98102DR4.PDF

ILLINOIS POLLUTION CONTROL BOARD

January 21, 1999

PANHANDLE EASTERN PIPE LINE

COMPANY,

Petitioner,

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY,

Respondent.

)

PCB 98-102

(Permit Appeal - Air)

ERIC E. BOYD AND SUSANNAH E. SMETANA, OF SEYFARTH, SHAW,

FAIRWEATHER, AND GERALDSON, AND PHILLIP S. DEISCH, OF PANHANDLE

EASTERN PIPELINE COMPANY, APPEARED ON BEHALF OF PETITIONER; and

ROBB LAYMAN AND DENNIS BROWN, OF THE ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY, APPEARED ON BEHALF OF RESPONDENT.

OPINION AND ORDER OF THE BOARD (by K.M. Hennessey):

Petitioner Panhandle Eastern Pipeline Company (Panhandle) is a natural gas pipe line

transmission company. It operates a compressor station in Glenarm, Sangamon County,

Illinois. At the Glenarm Station, Panhandle recompresses natural gas to ensure that it

continues to move along the pipeline. Panhandle uses a series of compressor engines to

recompress the natural gas. These engines emit nitrogen oxides (NO

). Panhandle has a

permit from the Illinois Environmental Protection Agency (Agency) to emit 461.3 tons of NO

per year

In 1997, Panhandle filed a permit application with the Agency to revise the permit. In

that permit application, Panhandle sought to increase the emission limit in its permit and to add

emission controls to two compressor engines. The Agency denied the permit. Panhandle now

asks the Board to order the Agency to issue the requested permit.

The Board affirms the Agency’s denial of the permit. The Board finds that Panhandle

did not prove that its operations would not violate the Environmental Protection Act (Act), 415

ILCS 5/1

et seq.

(1996), if the Agency issued the requested permit. Accordingly, the Board

finds that the Agency properly denied the permit.

PROCEDURAL MATTERS

On January 28, 1998, Panhandle filed a petition for review of the Agency’s December

24, 1997 denial of Panhandle’s permit application. On February 5, 1998, the Board accepted

this matter for hearing. The Agency filed the administrative record of the permit application

on February 23, 1998.

Hearing Officer Kathleen Crowley held a hearing in this matter on October 21 and 22,

1998.

At hearing, the hearing officer granted two agreed motions to supplement the

administrative record.

Panhandle presented three witnesses and the Agency presented two

witnesses. Panhandle offered ten exhibits, nine of which were admitted (Pet. Exh. 1-8, 12).

The hearing officer accepted the other Panhandle exhibit (Pet. Exh. 9) as part of an offer of

proof. The Agency offered two exhibits, neither of which were admitted (Resp. Exh. 1-2).

The hearing officer accepted these two Agency exhibits as part of an offer of proof.

The Board rejects both Panhandle’s and the Agency’s offer of proof because each of the

exhibits (Pet. Exh. 9 and Resp. Exh. 1-2) was prepared after the date of the Agency’s permit

denial and thus the Agency could not have considered them when it made its permit

determination. See Alton Packaging Corp. v. Illinois Pollution Control Board, 162 Ill. App.

3d 731, 738, 516 N.E.2d 275, 280 (5th

Dist. 1987); American Waste Processing v. Illinois

Environmental Protection Agency (October 1, 1992), PCB 91-38, slip op. at 2 (refusing to

supplement the record with documents not available at the time of the Agency’s permitting

determination).

Panhandle filed a posthearing brief on November 5, 1998. On November 13, 1998,

the Agency filed a response brief, along with a motion to file the brief

instanter

. Panhandle

did not object to the motion, and the Board grants the motion. On November 17, 1998,

Panhandle filed a reply brief.

REGULATORY FRAMEWORK

Central to this permit appeal is whether Panhandle is subject to the regulations for the

Prevention of Significant Deterioration (PSD) of air quality and if so, whether it has complied

with those regulations. The Board briefly outlines the PSD program before turning to its

findings of fact.

The federal Clean Air Act established the PSD program to prevent significant

deterioration of air quality in areas with air quality that meets or exceeds the National Ambient

The administrative record is cited as “R. at _.”

The transcript of the hearing is cited as “Tr. at _.” Panhandle’s hearing exhibits are cited as

“Pet. Exh. _;” the Agency’s hearing exhibits are cited as “Resp. Exh. _.”

The supplement to the administrative record is cited as “Supp. at _.”

Panhandle’s first brief is cited as “Pet. Br. at _;” the Agency’s response brief is cited as

“Resp. Br. at _;” Panhandle’s reply brief is cited as “Reply Br. at _.”

Air Quality Standards (

i.e.

