[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Rules and Regulations]
[Pages 40609-40616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19550]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 51, 52, 96, and 97
[FRL-7023-8]
Availability of Documents for the Response to the Remands in the
Ozone Transport Cases Concerning the Method for Computing Growth for
Electric Generating Units
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice of data availability for the NOX SIP Call and
the Section 126 Rule.
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SUMMARY: The EPA is providing notice that it has placed in the dockets
for the two main rulemakings concerning ozone-smog transport in the
eastern part of the United States-the Nitrogen Oxides State
Implementation Plan Call ( NOX SIP Call) and the Section 126
Rule-data relevant to the remands by the U.S. Court of Appeals for the
District of Columbia Circuit (D.C. Circuit) concerning growth rates for
seasonal heat input by electric generating units (EGUs). In both the
NOX SIP Call and Section 126 rulemakings, EPA determined
control obligations with respect to EGUs through the same computation,
which included, as one component, estimates of growth in heat input by
the EGUs from 1996 to 2007. In two cases decided earlier this year
challenging the Section 126 rulemaking and a pair of rulemakings that
made technical corrections to the NOX SIP Call, the D.C.
Circuit considered challenges to EPA's calculation of the growth
estimate and its use of growth factors. In virtually identical
decisions, the Court remanded the growth component to EPA for a better
response to certain data presented by the affected States and industry
concerning actual heat input, and for a better explanation of EPA's
methodology. The EPA is in the process of responding to those remands.
The EPA's preliminary view is that its growth calculations were
reasonable and can be supported with a more robust explanation, based
on the existing record, that takes into account the Court's concerns.
In addition, EPA is considering new data that have recently been placed
in the dockets for the NOX SIP Call and Section 126 Rule.
These new data appear to confirm the reasonableness of the growth
calculations. The EPA is providing a 30-day period for the public to
comment on these new data.
DATES: Documents were placed in the docket on or about July 27, 2001.
The EPA is authorizing a 30-day comment period, ending on September 4,
2001. Comments must be postmarked by the last day of the comment period
and sent directly to the Docket Office listed in ADDRESSES below (in
duplicate form, if possible). In addition, EPA encourages commenters to
send copies of their comments directly to the contacts identified below
under the section, FOR FURTHER INFORMATION CONTACT.
ADDRESSES: Comments may be submitted to the Office of Air and Radiation
Docket and Information Center (6102), Attention: Docket No. A-96-56 for
the NOX SIP Call and Docket No. A-97-43 for the Section 126
Rule, U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue
NW, Washington, DC 20460, telephone (202) 260-7548. The EPA encourages
electronic submission of comments following the instructions under
SUPPLEMENTARY INFORMATION of this document. The e-mail address is [email protected]. No confidential business information should be
submitted through e-mail.
Copies of all of the documents have been placed in the docket for
the NOX SIP Call rule, Docket No. A-96-56, and have been
incorporated by reference in the docket for the Section 126 Rule,
Docket No. A-97-43. These new documents, and other documents relevant
to these rulemakings, are available for inspection at the Docket
Office, located at 401 M Street SW, Room M-1500, Washington, DC 20460,
between 8 a.m. and 5:30 p.m., Monday through Friday, excluding legal
holidays. A reasonable fee may be charged for copying. Some of the
documents have also been made available in electronic form at the
following EPA website: http://www.epa.gov/airmarkets/fednox/126noda/.
FOR FURTHER INFORMATION CONTACT: Questions concerning today's document
should be directed to Kevin Culligan, Office of Atmospheric Programs,
Clean Air Markets Division, 6204M, 1200 Pennsylvania Ave. NW,
Washington, DC 20460, telephone (202) 564-9172, e-mail
[email protected]; or Howard J. Hoffman, Office of General
Counsel,
[[Page 40610]]
2344A, 1200 Pennsylvania Ave. NW, Washington, DC 20460, telephone (202)
564-5582, e-mail [email protected]. General questions about the
Section 126 Rule or the NOX SIP Call may be directed to
Carla Oldham, Office of Air Quality Planning and Standards, Air Quality
Strategies and Standards Division, MD-15, Research Triangle Park, NC,
27711, telephone (919) 541-3347, e-mail [email protected].
SUPPLEMENTARY INFORMATION:
Submitting Electronic Comments
Electronic comments are encouraged and can be sent directly to EPA
at [email protected]. Electronic comments must be submitted as an
ASCII file avoiding the use of special characters and any form of
encryption. Comments will also be accepted on disks in WordPerfect 8.0
or ASCII file format. All comments in electronic form must be
identified by Docket No. A-96-56 for the NOX SIP Call and
Docket No. A-97-43 for the Section 126 Rule. Electronic comments may be
filed online at many Federal Depository Libraries.
