The NSR Regulations Still Make No Sense: The 6th Circuit Reverses the DTE Decision Based on a 1-Judge Minority Opinion

Posted on January 17, 2017 by Seth Jaffe

Last week, the 6th Circuit Court of Appeals reversed – for the second time – a District Court decision granting summary judgment to DTE Energy in the United States’ case alleging that DTE Energy had violated EPA’s NSR regulations.  According to the 6th Circuit, EPA has authority to bring an enforcement action against DTE Energy, notwithstanding that the regulations don’t provide for EPA review of DTE Energy’s emissions projections prior to construction and also notwithstanding that the project did not in fact result in a significant net emissions increase.

One might well be surprised by the result, but the result itself is not the most surprising part of the case at this point.  What’s really surprising is that the United States won the case even though only one of the three judges on the panel agreed with EPA’s position.

How could such a thing happen, you might ask?  Here’s the best I can do.  Judge Daughtrey, author of the panel opinion, believes that EPA has the authority to second-guess DTE’s estimates if they are not adequately explained.  Judge Rogers disagreed and dissented.  Judge Batchelder also disagreed with Judge Daughtrey’s views, pretty much in their entirety.  However, Judge Batchelder concluded that she had already been outvoted once, in the first 6th Circuit review of this case and she felt bound to follow the decision in DTE 1.  The law remains an ass.  

Even were Donald Trump not about to nominate a Supreme Court justice, I’d say that this case is ripe for an appeal to the Supreme Court and, if I were DTE, I’d pursue that appeal vigorously and with a fairly optimistic view of my chances.

And once again, I’ll suggest that the very fact that the NSR program can repeatedly thrust such incomprehensible cases upon us is itself reason to conclude that the entire program is ripe for a thorough overhaul – or perhaps elimination.

Is the NSR Enforcement Initiative Dead Yet? Injunctive Relief Claims Dismissed Against U.S. Steel

Posted on April 29, 2014 by Seth Jaffe

On April 18, EPA lost another NSR enforcement case. Not only that, but this was a case EPA had previously won. As we noted last August, Chief Judge Philip Simon of the Northern District of Indiana, had previously ruled that the United States could pursue injunctive relief claims against United States Steel with respect to allegations by EPA that US Steel had made major modifications to its plant in Gary, Indiana, in 1990 without complying with NSR requirements.

Having reread the 7th Circuit opinion in United States v. Midwest Generation, Judge Simon has had a change of heart and now has concluded that injunctive relief claims (as well as damages) are barred by the statute of limitations, even where the same entity that allegedly caused the original violation still owns the facility. Judge Simon concluded that the Court of Appeals had spoken with sufficient clarity to bind him. The language he cited was this:

"Midwest cannot be liable when its predecessor in interest would not have been liable had it owned the plants continuously. (Italics supplied by Judge Simon.)"

Judge Simon seems to have felt more compelled than persuaded.

"Candidly, it is a little difficult to understand the basis for the statements in Midwest Generation that even claims for injunctions have to be brought within five years. But that is what Midwest Generation appears to mandate. And in a hierarchical system of courts, my job as a trial judge is to do as my superiors tell me.

So while the basis for applying a limitations period to the EPA’s injunction claim under §§ 7475 and 7503 is thinly explained in Midwest Generation, upon reconsideration I do think that’s the outcome required of me here."

One final note. In his original opinion, Judge Simon ruled against US Steel, in part, because the concurrent remedy doctrine, which US Steel argued barred injunctive relief where damages were not available, could not be applied against the United States. As Judge Simon noted, the 7th Circuit Court of Appeals did not discuss the concurrent remedy doctrine, so we don’t know the basis of its holding that a party continuously owning a facility that is alleged to have violated the NSR provisions of the CAA more than five years ago is not subject to injunctive relief. However, it is worth pointing out, as we discussed last month, that Judge James Payne, of the Eastern District of Oklahoma, dismissed injunctive relief claims brought by the Sierra Club (not the government, of course), relying on the concurrent remedy doctrine.

