John L. Wittenborn, Esq.

Kelley Drye & Warren LLP

Washington Harbour, Suite 400
3050 K Street, NW
Washington, DC 20007-5108
Dear Mr. Wittenborn:
This letter is in response to a request made by Alton Steel, Inc. ("Alton
Steel
or you") that the United States Environmental Protection Agency make an
applicability determination regarding the applicability of 40 C.F.R. Part
60,
Subpart AAa "Standards of Performance for Steel Plants: Electric Arc
Furnaces
and Argon-Oxygen Decarburization Vessels Constructed After August 17,
1983
("Subpart AAa") to Alton Steel"s Electric Arc Furnace ("EAF") #7 located
in
Alton, Illinois.
Specifically, you requested us to determine whether
the
installation of a capacitor bank and a tuned reactor at the electrical
substation servicing EAF #7 (i.e. "capacitor/reactor project")
constituted a
modification of EAF #7 as the term "modification" is defined in Clean Air
Act
(CAA) 111(a)(4) and at 40 C.F.R. 60.14.
You originally requested this determination in a letter dated August 31,
2006.
Since that time, there has been correspondence between us regarding this
matter,
including a January 29, 2007 finding by EPA that Subpart AAa does not
apply to
EAF #7, a February 23, 2007 letter from you informing us that the
underlying
factual basis for our January, 2007 determination was incorrect and
requesting
another applicability determination considering different factual
information, a
May 2, 2007 request for information we issued pursuant to Section 114 of
the
Clean Air Act ("114 Request") to obtain technical information about EAF
#7, and
Alton Steel's July 20, 2007 response to the 114 Request. We also held a
meeting
in Chicago on October 15, 2007 to further discuss technical issues
involved with
EAF #7. In the process of making this applicability determination, we
have
consulted with technical and legal staff within EPA Region 5 and EPA
Headquarters. We appreciate your patience and willingness to provide
information regarding this matter.

In summary, we have made the following determinations about the

capacitor/reactor project. These findings are based on the information
provided
by Alton Steel in this matter.
1. The capacitor/reactor project involved an operational change to an
existing
facility under Subpart AAa - EAF #7 (i.e. an increased production
capacity) but
did not involve a physical change to EAF #7.
2. The capacitor/reactor project resulted in a kilogram per hour (kg/hr)
increase in the emission rate of particulate matter to the atmosphere.
3. The capacitor/reactor project was not routine maintenance, repair, or
replacement work. Therefore the exemption to "modification" at 40 C.F.R.
60.14(e)(1) does not apply.
4. The capacitor/reactor project did not involve a capital expenditure
being
made on the existing facility under Subpart AAa - EAF #7. Therefore, the
exemption to "modification" at 40 C.F.R. 60.14(e)(2) applies to the
increase
in emissions due to the production capacity increase.
As a result of these findings, we have concluded that the
capacitor/reactor
project is exempt from the definition of "modification" found at CAA
111(a)(4)
and 40 C.F.R. 60.14. Therefore, Subpart AAa does not apply to EAF #7 as
a
result of the 2000 capacitor/reactor project. It should be noted that
independent of the applicability of Subpart AAa, EAF #7 will be required
to meet
the identical particulate matter and opacity standards by December 28,
2010 as a
result of the applicability of 40 C.F.R. Part 63 Subpart YYYYY - National
Emission Standards for Hazardous Air Pollutants for Area Sources:
Electric Arc
Furnace Steel Making Facilities.
I. Background
Most of the energy used to produce molten steel in an EAF comes from an
electric
arc generated by electrodes lowered into the furnace vessel. The arc
forms
between the charged material and the electrodes, and the charge is heated
both
by current passing through it and by the radiant energy evolved by the
arc. The
electricity supplied to the electrodes comes from a sophisticated, multicomponent, alternating current electrical circuit or "power system." Key
components of the power system circuit are as follows:1

