pollution from the 51 plants that are targets of NSR
enforcement actions shortens the lives of between 5,500 and 9,000
people every year.
<bullet> Requiring these plants to meet modern pollution standards
as required by law would avoid between 4,300 and 7,000 of these deaths.
<bullet> Pollution from the 51 NSR plants leads to between 107,000
and 170,000 asthma attacks each year.
<bullet> Between 80,000 and 120,000 of these asthma attacks could
be avoided by requiring the plants to meet modern pollution standards
as required by law.
<bullet> Although all of the plants that are currently targets of
NSR enforcement are located in the Midwest or Southeast, there is a
``transport of death and disease.'' The pollution from these plants
affects downwind States resulting in 1,500 to 2,100 premature deaths
and 30,000 to 39,000 asthma attacks per year in the Northeast.
<bullet> 1,200 to 1,700 of the deaths and 23,000 to 31,000 of the
asthma attacks in downwind Northeastern States would be avoided if the
plants met modern pollution standards.
<bullet> The pollution reductions from the announced settlements
with Tampa Electric, Cinergy, Inc., and Dominion Power alone would
result in avoiding between 780 and 1,150 premature deaths every year.
If NSR did not apply to the modification of existing units--a
result EPA hopes to achieve with the rules announced on June 13--then
the prevention of death and disease outlined above would not be
achieved.
On June 24, the Clean Air Task Force released another study. It
shows that prosecution of power plants charged with violating the New
Source Review provisions is a highly cost effective way to clean up the
air. Using methodologies approved by EPA, the study demonstrates that
the benefits of the NSR enforcement cases outweigh the costs by as much
as 10 to 1. Specifically, it shows that using New Source Review to
force the 51 sued coal plants to reduce their soot and smog emissions
would produce annual public health benefits valued at $24-38 billion in
avoided deaths and avoided asthma attacks while costing utilities only
about $3.5 billion per year in control costs.\98\
---------------------------------------------------------------------------
\98\ L. Bruce Hill, A Preliminary Analysis of the Benefits and
Costs of Current New Source Review Litigation, June 24, 2002 (posted at
http://www.clnatf.org/press--room/index.html).
When EPA proposed to reform the New Source Review program in 1996,
it prepared a Final Draft Regulatory and Economic Impact Analysis. The
agency characterized the results of that analysis in its notice of
---------------------------------------------------------------------------
proposed rulemaking:
The EPA estimates that 20 percent fewer sources will be
classified as major as a result of revising the period for
establishing the baseline for actual emissions from which to
calculate emissions increases to the highest 12 consecutive
months operation by the source. Another 6 percent reduction is
anticipated from the ``clean unit'' and ``clean facility''
tests and the exclusion for pollution control and pollution
prevention projects. The EPA estimates still another 25 percent
of modifications, which would otherwise be subject to major
NSR, would be excluded due to allowing sources to use projected
future actual emissions to calculate emissions increases rather
than requiring the calculation to be based on the source's
potential to emit in each case.\99\
---------------------------------------------------------------------------
\99\ 61 Fed. Reg. 38,250 38,319 (July 23, 1996).
EPA concluded, in other words, that only forty-nine percent of the
sources that would otherwise be subject to NSR would be subject to
those provisions in the event that the proposed rules entered into
effect. Those proposed rule changes were, in virtually every aspect,
less extreme than the ones EPA announced on June 13. One can only
conclude, then, that the announced changes will have an effect on NSR
applicability far more dramatic than the one EPA quantified in 1996.
Executive Order 12866 states in part:
Each agency shall assess both the costs and the benefits of
the intended regulations and, recognizing that some costs and
benefits are difficult to quantify, propose or adopt a
regulation only upon a reasoned determination that the benefits
of the intended regulation justify its costs.\100\
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\100\ Exec. Ord. No. 12866, Section 1(b)(6) (Sept. 30, 1993).
Where a regulatory action is likely to result in a rule that may
``[h]ave an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments of
communities,''\101\ the same executive order requires the agency to
provide OIRA, ``as part of the agency's decisionmaking process,''
---------------------------------------------------------------------------
\101\ Id., Section 3(f)(1) (Sept. 30, 1993).
An assessment, including the underlying analysis, of costs
anticipated from the regulatory action (such as, but not
limited to, the direct cost both to the government in
administering the regulation and to businesses and others in
complying with the regulation, and any adverse effects on the
efficient functioning of the economy, private markets
(including productivity, employment, and competitiveness),
health, safety, and the natural environment), together with, to
the extent feasible, a quantification of those costs.\102\
---------------------------------------------------------------------------
\102\ Id., Section 6(a)(3)(C)(ii).
---------------------------------------------------------------------------
As indicated above, EPA is in possession of evidence indicating
that the announced changes to New Source Review will result in tens of
thousands of premature deaths, asthma attacks, and hospitalizations,
tens of billions of dollars' worth of forfeited public health benefits
each year, and--on account of increased haze in national parks and acid
deposition across the Northeast--serious detriment to the nation's
tourism industry. EPA has nevertheless refused to perform an analysis
of the impacts that the announced rules will have on public health, the
environment, and the economy. That refusal flies in the face of
Executive Order 12866. I am thus compelled to call upon OIRA
Administrator Graham--again--to return any NSR rulemaking package to
EPA pending the agency's submission of the required analysis.
Whenever political appointees at EPA are confronted with the
devastating effects that the announced NSR rollbacks will have on
public health and the environment, they assert that President Bush's
Clear Skies Initiative will obviate New Source Review.\103\ This
assertion ignores a key fact: whereas the announced NSR rollbacks will
apply to all of the approximately 17,000 large industrial facilities in
this country, the caps proposed for the CSI would only apply to the
nation's approximately 1,500 power plants. CSI would actually allow 50
percent more sulfur emissions than current law, and delay safer
standards by 8 years. It would also permit three times more toxic
mercury emissions than existing law, and it would allow hundreds of
thousands of tons of additional nitrogen oxide pollution. And of
course, whereas EPA has announced final rules eviscerating New Source
Review, the Clear Skies initiative has not even been introduced as
legislation yet.
---------------------------------------------------------------------------
\103\ See, e.g., BNA Daily Environment Report, ``Whitman Says Clear
Skies Proposal Will Reduce Emissions Faster Than Clean Air Act,'' April
8, 2002.