Something tells me that the United States isn’t quite ready to give up on these cases, notwithstanding a string of recent defeats. The NSR enforcement initiative may be in trouble, but it’s not quite dead yet.

 

More on Daubert: The 11th Circuit Allows EPA’s Experts to Testify on NSR Violations

Posted on September 27, 2013 by Seth Jaffe

Last spring, my colleague Robby Sanoff complained on our firm’s blog about the problem resulting from appellate courts’ refusal to give appropriate discretion to district judges in performing their gatekeeping function under Daubert.  As Robby put it:

"The difference between “shaky but admissible” and unreliable and inadmissible evidence would seem to be entirely in the eye of the beholder."

Robby will not be pleased by last’s week’s decision by the 11th Circuit Court of Appeals in United States v. Alabama Power, reversing a district court order excluding EPA’s expert testimony in support of its NSR enforcement action against Alabama Power.  The Court majority performed an extensive review of the testimony provided in the Daubert hearing below, and concluded that the district court’s decision was clearly erroneous.  (For those of you concerned with the merits of these cases, the question was whether EPA’s model, which clearly applied to determinations of emissions increases for baseload plants, could be applied as well to cycling plants generally and the plants at issue in the case in particular.)

The case is particularly interesting because Judge Hodges, taking Robby’s view, dissented.  As Judge Hodges noted, prior to the Supreme Court decision in General Electric v. Joiner, appellate courts did not grant significant discretion to district courts in exclusion rulings.  However, Joiner made clear that the abuse of discretion standard applies even in outcome-determinative exclusion rulings.

Next, Judge Hodges noted that, in Daubert rulings, there should be a “heavy thumb – really a thumb and a finger or two – that is put on the district court’s side of the scale.”  He then rehearsed the actual statistics on Daubert reversals in the 11th Circuit:  3 reversals out of 54 cases.

Finally, Judge Hodges conducted a brief review of evidence tending to support the district court’s conclusion and determined that its decision was not “a clear error in judgment.”  Concluding that a different result might be appropriate if review were de novo, Judge Hodges quoted Daubert itself:

"We recognize that, in practice, a gatekeeping role for the judge, no matter how flexible, inevitably on occasion will prevent the jury from learning of authentic insights and innovations. That, nevertheless, is the balance that is struck by Rules of Evidence designed not for the exhaustive search for cosmic understanding but for the particularized resolution of legal disputes."

Decisions such as this have to be discouraging to district court judges, as Robby noted.  It’s worth pointing at that Judge Hodges is actually a district court judge, sitting on the court of appeals by designation.  It seems fitting that the district judge on the panel would be the judge vainly trying to protect the discretion of district judges in Daubert matters.

Yes, Another Blow, but not a Knockout

Posted on August 28, 2013 by Ralph Child

A recent post from Mary Ellen Ternes characterized the August 23, 2013 decision in EME Homer City Generation as another blow to EPA’s ability to enforce against long ago violations of the requirement to obtain New Source Review.

The Third Circuit’s decision certainly is a blow to EPA’s NSR enforcement initiative, but not nearly a knock-out.

First, the decision depended on the fact that neither the Clean Air Act or Pennsylvania’s EPA-enforceable State Implementation Plan expressly requires a major source to operate in compliance with the results of a New Source Review.  But some states do have that requirement in their EPA-enforceable SIPs, as the Third Circuit recognized in distinguishing other cases.  In such states, major sources that did not go through NSR as allegedly required at the time of construction or modification should still anticipate potential EPA enforcement via the SIP. 

Second, even where it is not illegal to operate in compliance with NSR, the question is still open whether the government may obtain injunctive relief anyway.  In United States v. United States Steel Company (N.D. Indiana), the Court held on August 21, 2013 that no penalties could be imposed at law because there is no federally enforceable requirement in Indiana to operate in accordance with the results of an NSR.  Yet the Court went on to  hold that the United States still can seek injunctive relief against a plant that allegedly violated the NSR requirement.  The Court reasoned that because the sovereign is not subject to laches, the government remains able to invoke the Court’s equitable powers and to seek an injunction to correct the violation.

On to the Seventh Circuit?

