MEMORANDUM
Date:
June
3,
2005
To:
Memorandum
to
E­
Docket
No.
OAR­
2002­
0068
From:
Dave
Svendsgaard,
ITPID/
OAQPS/
EPA
Subject:
Additional
Information
in
Support
of
Selecting
a
Replacement
Cost
Threshold
for
the
ERP
I.
Purpose
The
purpose
of
this
memorandum
is
to
present
a
summary
of
the
replacement
cost
threshold
information
provided
by
commenters
during
Reconsideration
in
support
of
a
bright­
line
cost
threshold
for
the
Equipment
Replacement
Provision
("
ERP").
The
background
for
the
ERP
Reconsideration
is
presented
in
Section
II.
Section
III
presents
the
information
provided
during
Reconsideration
for
the
use
of
a
percent
replacement
cost
threshold,
and
Section
IV
presents
our
conclusion
based
on
this
information.

II.
Background
On
October
27,
2003,
the
Environmental
Protection
Agency
(
EPA)
promulgated
the
ERP,
a
rule
for
the
New
Source
Review
(
NSR)
permitting
program
that
prospectively
expanded
what
types
of
equipment
replacements
are
excluded
from
major
NSR
under
the
Routine
Maintenance,
Repair
and
Replacement
(
RMRR)
exclusion.

On
November
14,
2003
State
and
local
governmental
groups
challenging
the
final
rule
asked
the
U.
S.
Court
of
Appeals
for
the
District
of
Columbia
Circuit
to
stay
the
final
ERP
(
i.
e.,
prevent
the
rules
from
taking
effect)
until
the
challenges
are
resolved
by
the
Court.
Several
environmental
groups
filed
a
similar
request
on
November
17,
2003.
On
December
24,
2003,
the
Court
granted
the
requests
and
issued
an
order
to
stay
the
effective
date
of
the
ERP.

Also
on
December
24,
2003,
the
EPA
published
a
rule
amending
its
Prevention
of
Significant
Determination
(
PSD)
provisions
for
State
programs
that
did
not
have
approved
State
PSD
rules.
Prevention
of
Significant
Deterioration
is
a
permitting
program
designed
to
protect
air
quality
in
areas
meeting
national
air
quality
standards.
In
each
of
these
States,
the
EPA
previously
had
made
the
area
subject
to
the
PSD
rules
in
the
Federal
Implementation
Plan
(
FIP).
The
rule
simplified
the
procedure
for
incorporating
changes
into
the
FIP
portion
of
the
State
plan
where
the
state
does
not
have
an
approved
PSD
state
implementation
plan
(
SIP)
in
place.

On
July
1,
2004,
the
EPA
granted
Reconsideration
of
certain
aspects
of
the
ERP.
(
See
69
FR
40278.)
In
granting
Reconsideration,
we
requested
public
comment
on
three
issues.
The
issues
for
reconsideration
were:
(
1)
the
basis
for
determining
that
the
ERP
was
allowable
under
2
the
Clean
Air
Act;
(
2)
the
basis
for
selecting
the
cost
threshold
(
20
percent
of
the
replacement
cost
of
the
process
unit)
that
was
used
in
the
final
rule
to
determine
if
a
replacement
was
routine;
and
(
3)
a
simplified
procedure
for
incorporating
a
FIP
into
State
plans
to
accommodate
changes
to
the
NSR
rules.