Outline
I. Background
A. Rulemakings
1. NOX SIP Call
2. Technical Amendments
3. Section 126 Rulemaking
B. Court Decisions; Remands
1. Michigan v. EPA (NOX SIP Call)
2. Appalachian Power v. EPA (Section 126 Rule)
3. Appalachian Power v. EPA (Technical Amendments)
II. New Documents
III. EPA's Response to Remands
A. Actual Heat Input; Reasons for State-by-State Fluctuations
B. Reasons for Calculated Approach
C. Growth Factor
D. Consistency of Use of Heat Input Growth Factors for Budget
Purposes and for Cost Purposes
E. Utilities' Multi-State Operations
IV. Comments
I. Background
A. Rulemakings
1. NOX SIP Call
In a final action published October 27, 1998, EPA promulgated,
``Finding of Significant Contribution and Rulemaking for Certain States
in the Ozone Transport Assessment Group Region for Purposes of Reducing
Regional Transport of Ozone,'' 63 FR 57356 (the NOX SIP
Call). This rulemaking was the culmination of a multi-year study--begun
by a cooperative group of States, industry, and citizen groups called
the Ozone Transport Assessment Group (OTAG)--of the causes and extent
of ozone-smog transport in the eastern half of the United States. In
the NOX SIP Call, EPA determined that NOX
emissions from 22 States and the District of Columbia contributed
significantly to ozone nonattainment problems downwind, under Clean Air
Act (CAA) section 110(a)(2)(D). Accordingly, EPA promulgated a
requirement that each of the 23 jurisdictions submit a SIP revision
containing controls that would yield specified levels of NOX
emissions reductions, and thereby eliminate that jurisdiction's
significant contribution.
Under the rulemaking, the appropriate level of NOX
reductions is the amount of NOX emissions that could be
eliminated through use of highly cost-effective controls. In the
NOX SIP Call, EPA did not require States specifically to
impose controls on any particular sources, but rather EPA determined
the amount of emissions reductions that would correspond to the
implementation of highly cost-effective controls, and required States
to submit SIP revisions that provide for that amount of reduction.
Although EPA determined the amount of required reduction by examining
several categories of sources, EPA based most of its required emissions
reductions on the availability of highly cost-effective controls for
large EGUs.
In studying EGU NOX emissions and associated issues, EPA
relied heavily on a computerized simulation of the electric utility
industry termed the Integrated Planning Model (IPM).\1\ The IPM used by
EPA covers 48 contiguous U.S. States and incorporates information over
a multi-year period as to expected demand for electricity, the physical
characteristics of electricity generators, transmission grids,
characteristics of the fuels used, amounts of NOX and other
pollutant emissions, types of emissions controls, and the various costs
involved. Based on these inputs, the IPM provides reasonable
projections, over a multi-year period, of, among other things, the
amount of electricity generation that will be needed in various areas,
which sources will generate how much electricity, to which region that
electricity will be transmitted, what amounts of heat input will be
needed, the amount of pollution that will be emitted, what pollution
controls will be required on which sources, what costs will be
incurred, and how much new generation capacity will be built in various
regions.
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\1\ IPM and the manner in which EPA programmed it is discussed
in ``Report on Analyzing Electric Power Generatin Under the CAAA,''
A-96-56, V-C-03 (March 1998).
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For the NOX SIP Call, EPA conducted the IPM simulations
for the years 2001 to 2020, inclusive. Further, EPA programmed the
model to provide detailed data outputs for the years 2001, 2003, 2007,
2010, and 2015. Of particular relevance for present purposes, IPM
provided projections for heat input for 2001 and 2010, as well as
projected NOX emissions for 2007.
EPA determined the amount of reductions attributable to EGUs as
highly cost effective in the following manner: For each of the 23
jurisdictions, EPA determined the amount of actual heat input used by
all large EGUs in the jurisdiction during the 1995 and 1996 ozone
seasons. EPA selected the higher of the 1995 or 1996 amounts as the
baseline heat input. EPA then applied a growth factor to this baseline
amount, to grow it from the 1996 level (which, for some States,
included the 1995 amount) to a 2007 base level. EPA determined the
growth factor by determining the average annual growth rate in heat
input projected by IPM between the years 2001 and 2010 inclusive.
EPA then applied to the 2007 projected heat input, the control
level that EPA determined to be highly cost effective. This calculation
yielded an amount of NOX emissions, which may be referred to
as the 2007 EGU Budget. EPA subtracted this amount from the amount of
NOX emissions IPM had projected for 2007 without assuming
NOX controls. The remainder constituted a portion of the
amount of NOX emissions reductions--the portion attributable
to EGUs--that each jurisdiction was required to achieve.
2. Technical Amendments
When it promulgated the NOX SIP Call rule, EPA decided
to reopen public comment on the source-specific data used to establish
each State's 2007 EGU Budget (63 FR at 57427). EPA further extended
this comment period by notice dated December 24, 1998 (63 FR 71220).
EPA indicated that it would entertain requests to correct the 2007 EGU
Budgets to take into account errors or updates in some of the
underlying emissions inventory and certain other specified data (63 FR
at 57427).
