EPA Releases Draft Final Rule To Revise Part 70
        Regulations, But Strong Negative Reaction Leads
            To New Round of Stakeholder Discussions
                                
 On May 14, EPA made publicly available
a draft Part 70 rulemaking package for
review and comment by interested parties. 
The rulemaking package includes a proposed
scheme for making Title V permit revisions as
well as other proposed modifications to
portions of the Part 70 regulations.

     The draft final rule's treatment of the
permit revision process has given rise to
numerous concerns from both industry
representatives and state and local agency
officials.  This most recent draft is viewed as a
significant step backwards from EPA's August
1995 supplemental proposal to revise the Part
70 regulations. 

     We summarize below the principal
features of the permit revisions process set
forth in the draft rule.  We also discuss two of
the many other regulatory modifications
contained in the draft rule   revisions to the
definitions of "major source" and "potential to
emit."

                  The Title V Permit Revisions Process         

     EPA explains in the draft preamble
that it intends to utilize a three-tiered scheme 
under which state permitting authorities are to
process proposed Title V permit changes.  This
scheme is similar in certain respects to schemes
previously proposed by the Agency but also
contains significant differences.  Under the
draft rule, the three tiers would be "significant
permit revisions," "minor permit revisions,"
and "expedited permit revisions." 

     Significant permit revisions must
satisfy the most complete procedural
requirements for permit revisions: (1) public
notice and an opportunity for public comment
and a hearing; (2) an opportunity for EPA
review and an objection within 45 days; and
(3) an opportunity to petition EPA to object
to the permit.  Examples of significant permit
revisions are:  nonattainment NSR or PSD
changes; major netouts; MACT
determinations under section 112(g), section
112(j), or section 112(i)(5); significant
monitoring or testing changes; equivalent SIP
limits; substitute section 112(l) limits; and
Title V permit streamlining changes.

     Minor permit revisions essentially
consist of those changes which do not qualify
either as significant revisions or expedited
revisions.  They would include nonmajor
netouts, PTE limits that avoid major source
requirements, and other minor NSR changes
that are not eligible for the expedited appeals
tier.   Under the draft rule, a public comment
period of a minimum of 21 days would be
required.  If adverse comments are not
received within the public comment period,
EPA will deem that EPA review is complete at
the end of that public comment period. 
However, if adverse comments are received,
then EPA will have the full 45-day period in
which to object to the permit (unless it earlier
provides in writing that it does not object to
the permit).  Thus, if the state has adopted this
approach and no public comments are received
during the 21-day comment period, the permit
could be issued within 21 days of public
notice.

     Expedited permit revisions consist of
three types of changes: (1) notice-only
revisions (revisions that do not require any
source-specific determinations and can be
made without prior approval of the permitting
authority); (2) de minimis revisions; and (3)
administrative amendments.   De minimis
changes are generally described as changes
which involve little or no judgment or have
trivial environmental impacts.  Expedited
permit revisions may be made without
satisfying any of the procedural requirements
applicable to the other two tiers.

     From industry's perspective, the
primary problem with the permit revisions
scheme is that the vast majority of permit
changes will likely fall into the minor permit
revisions tier and, as a result, be subject to a
minimum 21-day comment period before the
change can be made.  Because sources will
frequently need to make plant changes quickly
in order to remain competitive in the market
place, such a mandatory review period could
cripple those sources.  For plant changes that
must be made quickly, sources need either to
be able to make changes without review at all
(the expedited revision tier) or be able to
utilize a post hoc review process under which
most changes could be made immediately  
subject to subsequent public comments and
EPA review.

     A memorandum to stakeholders from
Lydia Wegman, Deputy Director of the Office
of Air Quality Planning and Standards, which
was released as part of the draft rulemaking
package, discussed three options that EPA is
considering to address concerns about delays
resulting from the minor permit revision
process.  However, industry representatives
and state and local agency officials have made
clear that these options are far from adequate
to create a workable permit revisions scheme.

    One option would expand the current
     de minimis category to include sources
     that wish to establish certain types of
     PTE limits.  Such PTE limits would be
     considered de minimis if they involve
     "minimal judgment" and limit
     emissions to less than 50 percent of
     major source thresholds.  

    A second option would allow for post
     hoc review by the public and EPA for
     changes to create certain types of PTE
     limits.  Under this option, the permit
     revision could be made prior to public
     and EPA review.  However, this
     option could not be used if a
     "substantially high degree" of
     emissions reductions used to limit
     potential emissions come from the use
     of control devices or if the source's
     PTE limit is "significantly close" to the
     major source threshold.  States would
     define those terms in their Part 70
     programs.

