Eight states blame upwind sources. Agency to revisit emissions targets.

The U.S. Environmental Protection Agency's Sept. 24 rule for 22 eastern states to file plans to reduce nitrogen oxide emissions would ostensibly reduce transport of ground-level ozone, or smog, in so-called "nonattainment areas." But eight of these affected states have filed petitions arguing that NOx emissions blowing in from nearby jurisdictions must be controlled before they can comply.

So far, in preliminary statements, the EPA has indicated that at least some of these petitions have merit. The petitions still face a final agency review - and perhaps a day in court as well - but already they appear to have reinvigorated the classic environmental dispute: Upwind vs. Downwind.

The Sept. 24 ruling on state implementation plans, or the SIP call, as it is known, is aimed at reducing NOx emissions in the eastern United States by 1.1 million tons annually, or 28 percent overall by 2007. Although the EPA is allowing individual states to choose which sources will be targeted to reduce emissions, the final rule notes that "utilities and large non-utility point sources would be one of the most likely sources of NOx emissions reductions."

The 23 affected jurisdictions (see table, Affected Jurisdictions, and map, Upwind, Downwind) must submit SIPs to the EPA by September and implement chosen controls by May 1, 2003. Compliance with the state NOx "budgets," which the EPA may revise following a comment period that ends Feb. 22, is expected by Sept. 30, 2007. A "cap-and-trade" program similar to the one in place for sodium dioxide, or SO2, is part of the government's plan.

Cost-effective emissions control measures are central to the EPA's plan. Its annual cost estimate to reach the emissions goal is $1.7 billion, which is calculated using a figure of $1,500 per ton. Other controls would cost between $2,000 and $10,000 per ton, says Carol M. Browner, EPA administrator.

The SIP Call:

Success Pivots on Two Related Proposals

On the day it issued the smog-reduction ruling, the EPA issued two other proposals central to making the SIP call work: federal requirements for smog reduction in any state that fails to respond to the SIP call, and action on petitions filed under Section 126 of the Clean Air Act.

The EPA's federal implementation plan, or FIP, will be promulgated immediately if any state fails to respond adequately to the SIP call. The proposed requirements mandate that the emission reduction measures be implemented on the same schedule as the SIP call.

The agency also proposed action on the Section 126 petitions filed by eight Northeastern states requesting ozone reductions across state boundaries. The petitioning states are Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island and Vermont. While the EPA considered ozone impacts on states throughout the eastern half of the nation in the SIP call, it is restricted to considering only the impacts of certain upwind sources on petitioning states in acting on the Section 126 petitions.

The agency plans to issue its final ruling on the petitions on April 30. It proposed in September to find that seven of the petitions have merit, and that sources in 19 states and the District of Columbia "significantly contribute" to nonattainment of ozone limits or interfere with the ability of one or more petitioning states to maintain clean air (see map, Upwind, Downwind). If the government makes the requested finding for any petition, it will impose emission control requirements for targeted sources. The sources named in the petitions fall into the category of fossil fuel-fired indirect heat exchangers.

Because the SIP call process overlaps considerably with the process for reviewing the Section 126 petitions, the EPA says it is coordinating the two actions as much as possible. In fact, if the states affected by the SIP call submit plans that the agency proposes to approve, the EPA may defer any final action on the Section 126 petitions until May 1, 2000. If the EPA doesn't propose approval by Nov. 30 of the SIPs whose sources are targeted or grant final approval of the plans by May 1, 2000, however, the seven petitions having merit automatically would be granted as of Nov. 30 or May 1, 2000, as appropriate.

Whether automatic or otherwise, approval of the petitions would obligate affected sources to reduce NOx emissions that significantly contribute to interstate transport of ozone. A federal NOx budget trading program, a capped market-based system for certain combustion sources in covered upwind states, will be triggered if the EPA makes a finding for any Section 126 petition. The federal program may be integrated with the cap-and-trade programs established under the final SIP call and FIP.

Because the FIP and Section 126 petition proposals rely on the same federal NOx budget trading program as the primary control strategy for reducing NOx, public comments on both proposals were presented at a combined hearing Oct. 28 in Washington, D.C.