, “attainment areas”). See 42 U.S.C. §§ 7470-7492. Under

Section 165 of the Clean Air Act, 42 U.S.C. § 7475, the United States Environmental

Protection Agency (USEPA) promulgated regulations at 42 C.F.R. § 52.21 to implement the

PSD program. The Agency administers the federal PSD program under a delegation

agreement with USEPA. See 46 Fed. Reg. 9580, 9582, 9584 (January 29, 1981).

The PSD rules protect against the degradation of air quality in attainment areas by

imposing various requirements on new and modified major stationary sources of regulated

pollutants. Generally, these requirements are imposed upon projects that, based on their

potential emissions, constitute the construction of a new “major stationary source” or a “major

modification” of an existing major stationary source.

A “major modification” 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).

The pollutant at issue in this case is NO

. As explained below, a net emissions increase

for NO

is “significant” if it equals or exceeds 40 tons per year (TPY). 40 C.F.R. §

52.21(b)(23)(i). Therefore, a major source that undertakes a major modification with a net

emissions increase of NO

of 40 TPY or more is subject to the PSD rules.

Among other things, the PSD rules require a source to demonstrate that it will use the

best available control technology (BACT) to control emissions. See 40 C.F.R. 52.21(j).

BACT means:

an emissions limitation . . . based on the maximum degree of reduction for each

pollutant . . . which would be emitted from any proposed major stationary

source or major modification which the Administrator, on a case-by-case basis,

taking into account energy, environmental, and economic impacts and other

costs, determines is achievable for such source or modification through

application of production processes or available methods, systems, and

techniques, including fuel cleaning or treatment or innovative fuel combustion

techniques for control of such pollutant. 40 C.F.R. § 52.21(b)(12).

The parties do not dispute that Panhandle’s Glenarm Station is a major stationary source for

or that the facility is in an attainment area for NO

. See 40 C.F.R. § 52.21(b)(1)(i)

(definition of major stationary source).

FINDINGS OF FACT

Background on Panhandle

Panhandle is a natural gas pipe line transmission company. Panhandle transports

natural gas on a pipeline system from Kansas, Oklahoma, and Texas to users in the Midwest.

Tr. at 25-28, 31-32; Pet. Exh. 2.

Panhandle operates a compressor station in Glenarm, Sangamon County, Illinois

(Glenarm Station). The Glenarm Station began operating in 1931. Tr. at 30-32; R. at 120.

At the Glenarm Station, Panhandle recompresses natural gas to ensure that it moves along the

pipeline. Panhandle uses compressor engines at the Glenarm Station to recompress the natural

gas. Tr. at 31, 38; Pet. Exh. 2. Those engines emit NO

. Tr. at 37.

Panhandle’s 1988 Construction Permit

In 1987, Panhandle operated 15 compressor engines at the Glenarm Station (engines

1101 through 1115). In September of that year, Panhandle filed an application with the

Agency for a permit to replace 12 of the 15 compressor engines (engines 1101 through 1112)

with four new compressor engines (engines 1116 through 1119).

Tr. at 83-85; Pet. Exh. 12;

Supp. at 1-26. Engines 1116 and 1117 had no emission controls for NO

. Engines 1118 and

1119 had pre-combustion chamber technology or “Clean Burn” technology to control NO

emissions. Tr. at 86; R. at 178, 183. In January 1988 Panhandle submitted to the Agency’s

Permit Section information on the retired engines’ fuel usage and hours of operation for 1987.

Supp. at 37-38.

On February 10, 1988, the Agency issued Panhandle a permit for the construction

project. Supp. at 39-41. The construction permit allowed Panhandle to replace engines 1101

through 1112 with engines 1116 through 1119. Special conditions No. 1 and 2 of the

construction permit limited NO

emissions from the four new compressor engines (engines

1116 through 1119) as follows:

This permit is issued based upon the replacement of ten Cooper

Compressors and two Clark Compressors with four new Cooper

Compressors. The overall increase in NO

emissions from the

replacement will not exceed 39.9 tons per year. This condition is

necessary to avoid applicability of 40 CFR 52.21, Rules for Prevention

of Significant Deterioration (PSD).

emissions from the four new compressors shall not exceed 461.3

tons per year. This limit is based upon [emission] rates calculated from

The parties and the Board refer to these four engines as “new” because they were new to the

Glenarm Station. Panhandle purchased engines 1116 and 1117 used and brought engines 1118

and 1119 to the Glenarm Station from another Panhandle facility. Tr. at 84-85.

standard emission factors,

the gas usage from the most recent one year

period and the allowed increase of 39.9 tons per year. Supp. at 39.

Special condition No. 3 of the permit required Panhandle to keep records of the hours of

operation and the gas usage for each of the new compressor engines. Supp. at 39.

The Agency set the 461.3 TPY limit to ensure that replacing engines 1101 through

1112 with engines 1116 through 1119 would not result in a net increase in NO

emissions of

40 TPY or more from the Glenarm Station. In this way, the project would not be a “major

modification” under the PSD rules, thereby allowing Panhandle to avoid PSD requirements.