III.
Support
the
Use
of
A
Percent
Replacement
Cost
Threshold
Information
As
a
result
of
our
solicitation
of
comment
on
the
basis
for
selecting
the
20
percent
replacement
cost
threshold
that
we
used
in
the
final
ERP,
several
commenters
supported
a
replacement
cost
threshold
to
provide
a
"
bright
line"
in
determining
which
activities
qualify
as
RMRR
under
the
ERP.
This
memorandum
presents
data
and
other
supporting
information
received
from
those
commenters
that
supported
a
replacement
cost
threshold
and
provided
data
supporting
their
position,
what
level
they
supported,
and
their
basis.
Most
of
the
support
provided
was
for
the
EPA's
20
percent
replacement
cost
threshold;
a
few
of
the
comment
letters
stated
that
the
commenter
prefers
a
50
percent
threshold,
but
that
the
EPA
has
properly
supported
the
20
percent
threshold;
a
couple
of
the
letters
supported
only
a
50
percent
replacement
cost
threshold;
and
one
of
the
comment
letters
supported
the
20
percent
threshold
but
felt
that
a
5
percent
cost
replacement
threshold
would
be
more
legally
defensible.
Table
1
presents
a
list
of
these
comment
letters
by
docket
item
number,
commenter,
affiliation,
and
a
brief
reason
for
the
basis
for
their
position.

IV.
Conclusion
In
assessing
information
provided
by
commenters
during
Reconsideration
regarding
a
cost
replacement
threshold,
we
conclude
that
there
is
considerable
agreement
that
our
prior
arguments
for
selecting
a
20
percent
cost
threshold
are
justified.
In
addition,
we
received
additional
data
and
experience
during
Reconsideration
that
further
supports
our
decision
for
adopting
the
20
percent
replacement
cost
threshold.
We
have
evaluated
the
projects
described
by
commenters
and,
assuming
that
they
would
meet
all
other
criteria
of
the
ERP,
these
projects
would
not
be
the
types
of
activities
that
necessitate
applying
the
multi­
factor
RMRR
approach.
We
note
that
some
commenters
that
previously
supported
a
50
percent
cost
replacement
threshold
now
support
the
20
percent
cost
threshold.
Likewise,
a
commenter
who
believes
that
a
5
percent
cost
replacement
threshold
is
more
legally
defensible
also
feels
that
EPA
is
justified
in
selecting
a
20
percent
cost
threshold.
We
feel
that
these
facts
support
our
decision
to
retain
the
20
percent
cost
threshold.

Our
goal
in
selecting
the
cost
threshold
is
not
to
create
a
bright
line
below
which
any
activity
is
excluded
solely
based
on
its
cost.
Rather,
the
threshold
is
intended
to
operate
as
a
screen
for
determining
when
case­
by­
case
review
is
appropriate
versus
when
it
is
appropriate
to
automatically
exclude
an
activity
as
RMRR
based
on
satisfaction
of
the
three
non­
cost
ERP
criteria.
We
continue
to
believe
that
20
percent
is
an
appropriate
threshold
for
this
purpose.
The
available
data
indicate
that
the
20
percent
threshold
will
effectively
screen
out
those
more
significant
projects
for
which
case­
by­
case
review
of
RMRR
eligibility
is
prudent.
3
Table
1.
Commenters
that
Provided
Information
in
Support
of
the
Use
of
a
Replacement
Cost
Threshold
Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
@
2519
Bruce
Rising
Gas
Turbine
Association
Provided
data
supporting
20
percent
replacement
cost
threshold
for
their
industry.

@
2522
Donald
R.
Schregardus
Department
of
Navy
(
on
behalf
of
CAA
Steering
Committee)
Supports
the
20
percent
replacement
cost
threshold.

Though
lower
than
the
50
percent
they
proposed,
they
do
not
feel
it
was
arbitrarily
chosen
and
they
support
it.

@
2539
American
Gas
Association
"
Assessment
of
the
Effects
of
the
Routine
Maintenance,
Repair
and
Replacement
Rule
on
the
Pulp
and
Paper
Industry,"
August
25,
2003
(
the
Abt
Report)

The
Abt
Report
supports
the
20
percent
replacement
cost
threshold.

@
2540
(
also
cross­
referenced
@
2211,
@
1210,

and
@
2519
for
justification)/
D
Leslie
Witherspoon
Solar
Turbines
Incorporated
Supports
the
20
percent
replacement
cost
threshold.