    The third option would expand the de
     minimis category beyond the first
     option by either raising the amount by
     which sources must limit their
     potential emissions to above 50
     percent of major source thresholds, or
     by relaxing the "minimal judgment"
     requirements.

     EPA recently indicated that, in light of
the extensive concerns raised about the permit
revisions approach in the draft rule, it would
initiate further discussions among stakeholders
to attempt to reach a more acceptable
approach.  Those discussions, which will
involve a small number of stakeholders, are
currently under way.

                  Revised Definition of "Major
                   Source" to Take Account of
                      Support Facilities  

     EPA intends to modify the Part 70
definition of "major source" to address the
circumstances under which sources should be
aggregated for Title V purposes.  In its August
1994 proposal, EPA proposed to amend the
definition to make clear that any stationary
source that supports another source must be
considered a support facility and part of the
same source regardless of whether it has the
same two-digit SIC code.  It also proposed to
provide that a facility would automatically be
considered a support facility if more than 50
percent of its output is dedicated to the
activity it supports.

     In the draft final rule, EPA indicates
that it still intends to incorporate the support
facility concept into the regulatory language. 
However, it plans to drop the 50 percent
requirement and instead allow the states to
exercise their discretion regarding whether a
facility is a support facility based on specified
criteria and other factors.

                    The "Potential to Emit"
                           Definition

     In the draft preamble, EPA notes that
the Part 70 definition of "potential to emit"
was remanded and vacated by the U.S. Court
of Appeals for the District of Columbia
Circuit in Clean Air Implementation Project v.
EPA, Nos. 96-1224 et al. (June 28, 1996),
because the definition included the
requirement that limits on a source's PTE
must be federally enforceable.  EPA explains
that it is conducting a separate rulemaking to
address the PTE definition in response to that
decision and other judicial decisions addressing
the PTE definition in the context of the
section 112 program and the NSR program. 
In the draft rule, EPA would change the
definition so that limitations on a source's
PTE will be considered if they are enforceable
"by the appropriate air pollution control
agency" rather than "by the Administrator" as
the vacated provision read.  The preamble
states that this language change is intended to
be consistent with recent EPA guidance
documents stating that limitations will be
considered if they are "federally enforceable or
legally and practicably enforceable by a State
or local air pollution control agency."  Thus,
EPA would seek to continue the status quo
pending completion of the PTE rulemaking
proceeding.  

Clean Air Implementation
Project Files Brief Before
Supreme Court in Citizen
Suit Case

On May 2, 1997, the Clean Air
Implementation Project (CAIP) filed an
amicus curiae brief before the United States
Supreme Court in The Steel Company v.
Citizens for a Better Environment, No. 96-643
(S.Ct.), a case arising under the citizen suit
provision of the Emergency Planning and
Community Right-to-Know Act (EPCRA). 
Although the case involves EPCRA, the
Supreme Court's decision may have a
profound impact on citizen suits in general
and Clean Air Act citizen suits in particular.

     The principal issue before the Supreme
Court is whether the company is liable for
civil penalties in a citizen suit based on wholly
past violations, i.e., violations which had been
corrected prior to the time that the complaint
was filed.  The case arose when Citizens for a
Better Environment filed a citizen suit seeking
civil penalties against the company because it
had allegedly failed over an extended period to
file two different reporting forms required by
EPCRA.  The federal district court ruled that
the company was not liable for penalties
because the company had corrected the
reporting violations and the EPCRA citizen
suit provision did not extend to such past
violations.  However, the U.S. Court of
Appeals for the Seventh Circuit reversed the
district court's decision and held that the
company was liable for civil penalties even
though it had corrected the violations prior to
the time that the complaint was filed.

     One reason that the outcome of the
case may be especially important for purposes
of the Clean Air Act is that the Seventh
Circuit, in reaching its decision, relied in part
on Congress' amendment of the Clean Air Act
citizen suit provision in 1990.  Among other
things, Congress added the phrase "to have
violated (if there is evidence that the alleged
violation has been repeated)" to the prior
version of the Clean Air Act citizen suit
provision.  (The prior version of that
provision stated that a citizen suit could be
brought where a person "is alleged to be in
violation"   language that was retained by
Congress.)  The court of appeals stated that the
amendment "permit[ted] citizen enforcement
actions for past violations, yet left the notice
provision intact."  According to the court of
appeals, the fact that Congress, in its view,
authorized citizen suits under the Clean Air
Act for past violations that had been corrected,
but had not altered the provision requiring
that a plaintiff provide 60 days' notice to the
alleged violator before filing suit, undercut one
of the bases for the Supreme Court's decision
in Gwaltney v. Chesapeake Bay Found., Inc., 484
U.S. 49 (1987).  In Gwaltney, the Supreme
Court had relied in part on an essentially
identical notice provision to conclude that the
"to be in violation" language in the Clean
Water Act's citizen suit provision applied to
"ongoing violations" of that statute, not
wholly past violations.