Supp. at 39, 69.

The Agency established the PSD avoidance limit of 461.3 TPY by adding two figures:

(1) 39.9 tons, which represented a less than “significant” increase in NO

emissions,

i.e.

, a

non-major modification; and (2) 421.4 tons, which reflected the decrease in NO

emissions

from retiring engines 1101 through 1112. Supp. at 39, 69.

The Agency estimated that the retired engines emitted NO

at a rate of 421.4 TPY. To

calculate this figure, the Agency considered the retired engines’ 1987 fuel usage data that

Panhandle provided. The Agency also relied on emission factors in USEPA’s September 1985

edition of AP-42, “Compilation of Air Pollutant Emission Factors for Stationary Sources.”

Tr. at 93-95; Supp. at 39, 69.

Four subsequent operating permits for the Glenarm Station contained special conditions

No. 1 through 3 from the construction permit. Panhandle did not appeal any of these

conditions after the Agency issued the construction permit or any of the subsequent operating

permits. The Agency issued Panhandle an operating permit on August 30, 1988, September

14, 1989, June 5, 1990, and July 26, 1991. Supp. at 59-68.

Panhandle’s Application for a Revised Permit

In August 1996, an Agency field inspector inspected the Glenarm Station and

discovered that Panhandle apparently was exceeding the 461.3 TPY NO

limit established in

the February 1988 construction permit. Tr. at 39, 87-88. The Agency issued a formal

violation notice to Panhandle on March 20, 1997. The violation notice stated that Panhandle

“caused emissions in excess of the limits [set forth in special conditions No. 1 and 2 of the

permit] necessary to avoid applicability of the federal rule pertaining to PSD.” In addition,

the violation notice called for Panhandle to “submit to the Illinois EPA the appropriate

An “emission factor” is the “relationship between the amount of pollution produced and the

amount of raw material processed. For example, an emission factor for a blast furnace making

iron would be the number of pounds of particulates per ton of raw materials.” United States

Environmental Protection Agency, Terms of Environment (last modified May 13, 1998)

<http://www.epa.gov/OCEPAterms/eterms.html>.

Prevention of Significant Deterioration (PSD) application addressing the emissions of NO

.”

Pet. Exh. 5.

On May 19, 1997, the Agency received Panhandle’s proposed compliance commitment

agreement. Tr. at 110; R. at 175-218. Panhandle attached to the compliance commitment

agreement a construction permit application. R. at 191. Panhandle sought to increase the

PSD avoidance limit established in the February 1988 construction permit. Panhandle

proposed a new PSD avoidance limit based on emissions in 1985 and 1986 rather than 1987,

the period that the Agency used to establish the limit in the 1988 permit. Panhandle argued

that 1985 and 1986 were more representative of how the retired engines operated normally.

Panhandle stated that 1987 was not representative because warmer weather in 1986 and 1987

limited natural gas use in 1987.

Tr. at 40, 46-47, 99-102, 113-118; R. at 175-178, 186-188.

Panhandle also sought the permit so that it could add pre-combustion chamber

technology or Clean Burn technology to engines 1116 and 1117 to control NO

emissions.

Panhandle wanted to add the controls so that it could fully use engines 1116 through 1119

(

i.e.

, 365 days per year, 24 hours per day) under the proposed NO

emission limit. R. at 175,

178, 183.

After reviewing Panhandle’s submittal, the Agency issued a notice of incompleteness to

Panhandle on June 18, 1997. The notice of incompleteness stated that the construction permit

application did not demonstrate that engines 1116 through 1119 complied with PSD

requirements for BACT. R. at 172-173. In addition, the notice of incompleteness stated that

information in the proposed compliance commitment agreement “indicates that the

construction and historic operation of the four new engines (1116 through 1119) represent a

major modification subject to PSD (40 CFR 52.21).” R. at 172, 182.

On September 30, 1997, Panhandle submitted information to the Agency to respond to

the notice of incompleteness. R. at 30-171. In this submittal, Panhandle provided, among

other things, information on past emissions from engines 1116 through 1119, revised emission

factors, and a BACT analysis.

The information that Panhandle provided on past emissions showed that NO

emissions

from engines 1116 through 1119 exceeded the PSD avoidance limit of 461.3 TPY each year

from 1989 through 1996. R. at 90. Panhandle used emission factors from the September

1985 edition of AP-42 to estimate these NO

emissions:

1989

620.8 TPY

1990

712.99 TPY

1991

621.38 TPY

1992

753.02 TPY

In November 1987, Panhandle submitted to the Agency an annual emission report for the

Glenarm Station that showed a 21.6% decrease in emissions. The report covered the time

period of November 1, 1986, to October 31, 1987. Pet. Exh. 1.