Following its review of the comments received, EPA published a
rulemaking providing Technical Amendments to, among other things, the
2007 EGU Budgets. ``Final Rule; Technical Amendment to the Finding of
Significant Contribution and Rulemaking for Certain States for Purposes
of Reducing Regional Transport of Ozone,'' (64 FR 26298; May
[[Page 40611]]
14, 1999). In response to additional comments received, EPA published a
second rulemaking, making additional Technical Amendments to the 2007
EGU Budgets. ``Final Rule; Technical Amendment to the Finding of
Significant Contribution and Rulemaking for Certain States for Purposes
of Reducing Regional Transport of Ozone,'' (65 FR 11222; March 2,
2000). (These two rulemakings may be referred to, together, as the
Technical Amendments.) In promulgating the Technical Amendments, EPA
kept intact its method for determining the 2007 EGU Budgets, including
the method for determining growth to 2007. EPA simply made adjustments
concerning whether particular sources were large EGUs, and made the
appropriate adjustments in the 1996 baseline (which included 1995 heat
input values for some States) for those sources.
3. Section 126 Rulemaking
In a final action published January 18, 2000, EPA granted petitions
from four Northeast States making findings that NOX
emissions from large EGUs, among other sources, in 12 Midwest,
Southeast, and Northeast States and the District of Columbia
contributed significantly to ozone nonattainment in the petitioning
Northeast States. ``Findings of Significant contribution and Rulemaking
on Section 126 Petitions for Purposes of Reducing Interstate Ozone
Transport,'' 65 FR 2674 (Section 126 Rule). As a remedy, EPA
promulgated control requirements for the EGUs. These control
requirements were based on the 2007 EGU Budgets from the NOX
SIP Call (as revised by the Technical Amendments). Specifically, EPA
established a 2007 EGU Budget for each affected State, and then
allocated the State's 2007 EGU Budget to each of the large EGUs in the
State, according to a formula.
B. Court Decisions; Remands
All three sets of rulemakings--the NOX SIP Call, the
Technical Amendments, and the Section 126 Rule--were challenged by
various groups of States and industries in the U.S. Court of Appeals
for the District of Columbia Circuit (the D.C. Circuit).
1. Michigan v. EPA (NOX SIP Call)
On March 3, 2000, a panel of the D.C. Circuit largely upheld the
NOX SIP Call in Michigan v. EPA, 213 F.3d 663 (D.C. Cir.
2000). Although partially vacating and remanding the SIP Call on
certain specific issues, the Court generally upheld the regulatory
approach adopted by EPA, including finding that EPA reasonably
interpreted the CAA as ``providing it with the authority to determine a
state's NOX significant contribution level,'' as reflected
in each State's budget. Id. at 687. No party to that litigation
specifically raised any issue concerning the EPA's method for computing
the growth component for the EGU Budget.
2. Appalachian Power v. EPA (Section 126 Rule)
On May 15, 2001, a panel of the D.C. Circuit largely upheld the
Section 126 Rule in Appalachian Power v. EPA, 249 F.3d 1032 (D.C. Cir.
2001). In response to a direct challenge by parties to EPA's method for
determining EGU growth rates, the Court remanded that part of the rule
to EPA.
At the outset, the Court turned aside a challenge by the Midwest
and Southeast States that EPA's emissions growth projections were
arbitrary and capricious because they relied on IPM growth projections
that were significantly lower than certain individual state
projections. The Court upheld ``EPA's judgment [that] the IPM offered a
more comprehensive and consistent means of allocating emission
allowances than sorting through the various state-specific
projections.'' Id. at 1053.
However, the Court went on to remand EPA's EGU growth projections.
The Court objected that EPA never articulated why it adopted its
methodology for projecting growth. In addition, the Court noted
information provided by the petitioners challenging the rule that--
EPA's projections significantly underestimated growth rates in
some States. In Michigan and West Virginia, for example, actual
utilization in 1998 already exceeded the EPA's projected levels for
2007.
The Court stressed that ``future growth projections that implicitly
assume a baseline of negative growth in electricity generation over the
course of a decade appear arbitrary,'' and that EPA did not provide a
record explanation of this disparity.\2\
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\2\ EPA did observe that heat input may vary from year to year,
but the Court found ``no plausible explanation for how interannual
variation can explain utilization rates in 2007 substantially lower
than those observed in 1998.''
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The Court then observed that although EPA relied on IPM projections
for the 2001-2010 period, EPA had admitted that it had IPM projections
for 2007, as well as for the 1996-2001 period. The Court quoted
statements in EPA's Response to Comments document indicating that EPA
relied on the 2001-2010 IPM growth projections to grow emissions from
1996 and thereby determine the 2007 EGU budgets, but then relied on IPM
growth projections for 1996-2001 and 2001-2010 to analyze the costs of
complying with those budgets. The Court concluded that EPA failed to
explain why it used two sets of growth rates for different purposes.\3\
For these reasons, the Court remanded ``so that the agency may fulfill
its obligation to engage in reasoned decisionmaking on how to set EGU
growth factors and explain why results that appear arbitrary on their
face are, in fact, reasonable determinations.'' Id. at 1053-55.