---------------------------------------------------------------------------
The Administration thus fails to offer any effective rebuttal to
the evidence indicating that rules announced on June 13 will impose a
staggering cost on this country--in the form of premature deaths,
asthma attacks, birth defects, heart attacks, haze, acid rain, and all
the attendant horrors of climate change. For that reason, and because
the announced rules purport to repeal a vital portion of the Clean Air
Act, I respectfully ask that these Committees do everything in their
power to prevent these rollbacks from ever taking effect.
__________
Statement of Donald Elliott, Co-Chair, Environmental Practice Group,
Paul, Hastings, Janofsky and Walker, Professor of Law, Yale and
Georgetown Law Schools\1\
---------------------------------------------------------------------------
\1\ Co-Chair Environmental Practice Group, Paul, Hastings, Janofsky
& Walker; Professor (adj) of Law, Yale and Georgetown Law Schools;
Former General Counsel, Environmental Protection Agency.
---------------------------------------------------------------------------
Mr. Chairman and distinguished members of the committee: It is a
great pleasure to be testifying again before these two distinguished
Committees in a rare joint session on the very important legal and
policy issues raised by the Administration of the ``new source review''
(NSR) provisions of the Clean Air Act.
EPA's many changing interpretations of NSR over the years have
created a legal mess of baffling complexity that raises a host of
separation of powers and administrative law issues that only a law
professor could love. The good news is that the NSR controversy makes a
great hypothetical for a law school exam (and I have used it as such at
least twice in my administrative law courses at Yale and Georgetown).
Unfortunately, the bad news, which is much more important, is that
major parts of our country's economic infrastructure--including but not
limited to the electric power industry--are now threatened with great
legal uncertainties and huge penalties. As a result, as documented by
EPA's recent NSR report, plants are delaying making needed repairs and
changes to equipment. In the long run this threatens the reliability of
our electricity supply and keeps inefficient equipment on line when it
would benefit our economy to replace it with more modern equipment.
The ultimate solution in my view is to replace the antiquated,
inefficient NSR program for existing plants with a modern trading
system. But in the meantime, I applaud the Administration's recent
attempt to do what it can to resolve the huge uncertainties about what
is legal and what is illegal under the NSR program by creating safe
harbors through the rulemaking process. It took great courage to touch
the issue at all, because NSR is rapidly becoming the proverbial
``third rail'' of U.S. environmental politics. Any action--no matter
how modest and reasonable--will immediately be denounced as a rollback
of historic proportions in an election year. It is very easy for us no
longer in the political arena to criticize. I must admit that I was
General Counsel of EPA at the time of the 7th Circuit's WEPCO decision
in 1990, which helped to create the current NSR controversies.\2\ Urged
on by majorities in both houses of Congress during the 1990 Clean Air
Act Amendments to ``fix the WEPCO problem,'' the first Bush
Administration came out with an NSR interpretative rule in 1992,\3\
which I thought had resolved the WEPCO problem, at least for the
electric utility industry. However, as a prelude to the current NSR
enforcement initiative, the Clinton Administration attempted to
renounce our interpretation of NSR--without any notice and comment--by
renouncing it in a proposed rule in 1998.\4\
---------------------------------------------------------------------------
\2\ WEPCO v. Reilly, 893 F.2d 901 (7th Cir. 1990).
\3\ WEPCO Interpretative Rule, 57 Fed. Reg. 32314 (July, 1992).
\4\ 63 Fed. Reg. 39860 (July 24, 1998).
---------------------------------------------------------------------------
So I have to admit that I was unsuccessful in getting the problem
resolved when I was in the government, so perhaps it is churlish of me
to criticize others. But nevertheless, I do feel that the current Bush
Administration did not go far enough in two ways. First, in my opinion,
the safe harbor portions of the proposed NSR rule should have been made
immediately effective as an ``interim final'' rule under the ``good
cause'' provisions of the Administrative Procedure Act.\5\ Massive
uncertainty has been created by vague caselaw (which is almost
certainly wrongly decided under more recent Supreme Court
precedents\6\) and by EPA's misguided NSR enforcement initiative. While
notice and comment is important, it is simply untenable to wait another
3-5 years or more for a resolution of this controversy in the courts
and through the rulemaking process. Administrative law specifically
recognizes the power of agencies to put rules into immediate effect for
good cause in the meantime while taking comments. EPA has often used
this power in the past when court decisions have created undesirable
uncertainty, such as following the invalidation of the mixture-and-
derived from rule under RCRA in 1991.\7\
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\5\ 5 U.S.C. Sec. 553(b)(3)(B).
\6\ The WEPCO court gave ``substantial deference'' to EPA's
interpretations of the statutory terms and ``even more'' to EPA's
interpretations of its NSR regulations under the Chevron doctrine. 893
F.2d at 906-907. However, under more recent Supreme Court precedent,
Chevron deference is not appropriate for lower level agency
interpretations that did not go through rulemaking or adjudication or
for positions first advanced in litigation. See U.S. v. Mead Corp., 533
U.S. 218 (2001).
\7\ Shell Oil Co. v. EPA, 950 F.2d 741 (D.C. Cir. 1991)(per
curiam).
---------------------------------------------------------------------------
Second, I believe that the Administration should immediately
conform its litigating position in the pending NSR enforcement cases to
the policy position that the Administration has taken in the proposed
rules. I disagree with my good friend Assistant Attorney General Thom
Sansonetti that it is going to be viable for the U.S. Government to
pursue multi-billion dollar cases based on the premise that the same
words in the law meant one thing in 1985, another thing in 1992, still
another in 1996, yet another in 1998 and will someday mean something
still different in the future.
I also disagree strongly with those who imply that the pending
enforcement cases brought in a previous Administration should somehow
disable a new Administration from implementing its views of good public
policy. As I indicated in my testimony before Government Affairs last
March, I see this as a fundamental Constitutional question of who is
running the government--the President and the Officers of the United
States confirmed by this Senate, or the career enforcement staff at
EPA. Just as the Clinton Administration was free to walk away from the
first Bush Administration's NSR interpretation in 1998--provided of
course that proper procedural formalities were observed\8\--so too the
second Bush Administration should be free to reinstate its own NSR
interpretations and policies.
