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6 NYCRR Parts 200, 201 and 231 Regulatory Impact Statement

Statutory Authority

The statutory authority for these regulations is found in the Environmental Conservation Law (ECL) Sections 1-0101, 3-0301, 3-0303, 19-0103, 19-0105, 19-0107, 19-0301, 19-0302, 19-0303 and 19-0305, and in Sections 160-169 and 171-193 of the Federal Clean Air Act (42 USC Sections 7470-7479; 7501-7515) (Act or CAA).

Section 1-0101. This Section outlines the policy declaration for the Department of Environmental Conservation (Department) regarding the protection of New York State's environment and natural resources including the control of "air pollution, in order to enhance the health, safety and welfare of the people of the state and their overall economic and social well being."

Section 1-0101 further requires that it is the policy of the State to coordinate the State's environmental plans, functions, powers and programs with those of the federal government and other regions and manage air resources to the end that the State may fulfill its responsibility as trustee of the environment for present and future generations. This Section provides that it is the policy of the State to foster, promote, create and maintain conditions by which man and nature can thrive in harmony by providing that care is taken for air resources that are shared with other states.

Section 3-0301. This Section states that it shall be the responsibility of the Department to carry out the environmental policy of the State. In furtherance of that mandate, Section 3-0301(1)(a) gives the Commissioner authority to "[c]oordinate and develop policies, planning and programs related to the environment of the state and regions thereof..." Section 3-0301(1)(b) directs the Commissioner to promote and coordinate management of, among other things, air resources "to assure their protection, enhancement, provision, allocation, and balanced utilization consistent with the environmental policy of the State and take into account the cumulative impact upon all of such resources in making any determination in connection with any license, order, permit, certification or other similar action or promulgating any rule or regulation, standard or criterion." Pursuant to ECL Section 3-0301(1)(i), the Commissioner is charged with promoting and protecting the air resources of New York including providing for the prevention and abatement of air pollution.

Section 3-0301(2)(a) permits the Commissioner to adopt rules and regulations to carry out the purposes and provisions of the ECL. Section 3-0301(2)(g) allows the Commissioner to enter and inspect sources of air pollution and to verify compliance. Section 3-0301(2)(m) gives the Commissioner authority to "adopt such rules, regulations, and procedures as may be necessary, convenient, or desirable to effectuate the purposes of this chapter."

Section 3-0303. This Section requires that the Department formulate and, from time to time, revise a statewide environmental plan for the management and protection of the quality of the environment and the natural resources of the State. In formulating this plan and any revisions, the Department is required to conduct public hearings, cooperate with other departments, agencies and government officials, and any other interested parties, and obtain assistance and data as may be necessary from any department, division, board, bureau, commission or other agency of the State or political subdivision or any public authority to enable the Department to carry out its responsibilities.

Section 19-0103. This Section is a declaration of the State's policy with specific reference to air pollution. "It is declared to be the policy of the State of New York to maintain a reasonable degree of purity of the air resources of the State . . . and to that end to require the use of all available practical and reasonable methods to prevent and control air pollution."

Section 19-0105. This Section sets out the purpose of Article 19 of the ECL, "to safeguard the air resources of the State from pollution" consistent with the policy expressed in Section 19-0103 and in accordance with other provisions of Article 19.

Section 19-0107. This Section provides definitions to be used in the application of the requirements of Article 19 of the ECL.

Sections 19-0301(1)(a) and (b). These sections state that:

1. Consistent with the policy of the State as it is declared in Section 19-0103, the Department shall have power to:

Section 19-0301(2)(a) states that it shall be the duty and responsibility of the Department to prepare and develop a general comprehensive plan for the control or abatement of existing air pollution and for the control or prevention of any new air pollution recognizing various requirements for different areas of the State.

Section 19-0301(5) directs the Department to "certify emission reduction credits and establish an emission reduction credit registry. Such registry shall identify emission credits that are certified by, or used in, New York State. Prior to certifying credits, the Department shall publish notice and provide the opportunity for public comment, pursuant to article 70 of this chapter, on the proposed modification of a sources' permit to reflect that emission reductions will be certified as emission reduction credits..."

Section 19-0302. This Section states that permit applications, renewals, modifications, suspensions and revocations will be governed by rules and regulations adopted by the Department, and that permits issued may not include performance, emission or control standards more stringent than any established by the Act or by the United States Environmental Protection Agency (EPA) unless such standards are authorized by rules or regulations.

Section 19-0303. This Section provides that a code, rule or regulation or any amendment or repeal thereof will not be adopted until after a public hearing is held and may not become effective until filed with the Secretary of State. The Department may also recognize the difference in the State's air quality areas in its rulemaking. Finally, this section prescribes procedures for adopting any code, rule or regulation which contains a requirement that is more stringent than the Act or regulations issued pursuant to the Act by the EPA.

Section 19-0305. This Section authorizes the Department to enforce the codes, rules and regulations established in accordance with Article 19 of the ECL.

Sections 71-2103 and 71-2105 set forth the civil and criminal penalty structures for violations of Article 19.

Legislative Objectives

The Act requires states to have a preconstruction and operating permit program for new and modified major stationary sources. This rulemaking is being undertaken to satisfy New York's obligations under the Act and also to meet the environmental quality objectives of the State. This Section discusses the legislative objectives of the rulemaking, including overview of relevant federal and State statutes and regulations.

Environmental Conservation Law

Articles 1 and 3, of the ECL, set out the overall State policy goal of reducing air pollution and providing clean air for the citizens of New York. They provide general authority to adopt and enforce measures to do so, including the regulation of mobile sources of air pollution.

In addition to the general powers and duties of the Department and Commissioner to prevent and control air pollution found in Articles 1 and 3, Article 19 of the ECL was specifically adopted for the purpose of safeguarding the air 'quality' of New York from pollution. To facilitate this purpose, the Legislature bestowed specific powers and duties on the Department, including the power to formulate, adopt, promulgate, amend and repeal regulations for preventing, controlling and prohibiting air pollution. This authority specifically includes promulgating rules and regulations for preventing, controlling or prohibiting air pollution in such areas of the State as shall or may be affected by air pollution, and provisions establishing areas of the State and prescribing for such areas (1) the degree of air pollution or air contamination that may be permitted therein, and (2) the extent to which air contaminants may be emitted to the air by any air contamination source. In addition, this authority also includes the preparation of a general comprehensive plan for the control or abatement of existing air pollution and for the control or prevention of any new air pollution recognizing various requirements for different areas of the State.

The Federal Clean Air Act

In 1970, Congress amended the Act "to provide for a more effective program to improve the quality of the Nation's air." The statute directed EPA to adopt National Ambient Air Quality Standards (NAAQS) and required states to develop implementation plans known as State Implementation Plans (SIPs) which prescribed the measures needed to attain the NAAQS. The statute also mandated that states attain the NAAQS by 1975, or with certain allowable extensions, by 1977. The 1970 Act amendments mandated that SIPs contain "a procedure for review (prior to construction or modification) of the location of any new or modified air pollution source."

When it became clear that the goals of the 1970 Act amendments would not be achieved, Congress amended the Act in 1977 to provide additional safeguards to protect the nation's air quality. The 1977 amendments required states to identify areas that did not meet the NAAQS which were then designated as "nonattainment" areas. In particular, the 1977 amendments strengthened the Act by (1) expressly creating a preconstruction review program for new or modified major sources located in "nonattainment" areas (i.e., areas which failed to meet NAAQS) ('see generally' 42 USC Sections 7501-7515); and (2) expressly providing a parallel preconstruction review program for new or modified sources located in "attainment" areas (i.e., areas which met NAAQS or where there was insufficient information to evaluate whether NAAQS were met) ('see generally id.' Sections 7470-7492). The two programs are collectively known as New Source Review (NSR). The first program is commonly referred to as Nonattainment New Source Review (NNSR), and the second as Prevention of Significant Deterioration (PSD).

The NNSR program, as contained in the 1977 Act amendments and set forth in Part D of Title 1 of the Act, required states to adopt permit programs for the construction, modification and operation of major stationary sources in nonattainment areas. Facilities subject to NNSR must apply emission control technologies in order to achieve the Lowest Achievable Emission Rate (LAER) for new or modified emission sources, and obtain emissions reductions from other sources such that the resulting emissions from the new or modified emission source produces no increase in overall regional emissions. Facilities must also demonstrate that any other facility owned by the same company is in compliance with the requirements of the Act.

Part C of Title 1 of the 1977 Act amendments established the PSD program and sets forth the preconstruction review and permitting requirements for stationary sources located in areas that are in attainment of the NAAQS. The PSD provisions establish preconstruction permitting requirements for new major stationary sources and major modifications at existing stationary sources which require, among other things, that (1) the proposed new or modified sources be subject to the Best Available Control Technology (BACT), and (2) the source perform ambient air quality analyses to show that it will neither violate NAAQS increments nor adversely affect air quality in national parks or other areas that EPA has designated as needing particularly high-quality air. 42 USC Section 7475.

The 1977 Act amendments directed that, at a minimum, LAER and BACT must be as restrictive as any New Source Performance Standard (NSPS) promulgated pursuant to Section 111 of the Act ('see' 42 USC Section 7479[3] ["In no event shall application of [BACT] result in emissions of any pollutants which will exceed the emissions allowed by any applicable standard established pursuant to [NSPS]"]; 'see also' 42 USC Section 7501[3] ['for LAER']).

Congress passed the 1990 Act amendments, after nearly a decade of consideration, in recognition of the fact that many areas of the country continued to be out of compliance with the NAAQS and that full nationwide attainment, particularly with the ozone standard, could not be achieved as expeditiously as originally thought. The goal of the 1990 amendments was to set more realistic deadlines that recognized the differences among areas while requiring reasonable progress towards attainment. To accomplish this, the 1990 amendments divided every state into areas designated as "attainment," "nonattainment," or "unclassifiable," like the 1977 Act amendments, but went a step further by dividing nonattainment areas into different classifications depending on the severity of the problem in each area. Each classification had a separate deadline for attainment and incrementally more stringent control requirements for areas with higher nonattainment classifications (worse air quality problems).

One aspect of the 1990 Act amendments relevant to this rulemaking consisted of more stringent permitting requirements for new and modified major stationary sources. Specifically, the 1990 amendments mandated that states with areas which had been designated as nonattainment had to revise their SIP to include specific measures to ensure attainment and reasonable further progress towards attainment. Among other measures, SIPs had to provide for a permit program for new and modified major stationary sources in accordance with Section 173 of the Act. Section 110 of the Act already required that SIPs include provisions implementing the permitting programs required in Parts C and D of Title 1 of the Act for new and modified stationary sources (42 USC Section 7410[a][2][j]).

Section 173 of the Act continued to impose special review, permit and emission offset requirements on new and modified major stationary sources in nonattainment areas. The 1990 Act amendments imposed the additional requirements that a proposed new or modified major stationary source analyze alternative sites, sizes, production processes, and control techniques, and the permitting agency make a finding that the benefits of the source outweigh its environmental and social costs. Section 173(c) imposed new restrictions on emission offsets, including the requirement that they be obtained from the same nonattainment area, or from a different nonattainment area if (1) the other area has an equal or higher nonattainment classification and (2) emissions from the other area contribute to the nonattainment problem in the area in which the source is proposed to be located. Any emission reductions required by the Act could not be counted for the purpose of establishing emission offsets.

Federal NSR Regulations

In 1978, EPA promulgated a NSR regulation, followed by multiple sets of regulations including regulations applying to PSD and NNSR in states with and without approved SIPs. These regulations are substantially similar. This document will collectively refer to the regulations as the NSR regulations. Industry groups commenced legal action challenging the 1978 regulations. Following the decision in 'Alabama Power v Costle', 623 F2d 323 (D.C. Cir. 1979), EPA promulgated a revised NSR regulation in 1980.

