Under the Clean Air Act’s New Source Review (NSR) / Prevention of Significant Deterioration (PSD) program,  operators do not have to obtain a preconstruction permit before modifying an existing major source of air pollution as long as the modification does not result in a significant net emissions increase.  In determining whether the modification will require NSR / PSD permitting, operators may compare actual emissions to either the source’s post-modification maximum potential emissions or projected actual emissions.  Operators relying on the actual-to-projected actual emissions test may exclude unrelated emission increases from demand growth, but have the added burden of tracking and reporting emissions for at least five years after the project if there was a reasonable possibility (as defined in the regulations) that the project could trigger NSR / PSD permitting.

EPA Enforcement Before Post-Modification Data Confirms PSD Applicability

In United States v. DTE Energy, EPA challenged DTE Energy’s preconstruction emissions projection before there was any actual emissions data to prove or disprove the calculations.  DTE Energy determined that its planned boiler replacements would not trigger NSR / PSD permitting and provided notification of its applicability determination to the permitting authority, Michigan Department of Environmental Quality (MDEQ).  MDEQ did not take any action in response to DTE Energy’s notice.  Shortly after beginning construction, however, EPA issued a notice of violation alleging that the project constituted a major modification requiring NSR / PSD permitting.  EPA subsequently sued DTE Energy and moved for a preliminary injunction against the company’s activities.

Given the reporting obligation, the Michigan district court decided it was premature to bring an enforcement action until post-modification emissions data is produced evidencing that the project should have been permitted under NSR / PSD.  On appeal, the Sixth Circuit Court of Appeals faced the question of whether EPA can initiate an enforcement action alleging that a source has undergone modifications resulting in a significant net emissions increase before there is any actual post-construction emissions data to support or refute that allegation.

The Michigan district court denied EPA’s injunction request and subsequently granted summary judgment in favor of DTE Energy, holding that EPA enforcement is premature until there is actual post-modification emissions data from which to base an action.  On March 28, 2013, a split Sixth Circuit panel issued its opinion, holding that EPA can bring an enforcement action on the basis of the quality of the facility’s projected actual emissions (including demand growth exclusions).  In other words, EPA has the authority to ensure that operators are making emission projections before undertaking modifications, and that such projections are calculated in accordance with the regulatory requirements.   The Sixth Circuit did not rule that DTE Energy’s projections were improper.  Rather, the case has been remanded to district court for evaluation of DTE Energy’s analysis under the NSR / PSD permitting criteria.  Given the split decision, this issue may also be ripe for further appeal.

While the Court affirmed EPA’s authority to bring early NSR / PSD actions, it also rejected many of EPA’s arguments about its need to second guess NSR / PSD applicability determinations.  The majority cautioned that such second guessing would turn a program relying on operator projections and reporting to one effectively subjecting all projects to EPA’s prior approval.  Instead, the Court attempted to strike a balance between operator and EPA interests:  “If operators had to defend every projection to the agency’s satisfaction, companies would hesitate to make any changes, including those that may improve air quality.  On the other hand, if EPA were barred from challenging preconstruction projections that fail to follow regulations, New Source Review would cease to be a preconstruction review program.”

The dissent, however, warned “if the USEPA can challenge the operator’s scientific preconstruction emissions projections in court – to obtain a preliminary injunction pending a court decision as to whether the operator or USEPA has calculated the projections correctly – that is the exact same thing as requiring prior approval.” The dissent further argued that the EPA’s enforcement action in this case was moot, since actual emissions data available during the appeal proved that no significant net emissions increase had occurred.

Other Decisions on PSD Enforcement Time Limitations on the Horizon

US v. DTE Energy provides guidance for how early EPA may bring an NSR / PSD enforcement action.  Two pending circuit court cases should also provide key guidance on how long EPA has after a modification has been completed to pursue NSR / PSD permitting enforcement. In each case noted below, the government is arguing that alleged NSR / PSD permitting violations resulting from modifications made by a prior facility owner or operator also apply to the new facility owner or operator:

  • United States v. Midwest Generation, LLC, Case Nos. 12-1026, 12-1051 (7th Cir.)

 This appeal arose from the district court’s dismissal of the government’s claims alleging Midwest Generation, its parent Edison Mission Energy (EME), and the facility’s predecessor in interest Commonwealth Edison (ComEd), violated PSD permitting requirements and Best Achievable Control Technology (BACT) operating requirements.  Midwest Generation and its parent EME had bought several power plants from ComEd in 1999.  Midwest Generation and ComEd argued that the NSR / PSD claims were one-time violations barred by the statute of limitations.  The district court dismissed the PSD claims arising prior to the sale as time-barred.  EPA appealed to the Seventh Circuit Court of Appeals.  The Seventh Circuit heard oral argument  in the Midwest Generation appeal on September 20, 2012.

  •  United States v. EME Homer City Generation, L.P., Case Nos. 11-4406, 11-4407, 11-4408 (3rd Cir.)

 This appeal arose from the district court’s dismissal of the government’s injunctive and civil penalty claims alleging EME Homer City Generation, its successor, and its predecessors Pennsylvania Electric Co (Penelec) and New York State Electric and Gas Corporation (NYSEG) violated PSD permitting requirements and Best Available Control Technology (BACT) operating requirements.  Homer City acquired the power plant from Penelec and NYSEG in 1999 after the predecessors had performed projects on two of the three operating units.  The district court dismissed the government’s civil penalty claims as time-barred, finding that a PSD violation is a one-time violation that occurs, at the latest, at the time of the construction project.  The district court also dismissed the injunctive relief claims, finding that the current owner cannot be liable for the prior owners PSD violations, and that no risk of additional harm is presented by a prior owner who is no longer in control of the facility.  EPA’s appeal of the district court’s decision is pending in the Third Circuit Court of Appeals. Oral argument, if requested by a member of the Third Circuit panel, is scheduled for May 17, 2013.