     CAIP's amicus curiae brief addressed a
number of points concerning citizen suits
under the Clean Air Act as well as the
environmental statutes in general.  We
summarize some of the key points below. 

     First, the brief refuted the conclusion
of the Seventh Circuit that Congress intended,
by amending the Clean Air Act's citizen suit
provisions in 1990, to authorize citizen suits
under the Act for wholly past violations. The
brief demonstrated that the amended provision
should instead be interpreted as authorizing
actions for civil penalties only where
violations are ongoing and injunctive relief is
necessary to address a real noncompliance
problem.  

     Second, the brief pointed out that, if
the Seventh Circuit's reading of the citizen suit
provision were accepted by other courts, there
is the potential for an avalanche of citizen suits
seeking civil penalties in situations where
sources have already corrected violations. 
Moreover, under EPA's recently promulgated
"credible evidence" rule, performance that
constituted compliance in the past may now
be subject to enforcement actions as
noncompliance, thereby greatly increasing the
possibilities for citizen suits involving wholly
past violations.  As a consequence, there is a
staggering potential for frivolous or disruptive
citizen suit actions where EPA and the states
intend to exercise prosecutorial discretion.

     Third, CAIP's brief explained that the
Supreme Court's Gwaltney decision has been
misapplied in many citizen suit cases. 
Although the Court's opinion indicated that
citizen suits seeking civil penalties are
permissible only where a real noncompliance
problem exists, district courts have frequently
interpreted the opinion's reference to
"intermittent" violations as authorizing citizen
suits even where injunctive relief to correct a
compliance problem is unnecessary.

     Finally, the brief demonstrated that
interpreting the Clean Air Act citizen suit
provision to authorize the recovery of civil
penalties for wholly past violations would run
afoul of the standing requirements of Article
III of the Constitution.  In particular, a citizen
suit plaintiff seeking to compel a company to
pay civil penalties based on such violations
would be unable to show either that it was
suffering an "injury-in-fact" or that the
payment of civil penalties would redress any
alleged grievance of the plaintiff.

     Briefing in the case will be completed
this summer.  It is expected that the Supreme
Court will hear oral arguments in the case
sometime this fall.  


Illinois State Court
Overturns Title V Permit
Decision

In one of the first state court decisions
involving a Title V permit appeal, the
Illinois Court of Appeals has reversed a
decision of the Illinois Pollution Control
Board interpreting the term "major source" for
Title V permitting purposes.  Color
Communications, Inc. v. The Illinois Pollution
Control Board, 1997 WL 280232 (Ill.App. Ct.
4 Dist. May 28, 1997).  As described in an
earlier Washington Report article, the Board
had held that two plants located a block apart
constituted a single major source for purposes
of the state Title V program, even though the
plants fell under different Standard Industrial
Classification (SIC) codes.  See January 1997
Washington Report, pp. WR-109-112.

     The court's decision is particularly
significant since the three-judge panel read the
applicability provisions of the state statute
literally and gave no weight to EPA's
interpretation of essentially identical language
in EPA's Part 70 permit regulations.

     The case arose when the company filed
a Title V permit application for only one of
the two plants and maintained that the other
plant was a separate facility whose emissions
did not trigger Title V requirements.  The
state permitting agency contended that the
plants must be treated as one source for Title
V purposes.  The company appealed to the
Board, which has jurisdiction over Title V
appeals.  

     In its decision, the Board ruled, among
other things, that the two plants satisfied the
following three requirements under the state
statute's definition of "source" (which
corresponds to the federal definition of "major
source").  First, the emission sources must be
located on property that is "contiguous" or
"adjacent."  Second, the emission sources must
be under the common control of the same
person.  Third, the sources must belong to the
same "major industrial grouping," i.e., the
sources must "all have the same two-digit [SIC]
code."   Although the two plants did not have
the same two-digit SIC code, the Board ruled
that they should be regarded as belonging to
the same major industrial grouping because
one plant constituted a support facility for the
other plant.  The Board relied on EPA's so-called "support facility concept," which is set
forth in certain regulatory preambles.  Under
this interpretation, both a primary facility and
its support facility are classified as determined
by their primary product regardless of 
whether the support facility has a different
two-digit SIC code.  After analyzing EPA's
discussion of the support facility concept, the
Board concluded that it would give deference
to EPA's interpretation of the essentially
identical federal language.