One of the central areas of controversy with the 1980 NSR regulation, which still persists today, concerned the definition of the term "modification." The final 1980 rule defined the term "major modification" as follows: " '[m]ajor 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" (45 Fed Reg 52676 [August 7, 1980] [emphasis added]). The regulation further defined "[n]et emissions increase" as "any increase in actual emissions from a particular physical change or change in method of operation" that occurred after taking into account, through a process known as "netting," "any other increases and decreases in actual emissions at the source that are contemporaneous with the particular change and are otherwise creditable" ('id' at 52736).

The regulation then defined "actual emissions" as follows: "(ii) In general, actual emissions as of a particular date shall equal the average rate, in tons per year, at which the unit actually emitted the pollutant during a two-year period which proceeds the particular date and which is representative of normal source operation." The Administrator shall allow the use of a different time period upon a determination that it is more representative of normal source operation. Actual emissions shall be calculated using the unit's actual operating hours, production rates, and types of materials processed, stored, or combusted during the selected time period. (iii) The Administrator may presume that source-specific allowable emissions for the unit are equivalent to the actual emissions of the unit. (iv) For any emission unit which has not begun normal operations on the particular date, actual emissions shall equal the potential to emit of the unit on that date."

Unlike the proposed regulation, the 1980 final rule emphasized "actual emissions." EPA explained in the regulation's preamble that while the initial 'Alabama Power' decision had used the phrase "potential to emit," the later opinion used language that, "like the [statutory] definition, suggest[ed] changes in actual emissions," and that EPA had acted consistently ('id.' at 52700). Finally, the 1980 regulation provided that "[a] physical change or change in the method of operation shall not include ... an increase in the hours of operation or in the production rate" ('id.' at 52735-36).

1996 Federal NSR Reform Proposal

In 1996, EPA proposed a NSR rule revision that it described as "the first comprehensive overhaul of the program in 15 years" (61 Fed Reg 38250 [July 23, 1996] [1996 Draft Rule]). The proposed changes were "intended to reduce costs and regulatory burdens for permit applicants" without sacrificing air quality ('id.' at 38251) EPA estimated that the changes, if finalized, would result in approximately 50 percent fewer sources being subject to NSR ('see id.' at 38319).

The 1996 Draft Rule set forth, among other things, the following proposals:

Emissions calculation methodology. For non-electric utility steam generating units (EUSGUs), states were given the choice of either retaining the "actual-to-potential" emissions calculation methodology or adopting the "actual-to-future-actual" test. Sources that opted for the latter methodology would have to submit annually to the permitting authority information demonstrating that the physical or operational change did not result in an emissions increase ('see, e.g.', proposed 40 C.F.R. Section 52.21[b][21][vi]).

Emissions baseline. All non-EUSGUs would have been allowed to use any 24 consecutive month period in the past 10 years when establishing a baseline level for use in calculating emission increases from non-routine physical or operational changes. This baseline level had to incorporate current emission limitations, whether mandatory or voluntary.

Plantwide Applicability Limits (PALs). Facility owners could make physical changes or changes in the method of operation without undergoing NSR, as long as the facility did not exceed the PAL. The PAL was to be set using the facility's baseline emissions plus an operating margin less than the significant level of the pollutant ('see, e.g.' proposed 40 CFR Section 52.21[u][3]).

Clean Unit Exclusion. An emissions unit that had undergone NSR and installed controls considered to be BACT or LAER would avoid NSR for any non-routine physical or operational changes that occur during a 10-year period in which the exclusion applies. A unit that had not undergone NSR, but that had installed controls comparable to BACT or LAER, would merit a five-year exclusion.

Pollution Control Project (PCP) Exclusion. The Draft Rule proposed establishment of a single comprehensive regulatory exclusion for a specific list of pollution control projects, including add-on controls, switches to less-polluting fuels, and pollution prevention projects.

To "provide states with greater flexibility to customize their own regulations implementing the NSR program," the 1996 Draft Rule offered a "menu" approach, pursuant to which States could choose to incorporate any -- or none -- of these changes into their respective NSR programs (61 Fed Reg 38251).

In 1998, in light of comments received on the 1996 Draft Rule and changed circumstances, EPA issued a Notice of Availability (NOA) entitled "Alternatives for New Source Review (NSR) Applicability for Major Modifications; Solicitation of Comment" (63 Fed Reg 39857 [July 24, 1998]). EPA used the NOA to present its preliminary conclusions on those aspects of the 1996 Draft Rule that dealt with emissions methodology and PALs and to request additional comment.

December 31, 2002 Federal NSR Final Rule

On December 31, 2002, the EPA published a final rule revising the regulations that implement the PSD and NNSR provisions of the Act ('see' 67 Fed Reg 80185 [2002 Federal NSR Rule]). EPA stated that the rule was designed to "reduce burden, maximize operating flexibility, improve environmental quality, provide additional certainty, and promote administrative efficiency" ('id.' at 80189).

The 2002 Federal NSR Rule departed from the 1996 Draft Rule and prior NSR rules in several significant respects. Under the 1980 rule, sources determined past actual emissions by averaging their annual emissions for two years immediately prior to the change, though they could use more representative or source specific periods with approval of the permitting agency. Both the 1996 Draft Rule and 2002 Federal NSR Rule included provisions for (1) the use of a 10-year look-back period for establishing baseline emissions, (2) the extension to sources other than EUSGUs of a past-actual to future-projected-actual test for emissions increase calculations, and (3) three permitting provisions that would allow a source to make changes without triggering NSR - PALs, the Clean Unit exclusion, and the PCP exclusion. The 1996 Draft Rule, however, proposed a menu approach whereby states could select the NSR applicability provisions they deemed most appropriate; the 2002 Federal NSR Rule made adoption of these provisions mandatory. The 2002 Federal NSR Rule extended the 1992 rule's demand growth exclusion to all sources, not just EUSGUs. In addition, the 2002 Federal NSR Rule provided that facilities could forgo recordkeeping documenting post-modification emissions, if the facility determined that there was no "reasonable possibility" that a modification could trigger NSR.

The 2002 Federal NSR Rule required States with approved PSD and NNSR programs to submit a SIP revision by January 2006. The Department NNSR regulation at 6 NYCRR Part 231 is subject to this SIP submittal requirement. The Department implemented the PSD program on behalf of EPA pursuant to a delegation agreement with EPA that had been in effect since the mid 1980s. The Department could have continued to implement the PSD program as a delegated State but objected to several aspects of EPA's 2002 Federal NSR Rule and determined that it could not implement the 2002 Federal NSR Rule in its entirety and EPA declined to have the Department implement the PSD program on a partial agreement. On May 24, 2004, the Department returned delegation of the PSD program to EPA after failing to reach agreement on a partial implementation of the program. The Department advised EPA that it intended to adopt a State PSD program that would be protective of the State's air resources and submit the regulations to EPA for SIP approval.

The 2002 Federal NSR Rule included the following key provisions:

Baseline Emissions. In calculating whether an emissions increase has occurred, a source must first calculate its baseline emissions. Under the 1980 rule, baseline emissions were calculated by determining the average tons per year of the pollutant at issue, that were emitted during the two-year period immediately preceding the proposed change. Under the 2002 Federal NSR Rule, baseline emissions are to be calculated by taking an average of the annual emissions in any 24 consecutive month period (selected by the permittee) within the 10-year period that precedes the change, adjusted to reflect current enforceable emissions limitations. A notable exception exists in the case of electric generating units, which are limited to any 24 consecutive month period within the five-year period immediately preceding when a permittee begins actual construction of a project, as was established in the WEPCO rule (57 Fed Reg 32,314).

Reasonable Possibility Test. A facility that makes a non-routine physical or operational change does not need to maintain records of post-modification emissions unless all of three criteria are met: (1) the facility chose to project post change emissions instead of using an actual-to-potential test; (2) the facility determines it will not significantly increase emissions using the actual-to-projected-actual test; and (3) the facility believes there is a "reasonable possibility" that the project may in fact result in a significant emissions increase that will trigger NSR. If the three criteria are met, the facility must track its emissions and keep records for either five or 10 years, depending on the nature of the change. By contrast, facilities which believes there was no "reasonable possibility" that a change would trigger NSR does not need to keep any data to verify that conclusion.

Demand Growth Exclusion. Under the pre-December 31, 2002 Federal PSD regulation, only EUSGUs could take advantage of the demand growth exclusion initially established in the WEPCO case. The 2002 Federal NSR Rule broadened its application, allowing all facilities to exclude from post-emissions calculations (1) any increase in emissions that a unit could have accommodated during the 24 consecutive month period used to establish the baseline as long as the emissions are unrelated to the proposed project, and (2) any increased utilization due to product demand growth.

PALs. A source may obtain a PAL and avoid NSR permitting when a modification is made, as long as the total emissions from the source remain below the PAL specified in the permit. The PAL is established as the sum of the baseline actual emissions of the PAL pollutant plus an amount equal to the applicable significance level. The PAL has a 10-year term and may be renewed for an additional 10 years. PALs are established in the Title V operating permit and are subject to monitoring and recordkeeping requirements to assure compliance with the PAL emission limit.

Clean Unit Exemption. Under the 2002 Federal NSR Rule, a unit qualified for Clean Unit status if in the last 10 years it had implemented BACT or LAER at the time of making a change that triggered NSR, or if the unit had not undergone NSR but had control technology in place that is "comparable" to BACT or LAER, and the unit demonstrates that its allowable emissions will not violate NAAQS or NSPS . Under the 2002 Federal NSR Rule, a unit with Clean Unit status would have retained that status for 10 years and could have renewed that status as long as it remained in compliance with emissions limits and other NSR permit requirements. If such a unit made a change that would otherwise have triggered NSR by increasing emissions at a source, the unit could have nevertheless avoided NSR as long as the change does not alter the unit's Clean Unit status. EPA referred to this approach as "an innovative approach to NSR applicability" that would measure increases in emissions in terms of the 'status' of a unit, rather than its actual emissions.

Pollution Control Project Exclusion. The 2002 Federal NSR Rule provided for an exemption from NSR of specific projects which entail a physical or operational change that reduced emissions of a primary pollutant, even if as a collateral effect the project increases emissions of another pollutant. If the net effect was environmentally beneficial, then the work would have been exempt from NSR permitting.

NSR Litigation

December 31, 2002 Federal NSR Rule

On June 24, 2005, the United States Court of Appeals for the District of Columbia issued a 73-page decision on a consolidated lawsuit challenging the 2002 Federal NSR Rule. The case, 'State of New York, et al. v U.S. Environmental Protection Agency', 413 F 3d 3 (D.C. Cir. 2005) ('New York v EPA'), is one in which the State of New York and numerous other state and local government entities, among others, sued EPA over its 2002 Federal NSR Rule changes (implemented in March 2003) to the NSR provisions of the Act. It consolidated a number of procedural and substantive challenges to the 2002 Federal NSR Rule that had been raised by both government and industry petitioners. The lawsuit challenged various aspects of the new rule, including: the use of a 10-year look-back period for establishing baseline emissions; the extension of the demand growth exclusion to sources other than EUSGUs; the extension to sources other than EUSGUs of the past-actual to future-projected-actual test for emissions increase calculations; the elimination of the requirement that sources keep records documenting post-modification emissions, where the source determines that there is no "reasonable possibility" that a modification will trigger NSR; and three permitting provisions that would allow a source to make changes without undergoing NSR - PALs, the Clean Unit exclusion and the PCP exclusion.