1993

654.22 TPY

1994

716.42 TPY

1995

924.99 TPY

1996

1,056.91 TPY

R. at 90. Panhandle used other emission factors as well to calculate past NO

emissions from

engines 1116 through 1119. These included emission factors from subsequent editions of AP-

42 (July 1993 and January 1995) and from the original manufacturer of the four engines. Each

method showed an exceedence of the 461.3 TPY NO

limit in each year from 1989 through

1996. R. at 90.

For purposes of determining the emissions baseline for the retired engines, Panhandle

proposed to use emission factors from the January 1995 edition of AP-42 rather than the

September 1985 edition of AP-42. Panhandle asserted that the January 1995 emission factors

were more accurate. Tr. 164; R. at 43-44.

With respect to its BACT analysis, Panhandle proposed a NO

emission limit of four

grams per horsepower hour (g/hp-hr) for engines 1116 and 1117. Tr. at 268; R. at 100, 149.

Based on information from the manufacturer of the engines, a NO

emission limit of two g/hp-

hr may be achieved. Tr. at 369-371; R. at 62. Data on PSD BACT determinations for other

facilities that use Clean Burn or pre-combustion chamber technology also indicated that more

stringent emission limits (1.5 to 3 g/hp-hr) may be achieved. R. at 100, 111.

Panhandle proposed a NO

limit of six g/hp-hr for engines 1118 and 1119. R. at 149.

Based on manufacturer information, a NO

emission limit of four to five g/hp-hr may be

achieved. Tr. at 370, 372; R. at 64-65, 101. Engines 1118 and 1119 have had pre-

combustion chamber technology to control emissions since installation of the engines in 1988.

Tr. at 86; R. at 101. Panhandle did not evaluate whether there are later, more effective

versions of the pre-combustion chamber technology. Tr. at 368-370, 377-380. In this regard,

the difference between the manufacturer’s performance level for engines 1116 and 1117 (two

g/hp-hr) and the manufacturer’s performance level for engines 1118 and 1119 (four to five

g/hp-hr) indicated that there may be a difference between the emission control technology

installed in 1988 and the pre-combustion chamber technology proposed for engines 1116 and

1117. Tr. at 380; R. at 62, 64-65.

In its September submittal, Panhandle stated that it would be difficult for it to achieve

more stringent emission levels. R. at 100. However, Panhandle did not provide supporting

documentation to substantiate this claim. Tr. at 369-372. Panhandle concedes that it did not

demonstrate that its proposed performance levels are BACT. Tr. at 106, 392. Panhandle

proposed its performance levels not to comply with PSD requirements for BACT, but rather to

meet the revised NO

permit limit that it requested (discussed below). Tr. at 269, 381-382; R.

at 12, 22.

On December 12, 1997, Panhandle submitted additional information to the Agency. R.

at 3-38. Panhandle, as it had in its May and September submittals to the Agency, stated that

1985 and 1986 should have been used as the emission baseline years for the retired engines

instead of 1987. Tr. at 101-102, 113-118; R. at 6-7, 16-17, 42-43, 51-56.

In addition, Panhandle again proposed to use emission factors other than those in the

September 1985 edition of AP-42 for the retired engines. However, Panhandle argued that

emissions from the retired engines could be more accurately estimated if the Agency were

to use data that Panhandle obtained from the manufacturer of the engines and the January 1995

edition of AP-42. Tr. at 59-60, 165-167, 226-228, 246-247; R. at 3, 7-11.

First, the manufacturer of the 4-stroke rich burn engines (retired engines 1101-1110)

stated that NO

emissions from the engines is expected to be 15 g/hp-hr. R. at 27. The

manufacturer had not tested for emissions from the same type of engines as the retired engines.

Instead, the manufacturer provided an estimate of NO

emissions. To arrive at this estimate,

the manufacturer used emissions data from a different type of engine (medium speed 2-cycle

and 4-cycle turbocharged engines) that the manufacturer makes. The manufacturer adjusted

this data for the slow speed, rich burn combustion cycle of the retired engines. Tr. at 284-

285; R. at 27. Before the December 24, 1997 permit denial (discussed below), Panhandle did

not document how the manufacturer calculated or adjusted the turbocharged engine data to

arrive at its estimate of NO

emissions for the retired engines. Tr. at 285-287.

Second, the January 1995 edition of AP-42 showed that the applicable emission factor

for retired engines 1111 and 1112, which were 2-stroke lean burn engines, is 11 g/hp-hr. Tr.

at 226-228; R. at 8, 18. Panhandle had proposed this emission factor in its September

submittal to the Agency. Tr. at 243; R. at 43-44.