Downwind:

Vermont and Maine Cite Distant Sources

Representatives of several petitioning states, as well as those from environmental, industry and regional groups, presented comments at the October hearing. Comments from representatives of Vermont and Maine focused on details of the EPA's implementation of the FIP and Section 126 petitions.

The Vermont Petition. Vermont is the one state whose petition the EPA proposes to deny in its entirety. But the state argued at the hearing that more analysis by the EPA is warranted before the agency makes a final ruling.

According to the EPA, Vermont's petition named certain fossil fuel-fired electric utility generating facilities within an area extending 1,000 miles southwest from Bennington, Vt. This area includes all or parts of 22 states and the District of Columbia. The petition requests emissions limitations and a compliance schedule for sources within the specified area.

The EPA proposes to deny Vermont's petition in full because it says the state has no problems with outside sources contributing to its nonattainment of ozone limits with respect to the revised, eight-hour ozone standard. Thus, says EPA, Vermont has "no future projected nonattainment problems based on available analyses." The agency adds that it is "proposing to deny the Vermont petition in full with respect to the [previous] one-hour ozone standard because the one-hour standard no longer applies in that state."

Jonathan Peress, associate general counsel of the Vermont Agency of Natural Resources, questioned the EPA's analysis at the hearing. "Vermont is concerned that EPA's analysis for significant contribution [to nonattainment of ozone limits] with respect to the SIP call is simply not applicable to a review of Vermont's petition alleging interference with maintenance of the [ozone] standards," he said.

Peress added that the analysis method upon which the EPA relied in reviewing the petitions underestimates worst-case ozone concentrations in the state. Thus, he argued, the method "was simply not designed or intended to evaluate interference with maintenance in an attainment area like Vermont.

"It is for this very reason," said Peress, "that Vermont's petition relies primarily on real-world data in addition to model runs."

Another issue of concern for Vermont is the EPA's proposal to deny its petition because the state is in attainment of ozone limits and model runs do not predict future nonattainment. Peress called this reasoning "inconsistent with the requirements of Section 126." He added that Vermont disagrees with the EPA's contention that plans implemented under the SIP call will alleviate future ozone transport problems in the state, thereby satisfying the Section 126 petitions.

Further, he stated, "[T]he facts alleged in Vermont's petition are the basis of Vermont's interference-with-maintenance argument, and EPA has not provided any technical documentation demonstrating that this concern is unwarranted."

Peress concluded his comments by urging the agency to consider Vermont's technical support documentation before making any final ruling.

The Maine Petition. By contrast, the EPA proposes that portions of the Maine petition have merit, but would deny other claims by Maine. It notes that "some of the sources or source categories named in the petitions are not significantly contributing to nonattainment in [Maine]."

Maine's petition, according to the EPA's summary, named certain electric utilities and steam-generating units within 600 miles of its ozone nonattainment areas. All or parts of 14 states and the District of Columbia were included in the areas. The petition sought the establishment of a compliance schedule and emissions limitations for the sources, in a multi-state cap-and-trade NOx system.

Maine opposes several issues related to the EPA's handling of the SIP call and Section 126 petitions, according to Jeff Crawford of the Maine Department of Environmental Protection.

Noting how important it is for controls to be in place by May 2003 and the likelihood of implementation delays, Crawford said, "Maine opposes EPA's proposal to link denial of the 126 petitions with the submission of an approvable SIP revision." He expressed concern that a petition might be denied before a source actually implements controls, based on approval of the SIP for the state in which the source is located. Crawford suggested that such a result is "neither contemplated nor legally permitted under the Clean Air Act."

Another issue Crawford criticized is the agency's reliance on cost-effectiveness to define "significant contribution" to nonattainment of ozone limits, a practice he called "technically inappropriate and legally indefensible in the context of the Section 126 petitions." It is Maine's belief, he added, that Congress intended the rulings to be based solely on a source's air quality impacts.

"There's simply no evidence to support the contention that those sources whose emissions cannot be controlled through highly cost-effective control measures do not have a significant contribution," argued Crawford. Maine, however, supports consideration of cost effectiveness as it applies to determining an appropriate remedy, he said.