Also at issue in 'New York v EPA' were claims by the government petitioners that: EPA's requirement that an approvable SIP must include EPA's changes to the NSR provisions as minimum program elements, precluded the adoption by states of more stringent program requirements; the new rules violate the anti-backsliding provisions of the Act; and EPA's rejection of the menu approach for state and local governments to choose which provisions of the new rules to incorporate in their programs, was not a logical outgrowth of the proposed rule.

The Court upheld most of EPA's changes to the NSR provisions, including the past-actual to future-projected-actual emissions increase calculations methodology for non-EUSGUs; the 10-year look-back provision (a five-year look-back was retained in the 2002 Federal NSR Rule for the utility industry); the use by non-EUSGUs of the demand growth exclusion in calculating baseline emissions; and the use of PALs to avoid NSR permitting. The court rejected the government petitioners' challenges regarding approvable SIPs, anti-backsliding, and EPA's rejection of the menu approach. The two former arguments were rejected as unripe for judicial review. The latter was rejected on substantive grounds, the Circuit Court having concluded that EPA's rejection of the menu approach was one of two possible outcomes of its proposed rule, and that EPA had provided adequate notice of the change.

However, the Court upheld the government petitioners' challenges to the Clean Unit and PCP exclusions, and remanded the "reasonable possibility" test for recordkeeping. With respect to the first two exemptions, the court concluded that EPA erred in its interpretation of the Act when it implemented those provisions, and lacked the authority to create those exemptions. The Court vacated those two provisions of the 2002 Federal NSR Rule. With respect to the "reasonable possibility" test, the court agreed with Government petitioners that EPA's standard that if a source undertaking a modification concludes that it has no "reasonable possibility" of triggering a significant increase in emissions as a result, the source need not retain records to either document or verify that conclusion is unenforceable. The Court remanded the recordkeeping standard to EPA instructing the Agency to "provide an acceptable explanation for its 'reasonable possibility' standard or to devise an appropriately supported alternative" ('New York v EPA', 413 F.3d at 28). From the State's perspective, these issues represented some of the most troublesome aspects of the 2002 Federal NSR Rule.

Baseline Emissions. During the litigation, government petitioners objected to a 10-year look-back period, arguing first that EPA's analysis was impermissible under the Act, as the ordinary meaning of the word "increase" mandated the use of the time period immediately preceding the change. The court concluded, however, that the statute did not unambiguously require the adoption of that analysis and that the only question was whether EPA's interpretation of the term "increase" was permissible under a 'Chevron' analysis.¹ The court concluded that it was, and that EPA's interpretation of the term was supported by a "'detailed and reasoned analysis' based on its experience and expertise."²

The second argument advanced by government petitioners with respect to the emissions baseline was that the switch to a 10-year period violated the CAA because it could result in increases of emissions to historic levels, without the required NSR review, harming public health and the environment. The Court rejected this argument, relying on several factors. First, the 2002 Federal NSR Rule incorporated three "safeguards": (1) the baseline must be adjusted downward to reflect any legally enforceable emissions limitations; (2) there must be sufficient record information to support the use of a particular baseline period; and (3) the baseline calculations cannot include emissions that exceed any legally enforceable emissions limits imposed during the baseline period. Second, the Court noted that EPA concluded in its environmental impact analysis that the 2002 Federal NSR Rule would reduce pollution and therefore be protective of public health and the environment. Finally, despite both EPA's acknowledgment and a Federal Government Accountability Office (GAO) study which noted the lack of data available to determine how companies would respond to the rule (in terms of whether they would actually make changes that would decrease pollution), the GAO did not conclude that inadequate evidentiary support existed for the provisions with respect to the baseline period. The GAO recommended that EPA monitor emissions impacts to determine whether there would be adverse effects created by the rule. The Court concluded that incomplete data did not render EPA's determination on the baseline issue arbitrary and capricious.

Demand Growth Exclusion. The Court rejected the argument of the government petitioners that in its 1998 Notice of Availability, EPA had tentatively concluded that this exclusion was inappropriate, because among other things all changes in utilization could be proximately linked to market demand, and that EPA had therefore arbitrarily changed its position on this issue without notice. The Court found that EPA had addressed this issue in its denial of the petition for reconsideration, and that EPA's approach was adequately explained and supported by the record, and that the statutory language of the modification was only intended to cover emission increases that resulted from physical changes.

Reasonable Possibility Test. Under the 2002 Federal NSR Rule, a facility that makes a non-routine physical or operational change does not need to maintain records of post-modification emissions unless all of three criteria are met: (1) the facility chooses to project post change emissions instead of using an actual-to-potential test; (2) the facility determines it will not significantly increase emissions using the actual-to-projected-actual test; and (3) the facility believes there is a "reasonable possibility" that the project may result in a significant emissions increase that will trigger NSR. If these criteria are met, the facility must track its emissions and keep records for either five or 10 years, depending on the nature of the change. By contrast, a facility that believes there is no reasonable possibility that a change will trigger NSR does not need to keep its emission calculations or any data to verify that prediction. EPA concluded that the new rule actually increased recordkeeping requirements for non-EUSGUs, and that many cases would arise where a source determined that there was a reasonable possibility of an emissions increase. EPA also argued that sources with a low likelihood of triggering NSR should not have to bear the same burden of monitoring and recordkeeping. The Court concluded that EPA's position ignored significant differences between the old and new rules, and rejected its reasoning as flawed on a number of grounds.

Under the former NSR rules the emissions applicability test was an actual to potential emissions test. By definition, a facility's post-modification actual emissions could not exceed its potential to emit, making it unnecessary to maintain records to establish whether the post change actual emissions exceeded projected emissions. In the alternative, facilities that wanted to avoid NSR could take a cap on their emissions levels, which requires stringent monitoring. In addition, under the pre-2002 Federal NSR Rule, the utility industry was required to maintain records for a minimum of five years following a change, a fact the Court noted underscored EPA's flawed analysis on the recordkeeping provision in the 2002 Federal NSR Rule.

EPA also argued that Title V imposed additional recordkeeping requirements, and that states have the ability to establish their own, more stringent, recordkeeping and reporting requirements for modifications, if they choose to do so. The Court determined, however, that nothing in Title V emissions records would necessarily be traceable to a particular change. Moreover, EPA's argument did not address those states that would simply rely on the requirements in the 2002 Federal NSR Rule, a prospect the Court found unacceptable. The Court explicitly recognized the enforcement difficulties that would arise from the lack of a paper trail that documents a source's emissions and its projections of emissions increases related to a change, stating that "EPA has failed to explain how, absent recordkeeping, it will be able to determine whether sources have accurately concluded that they have no 'reasonable possibility' of significantly increased emissions" ('New York v EPA', 413 F3d at 53-54). As a result, the Court remanded the issue to EPA "for it to either provide an acceptable explanation for its 'reasonable possibility' standard or to devise an appropriately supported alternative" ('Id.' at 56).

Plantwide Applicability Limitations (PALs). Government petitioners argued that the PAL provision was unlawful because it would allow a source to increase emissions beyond recent actual emission levels without triggering NSR, and that there would be harmful impacts to public health and the environment as a result. The Court rejected these arguments for the same reasons stated in its analysis of the 10-year look-back provision, concluding that the petitioners had "fail[ed] to demonstrate that PALs are based on an impermissible statutory interpretation or are otherwise arbitrary and capricious" ('Id.' at 57). The Court upheld EPA's determination that the term "increases" could be defined in terms of facility-wide emissions, and deferred to EPA's discretion to define which changes at a plant are "substantially contemporaneous". The Court further stated that environmental petitioners failed to "refute EPA's assessment of the environmental benefit of PALs" and that the State intervenors' experience with the NSR program confirmed EPA's conclusions about the environmental benefit of PALs. Thus, the Court upheld PALs as a reasonable exercise of EPA's authority under the Act.

Clean Unit Exemption. EPA referred to the Clean Unit exemption approach as "an innovative approach to NSR applicability" that would measure increases in emissions in terms of the 'status' of a unit, rather than its actual emissions. The Court rejected EPA's position. Instead the Court sided with the government and environmental petitioners who argued that the Clean Unit Exemption was contrary to the plain meaning of the Act which requires that increases be measured in terms of actual emissions. EPA argued that the Act was silent as to whether emissions must be measured in terms of actuals, allowables, potentials, or in some other manner. The Court found, however, that Congress distinguished between these categories of emissions when it enacted the 1977 amendments to the Act, that Congress was clearly conscious of the distinction between actual and allowable emissions, and that various provisions of the Act indicated Congress fully intended that increases be measured in terms of actual emissions. The Court noted that EPA had come to the same conclusion in its preamble to the 1980 rule. Thus, the Court vacated the Clean Unit Exemption as contrary to the Act based on its findings that Congress intended to apply NSR to changes that increase emissions and EPA lacked the authority to change the definition of "increase."

Pollution Control Projects. EPA's position on PCPs was that, despite the fact that PCPs are modifications, Congress did not intend that PCPs would be the type of activity that would trigger NSR. EPA argued that the statutory definition of "modification" was adopted from the NSPS regulations, which excluded PCPs, and that to discourage the implementation of PCPs by requiring NSR would be absurd. The court rejected EPA's position, the latter argument in particular, given EPA's lack of support for this statement, as well as the court's earlier analysis of the relationship between the NSPS and NSR programs. The court also held that EPA had failed to provide any evidence of Congressional intent on this issue, and that Congress had not given EPA the authority to create this regulatory exemption to NSR.

Modification. The other significant aspect of Court's decision in 'New York v EPA' is that, in contrast to the decision of the Fourth Circuit Court of Appeals in 'United States of America v Duke Energy Corporation', the D.C. Circuit Court of Appeals rejected industry's position with respect to the interpretation of the term "modification", as it pertains to calculating emissions increases. Industry argued (and prevailed on this argument one week earlier in the 'Duke Energy' lawsuit) that Congress intended that the analysis required under the NSPS of the Act also be used to analyze emissions increases under NSR. Under the NSPS, emissions increases are analyzed by calculating the hourly emissions rate of a unit. Under NSR, it has long been EPA's position that emissions increases at a unit are to be measured in annual tons.

EPA and the Utility Air Regulatory Group (UARG) moved for a rehearing of the June 24, 2005 decision. On December 8, 2005, the Court denied both requests for a rehearing. EPA wanted a rehearing with respect to Clean Units and for clarifications of the retroactive application of the June 24, 2005 decision with respect to PCPs. UARG sought to reargue the Court's approval of EPA's revised emission increase calculation methodology and its rejection of the PCP exemption. Significantly, the D.C. Circuit said that the plain language of the Act does not permit EPA to exempt any increase in emissions from modified sources. It also said that there is no indication that Congress intended to adopt an hourly emission rate test. ('id.' at 23)

Equipment Replacement Provision rule

On October 27, 2003, EPA promulgated a second NSR rule, known as the Equipment Replacement Provision (ERP). The ERP would have amended the Routine Maintenance, Repair, and Replacement (RMRR) exclusion from NSR requirements. Pursuant to Section 111(a)(4) of the Act, 42 USC Section 7411(a)(4), which is made applicable to the NSR program through Sections 7501(4), 7479(2)(c), sources that undergo "any physical change" that increases emissions are subject to NSR. The RMRR exclusion created by EPA in the 1970s historically provided that routine maintenance, repair, and replacement do not constitute changes which trigger NSR.