Another Blow to EPA’s NSR/PSD Enforcement Initiative

Posted on August 27, 2013 by Mary Ellen Ternes

Followers of this Blog will not be at all surprised with the Third Circuit’s August 22, 2013 ruling denying EPA’s requested CAA New Source Review enforcement relief against former and current owners of the grandfathered and allegedly subsequently modified power plant that has been called “one of the largest air pollution sources in the nation.”   Former and current owners of such aging power plants caught in EPA’s NSR national enforcement initiative are reassured with the Third Circuit’s finding that text of the Clean Air Act does not authorize injunctive relief for wholly past PSD violations, even if that violation causes ongoing harm.

Having lost its battle for the Cross-State Air Pollution Rule (CSAPR, or the Transport Rule) in August 2012, EPA was dealt another blow with United States v. EME Homer City Generation, in which the Third Circuit upheld the District Court’s 2011 dismissal of the government’s claims.

In 2011, the District Court for the Western District of Pennsylvania agreed with the current and former owners of the power plant that EPA had no authority to hold either party liable for alleged PSD violations arising from purported modifications to their grandfathered power plant.  In reaching defendants’ bases for dismissal, the District Court reviewed the permit actions approved by air permitting authorities in 1991, 1994, 1995 and 1996, which EPA alleged with Notices of Violation in 2008 (against the current owner) and 2010  (against current and former owners), to have triggered PSD, and which caused the current Title V permit to be incomplete.   The Court’s holding that the PSD violations constituted singular, separate failures by the former owner rather than ongoing failures meant that EPA was outside the five year statute of limitations, allowing no civil penalties against the former and current owners.  Moreover, the District Court held EPA was left with no injunctive relief against the current owner because they were in no position to apply for a PSD permit prior to their acquisition of the plant in 1998, and thus could not have violated PSD.

The District Court separately addressed EPA’s claims of injunctive relief against the former owner, recognizing the ongoing higher SO2 emissions that occurred without the benefit of an historic PSD permit.  The District Court was unwilling to reach a broad conclusion regarding its authority to award injunctive relief under the PSD program, but given that the former owners no longer owned or operated the plant, and therefore no longer violate PSD, held that there was no plausible basis for granting the rare and extraordinary remedy of injunctive relief, despite the higher emissions occurring the absence of BACT, which the court characterized as a present consequence of a one-time violation.

Upon review, the Third Circuit rejected EPA’s arguments that the current owners violated PSD by operating the plant without BACT with a simple, “no,” pursuant to the plain text of 42 USC 7475(a) which references merely “construction” and “modification,” not “operation, ” relying on U.S. v. Midwest Generation and Sierra Club v. Otter Tail Power Co.,  adopting the positions of the Seventh and Eighth Circuits that “even though the preconstruction permitting process may establish obligations which continue to govern a facility’s operation after construction, that does not necessarily mean that such parameters are enforceable independent of the permitting process,” and thoroughly refuting EPA’s arguments that PSD could somehow result in ongoing operational requirements outside the PSD permitting process.  

Likewise, the Third Circuit rejected EPA’s proposed injunctive relief, which would have required the former owners to install BACT or purchase emission credits and retire them, affirming the District Court’s decision on narrower grounds.  Specifically, the Third Circuit held that the text of the Clean Air Act does not authorize an injunction against former owners and operators for a wholly past PSD violation, even if that violation causes ongoing harm. 

Hopefully, this Third Circuit decision, along with the Seventh and Eighth Circuit decisions relied upon therein, will signal a substantive end to EPA’s NSR/PSD Enforcement Initiative for similarly situated historic grandfathered power plants and their former and current owners.  But, we may have to wait out EPA’s hard headed circuit by circuit enforcement approach.  See e.g., EPA’s December 21, 2013 enforcement memorandum, “Applicability of the Summit Decision to EPA Title V and NSR Source Determinations,” following the Sixth Circuit’s Summit Petroleum Corp. v. EPA et al.

Enough Is Enough!

