EPA-Clean Air Act Applicability Determination Index

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Determination Detail
Control Number: 0000061
Category:
EPA Office:
Date:
Title:
Recipient:
Author:
Comments:

NSPS
OECA
05/23/1980
Commencement of Construction under Subpart Da
Tom Watson
Jeffrey Miller

Subparts: Part 60, Da

Elec. Util. Steam Gen. Units (post 9/18/78)

References: 60.2(g)
60.2(i)
60.40a(a)
60.41a
Abstract:
Q: Is a facility with a steam generating unit which has incurred costs for design and engineering, capital
commitments, coal contracts, environmental studies, and delay in commercial operation prior to September
18, 1978, exempt from Subpart Da as a facility on which construction has commenced?
A: No. Section 60.2(g) defines construction as the "fabrication, erection or installation of an affected facility."
None of the costs cited are evidence of the commencement of construction by the statutory date.

Letter:
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAY 23 1980
Tom Watson, Esq.
Crowell & Moring
1100 Connecticut Ave., N.W.
Washington, D.C. 20036
Dear Mr. Watson:
This letter revokes and replaces the Agency's letter of August 24, 1979, and constitutes the final
determination on the applicability of EPA's revised New Source Performance Standards (NSPS) for electric
utility steam generating units, 40 CFR Part 60, Subpart Da, to North Valmy Station Unit Two, jointly owned by
Sierra Pacific Power Company and Idaho Power Company ("Sierra Pacific").
Subpart Da applies to any "steam generating unit", 40 CFR 60.40a(a), which consists of "any furnace, boiler
or other device used for combusting fuel for the purpose of producing steam, "40 CFR Section 60.41a, on
which construction commenced after September 18, 1978. 40 CFR Section 60.21(a)(2). "Construction" is
defined by 40 CFR Section 60.2(g) as "fabrication, erection of installation of an affected facility."
"Commenced" is defined by 40 CFR Section 60.2(i) to mean "that an owner or operator has undertaken a

EPA-Clean Air Act Applicability Determination Index

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continuous program of construction or modification or that an owner or operator has entered into a
contractual obligation to undertake and complete, within a reasonable time, a continuous program of
construction or modification." As the regulation indicates, the element of "commencement" can be satisfied in
either of two ways, i.e., by the existence of a "contractual obligation" or the undertaking of a "continuous
program of construction."
Evidence of entering into a binding contractual obligation can be established by proof of significant lost
expenditures which would be directly attributable to the cancellation of a contract for construction or
modification of the affected facility. Typically this evidence consists of a penalty in the nature of liquidated
damages for contract breach. The Agency also has found that a letter of intent can establish a binding
contractual obligation where cancellation of the order contemplated by the letter of intent would subject the
prospective buyer to significant penalties. In this case, there was no contractual obligation. Therefore, the
questions presented is whether Sierra Pacific had "undertaken a continuous program of . . . fabrication,
erection or installation" of the Unit Two boiler by September 18, 1978. A continuous program of fabrication,
erection or installation can be established by proof of significant expenditures, as of the NSPS proposal date,
which are directly attributable to the continuous program of fabrication, erection or installation of the affected
facility.
On March 13, 1979, Sierra Pacific made a written request to the Agency's Region IX Enforcement Division
for a determination that, inter alia, the Unit Two Boiler was not subject to Subpart Da (then proposed, 42 Fed.
Reg. 42154 (Sept. 19, 1978)). On April 4, 1979, the Director of the Region IX Enforcement Division made a
written determination that the Unit Two boiler was subject to Subpart Da. That determination specifically
found that Sierra Pacific had not entered into a contractual obligation for construction of the Unit Two boiler
by September 18, 1978.
On May 7, 1979, representatives of Sierra Pacific met with Agency officials to discuss the April 4, 1979,
determination. At that meeting, the Agency agreed to reconsider the April 4th determination. In particular,
Assistant Administrator David Hawkins stated that EPA would consider a "lost investments" test as a
measure of whether construction had commenced on the Unit Two boiler. The "lost investments" test would
measure the losses that would be incurred as of September 18, 1978, if Subpart Da were found applicable.
Sierra Pacific then made written submissions to show that it had commenced construction under the "lost
investments" test.
On August 24, 1979, the Assistant Administrator for Enforcement made a written determination that Sierra
Pacific did not show that it had commenced construction on the Unit Two boiler by September 18, 1978.
Unfortunately, that determination did not analyze Sierra Pacific's financial commitments in the light of the
regulatory requirement that Sierra Pacific have "undertaken a continuous program of . . . fabrication, erection
or installation" of the U nit Two boiler. In particular, the August 24, 1979, determination, like Assistant
Administrator Hawkins' May 7, 1979, statement, incorrectly implies that financial losses that would be caused
by imposition of any NSPS constitute evidence that a source has commenced construction, even though
those commitments do not evidence either a continuous program of construction or a contractual obligation
for the affected facility. The defects in the August 24th determination became apparent as the Agency
prepared for the lawsuit Sierra Pacific has filed to challenge that determination. The Agency therefore, by this
letter, revokes the August 24, 1979 determination and replaces it with the following determination:
I. Lost Design and Engineering
Sierra Pacific contends that lost expenditures in the nature of costs associated with design and engineering
work show that construction of Unit Two commenced by September 18, 1978. Sierra Pacific contends that
mechanical and structural re-design and re-engineering would have to be accomplished in the areas of
limestone and unloading and handling, the solid waste disposal system, the flue gas draft system, the stack
for Unit One, and steam for stack gas reheat. Furthermore, Sierra Pacific contends that "electrical
engineering re-design would be necessary" for items such as the cable tray, electrical ductlines, and the
grounding system. In addition, Sierra Pacific contends "numerous engineering studies would have to be
redone" in the areas of environmental report modifications, plant arrangement, plant materials handling, solid
waste management, water balance optimization, gas modeling, I.D. fans, construction facilities planning, and
utilities services. Sierra Pacific tabulated losses for these items in terms of manhour costs for "flow diagrams,
drawings, purchase order specifications, electrical engineering changes and engineering study changes,"
and concluded that a total of 30,466 manhours would be involved at a cost of $852,582.

