According to conventional wisdom, the United States Environmental Protection Agency (EPA) has all but abandoned enforcement activities. However, at least regarding the air program, the EPA has recently taken aggressive action to enforce the New Source Review (NSR) rules for major facilities. The EPA has targeted the wood products, pulp and paper, utility, steel and petrochemical industries. Many in those industries see this enforcement activity as an attempt by the EPA to accomplish what it has not been able to do through legislation or rulemaking -- forcing major industries to install state-of-the-art air emission control technology on aging plants. For the ever expanding list of affected industries, the stakes are enormous in terms of the cost of new technology and the potential for multi-million dollar civil penalties.
Background: The New Source Review Program
The federal Clean Air Act establishes National Ambient Air Quality Standards (NAAQS) for certain criteria pollutants such as carbon monoxide, sulfur dioxide, lead, particulates and the precursors of smog, volatile organic compounds and nitrogen dioxide. Areas are either considered to be "attainment" if the ambient in the area meets or is better than the NAAQS or "non-attainment" if the ambient air is more polluted than the NAAQS.
Under the NSR program, preconstruction review and permits are required prior to beginning building a major source of emissions of criteria pollutants. A proposed source is considered major if it has the potential to emit more than a specified (depending on the type) of a criteria pollutants in a year. For example, a proposed source is considered to be major if it has the potential to emit more than 100 tons per year of sulfur dioxide.
Major Modifications
The focus of the EPA's enforcement actions have been over the issue of whether there have been major modification of existing facilities. In addition to requiring preconconstruction permitting of major sources, the Clean Air Act requires NSR review and approval prior to making a major modification of an existing major source. Any major source which is planning a modification which could result in a "significant net emissions increase" or if a minor source is undergoing a modification which by itself would be a major source must undergo NSR review and obtain a permit before starting to make the modification. However, the major modification rule has proved to be difficult to apply.
First, there must be a "modification". A modification is a "physical change or change in methods of operation". However, there are important exceptions: routine maintenance, repair and replacement; use of an alternative fuel; increased hours of production or production rates unless such increase is prohibited by permit; change in ownership and certain pollution control projects.
Second, there must be a "significant net increase in emissions". A significant increase in emissions is defined by EPA and state regulations implementing the NSR program. For example, under the federal regulations a net increase or the potential of the source to emit 40 tons per year of nitrogen oxide or volatile organic compounds are deemed to be significant. The calculation of net increases is very complicated and frequently the source of friction between EPA and industry. Generally, the determination of the net increase is made by comparing the actual emissions of the source before modification and the potential emissions from the source after modification.
Another complicated issue is the aggregation of a series of minor modifications. EPA does not require that minor modifications be added together to determine if there is a significant increase in emissions. As long as these modifications are separate and unrelated they are aggregated. However, EPA does not allow a source to avoid the NSR rules by breaking a major modification into a series of minor modifications. Generally, the modifications are evaluated to determine if they are "related" and the time period is examined. If the modifications could have been made part of a single project and occur over a relatively short period of time it is likely that the emissions will be aggregated for the purposes of determining whether NSR review is triggered.
If an increase in emissions exceeds the significance level for a pollutant, other emissions increases or decreases over a five year period is calculated to determine the net emissions change from the modification. This is also a very complicated process in which determination of what emission changes are credited for netting purposes and what units are examined are critical issues. My experience has been when this evaluation is made it is not uncommon for sources that were initially overlooked as insignificant are found. Documentation of emission changes is an additional serious problem.
EPA Strikes
In a recent string of highly publicized enforcement actions , EPA has charged that there has been a massive non-compliance with the NSR program. EPA has charges that certain utilities, paper products, wood products and steel producers have made over the years major modifications to their facilities without undergoing NSR On November 3 of last year, federal actions were filed against midwest-based American Power Co., Cinergy, FirstEnergy, Illinois Power, Southern Indiana Gas & Electric Co., Southern Company and Tampa Electric Company.
In large measure the focus of the enforcement actions is on the "routine maintenance, repair and replacement" exception to the major modification definition. EPA has argued that what was supposed to be a very narrow exception to the NSR rules has been expanded by industry. EPA has recently stated that the exception was only to cover frequent, traditionally and comparatively inexpensive repairs to existing equipment. However, this recent pronouncement seems to be inconsistent with at least one key judicial decision and EPA's previous determinations.
It is difficult for a company, its technical advisors and counsel to evaluate the many changes that occur during the life of a large industrial facility. Such facilities are not static. Refineries, power plants, steel mills and other large facilities are dynamic. They are constantly being maintained, equipment being replaced and the process refined to increase efficiencies and production. Frequently these changes result in increased emissions. EPA may look at theses activities not as routine maintenance but "debottlenecking" . EPA has taken aggressive enforcement actions contending that these activities are major modifications which result in significant net emissions increases. The risk of triggering the NSR process is substantial and the ramifications of such an event occurring can be overwhelming.
EPA's goals in these enforcement actions are relatively straight forward. EPA seeks to force the major industries to install state-of-the-art controls and to obtain substantial civil penalties from the alleged violators. If there were major modifications these facilities would have been required to install best available control technology in NAAQS attainment areas or lowest achievable emission rate in non-attainment areas. Potential civil penalties are enormous. Under the federal Clean Air Act, a violator is subject to a civil penalty of $25,000 per day for each day of violation. In addition, violators could be subject to state enforcement proceeding and citizens' suits. The stakes for a company facing EPA enforcement are very high both in terms of the potential civil penalties and the cost of retrofitting facilities with new controls. The risks are so great that it is not likely that any one company will be in a position to aggressively defend an enforcement action if a feasible alternative is available.
The Future
A recently announced settlement with Tampa Electric Company gives a good indication of where EPA intends to go with the NSR enforcement initiative. On March 1, 2000, EPA and Tampa Electric announced a settlement of the NSR action. Under the settlement the Florida utility will spend $1 billion to convert a major coal-fired plant to natural gas and make major changes at a second plant. In addition, Tampa Electric will pay a $3.5 million civil penalty and contribute $10.0 on environmental projects. One EPA official said that that the settlement sent a signal to other companies of what EPA hopes to accomplish.
On he other hand, there appears to be Congressional interest in providing a legislative solution. Hearings have recently been held on the NSR program and EPA stated that it hopes to have new NSR rules issued by late 2000.
Conclusion
For years EPA and the environmental community have been frustrated by the NSR program. It appears to them that plants have been fundamentally changed yet little has been done to require the installation of more effective control equipment. Industry is justifiably concerned with an series of enforcement initiatives that are inconsistent with past agency practice and judicial decisions.
As a manager of a facility or counsel to the facility that holds a NSR permit, the stakes have been raised. Past engineering, maintenance and repair practices are now subject to scrutiny. The risks are enormous and only careful documentation of what is being done and why, and the impact on emissions of such activities will position the regulated facility to withstand such scrutiny.