---------------------------------------------------------------------------
\8\ Motor Vehicle Manufacturers Assn. v. State Farm Mutual Auto.
Ins. Co., 463 U.S. 29 (1983).
---------------------------------------------------------------------------
Of course, the Congress can make the Administration pay a price
politically for its actions. But, in my opinion, NSR is the wrong issue
to make the touchstone for good environmental policy. The NSR program
is the greatest failure in the Administration of our environmental laws
in my professional lifetime. It has failed to work for 25 years, and
now it badly needs to be replaced with something that does work. Case-
by-case, plant-by-plant litigation to force individual plants to
install best available control technology is at best an antiquated
regulatory technology. It is slow, expensive and uncertain. There has
to be a better way. The better way is clear. It is a modern, efficient
cap and trade system--a concept that has proven remarkably successful
in the Acid Rain Trading system under the 1990 Amendments,\9\ and which
now has tri-partisan support in both the Administration's ``Clear Skies
Initiative'' and Senator Jeffords' S. 556, which was recently reported
out by this Committee. A modern, efficient trading system will achieve
far greater pollution reductions in far less time and at far less
expense--not to mention the side-benefit of putting lots of pesky
environmental lawyers out of business! In my view, we should move
promptly on a tri-partisan basis as quickly as possible to replace the
antiquated, dysfunctional NSR system for existing plants by legislating
a modern efficient trading system.
---------------------------------------------------------------------------
\9\ The White House, Executive Summary--The Clear Skies Initiative
February 14, 2002 (``The acid rain cap and trade program created by
Congress in 1990 reduced more pollution in the last decade than all
other Clean Air Act command-and-control programs combined, and achieved
significant reductions at two-thirds of the cost to accomplish those
reductions using a ``command-and-control'' system. . . . The Acid Rain
program enjoys nearly 100 percent compliance and only takes 75 EPA
employees to run--a track record no command-and-control program can
meet.'')
---------------------------------------------------------------------------
What has caused the great NSR debacle? There is plenty of blame to
go around--and I probably share some of it. I had been nominated as
General Counsel of EPA but not yet confirmed when the WEPCO case was
argued, and I failed to properly supervise my staff and did not know
the position on NSR issues that EPA was advocating until after the
decision came down. The courts are partially to blame, because the
cases to date have temporized by promulgating vague, multi-factor tests
that fail to give clear guidance to industry as to what is and is not
permitted. EPA has issued multiple and inconsistent interpretations
over the years. There have been so many of them that I doubt that any
of them will ultimately receive much deference from the courts. When
invited by the Administration to review the legal situation, the
Department of Justice in its recent report ducked the key issues, and
said merely that EPA's latest interpretation was not so clearly wrong
that it would be unethical to continue to argue it.\10\ DOJ then ducked
entirely the key issue of whether industry had been given fair notice
of EPA's newest interpretation of NSR requirements, punting that
central issue entirely to the courts. Unless Congress steps in, I fear
that we are now embarked on a decade-long process of litigation that
will require several Supreme Court decisions to clarify the law.
---------------------------------------------------------------------------
\10\ United States Department of Justice Office of Legal Policy,
New Source Review: An Analysis Of The Consistency Of Enforcement
Actions With The Clean Air Act And Implementing Regulations (January
2002).
---------------------------------------------------------------------------
Much of the blame for the current NSR mess must also be laid
squarely at the doorstep of Congress. In the text of the 1970 Clean Air
Act, Congress created a basic distinction between the pollution
requirements applicable to ``new'' as opposed to existing plants. Then,
in so-called ``technical amendments'' in 1977--which were never debated
or properly vetted in Committee hearings--Congress extended the concept
of ``new'' plants to included ``modifications'' of existing plants.\11\
But in its wisdom, Congress failed to adequately define the key
operative concept of a ``modification'' in the statute.\12\ That
statutory ambiguity over how to define the nature of the
``modifications'' that convert an existing plant into the equivalent of
a ``new'' plant for purposes of installing state-of-the-art pollution
controls has been at the root of a great deal of unproductive and
unnecessary NSR legal controversy over the years.
---------------------------------------------------------------------------
\11\ 123 Cong. Rec. H36327-36334, S36250-36259 (Nov. 1, 1977).
\12\ The Clean Air Act has only one statutory definition of
``modification'' and it is in a different section: ``The term
``modification'' means any physical change in, or change in the method
of operation of, a stationary source which increases the amount of any
air pollutant emitted by such source or which results in the emission
of any air pollutant not previously emitted.'' CAA Sec. 111(a)(4).
---------------------------------------------------------------------------
It simply cannot be that literally any modification--no matter how
trivial--triggers NSR and converts every existing plant into a new
plant. Somehow someone has to distinguish between those physical and
operational changes that trigger new source review and those that
don't. To date, it has proved impossible for the legal system to come
up with any clear dividing line that will stand the test of time. EPA
has repeatedly tried to resolve this controversy through a variety of
changing rules and interpretations over the years. By rule, EPA has
exempted certain activities such as ``routine repair and replacement of
equipment,''\13\ and required an increase in emissions for a
modification to trigger NSR. But how to define what repairs and
replacements of equipment are ``routine''? At one point, EPA even
officially defined ``routine'' in the Federal Register as what is
``routine . . . within the relevant industrial category''\14\--which
brings to mind Churchill's line about a question wrapped in a riddle
wrapped in an enigma. EPA's legal staff also developed the fascinating
theory of ``potential emissions,'' so that a plant was considered to
have ``increased'' its emissions even though its actual emissions went
down! Over the years, EPA has come out with many shifting
interpretations of what constitutes a ``routine'' repair and
replacement, and now in its enforcement cases, EPA is arguing for yet a
different definition than the ones that it advanced in the past or the
ones that it is now proposing to implement through the rulemaking
process. I do applaud the Administration's courageous attempt to bring
some clarity to the legal chaos that is the NSR program today through
its proposed safe harbor rule. There have already been so many varied
and shifting interpretations by EPA in the past, however, that I
seriously doubt that the courts will ultimately give much deference to
whatever construction EPA now attempts to place on the statutory
terms.\15\
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\13\ 40 C.F.R. Sec. 52.21(b)(2)(iii)(a).
\14\ 57 Fed. Reg. 32326 (July 21, 1992).