Posted on July 3, 2013 by Michael McCauley

On June 13, 2013, U.S. EPA announced its enforcement priorities for the next three years. Among other things, the Agency decided to continue its ill-fated, 15-year old "New Source Review (NSR) Enforcement Initiative."  This effort has targeted coal-fired power plants and other large manufacturing facilities for alleged violations of the Clean Air Act.  The allegations often pertain to projects which were implemented over twenty and thirty years ago.

Not surprisingly, EPA has not fared very well in the courts with cases like this.  The Agency has run into problems, including:  1) statute of limitations concerning projects completed more than five years before legal action has been commenced; 2) successor liability issues when the current owner/operator of a facility did not own or operate the facility when a targeted project was undertaken; and 3) serious evidentiary questions as to whether a decades-old project caused the requisite actual air emissions increase which triggers the requirements for NSR review under the Clean Air Act.  See generally "EPA's Utility Enforcement Initiative: The MetED Decision May Pose Problems for Plaintiffs," BNA Daily Environment Report, June 13, 2013; U.S. v. Midwest Generation, LLC, 694 F. Supp. 2d 999 (N.D. Ill. 2010), appeal pending in 7th Circuit Court of Appeals.

A recent notice of violation illustrates some of the unfairness and waste of resources connected with EPA's NSR Enforcement Initiative.  EPA issued the notice in 2012.  It alleged a number of NSR violations against the owner/operator of a manufacturing facility (not a utility).  One of the allegations pertained to a change made at that facility in 1982.  Since 1982, the ownership of the facility has changed four times.  The current owner has been targeted in EPA's enforcement action.  Records regarding the 1982 project are scant, and the personnel involved in the work in 1982 are all either long-retired or deceased.

To make matters worse, EPA had received the available information about the 1982 project in 1999 from the party who owned the facility at that time.  This was done in response to a Section 114 Information Request issued by EPA.  That owner heard nothing further from EPA about any of the projects covered in the 1999 inquiry.

In 2011, EPA issued a new Section 114 Information Request to the current owner who had acquired the facility in 2006.  The request covered projects that occurred after 1999, but it also covered projects which were done prior to 1999, including the 1982 project discussed above.

A reasonable person could ask:  1) Why did EPA wait for 13 years to allege a NSR violation regarding the 1982 project when the Agency was given information about it in 1999?  2) Why is EPA taking action now on a change made at the facility over thirty years ago?  3)  Why is EPA targeting the owner who acquired the facility in 2006 -- some seven years after EPA was first given information about the 1982 project?  4)  Has EPA considered that the current owner/operator of the facility is four times removed from the owner/operator who implemented the change in 1982?

Substantial amounts of money and countless hours of valuable employee time have been expended by the current owner in dealing with EPA on this case.  Both the money and the time could have been better utilized in helping to keep the facility competitive in a very challenging global marketplace.

EPA should consider whether the continuation of the NSR Enforcement Initiative is justified with respect to projects that occurred decades ago.  With most of these cases, fair-minded decision-makers at EPA will find that "Enough is Enough!"

EPA Notches Another NSR Settlement: Is This The Most Successful Program That Shouldn’t Exist?

Posted on November 30, 2012 by Seth Jaffe

The following post is essentially a sequel to this morning’s post, which was originally intended to be posted in September.

Last week, EPA announced that it had reached yet one more – its 24th – settlement under as a result of its NSR enforcement initiative.  This time, it was Louisiana Generating’s Big Cajun II plant, in New Roads, Louisiana.  By now, the contours are familiar, including a penalty of $14 million and injunctive relief estimated to cost approximately $250 million.  Changes will include:

    - Installation of SNCR (not SCR) on all units to control NOx.
    - Installation of dry sorbent injection as a short term SO2 reduction measure
    - Retirement, refueling, repowering, or retrofitting of Unit 1 in the long-term
    - Refueling of Unit 2 to natural gas
    - Limitations on sulfur content
    - Plant-wide limits on SO2 emissions
    - Installation of electrostatic precipitators to control PM on units 1 and 3

It sure sounds great.  EPA estimates reductions of 20,000 tpy in SO2 emissions and 3,000 tpy in NOx emissions.  Still, I question the value of this settlement in the big picture.  I sense some double-counting here.  EPA is predicting significant reductions in emissions as a result of its industry-wide rules, including the transport rule (last known as CSAPR, but presumably awaiting a new acronym for its replacement) and the air toxics rule.

