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United States Court of Appeals for the Sixth Circuit Rules that Pre-Construction Projections of Emission Increases are Subject to an Enforcement Action by EPA


On March 28, 2013, the United States Court of Appeals for the Sixth Circuit, in a two-to-one decision, entered a ruling that allowed EPA to proceed with a pre-construction enforcement action against DTE Energy (DTE) and Detroit Edison relating to DTE’s pre-construction emission estimates that indicated a proposed facility modification would not be major for Prevention of Significant Deterioration (PSD) review under the Clean Air Act.  The Sixth Circuit reversed and remanded the case to the United States district court.  In essence, the district court found that DTE’s pre-construction emission estimates under the actual-to-future-actual emission test were not subject to enforcement by EPA until after the modification was operational when post-construction emissions would be known.

In this case, DTE projected future actual emissions for a project that involved replacing significant portions of a coal-fired electric utility boiler and refurbishing other boiler components.  The repair/replacement project cost $65 million.  Although the utility projected a post-project emission increase of several thousand tons of SO2 and NOx, it also determined that the entire emission increases fell under the “demand growth” exclusion as increases in emissions that the source was able to accommodate physically and legally prior to the project.  DTE submitted its projected future actual emission calculations to the state regulatory authority prior to commencement of the project.  Two months after commencement of construction began, EPA issued a Notice of Violation to DTE stating that the project “resulted in a significant net emissions increase” and therefore “constitutes a ‘major modification.’”

The Sixth Circuit observed that EPA could clearly bring an enforcement case against DTE under the PSD regulations if DTE failed to make the necessary projection of emissions before commencement of construction.  Similarly, the court noted that, and DTE conceded, that EPA could commence an enforcement action pre-construction if blatant errors were made in the emission calculations, such as using the incorrect significant emission threshold for emission comparison purposes.  The court, relying on the Supreme Court’s decision in Alaska Department of Environmental Conservation v. EPA, noted that EPA had broad statutory authority to issue orders or seek injunctive relief “as necessary to prevent the construction or modification of a major emitting facility, which does not conform to the requirements of [the PSD regulations].”  That authority, the Sixth Circuit noted, also reaches to required emission projections.

The court, however, sternly rejected EPA’s arguments that it was bad faith on the part of an operator to artificially keep its post-construction emissions down in order to avoid PSD review and that the Clean Air Act did not envision allowing sources to replace parts indefinitely without losing their grandfathered status.  The court noted, to the contrary, that is exactly what the Clean Air Act allows and it is up to Congress, not EPA or the courts, to make changes to the Act if it wished to eliminate grandfathering.  Nevertheless, the court still found that “a pre-construction projection is subject to an enforcement action by EPA to ensure that the projection is made pursuant to the requirements of the regulations.”  The court made “no determination as to whether defendants have complied with those projection regulations.”  Thus, it appears that, as long as the pre-construction actual-to-projected-actual emission calculations are consistent with regulatory requirements and made in good faith, EPA should not be able to succeed in such an enforcement action merely because it believes the low levels of future emissions are overly optimistic.  Where the demand growth exclusion is a critical part of the emission estimates that are relied upon to contend a project is “minor” for PSD purposes, it seems likely that could be a key focus of an EPA enforcement action as to whether, as a matter of fact, the projected emission increase could have been accommodated by the pre-existing source as required by the demand growth exclusion.

To view a complete PDF of the First Quarter 2013 issue of the Air Quality Letter, click HERE.

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