* Fixed copper bus: delivers current from the furnace transformer to the
electrodes.
* Step-down transformer: used to transform incoming utility supply
voltage from
the transmission level (138 kV in the case of EAF #7) to the industrial
distribution level (34.5 kV in the case of EAF #7).
* Furnace transformer: a specially designed high power electric
transformer for
arc furnaces. It is used to step down voltage from the industrial
distribution
level (reached using the step-down transformer - 34.5 kV in the case of
EAF #7)
to the nominal voltage of the EAF secondary circuit (595 V), thereby
stepping up
the current supplied to the EAF's electrodes.
* Capacitor bank/Power Factor correction: used to increase the Power
Factor2
thereby reducing or eliminating low Power Factor penalties charged by the
utility; and to increase the Real Power that can be supplied to the
electrodes
to melt steel.
In the 1990s, EAF #7 began experiencing significant amounts of harmonic
interference in the electrical circuit for delivering power to the EAF.
3, 4
The harmonics caused electrical equipment failures and, therefore,
significant
downtime of the EAF. In 1994, Alton Steel's predecessor as
owner/operator of
EAF #7, Laclede Steel, retained Westinghouse Power Systems Service
("Westinghouse") who evaluated the effect of harmonics on EAF operation.
Following its analysis, Westinghouse recommended, that "a multi-tuned
filter and
capacitor bank be installed" on the EAF circuit to eliminate the harmonic
resonance problem and, to a lesser degree, improve Power Factor
correction.5
For reasons that are not clear in available documentation (but are
presumed to
be related to cost), Laclede Steel was not interested in 1994 in
purchasing and
installing such equipment. In the alternative, Westinghouse recommended
a
"short term" solution involving removal of various equipment from the
circuit,
including half of the existing capacitor bank. The benefit of removing
capacitors was to eliminate harmonic interference for virtually no cost.
However, by disconnecting the capacitor bank, the EAF was operating with
half of
the originally installed Power Factor Correction equipment, thereby
decreasing
the Power Factor of the electrical circuit from approximately 0.95 to
0.89. A
decrease in the Power Factor caused a decrease in the Real Power
delivered to

the No. 7 EAF electrodes. This decrease caused an increase in the tapto-tap
time of the EAF (time required to make a batch of steel).
In 2000, Alton implemented the capacitor/reactor project which involved
the
installation of a new bank of capacitors and a tuned harmonic reactor to
the
electrical circuit of the EAF. This project restored Power Factor
Correction to
the circuit and improved the Power Factor from 0.89 to approximately 0.98
(this
is also an improvement of the pre-1994 Power Factor of 0.95). The most
significant improvement was the addition of a new tuned harmonic reactor
designed to eliminate harmonic interference.6 As such, Alton restored
and
increased the Real Power delivered to the EAF electrodes and thereby
decreased
the tap-to-tap time of the EAF (time required to make a batch of steel).
Available documentation suggests that this project increased the
production
capacity and the particulate matter emission rate by approximately 7%
from rates
achievable shortly before the project was implemented7 by reducing the
tap-totap time.
II. NSPS Modification Provisions at 40 C.F.R. 60.14
In order to trigger NSPS, an affected facility must be constructed,
reconstructed, or modified after the applicability date. For Subpart
AAa, the
applicability date is August 17, 1983.
Modification is defined in 40 C.F.R. 60.14(a). A modification is any
physical
or operational change to an existing facility which results in an
increase in
the emission rate in a pollutant for which a standard applies. 40 C.F.R.
60.14(b) requires that, in order to determine whether an emission
increase
occurs, the emission rate shall be expressed as kg/hr of any pollutant
discharged into the atmosphere for which a standard is applicable. The
Paragraph goes on to require the use of emission factors, such as those
found in
EPA's AP-42 publication, to determine whether an emission increase
occurs. In
the event that the Administrator determines that the use of emission
factors are
not satisfactory, he/she may allow for the use of material balance, CEM
data or
manual emissions tests.
40 C.F.R. 60.14(e) sets forth several exemptions to the modification