According to Panhandle’s December submittal, if the baseline is 1985 and 1986,

instead of 1987, and the emission factors are from the manufacturer (for engines 1101 through

1110) and the January 1995 edition of AP-42 (for engines 1111 and 1112), instead of the

September 1985 edition of AP-42, the actual NO

emissions from the retired engines would be

689.2 TPY instead of 421.4 TPY. Based on this, Panhandle proposed a new PSD avoidance

limit of 729.1 TPY of NO

, reflecting a revised emissions baseline of 689.2 TPY for retired

engines 1101 through 1112 plus a non-major modification of 39.9 TPY. R. at 6-8, 10-12, 16-

18, 20, 22, 24-25.

The Agency’s Permit Denial

On December 24, 1997, the Agency denied Panhandle’s permit application and stated

that the Agency would review a reapplication for a PSD permit. R. at 1-2. The denial letter

stated that the Agency denied the permit because the requested permit may violate Section

9.1(d) of the Act and 40 C.F.R. § 52.21. R. at 1. The letter set forth two grounds for the

Agency’s determination.

First, the Agency’s denial letter stated that Panhandle did not comply with the PSD

program’s BACT requirements. R. at 1. The Agency determined that Panhandle must submit

information to satisfy PSD major modification requirements, including a BACT

demonstration, because Panhandle’s past NO

emissions from engines 1116 through 1119 had

exceeded its PSD avoidance limit. The Agency determined that Panhandle did not

demonstrate, using USEPA’s “Top-Down” methodology, that the performance levels for new

or existing emission control equipment on engines 1116 through 1119 were BACT for NO

emissions. The Agency determined that Panhandle did not demonstrate that lower NO

emission levels than Panhandle had proposed cannot be achieved. Tr. at 144-145, 185-186,

242-243, 368-372, 377; Pet. Exh. 5; R. at 1.

Second, the Agency’s denial letter stated that Panhandle did not sufficiently support the

emission factor (

i.e.

, the manufacturer’s statement) that Panhandle used to determine past

emissions from retired engines 1101 through 1110. Accordingly, the Agency determined that

it could not rely upon that information. Tr. at 316-317; R. at 1.

DISCUSSION

The Board will first discuss the legal framework for the Agency’s permit review and

Panhandle’s permit appeal. Then the Board will discuss each of the two grounds upon which

the Agency denied Panhandle’s application for a revised permit. Lastly, the Board will

address Panhandle’s argument that the Agency should be estopped from requiring Panhandle to

obtain a PSD permit.

Legal Framework

Section 39(a) of the Act sets the standard by which the Agency must determine whether

to issue a permit, whether an initial permit or a revised permit.

Section 39(a) provides as

follows:

When the Board has by regulation required a permit for the construction,

installation, or operation of any type of facility [or] equipment,

. . . the

applicant shall apply to the Agency for such permit and it shall be the duty of

the Agency to issue such a permit upon proof by the applicant that the facility

[or] equipment . . . will not cause a violation of this Act or of regulations

hereunder.

415 ILCS 5/39(a).

Thus, Panhandle had the burden to prove to the Agency that Panhandle’s operations would not

violate the Act or rules under the Act if the Agency granted the requested permit. If

Panhandle failed to prove that its operations would comply, it was proper for the Agency to

Section 201.167(a) of the Board’s regulations provides that “the Agency may revise any

permit issued . . . or any condition contained in such permit . . . [u]pon reapplication by the

permittee.” 35 Ill. Adm. Code 201.167(a).

The Board’s regulations prohibit the construction or operation of an emission source without

first obtaining a permit from the Agency. See 35 Ill. Adm. Code 201.142 and 201.143.

The Board codified this standard for permit issuance at 35 Ill. Adm. Code 201.155(a) and

201.160(a).

deny the permit. See John C. Justice, d/b/a Microcosm v. Illinois Environmental Protection

Agency (March 21, 1996), PCB 95-112, slip op. at 8,

aff’d

John C. Justice, d/b/a Microcosm

v. Illinois Pollution Control Board and Illinois Environmental Protection Agency, No. 1-96-

1491 (1st Dist. January 28, 1998) (unpublished order under Illinois Supreme Court Rule 23).

Section 40(a)(1) of the Act provides that:

[I]f the Agency refuses to grant or grants with conditions a permit under Section

39 of this Act, the applicant may, within 35 days, petition for a hearing before

the Board to contest the decision of the Agency. 415 ILCS 5/40(a)(1) (1996).

Panhandle timely appealed the Agency’s denial under Section 40(a)(1). That section also

provides that petitioner has the burden of proof on appeal. See 415 ILCS 5/40(a)(1) (1996).

On appeal,

the sole question before the Board is whether the applicant proves that the

application, as submitted to the Agency, demonstrated that no violation of the

Act would occur if the permit was granted. Centralia Environmental Services,

Inc. v. Illinois Environmental Protection Agency (October 25, 1990), PCB 89-

170, slip op. at 9; see also Browning-Ferris Industries of Illinois, Inc. v. Illinois

Pollution Control Board, 179 Ill. App. 3d 598, 601-602, 534 N.E.2d 616, 619

(2d Dist 1989).

