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EPA - Environmental Appeals Board: TVA's Non-"Routine" Repairs are Subject New Source Review Permitting

December 1, 2000

The Environmental Protection Agency's (EPA) Environmental Appeals Board (EAB) has determined that major plant repairs that are done infrequently and result in "significant" air emissions increases are not exempt from the requirement to obtain a pre-construction "New Source Review" permit under the Clean Air Act's Prevention of Significant Deterioration (PSD) and "nonattainment" rules.

The PSD rules govern pre-construction permitting in locations where federal air quality standards are being met. The "nonattainment" rules apply in locations where air quality standards are not met.

The Tennessee Valley Authority (TVA), a federally-owned utility that operates power plants in the southeastern United States, conducted fourteen major equipment repair and replacement projects at nine of TVA's coal-fired power plants between 1982 and 1996. Some of the replacement projects included entire boilers or heat exchangers. All nine of TVA's plants were originally built between the early 1950s and the early 1970s.

TVA did not obtain Clean Air Act pre-construction permits before proceeding with the repair projects. TVA believed that it was exempt from pre-construction permit requirements under an exclusion in EPA's rules that applies to routine maintenance and repair projects.

In 1999, EPA took enforcement action against TVA, contending that many of these repairs and replacements were illegal, violating the Clean Air Act. EPA alleged that TVA should have determined whether the projects would cause significant emissions increases, and then the utility should have obtained the necessary pre-construction permits if the emissions went up more than the allowed amounts.

EPA ordered TVA to obtain the necessary pre-construction permits and install costly pollution controls in the plants, employing the "Best Available Control Technology" (a PSD requirement) or "Lowest Achievable Emission Rate" achieving (a nonattainment requirement) pollution control equipment. In addition, EPA ordered TVA to audit its power plants to find any other instances where repair projects were illegally conducted without permits. The TVA defended its actions, arguing that all of its maintenance projects were entitled to the "routine maintenance, repair, and replacement" exception to New Source Review permits under the PSD and nonattainment rules.

TVA appealed EPA's decision to order TVA to install the pollution controls to the Environmental Appeals Board (EAB). After extensive review of evidence and testimony by EPA, representatives of TVA, and several experts, the EAB agreed with EPA that, for the most part, TVA violated the Clean Air Act and would have to comply with EPA's compliance order.

The "Routine Maintenance, Repair, and Replacement" Exception

Under the Clean Air Act, Congress required owners and operators who build or modify their plants to install state-of-the-art pollution controls if those projects would produce increases in air pollution.

The EPA rules that implement the Clean Air Act allow for an exception to this requirement for certain changes to emissions sources even if the changes cause increases in pollutant emissions. The definition of "major modification" of an emissions source triggering a PSD or nonattainment pre-construction permit requirement under EPA's rules is "any physical change in or change in the method of operation of a major stationary source that would result in a significant net emissions increase of any pollutant subject to regulation under the Act." 40 C.F.R. § 52.21(b)(2)(i).

Under the PSD and nonattainment rules, a "physical change" leading to the permit requirement does not include a "routine maintenance, repair and replacement" project.

According to recent EPA policy guidance documents, there are four factors that EPA weighs in deciding whether a maintenance, repair, or replacement project is "routine" enough to qualify for the "routine maintenance, repair and replacement" exception:

1. The nature and extent of the project;

2. The purpose of the project;

3. The frequency with which the particular type of maintenance, repair or replacement project is usually done; and

4. The cost or the project.

EPA also considers "other relevant factors" if they are helpful in making a determination.

Based upon considering these factors, EPA determined that the TVA maintenance projects were not really routine and did not qualify for the exception. EPA considered several facts significant in concluding that all of the four factors pointed to TVA's projects being non-routine.

Applying the Four-Factor Test

The nature and extent of the project.
EPA considered whether the types of replacements done by TVA were replacements of major components important to the operation of the power plants.

· In the projects complained of by EPA, the agency characterized the replacements as "massive," sometimes including entire boilers comprised of many miles of tubing. EPA fount it significant that routine boiler or heat exchanger tubing repairs would involve fixing or replacing only a few sections of tubing and not "miles of tubing."

· Unlike routine maintenance projects at the power plants that could be completed with the plant's own maintenance crews, the challenged replacements required the use of corporate engineering and construction staffs.

· The major TVA projects required years of planning compared with routine maintenance projects. Truly "routine" maintenance projects could be completed by TVA plants during regularly scheduled maintenance outages that took place every 18 months. Moreover, the projects complained of by EPA required TVA's Board of Directors' approval whereas normal maintenance projects could be approved at the plant level.

· Most routine plant maintenance shutdowns lasted only a few days at TVA's power plants. The "major" maintenance projects required plant shutdowns lasting from several months to more than a year.

The purpose of the project. EPA normally considers routine maintenance to be the type of maintenance that is required to keep a facility running. EPA does not consider projects that enhance a facility's operation or lengthen its life to qualify as "routine maintenance, repair and replacement." According to EPA, increases in operating hours, lengthened plant operating life, and improved operating efficiency are objectives that go beyond the scope of "routine maintenance, repair and replacement."

EPA complained that the purposes of TVA's projects was to "extend the life of the unit in question by as much as twenty years" and not to simply keep the plants running. EPA also contended that the TVA projects in question were all "capital projects" as opposed to "routine maintenance, repair and replacement" activities that were paid for out of plant operating budgets.

TVA's own "Capitalization Policy" classified capital projects as those that leave the repaired equipment in "better condition" than when originally installed. Thus, EPA did not consider the "routine maintenance, repair and replacement" exception applicable to the TVA projects.

The frequency with which the particular type of project is done. EPA considered it significant that the replacements complained of were not done frequently. Thus, while a true "routine maintenance, repair and replacement" project might be done every time a plant shuts down for scheduled maintenance, or perhaps, every few years, projects that are implemented only once or twice in the lifetime of a plant are not considered by EPA to be "routine."

The cost of the project. All of the projects complained of by EPA were very costly. TVA's projects ranged from $2.6 million to $57.1 million. Expenditures of this magnitude were never approved at the plant level, but required Board of Directors approval. Moreover, these projects approached or even greatly exceeded the normal plant maintenance budgets.

The Environmental Appeals Board analyzed EPA's use of the four "routine maintenance, repair and replacement" exception factors to determine whether they were reasonable in light of the objectives of the Clean Air Act. The EAB agreed with EPA's contention that the "routine maintenance, repair and replacement" exception is a very narrow exception to the definition of "physical change" that could be considered a "major modification" subject to PSD and nonattainment New Source Review permitting. Thus, the EAB considered EPA's four-factor test a "reasonable" approach to implementing a "narrow" exception to the PSD and New Source Review requirements.

With respect to the specific allegations against TVA, the Environmental Appeals Board found that, for all of the projects, TVA was not entitled to the "routine maintenance, repair and replacement" exception. In certain cases, however, the EAB found that the modifications did not cause "significant net emissions increases" of all pollutants that EPA complained of.

However, in all of the TVA projects that EPA challenged, some pollutant emissions did increase significantly as a result of the plant modifications. Thus, the Environmental Appeals Board found EPA's enforcement actions against TVA justified for all of the nine TVA facilities for failing to obtain pre-construction permits and installing required pollution controls.

In re Tennessee Valley Authority, EPA EAB CAA No. 00-6, Sept. 15, 2000.

This article was prepared by Stuart J. Weiss, an associate in our Environmental Department, and previously appeared in the December, 2000 edition of the Michigan Environmental Compliance Update, a monthly newsletter prepared by the Environmental Department and published by M. Lee Smith Publishers.