The ERP rule would have significantly expanded the scope of the routine maintenance, repair, and replacement exclusion by categorically stating that the replacement of components with identical or functionally equivalent components that do not exceed 20 percent of the replacement value of the process unit or change its basic design parameters is not a change and is within the RMRR exclusion (68 Fed Reg 61248, 61270 [Oct. 27, 2003]) [ERP Rule]; 'see also' 70 Fed Reg 33838 [June 10, 2005] ["Reconsideration"]. New York and a consortium of other States filed a lawsuit challenging EPA's promulgation of the ERP Rule. The Court stayed the effective date of the ERP Rule and subsequently vacated the rule on March 17, 2006, as contrary to the plain language of section 111(a)(4) of the Act ('State of New York, et. al. v U.S. Environmental Protection Agency', 443 F.3d. 880 [D.C. Circuit, March 17, 2006] ['New York v EPA II').

South Coast Air Quality Management District v EPA (Eight hour ozone, Phase 1)

On December 22, 2006, the United States Court of Appeals for the District of Columbia ruled on petitions challenging EPA's Phase 1 eight-hour ozone rule. ('South Coast Air Quality Management District v. E.P.A.', 472 F.3d 882 ['South Coast']). With respect to NSR, the Court agreed with State petitioners that the rule violated the Act's prohibition on backsliding because it permitted states to remove one-hour NSR requirements as well as other requirements related to non-attainment planning from state implementation plans. The Court concluded that these measures, including pollution control requirements under NSR, are controls and as such any removal of them from a state implementation plan constitutes impermissible backsliding. The end result is that, in order to prevent backsliding, EPA must keep in place measures which are intended to constrain ozone levels.

Environmental Defense v. Duke Energy Corporation

On April 2, 2007, the United States Supreme Court issued a decision upholding the annual tonnage test for measuring a significant net emissions increase under the Act's PSD regulations. In 'Environmental Defense v Duke Energy Corporation' the Supreme Court reversed the Fourth Circuit Court of Appeals' earlier decision upholding Duke Energy's argument that major modifications under the PSD regulations must be interpreted in the same manner under both the NSR and NSPS regulations, and that a major modification could therefore only be found if it was determined that there had been an hourly increase in emissions. In so holding, the Supreme Court rejected the Fourth Circuit Court of Appeal's conclusion that the term "major modification" must be interpreted identically in the two sets of regulations. The Court held that EPA's construction of the PSD regulations in such a manner as to measure actual emissions in terms of the actual operations averaged over time - i.e., tons of pollutant per year - could not "be squared with a regime under which 'hourly rate of emissions' . . . is dispositive". The Court further held that the Court of Appeals' "effort to trim the PSD regulations to match their different NSPS counterparts can only be seen as an implicit declaration that the PSD regulations were invalid as written". The Court held that a review of the validity of the regulations should have taken place in the Court of Appeals for the District of Columbia within 60 days of EPA's rulemaking.

Needs and Benefits

NSR Implementation in New York.

The Department is undertaking this rulemaking to comply with the 2002 Federal NSR Rule EPA promulgated and correct deficiencies that EPA identified in regards to New York's existing NNSR regulation. The 2002 Federal NSR Rule modified both the nonattainment NSR and PSD regulations at 40 CFR 51.165 and 52.21, respectively, and requires states with SIP approved NSR programs to revise their regulations in accordance with the 2002 Federal NSR Rule and submit the revisions to EPA for approval into the SIP. The Department's existing NNSR program at Part 231 is subject to this requirement.

The Department first adopted Part 231 in 1980 and made subsequent substantial revisions to the regulation in 1984, 1994, and 2000. The program establishes requirements for new and modified facilities including the requirement to meet LAER and obtain emission offsets in the case of new major facilities and modifications which resulted in a significant net emission increase. LAER must be determined at the time of permit issuance. Emission offsets may be obtained from the same nonattainment area that a project is to be located, or from other nonattainment areas of equal or higher classification if emissions from such other areas contribute to a violation of the NAAQS in the nonattainment area where the proposed project is to be located.

Following the 1994 rule revisions, the Department sent Part 231 to EPA for SIP approval. EPA identified deficiencies which, for the most part, the Department corrected. This rulemaking will address the remaining deficiencies. One deficiency concerned the use of the Maximum Annual Potential (MAP) of an emission unit for determining whether a proposed facility modification would be subject to NNSR. Under this methodology, only those modifications which would increase the MAP of an emission unit would be subject to further Part 231 applicability review. If the MAP was projected to increase, the facility was required to compare the lesser of the prior actual annual or allowable annual emissions to the projected MAP of the emission unit to determine if there would be a significant emission increase. The proposed amendments to Part 231 correct this deficiency consistent with the D.C. Circuit's decision in 'New York v EPA'. Applicability under the proposed Part 231 is determined by comparing baseline actual emissions of an emission source to projected actual emissions of the source to determine whether there is a significant emission increase, consistent with the 2002 Federal NSR Rule.

EPA also commented that Part 231 did not require automatic revocation of permits if construction did not commence within 18 months after issuance of a permit. Part 231 states that permits shall be subject to revocation, while the 2002 Federal NSR Rule states that a permit "shall become invalid" if construction is not commenced within 18 months. Amending Part 231 to provide for automatic permit revocation appears contrary to the State Administrative Procedure Act and the ECL.

SAPA establishes uniform administrative procedures that apply to rulemaking, adjudicatory procedures, and the issuance of permits by State agencies. The provisions of SAPA Section 401, with respect to adjudicatory proceedings, apply when a license (permit) is required by statute to be preceded by notice and opportunity for hearing. Section 70-0115 of the ECL, which establishes uniform review procedures for the major regulatory programs of the Department, states that the Department may revoke a permit after providing the permit holder notice stating the grounds for its action and an opportunity for a hearing. Part 70 applies to major stationary source air permits including Title V and air permits incorporating PSD and NSR requirements.

Pursuant to the State Administrative Procedures Act, as implemented by 6 NYCRR Part 621, the Department must provide due process, including the opportunity for a hearing before it can proceed with permit revocation. Consequently, the Department cannot subject NSR permits to automatic revocation if construction is not commenced in 18 months. The Department must follow the procedures outlined in Part 621 which provide the opportunity for the permittee to request a hearing.

EPA also identified a deficiency with respect to the netting procedures of Part 231 regarding the use of ERCs. EPA stated that an ERC, or a portion thereof, which was used in a net emissions increase determination of non-applicability may not be used in a subsequent net emissions increase determination, even if contemporaneous. The proposed amendments to Part 231 correct this deficiency.

Another purpose of the rulemaking is to adopt a State PSD program for proposed new major facilities and major modifications to existing facilities located in attainment areas. In the 1980s, EPA delegated to the Department authority to implement the federal PSD permit program on behalf of EPA pursuant to a delegation agreement. Among other things, the agreement specified that the Department would issue and enforce PSD permits consistent with federal regulations. PSD permits were therefore subject to federal administrative review and appeal. The agreement was modified from time to time when PSD regulations changed, but remained essentially the same until March 2003. The Department implemented the PSD program until March 3, 2003 when the revised 2002 Federal NSR Rule took effect and the Department returned delegation of the PSD program to EPA.

New York is not obligated to adopt a SIP-approved PSD program and could continue to implement the Federal PSD program on behalf of EPA. The Department, however, has determined that the 2002 Federal NSR Rule does not adequately protect the air resources of the State and believes the appropriate course of action is to adopt a State PSD rule rather than implement the less protective 2002 Federal NSR Rule. 'See also' 'General Accounting Office, Clean Air Act: EPA Should Use Available Data to Monitor The New Source Review Program 24' (2003) (the economic and environmental impacts of the 2002 Federal NSR Rule are uncertain because of the limited data and difficulty in determining how industrial companies will respond to the rule).

The proposed Part 231 rule incorporates provisions from the federal PSD regulations in significant part with additional provisions to ensure enforceability of the rule and effective monitoring, recordkeeping and reporting. New major facilities and major modifications at existing facilities must comply with the requirement to install BACT. Facilities must quantitatively assess the impact of new emission sources and major modifications at existing facilities through an air quality impact analysis. The procedures for an air quality impact analysis are set forth in proposed 6 NYCRR Subpart 231-12. A companion guidance document, Division of Air Resources-10 / NYSDEC Guidelines on Dispersion Modeling Procedures for Air Quality Analysis, has been developed by the Department to establish the detailed procedures for conducting these ambient air quality impact analyses. DAR-10 follows the federal procedures set forth in 40 CFR Part 51, Appendix W: Guideline on Air Quality Models of the EPA.

PSD regulations require project applicants to demonstrate that allowable emission increases from the proposed facility or modification would not cause or contribute to a violation of any ambient air quality standard, any applicable maximum allowable PSD increment increase over the baseline concentrations for Federal Class I, II and III areas, or any Quantified Air Quality Related Values (AQRVs) including visibility in Federal Class I areas. PSD increments have been set for Particulate Matter (PM), Sulfur Dioxide (SO2) and Nitrogen Dioxide (NO2). Although New York State does not have any Class I areas, there are Class I areas (large national parks and wilderness areas) in downwind States. All of New York State is designated as Class II for the purposes of PSD. BACT is required for any new major facility or major modification at an existing facility.

Benefits of the NSR Program

From the State's perspective, major NSR is a critical tool in meeting the Legislature's air quality objectives and ensuring that healthful air quality is preserved in areas of the state that meet the NAAQS and does not further degrade but actually improves in areas of the State which currently are not in attainment of the NAAQS.

The State of New York currently has areas that are designated nonattainment for ozone, and particulate matter or particles with an aerodynamic diameter less than or equal to 2.5 micro-meters (PM-2.5). As a result, the Department must have a NNSR program that meets the requirements of Part D of Title I of the Act to adopt permit programs for the construction, modification and operation of major stationary sources in nonattainment areas. The Department must also adopt provisions of Section 184(b)(2) of the Act, which states that any major stationary source in the Ozone Transport Region (OTR) is subject to the provisions applicable to areas classified as moderate ozone nonattainment.

Ozone

The implementation of NNSR, as a practical matter, has been primarily driven by the issue of nonattainment with the ozone NAAQS. Because of New York State's inclusion in the OTR, NNSR has, and will continue to be, applied statewide with respect to major facilities which emit ozone precursor pollutants such as NOX and VOCs. Thus, for every new and modified major facility in the State, NNSR has controlled emissions of ozone precursor pollutants through the requirement that such sources achieve LAER, and ensured, in effect, negative emissions growth by requiring emission offsets.

The primary ozone NAAQS is established by EPA at a level the attainment and maintenance of which is requisite to protect the public health. In the northeastern United States the ozone nonattainment problem is pervasive as concentrations of ozone often exceed the level of the NAAQS by mid-afternoon on a summer day. On sunny hot summer days, VOCs react with NOX to form ozone. It is well-settled that ground-level ozone aggravates respiratory conditions like chronic lung and heart diseases, allergies and asthma, and recent studies have demonstrated a definitive link between even short-term ozone exposure and death in humans. 'See generally' Senate Committee on Environment and Public Health, S. Rep. No. 101-228 (1990), 'reprinted in' 1990 U.S.C.C.A.N. 3385. The United States Senate has recognized that a growing body of scientific evidence indicates that over the long term, chronic exposure to ozone may produce accelerated aging of the lung analogous to that produced by cigarette smoke exposure ('id.'). In 1995, EPA recognized that "[m]uch of the ozone inhaled reacts with sensitive lung tissues, irritating and inflaming the lungs, and causing a host of short-term adverse health consequences including chest pains, shortness of breath, coughing, nausea, throat irritation, and increased susceptibility to respiratory infections" (60 Fed Reg 4712-13 [Jan. 24, 1995]). Moreover, two recent studies have shown a definitive link between short-term exposure to ozone and human mortality. 'See' 292 'Journal of the American Medical Asssn.' 2372-78 (Nov. 17, 2004); 170 'Am. J. Respir. Crit. Care Med.' 1080-87 (July 28, 2004) (observing significant ozone-related deaths in the New York City Metropolitan Area). Even healthy adults during exercise can experience 15 percent to 20 percent reductions in lung function from exposure to low levels of ozone over several hours.