     However, on appeal of the Board's
decision, the state court of appeals held that
the plain language of the state statute   not
EPA's interpretation of the federal regulations
  controlled the question of what constitutes
a "source" for purposes of the state's Title V
program.  The court stated that, where the
statutory language is clear, "a court is not at
liberty to depart from the plain language and
meaning by reading into it limitations or
conditions that the legislature did not express." 
Because the state statute provided that sources
must have the same two-digit SIC code
without mentioning the support facility
concept, the court ruled that the Board had
erred in concluding that the two plants
constituted a single source for Title V
purposes.

     Since the court's ruling on the major
industrial grouping issue was dispositive, the
court expressly did not address the separate
issue of whether the two plants were
"adjacent."  

EPA's Environmental
Appeals Board Rejects
Challenges to Two PSD
Permits

In separate decisions, EPA's Environmental
Appeals Board (EAB) recently upheld the
issuance of PSD permits to two companies
seeking to construct projects involving
cogeneration units.  In each instance,
petitioners unsuccessfully raised numerous
issues in an effort to forestall project
construction.  We summarize the most
significant holdings of the Board in each case
below.

                 The EcoEl‚ctrica Permit Appeal

     On April 8, 1997, the EAB denied two
petitions challenging Region II's issuance of a
PSD permit to EcoEl‚ctrica, L.P., to install
and operate a cogeneration facility in Puerto
Rico and to construct a liquefied natural gas
terminal to receive fuel deliveries for the
facility.  In re EcoEl‚ctrica, L.P., PSD Appeal
Nos. 96-8 and 96-13.  The petitioners were an
individual who advocated energy conservation
measures and a citizen group which opposed
construction of the project.  The Board's
principal holdings were the following:

    The Region did not abuse its discretion
     in exempting the company from
     preconstruction ambient air quality
     monitoring requirements, because the
     facility's own projected air quality
     impacts were less than de minimis
     levels for all relevant pollutants.  The
     regulations provide for an exemption
     from the monitoring requirements in
     such instances.

    The Region acted properly by not
     requiring EcoEl‚ctrica to perform
     multi-source monitoring, i.e.,
     analyzing the combined impacts from
     the existing facilities near the proposed
     project.  EPA's Draft NSR Workshop
     Manual calls for such modeling only
     when an applicant's modeled air
     quality impacts exceed the "significant
     ambient threshold levels" set forth in
     the Manual.

    The Region adequately considered the
     environmental justice impacts of the
     permit.  It conducted an analysis of the
     area where most of the emission
     impacts would result and concluded
     that the median income levels in that
     area were actually higher than those
          elsewhere in the vicinity.
    The Region did not err in deferring to
     the judgment of Puerto Rican officials
     regarding whether there is a need for
     the project.

                   The Kawaihae Permit Appeal

     On April 28, 1997, the EAB denied
review of a PSD permit issued by the Hawaii
Department of Health (DOH) to Kawaihae
Cogeneration Partners (KCP) to construct a
cogeneration facility.  In re Kawaihae
Cogeneration Project, PSD Appeal Nos. 96-9 et
al.  The permit was challenged both by the
Hawaii Electric Light Company (HELCO)
and by four individual petitioners.  We
summarize the most significant rulings of the
Board below:

    The EAB rejected HELCO's
     arguments that the DOH, in
     determining that selective catalytic
     reduction (SCR) constituted BACT for
     controlling NOx emissions, had failed
     to consider that the SCR's ammonia
     system is supposedly susceptible to
     catastrophic toxic vapor releases.  The
     EAB concluded that there was no
     evidence that any facility utilizing the
     SCR technology had ever had such an
     event occur and that DOH had
     appropriately evaluated the risks from
     use of the technology.  In addition, the
     EAB rejected the individual
     petitioners' assertions that SCR is an
     unproven technology that was not
     adequately studied during the permit
     proceeding.

    Although HELCO contended that the
     permit's emission limits for SO2, PM,
     CO, and NOx were erroneously based
     on an improper modeling technique
     (merged plume dispersion modeling),
     the EAB ruled that HELCO had not
     raised this argument during the public
     comment period and therefore could
     not raise it on appeal.

    The EAB upheld DOH's handling of
     emissions baseline studies and
     meteorological studies against claims
     that the studies had been inadequately
     reviewed.

