Special Topics in Environmental Management

EPA Prevails in New Source Review Case

EPA’s authority to find a major source of air pollution in violation of a little known provision of the federal New Source Review (NSR) regulations was affirmed in a 2-to-1 opinion by a panel of the U.S. Court of Appeals for the 6th Circuit.

The majority stated that the EPA was entitled to “second guess” DTE Energy Company’s determination that planned construction projects at the Monroe Power Plant, Michigan’s largest coal-fired facility, did not require NSR preconstruction permitting because, according to DTE, the expected emissions increases would result from increased demand from energy consumers and not from the construction itself.

While the Clean Air Act (CAA) gives major sources the right to make this determination on their own—and proceed with construction if their determination indicates that they are not subject to NSR—the majority found that the EPA is also entitled to review that determination and conduct enforcement if the Agency finds it deficient.

The majority ruling, in this case, is unusual in that only one judge actually agreed with EPA’s arguments. A second judge did not agree with the analysis of the first judge but joined in the judgment because, she stated, she was compelled to do so by a prior 6th Circuit opinion. The third panel member dissented from the majority judgment.

Major modification

CAA regulations require a utility seeking to modify a source of air pollutants to make a preconstruction projection of whether and to what extent emissions will increase following construction. This projection then determines whether the project constitutes a major modification, thus requiring an NSR permit before construction. The regulations require an operator to “consider all relevant information” when estimating its post-project actual emissions but allow for the exclusion of any emissions an existing unit could have accommodated during the baseline period and that are also unrelated to the particular project, including any increased utilization due to demand growth.

An operator must document and explain its decision to exclude emissions from its projection resulting from future demand growth and provide such information to the EPA or the designated state regulatory agency.

DTE I

In March 2010, DTE commenced several projects on Unit 2 of the Monroe plant. The work included replacement of the economizer, pendant reheater, and a portion of the water wall of the unit’s boiler tube.

Before beginning these projects, DTE submitted calculations about the projects’ expected impact on emissions to its reviewing authority, the Michigan Department of Environmental Quality. DTE projected that in the 5 years after the projects, Unit 2 would have emissions increases of 4,096 tons of nitrogen oxide and 3,701 tons of sulfur. Both amounts are increased by more than 40 tons per year, which are “significant” under the federal regulations, thereby triggering NSR permitting. But DTE excluded all of its projected emissions increases from its projected actual emissions under the demand growth exclusion.

Shortly afterward, the EPA told DTE to provide it with information validating its contention that the projects did not constitute a major modification. The information DTE forwarded did not satisfy the Agency. In June 2010, the EPA issued DTE a notice of violation stating that the projects “resulted in a significant net emissions increase” and, therefore, constituted a major modification for which DTE was required to obtain a permit.

DTE sued in district court and won. The court held that EPA’s enforcement action was premature because the construction had not yet produced an actual increase in emissions. On appeal, the 6th Circuit reversed and remanded, holding that the EPA was authorized to bring an enforcement action based on projected increases in emissions without first demonstrating that emissions actually had increased after the project.

DTE II

On remand, the district court again issued a judgment for DTE, this time stating that “the regulations allow operators to undertake projects without having EPA second-guess their projections.” The district court judge also expressed bewilderment about what the EPA stood to gain by pursuing the litigation because the actual postproject emissions from Unit 2 never increased.

The EPA appealed again, relying on the prior decision in DTE I.

According to Judge Martha Craig Daughtrey, the district judge erred by finding that the EPA was only authorized to conduct a cursory review of DTE’s determination, and anything more was prohibited “second-guessing” of DTE’s finding. “In reviewing an operator’s attribution of increased emissions to demand growth, the EPA definitely is not confined to a ‘surface review’ or ‘cursory examination,’” wrote Daughtrey. Furthermore, Daughtrey found that the short table of expected emissions DTE provided to the EPA constituted a superficial calculation.

“In short, DTE was not required by the regulations to secure the EPA’s approval of the projections, or the project, before beginning construction, but in going forward without a permit, DTE proceeded at its own risk,” wrote Daughtrey. “The EPA is not prevented by law or by our prior opinion in DTE I from challenging DTE’s preconstruction projections, such as they are. Viewing the facts in the light most favorable to the EPA, we conclude that there are genuine disputes of material fact that preclude summary judgment for DTE regarding DTE’s compliance with NSR’s statutory preconstruction requirements and with agency regulations implementing those provisions.”

Concurring judgment

Judge Alice M. Batchelder found that the EPA was correct in asserting that DTE violated the regulations by failing to base its predictions on all relevant information and also by excluding emissions that the EPA believed were related to the project. Batchelder wrote that according to DTE I, these are legitimate challenges. Even though she dissented from the majority in DTE I, Batchelder accepted that the opinion is the law of the 6th Circuit, and therefore, she must agree with Daughtrey that the district court had erred.

Dissent

In his dissent, Judge John M. Rogers stated that the NSR regulations do not require that the operator of a major source interpret relevant information the way the EPA interprets it. Neither do the regulations require a specific level of detail that would justify any contention that the short table of emissions data DTE provided to the EPA was insufficient, said Rogers.

The 6th Circuit’s opinion in United States v. DTE Energy Company is here.

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