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Michigan Federal Court Rules that EPA Improperly Second-Guessed Preconstruction Emission Projections in New Source Review Enforcement Action


In a case remanded from the U.S. Court of Appeals for the Sixth Circuit, the U.S. District Court for the Eastern District of Michigan has limited EPA preconstruction enforcement actions to a cursory review “of a source operator’s preconstruction projections to determine whether they comport with the letter of the law.” As reported in previous issues of the Air Quality Letter, U.S. v. DTE Energy Co., Case No. 10-13101, involves an EPA enforcement action against DTE Energy (DTE) and Detroit Edison relating to DTE’s preconstruction emission estimates that indicated a proposed facility modification would not be subject to Prevention of Significant Deterioration (PSD) review under the Clean Air Act. (See enforcement decisions summarized in the third quarter 2011 and first quarter 2013 Air Quality Letter.)

In the initial enforcement action, the district court agreed with DTE’s position that as long as pre-project requirements were met (i.e., an emissions analysis was performed in accordance with regulatory requirements), a violation could be found only if the project actually caused an emissions increase as determined by the first year of post-construction monitoring. The district court further rejected EPA’s claim that DTE’s analysis regarding preconstruction emissions was deficient. On appeal, the Sixth Circuit reversed the district court ruling precluding an EPA enforcement action until after the first year of post-construction monitoring finding that “a preconstruction projection is subject to an enforcement action by EPA to ensure that the projection is made pursuant to the requirements of the regulations.” However, the Sixth Circuit stated that the regulations do not require approval of emissions projections prior to construction and that if EPA “can second guess the making of the projections, then a project-and-report scheme would be transformed into a prior approval scheme. The Sixth Circuit remanded the case to the district court to determine whether DTE had complied with the regulations regarding emission projection.

In its March 3, 2014, decision, the district court found that DTE met the regulatory requirements for preconstruction emissions projections. DTE’s project involved replacement and refurbishing of a coal-fired electric utility generating unit. Although DTE projected that emissions of NOX and SO2 would increase by thousands of tons per year after the project, DTE determined that the “demand growth” exclusion applied to the entire increase as unrelated to the project since before the project DTE could accommodate the increase based on additional customer demand. EPA argued that DTE had improperly applied the demand growth exclusion. The district court stated that EPA was limited to “a surface review” of preconstruction projections to determine if the “letter of the law” had been met. “Anything beyond this cursory examination would allow EPA to ‘second-guess’ a source operator’s calculations; an avenue which the Sixth Circuit explicitly foreclosed to regulators.” The court found that EPA was not alleging a violation of its regulations but rather took “defendants to task over the extent to which they relied up the demand growth exclusion.” The district court found EPA’s allegations to be “exactly what the Sixth Circuit envisioned when it precluded EPA from second-guessing ‘the making of [preconstruction emission] projections.’” Further the court found EPA had not identified a regulation requiring DTE to “demonstrate the propriety of their demand growth exclusion calculations” and that EPA’s allegation was belied by the fact that DTE demonstrated, and EPA conceded, that actual post-project emissions never increased.

Finally, the district court noted, as had the Sixth Circuit, that EPA has the authority to obtain emissions information from DTE and initiate an enforcement action should emissions traceable to the project increase.

To view a complete PDF of the First Quarter 2014 Air Quality Letter, click here.

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