EPA Refines "Replacement Unit" Concepts

​​In two recent actions, Hilcorp Monopod and Newport News Shipbuilding, EPA Region X and OAQPS provided additional guidance on when a unit qualifies as a replacement unit under 40 CFR 52.21(b)(33). EPA gave general guidance that horsepower generally is the most appropriate design parameter for reciprocating internal combustion engines and that a significant increase in horsepower is not “identical to or functionally equivalent to” an earlier, lower horsepower unit and that fuel changes are not necessarily determinative, but are a factor to be considered when applying the replacement unit test.

ANALYSIS

In Hilcorp Monopod, the Alaska Department of Environmental Conservation (ADEC) sought an interpretation from Region X on the proper reading of the “replacement unit” provisions. Hilcorp, an existing PSD major source, had filed an off-permit notification with ADEC for its Monopod facility stating it would replace 5 old reciprocating internal combustion engines with 3 new ones. As part of this request, Hilcorp then undertook an actual to projected actual test using the baseline from the 5 existing units to demonstrate that PSD was not triggered. Both ADEC and Region X disagreed. EPA Region X began by quoting the applicable regulation:

1. The emissions unit is a reconstructed unit within the meaning of § 60.15(b)(l) of this chapter, or the emissions unit completely takes the place of an existing emissions unit.

2. The emissions unit is identical to or functionally equivalent to the replaced emissions unit.

3. The replacement does not alter the basic design parameters (as discussed in paragraph (cc)(2) of this section) of the process unit.

4. The replaced emissions unit is permanently removed from the major stationary source, otherwise permanently disabled, or permanently barred from operation by a permit that is enforceable as a practical matter. If the replaced emissions unit is brought back into operation, it shall constitute a new emissions unit.

Hilcorp had argued that because the “total heat input rate” of the 3 new engines was essentially the same as the five older engines, the basic design parameters were not altered. EPA disagreed, noting that (1) the new engines burned diesel fuel, while the old engines were a mix of diesel and natural gas, and (2) “the new engines have greater overall and individual design capacities (on a horsepower basis) that that of the replaced engines.” EPA noted that “horsepower is a more appropriate design parameter” and that the total horsepower was approximately 21% greater. According to Region X, “fuel type and horsepower output both generally affect the quantity and type of emissions as well as the applicable state and federal requirements. EPA Region X thus concurred with ADEC that Hilcorp units were not replacement units.

In Newport News Shipbuilding (NNS), NNS sought guidance from OAQPS on “whether an equipment replacement involving a change in fuel type precludes the use of the Replacement Unit provision.” OAQPS responded that the federal regulations (quoted above) “in no instance … identify ‘fuel type’ as determinative in the Replacement Unit qualification” and that “a change in fuel type, in and of itself, does not preclude an equipment replacement” from being a Replacement Unit. OAQPS then went on to discuss the Hilcorp Monopod decision in a way suggesting that the increase in horsepower was perhaps more significant: “a significant factor leading to the EPA’s support of Alaska’s determination was that the combined horsepower capacity of the new engines was significantly greater than the replaced engines, which questioned the ‘identical to or functionally equivalent’ prong of the Replacement Unit test.” On the actual question of whether NNS’ proposed replacement of boilers would qualify, NNS was directed to first apply to the Virginia Department of Environmental Quality.

COMMENTARY

Hilcorp Monopod and Newport News Shipbuilding provide some useful instruction both on how EPA will apply the “replacement unit” provision in the future and on how this Administration views the relative importance of the regulations to prior agency determination.

First, both reflect an agency effort to ensure that proposed replacement units comply literally with the terms of the regulatory action. Where the two interpretations differ is that OAQPS appears somewhat more cautious in announcing interpretations of wide applicability, as seen in the discussion of fuel type, preferring to let state agencies make the first pass. Second, it appears that “horsepower" will be treated as the "more appropriate design parameter" than "heat input" for internal combustion engines, likely because the "typical purpose of these engines is to provide power, not heat energy.” Third, Newport News Shipbuilding suggests that this Administration is more interested in applying the rules as written, and less interested in establishing interpretations which reach beyond the rules written provisions.