\15\ Compare city of Chicago v. Environmental Defense Fund, 511
U.S. 328 (1994).
---------------------------------------------------------------------------
That unpleasant fact leaves us with only two real options going
forward--either slug it out in many more years of unproductive
litigation, probably going to the Supreme Court several times, before
we finally find out what the term ``modification'' really means in the
NSR provisions of the Clean Air Act. Or alternatively, as I prefer,
Congress should act to put a merciful end to the NSR controversy by
legislating a modern, more efficient replacement, such as the trading
system advocated by the Administration in its Clear Skies Initiative
and also endorsed in Senator Jeffords' proposal.
Realistically, I don't think there can be any serious question that
slugging it out in continuing litigation is bad environmental policy
that will really only benefit the lawyers--and law professors--and
maybe a few politicians who can claim to be taking decisive action to
fight polluters, if not actually to benefit the environment. NSR
litigation makes those who participate in it feel good, because they
can imagine that they are taking tough action to benefit the
environment. But in reality, the NSR approach of case-by-case
litigation to force each individual plant to install best available
control technology is not going to produce anything approaching the
environmental benefits that will come from legislating a trading system
to replace the antiquated and dysfunctional NSR program for existing
sources.
______
Responses of E. Donald Elliott to Additional Questions from
Senator Voinovich
Question 1. During the hearing and in your testimony, you advocate
for the replacement of the NSR program with a cap and trade system. How
does a cap and trade system meet the goals that the NSR program is
directed toward?
Response. The NSR program for existing plants can require the
installation of pollution control technology on a unit-by-unit basis if
a major ``modification'' occurs. This requirement to install pollution
control technology is not an end in itself, but rather is a means to
the ultimate end of achieving air quality goals. A well-designed cap
and trade program will achieve air quality goals much more quickly,
efficiently, fairly and effectively with less expenditure of private
and government resources than a litigation-driven, unit-by-unit
command-and-control system such as NSR. The fundamental insight behind
a cap-and-trade program is to use the market to allocate control
requirements and to achieve the most efficient mix of controls system-
wide. This approach is fundamentally inconsistent with the idea behind
NSR, which is for government to decide what pollution control system is
the ``best available control technology'' (BACT) for each individual
unit on a case-by-case basis. The ultimate goal is the same, but cap-
and-trade uses market trading to allocate the control burden, whereas
NSR uses case-by-case bureaucratic decisions and litigation (with their
inherent uncertainties, delays, expense and unintended consequences).
NSR as envisioned in EPA's recent NSR litigation position loses sight
of the big picture goals, and diverts enormous resources to micro-
manage constantly moving unit-by-unit targets for every change that EPA
deems to be a ``modification.''
Question 2. What effect does a program like NSR have on the
effectiveness of a cap and trade system?
Response. Maintaining the present NSR program for existing sources
could eviscerate a trading program. There would be nothing left to
trade under EPA's recent litigation-driven interpretation of NSR that
essentially deems all units ``modified'' and subject to stringent,
technology-based controls under NSR. As indicated above, trading and
NSR are fundamentally incompatible and mutually redundant. Because of
its high transaction costs, NSR cannot be implemented effectively, but
if somehow it could be, and all plants magically already had BACT
controls, there would be nothing left to trade. The whole philosophy
behind trading is that some plants will control more stringently than
others, creating the most efficient system-wide mix. EPA's recent NSR
litigation position, on the other hand, imagines that government can
specify the ``best'' control system for each individual plant every
time that it has a scheduled outage. In practice, however, government
is not able to design a system-wide mix of controls that is as
efficient as that which will emerge from market trading. We can have a
litigation-driven approach to NSR or trading, but not both.
Question 3. If abolishing the NSR program was not an option, how
would you recommend that Congress clarify or reform NSR?
Response. If it is not possible to abolish NSR outright, the
program should be amended to limit NSR to truly ``new'' plants and to
exempt ``modified'' plants that are covered by an effective cap-and-
trade program. Requiring retrofit of additional control technology for
simply using a unit up to its fully capacity makes no sense. If this is
also not possible, and NSR must be maintained for existing plants as
well, it should be clarified to have clear triggers for installing
technology. For example, modest minimum technology requirements could
become applicable to a plant after a specified number of years of
operation. This compromise approach would essentially combine section
481 of the Administration's Clear Skies Initiative S. 2815 with section
711(a) of Senator Jeffords' S. 556. A two-tiered system is possible in
which an NSR program is maintained to impose minimum technology
requirements on existing plants automatically after a period of years
of operation. This would maintain an NSR program and would not be too
damaging to a cap-and-trade program, provided that the minimum
technology requirements are modest and not too constraining on trading.
__________
Responses of E. Donald Elliott to Additional Questions from
Senator Wyden
Question 1. You have testified that the Clinton Administration
attempted to renounce EPA's previous interpretation of NSR without any
notice and comment, but you say they did this by doing so in a proposed
rule. Isn't a proposed rule just that? I believe the Agency by
publishing it as a proposed rule satisfied the notice and comment
requirement, is that correct?
Response. No. With all due respect, the situation is not that
simple. Both your question and my testimony are not sufficiently clear
about the difference between legislative and interpretative rules.
Interpretative rules state the agency's interpretation of law, and they
can become immediately effective without notice and comment (provided
that affected parties receive appropriate notice). See Administrative
Procedure Act, 5 U.S.C. Sec. 553(b)(3)(A) and Sec. 552(a)(1)(D) and
(E). In the course of a preamble to a proposed legislative rule, EPA
may promulgate new interpretations of existing law or statutory terms.
Those interpretations then become immediately effective as the agency's
current view of the law even if the proposed legislative rule is never
finalized. That is exactly what happened in the case of the Clinton
Administration's 1998 renunciation of the 1992 Bush Administration NSR
interpretations. In the course of the preamble to the 1998 legislative
rule that was cited in my testimony, EPA disavowed and renounced its
1992 legal interpretations, claiming that the 1992 legal
interpretations were an unwarranted deviation. Not only is this
``revisionist history,'' but it was a major change in policy that was
not preceded by any public input. In direct contradiction to its own
1992 WEPCO-Fix rulemaking, EPA's 1998 preamble states:
One particular circumstance where EPA has been dissatisfied
with the WEPCO rule is in the exclusion of demand growth from
predictions of utility units' future actual emissions. The
Agency's promulgation of the WEPCO rule represented a departure
from longstanding practice under which emissions increases that
followed non-routine and otherwise nonexempt changes at a
source were presumed to result from the change. At the same
time, EPA believed that there was a way to disassociate utility
units' post-change emission increases which would have
otherwise occurred due to demand growth as a purely independent
factor from those that resulted directly from the physical or
operational change. The EPA has reconsidered that departure,
and has tentatively concluded that its 1992 departure is not
appropriate and should not be continued, both as a general
matter and especially in view of recent developments in the
electric power sector.