Add to that the cost pressures on coal resulting from the lower natural gas prices caused by the fracking boom, and it is quite possible that Louisiana Generating would have ended up in the same place even absent a settlement.  Throw in concerns about whether individual units were in fact violating the rather ambiguous NSR provisions or were engaging in what they truly considered routine maintenance, and the obvious economic issues raised by trying to implement command and control regulations on a plant-by-plant basis pursuant to litigation, rather than through nationwide market-based caps, and I say again that, to me, the NSR program is still spinach, and I say, to heck with it.

A VIEW FROM TEXAS: FIFTH CIRCUIT VACATES EPA DISAPPROVAL OF TEXAS FLEXIBLE PERMIT PROGRAM

Posted on August 30, 2012 by Patricia Finn Braddock

On August 13, 2012, the United States Court of Appeals for the Fifth Circuit held that the Environmental Protection Agency’s (EPA) disapproval of the Texas Flexible Permit Program (TFPP) had been arbitrary and capricious, an abuse of discretion, not in accordance with law, and unsubstantiated by substantial evidence on the record taken as a whole.  Accordingly, the Fifth Circuit granted the petition for review, vacated EPA’s disapproval of the Texas plan and remanded the matter to EPA.

The TFPP, a Minor new source review (NSR) permit program, had been submitted to EPA in November 1994 as a revision to the Texas State Implementation Plan (SIP).  The TFPP authorized modifications to existing facilities without additional regulatory review provided the emissions increase would not exceed an aggregate limit specified in the permit.

Despite the mandate in the Clean Air Act (CAA) that EPA approve or disapprove a SIP revision within eighteen months of its submission, EPA failed to make a determination on the TFPP for more than sixteen years.  By the time that EPA announced its disapproval, the State of Texas had issued approximately 140 permits under the TFPP.  And despite the excessive delay in announcing its disapproval of the TFPP, EPA found time to promptly notify flexible permit holders in Texas that their facilities were operating without a SIP-approved air permit and that they were risking federal sanctions unless SIP-approved air permits, requiring current Best Available Control Technology, were obtained.

The State of Texas and ten industry and business groups subsequently filed suit challenging EPA’s disapproval, which had been based on three primary arguments: 1) the program might allow major sources to evade major NSR; 2) the provisions for monitoring, recordkeeping and reporting (MRR) are inadequate, and 3) the methodology for calculating permit emissions caps lacks clarity and is not replicable.  Two of the justices on the 3-judge panel court rejected each of EPA’s contentions, with the third justice dissenting.

The majority rejected EPA’s contention that the TFPP allowed major sources to evade Major NSR because the TFPP includes three rules that affirmatively require compliance with Major NSR, and EPA could not identify a single provision in the CAA or the CAA implementing regulations that empowered EPA to disapprove a SIP that did not also contain an express negative statement that the Minor NSR permit could not be used to evade Major NSR.  Further the court noted that in its briefings, EPA had conceded that language explicitly prohibiting circumvention of the Major NSR requirements is not ordinarily a minimum NSR SIP program element.  75 Fed. Reg. at 41,318-19.

The majority also rejected EPA’s contention that the TFPP allowed the Texas Commission on Environmental Quality executive director too much discretion in determining MRR requirements in a Minor NSR permit and that this amount of discretion is contrary to EPA policy.  The court found that EPA could not identify an independent and authoritative standard in the CAA or its implementing regulations that required MRR requirements to be specified in a SIP, rather than based on the size, needs, and type of facility authorized in a Minor NSR permit.  In addition, the court found that EPA failed to identify the purported policy of disfavoring “director discretion” in any comments that EPA submitted to the State of Texas on the TFPP regulations or in EPA’s disapproval of the requested Texas SIP revision.  Thus, the court held that the purported policy is not in the record on which the court must review EPA’s disapproval under the APA.  Although not a factor in its decision, the majority also noted that “other recent EPA action tends to not only undercut the assertion of such a policy but also to give the impression that EPA invented this policy for the sole purpose of disapproving Texas’ proposal.”

