Discussion Board: A Few Adoring Comments on Duke Energy

The following discussion board post is by Sean Donahue of Donahue & Goldberg, LLP. Sean successfully argued the case for the petitioners.

The Clean Air Act’s New Source Review (NSR) provisions require that operators of large stationary sources of pollution get a permit, and install the best available control technology, when they make a “modification,” broadly defined in the statute to mean “any physical change” in a source that “increases the amount” of any air pollutant emitted. This was an important qualification to Congress’s “grandfathering” of sources already in operation when NSR was enacted in 1977 – sources that Congress had been assured would be decommissioned before long. The modification provision comes into play as owners of old sources – which typically emit considerably more pollutants than do sources employing modern controls – seek to rehabilitate aging plants, while also trying to preserve their economically attractive grandfathered status. One central dispute concerns how to determine whether such a modernization project “increases the amount” of pollution emitted: If a project “restores capacity” at an aging plant – increasing the amount of time an aging facility can operate (and thereby the amount of pollution it actually emits), without increasing the design capacity of the plant, understood in terms of the maximum hourly emissions rate – has it “increased the amount” emitted, and thereby engaged in a “modification”?

In yesterday’s decision in Environmental Defense v. Duke Energy, an NSR enforcement suit, the Court set aside a Fourth Circuit ruling that construed EPA’s regulations to require a permit only when a modernization project increases the maximum hourly rate at which a source is capable of emitting pollution — thereby effectively invalidating the regulations as written. The case was the first in decades in which the Court granted a petition for certiorari at the behest of an environment organization over the federal government’s opposition. It illustrates that private parties’ decision to intervene to support governmental enforcement (rather than say, remaining closer to the sidelines as amici) can make a decisive difference: Had intervenors not sought cert, it would have left in place a Fourth Circuit decision that severely limited the scope of the NSR rules; that was relied on by other courts to reject EPA enforcement efforts; that conflicted with decisions of the court (the D.C. Circuit) to which Congress gave exclusive authority to review the validity of Clean Air Act regulations; and that had been cited by EPA itself as reflective of judicial confusion warranting a scaling back of the NSR program. But while the environmentalists’ participation was necessary to the result yesterday, the Court’s decision also reflected the vigor and effectiveness with which the Justice Department defended the NSR program once cert was granted.

If yesterday’s unanimous decision vacating the Fourth Circuit’s decision has interest outside the Clean Air Act area – and on my initial view it seems modest – it may lie in the Court’s reiteration that the statutory construction presumption of “identical usage” is not an “iron rule” (Slip Op. 12). The real significance of the case – which engendered rafts of excellent amicus briefs from states and private groups on both sides — is specific to the NSR enforcement controversy, which is itself important because of its large public health and economic implications. A 2004 Report of EPA’s Inspector General calculated that success in the NSR enforcement lawsuits then underway – involving only a subset of the old facilities to which the legal issues are relevant — could reduce sulfur dioxide emissions by 1.75 million tons annually. (Total SO2 emissions from coal-fired power plants in the U.S. (by far the largest source of such emissions) are about 13 million tons per year.) The NSR program is an integral protection for local air quality and for public health. As elaborated by the American Lung Association and other amici in the case, emissions from old plants cause tens of thousands of premature deaths annually, and sicken many more.

The Court’s opinion puts to rest many of the leading legal theories that NSR defendants have advanced, sometimes successfully, to resist enforcement. The Court rejected – firmly and unanimously – the mischievously creative arguments by which some defendants had managed to persuade some lower courts that NSR applies only to projects that expand maximum capacity to emit – regardless of the projects’ effect on actual emissions of pollution and local air quality. In particular, the Court rejected the arguments that Congress had imposed as statutory mandate various preexisting EPA regulations that allegedly use an hourly test (Slip Op. 12 n.6); rejected Duke’s argument that the language of operative EPA regulations (which are similar in relevant respects to the succeeding generations of regulations, adopted in 1992 and 2002) can be read to adopt an hourly rate test (pp. 12-13); dismissed, as inconclusive on their own terms and powerless to contradict express regulatory language, the Reich memos, two pronouncements from the early days of the NSR program that have been the Rosetta stone of industry’s attempt to find resist enforcement (p. 16); rejected reliance on the regulatory exclusion of increases in hours of operation from the definition of a “physical change” as an exemption for physical changes that have the intent and effect of increasing the hours of operation of a facility (p. 17); and rejected the argument that the entire body of NSR regulations applies only as a subset of New Source Performance Standards (p. 16 n. 8). The regulatory scheme here is undoubtedly complex, and the clarification offered by the decision on numerous points that had exhaustively litigated should push the NSR efforts toward resolution, and facilitate future enforcement efforts.

