Current Thoughts Regarding New Source Review

After 50 days of the new administration, it is abundantly clear that U.S. EPA will take several months or more to gain their footing under a profoundly different approach to environmental regulation.  As such, new regulatory development has all but ground to a halt.  In the absence of new activity, this regulatory hiatus represents an opportune time to take a step back and consider three items related to New Source Review (NSR) that we view as important for facilities and environmental managers to consider.  For existing major stationary sources, NSR is an important regulatory consideration when planning facility modifications and expansion projects.  As a pre-construction permitting program, it is often a key consideration in project schedules and can impact project scope and planning.  With the expectation of sustained growth in the U.S. economy, facility expansion projects and modifications can’t be that far behind.  With this backdrop, three key thoughts regarding NSR and air quality management are presented below.

1.      Beware of Regulatory Complacency

ALL4’s John Egan provided his thoughts on the change in administration and possible implications to air quality policy in the January 2017 issue of 4 The Record (4TR).  A common theme associated with the change in the political climate is the anticipated level of environmental regulatory reform and specifically, reforms anticipated to the often misunderstood NSR regulations [i.e., Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR)].  With the confirmation of the new Administrator and the anticipated budget cuts at U.S. EPA, it is easy to envision a less active agency.

The major NSR regulations are based on the statutory requirements of the Clean Air Act (CAA).  The rules themselves are relatively static with significant rule revisions last occurring in 2002.  The complicating factors of NSR are most associated with determining if NSR even applies to a given project.  Because of this potential uncertainty and the idiosyncrasies associated with NSR applicability determinations, such determinations are often subject to review by U.S. EPA.  In addition, there are volumes of precedent and regulatory guidance regarding NSR applicability that both regulatory agencies and facilities rely upon.  U.S. EPA involvement in NSR applicability reviews often results in construction permit delays and extended project schedules, prompting frustration at facilities and a strong desire for regulatory relief.  While relief may at some point become reality, such relief will most likely be in the form of reduced U.S. EPA funding and manpower and not regulatory or statutory reform.  As a result, U.S. EPA budget, staff, and influence will be diminished with increased independent action by state regulatory agencies.

Why is this important to my facility?

With the current indications of an emerging domestic economic expansion, facility environmental managers must remain diligent in identifying and tracking facility modification and expansion plans to ensure that NSR pre-construction permitting requirements are identified, evaluated, and met.  Reducing U.S. EPA funding and manpower does not change statutory or regulatory requirements.  Because the regulations are not changing, the underlying NSR requirements continue to apply regardless of U.S. EPA cutbacks.  The responsibility for implementing the NSR requirements will continue to be with state regulatory agencies, albeit with much reduced U.S. EPA involvement.  Also note that Non-Governmental Organizations (NGOs) are very well-funded and in an era of perceived lack of regulatory oversight, will likely become more involved in permitting actions as part of the public participation process filling the void left by a less active U.S. EPA.

2.      USA v. DTE Energy Company, et al. – Round 2

In the May 2015 issue of 4TR, we discussed the possible implications of a U.S. EPA enforcement action against a Michigan electric utility company (DTE Energy Company).  Looking back, the utility initiated “maintenance work” at their Monroe, Michigan facility in March 2010 after providing notice of the project to the Michigan Department of Environmental Quality (MDEQ) in accordance with Michigan State Implementation Plan (SIP) requirements.  U.S. EPA asserted that the facility was required to obtain a pre-construction permit from MDEQ because the project was a major modification under the Michigan NSR regulations and that the source’s notice to MDEQ was untimely and deficient, stating that the notice included no explanation of why emissions were excluded. The issue has been in District and Sixth Circuit courts ever since.

The latest decision regarding this case came on January 10, 2017 when the Sixth Circuit Court again remanded a prior District Court decision regarding the case.  The Sixth Circuit Court ruled that the utility was not required to secure U.S. EPA’s approval of emissions projections or the project before beginning construction, but that the utility proceeded at its own risk by moving forward without a permit.  The Sixth Circuit Court also ruled that U.S. EPA is not prevented by law or by their March 28, 2013 prior opinion (DTE1) from challenging preconstruction emissions projections.  More importantly, the Sixth Circuit court also ruled, consistent with their March 28, 2013 prior opinion (DTE1) that actual post-construction emissions have no bearing on the question of whether preconstruction projections complied with the regulations and that the District Court was in error initially and on remand when it ruled that post-construction data could be used to show that a construction project was not a major modification.  Finally, the Sixth Circuit Court reiterated that “…the applicability of NSR must be determined before construction commences and that liability can attach if an operator proceeds to construction without complying with the preconstruction requirements in the regulations.”

