EPA Signs New Routine Maintenance, Repair & Replacement Exemption
By Thomas R. Wood
A hotly contested issue in recent years, particularly for the coal fired power generation industry, has been whether a change to an existing emissions unit constitutes routine maintenance, repair or replacement. Major sources of air emissions are potentially subject to the rigors of New Source Review if they perform a "major modification." Determining whether a major modification occurred is a very complicated business. However, that process can be avoided if the change is considered routine maintenance, repair or replacement. Even a change that otherwise could trigger New Source Review is exempt from that expensive and time consuming process if the change is considered routine maintenance, repair or replacement.
In the past, EPA has made it very difficult for a source to tell with certainty that a particular change constitutes routine maintenance, repair or replacement. Disagreements about interpretations of this term of art have resulted in most of the major Clean Air Act enforcement cases of the past 15 years. The series of enforcement actions brought under the Clinton administration against the coal fired electric utility industry have been the most prominent, but by no means the only, enforcement actions hinging on the interpretation of the routine maintenance, repair and replacement exemption.
Today (August 27, 2003), EPA issued a rule that attempts to eliminate the uncertainty as to whether a change will be considered routine maintenance, repair or replacement. Specifically, EPA identified the following three criteria to identify whether a particular activity or aggregation of activities qualifies for the New Source Review exemption:
- The activity must involve the replacement of components with ones that are identical or serve the same purpose as the replaced components;
- The fixed capital cost of the replaced components and associated activities (i.e., cost and labor) must not exceed 20 percent of the current replacement cost of the process unit; and
- The replacement must not alter the basic design parameters of the process unit or cause it to violate any applicable emissions or operational limitation.
If these three criteria are met, then the activity will be automatically exempt from New Source Review. In relation to electric utility steam generating units, EPA specified that the replacement components cannot alter the maximum hourly heat input or the fuel consumption rate. Alternatively, a source can document that it has not changed its basic design parameters by demonstrating that no change has occurred as the result of the activity to the output based parameters (i.e., maximum electric output rate, maximum steam flow or maximum rate of product output). Manufacturer's design parameters can be used to document basic design parameters or a source can determine the basic design parameters based upon operations during the 5-year period immediately prior to the activity potentially subject to New Source Review. EPA expressly excluded efficiency as a basic design parameter so that sources could make improvements in efficiency without concern that such an improvement would eliminate the source's ability to use the routine maintenance, repair and replacement exemption. This includes activities that return a unit to its historic design parameters even if doing so results in an actual emissions increase.
EPA clearly states that the routine maintenance, repair and replacement exemption can apply regardless of the frequency with which a component replacement occurs. In the recently issue Ohio Edison case (about which you should have received a Stoel Rives alert), the court made a big deal of the fact that an infrequent or one-time repair cannot be considered a routine repair. This rule eliminates this argument allowing sources to make one-time replacements and still remain within the exemption.
It is important to note that the 20 percent cost threshold applies on an activity basis. EPA did not offer extensive clarification on when activities must be aggregated for purposes of determining whether the total cost exceeds 20 percent. Instead, the agency says that aggregation decisions will be handled the way that they always have been under the New Source Review program--a statement that causes some concern for those who have experienced first hand the agency's past confusion on making such determinations.
It is also important to note that the 20 percent cost threshold applies on a process unit basis and not a plantwide basis. Determining the extent of what constitutes a process unit will require a technically and legally demanding analysis in many instances.
The new routine maintenance, repair and replacement rule will not take effect until 60 days after it is published in the Federal Register. It is unclear whether EPA will move ahead with publication immediately. Once the 60 day period expires, the rule will only take effect in those areas where EPA is the reviewing authority. In those areas where EPA has delegated authority to a local permitting agency to implement the EPA rules, the changes will take effect after 60 days, but the local adoption of the old rules is likely to remain in effect until such time as the permitting authority adopts the modified rule language. In the interim, both the old rules and the new rules will apply, leading to some confusion as to the appropriate approach. Likewise, in areas where the New Source Review program has been incorporated into the State Implementation Plan, the permitting authority has three years to implement the new changes. Substantial debate exists as to whether such local authorities must adopt the new changes or whether they can choose to ignore them based on the idea that local programs are free to be more stringent than EPA. During this interim period, check with your local Stoel Rives Air Team attorney if you have questions about whether you can make use of the new exemption.
EPA is clearly ready for a fight about the new rules. Much of the rule preamble is devoted to defending the legitimacy of the rule amendments. Expect to see the law suits start pouring in.
Thomas R. Wood
Stoel Rives LLP
Phone: (503) 294-9396
Fax: (503) 220-2480