The Court’s opinion does all that petitioners dared to hope, but leaves open other defense arguments, such as contentions that EPA’s application of its NSR rules worked an unfair surprise to industry. But putting aside the substantial body of evidence – some of it summarized in the Government’s reply brief — that industry was not, in fact, surprised, these arguments seem unlikely to survive the Court’s careful explication of what the regulations in question expressly provided, its emphasis on the regulatory text language as the best guide to meaning, and its dismissal of the Reich memos.

As David correctly observes, the opinion also did not address Duke’s position (not passed on by the Fourth Circuit) that Duke’s modernization project falls within the regulatory exemption for “routine maintenance, repair, and replacement.” But if this issue leads – in the words of David’s November 3 post – to “years” of further litigation, it will not due to any overwhelming merit to that defense. The activities at issue in this case, for example, involved extensive and expensive capital improvements to plants that Duke itself had described as in “geriatric condition” and as “no longer reliable because of their age and condition,” such that “[o]rdinarily” they would be “retired and replaced by new capacity.” Arguments that Duke’s Plant Modernization Project – or the similarly ambitious, expensive, and extensive project upgrades at issue in other NSR cases – were exempt as “routine” seem no more faithful to regulatory text than the arguments on “emissions increase” that were rejected yesterday.

I also agree with David that Duke Energy may not, by itself, sound the death knell for the Bush Administration’s efforts to “reform” – which here means dramatically restrict the scope of – the NSR program. But I certainly disagree that yesterday’s decision in any way supports those efforts – phases of which have already met the unanimous disapprobation of two ideologically diverse D.C. Circuit panels (in New York I and New York II). To the contrary, it undercut EPA’s efforts to scale back NSR, by (1) repudiating in every respect the very Fourth Circuit decision that EPA in its 2006 notice preliminarily proposing to switch to an hourly measure of emissions increases; (2) restoring primacy for judicial scrutiny of EPA rules to the DC Circuit, whose elaboration of the NSR programs statutory particulars and fundamental purpose (protecting local air quality near major pollution sources) is unwelcoming to EPA’s recent efforts, and (3) breathing new life into enforcement cases that serve to illustrate the gap between the public health protections offered by current law and EPA’s watered down reformed standards, under which many of the projects at issue in these cases would be allowed to continue, and be repeated, without occasioning the need to install contemporary air pollution equipment. (EPA’s NSR reform proposals have always stood in awkward tension with its prosecution of the enforcement actions, and emphasis on the major benefits such lawsuits, and settlements, have provided). I think David more on target in his November 3 post, when he argued that a loss for EPA in Duke Energy would have bolstered the agency’s “attempts to reform the NSR program,” whereas “if the government prevails in Duke Energy, its attempts to reform the NSR program might be dealt a blow, but it will be in a better position in the enforcement actions.”

The Court still has before it three petitions for certiorari in other cases involving the NSR program. Among these are petitions by EPA (No. 06-736) and the Utility Air Regulatory Group (No. 06-750) seeking review of the DC Circuit’s decision in New York II – in which the DC Circuit held that an EPA reform that would exempt a broad category of physical changes that increase emissions from NSR scrutiny flouted the Act’s unambiguous language. The other is an industry petition (No. 06-850) seeking review of the Seventh Circuit’s decision in Cinergy, an enforcement suit similar to Duke Energy. All three petitions seem likely to have been “held” pending a resolution of Duke Energy, and the Court will likely act on them later this month.

Finally, the NSR controversy may have something to say about the newly prominent problem of how to limit emissions of the greenhouse gases that cause global warming. It is that regulatory grandfathering, while politically attractive, can impede effective, equitable, and efficient regulation. Even when Congress tries (as it did in NSR) to cabin them, regulatory grandfathers tend to stretch their life spans to unnatural lengths, and to become a kind of perpetual easement to use public resources for waste disposal. And when this happens, they can not only frustrate efforts to clean up, but can work serious unfairness to relatively clean existing sources, to the many source owners who have chosen to clean up rather than pressing their regulatory arguments to the utmost, and to new entrants who are subject to stringent regulatory controls. As Congress (and now perhaps EPA) considers schemes for the control of greenhouse gases, the protracted NSR battles should be a source of cautionary lessons.