Environmental Defense v. Duke Energy Corp. (05-848)


Oral argument: November 1, 2006

Appealed from: United States Court of Appeals, Fourth Circuit

ENVIRONMENTAL LAW, CLEAN AIR ACT, ADMINISTRATIVE REGULATIONS, EMISSIONS

In 2000, the Environmental Protection Agency sued Duke Energy Corporation for making a number of upgrades to its power plants without filing for permits under the Prevention of Significant Deterioration (“PSD”) program. The PSD program, which was added to the Clean Air Act in 1977, regulates “major modifications” to existing power plants. Duke Energy first argues that the 1971 New Source Performance Standards (“NSPS”) provide a definition of “modification” that governs the PSD program; Duke then argues that the changes to its plants do not fall within the NSPS definition of “modification.” In 1980 the EPA promulgated regulations providing a more stringent definition of “modification,” and Environmental Defense, which has stepped in as a plaintiff in the case, maintains that this more stringent definition applies to the PSD. The Court of Appeals for the Fourth Circuit agreed with Duke Energy, holding that the NSPS definition of “modification” must be applied to the PSD program. The Supreme Court’s decision will affect how energy companies assess the costs of rebuilding or renovating older plants, and it could potentially lead environmentalists to push for more stringent standards for changes made to existing plants.

Question(s) presented

Whether the Fourth Circuit's decision violated Section 307(b)of the Act, which provides that national Clean Air Act regulations are subject to challenge “only” in the D.C. Circuit by petition for review filed within 60 days of their promulgation, and “shall not be subject to judicial review” in enforcement proceedings, 42 U.S.C. 7607(b); and

Whether the Act's definition of “modification,” which turns on whether there is an “increase” in emissions and which applies to both the NSPS and PSD programs, rendered unlawful EPA’s longstanding regulatory test defining PSD “increases” by reference to actual, annual emissions.

top

Issues

Should the Fourth Circuit have heard this case when the Clean Air Act dictates that parties can only challenge CAA regulations in the D.C. Circuit? And is the EPA’s longstanding regulatory definition of “increase” unlawful if it is consistent with the CAA definition of “modification,” which governs the NSPS and PSD?

top

Facts

In 1988, Duke Energy Corporation (“Duke”), which provides energy to customers in North and South Carolina, began the process of upgrading coal-fired generators in eight of its plants. Environmental Defense v. Duke Energy, 411 F.3d 539, 542 (4th Cir. 2005). The upgrades were part of a broader “modernization project” that took twelve years to complete, and at no point in the process did Duke petition the EPA for permits approving their plans.Id. at 544.

In 2000, the United States sued Duke in District Court for the Middle District of North Carolina for violating the Clean Air Act (“CAA”) by failing to comply with permit requirements laid out in the Act’s Prevention of Significant Deterioration (“PSD”) requirements, which regulate certain types of modifications to power plant. Id. at 545–46. Three private environmental groups, led by Environmental Defense, intervened as plaintiffs. Id. Duke contended that since the hourly emissions rate in their plants were not going to change, the upgrades did not fall within the purview of PSD. Id. Environmental Defense countered that since the upgrades enabled Duke’s plants to operate for more hours in the day, their total annual emissions were going to rise, and therefore PSD should apply. Brief for Petitioner, at 38. The District Court ruled that PSD only applies where a plant’s hourly emissions will increase, and therefore that Duke was correct in its understanding of the applicability of PSD to their projects that did not increase maximum hourly emissions. United States v. Duke Energy Corp., 278 F. Supp. 2d 619, 649 (M.D.N.C. 2003).

Environmental Defense appealed to the Court of Appeals for the Fourth Circuit, which upheld the district court’s ruling. Environmental Defense, 411 F.3d at 542. The Fourth Circuit’s decision focused on the fact that Congress made clear in the PSD statute that it had to incorporate the NSPS’s definition of ‘modification’. Id. at 546–47. The court said that as a result, the EPA is bound to interpret the term consistently and uniformly for the purposes of both sets of regulations.Id. at 550–51.

Environmental Defense then petitioned for certiorari before the U.S. Supreme Court, which was granted on May 15, 2006, despite opposition by the U.S. Department of Justice.

top

Discussion

Over time, all energy-producing plants need to be upgraded to maintain safety, efficiency, and—perhaps most important to many consumers—reliability. Editorial, Reliability Isn’t Just a Convenience for Some Austin Energy Customers, Austin American Statesman, September 2, 2006. A large number of plants are currently slated for obsolescence or major renovations, and energy commissions in several states have ordered studies and enacted state and local regulations addressing the issue. Rex Springston, Virginia to Keep Watch on Power Plant, Richmond Times-Dispatch, September 26, 2006. Following a number of high-profile blackouts, the public has become more aware of the challenges facing the electric system, but efforts toward broad-based reform have stalled. David Firestone & Andrew C. Revkin, Warnings Long Ignored on Aging Electrical System, N.Y. Times, August 15, 2003. As the President of Duke has suggested, the government and power companies must strike a balance between economic and environmental concerns as they address the limitations of older plants and consumers’ growing demands. Jim Rogers & Ellen Ruff, Duke Planning for Future Needs, Charlotte Observer, September 5, 2006. Given the number of plants slated for major renovations, the Court’s decision in this case will have broad implications around the country.

In an effort to create technical controls over pollution emitted by new or upgraded power plants, the 1971 Clean Air Act set out New Source Performance Standards (“NSPS”), which define “modification” as any physical change or any change in operation that results in an increase in the air pollutants a plant emits. 42 U.S.C. 7411(a)(4). Under NSPS, a plant’s increase in emissions is measured on a yearly basis. Environmental Defense, 411 F.3d at 542. Because the NSPS failed to cut pollution as dramatically as many had hoped, the EPA enacted the Prevention of Significant Deterioration (“PSD”) permit provisions in 1977. Id. at 542–43. PSD requires companies to file for permits for any “major modifications” that will lead to an increase in total emissions per year. Id. at 543–44. Thus, while the NSPS focuses on the rate at which plants emit pollutants—kilograms per hour—the PSD focuses on actual emissions—tons per year. Id. at 542, 544.

Duke argues that the upgrades it made to eight of its plants were not subject to supervision requirements laid out by the CAA or, consequently, the PSD permitting requirements. Brief for Respondent, at 3. Duke contends that the EPA’s regulatory interpretations of the PSD requirements do not comport with the Act itself, which, they argue, establishes definitively that plants only need to receive EPA permission for projects that will increase the hourly rate of emissions. Id., at 41. Since Duke’s plants maintained steady hourly emissions rates throughout their renovations, Duke argues that the projects did not fall under the PSD. Id. at 3–4. They further argue that the Fourth Circuit had jurisdiction to affirm the district court’s interpretation. Id. at 25. Duke has received amici support from, among others, a group of law professors, several state departments of environmental protection, the Electric Utility Industry, and a number of public and private energy companies.

Environmental Defense first argues that the Fourth Circuit did not have jurisdiction to decide this case, since sole jurisdiction for questions arising under the CAA is statutorily delegated to the Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”). Brief for Petitioner, at 26; see also 42 U.S.C. 7607(b), (e). Furthermore, Environmental Defense says that the EPA’s reference to modifications under PSD that lead to an “increase” in emissions should be interpreted in accordance with the EPA’s regulations, based on any overall (yearly) increase, rather than with the narrow, hourly focus championed by Duke. Brief for Petitioner, at 38. They argue that this comports with both the aim of the CAA and with the normal definition of the word “increase.” Id. Environmental Defense has received amicus briefs from several state departments of environmental protection and a group of law professors, and has also garnered support from physicians’ groups and other environmental organizations.

If the court upholds the Fourth Circuit’s decision, companies with aging power plants will be able to operate and update their plants free from the PSD permitting provisions provided they do not increase hourly emissions. This will enable them to increase their plants’ output while spending less money on certain kinds of energy efficiency. As a consequence, they may also worry less about the environmental impact of their older plants over time. A ruling in favor of Environmental Defense, on the other hand, will come as a relief to those worried about climate change and the effects of pollution, because emissions will be limited on an hourly and a yearly basis. Plant owners will face EPA oversight of all modifications to their plants.

top

Analysis

Congress included the NSPS provisions among the 1970 amendments to the CAA in order to control newly built emissions-producing plants as well as emission-increasing modifications to existing power plants. Environmental Defense, 411 F.3d at 542. According to the NSPS, modifications are measured using an hourly approach, and the EPA has the power to regulate “any physical or operational change to an existing facility” that increases the number of kilograms of pollutants per hour that are discharged into the air. 40 C.F.R. § 60.14(a) & (b); see also Environmental Defense, 411 F.3d at 542.

The 1977 amendments to the CAA enacted the PSD permit provisions. Environmental Defense, 411 F.3d at 543. The PSD provisions were intended to supplement shortcomings in the NSPS program by protecting air quality in areas that had already met or exceeded relevant pollution standards. Id. The PSD require companies to apply for a permit before starting construction on emissions-producing power plants. 42 U.S.C. § 7475 ; see also Environmental Defense, 411 F.3d at 543. However, Congress stated that “construction” for the purposes of the PSD includes any modifications as defined by the NSPS. Pub. L. No. 95-190, 91 Stat. 1393, 1402 (1977); see also Environmental Defense, 411 F.3d at 543.

The EPA passed a series of regulations in order to enforce the PSD provisions. 43 Fed. Reg. 26,380 (June 19, 1978); see also Environmental Defense, 411 F.3d at 543. The EPA’s 1980 PSD regulations stated that a PSD permit is required for any major modification of a power plant that produced a “significant net emissions increase.” 40 C.F.R. § 51.166(b)(2)(i) (1987); see also Environmental Defense, 411 F.3d at 544. Importantly, the EPA determines whether there has been a net emissions increase by considering actual emissions in tons per year. 40 C.F.R. § 51.166(b)(21)(ii); see also Environmental Defense, 411 F.3d at 544.

Congress specifically allocated the responsibility of review of CAA enforcement cases to the D.C. Circuit. 42 U.S.C. § 7607(b) ; see also Brief for Petitioner, at 50. A request for review should be filed in this court within 60 days of the disputed action. Brief for Petitioner, at 50 Other courts are not authorized to hear cases which should be properly brought in the D.C. Circuit in accordance with the statute. 42 U.S.C. § 7607(d) ; see also Brief for Petitioner, at 118.

Environmental Defense’s Argument

Environmental Defense first argues that, since this case involves a CAA issue, the proper venue was the D.C. Circuit. Brief for Petitioner, at 26. They contend that the Fourth Circuit overstepped its authority when it evaluated the meaning of “modification” in the PSD provisions. Id . According to Environmental Defense, Congress’s purpose in specifying a certain court for CAA cases was to delegate responsibility to a body with extensive knowledge and understanding of the CAA. Id . at 27. Additionally, Congress intended to ensure that “regulatory stability” and “national uniformity” are the benchmarks of CAA judicial review, so they chose one court to hear these cases in order to avoid conflicting decisions among jurisdictions. Id . at 38. Proponents of Environmental Defense’s opinion contend that a victory in the Supreme Court will tell power companies that they cannot circumvent proper authority when a regulation is contrary to their interests by making “an end-run on the appeals court.” Editorial, The Court and Clean Air, Wash. Post, May 16, 2006 at A16.

Environmental Defense also argues that the Fourth Circuit erred in its interpretation of “modification” under the PSD. Brief for Petitioner, at 3. According to Environmental Defense, when read correctly, the PSD provisions measure actual emissions in tons per year and do not use the NSPS method of measuring potential emissions by looking at hourly emissions capacity. Id. at 24. Environmental Defense cites a previous D.C. Circuit decision, Alabama Power v. Castle, in which the court decided that the PSD measures actual emissions. Id. at 2-3 (citing 636 F.2d 323 (1979)). In Environmental Defense’s view, the Fourth Circuit did not consider context, Congressional intent, and previous interpretations of the PSD when they ruled that the definition of modification mirrors the NSPS definition. Id. at 3, 38-40. Law professors in support of Environmental Defense argue that if the Fourth Circuit had followed the usual procedure for interpreting a statute by examining “statutory text, context, purposes, and [the] history of the Clean Air Act and giving proper deference to the EPA for its resolution of statutory ambiguities,” it would be clear that Environmental Defense’s interpretation of the PSD provisions is correct. Brief of Jared A. Goldstein, et. al. as Amicus Curiae Supporting Petitioners, at 8.

Further, Environmental Defense contends that the PSD language excluding a change in operating hours from the definition of a major modification was only meant to apply to plant procedure changes with no physical component. Brief for Petitioner, at 37. They view the analysis of the existence of a major modification requiring a PSD permit as a two step inquiry which evaluates first whether there is a physical change and then whether there is a change in actual emissions. Id. at 36. Using this standard they argue that Duke’s project clearly meets the criteria that make a PSD permit necessary, as the project includes physical construction that has the potential to increase operating hours, thus resulting in an increase in actual emissions. Id. at 50.

Duke Energy’s Argument

Duke argues that the Fourth Circuit did in fact have jurisdiction to rule in this case. Brief for Respondent, at 27. In their view, Congress only intended the D.C. Circuit to have exclusive jurisdiction over actions brought to enforce the PSD provisions, not in cases in which the issue is the interpretation of the provisions themselves. Id. at 26. Supporters of Duke say that if courts such as the Fourth Circuit cannot interpret regulations in this manner, this presents “serious constitutional questions regarding the availability of judicial review by preventing courts from carrying out their duty to say what the law is.” Brief of Washington Legal Foundation as Amicus Curiae Supporting Respondent, at 4. Duke also argues that there is no conflict with the statutory timing requirement. Brief for Respondent, at 28. In their view, the 60-day provision for bringing cases under the PSD would not have required them to bring their case within two months of the enactment of the PSD regulations because the question concerns the EPA’s novel interpretation of “modification,” which has only recently become an issue. Id.

Duke contends that Environmental Defense’s jurisdiction objection is nothing but a last minute effort to invalidate the Fourth Circuit’s decision after the Fourth Circuit refused to condone the interpretation of the rule advanced by Environmental Defense. Id. at 27. Duke says that it is unfair for Environmental Defense to invoke the procedural safeguards which mandate review in the D.C. Circuit within 60 days to protect what Duke considers to be a new EPA interpretation of the PSD, given that the EPA did not adhere to proper protocol for new interpretations of regulations when it changed its view of what the PSD provisions require. Id. at 29–30.

Duke also argues that a modification, as it is defined by the NSPS, is a necessary criterion for determining whether a project requires a PSD review. Id. at 31, 33. Under this definition, a project involves a modification when there is a “change [in] a unit’s basic emissions capacity.” Id. at 23. Duke says that this requires a change in the amount of pollution on an hourly basis. Id. According to Duke, this uniformity in definitions was dictated by Congress through the PSD statute, and also by the EPA in the definitions section of the PSD regulations. Id. at 23–24. Duke says that Congress made a conscious decision to use the NSPS definition in the PSD because they did not intend for the PSD to impose broad new requirements on already existing power plants. Id. at 24–25.

Duke advocates a different two-step inquiry for evaluating the necessity of a PSD permit. See id., at 23. Under their view, if a plant undergoes a modification as it is defined under NSPS, the next step in determining PSD applicability is to decide if the project constitutes a major modification. Id. Duke actually agrees with Environmental Defense that a major modification increases actual emissions. Id. However, in their view, an actual increase only occurs when there is an hourly increase in emissions because an “increase in actual emissions must be determined using the same representative period before and after the project.” Id. at 35. Duke contends that an extension of operating hours is not enough to constitute a major modification if there is no increase in hourly emissions. Id. at 23–24. According to Duke, in prior cases, even the Director of the EPA supported the view that an increase in operating hours was not a PSD modification. Id. at 36.

top

Conclusion

Although this case ultimately turns on whose statutory and regulatory interpretation of the jurisdictional and definitional questions is correct, there is a larger problem at issue: pollution of the environment. As the U.S. population grows, issues that impact our environment become increasingly crucial. However, this case could also impose additional regulations on entrepreneurial enterprise. This case will be illustrative of where we, as a country, feel it is appropriate to draw the line between laissez-faire government and protecting our environment.

Authors

Prepared by: Molly Curren Rowles and Jill Diamond

Additional Sources

top