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\3\ As described below, EPA's statements in the Response to
Comments document that it relied on IPM growth proections for 1996-
2001 were misleading.
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3. Appalachian Power v. EPA (Technical Amendments)
On June 8, 2001, a third panel of the D.C. Circuit decided
challenges to the Technical Amendments. Appalachian Power Company v.
EPA, 251 F.3d 1026 (D.C. Cir. 2001). Although largely upholding the
Technical Amendments, the Court remanded the EGU growth rates. The
Court recognized that it ``confronted nearly identical challenges to
the EPA's use of growth factors to estimate baseline NOX
emissions for 2007 in the section 126 litigation,'' and remanded for
the same reasons. Id. at 1034-35.
II. New Documents
EPA is placing the information described below in the docket. This
information is being placed in the NOX SIP Call rulemaking
docket, A-96-46; and incorporated by reference into the Section 126
rulemaking docket, A-97-43, II-L-01.
1. 1995 through 2000 ozone season heat input values for EGUs, at
the unit level, in the SIP Call Region. For units subject to the Acid
Rain Program, these values were calculated based on hourly data
reported to EPA for compliance with the Acid Rain Programs. For other
units not subject to the Acid Rain Program, these values were based on
monthly data reported to the Energy Information Administration (EIA).
The 1995 and 1996 unit level data is the same data used during the SIP
Call rulemaking. Most of the 1997 and 1998 data was placed in the
docket as part of the Section 126 rulemaking, but data for some
additional units for those years has been added. In addition, post-1998
data has been added. Docket no. A-96-56, XIV-C-01. Table 1 summarizes
1995-2000 ozone season heat input values for EGUs on a State-by-State.
BILLING CODE 6560-50-P
[[Page 40612]]
[GRAPHIC] [TIFF OMITTED] TR03AU01.000
BILLING CODE 6560-50-C
[[Page 40613]]
2. Ozone season utility sales data for the years 1995--2000, as
reported to EIA. Docket no. A-96-56, XIV-C-02.
3. Generation data for various sources for 1995-2000, as reported
to EIA:
a. Generation data-utility ozone season fossil-fuel net generation.
Docket no. A-96-56, XIV-C-03.
b. Generation data-utility ozone season hydroelectric net
generation. Docket no. A-96-56, XIV-C-04.
c. Generation data-utility ozone season nuclear net generation.
Docket no. A-96-56, XIV-C-05.
4. EIA State summaries of information related to electrical
generation and use (1988, 1993, and 1998)
a. Historic annual power generation and sales. Docket no. A-96-56,
XIV-C-06.
b. Historic fossil-fuel-fired generation and all generation. Docket
no. A-96-56, XIV-C-15.
5. ``Power Companies Efforts to Comply with the NOX SIP
Call and Section 126,'' NESCAUM (May 31, 2001). This document
summarizes published reports regarding power companies' intentions to
install selective catalytic reduction (SCR) to meet the requirements of
the NOX SIP Call. Docket no. A-96-56, XIV-C-07.
6. Information as to the geographic location of units owned by
particular utility companies. Docket no. A-96-56, XIV-C-08.
7. Information concerning effectiveness of SCR in achieving
emissions reductions greater than 90 percent.
a. Press release from American Electric Power (AEP) announcing
plans to install SCR at the John E. Amos Plant and the Mountaineer
Plant (Jan. 29, 2000). Docket no. A-96-56, XIV-C-09.
b. Press release from AEP announcing plants to install SCR at the
Big Sandy Plant (April 6, 2000). Docket no. A-96-56, XIV-C-10.
c. ``Commissioning Experience on the SCR Retrofit at Pennsylvania
Power and Light's 775 MW Montour Station Unit 2, ``Tom Robinson,
Babcock Borsig Power Inc., presented at 2001 Conference on Selective
Catalytic Reduction and Non-Catalytic Reduction for NOX
Control, May 16-18, 2001. Docket no. A-96-56, XIV-C-11.
d. ``First Year's Operating Experience with SCR on 600 MW PRB-Fired
Boiler,'' Dave Harris, Black and Veatch, presented at 2001 Conference
on Selective Catalytic Reduction and Non-Catalytic Reduction for
NOX Control, May 16-18, 2001. Docket no. A-96-56, XIV-C-12.
8.a. ``Review of Potential Efficiency Improvements at Coal Fired
Power Plants,'' April 17, 2000. Docket no. A-96-56, XIV-C-13.
b. ``Increasing Electricity Availability from Coal-Fired Generation
in the Near Term,'' National Coal Council, May 2001. Docket no. A-96-
56, XIV-C-14.
9. ``The Changing Structure of the Electric Power Industry--2000;
An Update'', Energy Information Administration (October 2000). Docket
no. A-96-56, XIV-C-16.