The EPA's experience leads to the conclusion that sources
generally make non-routine physical or operational changes
which are substantial enough that they might trigger NSR in
order to increase reliability, lower operating costs, or
improve operational characteristics of the unit and do so in
order that they may improve their market position. . . . For
these reasons, EPA now seriously questions whether market
demand should ever be viewed as a significant factor in
answering the relevant regulatory question of whether an
emissions increase results from a physical or operational
change at an existing source, since in a market economy, all
changes in utilization--and hence, emissions--might be
characterized as a response to market demand.
[T]here is no plausible distinction between emissions
increases due solely to demand growth as an independent factor
and those changes at a source that respond to, or create new,
demand growth which then result in increased capacity
utilization. 63 Federal Register 39860 (July 24, 1998, emphasis
added).
These statements are legally significant and immediately effective
in that courts give little or no deference to agency interpretations
that are inconsistent and shifting. See, e.g. City of Chicago v.
Environmental Defense Fund, 511 U.S. 328 (1994). My discussions with
EPA legal staff persuade me that EPA knew exactly what it was doing and
was renouncing prior legal interpretations that could prove troublesome
for EPA in the NSR enforcement cases that were about to be brought.
This major change in NSR policy was not preceded by notice and comment,
nor any other form of public participation.
I do not contend that these major changes in NSR legal
interpretations were technically illegal because they were not preceded
by notice and comment. As noted above, interpretative rules are exempt
from notice and comment requirements by statute. Similarly, much of
what the current Bush Administration is proposing to do regarding NSR
is also in my view an interpretation of statutory terminology that is
technically an interpretative rule that does not require notice and
comment for a legalistic perspective. However, notice and comment can
be provided in the agency's discretion. Much of the discussion within
this Committee about the desirability of notice and comment is not
based on the technical requirements of the Administrative Procedure
Act, but rather proceeds from the sensible notion, which I share, that
as a matter of good public policy, major changes in important policies
should be preceded by public participation and input. My point was that
this norm, which is now being invoked so strongly by the Committee
against the Bush Administration, was clearly breached by the Clinton
Administration in 1998. The current Bush Administration has already
provided far more opportunity for public participation, scrutiny and
comment on its contemplated changes in NSR policy than was provided by
the Clinton Administration in reversing its predecessor's policies and
putting the new NSR policies into effect in 1998.
Question 2. In your testimony you refer to EPA's definition of
``potential emissions'' and attribute this definition to resulting in a
plant being considered to increase its emissions even though there is a
decrease in actual emissions. Do you have any actual examples that you
can quantify? Are you aware of (or can you provide) any estimates that
have been made of the decrease in actual emissions that have been
reported as increases in potential emissions?
Response. Yes, I am aware of a number of actual cases in which
actual emissions have decreased but hypothetical ``potential''
emissions increased, but I have not done a quantitative study to
collect all of these cases and add up the total tons involved. (If a
comprehensive quantification is really desired, this might be a good
project for GAO, which has the resources to conduct such studies, which
I do not.) Increases in ``potential emissions'' were the essence of
EPA's legal position in both the Puerto Rican Cement case (which
involved construction of an entirely new emission unit never before
operated) and WEPCO (which rejected the actual-to-potential test for
already existing units) cases. A major controversy over EPA's
``potential emissions'' theory then erupted as a result during the
first Bush Administration. In the 1992 Interpretative Rule, EPA
partially backed off from its potential emissions theory by committing
to using instead an ``actual to projected actual'' approach for
existing electric utility plants in the future, but the actual to
potential test was maintained in effect for all other industry
segments. Thus, contrary to the implication of the question, the
``potential emissions'' theory is definitely still very much alive and
still being applied today by EPA as a matter of stated agency policy to
most industries.
EPA's official Background Paper for the Administration's NSR Review
explains the current status of the potential emissions theory as
follows: ``Current emissions are measured using actual emissions over
the recent past, usually designated as the last 2 years. Future
increases are generally determined using potential to emit (which, as
described above, is the maximum capacity to emit, except as limited by
a permit). The difference between the future potential and the past
actual emissions is compared to the relevant significance level. An
exception is the electric utility industry, which estimates future
emissions using a special calculation that resulted from a Federal
rulemaking following a Federal court opinion. The utility calculation
is established in a rule, commonly known as the ``WEPCO rule'', which
EPA finalized on July 21, 1992. This rule provides that utilities
compare past actual emissions to projected future actual emissions.''
EPA, NSR 90-Day Review Background Paper (June 22, 2001)(Docket A-2001-
19 Document II-A-01) http://www.epa.gov/air/nsr-review/nsr-review.pdf
at p. 7 (emphasis supplied; footnotes omitted).
The actual-to-potential test makes no attempt to correlate a causal
link between a particular ``physical change or change in the method of
operations'' and a resulting ``increase in the amount of emissions.''
Historically, EPA had required a real increase in emissions to trigger
NSR. The wording of Section 111(a)(4) of the Clean Air Act on its face,
as well as it has been interpreted by EPA historically and in the 1992
Federal Register preamble, clearly requires a real increase in
emissions to trigger NSR. You need only look at EPA's annually
published air quality and emissions trends reports to confirm that in
the aggregate, actual tons per year of emissions of SO<INF>2</INF>,
NOx, and PM/PM<INF>10</INF> are decreasing, despite increases in
population, GNP, energy production, and vehicle miles traveled. See
http:www.epa.gov/airtrends and related links.
Question 3. You compare the Clear Skies Initiative to Senator
Jeffords' S. 556 recently reported out by the EPW Committee. You praise
them both, in fact. S. 556 requires that new or modified power plants
still go through New Source Review, and some people are opposed to
that. Are you saying you are in favor of that?
