Babst Calland: Sixth Circuit Rules that EPA May Pursue New Source Review Enforcement Actions Without Having to Wait for Actual Emissions Data: But Can EPA Prevail on the Merits?

Babst Calland: Sixth Circuit Rules that EPA May Pursue New Source Review Enforcement Actions Without Having to Wait for Actual Emissions Data: But Can EPA Prevail on the Merits?

In DTE Energy Co. v. EPA (March 28, 2013) [enhanced version available to lexis.com subscribers], the Sixth Circuit determined a procedural aspect of EPA's enforcement authority under the New Source Review (NSR) program of the Clean Air Act. The court ruled that EPA has authority to challenge, before the operator begins construction, the preconstruction emissions projections that were used by the operator in determining that physical changes would not trigger NSR. The Sixth Circuit characterized the NSR program as a "project-and-report scheme" and not a "prior approval scheme" for proposed modifications to an emissions source. Nonetheless, the Sixth Circuit held that EPA need not wait for post-change emissions data to challenge an operator's determination that NSR did not apply. A decision on the merits is anticipated on remand.

Under the Clean Air Act and its implementing regulations, an operator proposing a "major modification" to a major stationary source must first obtain a permit. A "major modification" is one that causes a "significant" emissions increase of a regulated pollutant as well as a significant net emissions increase. Under the relevant regulations, the operator must determine whether a proposed project will result in a significant increase by projecting the actual post-change emissions and comparing them to the current baseline actual emissions. If the operator determines that the project will result in a "significant" emissions increase (and a significant net emissions increase), then an NSR permit is necessary. However, if the operator determines that the project does not result in a significant emissions increase, then the operator need only monitor emissions after the project is completed to determine if its projections were correct.

In 2010, DTE Energy Co. (DTE), an electric utility operating a power plant in Michigan, sought to undertake various projects at the power plant. Prior to commencing work, DTE projected the post-project emissions to determine whether a significant increase would result from the projects. Although the projection showed that emissions after the change would be considerably higher than the baseline actual emissions, DTE determined that the increases would be caused by demand growth rather than the projects. Under the demand growth exclusion, the operator is required to exclude from the emissions increase any emissions that the unit could have accommodated during the baseline period if those emissions are also unrelated to the change. DTE made its emissions determination, and, as required by the NSR regulations, submitted its emissions analysis to the Michigan Department of Environmental Quality (MDEQ) and EPA.

EPA filed an action alleging that DTE's projects would constitute a major modification requiring an NSR permit. DTE moved for summary judgment, arguing that it met all of its obligations under the NSR regulations by projecting their post-construction emissions, determining that those projections did not indicate a major modification, reporting these projections and monitoring their emissions post-project. DTE further argued that EPA's enforcement action was premature because NSR is triggered only if the proposed project actually causes a significant emissions increase, which cannot be verified until actual emissions data are collected. The district court agreed and granted summary judgment, holding that NSR enforcement is unavailable prior to modification if the operator satisfies the reporting and recordkeeping requirements, and that EPA may only pursue NSR enforcement "if and when post-construction monitoring shows a need to do so."

On appeal by EPA, the Sixth Circuit reversed and remanded. Noting that the NSR program is a "project-and-report scheme," the Sixth Circuit held that EPA must have the authority to review, prior to modification, an operator's determination that a permit is not needed by verifying that the operator has properly projected its post-modification emissions, and to commence enforcement to prevent construction if, in EPA's view, the modification requires an NSR permit. However, the court emphasized that nothing in the NSR program requires the operator to "obtain any determination from the Administrator before beginning actual construction," and that NSR is not "a program designed to force every source to eventually adopt modern emissions control technology."

The impact of this decision is that the EPA need not await post-change emissions data to pursue enforcement actions. However, it would appear that the court's determination is limited. The court did not render any decision on the merits of EPA's allegations. While the court determined that EPA must be able to pursue enforcement actions if an operator fails to follow the NSR requirements for conducting an emissions analysis, the examples cited by the court are blatant errors: if the operator uses an improper baseline period or uses the wrong number for the significance threshold (e.g., use of 400 tpy instead of 40 tpy). Absent is any discussion of the interpretation of the demand growth exclusion which is often a major point of disagreement under the NSR program. It will be interesting to see how the district court decides the battle over the emissions analysis on remand, and the application of the demand growth in particular.

For more information about these and other air regulations, please contact Michael H. Winek at (412) 394-6538 or mwinek@babstcalland.com, David E. Northrop at (412) 394-6590 or dnorthrop@babstcalland.com, or Edward P. Yim at (412) 394-6540 or eyim@babstcalland.com.

Copyright 2013 • Babst, Calland, Clements and Zomnir, P.C. • Two Gateway Center, Pittsburgh, PA 15222 • 412-394-5400 • Administrative Watch is privately distributed by Babst, Calland, Clements and Zomnir, P.C., for the general information of its clients, friends and readers. It is not designed to be, nor should it be considered or used as, the sole source of analyzing and resolving legal problems. If you have, or think you may have, a legal problem or issue relating to any of the matters discussed in the Administrative Watch, consult legal counsel.

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