EPA may place additional documents in the docket, and if EPA does
so, EPA will announce their availability by posting a notice on the
http://www.epa.gov/airmarkets/fed NOx/126noda/. web site.
III. EPA's Response to Remands
EPA is considering its response to all issues raised by the Court
in its remand of the EGU growth issue. Our preliminary view, based on
the record in the NOX SIP Call and Section 126 rulemakings,
is that EPA's growth rate methodology was reasonable. As a result, we
intend to provide a more robust rationale for that methodology, taking
into account the concerns expressed by the Court. We are also examining
additional data. Our preliminary review of that data indicates that
they appear to confirm the reasonableness of the growth rate
methodology. We invite comment on the new data.
As described above, to determine each State's 2007 EGU Budget, EPA
began with each State's heat input, expressed in million Btu (per ozone
season for large fossil-fuel-fired units), for 1995 and 1996, and chose
the higher of those two amounts as the 1996 baseline for that State.
EPA then computed a growth factor equal to the average annual increase
in heat input predicted by IPM for that State from 2001 to 2010. EPA
applied each State's growth factor to each State's baseline, to grow
the baseline from 1996 to 2007. EPA then applied the emission rate of
0.15 pounds of NOX per million Btu to each State's predicted
2007 heat input. The result is each State's 2007 EGU Budget, expressed
in tons of NOX emissions per ozone season.
As described above, the Court expressed several concerns with EPA's
growth rate methodology. In particular, the Court was concerned that
some States had higher levels of heat input in 1998 than EPA had
projected for 2007. More broadly, the Court was concerned that EPA did
not adequately explain why it used its method, rather than another
method, including the direct use of IPM's projected 2007 heat input.
The Court was also concerned with EPA's explanation of why the accuracy
of its projections on a regional level offset possible inaccuracies in
individual State projections. Finally, the Court was also troubled by
EPA's apparent use of two different sets of growth rates for different
purposes (the establishment of the budgets and the analysis of the
costs of the control measures).
A. Actual Heat Input; Reasons for State-by-State Fluctuations
To begin to address the Court's concerns that some States' actual
heat input levels already exceed EPA's projections for 2007, we are
examining available data concerning actual heat input for the affected
States. These include the amounts of actual heat input for each state
affected by the SIP Call and Section 126 rulemakings for the years
1995-2000. A summary table of these amounts is included in Table 1
above.
In the Section 126 Case, some litigants identified two States,
Michigan and West Virginia, as having actual heat input in 1998 higher
than EPA's 2007 projection, which led the Court to express concern
about the accuracy of EPA's method of projecting growth. We note,
however, that both States had actual heat input in 2000 that was more
consistent with what EPA projected for the year 2007. Michigan's 2000
heat input was substantially lower than its heat input in 1998 as well
as the 2007 projection. West Virginia's heat input for 2000 was also
lower than in 1998 or 1999. This indicates that there can be
considerable variability in the year-by-year heat input amounts for
individual States.
Indeed, a review of the State-by-state heat input amounts for the
years 1995 to 2000 in Table 1 does indicate that many States
experienced substantial fluctuations on a year-by-year basis as well as
sharply differing multi-year patterns from each other. To return to
Michigan, that State's heat input fell between 1995 to 1997, rose
substantially in 1998, and fell again during 1999 and 2000. Indiana's
heat input rose steadily from 1995 to 1999, but in 2000, fell to 1996
levels. New Jersey's pattern was almost the opposite of Indiana's.
Many factors may combine to cause heat input amounts for any
particular State for any particular year to vary widely over a short-
term period. These factors include, among others,
Forced outages (generating units may be required to shut
down for unexpected reasons, which would shift heat input to another
State);
Variations in energy costs (e.g., a drop in natural gas
prices may attract generation to natural gas fired units in
[[Page 40614]]
one State and away from coal fired units in another State);
The implementation of environmental controls by the
sources in one State (which may shift heat input to another State);
The start-up of new units that are more efficient (and
thereby take up more generation and reduce overall heat input);
Electricity transmission problems (which may require a
State that imports electricity to do so from a different geographic
area, which may, in turn, result in heat input shifts);
Weather patterns;
Economic variability (industry in one region may
experience a boom and require more electricity);
Variations in availability of non-fossil-fuel-fired units,
including nuclear or hydropower.
It should be noted that fossil fuel heat input growth and decreases
do not directly correlate to growth and decreases in electricity
generation.\4\ Indeed, from 1998-2000, electricity generation in the
SIP Call area increased, but heat input decreased. These results seem
to be attributable in part to some of the factors noted above,
including the greater efficiency in 2000 of some units, and greater
reliance in 2000 on nuclear or other non-fossil-fuel fired units.
Short-term swings in fuel costs and electricity demand (either of which
could be related to the weather, among many other factors) could also
result in significant year-by-year, and State-by-state, variations in
heat input. To further analyze the difference between heat input and
electricity generation, EPA is reviewing electrical generation and
electrical sales data compiled by EIA.