Response. No. When an effective cap-and-trade program is put in
place, I believe that it should replace NSR for existing sources, for
all the reasons that are indicated above in my answers to Senator
Voinovich above. As it presently exists, NSR for modified plants is not
only redundant but destructive of trading.
Statement of Joseph Bast, President of The Heartland Institute on New
Source Review Reform
Gentlemen, I respectfully add my voice to those of many who believe
the New Source Review Program requires substantial and immediate
reform.
The Heartland Institute is a national nonprofit research and
education organization based in Chicago. Since our founding in 1984, we
have produced research and commentary on a wide range of public policy
issues, including environmental policy. Since 1998, Heartland has
published Environment & Climate News, a monthly newspaper devoted to
covering environmental news.
Because of the importance of New Source Review reform, I assembled
a three-person team to study the Environmental Protection Agency's June
13, 2002, New Source Review: Report to the President, and to produce a
Heartland Policy Study evaluating its findings and recommendations. The
team consisted of Heartland's Science Director, Dr. Jay H. Lehr, editor
of McGraw-Hill's Standard Handbook of Environmental Science, Health,
and Technology (2000); the managing editor of Environment & Climate
News, James Taylor; and myself. My bio and Dr. Lehr's appear at the end
of these comments; past issues of Environment & Climate News featuring
Mr. Taylor's reporting can be found on Heartland's Web site at
www.heartland.org.
Our complete evaluation runs to some 23 pages and can also be
viewed on The Heartland Institute's Web site at www.heartland.org.
Printed copies are available by calling 312/377-4000. We found:
<bullet> EPA accurately described instances where current NSR
policy has discouraged investments needed to improve productivity and
plant safety, even when those investments would reduce emissions of
pollutants.
<bullet> EPA's recommended reforms would remove counterproductive
policies without harming air quality.
<bullet> EPA's recommendations and some of the ideas that
apparently will be part of President Bush's ``Clear Skies Initiative''
represent progress in bringing one of the nation's least effective
environmental regulations up-to-date.
Following is a more complete summary of our evaluation.
what the report to the president says
EPA's Report to the President summarizes extensive public comments
and previous EPA reviews of NSR enforcement policies, along with case
studies showing how current NSR enforcement policies have had negative
effects on businesses, workers, consumers, and the environment. EPA
identified three areas where reform is needed:
<bullet> EPA's uncertain and increasingly narrow interpretation of
the ``routine maintenance, repair and replacement'' exclusion.
Consistent with Congress's intent, EPA until 1999 generally
excluded ``routine maintenance, repair and replacement'' (RMR&R)
activities from the NSR permitting process. As early as 1988, though,
EPA began to challenge the meaning of ``routine,'' subjecting or
threatening to subject more activities to NSR than before.
The Report to the President concludes that ``concern about the
scope of the routine maintenance exclusion is having an adverse impact
on [utility] projects that affect availability, reliability,
efficiency, and safety.'' Concerning nonutility companies, EPA says
``concern about the scope of the routine maintenance exclusion is
having an adverse impact on industries outside the energy sector. It
also is credible to conclude that projects have been discouraged that
might have been economically and/or environmentally beneficial without
increasing actual emissions.''
<bullet> EPA's substitution of ``actual-to-future-potential'' for
``actual-to-future-actual'' in estimating likely changes in emissions.
In 1996, EPA changed the way it estimates the effect of facility
modifications on emissions for nonutility emitters from ``actual-to-
future-actual'' to ``actual-to-future-potential,'' which means the
decision to apply NSR is determined by the emitter's ``potential to
emit'' rather than the actual change in emissions likely to occur.
In its Report to the President, EPA concluded ``the current NSR
program is having an adverse impact on energy efficiency by
discouraging projects that may improve energy efficiency, or may
increase capacity and reliability without actually increasing pollutant
emissions. In some cases it may be discouraging projects that decrease
emissions because of the `actual-to-potential' test used for these
industries.''
<bullet> Emissions from de-bottlenecking and aggregation
Originally, EPA ruled that only the direct effect on emissions from
the unit being modified would be considered in determining whether an
NSR permit was required. More recently, EPA has moved to a more
expansive definition under which ancillary increases in emissions from
unmodified but ``de-bottlenecked'' units must be included. EPA is also
combining separate projects and claiming the aggregate effect on
emissions is sufficient to trigger NSR.
epa's reform recommendations
When it released its Report to the President, EPA also issued seven
recommendations for NSR reform. The first four were proposed by the
Clinton Administration in 1996 but never implemented:
<bullet> Plantwide Applicability Limits (PALs).--Regulated
emitters would be allowed to modify their plants without obtaining a
major NSR permit provided their emissions do not exceed a plantwide cap
based on an actual emissions baseline. Such ``Plantwide applicability
limits'' (PALs) would effectively expand the RMR&R exclusion and
resolve conflicts over de-bottlenecking.
<bullet> ``Clean unit'' exclusion.--Regulated emitters who
achieved Federal BACT or LAER control levels or comparable State minor
source BACT since 1990 would be entitled to a ``clean unit exclusion''
from NSR. A clean unit would trigger NSR only if permitted allowable
emissions increase.
<bullet> Exclusion for pollution control and prevention
projects.--Modifications that result in a net overall reduction in air
pollutants, including when an emitter switches to a cleaner-burning
fuel, would be excluded from NSR, subject to certain conditions. Caps
on emissions under the National Ambient Air Quality Standards program
and other programs would remain in place.
<bullet> Return to actual-to-future-actual methodology.--The
``actual-to-future-potential'' emissions test would be replaced with
the previously used (and still used for utilities) ``actual-to-future-
actual'' test, which is a more realistic calculation of future
emissions. Only emission increases caused by a given modification would
be considered. The baseline for calculating current actual emissions
would be the highest consecutive 24-month period within the immediately
preceding 10 years.
Three additional reforms of NSR recommended by EPA would need to go
through the formal rulemaking procedure (including public comment)
before being implemented. They are:
<bullet> More objective definition of the RMR&R exclusion.--EPA
proposes to set cost-based thresholds below which projects would
automatically qualify for the RMR&R exclusion. The thresholds would be
set on an industry-by-industry basis and would exclude costs incurred
for installing and maintaining pollution control technology.
