June 2, 1995



MEMORANDUM

SUBJECT:  EPA Reconsideration of Application of Collocation Rules
          to Unlisted Sources of Fugitive Emissions for Purposes
          of Title V Permitting 

FROM:     Lydia N. Wegman, Deputy Director    /s/ Steve Hitte for
          Office of Air Quality Planning and Standards (MD-10)

TO:       Regional Air Directors
          Regions I - X


     The purpose of this memorandum is to provide you with
guidance regarding the collocation language of the part 70 "major
source" definition as it relates to sources of fugitive emissions
that have not been listed pursuant to section 302(j) of the Clean
Air Act (Act).  Rulemaking will be needed to incorporate the
ideas in this memo, and the preamble will address transition
period concerns.

     As you may know, the American Mining Congress (AMC) and the
American Forest and Paper Association (AFPA) petitioned for
review of the part 70 rule, in part because the Agency's inter-
pretation of the part 70 collocation language would have the
effect of subjecting unlisted sources of fugitive emissions to
the permit rule.  While not conceding the merits of the peti-
tioners' arguments, EPA sought and received from the U. S. Court
of Appeals for the District of Columbia Circuit a voluntary
remand to allow the Agency to reconsider its interpretation in
the context of a new rulemaking.

     In moving the Court for a remand, EPA stated that until it
completes the rulemaking, the Agency's interpretation of the part
70 collocation language as set forth in previous rulemaking
documents and guidance is not binding and therefore rescinded. 
The Agency further provided that it would issue guidance to EPA
Regions and State permitting authorities stating the same and
explaining that States thus have discretion in interpreting the
part 70 collocation language with regard to unlisted sources of
fugitive emissions.  This memorandum provides that guidance.





     The part 70 rule defines "major source" as "any stationary
source (or group of stationary sources that are located on one or
more contiguous or adjacent properties, and are under common
control of the same person . . .) belonging to a single
industrial grouping" and that is a major source under section 112
or a major stationary source under section 302 or part D of title
I of the Act (40 CFR 70.2).  In accordance with section 502(a)
of the Act, the rule requires specified categories of sources,
including all "major sources," to obtain and comply with
operating permits (40 CFR  70.3(a)).
     
     The Agency stated in the part 70 rulemaking that the Agency
intended to apply the collocation language of the title V rule to
unlisted sources of fugitive emissions in the same manner as it
applies identical language to those sources in the regulations
governing the New Source Review (NSR) program under title I of
the Act.  Specifically, the Agency stated that for purposes of
making major source determinations under title V, unlisted
sources of fugitive emissions would be grouped with adjacent,
commonly controlled sources where the fugitive emission source
was within the same major industrial grouping as the collocated
source or was a support facility for the collocated source.  In
short, the collocation language of the part 70 major source
definition required aggregation of collocated sources regardless
of whether a collocated source was an unlisted source of fugitive
emissions.

     The petitioners raised concerns with the Agency's
interpretation of the collocation language of the part 70 rule as
it applied to unlisted sources of fugitive emissions.  They
contended that such sources are not to be regulated as "major
sources" under title V unless and until EPA determines through
rulemaking under section 302(j) that the benefits of such regu-
lation would outweigh the costs.  Section 302(j) defines major
stationary source and major emitting facility as a facility that
has the potential to emit 100 tons per year (tpy) or more of any
air pollutant.  It further provides that fugitive emissions be
included in determining whether a source exceeds the 100 tpy
major source threshold as determined by rule by the Agency. 
Petitioners argued that the Agency's interpretation of the
collocation language would have the effect of subjecting unlisted
fugitive emission sources to the permit rule without undertaking
section 302(j) rulemaking.  


     The petitioners contended that the Agency's interpretation
would have this effect in three ways.  First, an unlisted source
located next to a commonly controlled source having the same two-
digit Standard Industrial Classification (SIC) code as the
unlisted source would be aggregated with the collocated source. 
If the collocated source on its own were major for title V
purposes, then the unlisted source would be subject to the permit
rule as part of the aggregated major source.  

     Second, an unlisted fugitive emissions source could become
part of a title V major source as a result of the support
facility test the Agency stated it would apply in making major
source determinations under title V as it does under NSR.  Under
the support facility test, if an unlisted source of fugitive
emissions primarily supports an adjacent, commonly controlled
source that is major for title V purposes, it would be aggregated
with the collocated source even if it had a different two-digit
SIC code.  The petitioners further argued that requiring the
aggregation of sources with different two-digit SIC codes was
contrary to Congressional intent.