Section 39(a) of the Act requires that the Agency identify, in its permit denial

statement, the provisions of the Act or regulations under the Act that may be violated if it

granted the permit. See 415 ILCS 5/39(a) (1996). The Agency stated that it denied

Panhandle’s permit application because Section 9.1(d) of the Act and 40 C.F.R. § 52.21 might

be violated. Section 9.1(d) of the Act states in pertinent part that no person shall:

Violate any provisions of Sections 111, 112, 165 or 173 of the Clean Air

Act, as now or hereafter amended, or federal regulations adopted

pursuant thereto; or

Construct, install, modify or operate any equipment, building, facility,

source or installation which is subject to regulation under Sections 111,

112, 165 or 173 of the Clean Air Act, as now or hereafter amended,

except in compliance with the requirements of such Sections and federal

regulations adopted pursuant thereto . . . . 415 ILCS 5/9.1(d) (1996).

As noted above, under Section 165 of the Clean Air Act, USEPA promulgated

regulations at 42 C.F.R. § 52.21 to implement the PSD program. The PSD regulations

require sources that make major modifications to demonstrate that they will use BACT. See

40 C.F.R. § 52.21(j).

The Agency’s Grounds for Denying the Permit

The Agency’s denial letter frames the issues on appeal. See Centralia, PCB 89-170,

slip op. at 8; Pulitzer Community Newspapers, Inc. v. Illinois Environmental Protection

Agency (December 20, 1990), PCB 90-142, slip op. at 6. As discussed below, the Agency’s

denial letter set forth two grounds upon which the Agency denied Panhandle’s permit

application.

Panhandle Failed to Satisfy PSD Requirements for BACT

The Agency’s Denial. As noted above, the first ground upon which the Agency denied

the permit was that Panhandle’s application failed to satisfy PSD requirements. The Agency

determined that Panhandle’s permit application must satisfy PSD requirements for major

modifications because Panhandle had exceeded the PSD avoidance limit (the NO

limit of

461.3 TPY) in its permit. Panhandle used several methods, including the emission factor from

the September 1985 edition of AP-42, to calculate past NO

emissions from engines 1116

through 1119. Each method showed an exceedence of the 461.3 TPY NO

limit in each year

from 1989 through 1996.

The Agency asserts that because Panhandle exceeded this limit, the changes Panhandle

made in 1988 constituted a major modification. The Agency therefore argues that Panhandle

had to satisfy PSD requirements for a major modification, including the requirement to

demonstrate BACT for the engines using Clean Burn technology. Resp. Br. at 9-17.

The Agency then determined that Panhandle failed to demonstrate, using USEPA’s

Top-Down methodology, that the performance levels of the new or existing control equipment

for engines 1116 through 1119 were BACT for NO

emissions. Accordingly, the Agency

denied the permit application. R. at 1; Resp. Br. at 10, 31-35.

In response, Panhandle first argues that the PSD requirements do not apply because:

(1) the 1988 permit was invalid because it relied on 1987 data and did not have an enforceable

limit (Pet. Br. at 22-23, 25-29; Reply Br. at 5-10); (2) requiring Panhandle to meet the PSD

requirements is contrary to USEPA guidance and regulations (Pet. Br. at 38, 40-41; Reply Br.

at 3-4); and (3) the Agency has improperly denied the permit as a substitute for enforcement

(Pet. Br. at 38-40; Reply Br. at 5-6). The Board first outlines the PSD regulations and then

addresses the issues that Panhandle raises.

PSD Regulations. A person who proposes a “major modification” must satisfy

PSD requirements, including the requirement to demonstrate BACT. See 40 C.F.R. §

52.21(j). As noted above, a “major modification” includes a physical change at a

major stationary source that would result in a net emissions increase of NO

of 40 TPY

or more. See 40 C.F.R. §§ 52.21(b)(2)(i) and (23)(i).

A “net emissions increase” is the sum of (1) any increase in actual emissions from the

physical change or change in the method of operation and (2) any other increases and

decreases in actual emissions that are contemporaneous with the increase from the change. See

40 C.F.R. § 52.21(b)(3)(i).

For an emissions unit that has been in operation, “actual emissions” generally equal

the average rate of emissions, in tons per year, at which the unit actually emitted the pollutant

during a two-year period that precedes the date of the physical change or change in method of

operation and that is representative of normal source operation. A different time period may

be used if the Administrator or delegated authority determines that the time period is more

representative of normal operating conditions. See 40 C.F.R. § 52.21(b)(21)(ii). For an

emissions unit that has not begun normal operations, “actual emissions” equal the unit’s

potential to emit. See 40 C.F.R. §§ 52.21(b)(4) and (21)(iv).