<bullet> De-bottlenecking.--EPA proposes to clarify that, when
calculating actual emissions associated with a modification, emitters
generally will need to look only at the unit undergoing the change.
Emissions from units ``upstream'' or ``downstream'' of the unit being
changed would be considered only when the permitted emissions limit of
the upstream or downstream unit would be exceeded or increased.
<bullet> Aggregation.--EPA proposes to consider modifications to
be separate and independent projects unless they are dependent upon
another project to be economically or technically viable or the project
has been intentionally split from other projects to avoid NSR. EPA says
it ``generally would defer to the States to implement the Agency's
aggregation rule.''
evaluation of epa's recommendations
Since 1980, EPA has released some 4,000 pages of ``guidance'' and
produced many (often conflicting) letters and several proposals for NSR
revision, none of them finalized. Testimony to EPA contains many
reports by industry spokespersons alleging that EPA has frequently and
substantially changed its enforcement policies without going through
the formal (and legally required) rulemaking procedure, causing
considerable uncertainty within the regulated community.
We found these reports to be credible and uncertainty to be
justified. Current policies plainly have the unintended consequences of
discouraging worthwhile investments and maintenance activities that
would benefit companies and consumers as well as the environment. Many
of these investments and activities were once correctly understood to
be outside the scope of NSR, and ought once again be put beyond NSR's
reach.
EPA's recent enforcement of policy reinterpretations has forced
companies to count imaginary emissions from previously unused capacity
in determining whether a repair or other moderation would cause a
significant increase in emissions. As a result, under current rules
most repair projects would trigger a full New Source Review, even if
actual emissions decrease as a result of the modification. Given the
cost of complying with the NSR permitting process, many companies
choose not to upgrade and modernize plants or even make routine changes
and repairs. Efficiency improvements that would have reduced emissions
and energy consumption or improved worker or community safety have been
foregone.
The NSR policy changes recommended by EPA, if put into practice,
would not compromise air quality. We are skeptical that NSR has had a
major positive effect on air quality since 1977, since air quality was
improving prior to that year and other air quality regulations were
responsible for much larger emission reductions than can be traced to
the NSR program. Predictions that NSR reform would result in
substantial increases in emissions strike us as partisan rhetoric, not
analysis. The air quality goals and standards for protecting public
health and the environment remain intact, and those aspects of the
current program that unintentionally increase emissions by discouraging
investments in energy efficiency would be avoided.
EPA's proposals would fix some of the biggest problems encountered
by an aging, inefficient, and expensive environmental regulatory
program. Replacing the program outright as it affects utilities with
the ``Clear Skies Initiative,'' as also proposed by the Bush
Administration, would be a further step in the right direction, though
judgment must be reserved until legislation for the Initiative is made
public.
The country would be better served if NSR were changed to clarify
and make more certain the scope of the routine maintenance exclusion
and the method used to measure future emissions. Even better would be a
move away from the costly and often counterproductive style of end-of-
the-pipe regulation represented by NSR.
conclusion
Everyone agrees that clean air is one of the most important rights
of American citizens and goals of national environmental policy. The
failure to apply common sense to the New Source Review program, though,
has burdened American consumers and American industry with higher
economic costs and higher levels of pollution than were envisioned by
Congress when it wrote the Clean Air Act amendments of 1977. As EPA
itself now admits on pages 31-32 of its Report to the President:
Our findings in this report ratify a longstanding and
broadly-held belief that parts of the NSR program can and
should be improved. For example, we conclude above that changes
to NSR that add to the clarity and certainty of the scope of
the routine maintenance exclusion will improve the program by
reducing the unintended consequences of discouraging worthwhile
projects that are in fact outside the scope of NSR.
NSR was adopted at a time when forecasts of a ``post-industrial
era'' were naively thought to justify anti-manufacturing policies.
Balancing costs against benefits was thought to be unnecessary, and the
effects of regulations on the incentives of regulators and members of
the regulated community alike were poorly understood and often
dismissed as unimportant.
Since 1977, air quality, technology, and regulatory theory have
improved dramatically, creating new opportunities to more cost-
effectively protect air quality. Investors, too, have rediscovered the
inherent value of companies that manufacture real goods and services,
and the negative impact that defective regulations can have on global
competitiveness.
It is entirely appropriate, at this time in U.S. history, to re-
examine the rules and regulations known to be ineffective or damaging
to the manufacturing sector of the country's economy. EPA's
recommendations and the Bush Administration's Clear Skies Initiative
are good places to start, but they do not mark the end of the need for
reform.
Thank you for this opportunity to submit my comments to the record.
Please do not hesitate to contact me or members of my staff if I can be
of any assistance to your Committees or to you and your staffs.
__________
State Attorneys General
a communication from the chief legal officers of the following states:
alaska, california, connecticut, maine, maryland, massachusetts, new
hampshire, new jersey, new york, rhode island, vermont
July 17, 2002.
Hon. George W. Bush,
The White House,
Washington, DC.
Re: Climate Change
Dear President Bush: Climate change presents the most pressing
environmental challenge of the 21st century. We applaud the efforts of
your Administration in the release this May of a formal, comprehensive
report that details the seriousness of this problem. U.S. Climate
Action Report 2002, U.S. Dept. of State, Washington, DC, May 2002
(``Report''). Unfortunately, however, the Administration's current
policy is inconsistent with the import of the Report's findings by
failing to mandate reductions of greenhouse gas emissions. To fill this
regulatory void, States and others are being forced to rely on their
available legal mechanisms. The resulting combination of State-by-State
regulations and litigation will necessarily lessen regulatory certainty
and increase the ultimate costs of addressing climate change, thereby
making the purported goals of the Administration's current policy
illusory. For these reasons, we write today to urge you to reconsider
your position on the regulation of greenhouse gases and to adopt a
comprehensive policy that will protect both our citizens and our
economy.