     Third, the fugitive emissions from an unlisted source might
be included in the major source threshold calculation as a result
of the primary activity test which the Agency also applies in the
NSR context.  That test provides that the primary purpose of a
source determines the source category to which the source
belongs.  If the source belongs to a source category that has
been listed under section 302(j), petitioners are concerned that
all of the emissions of the source, including the fugitive emis-
sions from the constituent unlisted source, would be counted in
determining whether the source is major.  Thus, if an unlisted
fugitive emission source is part of a larger source that belongs
to a listed source category, the unlisted source's fugitive
emissions would count towards whether the encompassing source is
major.  If total emissions exceed the major source threshold,
then the unlisted source would become subject to the permit rule
along with the larger source of which it is part. 

     In adopting its interpretation of the part 70 collocation
language as set forth in the title V rulemaking, the Agency
explained that it was following the approach used in NSR to
determine whether collocated sources should be aggregated for
purposes of determining whether a major source is present. 
Adoption of the NSR approach was particularly appropriate, the
Agency noted, in view of legislative history indicating that
Congress intended the Agency to use that approach (56 Federal
Register 21712, 21724 (1991)).  However, after reviewing peti-
tioners' arguments and the rulemaking record, the Agency believes
it should review whether application of the NSR approach is
appropriate for title V purposes. 


     It is important to point out, though, that EPA is not
reconsidering or rescinding its interpretation of the collocation
provisions of the NSR regulations with respect to unlisted
sources of fugitive emissions.  As indicated above, the NSR rules
require an unlisted source of fugitive emissions be grouped with
an adjacent, commonly controlled source in determining whether a
major source is present if the unlisted source has the same two-
digit SIC code as the collocated source or primarily supports the
collocated source.  The fugitive emissions of the unlisted source
are not counted in determining whether the major source threshold
is exceeded except as required by the primary activity test.  

     Industry previously sought and received rulemaking
consideration of the issue of whether surface coal mines, an
unlisted source of fugitive emissions, should be aggregated with
adjacent, commonly controlled sources in determining whether a
major stationary source is present for NSR purposes.  (See 54
Federal Register 48870 (1989)).  The Agency determined in a final
action that such sources should be aggregated with collocated
sources if they share the same two-digit SIC code or primarily
support the collocated source.  The Agency explained that section
302(j) requires rulemaking only to determine whether a source's
fugitive emissions should be counted in determining whether the
source's total emissions exceed major stationary source 
thresholds.  Section 302(j) does not require rulemaking to
determine whether a source of fugitive emissions may be
considered part of a single major stationary source made up of
collocated, commonly controlled sources.  No one sought judicial
review of this aspect of the Agency's final rule.   

     It is also important to point out that the Agency's decision
to reconsider its interpretation of the collocation language of
the part 70 rule does not affect the title V requirement that
sources permitted under NSR (either pursuant to part C or part D
of title I of the Act) obtain title V permits.  Section 502(a)
specifies that part C or D permitted sources, among others, are
subject to the title V permitting requirement.  Sources having
part C or D permits therefore must apply for and obtain title V
permits regardless of whether they include unlisted sources of
fugitive emissions, and the title V permit must cover, at a
minimum, all portions of the adjacent, commonly controlled
facility covered by the part C or D permit.  As noted above, the
Agency's reconsideration of the proper interpretation of the
collocation provisions of the part 70 rule does not extend to the
NSR rules, so there is and will be no basis for exempting
unlisted sources of fugitive emissions that are permitted under
parts C or D from the title V permitting requirement.  Further,
sources that are not now but later become subject to title V by
virtue of receiving a part C or D permit will be required to
obtain a part 70 permit regardless of whether they include an
unlisted source of fugitive emissions as required by the NSR
collocation provisions.

     The Agency, in requesting a remand to reconsider its
interpretation of the part 70 collocation language, did not
rescind the collocation portion of the rule itself.  The rule's
collocation language remains in effect; only EPA's interpretation
of it is no longer binding.  States must thus apply that portion
of the rule in developing and implementing their part 70
programs.  Absent a binding EPA interpretation, however, States
have discretion in interpreting what the rule's collocation
language requires with respect to unlisted sources of fugitive
emissions.

     As noted earlier, EPA expects to address the issues
described in this memorandum in a proposal regarding revisions of
the part 70 rule that it anticipates issuing in the near future. 

     Please share this memorandum with your State air programs. 
Should there be questions, please call Steve Hitte at
(919) 541-0886.  

cc:  Regional Title V Contacts, Regions I-X
     B. Kellam (MD-12)
     S. Hitte (MD-12)
     N. Ketcham-Colwill (2442)
     D. Solomon (MD-12)
     M. Trutna (MD-12)