	Background

On November 22, 2002, the Environmental Protection Agency (EPA) finalized revisions to several aspects of the Clean Air Act's (CAA) New Source Review (NSR) requirements. At the same time, EPA proposed a rule to clarify the definition of "routine maintenance" under NSR. The proposed and final rules have generated controversy. The Bush Administration has argued that the new rules will reduce pollution and increase energy efficiency. In contrast, the State and Territorial Air Pollution Program Administrators (STAPPA) and Association of Local Air Pollution Control Officials (ALAPCO) argue that the revisions will "undermine efforts to achieve and sustain clean, healthful air." The attorneys general in nine Northeastern states filed suit against the final rules issued by EPA on December 31, 2002 in the U.S. Court of Appeals for the D.C. Circuit. Pennsylvania filed a separate lawsuit on January 27, 2003. On January 30, the attorneys general in eight states, mostly from the Midwest and the South filed a petition in support of the final rule. In promulgating implementing regulations, EPA exempted certain activities from the definition of physical or operational change. Among those activities exempted was: "maintenance, repair, and replacement which the Administrator determines to be routine for a source category...." In addition, increases in production rates that do not involve capital expenditures do not constitute a modification. Responding to this situation, utilities began to spread out their life extension efforts in an attempt to make them fit into their routine maintenance schedules. If one believes that EPA's routine maintenance exemption as enunciated in the 1970s was delimited and not a license to rehabilitate existing facilities, then one would conclude that many of the industry's rehabilitation activities of the last 20 years go beyond what NSR requirements allow. This perspective that applying NSR requirements to rehabilitation would reduce emissions is consistent with the enforcement initiative of the Clinton Administration, an initiative for which the Bush Administration has stated its support. In contrast, if one believes that an exemption for routine maintenance is appropriate and should be defined in terms of current industry practices, then one would conclude that the potential threat of NSR (and the installation of BACT or LAER) prevents owners from making cost-effective improvements in the overall performance and efficiency of their existing facilities (e.g., improved heat rates). From this perspective, NSR discourages plant owners from upgrading facilities operating with old, worn-out, inefficient components, thereby foregoing opportunities to conserve energy and to reduce carbon dioxide emissions by installing newer, more efficient components. This perspective that NSR discourages energy efficiency is reflected in the Bush Administration's proposed revisions to routine maintenance published in December, 2002.
On November 22, 2002, the Environmental Protection Agency (EPA) finalized revisions to several aspects of the Clean Air Act's (CAA) New Source Review (NSR) requirements. At the same time, EPA proposed rules to clarify the definition of "routine maintenance" under NSR. The proposed and final rules have generated controversy. The Bush Administration has argued that the new rules will reduce pollution and increase energy efficiency. In contrast, the State and Territorial Air Pollution Program Administrators (STAPPA) and Association of Local Air Pollution Control Officials (ALAPCO) argue that the revisions will "undermine efforts to achieve and sustain clean, healthful air." Nine Northeastern states filed suit against the final rules issued by EPA on December 31, 2002 in the U.S. Court of Appeals for the D.C. Circuit, and Pennsylvania filed a separate lawsuit on January 27, 2003; on January 30, eight states, mostly from the Midwest and the South, filed a petition in support of the final rule.
Into the 1970s, coal-fired electric generating facilities were built with a projected useful life of 30-40 years. Over time a powerplant's efficiency declined, until it would be replaced or put on standby for use during emergencies. As the CAA evolved, it established stringent pollution control requirements on newly constructed facilities, but not on older ones unless they underwent a modification that increases emissions (or emitted pollutants that exceeded health-based air quality standards). By the early 1980s, however, it became technically feasible to refurbish a powerplant to preserve its efficiency, so plants could continue in regular operation.
Thus, "life extension" became more advantageous than building new facilities that would incur capital and operating costs of CAA-required pollution controls. The crucial issue was whether life extension triggered the "modification" provision of the CAA: In promulgating regulations in 1975, EPA had exempted certain activities from the definition of modification, including "maintenance, repair, and replacement which the Administrator determines to be routine for a source category...." In response, utilities began to spread out their plant rehabilitation efforts in an attempt to fit them into their routine maintenance schedules.
If one believes that EPA's routine maintenance exemption was limited and did not permit the rehabilitation of existing facilities, then one would conclude that many of the industry's rehabilitation activities of the last 20 years go beyond what NSR allows. From this perspective, current law requires existing sources undergoing refurbishment to meet stringent NSR standards. This is the perspective underlying the Clinton Administration's enforcement initiative, an initiative for which the Bush Administration has stated its support. In contrast, if one believes that an exemption for routine maintenance is appropriate and should be defined in terms of current industry practices, then one would argue that NSR discourages plant owners from upgrading facilities operating with worn-out, inefficient components, thereby foregoing opportunities to conserve energy and to reduce emissions by installing newer, more efficient components. This perspective that NSR discourages energy efficiency is reflected in the Bush Administration's proposed revisions to routine maintenance published in December 2002. This report will not be updated.