Children are most at risk from exposure to ozone. Because their respiratory systems are still developing, they are more susceptible than adults. This problem is exacerbated because ozone is a summertime phenomenon. Children are outside playing and exercising more often during the summer which results in children being exposed to ozone more than adults. Outdoor workers are also more susceptible to lung damage because of their increased exposure to ozone. The elderly are also more susceptible to ozone exposure because of the cardiovascular impairment that often accompanies aging.

Ground level ozone interferes with the ability of plants to produce and store food. This compromises growth, reproduction and overall plant health. By weakening sensitive vegetation, ozone makes plants more susceptible to disease, pests and environmental stresses. Ozone has been shown to reduce yields for many economically important crops (e.g., corn, kidney beans, or soybeans). Ozone damage to species with long lives, such as trees (by killing or damaging leaves), can significantly decrease the natural beauty of an area, such as the Adirondacks.

PM 2.5 or Fine Particulate Matter

Particulate Matter (PM) is a generic term for a broad class of chemically and physically diverse substances that exist as discrete particles (liquid droplets or solids) over a wide range of sizes. As noted above, PM-2.5 or fine particulate matter refers to particulate matter or particles with an aerodynamic diameter less than or equal to 2.5 micro-meters. EPA first established a NAAQS for PM in 1971 and conducted its first periodic review of the standard in 1979. In April 1994, EPA conducted the second periodic review of the criteria and NAAQS for PM and promulgated significant revisions to the NAAQS in 1997. Among other things, EPA established an annual and 24-hour standard for PM fine concentrations. In October 1997 EPA published its plans for the current periodic review of PM criteria and NAAQS.

Particulate matter, especially fine particles, contains microscopic solids or liquid droplets that can lodge deep into the lungs and cause serious health problems. Numerous scientific studies have linked particle pollution exposure to a variety of respiratory and cardiovascular problems including: increased respiratory symptoms, such as irritation of the airways, coughing, or difficulty breathing, for example; decreased lung function; aggravated asthma; development of chronic bronchitis; irregular heartbeat; nonfatal heart attacks; and premature death in people with heart or lung disease. People with heart or lung diseases, children and older adults are the most likely to be affected by particle pollution exposure. However, even healthy people may experience temporary symptoms from exposure to elevated levels of particle pollution.

Subsequent to the promulgation of NAAQS for fine particulate matter, EPA designated the New York City metropolitan area as nonattainment for the PM-2.5 standard (70 Fed Reg 944). NNSR is now required for new major facilities and major modifications to existing facilities that emit fine particulate and its precursors in significant amounts in the PM-2.5 nonattainment area. EPA has proposed in its PM-2.5 implementation rule that NOX and SO2 are precursors to PM-2.5 for regulatory purposes (70 Fed Reg 65984). EPA has also identified ammonia and VOCs as precursors of PM-2.5, but is not requiring that these pollutants be treated as precursors for regulatory purposes (70 Fed Reg 65984). Since EPA has only provided guidance on the precursors and has not formally promulgated any PM-2.5 precursor pollutants, the Department is not proposing to regulate PM-2.5 precursors as part of this proposed rulemaking. Since all of the PM-2.5 nonattainment area is also covered by the ozone nonattainment area provisions, VOC sources are already required to comply with NNSR. Sources and quantities of ammonia emissions as well as the efficacy of controlling ammonia emissions to reduce PM-2.5 are not well known at this time. Therefore, the Department is deferring its decision on whether to include ammonia as a precursor to PM-2.5 for regulatory purposes until the development of the PM-2.5 attainment demonstration SIP which is due in April 2008. NNSR requires that every new major facility and major modification at existing facilities in the PM-2.5 nonattainment area control emissions of direct PM-2.5 through the requirement that such sources achieve LAER and obtain emission offsets.

Sulfur Dioxide

Sulfur Dioxide or SO2, belongs to the family of sulfur oxide gases (SOx). These gases dissolve easily in water. Sulfur is prevalent in all raw materials, including crude oil, coal, and ore that contains common metals like aluminum, copper, zinc, lead, and iron. SOx gases are formed when fuel containing sulfur, such as coal and oil, is burned, and when gasoline is extracted from oil, or metals are extracted from ore. SO2 dissolves in water vapor to form acid, and interacts with other gases and particles in the air to form sulfates and other products that can be harmful to people and their environment. Over 65 percent of SO2 released to the air comes from electric generating units, especially those that burn coal. Other sources of SO2 are industrial facilities that derive their products from raw materials like metallic ore, coal, and crude oil, or that burn coal or oil to produce process heat. Examples are petroleum refineries, cement manufacturing, and metal processing facilities.

SO2 contributes to respiratory illness, particularly in children and the elderly, and aggravates existing heart and lung diseases. Peak levels of SO2 in the air can cause temporary breathing difficulty for people with asthma who are active outdoors. In addition, SO2 reacts with other chemicals in the air to form tiny sulfate particles (fine PM). When these particles are inhaled, they gather in the lungs and are associated with increased cardiovascular and respiratory symptoms and disease, difficulty in breathing, and premature death. Longer-term exposures to high levels of SO2 gas and particles cause respiratory illness and aggravate existing heart disease.

Significantly, SO2 is one of two chemicals in the atmosphere which contributes to the formation of acid rain. Acid rain forms in the atmosphere where SO2 and NOX react with water, oxygen and oxidants to form a solution of sulfuric and nitric acid. This solution in turn falls to the earth as acid rain in the form of snow, rain, fog and other forms of precipitation. These forms of acid rain are known as wet deposition. Additionally, acidity in the atmosphere falls to the earth's surface as dry deposition (gases and dry particles). These acid particles and gases are carried by prevailing winds and deposited onto cars, buildings, homes, trees and the earth's surface (sometimes hundreds of miles from the source). These dry deposits can also be washed from surfaces by rainstorms, mix with wet deposition and, in turn, result in the creation of a more acidic solution than would be caused by the wet deposition alone. This is also called acid deposition.

The adverse effects of acid deposition are pervasive and well documented in New York State. Acid deposition can damage trees, crops, historic buildings and monuments; and makes soils, lakes, and streams acidic. The Department prepared an extensive analysis of environmental and public health issues associated with acid deposition in the Regulatory Impact Statements for rulemakings: 6 NYCRR Part 237, the Acid Deposition Reduction NOX Budget Trading Program; and 6 NYCRR Part 238, the Acid Deposition Reduction SO2 Budget Trading Program.

SO2 also contributes to the formation of atmospheric particles that cause visibility impairment, most noticeably in national parks. Finally, SO2 and the pollutants formed from SO2, such as sulfate particles, can be transported over long distances and deposited far from the point of origin. This means that problems with SO2 are not confined to areas where it is emitted.

Nitrogen Dioxide

Nitrogen dioxide or NO2 belongs to the family of nitrogen oxide gases. NO2 is a reddish or orange/brownish, highly reactive gas. It is one of the most ubiquitous air pollutants and a deadly poison by inhalation. NO2 acts as a respiratory irritant and can cause permanent lung injury resulting in decreased lung function. Nitrogen oxides are produced from burning fuels, including gasoline and coal. Nitrogen oxides react with volatile organic compounds to form ozone as well as reacting with other atmospheric pollutants to create fine particulate matter and acid rain.

Carbon Monoxide

Carbon monoxide (CO) is a colorless, odorless gas that is formed when carbon in fuel is not burned completely. It is a component of motor vehicle exhaust, non-road engines and vehicles (such as construction equipment and boats), combustion installations (boilers, turbines and engines), industrial processes (such as metals processing and chemical manufacturing), residential wood burning, and natural sources such as forest fires. CO can cause harmful health effects by reducing oxygen delivery to the body's organs (like the heart and brain) and tissues. The health threat from low levels of CO is most serious for those who suffer from heart disease, like angina, clogged arteries, or congestive heart failure. For a person with heart disease, a single exposure to CO at low levels may cause chest pain and reduce that person's ability to exercise. Repeated exposures may contribute to other cardiovascular effects. Healthy people can also be affected by high levels of CO. People who breathe high levels of CO can develop vision problems, reduced ability to work or learn, reduced manual dexterity, and difficulty performing complex tasks. At extremely high levels, CO is poisonous and can cause death. CO in the atmosphere also contributes to the formation of ozone.

Lead

Lead is a metal found naturally in the environment as well as in manufactured products. The major sources of lead emissions have historically been motor vehicles (such as cars and trucks) and industrial sources. Due to the phase out of leaded gasoline, metals processing is now the major source of lead emissions to the air today. The highest levels of lead in air are generally found near lead smelters. Other stationary sources of lead include municipal and industrial waste incinerators, utilities, and lead-acid battery manufacturers.

People, animals, and fish are mainly exposed to lead by breathing and ingesting it in food, water, soil, or dust. Lead accumulates in the blood, bones, muscles, and fat. Infants and young children are especially sensitive to even low levels of lead. Lead causes damage to the kidneys, liver, brain and nerves, and other organs. Exposure to lead may also lead to osteoporosis (brittle bone disease) and reproductive disorders. Excessive exposure to lead causes seizures, mental retardation, behavioral disorders, memory problems, and mood changes. Low levels of lead damage the brain and nerves in fetuses and young children, resulting in learning deficits and lowered IQ. Lead exposure causes high blood pressure and increases heart disease, and may also lead to anemia.

Proposed Part 231 Amendments

The Department has supported efforts to reform the NSR program since 1996, when EPA proposed its first comprehensive set of revisions aimed at making NSR more efficient and cost effective while meeting the goals and objectives of the Act. Efforts to revise NSR in the 1990s extended into a multi-year review process and EPA did not finalize a rule until six years later in December 31, 2002. EPA's 2002 Federal NSR Rule departs significantly from its 1996 proposal in several key respects which are discussed in the Legislative Objectives section of this document. A Federal Court ruled in June 2005 that several provisions of the 2002 Federal NSR Rule, including the Clean Unit Exemption, PCP provision and the "reasonable possibility" test, were contrary to the intent and express terms of the Act ('see New York v EPA', 413 F3d 3, 40-41). New York objected to these provisions and prevailed in Court. The Department will not incorporate into its proposed Part 231 rulemaking those provisions that did not survive the litigation. It is the Department's position that the 2002 Federal NSR Rule contains significant regulatory gaps with respect to enforceability and, therefore, is not protective of the environment and public health and welfare or consistent with the goals and policy objectives of the State.

The Department's objectives with its proposed rulemaking are to develop a State specific NSR program which fulfills the mandates of the Act and the Federal NSR program, as appropriate, but is sufficiently tailored to meet the environmental quality needs and objectives of the State. Implementation of the Part 231 revisions will, in concert with counterpart programs established by other states and other measures implemented by the State, enable the Department to effectively track and reduce the pollution emitted from major facilities, ensure that those facilities are meeting their regulatory obligations to install and operate state-of-the-art pollution control equipment when undertaking major new construction or modifications, and achieve applicable emission limits. In all, a robust permitting program for new major facilities and major modifications at existing facilities will help ensure that emissions of ozone precursors from these facilities are minimized and thereby reduce contributions to ozone formation in New York State and will decrease the adverse public health and welfare effects described above.

NSR Workgroup

In May 2004, the Department convened a workgroup to discuss the development and adoption of a State NSR regulation (revised Part 231). Participants included members of the regulated community, State and Federal agencies, and environmental organizations: American Lung Association; the Business Council of New York State, Inc. (BCNYS); the Chemical Alliance; the National Federation of Independent Businesses; Consolidated Edison Company of New York; the Energy Association of New York State; EPA Region II; Independent Power Producers of New York; the Natural Resources Defense Council (NRDC); the New York Public Interest Research Group (NYPIRG); New York Department of Public Service (NYSDPS); New York State Office of the Attorney General (NYSOAG); and the Governor's Office of Regulatory Reform (GORR).

The Department held four meetings in the summer and fall of 2004 to discuss the major reform provisions included in EPA's 2002 Federal NSR Rule and Equipment Replacement Provision (ERP). The following issues were discussed: the Clean Unit and Pollution Control Project exemptions; whether the 2002 Federal NSR Rule adequately addressed compliance monitoring, reporting and recordkeeping; the methodology for determining baseline actual emissions, including the appropriate look-back period (five years versus 10 years); the "reasonable possibility" test; the method for determining whether a significant emission increase occurred - the baseline actual emission to projected actual emissions test; whether "demand growth" should be excluded from the projection of post-modification actual emissions; routine maintenance, repair, and replacement, including the ERP rule, and the practice of conducting case-by-case determinations; and the PAL provision.

The workgroup reconvened on February 16, 2006 to discuss proposed amendments to Part 231. The Department presented an overview of the proposed amendments to Part 231 and discussed the differences between the proposed amendments to Part 231, EPA's 2002 Federal NSR Rule and the Department's existing NNSR Regulation (6 NYCRR Subpart 231-2). The workgroup commented on provisions which might be too broadly (e.g., permit modification triggers) or too narrowly construed (e.g., definition for routine maintenance, repair, or replacement). The attendees were also interested in the timing of the regulation and other pending and anticipated EPA regulations which might impact NSR review. The Department requested written comments and revised the proposed amendments to Part 231, as appropriate, taking into account comments that were received. On September 6, 2006, the Department publicly noticed for hearings and comment proposed amendments to Part 231. Following this proposal and receipt of comments, the workgroup reconvened once again on March 28, 2007 to discuss further changes that the Department planned to make to its proposed amendments to Part 231. The workgroup attendees were interested in the Department's proposed changes to baseline emissions, exemptions, PALs, and monitoring/reporting/recordkeeping requirements particularly as they relate to minor modifications and demand growth emissions. The Department once again requested written comments and revised the proposed amendments to Part 231, as appropriate, taking into account comments that were received.

The Department has also provided outreach through Part 231 rulemaking presentations at the New York State Business Council's 2005 Annual Industry-Environmental Conference held on October 13 & 14, 2005 in Saratoga Springs, New York, and at the Air & Waste Management's Ninth Annual Environmental, Health & Safety Seminar held in Rochester, New York on February 15, 2006. Comments from these presentations were also considered during development of the proposed amendments to Part 231. Furthermore, public notice and hearings will be held to obtain additional comments on the Department's proposed revisions to Parts 200, 201 and 231. Participation by every affected party will be actively sought through these hearings.

Overview of Part 200, 201 and 231 Amendments

The Department is proposing to amend 6 NYCRR Parts 200, 201, and 231 as follows.

The Part 200 amendments will add a definition for Routine Maintenance, Repair, or Replacement. In addition, the Department is revising Part 200 (Section 200.9 and 200.10). Section 200.9 is being amended to include all federal materials referenced in the proposed amendments to Part 231. Section 200.10(a) is being amended to reflect that the Department is no longer delegated responsibility for implementation of the Federal PSD Program.

The Department is amending the definition for "major stationary source or major source" at 6 NYCRR 201-2.1(b)(21). The definition will now encompass the term "major facility" and incorporate major source and significant project thresholds for facilities emitting PM-2.5.

The existing NNSR program at Part 231 will be re-titled as "New Source Review for New and Modified Facilities" and will include new Subparts 231-3 through 231-13 incorporating the Federal PSD program requirements for attainment areas, and revised federal requirements for NNSR in nonattainment areas. The proposed revisions to Part 231 will incorporate elements of the 2002 Federal NSR Rule provisions that survived court challenge. The revisions are expected to make the regulations less burdensome to implement from the perspective of the Department and the regulated community without compromising air quality. The Department will retain the existing provisions for NNSR in Subparts 231-1 and 231-2 since these provisions are currently cited in State air permits.

Proposed Subparts 231-3 through 231-13 are organized to facilitate the implementation of NSR by providing a consistent regulatory framework for review and permitting in attainment and nonattainment areas. Subparts 231-5 and 231-6 set forth requirements for new major facilities and major modifications at existing facilities in nonattainment areas, including Lowest Achievable Emission Rate technology and emission offsets. Subparts 231-7 and 231-8 set forth the requirements for new major facilities and major modifications at existing facilities in attainment areas, including Best Available Control Technology and the requirement for ambient air quality analyses. In addition, subparts 231-5 and 231-7 (new facilities) and Subparts 231-6 and 231-8 (modified facilities) contain parallel provisions for determining applicability. Proposed new facilities with a potential to emit at or above the applicable major facility threshold will be subject to major NSR review. Existing facilities undertaking a major modification will have the ability to use netting procedures to avoid NSR applicability.

Subpart 231-3 "General Provisions" sets forth provisions which apply to all facilities subject to Part 231, including a transition plan specifying the effective date of the new subparts, general permit requirements and prohibitions which restrict construction or operation without permits, a provision for a shakedown period to verify the operation of new equipment, and a prohibition against undertaking actions to circumvent the regulation. Subpart 231-4 "Definitions" contains definitions for terms used in the NNSR and PSD programs and, where possible, integrates the regulatory terms which are common to both programs.

The remaining subparts apply generally to facilities in attainment and nonattainment areas. Subpart 231-9 sets forth the requirements for establishing PALs. Subpart 231-10 defines emission offset and Emission Reduction Credit (ERC) creation and use. Subpart 231-11 provides some of the general permit, monitoring, reporting, and recordkeeping requirements that are cited throughout the proposed regulation. Subpart 231-12 details the ambient air quality impact analysis requirements for facilities in attainment areas. Subpart 231-13 compiles tables and lists emission thresholds which are applicable throughout the proposed regulation.

Many permits issued throughout the State reference regulatory provisions of Subparts 231-1 and/or 231-2. To avoid confusion in the implementation of the Part 201 permit program, the Department is retaining Subparts 231-1 and 231-2 rather than repealing them. Subpart 231-1 will remain titled "Requirements for Emission Sources Subject to the Regulation Prior to November 15, 1992." Similarly, Subpart Part 231-2 will be re-titled "Requirements for Emission Units Subject to the Regulation on or after November 15, 1992 and Prior to the Effective date of Subparts 231-3 through 231-13", to indicate that it does not apply to applications received on or after the effective date of the proposed Part 231 revisions.

The following provisions from the 2002 Federal NSR Rule are being addressed in the proposed amendments to Part 231:

Baseline Period

In the preamble to the 2002 Federal NSR Rule, EPA stated that one "common complaint" about the 1980 rule is that sources have "limited ability to consider the operational fluctuations associated with normal business cycles when establishing baseline actual emissions unless [the] reviewing authority agrees that another period is 'more representative of normal source operation.'" (67 Fed Reg 80191-92). Members of the regulated community in New York echoed this same concern during the Workgroup meetings including raising the following. Establishing a baseline period pursuant to the existing NSR regulations was too complex and burdensome and often involved protracted permit proceedings with the Department. Facilities which experienced low demand or low production faced the prospect of "losing capacity" by capping emissions at unrepresentative low levels or incurring the time and expense of obtaining NSR permits for facility modifications that involved small changes. If the economy experienced a downturn which slowed production at a facility for a few years, the facility's baseline would decrease and the facility would lose operational flexibility. A facility would be discouraged from making modifications that might otherwise benefit the environment such as pollution prevention measures.

The Department has decided to establish a uniform baseline period provision for EUSGUs and non-EUSGUs. Under this provision, all emission sources would be able to select a baseline using any 24 consecutive month period in the past five years. The Department believes that this approach strikes the most appropriate balance considering environmental protection, administrative burden, and economic growth. For EUSGUs, which since the 1992 WEPCo rule have been able to establish their baseline emissions using this approach, the only change would be that a facility could not look back further than five years to attempt to show that there was another 24 consecutive month period that was more representative of normal emission source operations. Both EUSGUs and non-EUSGUs would have more flexibility than under the current Part 231 in establishing their baseline as they would not have to specifically demonstrate, in order to look back beyond the two most recent years, that another 24 consecutive month period within five years was more representative of normal emission source operations. As under the current Part 231, both EUSGUs and non-EUSGUs would not be able to go beyond the most recent five years in establishing their baselines.

The Department believes that, in light of the D.C. Circuit's decision in the 'South Coast' case, adopting a 10-year look-back period could be legally vulnerable as an impermissible "backsliding" of a control in a nonattainment area. Section 193 of the Clean Air Act, 42 U.S.C. Section 7515, prohibits the "backsliding" of control requirements in nonattainment areas; 'see also' 42 U.S.C. Section 7502(e) (prohibiting the relaxation of a primary national ambient air quality standard absent the promulgation of requirements that "provide for controls which are not less stringent than the controls applicable to areas designated as nonattainment before such relaxation"). In 'South Coast', the court held that EPA acted unlawfully when it decided that the one-hour NSR requirements need not be continued, given that "[t]he result of this change is to subject fewer areas to LAER and to offset requirements that themselves are weakened," but did not require alternative requirements that would ensure the same level of emission reductions ('South Coast', 472 F.3d 882, 901). Similarly, if the Department were to adopt the 10-year look-back provision for non-EUSGUs the baseline period provision could be challenged in court as being inconsistent with the 'South Coast' decision.

Under the current Part 231, both EUSGUs and non-EUSGUs may attempt to demonstrate to the Department that a 24 consecutive month period other than the two most recent years (with a limit on looking back five years) should be used in establishing the baseline period. However, as the D.C. Circuit noted in the 'New York v EPA' decision, "EPA appropriately refers to the problems experienced under the 1980 [PSD] rule . . . [including that] establishing a representative baseline period other than the two-year period immediately preceding the change was 'complex and time-consuming' and often involved 'disputed judgment calls'" ('New York v EPA', 413 F.3d 3, 53-54 (quoting 61 Fed Reg 38,258)). Removing this aspect of the regulation should reduce the administrative burden on the Department, allowing it to use its limited resources in other more pressing areas.

The Department also believes that overall this approach will also provide additional flexibility for facilities, which EPA concludes could result in additional economic growth. In particular, both EUSGUs and non-EUSGUs will be able to use any 24 consecutive month period within the past five years, without the burden of demonstrating to the Department that this period is more representative of normal source operations than the two most recent years. In addition, the business cycle study relied upon by EPA, to justify the 10-year look-back, found business cycles varied in the industries surveyed from three years to eight years. A five-year look-back offers a period that is approximately the average length of these cycles.

Although the 2002 Federal NSR Rule allows facilities to choose a different baseline period for each NSR pollutant, proposed amendments to Part 231 require facilities to select a single baseline period for all pollutants. The Department has determined that a single baseline period for a specific project is more appropriate for New York's NSR program. The use of a single baseline period assures that a proposed project is based on an actual operating scenario and not an artificially high emissions baseline. The use of multiple baselines could result in picking several baseline periods to maximize emissions for several different pollutants. For example, a combustion facility permitted to burn both oil and natural gas could choose different baseline periods when using natural gas to maximize VOC, CO, and PM-10 emissions and oil to maximize PM, NOX and SO2 emissions. This would create an artificially high baseline never actually experienced by the source nor emitted to the atmosphere surrounding the facility and, in extreme cases, a baseline that could never actually be achieved by the source.