Believe
that
lower
thresholds
would
discourage
RMRR
for
a
number
of
their
turbines.

Provided
that
routine
overhaul
of
their
products
fall
in
the
range
of
6
to
14
percent
of
the
replacement
cost.

@
2547
Timothy
G.
Hunt
American
Forest
and
Paper
Association
Abt
Report
supports
the
20
percent
cost
Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
4
threshold
for
their
industry.

They
summarized
portions
of
the
report,
adding
relevant
technical
characteristics
of
their
industry
to
further
support
the
20
percent
cost
threshold.

EPA's
20
percent
cut­
off,
as
applied
to
Pulp
and
Paper
facilities,
fits
within
a
traditional
definition
of
RMRR
and
will
not
lead
either
to
emissions
increases
or
to
"
life
extension"

projects.

@
2522
Basil
G.
Constantelos
Midwest
Generation
The
20
percent
threshold
is
consistent
with
the
WEPCO
case.

EPA
has
provided
more
than
adequate
support
for
the
20
percent
threshold.

@
2581
William
H.
Lewis
Clean
Air
Implementation
Project
Supported
adopting
the
50
percent
cost
threshold,
however
in
light
of
the
fact
that
sources
can
demonstrate
applicability
of
the
RMRR
exclusion
on
a
case­
by­
case
basis
if
they
exceed
the
threshold,
they
support
the
adoption
of
the
20
percent
threshold.
Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
5
@
2584
Class
of
`
85Regulatory
Response
Group
(
voluntary
ad
hoc
coalition
of
approximately
32
electric
generating
companies
from
around
the
country)
The
EPA
clearly
has
provided
an
adequate
basis
for
adoption
of
a
20
percent
cost
threshold,

however,
based
on
an
evaluation
of
the
replacement
projects
that
electric
generating
units
routinely
undertake:
turbine
blades;

section
of
waterwall
tubes;
reheaters;

superheaters
and
economizers,
the
commenters
determined
that
a
cost
threshold
of
5
percent
would
allow
electric
generators
to
continue
to
maintain
their
plants
for
safe,
efficient
and
reliable
operation.

@
2593
William
L.
Kovacs
Chamber
of
Commerce
of
the
United
States
of
America
EPA's
20
percent
cost
of
replacement
threshold
is
reasonable.

The
20
percent
cost
threshold
is
supported
by
the
Administrative
record.

@
2560
August
Wallmeyer
Virginia
Independent
Power
Producers
While
still
believing
that
adding
a
cost
factor
to
the
ERP
makes
the
regulation
more
complex
than
necessary,
if
one
is
included,
it
should
be
consistent
with
the
50
percent
threshold
set
forth
in
the
NSPS.

@
2561
Fiji
C.
George
El
Paso
Corporation
­
Pipeline
Group
EPA's
cost
of
replacement
threshold
is
inadequate
and
needs
to
be
revised
to
50
percent
as
initially
proposed.

Attempts
to
lower
the
20
percent
threshold
will
severely
affect
regular
RMRR
activities
at
compressor
stations.
Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
6
@
2565
Lisa
S.
Beal
Interstate
Natural
Gas
Association
of
America
Interstate
Natural
Gas
Association
of
America
(
INGAA)
Supported
EPA's
position.
Challenged
petitioner's
positions.

Strongly
supports
the
20
percent
ERP
replacement
cost
threshold.
Provided
new
equipment
replacement
cost
data
that
purportedly
demonstrates
that
this
threshold
is
both
reasonable
and
appropriate.
Argued
that
any
threshold
that
would
be
lower
would
provide
little
or
no
relief.
Cost
analysis
performed
by
INGAA
and
member
companies.

Stated
that
thy
believe
that
the
more
complete
data
submitted
demonstrates
the
validity
and
appropriateness
of
the
20
percent
ERP
threshold
for
the
INGT
industry.