    In response to petitioners' contentions
     that an Environmental Impact
     Statement (EIS) should have been
     prepared under the National
     Environmental Policy Act, the EAB
     noted that actions under the Clean Air
     Act (including the issuance of PSD
     permits) are exempt from any
     requirement to prepare an EIS.

    The EAB found that petitioners had
     failed to support their allegations that
     the permit would cause the generation
     of  "excessive" amounts of sulfur,
     ammonia, lead, and "other dangerous
     chemicals" and that it would violate
     international agreements on global
     warming.

    The EAB ruled that it lacked
     jurisdiction to review a permit
     condition that required the permittee
     to submit a risk management plan for
     handling ammonia.  Petitioners
     maintained that the risk
     management plan would
     constitute a permit
     modification that should be
     subject to public review and
     comment.  However, the EAB
     determined that the permit
     condition addressed Title V
     operating permit requirements,
     not PSD permit requirements. 
     Because the condition was a
     state Title V permit condition,
     the EAB ruled that it could not
     be reviewed in a PSD permit
     review proceeding.  

Spring Network Conference
Focuses on Negotiation of
Title V Permit Terms

The Spring 1997 Conference of the Clean
Air Act Information Network, which
was held in Washington on May 8 and 9,
focused primarily on Title V permitting issues
with a particular emphasis on the negotiation
of reasonable permit terms.  Both the plenary
sessions and the workshops addressed the legal
and practical considerations which should
guide sources in seeking to obtain permit
terms setting forth compliance obligations that
are both workable and clear.

     A highlight of the Conference was a
mock negotiation session involving a panel of
Title V experts from EPA, the states, and
industry.  The panel members engaged in role-playing to negotiate whether or not certain
proposed permit terms should be included in
the hypothetical Title V permit being
considered.   Panel members represented the
interests of permit applicants, state permitting
authorities, EPA permit reviewers, or
environmental groups, respectively, in
discussing the proposed terms.  The
negotiation sessions provided important
insights into the dynamics of negotiating
permit terms and revealed what some of the
likely points of agreement or disagreement
will be among the different parties involved in
the process.  At the end of the negotiation
session, Conference participants were able to
engage in a question-and-answer session with
panel members.

     The materials provided to Conference
attendees set out the specific permit terms that
the permit applicants in the mock negotiation
session were seeking to have included in their
final Title V permit.  In each case, the term
that was being considered had already been
included in an actual draft Title V permit. 
The terms included the following: 

    Exclusive Method for Determining
     Compliance.  The permit term
     expressly provides that the monitoring
     methods specified are the exclusive
     methods by which compliance with
     numerical limits in the permit can be
     determined.

    Use of CEMS Data.  To take into
     account normal emissions variability
     when continuous emissions
     monitoring or continuous opacity
     monitoring data are available, the term
     provides that the source is deemed to
     be in compliance if less than 5% of the
     continuous monitoring measurements
     for a reporting period exceed the
     relevant numerical emission limit.
    Sufficient Periodic Monitoring.  The
     term sets forth periodic monitoring
     requirements based on the historical
     probability of exceeding the imposed
     limitation and the potential magnitude
     of an exceedance. 

    
Startup and Shutdown Provision. 
The term provides that emissions in
excess of permit limitations as a result
of startup or shutdown conditions are
not violations of those limitations.

    Emergency/Malfunction Provision. 
     The term makes clear that, where a
     source's emissions will necessarily
     exceed emission limitations during
     malfunction conditions, such
     conditions constitute an affirmative
     defense to an enforcement action for
     noncompliance with the limitations.

    Data Availability.  The term provides
     that monitoring and recordkeeping
     data for at least 75% of either the
     averaging periods or the total required
     data are sufficient. 

    General Reporting Requirements. 
     The term makes clear that there is an
     important distinction between a
     "violation" and a "deviation" and
     provides that deviations will be
     reported in the semiannual report
     unless the deviation results from a
     malfunction, in which case it is to be
     reported within five working days.

     Another key topic addressed in the
Conference was how sources should address
the implications of  EPA's "credible evidence"
rule for potential enforcement liability. 
Because the rule would authorize state and
federal enforcement agencies, as well as
citizens, to rely on any "credible evidence" to
prove Clean Air Act violations, one effect of
the rule would be to change the existing
method for determining compliance contained
in many federal and state standards.  Panel
members and Conference participants
addressed the implications of the rule in the
context of Title V permitting as well as in the
context of EPA's overall enforcement strategy.