The Agency’s 1988 Permit Determination. Panhandle argues that the Agency

incorrectly calculated the 461.3 TPY NO

limit in the 1988 construction permit. Panhandle

further argues that the 1988 permit did not have an enforceable limit. For these reasons,

Panhandle argues that the 1988 permit was invalid and Panhandle cannot be deemed to have

violated it.

Panhandle states that the Agency did not select the correct timeframe to calculate actual

emissions from the retired engines (engines 1101 through 1112) and that, because of this

error, the Agency underestimated actual emissions of NO

from the retired engines. Thus,

Panhandle received a smaller credit for the retired engines than it should have, according to

Panhandle.

Specifically, Panhandle argues that 40 C.F.R. § 52.21(b)(21) of the PSD regulations

requires that actual emissions be determined by looking at average emissions, in tons per year,

during the two years preceding construction or a different time period if the period is more

representative of normal operations. Actual NO

emissions from the retired engines should

have been based on emissions during 1985 and 1986, which represented normal operations,

according to Panhandle. Panhandle argues that 1987, the year that the Agency used to

establish the limit in the February 1988 construction permit, was not representative because

warmer weather limited natural gas use. Panhandle states that it did not know how the Agency

would use the retired engines’ 1987 data that Panhandle submitted to the Agency’s Permits

Section during the permit review process. According to Panhandle, the Agency should have

known that 1987 was not representative because Panhandle’s annual emission report showed a

21.6% emissions decrease for the time period of November 1, 1986, to October 31, 1987.

In addition, Panhandle cites United States v. Louisiana-Pacific Corp., 682 F. Supp

1122 (D. Colo. 1987) for the proposition that because the Agency failed to impose permit

conditions to restrict Panhandle’s hours of operation or materials combusted, it was “virtually

impossible to verify compliance” with the permit’s annual NO

limit. Panhandle argues that

the Agency should have adhered to the following language from the Louisiana-Pacific decision

when it issued the permit in 1988:

not all federally enforceable restrictions are properly considered in the

calculation of a source’s potential to emit. While restrictions on hours of

operation and on the amounts of material combusted or produced are properly

included, blanket restrictions on actual emissions are not. Louisiana-Pacific,

682 F. Supp. at 1133.

The Board finds that the 1988 permit established an emission limit for NO

that was

designed to ensure that Panhandle’s replacement of 12 compressor engines with four new

compressor engines would not constitute a major modification. This PSD avoidance limit of

461.3 TPY was based on an emissions baseline credit for the retired engines 1101 through

1112 (421.4 TPY for 1987) plus a less than significant increase in emissions (39.9 TPY).

Special condition No. 1 of the construction permit states that the “overall increase in

emissions from the replacement [of compressor engines] will not exceed 39.9 tons per

year” and that this “condition is necessary to avoid applicability of 40 CFR 52.21, Rules for

Prevention of Significant Deterioration (PSD).” Special condition No. 2 of the construction

permit states that the 461.3 TPY “limit is based upon [emission] rates calculated from standard

emission factors, the gas usage from the most recent one year period and the allowed increase

of 39.9 tons per year.” Supp. at 39 (emphasis added). Thus, the permit itself stated that the

Agency imposed an emission limit to avoid PSD and that it based the limit on 1987 data. It

also clearly set forth the emission limit that Panhandle now claims is unenforceable.

Panhandle did not appeal these conditions under Section 40(a)(1) when the Agency

issued the construction permit or when the Agency, on four subsequent occasions, issued

operating permits with the same special conditions. The Board cannot now review the

Agency’s 1988 permit determination.

The Board’s decision is consistent with the court’s reasoning in Hawaiian Electric Co.

v. United States Environmental Protection Agency, 723 F.2d 1440 (9th Cir. 1984). In that

case, Hawaiian Electric requested that USEPA modify Hawaiian Electric’s PSD permit.

USEPA determined that modifying the permit to allow for higher sulfur content in its fuel

would constitute a major modification that necessitated a BACT analysis. Hawaiian Electric

appealed USEPA’s decision and argued that the original PSD permit was not properly issued

because it was premised on an inadequate wind tunnel dispersion model.

. at 1441-1442.

The time period for Hawaiian Electric to appeal the original PSD permit had expired.

. at

1445. The court noted the legislative intent to “avoid excessive bureaucratic contention” by

requiring USEPA to make permit decisions within a prescribed time period would be frustrated

if past determinations could be routinely challenged

de novo

. at 1446. The court stated:

[Hawaiian Electric] argues that it is challenging the premises under which the

permit was originally granted and that therefore the application of the major

modification definition in particular and PSD review in general is incorrect.

The policy of finality, which is critical to the administration of a complex

technocratic program, dictates that [Hawaiian Electric’s] argument must fail.

Finality is a particularly important value in air pollution control because of the

simultaneous existence of substantial risk and substantial technical uncertainty.

. at 1445.