@
2567
Quinlan
J.
Shea
III
Edison
Electric
Institute
Supports
replacement
cost
percentage
approach
(
20­
percent).
Characterizations
and
criticisms
of
the
ERP
fail
to
account
for
addition
RMRR
exclusion
hurdles
under
the
ERP,
suggesting
that
plants
would
be
allowed
to
rebuild
over
5
years.

Asserts
this
does
not
make
sense
as
it
would
require
significant
downtime
making
the
operation
of
the
plant
uneconomical/
would
lead
to
electric
reliability
challenges.
Table
1.
Commenters
that
Support
the
Use
of
a
Replacement
Cost
Threshold
(
Continued)

Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
7
@
2568
Debra
J.
Jezouit
BAKER
BOTTS,
LLP.
Comments
of
the
Class
of
`
85
Regulatory
Response
Group
Does
not
believe
20
percent
cost
threshold
is
arbitrary
and
capricious
(
as
asserted
by
the
petitioners).

Although
EPA
did
not
specifically
identify
a
20
percent
cost
threshold,
it
provided
an
analysis
in
the
proposed
rule
as
to
why
a
cost
threshold
of
up
to
50
percent
might
be
appropriate.

Though
they
believe
20
percent
is
legally
defensible,
they
believe
a
5
percent
threshold
is
more
legally
defensible.

Clay
Memorandum
provides
precedent
for
establishing
a
level
at
something
less
than
15
percent.

@
2573
Bill
Edmonds
WEST
Associates
Previously
advocated
a
50
percent
cost
threshold
based
on
the
reconstruction
provision
in
the
NSPS
but
concurs
with
the
EPA
that
these
provisions
differ
from
the
modification
thresholds
of
NSR.

Based
on
their
review
of
the
data,
they
believe
that,
for
the
most
part,
RMRR
activities
will
meet
the
20
percent
threshold
and
therefore
they
support
the
20
percent
threshold.
Table
1.
Commenters
that
Support
the
Use
of
a
Replacement
Cost
Threshold
(
Continued)

Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
8
@
2574
Gregory
J.
Dana
Alliance
of
Automobile
Manufacturers
Asserted
that
petitioners
failed
to
place
the
threshold
in
context
of
the
overall
ERP
test.

The
final
rule
does
not
provide
that
any
equipment
replacement
under
the
20
percent
cost
threshold
is
exempt
from
NSR/
PSD.
Cites
3
additional
test
criteria.

Abt
Report
supports
that
some
typical
replacement
activity
in
the
automobile
manufacturing
industry
will
not
be
exempt
under
the
20
percent
cost
replacement
threshold.

@
2581
William
H.
Lewis
Morgan,
Lewis,
and
Bockius,
LLP.
Comments
of
Clean
Air
Implementation
Project.
EPA's
proposal
suggested
that
the
NSPS
cost
threshold
for
reconstruction
might
be
an
appropriate
test.
EPA
explained
that
it
considered
the
50
percent
RMRR
cost
threshold
and
agreed
that
establishing
a
bright­
line
cost
threshold,
which
after
their
review
of
a
number
of
industries
concluded
that
20
percent
was
appropriate.
Believe
that
EPA
has
authority
under
the
Act
to
adopt
a
20
percent
level
and
support
it.
Table
1.
Commenters
that
Support
the
Use
of
a
Replacement
Cost
Threshold
(
Continued)

Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
9
@
2582/@
2583
Angus
E.
Crane
North
American
Insulation
Manufacturers
Association
(
NAIMA)
Believes
that
the20
percent
cost
threshold
provides
a
reasonable
threshold.
A
survey
conducted
of
several
of
their
members
has
confirmed
that
RMRR
activities
that
occur
on
a
regular
basis
can
range
from
3
to
20
percent
of
the
replacement
value
of
the
process
line.

@
2584
Scott
Davis
Pinnacle
West
Capital
Corporation
The
20
percent
cost
threshold
is
appropriate
and
consistent
with
the
Act.