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\4\ In the Section 126 Case, the Court noted that EPA's method
implicitly assumed negative growth in ``electricity generation''
over the course of a decade. The Court appears to have confused
electricity generation with heat input. 249 F.3d at 1053.
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It should be emphasized that EPA's method for projecting heat input
for the year 2007 was not designed to predict accurately heat input on
a state-by-state basis for years before 2001. This is because some of
the assumptions built into the IPM model for the later years in the
2001-2010 period may differ from what exists in the pre-2001 period.
For example, in 1998, utility boilers subject to Phase II of Title IV
of the Clean Air Act (the Acid Rain Program), were not constrained by
any emission limitations under the Acid Rain Program. By 2007, these
units will be subject to both SO2 and NOX
limitations. These limits are likely to increase operating costs. As a
result, the state-by-state pattern of heat input projected by the IPM
model once these limits are in place would differ from the pattern of
heat input that would occur during the pre-2001 period.
In particular, the different schedules for implementation of
NOX emission controls required by individual States appear
to have been a factor contributing to the significant fluctuations in
heat input levels seen during the 1998-2000 period. During these years,
EGUs in the Northeast States were implementing controls at levels that
generally are more stringent than those required in the rest of the SIP
Call region. For the most part, sources in the Midwest and Southeast
were not yet implementing the Section 126 Rule-level controls. In some
instances, sources in these three regions compete against each in the
same transmission grids. This difference in timing of control costs
could be expected to give EGUs in the Midwest and Southeast a
competitive advantage over their Northeast counterparts, which would
constitute one factor leading towards higher heat input levels in those
States, and lower levels in the Northeast, during this time.
Implementation by the Midwest and Southeast utilities of the section
126 or NOX SIP Call controls in the coming years would be a
factor leading towards lower heat input in those States, and higher
heat input in the Northeast States.
Although these differences in control assumptions would lead to
different patterns of heat input on a state-by-state basis in 2000 than
in 2007, they would not have as significant an impact on regionwide
heat input. For this reason, EPA continues to believe that regionwide
heat input figures are a better measure of the accuracy of EPA's
methodology for growth calculations than state-by-state figures.
Most importantly, we note that if our method were applied to the
year 2000, that is, if our growth factor were applied to grow the 1996
baseline out to 2000, our prediction of regionwide heat input would be
6,250,350,677 mmBtu. Compared to the actual heat input of 6,228,694,532
mmBtu, our projection differed by less than 0.5 percent. EPA fully
realizes that regionwide heat input may vary significantly year-to-year
due to various factors that are difficult to predict. For example,
regionwide heat input was higher in 1998 and 1999 than in 2000, a
phenomenon that we believe may have been due in part to unseasonably
hot summer weather in 1998 and 1999 in significant portions of the
NOX SIP Call region, strong economic conditions, and the
temporary shut-down of large non-fossil-fuel powered generation
resources such as the Cook Nuclear Power Plant in Michigan. Even so, we
believe that the match-up of the 2000 actual heat input figure and the
figure that our growth rate would have projected does suggest that our
method is within the range of reasonable accuracy.
B. Reasons for Calculated Approach
Our method constitutes a calculated method, which relies on both a
baseline amount and a growth factor. EPA selected this approach,
instead of others, such as directly using IPM's projected 2007 heat
input, for several reasons. In particular, the baseline component of
this method offers several advantages. First, because EPA chose for the
baseline actual heat input for the 1995 or 1996 year, the baseline is
reality based. As a result, this baseline necessarily gives the EPA
method a more accurate beginning point than any model could provide.
Moreover, using a calculation method with a baseline based on
actual heat input in a given year created the opportunity to mitigate a
significant problem inherent in heat projection methodology: large,
year-to-year swings in projected heat input on an individual state
basis. That is, the amount of heat input for any given year could
fluctuate widely from the year before or the year after due to an
unusual confluence of factors. This phenomenon gives rise to risk that
in 2007, an individual State might have an unusually high heat input.
Mindful of this risk, EPA, in selecting the baseline for each State,
selected the higher of 1995 or 1996 actual heat input. By giving States
an artificially higher baseline, the EPA method allowed a cushion to
protect States and sources against undue fluctuations in heat input.
Finally, the EPA method readily allowed for updates of the baseline
when revised or more detailed information for individual sources became
available during the rulemaking. At the outset of the rulemaking
process for the NOX SIP Call, EPA gathered the most accurate
information available concerning the heat input of EGUs as of 1995.
However, EPA was aware that this information would be subject to
updating and refinement. Indeed, States and sources provided EPA with a
steady stream of revisions to this baseline data, which resulted in the
publication of a supplemental notice of proposed rulemaking for the SIP
Call, extensions of the comment periods, and two rulemakings providing
Technical Amendments. EPA found it much more practical to accommodate
these updates by periodically updating the baseline
[[Page 40615]]
number (and thereby moving it up or down) and arithmetically
recomputing the 2007 EGU budget for the State, rather than to input
revised data into the IPM and re-run the model, which would be
expensive and time-consuming.
