July 10, 1998







MEMORANDUM

SUBJECT:  Second Extension of January 25, 1995 Potential to Emit 
          Transition Policy and Clarification of Interim Policy

FROM:     John S. Seitz, Director
          Office of Air Quality Planning and Standards (MD-10)
          
          Eric V. Schaeffer, Director
          Office of Regulatory Enforcement (2241A)
          
TO:       See Addressees

     This memorandum further extends the Environmental Protection Agency's (EPA)
January 25, 1995 transition policy for potential to emit (PTE) limits relative to maximum
achievable control technology (MACT) standards issued under section 112 of the Clean Air Act
and federal operating permits issued under Title V programs.  It also clarifies how the EPA's
interim policy on PTE, first discussed in a January 22, 1996 memorandum, works with the
transition policy.

Background

     Many Clean Air Act requirements apply only to "major" sources, that is, those sources
whose actual or potential emissions of air pollution exceed threshold emissions levels specified
in the Act.  A source's total potential to emit is determined by a two step process.  First, the
source's potential emissions at maximum physical capacity are established.  This figure is then
reduced by any recognized, practically enforceable limits on the source's emissions, such as
limits on rates of production, hours of operation, and type and amount of fuel burned or materials
processed.  The three primary programs where PTE is a significant factor are (1) the section 112
MACT program to control emissions of hazardous air pollutants (HAPs); (2) the Title V
operating permits program; and (3) the New Source Review (NSR) programs in Part C of Title I
(the prevention of significant deterioration (PSD) program) and Part D of Title I (the
nonattainment NSR program).  These programs each contain a definition of PTE.  Due to several
court decisions addressing the requirement in EPA's regulatory definition of PTE under these
programs that any enforceable limits on potential emissions be federally enforceable, these
regulations are currently under review, and the EPA is engaged in a rulemaking process to
consider amendments to the current requirements.  The EPA has reviewed information provided
through a stakeholder process and is preparing a proposed rule presenting several options related
to practical and federal enforceability.  Further information on options being considered is
contained in January 1996 and November 1997 options papers (available on the Internet at
http://www.epa.gov/ttn/oarpg/).

The Current Transition Policy

     In a January 25, 1995 policy memorandum entitled "Options for Limiting the Potential to
Emit (PTE) of a Stationary Source Under Section 112 and Title V of the Clean Air Act (Act),"
issued before the court decisions regarding the definition of PTE and federal enforceability, the
EPA announced a transition policy for Section 112 and Title V (available on the Internet at
http://www.epa.gov/ttn/oarpg/t5pgm.html).  This transition policy alleviated concerns that some
sources may face gaps in the ability to acquire federally enforceable PTE limits because of delays
in State adoption or EPA approval of programs or in their implementation.  In order to ensure
that such gaps would not create adverse consequences for States or for sources, the EPA
provided that during a 2-year period extending from January 1995 to January 1997, for sources
lacking federally enforceable limitations, State and local air regulators had the option of treating
the following types of sources as non-major in their Title V programs and under section 112:

     (1) sources that maintain adequate records to demonstrate that their actual emissions are
less than 50 percent of the applicable major source threshold, and have continued to operate at
less than 50 percent of the threshold since January 1994, and

     (2) sources with actual emissions between 50-100 percent of the threshold, but which
hold State-enforceable limits that are enforceable as a practical matter.

     On August 27, 1996, the EPA announced an extension of the transition policy until July
31, 1998.  See Memorandum entitled "Extension of January 25, 1995 Potential to Emit
Transition Policy" (Aug. 27, 1996) (Internet site http://www.epa.gov/ttn/oarpg/t5pgm.html). 
This extension was originally based, in part, on the schedule for completing the rulemaking on
the definition of PTE.

Second Extension of Transition Policy

     The EPA does not expect that the PTE rulemaking which will address the PTE
requirements in, among other rules, the MACT standard General Provisions (40 C.F.R. part 63,
subpart A) and the Title V operating permits program, will be completed before July 1998. 
These rule amendments will affect federal enforceability requirements for PTE limits under these
programs.  Thus, there will continue to be uncertainty with respect to federally enforceable
limits, and a basis for the January 25, 1995 transition policy will continue to be valid after July
31, 1998.  The EPA is, therefore, extending the transition period for the MACT and Title V
programs until December 31, 1999, or until the effective date of the final rule in the PTE
rulemaking, whichever is sooner. 

Interim Policy During Period Between D.C. Circuit Opinions and Final PTE Rule

     A January 22, 1996 policy memorandum entitled "Release of Interim Policy on Federal
Enforceability of Limitations on Potential to Emit" sets forth the EPA's interim policy on federal
enforceability during the period prior to the effective date of a final PTE rule (available on the
Internet at http://www.epa.gov//ttn/oarpg/t5pgm.html).  Because there have been several
inquiries into the application of the interim policy, the EPA encourages Regions, States and
regulated sources to review that policy memorandum, as it still represents the EPA's position.  A
brief description is provided below.