A
threshold
less
than
20
percent
would
create
a
strong
disincentive
for
facilities
to
replace
equipment
necessary
to
ensure
safe,
reliable
and
efficient
plant
operation.

@
2586/@
2587
Hawaiian
Electric
Company,
Inc.
(
HECO)
and
it's
subsidiaries
Justification
for
the
20
percent
cost
limit
not
arbitrary
or
capricious.
The
preamble
to
the
final
rule
set
out
a
reasoned
basis
for
choosing
the
20
percent.

EPA
is
well
within
it's
legal
authority.

@
2614,
2617­

2619
David
S.
Harlow
Hunton
and
Williams.
Council
for
the
Equipment
Replacement
Rule
Coalition
(
ERRC).
EPA
did
not
abuse
its
discretion
in
promulgating
the
20
percent
replacement
value
threshold
provision,
which
is
well­
supported
in
the
public
record.

Case
studies
do
not
support
the
assertion
that
Table
1.
Commenters
that
Support
the
Use
of
a
Replacement
Cost
Threshold
(
Continued)

Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
10
the
20
percent
replacement
value
provision
would
exempt
"
all
equipment
replacement"
in
the
two
industries
cited
by
petitioners.

The
20
percent
threshold
is
much
more
stringent
than
the
50
percent
threshold
previously
used
by
EPA
for
review
of
replacement
projects,
and
is
supportable.

Provides
support
of
EPA's
position.
Challenges
the
petitioners
position.

@
2615
Utility
Air
Regulatory
Group
(
UARG)
EPA's
establishment
of
20
percent
replacement
cost
as
a
threshold
screening
level
is
not
arbitrary
and
capricious.

The
ERP
Rule's
20
percent
replacement
value
threshold
does
not
establish
a
"
ceiling"
below
which
"
physical
activities"
will
automatically
be
excluded,
as
there
are
other
criteria
that
must
be
met.

The
list
of
projects
included
on
the
list
submitted
by
UARG
(
prior
to
promulgation
of
the
rule),
and
used
by
the
EPA
to
support
the
20
percent
threshold,
are
those
that
utilities
must
undertake
frequently
at
their
units
in
order
to
keep
facilities
operational.
Provides
two
reports
Table
1.
Commenters
that
Support
the
Use
of
a
Replacement
Cost
Threshold
(
Continued)

Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
11
submitted
in
Court
enforcement
action
against
Illinois
Power
company
concerning
various
types
of
maintenance,
repair,
and
replacement
activities
taken
in
the
industry.

Stated
petitioner
misread
6
case
studies
supporting
the
threshold,
and
that
they
did
not
support
the
petitioners
assertion
that
the
20
percent
replacement
value
provision
would
exempt
"
all
equipment
replacement."

@
2670
Leslie
Sue
Ritts
The
National
Environmental
Development
Association's
Clean
Air
Project
(
NEDA/
CAP)
Abt
Report.

Reasonable
because
of
other
limitations
inherent
in
its
applicability.

EPA
gave
ample
notice
to
the
public
of
its
intent
to
define
RMRR
on
a
process
unit
basis
at
50
percent
or
something
else
Table
1.
Commenters
that
Support
the
Use
of
a
Replacement
Cost
Threshold
(
Continued)

Docket
Item
No./
Attachment
Commenter
Affiliation
Basis
12
@
2675
Bob
Bessette
Council
of
Industrial
Boiler
Owners
EPA
properly
balanced
the
costs
and
benefits
of
NSR
review
in
the
selection
of
the
20
percent
cost
threshold.

EPA's
regulatory
analysis
demonstrates
that
selection
of
the
20
percent
threshold
will
not
significantly
impact
emission
reductions
from
the
NSR
program.

EPA's
analysis
demonstrates
that
many
RMRR
projects
would
be
subject
to
time­
consuming
case­
by­
case
reviews
at
a
lower
threshold
than
20
percent.