What does this decision mean?

It basically takes us back to square one: NSR permitting requirements are determined before construction is commenced, which is consistent with our understanding of how NSR applicability has been determined since the inception of the rules themselves.  Prior to the NSR reform rules of 2002, major NSR permitting requirements were routinely triggered for existing major stationary sources because of the use of the “actual to potential” applicability test.  The applicability tests promulgated with NSR reform are more complex and are focused on emissions increases attributed to the project under consideration.  Because the tests are more complex, their use has routinely been scrutinized by U.S. EPA, state regulatory agencies, and NGOs.  When evaluating NSR applicability, it is important for facilities to develop well documented emissions inventories and NSR applicability evaluations in accordance with applicable Federal rules, State rules, pertinent precedence, and regulatory guidance prior to beginning construction.

3.      A Strategic Air Quality Permitting Option

The NSR reform rules of 2002 included provisions for Plantwide Applicability Limits (PAL).  A PAL is a facility-wide limit for a regulated NSR pollutant.  PALs can be established for one or more regulated NSR pollutant(s) at an existing major stationary source.  Each PAL is based on a 12-month rolling total, expressed in tons of pollutant per year. Compliance with PALs must be demonstrated monthly during the term of the PAL permit.  Each limit is generally established based on the average annual (i.e., baseline) emissions rate for a consecutive 24-month period during the prior 10 years of facility operation.  PALs have been addressed in the 4TR articles, “The Secret to Your Environmental Permitting Challenges – A PAL Permit,” “The Window is Closing:  A Case for Plantwide Applicability Limits Now,” “Exploring Plantwide Applicability Limit (PAL) Basics,” and Plantwide Applicability Limits: A Legitimate Alternative to Major New Source Review Permitting.”

A primary benefit of a PAL permit is that as long as the facility demonstrates compliance with the PAL, physical changes and changes in the method of operation are not major modifications and projects do not require approval under applicable NSR programs.  States may still require facilities operating under a PAL to procure construction permits when making a physical change or modification to an emissions unit, but the associated NSR applicability analyses for every project and the complications associated with PSD/NNSR for major modifications are eliminated.  Essentially, the facility manages operations and projects to allow facility growth while maintaining emissions below PAL levels.  When or if emissions reductions are needed, it is the facility that makes the decision regarding how reductions are achieved and what control technology is chosen, not the regulatory agencies.

Why should I consider a PAL permit now?

The PAL regulations allow facilities to retain beneficially high baseline periods for up to 10 additional years allowing for flexibility, permitting certainty, and reduced permitting timelines.  Recall that “The Great Recession” is recognized to have begun in December 2007 and ended in June of 2009.  Domestic economic activity in the years preceding The Great Recession was relatively robust.  Domestic industrial output plummeted during the recession, and in many instances, has not fully recovered to pre-recession levels.  Pertaining to air quality, robust economic activity translates into higher industrial activity, greater production, and most importantly, higher baseline actual emissions rates of regulated NSR pollutants for regulated entities.  PAL levels are established using baseline actual emissions rates and when developing a PAL, non-electric generating units are allowed to “look back” up to 10 years to establish baseline emissions rates.  A 10 year look back allows facilities to potentially establish PALs using production rates and associated baseline actual emissions that have not been achieved since before 2008.  Higher baseline emissions rates equate to higher PAL levels and higher PALs support greater operational flexibility.

Now that regulatory development is at a standstill with the new administration, take a few moments to think about how you will address NSR for a future plant expansion:

• Remember that NSR applicability is an on-going concern and must be accounted for when planning capital projects,
• In a recent decision, the Six Circuit Court re-iterated that NSR applicability is determined pre-construction, and
• This may be your last chance to preserve a historically high baseline period for your facility by strategically considering if a PAL permit will be a good fit for your facility.

Please contact Roy Rakiewicz at 610.933.5246, extension 127 or at rrakiewicz@all4inc.com with any questions.

This article is available as a podcast episode on ALL4’s Air Quality Insider