C. Growth Factor
To the baseline, EPA applied a growth factor based on IPM
projections for heat input from 2001 to 2010. Specifically, as noted
above, for each State, EPA divided the heat input projected for the
year 2010 by the heat input for the year 2001. EPA then arithmetically
converted this 9-year growth factor to an 11-year growth factor, and
used it to grow the 1996 baseline (including, if higher, the 1995 heat
input) to 2007.
At the outset, it should be noted that EPA considered a growth rate
based entirely on modeled projections for both beginning point (in this
case, 2001) and end point (in this case, 2010) to be the most accurate
method possible. EPA chose not to develop a growth rate based on a
State's actual 1996 baseline heat input as the beginning point and a
modeled heat input projection (for example, the IPM projection for 2007
heat input) as the end point. The reason is simply that either method
would need to rely on the modeled endpoint; and the modeled endpoint
would necessarily include some degree of systemic inaccuracy due to the
need to make simplifying assumptions in a model that may vary from the
real world, or due to unavoidable inaccuracies of the model. EPA
believed that these limitations may be mitigated to some extent if both
a modeled beginning point and end point were used. On the other hand,
if an actual beginning point and a modeled end point are used, the
limitations of the model could be exaggerated.
For example, in many cases, EPA depended on information from
various sources concerning the electricity generating capacity of the
EGUs. If the information provided to EPA concerning a particular source
were incorrectly high, IPM would project incorrectly higher electricity
generation from the EGU, which, in turn, would lead IPM to project
incorrectly high heat input for the State in which the EGU is located.
With a modeled beginning point (2001 heat input projection) and end
point (2010 heat input projection), the effect of this error would, as
a matter of arithmetic, be minimized. By comparison, with an actual
beginning point (e.g., a 1996 actual baseline), the incorrectly higher
heat input in the modeled endpoint would be a factor tending towards
greater inaccuracy.
In understanding why EPA selected the years 2001 to 2010, it is
important to recognize that in promulgating the NOX SIP
Call, EPA programmed IPM to project heat input and other output for
certain years between 2000 and 2021, but not for any years prior to
2001.\5\ IPM's projections, which included heat input, NOX
emissions, control costs, and other outputs, were important for
regulatory purposes in and after the year 2001, but not before. To have
generated outputs, such as heat input, for years prior to 2001 would
have required a large number of inputs for those years, such as
availabilities of various types of generation units (fossil-fuel fired,
nuclear, hydropower, or renewable), fuel costs, costs to build new
units, and performance characteristics of new units. Developing those
inputs for the earlier years would have been costly. Furthermore,
increasing the length of the model's projection period increases the
complexity of the programming for the model. To run the model, EPA must
make certain simplifying assumptions (such as combining units, as noted
above). Adding run years may have required making more simplifying
assumptions, such as the number of control options available to plants.
More simplifying assumptions would reduce the accuracy of the modeled
projections. EPA did not believe that reprogramming the model to
calculate heat input for earlier years was worth these tradeoffs.
Accordingly, EPA programmed IPM to provide outputs for only during and
after 2001.
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\5\ EPA stated in a Response to Comments document that it had
relied on IPM ``growth rates'' for 1996-2001 for purposes of
determining cost effectiveness. Upon further review, EPA realizes
that those statements were ambiguous and confusing. ``Responses to
Significant Comments on the Proposed Findings of Significant
Contribution and Rulemaking on Section 126 Petitions for Purposes of
Reducing Interstate Ozone Transport,'' A-97-43, VI-C-01, at 112-13.
EPA intended to refer to IPM projections for growth in demand for
electricity, not growth in heat input.
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In selecting the post-2000 period upon which to rely for the growth
factor, EPA decided to rely on the 2001 to 2010 period, instead of, for
example, the 2001 to 2007 period. Cognizant that its task was to
project average annual growth over an 11-year period, from 1996 to
2007, EPA believed that relying on a projection over a 9-year period,
2001-2010, was a reasonably accurate way to do so. The nine-year period
for projecting growth seemed to be a reasonably close approximation to
the 11-year period, 1996-2007, for which the growth projection was
required. Although relying on the 2001-2007 period would have had the
advantage of leaving the end-point of the projection period (2007) the
same as the year for which the projection was being made, this shorter,
six-year period would have been further afield from the 11-year period
for which the growth projection was required.
D. Consistency of Use of Heat Input Growth Factors for Budget Purposes
and for Cost Purposes
In the Section 126 Case, the Court expressed concern that EPA had
used the EPA Growth Method to determine 2007 levels of heat input for
purposes of establishing State budgets, but EPA had relied on IPM
projections for 2007 heat input for purposes of developing EPA's cost
estimates. The Court based this view on statements EPA made in the
Response to Comments document, noted above. The Court concluded that
EPA offered no cogent explanation for using different sets of growth
rates for different purposes. 249 F.3d at 1054.