Finally, the majority rejected all of the arguments EPA gave for finding the TFPP to be deficient.   Among other things, the court concluded that EPA could not identify a single provision in the CAA or EPA’s Minor NSR regulations  that requires a state to specify the method of calculating emissions caps or to demonstrate replicability in its SIP or as a condition of approval of a state’s Minor NSR program.    Similar to its comments on EPA’s second contention, the majority also noted that EPA appears to have adopted the third test solely for application to the TFPP.

Due to the uncertain status of the TFPP and the risk of federal enforcement, most flexible permit holders requested that the flexible permits be altered to reflect that the authorization meets the air permitting requirements already in the EPA-approved Texas SIP.  Thus, EPA succeeded in gutting a Minor NSR permit program that it had wrongly disapproved, but it did not achieve any substantive changes in permit requirements.  Although the majority vacated EPA’s disapproval of the TFPP and remanded the matter to the agency, EPA is not likely to act and facilities in Texas are not likely to decide on whether to pursue new flexible permits until after the November election.

EPA's Roll-Back of Bush-Era Rules Appears to Begin in Earnest

Posted on February 13, 2010 by Seth Jaffe

While a lot of attention has been paid to whether EPA would reverse the Bush EPA decision denying California’s petition to regulate greenhouse gas emissions from mobile sources,  it is now clear even outside the climate change arena that life at EPA is going to be substantially different under the current administration.  As if evidence were really needed for that proposition, EPA announced this week that it was putting on hold the NSR aggregation rule that EPA had promulgated on January 15, 2009.

The rule, which had been long sought by industry, would have provided that nominally separate projects would only have to be combined – aggregated for NSR/PSD purposes – if  they are “substantially related.” It also would have created a rebuttable presumption that projects more than three years apart are not substantially related. Responding to a request from NRDC and the OMB memo asking agencies to look closely at rules promulgated before the transition but not yet effective, EPA concluded that the rule raises “substantial questions of law and policy.” Therefore, EPA postponed the effective date of the rule until May 18, 2009 and also announced that it was formally reconsidering the rule in response to the NRDC petition.

To those in industry, the aggregation rule was not a radical anti-environmental roll-back of environmental protection standards.  Rather, it was more of a common-sense approach towards making the NSR program simpler and clearer.  It is one of my pet peeves with the prior administration, however, that it gave regulatory reform a bad name.  

In any case, I feel as though I should open a pool regarding what will be the next Bush-era rule to be tossed overboard.  We surely won’t have to wait long for it to happen.

EPA's Roll-Back of Bush-Era Rules Appears to Begin in Earnest

Posted on February 13, 2009 by Seth Jaffe

While a lot of attention has been paid to whether EPA would reverse the Bush EPA decision denying California’s petition to regulate greenhouse gas emissions from mobile sources,  it is now clear even outside the climate change arena that life at EPA is going to be substantially different under the current administration.  As if evidence were really needed for that proposition, EPA announced this week that it was putting on hold the NSR aggregation rule that EPA had promulgated on January 15, 2009.

The rule, which had been long sought by industry, would have provided that nominally separate projects would only have to be combined – aggregated for NSR/PSD purposes – if  they are “substantially related.” It also would have created a rebuttable presumption that projects more than three years apart are not substantially related. Responding to a request from NRDC and the OMB memo asking agencies to look closely at rules promulgated before the transition but not yet effective, EPA concluded that the rule raises “substantial questions of law and policy.” Therefore, EPA postponed the effective date of the rule until May 18, 2009 and also announced that it was formally reconsidering the rule in response to the NRDC petition.

To those in industry, the aggregation rule was not a radical anti-environmental roll-back of environmental protection standards.  Rather, it was more of a common-sense approach towards making the NSR program simpler and clearer.  It is one of my pet peeves with the prior administration, however, that it gave regulatory reform a bad name.  

In any case, I feel as though I should open a pool regarding what will be the next Bush-era rule to be tossed overboard.  We surely won’t have to wait long for it to happen.