The Report Documents the Need for Dramatic Action
The Report documents ongoing climate change that will cause
significant impacts on virtually every aspect of our planet and way of
life. We already see the signs of such change everywhere. Some are
dramatic, such as the recent collapse of a portion of the Antarctic ice
shelf the size of Rhode Island, the open water at the North Pole, or
millions of acres of spruce trees in Alaska killed by insects. Others
are less overt, but are also powerful statements of the enormity and
pervasiveness of the problem. The Report is replete with examples. For
instance, the Report documents that average temperatures have already
increased 1 degree Fahrenheit over the past century, and it projects
that over the next century, average temperatures will likely increase
5-9 degrees Fahrenheit. Increased temperatures will dramatically change
climates in every State and destroy some fragile ecosystems. The Report
also documents that sea levels have already risen 4-8 inches over the
last century, and it projects that they will likely rise another 4-35
inches over the next. Rising sea levels will cause more flooding along
the coast and it will obliterate vital estuaries, coastal wetlands and
barrier islands. While some areas will face increased storms and storm
damage, other areas--such as California and other parts of the West--
will face dwindling supplies of water. Of perhaps the most concern, the
Report documents potential health-related impacts of climate change,
and a just-published study in the journal Science warns of increased
risks from insect-borne diseases such as malaria and yellow fever.
The Report makes it clear that the question of whether global
climate change is occurring is no longer in doubt, only the precise
rate of change and the specific impacts of that change. It also
repeatedly acknowledges that the dominant cause of climate change is
carbon dioxide produced from the combustion of fossil fuels. Notably,
the Report projects that greenhouse gas emissions will increase by 43
percent by 2020. Report at 6. It also notes ``the long lifetimes of
greenhouse gases already in the atmosphere and the momentum of the
climate system.'' Report at 82. According to the Report, this means
that impacts of climate change will continue to be felt for several
centuries, ``even after achieving significant limitation in emissions
of CO<INF>2</INF> and other greenhouse gases.'' See Report at 103. The
evidence marshaled in the Report refutes its own counsel of inaction
and delivers a different message: an effective response to the
confirmed dangers of global climate change must include immediate
action to limit greenhouse gas emissions.
The Existing Administration Proposal is Inadequate and Increases
Uncertainty
While we are certainly heartened that the United States has now
officially recognized the existence and scope of the climate change
problem, the Administration has yet to propose a credible plan that is
consistent with the dire findings and conclusions being reported. The
Administration's one proposal calls for a voluntary reduction of
greenhouse gas ``intensity'' at roughly the same pace such reductions
have occurred over the last 20 years. The Report itself strongly
suggests that such voluntary reductions will be grossly overshadowed by
existing atmospheric gases and, combined with ongoing and increasing
emissions, will actually allow the problem to continue to worsen. In
light of this, the Report implicitly calls this policy approach into
question. See Report, at 50-51 (stating that there is ``a need to re-
evaluate existing climate change programs to ensure they effectively
meet future economic, climate, and other environmental goals'').
Despite conceding that our consumption of fossil fuels is causing
serious damage and despite implying that current policy is inadequate,
the Report fails to take the next step and recommend serious
alternatives. Rather, it suggests that we simply need to accommodate to
the coming changes. For example, reminiscent of former Interior
Secretary Hodel's proposal that the Government address the hole in the
ozone layer by encouraging Americans to make better use of sunglasses,
suntan lotion and broad-brimmed hats, the Report suggests that we can
deal with heat-related health impacts by increased use of air-
conditioning. Report at 82. Far from proposing solutions to the climate
change problem, the Administration has been adopting energy policies
that would actually increase greenhouse gas emissions. Notably, even as
the Report identifies increased air conditioner use as one of the
``solutions'' to climate change impacts, the Department of Energy has
decided to roll back energy efficiency standards for air conditioners.
To fill the void left by Federal inaction on this issue, some
States are now initiating measures, within their borders, to reduce
greenhouse gas emissions. For example, Massachusetts last year adopted
State regulations requiring carbon dioxide reductions by power plants,
and New Hampshire recently enacted ``cap and trade'' legislation.
California's legislature has just passed a bill that will lead to the
``maximum feasible'' reductions of carbon dioxide emissions from
vehicles. New York is also considering a carbon cap. Continued Federal
inaction will inevitably lead to a wider range of State regulatory
efforts. In addition, States and others are beginning to review their
litigation options.
Only Mandatory Federal Carbon Caps of Appropriate Levels Can Provide
Regulatory Certainty
We obviously support our States' regulatory and litigation efforts
on this issue. At the same time, however, we want to make it clear that
State-by-State action is not our preferred option. We believe that such
regulation or litigation will increase the uncertainty facing the
business community, thus potentially making the most cost-effective
solutions more difficult. Moreover, we agree that the global nature of
the climate change problem would be most efficiently addressed by
comprehensive regulatory action at the national level. A recent
Department of Energy Report concluded that the United States could
address carbon dioxide emissions issues with minimal disruption of
energy supply and at modest cost, but only with fully integrated
planning. See Energy Information Administration, Office of Integrated
Analysis and Forecasting, U.S. Department of Energy, ``Analysis of
Strategies for Reducing Multiple Emissions from Electric Power Plants
with Advanced Technology Scenarios,'' SR/OIAF/2001-05 (October 2001).
This integrated planning can only come with regulatory certainty.
In particular, we believe that a market-based program that would
cap greenhouse gases holds great promise. Such an approach has a proven
track record as one effective tool in the regulatory toolbox, as you
have noted in other contexts. We strongly believe that prompt
implementation of a market-based approach that caps greenhouse gas
emissions would promote significant benefits for public health, welfare
and the environment in a manner that would be consistent with strong
economic policies.
Conclusion
We very much appreciate your Administration's formally
acknowledging the magnitude and nature of the climate change problem.
In light of the Report's findings, however, we urge you now to rethink
the Administration's policy response to the problem. While individual
States are prepared to lead the way, we believe that a strong national
approach will allow for more efficient solutions that will better
protect the American economy in the long run. Please do not hesitate to
contact us on this critical issue.
Very truly yours,
Thomas F. Reilly, Massachusetts Attorney General;
Bruce M. Botelho, Alaska Attorney General;
Bill Lockyer, California Attorney General;
Richard Blumenthal, Connecticut Attorney
General; G. Steven Rowe, Maine Attorney
General; Philip T. McLaughlin, New
Hampshire Attorney General; David Samson,
New Jersey Attorney General; Eliot Spitzer,
New York Attorney General; Sheldon
Whitehouse, Rhode Island Attorney General;
J. Joseph Curran, Jr., Maryland Attorney
General; William H. Sorrell, Vermont
Attorney General.
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