New Source Review – Clean Air Act

Over the past several years, the United States Environmental Protection Agency (EPA), together with the Department of Justice (DOJ), has been vigorously enforcing the Prevention of Significant Deterioration (PSD) permit program of the Clean Air Act.  They have targeted such industries as pulp and paper, petroleum refining, wood products, and basic utilities for undertaking certain activities that have increased efficiency and extended the useful life of their facilities, without first submitting to preconstruction permit review.  Many industry insiders thought they were exempt from regulatory review because their activities constituted routine maintenance, repair, or replacement of component parts at a stationary source.    EPA and DOJ have taken a contrary position and asserted that in many instances, the activities were not "routine" because of the magnitude of the work carried out, the costs involved, the extension of a facility’s useful life, and the resulting increase in the facility’s efficiency and performance.  A number of the charges have been settled and significant fines paid by the regulated interests.

In December 2002, EPA proposed significant changes to the New Source Review program to clarify the meaning of routine maintenance, repair, and replacement of component parts.  On August 27, 2003, EPA announced issuance of a final rule that establishes an equipment replacement provision as part of the routine maintenance, repair and replacement exclusion.  Under the rule, equipment replacement at industrial facilities will not be subject to New Source Review if the following criteria are met:

1. The replacement is of an existing component of a process unit with an identical or functionally equivalent component;

2. The fixed capital cost of the replacement, plus the costs of repair and maintenance activities that are part of the replacement activity, does not exceed 20% of the replacement value of the entire process unit;

3. The replacement does not result in a change to the basic design parameters of the process unit; and

4. The activities do not cause the unit to exceed any emission limits.

The rule also provides details about what constitutes a process unit; what is meant by a "functionally equivalent" replacement; and how basic design parameters for process units may be established.  The final rule is a significant improvement over the existing program and will allow regulated interests to proceed, in many cases, with required maintenance. 

The rule is to become effective 60 days after publication in the Federal Register, unless it is stayed by court order.   It is likely to be challenged on a number of fronts.