EPA's statements in the Response to Comment document are discussed
above, and EPA acknowledges that those statements are ambiguous and
confusing. In fact, however, EPA did not use IPM 2007 heat input
projections as an input for purposes of determining cost estimates.
Rather, EPA relied on its own projections for 2007 heat input for
calculating the budget, and then used IPM to test the cost
effectiveness of that budget. The following summarizes EPA's
procedure.\6\
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\6\ EPA discussed its procedure in the proposal for the
NOX SIP Call rulemaking, 62 FR 60318, 60350-60353
(November 7, 1997).
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First, EPA computed its projection for each State's 2007 heat
input, using the EPA Growth Method. Then, to determine the emission
rate that was highly cost effective and, at the same time, to determine
the costs of that emission rate, EPA applied, one at a time, different
emissions rate limits to each State's 2007 heat input. For example, EPA
applied the emission rates of 0.12 lbs/mmBtu (that is, 0.12 pounds of
NOX emitted per million British thermal units), 0.15 lbs/
mmBtu, 0.2 lbs/mmBtu, and others. Application of each emission rate
yielded, for each State, a different amount of emissions (the ``2007
Control Case Emissions''). EPA added the 2007 Control Case Emissions
for each State for each emission rate applied, which resulted in
amounts of regionwide NOX emissions that varied with the
different emission rates applied. Thus, EPA determined the amount of
regionwide NOX emissions that would result from a 0.12 lbs/
mmBtu emission rate, the amount of regionwide NOX emissions
that would result from a 0.15 lbs/mmBtu emission
[[Page 40616]]
rate, and so on. EPA input into IPM the amount of regionwide
NOX emissions that corresponded to each emission rate-which
amounted to a constraint on NOX emissions--and then EPA ran
IPM for each amount of the regionwide NOX emissions
constraint. This determined the cost of generating electricity with the
constraint of the regionwide NOX emissions level being
tested. Then, EPA subtracted that cost from the cost of generating
electricity in 2007 that IPM projected without any NOX
emissions constraints. In this manner, EPA was able to compute a cost
figure for the controls necessary to assure that regionwide, no more
than the specified amount of NOX would be emitted. EPA
compared the cost figures for each of the IPM runs, and selected the
figure that EPA considered to be highly cost effective. This figure was
the emission rate of 0.15 lbs/mmBtu. EPA assigned to each State an EGU
budget based on the same methodology--the use of an 0.15 lbs/mmBtu
emission rate and the EPA 2007 growth projection for heat input. Thus,
EPA used the same determination of each State's 2007 heat input for the
purpose of determining both costs and each State's budget.
E. Utilities' Multi-State Operations
EPA is aware that many utilities have operating units in several
States that are linked to the same transmission grid. As a result,
utilities are able to alter dispatches from one unit to another, and
thereby minimize costs while maintaining the same level of electricity
generation. According to the Energy Information Administration (EIA),
``By the end of 2000, the number of electric holding companies will
decrease to 53 and the generation capacity they own will increase to
about 86 percent of the total investor owned utility capacity,
primarily because of mergers and acquisitions. This statistic suggests
that relatively large companies are becoming even larger.'' The
Changing Structure of the Electric Power Industry--2000; An Update, EIA
(October 2000). http://www.eia.doe.gov/cneaf/electricity/chg_stru_update/update2000.pdf p. 91. This statement indicates that an
increasing amount of the generation capacity is owned by companies with
multistate operations. EPA's preliminary review indicates that over 60
percent of the capacity in the SIP Call Region is owned by companies
that operate generating units in two or more States. The American
Electric Power Company, for example, owns units in numerous States,
including six in the SIP Call region. The fact that many utilities
operate units in different States appears to soften the adverse impact
if EPA's projected heat input for 2007 for individual States are not
completely accurate.
IV. Comments
EPA is soliciting comments on the new data placed in the docket and
set out in Table 1 above. EPA asks that commenters provide us with
their comments by September 4, 2001. EPA intends to complete its
response to the Court's remands by or about mid-November, 2001.
The EPA is not soliciting comment on IPM itself or on state-
specific approaches for determining 2007 heat input levels. EPA
understands the Court's opinion to have held as reasonable EPA's
reliance on IPM as a regionally uniform methodology for determining
each States 2007 EGU Budget. In addition, EPA is reviewing the actual
heat input data in Table 1 solely in the context of the growth rate
issue, and EPA is not re-opening any issues related to allowances
allocated under the Section 126 Rule or the amount of the 1996 baseline
determined under the NOX SIP Call Rule.
Dated: July 27, 2001.
John Seitz,
Director, Office of Air Quality Planning and Standards.
[FR Doc. 01-19550 Filed 8-2-01; 8:45 am]
BILLING CODE 6560-50-P