     Section 112: In National Mining Association v. EPA, 59 F.3d 1362 (D.C. Cir. 1995), the
D.C. Circuit questioned whether the federal enforceability requirement in the General Provisions
to 40 C.F.R. part 63 was "necessary."  The court remanded, but did not vacate, the definition of
PTE in the General Provisions.  Nonetheless, as noted above, since January 25, 1995, in a policy
decision prior to the National Mining opinion, the EPA has followed the transition policy
regarding what limits are necessary to render a source of hazardous air pollutants a "synthetic
minor" source for purposes of section 112.  As discussed above, today's memorandum extends
the transition policy until December 31, 1999.

     Title V: In Clean Air Implementation Project v. EPA, No. 96-1224 (D.C. Cir. June 28,
1996) (CAIP), the court vacated and remanded the requirement for federal enforceability for PTE
limits under 40 C.F.R. part 70.  The EPA has stated that the term "federally enforceable" in
section 70.2 should now be read to mean "federally enforceable or legally and practicably
enforceable by a State or local air pollution control agency" pending any additional rulemaking
by the EPA.  

     As stated in the August 1996 memorandum, the EPA interprets the court order vacating
the part 70 definition as not affecting any requirement for federal enforceability in existing State
rules and programs.  Pending the outcome of the current rulemaking effort, the EPA believes that
States are not likely to pursue submittals for program revisions.  Thus, despite the State program
requirements for federal enforceability, there may be States wishing to continue to observe the
transition policy -- the transition policy specifically allows States to follow it in determining Title
V applicability.  Therefore, as stated above, the EPA is extending the transition policy as it
relates to Title V permitting until December 31, 1999.
 
     New Source Review: In Chemical Manufacturers Association v. EPA, No. 89-1514 (
D.C. Cir. Sept. 15, 1995) the court remanded and vacated the federal enforceability requirement
in the federal NSR/PSD rules.  The EPA reiterates that neither the January 25, 1995 transition
policy, the opinion in National Mining nor the court order in CAIP  impacts the NSR or PSD
programs.  A full discussion of the EPA's policy with respect to PTE issues related to the NSR
and PSD programs is presented in the January 22, 1996 policy memorandum.

     In brief, that memorandum states that the court's order in Chemical Manufacturers
Association did not impact the individual state rules implementing these programs that have been
incorporated into EPA-approved State Implementation Plans (SIPs).  Thus, the order's practical
impacts on NSR/PSD programs are not substantial for new construction -- federal enforceability
is still required to create "synthetic minor" new and modified sources in most circumstances
pending completion of the PTE rulemaking.  The precise impact of the vacatur on NSR/PSD
applicability can be definitively determined only by reviewing the applicable SIP provisions.

Distribution/Further Information

     We are asking Regional Offices to send this memorandum to States within their
jurisdiction.  Questions concerning specific issues and cases should be directed to the appropriate
Regional Office.  The Regional Office staff may contact John Walke of the Office of General
Counsel at 202-260-9856; or Carol Holmes of the Office of Regulatory Enforcement at
202-564-8709.  The document is also available on the Internet, at http:\\www.epa.gov\ttn\oarpg,
under "OAR Policy and Guidance Information." 


Addressees:
Director, Office of Ecosystem Protection, Region I 
Director, Division of Environmental Planning and Protection,
  Region II
Director, Division of Air Quality, Region III
Director, Air, Pesticides, and Toxics Management Division, Region IV
Director, Air and Radiation Division, Region V 
Director, Multimedia Planning and Permitting Division, Region VI
Director, Air, RCRA, and TSCA Division, Region VII
  Assistant Regional Administrator, Office of Pollution Prevention,
  State, and Tribal Assistance, Region VIII
Director, Air and Toxics Division, Region IX 
Director, Office of Air, Region X 
Regional Counsels, Regions I-X
Director, Office of Environmental Stewardship, Region I
Director, Division of Enforcement and Compliance Assurance,
  Region II
Director, Enforcement Coordination Office, Region III
Director, Compliance Assurance and Enforcement Division, Region VI
Director, Enforcement Coordination Office, Region VII
Assistant Regional Administrator, Office of Enforcement, Compliance
  and Environmental Justice, Region VIII
Enforcement Coordinator, Office of Regional Enforcement 
  Coordination, Region IX

cc:  C. Holmes (2242A)
     J. Ketcham-Colwill (6103)
     J. Walke (2344)
     L. Hutchinson (MD12)