provisions. Most relevant to this applicability determination are the

exemption
for routine maintenance, repair, and replacement found at 40 C.F.R.
60.14(e)(1) and the "capital expenditure exemption" at 40 C.F.R.
60.14(e)(2):
The following shall not, by themselves, be considered modifications
under
this part:
(1) maintenance, repair, and replacement that the Administrator
determines to be
routine for a source category;
(2) an increase in production rate of an existing facility, if that
increase can
be accomplished without a capital expenditure on that facility.
III. Change to the Existing Facility
The first issue Alton asked us to address is whether the new
capacitor/reactor
constituted a physical or operational change to the "existing facility"
for
purposes of the Subpart AAa. As stated above, the first half of the
modification definition is "any physical or operational change to an
existing
facility. . ." 40 C.F.R. 60.14(a) (emphasis added). Therefore, to
trigger
NSPS, an owner or operator must change an existing facility.
This
issue
depends, at least partially, upon whether the electrical circuit
(including the
work constituting the capacitor/reactor project) is part of the regulated
"affected facility."8 Each NSPS defines the "facility" to which the NSPS
applies. The "facility," under the NSPS for EAFs, is narrowly defined as
"a
furnace that produces molten steel and heats the charged materials with
electric
arcs from carbon electrodes. For the purposes of this subpart, an EAF
shall
consist of the furnace shell and roof and the transformer." 40 C.F.R.
60.271a
(emphasis added). The definition does not include any components of the
EAF
electrical circuit beyond the furnace transformer. Therefore, it is
clear that
the capacitor reactor project did not involve any physical changes to the
existing facility.
However, the EAF certainly experienced an increased Power Factor as a
result of
the capacitor reactor project. This allowed an increased power input, a
decrease in the tap-to-tap time, and an increase in production capacity.
These

changes significantly altered the regular or customary way the existing

facility
(i.e. EAF) operated. Therefore we conclude the capacitor/reactor project
was an
operational change to the EAF existing facility.
IV. Increase in the Emission Rate
Next, Alton Steel asked us to evaluate whether the capacitor/reactor
project
resulted in an increase in the emission rate to the atmosphere. The
second half
of the modification definition is ". . . which results in an increase in
the
emission rate in a pollutant for which a standard applies."
Particulate matter is a regulated pollutant under Subpart AAa. 40 C.F.R.
60.272a. As discussed above, Alton's installation of the
capacitor/reactor
increased the Power Factor of the electrical circuit. As such, Alton
increased
and restored the Real Power delivered to the EAF electrodes and thereby
decreased the tap-to-tap time of the EAF. Assuming the same mass
particulate
matter is emitted per batch of steel, the reduction in the tap-to-tap
time
caused an increase in the hourly emission rate of particulate matter from
the
EAF. Therefore, we conclude that the capacitor reactor project was an
operational change that increased the emission rate of particulate matter
into
the atmosphere, expressed as kg/hr.
V. Routine Maintenance Repair and Replacement
Next, Alton Steel asked us to evaluate whether the capacitor/reactor
project was
"routine maintenance repair or replacement" as set forth in the
exemptions to
the modification provisions at 40 C.F.R. 60.14(e)(1). In determining
whether
proposed work is routine, EPA makes a case-by-case determination weighing
the
nature, extent, purpose, frequency, and cost of the work as well as other
relevant factors to arrive at a common-sense finding. EPA's policy on
routine
maintenance, repair, and replacement is outlined in a series of
applicability
determinations concerning the rehabilitation of five utility boilers at
Wisconsin Electric Power Company's ("WEPCO") Port Washington facility.9
The
WEPCO determination describes a routine maintenance, repair, and
replacement