Concerning a cap-and-trade NOx system, Crawford said that while Maine supports the EPA's proposed program, the state has "reservations concerning substitution of emission reductions from unnamed sources if, in fact, it could lead to reduced emission reductions at the named sources." Such a practice, he suggested, could result in "fewer upwind controls and more transported emissions."

Finally, Crawford urged the EPA to consider attainment of ozone levels and maintenance of clean air under the newer, eight-hour standard. While he noted that Maine continues to use the one-hour standard, Crawford said that it is projecting nonattainment of the eight-hour standard in a number of counties.

"A failure by EPA to take the standard into account would be a gross elevation of form over substance, and would appear completely without justification," stated Crawford.

Upwind:

Midwest, Mining Industry Have Doubts

While many who spoke at the hearing expressed support for the EPA's work to reduce smog, some groups rejected claims of responsibility for ozone problems in petitioning states. Still others criticized the SIP call and proposals as approaches that are flawed, if not illegal.

Regional Interests. In remarks defending regions implicated by petitioning states, a representative of the Midwest Ozone Group questioned the entire premise of the Section 126 proposal, as well as the EPA's role.

David Flannery, an attorney for the MOG, cited the group's contention that the Section 126 proposal is fraught with errors. He added that "EPA seems to be more interested in ¼ advancing its own NOx emission reduction agenda than it is in being an objective decision-maker on the merit of pending petitions.

"The controls which EPA proposes to implement on sources located outside the Northeast Ozone Transport region will have virtually no impact, and certainly no significant impact, on air quality" in petitioning states other than Pennsylvania, said Flannery. And in the case of the Pittsburgh area, he said, "the emission reductions that are being proposed by EPA are much greater than are needed to achieve compliance with the one-hour standard there."

Rather than blaming outside sources, Flannery said, the petitioning states have an obligation to try first to improve air quality from within their own borders: "[T]he Clean Air Act also points to the petitioning states as having the primary responsibility to clean up their own air." If those efforts fail, he said, "then it may be appropriate for those states to turn upwind for additional reductions." But he added that no such conclusion can be reached at this point.

Further, Flannery said, "A review of the tarnished record of meeting the Clean Air Act requirements demonstrates that [the petitioning states] do not have clean hands with which to point the finger of culpability in the Midwest and Southeast." He noted that Connecticut, New York, Massachusetts and Rhode Island are behind in implementing mandatory measures under the CAA.

"[W]e find it puzzling that EPA would be in favor of a FIP to be implemented automatically to enforce the SIP call, when no such action has yet been taken with respect to any of the Section 126 petitioning states, even though they have missed statutory deadlines for years," said Flannery. He added that the MOG urges EPA not to adopt the FIP.

The Northeast Midwest Institute also has grave concerns about the EPA's smog-reduction plan, specifically concerning the federal NOx budget trading program upon which the ruling relies.

While the Institute applauds the "general idea of a market-based system," said Tina Kaarsberg, "we have serious qualms about the initial and annual allocation schemes that are proposed. We believe they would lock in the current, inefficient electric generation at the expense of efficient, cleaner generators."

Instead, she said, pollution reductions should be achieved by increased efficiency. "In our view, the most cost-effective way to reduce emissions is to use the market to reward those who produce the most electricity for the least NOx emissions," said Kaarsberg. "Thus, a perfect market-based NOx allocation would be to grant allocations weighted by the electricity generated per pound of the NOx emitted."

Mining Interests. Quinlan Shea of the National Mining Association attacked the "ivory-tower, economically damaging, condescending mentality that is pervading [the EPA and] particularly these air rules." Further, he said, the association questions the EPA's authority as it relates to the SIP call and both related proposals.

"The [SIP call] rulemaking process has been flawed, if not illegal. Hence, the Section 126 and FIP proposals are, in my opinion, the fruit of that poisonous tree, and they should be withdrawn," Shea said.

"NMA views EPA's NOx regulatory paradigm ¼ as a thinly veiled attempt to pressure states into adopting the agency's choice of control measures through its threat of immediately imposing a FIP on states whose SIP submissions do not conform precisely to the final SIP call," he continued.