Pursuant to the 2002 Federal NSR Rule, a facility could develop a baseline emissions profile which is not derived from a permitted operating scenario, but is based on pollutant-specific emissions achieved during different operating scenarios and different baseline periods. In practice, the facility would not have emitted at the two-year high levels for all the NSR pollutants during any consecutive two-year baseline period. More importantly, the operating permit would not have authorized such emission levels under either operating scenario. With higher baseline emissions during a particular two-year period, however, a proposed project could avoid being subject to NSR for those pollutants as a result of selecting that baseline period. At no time would the actual emissions of the affected emissions source in any one operating scenario be honored, notwithstanding that the Part 201 permitting program establishes emission limits for each operating scenario. The result of this is the potential for a project that would otherwise be considered major except for the artificially high baseline to either "cap out" or "net out" of NSR. This would cause an increase in emissions that would exacerbate air quality problems in New York State.

Demand Growth

In considering whether to exclude demand growth from the calculation of post-modification emissions, the Department is guided by the decision in 'New York v EPA' which upheld the exclusion as consistent with the Act. EPA's explanation that the CAA and the implementing regulations require a causal link between the proposed change and any post-modification increase in emissions and that the 2002 Federal NSR Rule excluded demand growth where it was unrelated to the particular project persuaded the Court that the approach was consistent with the Act ('see' 'New York v EPA', 413 F3d 3, 32). In rejecting petitioner's arguments, the Court noted that the 2002 Federal NSR Rule establishes two criteria a facility must meet before it can exclude emissions from the projection of post change actual emissions. First, the facility must demonstrate that the emission source could have achieved the necessary level of utilization during the 24 consecutive month period selected to establish the baseline actual emissions. Second, the increase cannot be related to the physical or operational change(s) made to the emission source. Even if the emission source could have been operated to achieve a particular level of demand during the representative baseline period, if the increase is related to the modification of the emission source, the emissions increases resulting from the increased operation must be attributed to the modification, and cannot be excluded from the projection of post-modification actual emissions. Because EPA adequately explained its reasons for extending the demand growth exclusion to all industries, so long as the growth is unrelated to the change, the Court upheld the provision.

One of the Department's concerns with the federal demand growth exclusion in the 2002 Federal NSR Rule is that as a practical matter it is often difficult to separate demand growth emission increases from other emission increases resulting from a project. A facility may vent emissions from more than one emission source out of the same emission point, in some circumstances making it difficult to attribute stack emissions to a particular emission source. Alternately, since demand growth depends on production, and production figures are often deemed confidential business information, it would be difficult to reproduce calculations that support demand growth, or impossible to obtain sufficient information from the facility to verify whether emissions are truly attributable to demand growth. Since EPA promulgated the demand growth exclusion in 1992 as a result of the WEPCO case, EPA has not published any guidance for how this distinction should be made. Further, EPA acknowledged in the Technical Support Document in connection with its determination on Reconsideration of the 2002 Federal NSR Rule that it may be difficult to separate demand growth increases from other increases resulting from a project. ('Technical Support Document for the Prevention of Significant Deterioration (PSD) and Nonattainment Area New Source Review (NSR): Reconsideration,' EPA-456/R-03-005, October 30, 2003, page 19). As a result, EPA concluded in its response to comments document that it is "very important that the source retain a record of all information available to support its initial claim that an emissions increase predicted to occur as a result of demand growth did not result from the physical or operational change to an emissions unit. This information may be required by the reviewing authority should there be a question about the project being a major modification" (EPA Technical Support Document' November 2002, I-5-44). EPA noted, however, that there are situations where the distinction clearly can be made, including: skyrocketing demand because the product becomes a fad; mishaps at a factory causing production increases at remaining supplier sources; decrease in raw material prices; opening of new markets; and improved economic conditions.

To the extent that facilities can make those distinctions, and in light of the Court's ruling that the CAA definition of modification contemplates a causal connection between the proposed change and any post-modification emission increase, proposed amendments to Part 231 allow facilities to exclude demand growth emissions increases consistent with the 2002 Federal NSR Rule. Emission increases which an emission source was capable of accommodating prior to the modification and which are not in any way related to the change do not have to be included in the projection of (post-modification) projected actual emissions. The proposed amendments to Part 231 require that facilities provide (at the time of permit application for a modification) adequate documentation of projected actual emissions, including any emissions attributable to demand growth. Emissions associated with demand growth cannot be excluded where the emissions are related to the modification, or if the facility cannot establish that the emission source could have accommodated the increased demand. Thus, proposed amendments to Part 231 are structured to provide a mechanism for the Department to ensure that regulated entities are properly invoking the demand growth exclusion and can adequately document their determination of post-modification actual emissions, and the basis for any emission exclusions.

Permit Requirements

The 2002 Federal NSR Rule requires modified facilities to obtain NSR permits only when the modification is major above significance levels. Similarly, the proposed amendments to Part 231 require facilities to obtain permits and/or permit modifications when the proposed modification will result in a significant net emission increase. In addition, the proposed amendments to Part 231 require a facility to obtain a new or modified permit if the facility utilizes netting to avoid a significant net emission increase. Under the netting provisions of the proposed amendments to Part 231, a facility can subtract any contemporaneous emission decreases from other emission sources at the facility, from the project emission potential. The requirement for a permit where a facility relies on netting to avoid major NSR is consistent with how the Department has implemented Part 231 since November 15, 1992. The 2002 Federal NSR Rule does not require a permit for netting and requires facilities to maintain records of post-modification emissions only when the facility itself determined that a "reasonable possibility" exists that a significant net emissions increase could occur notwithstanding the facility's projections that it would not. In 'New York v EPA,' the Court held that the "reasonable possibility" provision is unenforceable. To avoid any questions concerning the implementation of NSR in New York for facilities that use netting to avoid NSR requirements, the proposed amendments to Part 231 expressly require that facilities apply for and obtain a permit. The permit will include appropriate recordkeeping, monitoring, and reporting provisions to ensure that modification will not result in a significant net emission increase.

Although the 2002 Federal NSR Rule does not expressly require facilities to obtain a permit when the facility relies on netting or make specific assumptions with respect to the magnitude of post-modification emissions, EPA, in its oversight of New York's implementation of the CAA, has required permits as a matter of policy and administrative practice. Under the current Subpart 231-2, if the proposed emissions increase (baseline actual emissions to potential to emit) of a modified emission source exceeds applicable NSR thresholds, the facility must obtain a permit with appropriate terms and conditions limiting emissions or be subject to NSR requirements. Consistent with the Department's current implementation of Part 201, a limitation on a facility's "potential to emit" must be enforceable through the issuance of an operating permit with appropriate terms and conditions limiting the capacity of the facility to emit.

The Department promulgated Subpart 201-7 "Federally Enforceable Emission Caps" in 1996, in the absence of a federal emission capping regulation, to provide a legal mechanism for facilities to avoid federal CAA permitting requirements by accepting a State-issued permit with federally enforceable emission caps. EPA approved Subpart 201-7 into New York's SIP in 2005, making the regulation enforceable as a matter of federal law. The Department has consistently used the Part 201 permitting program, including Subpart 201-7, to ensure that: (1) new facilities seeking to avoid federal permit requirements maintain emissions below applicable thresholds; (2) facilities undertaking modifications do not exceed their projections of post-modification emissions, and (3) facilities claiming credit for voluntary emission reductions actually achieve those reductions. These goals are accomplished by including terms and conditions in permits limiting emissions, hours of operation or production, requiring the implementation of appropriate work practices reflecting the emission source shutdown or curtailment of operations, and requiring compliance monitoring, recordkeeping, and reporting.

The proposed amendments to Part 231 will continue the long-standing practice ensuring compliance with regulatory standards through the Part 201 permitting program. Facilities which avoid NSR through netting will be required to obtain operating permits with appropriate terms and conditions ensuring that the emission reductions relied upon are achieved. New or modified facilities which are subject to NSR will be required to obtain permits limiting their potential to emit or projected actual emissions respectively, to ensure that emissions do not exceed the amounts upon which the Department made its NSR determinations with respect to emission offsets and control technology requirements.

Emission Reduction Credits

Under the ECL, ERCs are defined as the actual decrease in emissions of a regulated air contaminant in tons per year (ECL Section 19-0107[16]). Under the proposed amendments to Part 231, ERCs will be used in both the PSD and NNSR programs to reflect emission decreases in annual tonnages consistent with ECL Section 19-0107(16). In the case of a new major facility or major modification at an existing facility located in a nonattainment area or the Ozone Transport Region, ERCs can be utilized to meet the CAA requirement for emission offsets. Emission offsets are a subset of ERCs and represent emission reductions which are required to be obtained by a facility to obtain a permit to construct. ERCs can also be used by facilities in both attainment and nonattainment areas for netting whereby a facility reduces emissions of other emission sources at the facility to limit the net emission increase of a proposed NSR major modification to below significance levels. ERCs are subject to Department review and approval through a notice and comment permit process and will be documented in the operating permit with enforceable emission limitations. There are specific provisions which apply to ERCs used as emission offsets which will be carried over from existing Subpart 231-2 into the proposed amendments to Part 231.

Reporting, Monitoring, and Recordkeeping

Under the proposed amendments to Part 231, operating permits must include appropriate monitoring, recordkeeping and reporting requirements to ensure compliance with any emission limitation or standard or emission reduction credit established. These requirements will be implemented through a facility's Title V operating permit or state facility preconstruction permit and are consistent with the Department's implementation of existing Part 231. These provisions are applicable to a new major facility or major modification at an existing facility and to facilities that avoid NSR requirements by netting. Facilities which undertake modifications that are not projected to result in significant emission increases will be required to maintain records of the modification and comply with any other requirements that may be applicable, including Part 201 permitting requirements. Facilities that undertake modifications that are not projected to result in significant emission increases, but that would have projected significant increases if not for excluding increases attributable solely to demand growth or would equal or exceed fifty (50) percent of the applicable significant project threshold, will be required to keep records, perform monitoring, and submit annual reports.

Under the language of the federal NSR regulations, recordkeeping, monitoring, and reporting is required for any modification for which the facility believes there is a "reasonable possibility", that the modification will result in a significant emissions increase. 'See' 40 C.F.R. Section 51.165(a)(6). However, the Court in 'New York v EPA' determined that the lack of recordkeeping and monitoring in the 2002 Federal NSR Rule rendered the rule unenforceable and left permitting agencies without a legal mechanism to determine whether a facility had in fact complied with NSR. The proposed amendments to Part 231 address this deficiency by requiring recordkeeping for modifications that facilities project will result in less than significant emission increases and requiring recordkeeping, monitoring, and reporting for modifications that would be projected to exceed the significant threshold if emissions that the facility attributes to demand growth were included.

The Department is aware that EPA proposed a rule on March 8, 2007 in response to the D.C. Circuit's remand of the "reasonable possibility" test. The Department is still evaluating the proposal and plans to provide comments to EPA. After an initial review of the proposed rule, the Department does not believe that EPA's preferred approach described in the proposal would fully address the D.C. Circuit's decision. EPA's preferred approach would define "reasonable possibility" as a situation in which a facility projects that the change will cause emissions to increase by at least half of the significance level (e.g., a 20-ton emission increase if the applicable significance threshold is 40 tons). Although this approach would represent an improvement over the current approach, under which the meaning of "reasonable possibility" is entirely left up to the facility owner or operator, it would fail to address the difficulty of demand growth emissions. For example, a facility that (rightly or wrongly) attributes post-modification emission increases to demand growth would not be subject to review by the permitting agency unless it also projected that the change would increase emissions by at least half of the significance threshold. As noted above, EPA has concluded that it is "very important that the source retain a record of all information available to support its initial claim that an emissions increase predicted to occur as a result of demand growth did not result from the physical or operational change to an emissions unit." However, EPA's proposal would not provide for permitting agency review of many demand growth determinations.