project as one that is "a regular, customary or standard undertaking for

the
purposes of maintaining the plant in its present condition."
We have reviewed information submitted by Alton regarding the
capacitor/reactor
project and determined it not to be "routine" for the following reasons:
* The capacitor/reactor project was not a regular, customary, or standard
undertaking. Indeed, it was a unique and unprecedented project in the
EAF's 44
year history.
* The capacitor/reactor project involved installation of new equipment
that was
not previously present at the site (i.e. harmonic filtering equipment).
* The capacitor/reactor project involved the services of outside
contractors and
consultants to assist in the engineering, design, and construction.
* The capacitor/reactor project involved the installation of a long term
asset
that was of a significant cost. Indeed, concerns about cost were
apparently the
reason why half of the original capacitor bank was removed in 1994 in
lieu of
installing harmonic filter equipment at that time.
VI. Capital Expenditure Exemption
Finally, Alton asked us to evaluate whether the "capital expenditure
exemption"
to modification applies to the capacitor/reactor project. The capital
expenditure exemption is set forth at 40 C.F.R. 60.14(e)(2):
(2) an increase in production rate of an existing facility, if that
increase can
be accomplished without a capital expenditure on that facility.
EPA has consistently interpreted this provision to exempt physical or
operational changes to an existing facility that increase both the
production
capacity and the emissions to the atmosphere from being a modification
under CAA
? 111(a)(4) and 40 C.F.R. 60.14 if the monetary expenditure on the
physical or
operational change is less than a certain, calculated, cost threshold.10
For
such interpretations see EPA's Applicability Determination Index Control
Numbers
0600008, NR24, and others.
In determining whether the cost of work constitutes a capital
expenditure, only
the cost of work on the physical equipment designated as being part of
the

existing facility is included in the calculation. This principle was

established in 1978 revisions to the NSPS general provisions. At that
time, EPA
created a distinction between physical changes at the source and physical
changes at the "facility." 43 Fed. Reg. 34340. Prior to 1978, an
increase in
the production rate was exempt from constituting a modification "if that
increase [could] be accomplished without a capital expenditure on the
stationary
source at that facility." 40 C.F.R. 60.14(e)(2) (1977) (emphasis added).
In
the 1978 revision, EPA removed the words "on the stationary source" from
the
exemption. In other words, prior to 1978, a capital expenditure
"anywhere on
the stationary source" that caused an increase in production rate and an
increase in emissions at the existing facility constituted a
modification.
After 1978, only a capital expenditure on the facility that causes an
increase
in the production rate constitutes a modification. 40 C.F.R. 60.14(e)(2)
(1979).
As stated above in part III of this letter, we have concluded that the
EAF
existing facility did not experience a physical change. Therefore, EAF
#7's
capacitor/reactor project involved no monetary expenditure to replace or
install
equipment included under the confines of the EAF "facility" as defined at
40
C.F.R. 60.271a (again, EAF is defined as consisting of the furnace shell
and
roof and the transformer). Therefore, despite the fact that the
capacitor/reactor project increased the capacity and maximum emission
rate of
particulate matter into the atmosphere, we conclude that this change is
exempt
from the definition of modification under 40 C.F.R. 60.14(e) due to the
capital expenditure exemption at 40 C.F.R. ?60.14(e)(2).
VII. Conclusions
In summary, we have made the following conclusions: 1.) the
capacitor/reactor
project resulted in an operational change to EAF #7 (i.e. an increase in
capacity) by increasing the Power Factor; 2.) This change resulted in an
increase in the emission rate into the atmosphere, expressed as kg/hr;
3.) The
project was not "routine maintenance, repair, and replacement;" and 4.)
The
project increased the production capacity/rate but did not involve a
"capital

expenditure" on the EAF. As a result of these findings, we have

determined the
capacitor/reactor project was not a "modification" under CAA 111(a)(4)
and 40
C.F.R. 60.14 and that it does not cause EAF #7 to be subject to Subpart
AAa.
It should be noted that this determination only pertains to the
capacitor/reactor project. It is not a general finding that EAF #7 is
exempt
from Subpart AAa, as we have not evaluated other work that may have been
conducted on EAF #7 in the past.
We have coordinated this determination with EPA's Office of Enforcement
and
Compliance Assurance and EPA's Office of General Counsel. If you have
any
questions on this matter, please contact Nathan A. Frank, P.E. at (312)
8863850.