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Although Sierra Pacific went to great length in explaining the nature of the lost design and engineering costs,
they failed to describe a single cost that is attributable to construction as defined at 40 CFR 60.2(g). None of
the claimed losses involve fabrication, erection, or installation of the affected facility. Even looking at the
costs in the light most favorable to Sierra Pacific, the costs can only be considered as related to planning.
Under the definition codified at 40 CFR 60.2(g) EPA must conclude that these costs do not evidence a
commencement of construction by September 18, 1978.
II. Lost Capital Commitments
Sierra Pacific contends that its "lost capital commitments" establish that construction of Unit Two commenced
by September 18, 1978. Sierra Pacific states that the need to modify Unit One's coal handling system and
ash handling system, and various piping and electrical equipment modifications, would be necessary to
accommodate scrubbing equipment for Unit Two. Although costs attributable to these items may indeed be
lost, they are not directly attributable to the affected facility. Neither the coal handling and ash handling
system, nor the piping and electrical equipment are devices used for "combusting" fuel. See, "United States
Environmental Protection Agency, Document No. 450/2-78-006a, Electric Utility Steam Generating Units,
Background Information for Proposed Particulate Matter Emission Standards 5-3 (July 1978)." Under the
definition codified at 40 CFR 60.41a, EPA must conclude that these costs do not evidence a commencement
of construction by September 18, 1978.
III. Losses Due to Commitments Made for Premium Coal Contracts
Sierra Pacific contends that it suffered financial loss due to the difference in the costs of complying coal.
Because a unit equipped with a scrubber can burn a less expensive, higher sulfur content coal than a unit not
equipped with a scrubber, Sierra Pacific contends that application of Subpart Da to Unit Two would allow
combustion of higher sulfur content coal than was purchased by Sierra Pacific, thereby occasioning a loss.
Although the factual contention of Sierra Pacific regarding coal costs will not be disputed here, it is
nevertheless clear that the purchase of coal is not construction within the definition of 40 CFR 60.2(g). The
purchase of coal is not a fabrication, erection, or installation of a facility. Therefore, the purchase of coal will
not be allowed as an indicator that Sierra Pacific commenced construction by September 18, 1978.
IV. Lost Expenses for Environmental Studies
Sierra Pacific contends that expenditures in environmental studies, specifically air quality and solid waste
studies and permitting and approval consultation costs, establish commencement of construction of Unit Two
by September 18, 1978. Although Sierra Pacific contends $250,000 is attributable to studies, it fails to
describe how the studies can be defined as fabrication, erection, or installation of Unit Two. Under 40 CFR
Section 60.2(g), the definition of construction does not include planning for commencement of construction.
V. Costs Attributable to the Delay in the Commercial Operation of Unit Two As Scheduled
Sierra Pacific contends that investments attributable to delay in commercial operation of Unit Two should be
applied in determining the date of commencement of construction of Unit Two. They contend that should they
be required to install a scrubber for the removal of SO2 from the flue gas, they will be unable to meet their
projected start-up date. This, they contend, would result in a one year delay in the commercial operation of
Unit Two at a cost of $31.5 million necessary for the purchase of replacement power. However, the fact of
delay and its consequences do not constitute fabrication, erection or installation of an affected facility and,
therefore, cannot establish commencement of construction of Unit Two by September 18, 1978.
In sum, Sierra Pacific's submissions do not show that Sierra Pacific had "undertaken a continuous program
of . . . fabrication, erection or installation" of the boiler by September 18, 1978. It is also undisputed that
Sierra Pacific had not entered into a contractual obligation (contract or letter of intent) for construction by
September 18, 1978. Accordingly, neither part of the regulatory test in 40 CFR 60.2(i) was met, and the Unit
Two boiler is subject to Subpart Da.
Sincerely,

EPA-Clean Air Act Applicability Determination Index

Jeffrey G. Miller Acting Assistant

Administrator for Enforcement
cc: Paul DeFalco, Jr.

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