"Conversely, available case law indicates the agency has limited discretion to disapprove SIPs, again, so long as the minimum requirements of the [CAA] are met," said Shea.

The NMA also has concerns about the output-based approach EPA is proposing for calculation of allowance allocations. "In effect, this approach could dramatically decrease the effective emissions rate required to be met by fossil fuel-fired units to far below the 0.15 pound per million Btu rate, while granting a windfall in terms of unneeded allowances to nuclear and hydro units," said Shea.

In his final comments, Shea addressed "the states whose rights and economies are about to be trampled on." To them he advised, "Just say no."

The complete text of the NOx SIP call and the two proposed actions may be accessed at www.epa.gov/airlinks. More background is available at www.epa.gov/ttn/oarpg/otagsip.html. F

Sidebar: Utilities Question SIP Call; AEP says costs would top $1B, Detroit Edison predicts power shortages during remediation.

AEP says costs would top $1B, Detroit Edison predicts power shortages during remediation.

American Electric Power. All of AEP's service territory - Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia - is affected by the EPA's ruling. AEP, which operates 19 coal plants, is "extremely disappointed with EPA's decision to ignore the sound alternatives proposed by 13 states and a coalition of electric utilities and other stakeholders," according to Dale Heydlauff. Heydlauff is AEP's vice president of environmental affairs.

The utility says it will use selective catalytic reduction, or SCR, technologies to achieve emissions goals for its facilities. Spokeswoman Deb Strohmaier says that to meet the EPA's goal of 85 percent reduction, AEP would need to put SCR technologies on 75 percent of its coal-fired units. That would mean a capital cost of $1.3 billion to $1.6 billion. Customers, therefore, wouldn't save as much as they expected from a restructured electricity industry, Strohmaier added. It's likely that litigation will follow this issue, she predicted.

Virginia Power. The utility agrees with the government that NOx emissions must be reduced, but the company would have preferred to do it in stages, spokesman Dan Genest says. Utility officials preferred Gov. James Gilmore's proposal, which suggested that utilities be responsible for 65 percent of the state's reduction target. Subsequent modeling would have recommended further emission reductions, if needed. Under the EPA's plan, utilities in Virginia will be responsible for 85 percent of the needed reductions. Genest echoes AEP's disappointment that even though the EPA asked to see alternate emission reduction plans, the plans submitted by governors from 13 of the affected states weren't really given serious consideration.

Virginia Power expects to use low-NOx burners as well as SCR technologies on some plants to meet its state's reduction goal.

The World Energy Congress, which met in Houston in September, recommends that nuclear power "should play a major role in contributing to electricity provision and in strategies to combat global warming." So does Virginia Power have any plans to increase its reliance on nuclear power? "Everyone here wishes we could," Genest says. "But the political and economic atmosphere isn't right for building nuclear plants." Nuclear accounts for 34 percent of the fuel mix, while coal is 40 percent.

Pepco. Potomac Electric Power Co. officials say the ruling has no effect in the District of Columbia because there are no affected plants in D.C. The 3 percent increase in allowable emissions (see table, Affected Jurisdictions) can be attributed to a natural, expected increase in generation during that time period. Four of the utility's six generating plants, however, are located outside the District, in Maryland and Virginia, and emissions from those plants, which burn coal primarily, are listed in the table under those respective states.

Detroit Edison. The company's environmental management and resources director, Skiles Boyd, predicts that the Midwest will have power shortages and perhaps outages while affected utilities install SCR units. Installation of SCRs at one unit would result in an outage of nearly five months, Boyd says.

"When you get that occurring all over the Midwest," he says, "you can imagine there will be difficulties." The retrofit expense for Detroit Edison? Boyd estimates $400 million in capital costs and $24 million annually in operating costs.

Commonwealth Edison Co. expects similar capital expenses to comply with the EPA's emissions ruling. The Chicago utility's situation is complicated, however, by the anticipated sale of its coal-fired generation units.- LMR

Regina R. Johnson is the managing editor of Public Utilities Fortnightly. Lori M. Rodgers is a contributing editor.

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