By contrast, under the Department's approach, for modifications that would exceed the applicable significant project threshold if demand growth emissions were included in the calculation, facilities will be required to keep records concerning demand growth calculations, monitor post-modification emissions, and submit annual reports to verify the accuracy of their calculations. This should increase accountability and enforceability, consistent with the D.C. Circuit's decision.

Routine Maintenance, Repair, and Replacement (RMRR)

The regulatory exemption from the federal definition of "modification" for routine maintenance, repair, and replacement, known as the RMRR exclusion, has been subject to numerous court challenges and garnered significant discussion during the NSR workgroup meetings. A discussion of the statutory framework and the legal issues surrounding the interpretation and implementation of the RMRR provision is helpful to understanding the proposed amendments to Part 231 with respect to this issue.

The Act defines modification broadly 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 USC Section 7411[a][4]). A modification triggers permitting requirements under the CAA as well as the duty to install pollution controls (42 USC Sections 7475[a]), 7479[2][C]) and 7503[a]). By regulation, EPA exempted certain activities from the definition of modification, including maintenance, repair, and replacement activities. 'See also' 40 CFR Section 52.21[b][2][iii]).

To give full effect to the plain language of the CAA, which contains no exemption provision for the term "modification", Courts have construed the RMRR exclusion narrowly. As the Court explained in 'Alabama Power v Costle,' 636 F.2d 323 (1979), a case challenging the legality of EPA's then promulgated NSR rule, EPA does have discretion, in administering the Act's "modification" provision, to exempt from PSD review some emission increases on grounds of 'de minimis' or administrative necessity, however, such discretion is limited:

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. Exceptions to this rule will occur when the increases are de minimis,. . .

(636 F2d at 400).

Consistent with 'Alabama Power,' EPA had, for over two decades, defined the RMRR exclusion as limited to "'de minimis' circumstances" ('see' 68 Fed Reg 61272 [Notice of ERP Rule, October 27, 2003]).

In the seminal decision 'Wisconsin Electric Power v Reilly', the Seventh Circuit Court of Appeals addressed the interpretation of "modification" and the extent of the RMRR regulatory exemption in the context of a proposed project at an electric generating facility ('Wisconsin Electric Power Company v Reilly,' 893 F.2d 901 [7th Cir. 1990] [en banc] ['WEPCO']). At issue in WEPCO was a proposed replacement program, termed a "life extension" program, which WEPCO submitted to Wisconsin Public Service Commission for approval. In support of the project, WEPCO stated that renovation of the emission units was necessary to enable them to operate beyond their currently planned retirement dates and would make the plant capable of generating at its design capacity until year 2010 ('id.' at 906).

The Court opined on two central issues, namely whether certain activities constituted a physical change within the meaning of the CAA and second whether, assuming the projects involved physical changes, did they constitute exempt RMRR activities. Notably, the Court rejected outright the argument that Congress intended to exclude like-kind replacements from the purview of a physical change:

[W]hether the replacement of air heaters and steam drums is a 'basic or fundamental change' in [defendant's facility] is irrelevant for our purposes, given Congress's directions on the subject: 'The term 'modification' means any physical change . . . .

('id.' at 908; 'see also id.' at 913 ["the modification provision applies to 'any physical change, without regard to cost', that causes an increase in emissions"] [emphasis added]). On the issue of how to interpret what activities constituted RMRR, the Court relied on EPA's policy guidance. That guidance stated that whether proposed work at a facility is routine, involves a case-by-case determination which considers four factors, namely the nature, extent, purpose, frequency, and cost of the work, as well as other relevant factors, to arrive at a common-sense finding. Having determined that the proposed work constituted a physical change and, thus, a modification, the Court went on to apply the four factors to determine whether the projects avoided classification as a modification as being RMRR. The Court concluded that the nature and extent of the proposed projects at WEPCO did not compare with other projects done in the industry, as WEPCO argued. The Court further concluded that the purpose, frequency and cost of the work demonstrated that the activities were not routine, but rather intended to extend the life of the units from their planned retirement dates and at a cost of at least $70.5 million. These facts, in the Court's view, provided strong indication that the projects were not routine. ('id.' at 912).

'United States v. Southern Indiana Gas & Electric Co.,' 245 F.Supp. 2d 994 (S.D. Ind. 2003) ('SIGECO') is also helpful in examining the routine maintenance issue. The Court in SIGECO addressed how broadly the RMRR exclusion should be defined in the context of a series of modifications at several power plants owned by defendants. Citing to 'WEPCO,' the Court stated:

The general rule is that any physical change to a unit which results in an increase in emissions constitutes a "modification" triggering compliance with the CAA. If the routine maintenance exemption were defined broadly, as Ohio Edison urges, the exemption would swallow both the rule and specific provisions of the Clean Air Act. More fundamentally, the exception for "routine maintenance, repair, or replacement" was not included by Congress in the Clean Air Act. This regulatory exception then must also be harmonized with the statutory language of the Clean Air Act. This Court concludes that if the broad definition given to "routine maintenance, repair, or replacement" by Ohio Edison were adopted, the regulation would be in direct conflict with the superceding and controlling language of the Clean Air Act

('id.' at 855).

Applying the four part test to each of the activities in question, the Court found that many of the projects were large in scope, expensive, involved outside contractors and increase in value to the units and were treated by the company as capital expenditures for accounting purposes. In other instances, the company failed to substantiate that the activities at issue were undertaken with such frequency that they could be considered routine ('id.' at 861).

More recently, and shortly after the last workgroup meeting, the U.S. Court of Appeals for the D.C. Circuit spoke to the issue of routine maintenance when it vacated the ERP Rule ('New York v. EPA II', 443 F.3d 880). The ERP Rule both defined and expanded the RMRR exclusion by providing that the replacement of components with identical or functionally equivalent components does not constitute a physical change as long as the cost of the replacement did not exceed 20 percent of the replacement value of the process unit and did not change its basic design parameters. The Court held that the ERP violated Section 111 of the Act in two respects. First, the word "any" in the definition "modification" means that all types of "physical changes" are covered and that an activity within the common phrase of "physical change" is subject to NSR when that activity results in an emission increase. Second, Congress defined modification in terms of emission increases, but the ERP would allow equipment replacements resulting in non-'de minimis' emission increases to avoid NSR, in violation of the express terms and clear intent of the Act.

In light of the foregoing, in particular the 'New York v. EPA II' decision, the Department believes that the question of how the term "modification" should be interpreted with respect to any regulatory exemption, including the RMRR exemption, is settled. The Act evinces a clear Congressional intent to broadly construe the term "modification", and neither expressly, nor impliedly, provides any categorical exemptions for particular activities or physical changes. Given the statutory framework, any exemption established by regulation must, by necessity, be of a 'de minimis' nature. Thus, the RMRR exclusion must be viewed in the nature of a narrow, 'de minimis' exclusion from NSR requirements rather than as a broad exemption or a measure providing regulatory flexibility.

The RMRR exclusion is currently embedded in the definition of the term "modification" in existing Part 200. To clarify the Department's intent with respect to RMRR, Part 200 will be amended to include a definition for RMRR. Whether work done at an emissions source constitutes RMRR will continue to be determined on a case-by-case basis by examining the nature and extent, purpose, frequency, and cost of the activity. Generally, RMRR refers to activities which are undertaken on a prescribed and/or regular schedule, limited in scope and expense, and typically paid for out of the operation and maintenance budget of the facility. RMRR generally does not refer to activities that are infrequent, large in scope, extend the life of the facility, or result in the regaining of lost capacity or availability.

Some activities which might qualify as RMRR in the case of an electric generating facility, for example, include the following: cleaning of a boiler and related ductwork to facilitate maintenance access and inspections; inspection of the furnace and gas path; inspection including non-destructive examination of known trouble areas; individual tube repair/replacement; inspection of tube shields and high erosion areas; inspection, repair and replacement of refractory in the slag necks and troughs; inspection and repair of ductwork and expansion joints; cleaning and inspection of boiler penthouses; water blasting, inspection, stud replacement and new refractory (cyclone fired boilers); inspection and repair of boiler casing, doors and inspection ports; inspection and repair of gas path deflection baffles and flow distributors; inspection and repair of all dampers (air and gas); removal, disassembling, inspection and repair of ignitors; cleaning, inspection and repair of external steam header vestibules; pressure testing water and steam tubing components; and chemical cleaning of water-side tubing to remove internal deposits.

During the workgroup meetings, but prior to the March 17th Federal Court decision, members of the regulated community expressed concern with the current practice of evaluating RMRR on a case by case basis and preferred the bright line test established by the ERP Rule. New York however, challenged the ERP Rule as clearly contrary to the CAA because it allowed potentially significant emission increasing activities to occur without the requirement for NSR review, under the auspices of a regulatory exemption. The Department agreed to discuss the RMRR issue during the workgroup process, but made clear that from the State's perspective, the ERP Rule was not a viable option for inclusion in a State NSR rule. The Department encouraged workgroup members to present alternative proposals and, in turn, presented concepts for discussion in addition to the four factor test. The Department's concepts included (1) a provision for predetermining RMRR activities in Title V permits, subject to public notice and comment; (2) relying on Title V operational flexibility provisions; and (3) utilization of PALs. Workgroup members did not present specific proposals and did not reach consensus on a particular approach to the RMRR issue. The Department believes that the four factor test is appropriate for inclusion in a regulatory definition in light of 'New York v EPA' II and that facilities which want to avoid case by case determinations and permitting review for modifications can avail themselves of other more appropriate regulatory flexibility discussed below.

Options for Regulatory Flexibility

The RMRR exclusion is not intended as a tool for regulatory flexibility as some persons in the regulatory community might have been envisioned. The proposed amendments to Part 231, however, and the Title V program do include provisions for operational flexibility. The Department believes that these provisions can be utilized by facilities to meet their business needs and benefit the environment at the same time.

The PAL provisions allow a facility to establish a facility-wide emission limitation based on historical operating data. The PAL must be reduced by 25 percent by the sixth year that the PAL is in effect, unless the facility is able to justify a lesser reduction on the grounds that application of BACT and/or LAER at the facility (depending on attainment status) would achieve less than a 25 percent reduction. As long as the facility's emissions remain under the applicable PAL, the facility can undertake modifications without undergoing NSR review. PALs will enable facilities to more effectively respond to market-place changes. Through the use of a PAL, the facility can accommodate shifting demand for various products without the need for review and scrutiny by the Department prior to making such changes.

To obtain a PAL, a facility is required to monitor and maintain records of its activities to ensure compliance and have appropriate conditions in its Title V permit reflecting these requirements. Some members of the workgroup expressed concern that these requirements would be burdensome. It is important to note however that major facilities are already subject to extensive monitoring, reporting, and recordkeeping requirements. It is likely that these facilities already have these systems in place that could be used to meet the regulatory requirements for PALs.

The Department believes that PALs will be a valuable tool for regulatory flexibility, enabling a facility owner to obtain the benefit of increased flexibility in return for committing to a plant-wide emission cap that will ensure reduced emissions and improved air quality. Review of the record of EPA's rulemaking and the Department's own experience establish that PALs can also achieve substantial reduction in emissions. For example, the D.C. Circuit noted in 'New York v EPA' that participants in six pilot projects evaluated by EPA resulted in emission reductions of 27-83 percent below their PAL levels. Requiring a reduction of 25 percent ensures that such reductions will be realized ('New York v EPA', 413 F.3d 3, 37). In the absence of a requirement to reduce emissions as a condition of a PAL, EPA estimates "conservatively" that reductions of at least 10-33 percent will be achieved ('id.'at 38).

Likewise, NRG in 2004 agreed to a settlement of alleged CAA violations in which NRG agreed to a substantial (85-90 percent) reduction in emissions thro