The Board is not holding that the Agency lacks authority to revise a permit upon the

permittee’s reapplication. Section 39(a) of the Act and 35 Ill. Adm. Code 201.167(a) grant

the Agency the power to do so. However, in Panhandle’s application for a revised permit,

Panhandle asks the Agency to not apply PSD requirements even though Panhandle has

exceeded the PSD avoidance limit for NO

in its permit. Thus, Panhandle not only seeks to

revise its permit, but asks the Agency to ignore the Agency’s 1988 permit determination. The

Agency may not do so. See Reichhold Chemicals, Inc. v. Illinois Pollution Control Board,

204 Ill. App. 3d 674, 677-678, 561 N.E.2d 1343, 1345-1346 (3d Dist. 1990) (the Agency

lacks statutory authority to reconsider its final permit determinations).

USEPA Regulations and Guidance. Panhandle then argues that under USEPA

regulations and guidance, the Agency should have revised its permit without subjecting

Panhandle to PSD requirements. The Board disagrees. USEPA has stated that the

administering agency may use 40 C.F.R. § 52.21(r)(4), the “source obligation” regulation, to

require a source to go through the PSD permitting process once it exceeds its PSD avoidance

permit limit. Section 52.21(r)(4) states that:

At such time that a particular source or modification becomes a major stationary

source or major modification solely by virtue of a relaxation in any enforceable

limitation . . . on the capacity of the source or modification otherwise to emit a

pollutant, . . . then the requirements of paragraphs (j) through (s) of this section

shall apply to the source or modification as though construction had not yet

commenced on the source or modification. 40 C.F.R. § 52.21(r)(4).

USEPA discussed the options available to the administering agency when a source

exceeds the limit of its PSD avoidance permit, including the applicability of 40 C.F.R. §

52.21(r)(4):

One option is simply to enforce . . . the limitations in the permit . . . with the

result that the source retains its minor status. This is appropriate where, despite

the permit violations, it appears that the source intends to adhere to the

emissions limitations in the future. However, EPA retains the right to enforce

the PSD . . . violation as well.

The second option is to invoke the “source obligation” regulations, e.g., 40

CFR 52.21(r)(4), and treat the source as major by requiring it to obtain a PSD

. . . permit. This course is appropriate where the source, through a change in

business plans, or a belated realization that its original plans cannot

accommodate the design or operational limitations in that permit, and so

exceeds them. . . . EPA treats the source “as though construction had not yet

commenced” for PSD . . . permitting purposes.” 54 Fed. Reg. 27274, 27280

(June 28, 1989).

The Board finds that the facts of this case are closer to the second scenario than the first

scenario described in the USEPA guidance. Panhandle does not wish to adhere to the NO

emission limit in its permit. Instead, Panhandle proposes to increase its NO

limit after “a

belated realization that its original plans cannot accommodate” the original permit limit. See

54 Fed. Reg. at 27280. Thus, the Agency properly subjected Panhandle to the PSD permitting

requirements “as though construction had not yet commenced on the source or modification.”

40 C.F.R. § 52.21(r)(4).

Permit Denial Based on Alleged Violations. Panhandle also argues that the Agency

improperly denied the revised permit because Panhandle has allegedly violated its permit limit

for NO

. Panhandle asserts that this is an improper use of the permitting process as a

substitute for enforcement.

The Board agrees with Panhandle that the Agency cannot deny a permit based on an

applicant’s violations of a permit or the Act that have already occurred. The Board also agrees

with Panhandle that the Agency may not substitute permit denial for enforcement of the Act

and regulations. See Illinois Environmental Protection Agency v. Illinois Pollution Control

Board, 252 Ill. App. 3d 828, 830, 624 N.E.2d 402, 404 (3d Dist. 1993) (concluding that the

Board properly ordered the Agency to issue permits after finding that the Agency denied the

permits because the permit applicant had allegedly violated the Act); Centralia, PCB 89-170,

slip op. at 10-13 (holding that the Agency’s denial of permits because of alleged permit and

regulatory violations was improper).

However, the Board disagrees with Panhandle’s assertion that the Agency denied

Panhandle’s permit application because Panhandle had allegedly violated its permit by

exceeding its NO

limit. The Agency did not deny the permit because of past violations.

Rather, because of the evidence of exceedences of the permit’s PSD avoidance limit, the

Agency determined that Panhandle had triggered the PSD requirements for major

modifications. The cases that Panhandle cites are distinguishable because they both involve

instances where the Agency’s permit denial letter listed past violations as reasons for the

denial. See Illinois Environmental Protection Agency, 252 Ill. App. 3d at 829-830, 624

N.E.2d at 403-404 (3d Dist. 1993); Centralia, PCB 89-170, slip op. at 10-13.

PSD Requirements for BACT. Because Panhandle is subject to PSD requirements, it

must demonstrate BACT for its emission controls. See 40 C.F.R. § 52.21(j). As noted

above, BACT means: