Duke Energy Corp.

The following analysis is by Paul Gutermann of Akin Gump.

Another circuit has weighed in on an important environmental question that the Supreme Court has agreed to decide. Flatly rejecting the Fourth Circuit’s ruling in United States v. Duke Energy Corp., 411 F.3d 539 (4th Cir. 2005), cert. granted, 126 S.Ct. 2019 (2006), the Seventh Circuit unanimously affirmed the ruling of the U.S. District Court for the Southern District of Indiana, handing the U.S. Environmental Protection Agency a significant victory. United States v. Cinergy Corp., No 06-1224 (7th Cir. August 17, 2006).

At issue in Duke and Cinergy is the application of EPA’s New Source Review program for maintenance, repair and replacement projects in the electric utility industry. The Clean Air Act “grandfathered” existing pollution sources from the requirement of installing upgraded pollution control equipment until the source was “modified.” The statute defined modifications to be physical changes causing emissions increases. At the time the United States commenced these enforcement actions, EPA’s regulations defined emissions increases for NSR purposes as increases in actual annual emissions The D.C. Circuit upheld the validity of these regulations in New York v. EPA, 411 F.3d 3 (D.C. Cir. 2005).

Duke and Cinergy argued that the Clean Air Act required EPA to measure emissions increases for NSR purposes as changes in the hourly rate of emissions. They argued that, when Congress amended the statute to add the NSR provisions and defined “modification” by reference to the then-existing New Source Performance Standard definition of modification, Congress also adopted EPA’s then-existing regulatory test for emissions increases in the NSPS program – i.e., by the hourly rate of emissions.

The Fourth Circuit agreed with the utilities’ view, but the Seventh Circuit disagreed. The Seventh Circuit first questioned whether it or the Fourth Circuit had jurisdiction to review the question presented – because the statute vested exclusive jurisdiction to review the validity of nationally applicable regulations in the D.C. Circuit. Slip op. at 7. The Court then reasoned that merely because both the NSR and NSPS programs use the same definition of “modification,” the metric for measuring emissions increases need not be identical. Id. at 8. Which Circuit took the correct approach will be decided by the Supreme Court in the next term. Argument in the Duke case is scheduled for November 1.