Sincerely,

George T. Czerniak Jr., Chief

Air Enforcement and Compliance Assurance Branch
Air and Radiation Division

cc:

Nathan Frank, Region 5

Eaton Weiler, Region 5
Edward Messina, OECA/ORE
Sally Harmon Semple, OECA/OC
Scott Jordan, OGC
Raymond Pilapil, Illinois EPA

1 See Alton Steel's Response to the 114 Request, pages 3-5.

2 To understand Power Factor, visualize a horse pulling a railroad car
down a
railroad track. Because the railroad ties are uneven, and cause the horse
difficulty walking, the horse must pull the car from the side of the
track. The
horse pulls the railroad car at an angle to the direction of the car's
travel.
The power required to move the car down the track is the Real Power
(working
power). The effort of the horse is the Apparent Power (total power).
Because
of the angle of the horse's pull, not all of the horse's effort is used
to move
the car down the track. The car will not move sideways; therefore, the
sideways

pull of the horse is wasted effort or Reactive Power (nonworking power).

The
angle of the horse's pull is related to Power Factor, which is defined as
the
ratio of Real Power (working power) to Apparent Power (total power). If
the
horse is led closer to the center of the track, the angle of side pull
decreases
and the Real Power approaches the value of the Apparent Power.
Therefore, the
ratio of Real Power to Apparent Power (i.e. the "Power Factor")
approaches 1.
As the Power Factor approaches 1, the Reactive Power (nonworking power)
approaches 0.
See
http://www1.eere.energy.gov/industry/bestpractices/pdfs/mc60405.pdf.
3 See Alton Steel's Response to the 114 Request, pages 15-16
4 EAFs cause rapidly varying loads of power. Usually, the EAF load by
itself
does not impose excessive harmonic distortion on the power system and its
major
components. However, when a capacitor bank is connected to the furnace
for the
purposes of Power Factor Correction, it introduces a resonant frequency,
which
is essentially a resonant frequency mode between the capacitor bank and
the
upstream power network. If this frequency is very close to a dominant
harmonic
number it may result in very high amplification of the arc furnaces
natural
level of harmonic current, with possibly damaging effects to the power
system,
and in the end, can cause down-time of an EAF. See Alton Steel's
Response to
the 114 Request, page 10.
5 See Alton Steel's Response to 114 Request, Attachment B, September 1994
letter
from Westinghouse to Laclede Steel.
6 See Alton Steel's Response to 114 Request, Attachment B, 2000 ABB
Report.
7 See Laclede Steel Application for Permit, Illinois EPA form APC 200,
Exhibit
B, January 7, 2000.
8 40 C.F.R. 60.2 defines existing facility as: any apparatus of the type
for
which a standard is promulgated in this part, and the construction or
modification of which was commenced before the date of proposal of that
standard; or any apparatus which could be altered in such a way as to be
of that
type.
9 See September 9, 1988 Memorandum from Don R. Clay, Acting Assistant
Administrator for Air and Radiation to David A. Kee, Director, Air and
Radiation

Division, Region 5
10 The definition of "capital expenditure" at 40 C.F.R. 60.2 provides
this
monetary threshold as follows: "Capital expenditure means an expenditure
for a
physical or operational change to an existing facility which exceeds the
product
of the applicable 'annual asset guideline repair allowance percentage'
specified
in the latest edition of Internal Revenue Service (IRS) Publication 534
and the
existing facility's basis, as defined by section 1012 of the Internal
Revenue
Code. However, the total expenditure for a physical or operational change
to an
existing facility must not be reduced by any 'excluded additions' as
defined in
IRS Publication 534, as would be done for tax purposes." EPA has
provided
guidance on how to make this calculation which may be accessed on the
Applicability Determination Index on the Internet at
http://cfpub.epa.gov/adi/.