Discussion Board: Duke Energy and Its NSR Implications

The following Environmental Defense v. Duke Energy discussion board post is by Paul Gutermann, head of Akin Gump’s Energy, Land Use and Environmental practice. He was lead trial counsel for Dynegy Midwest Generation and Illinois Power Company in defense of one of EPA’s utility enforcement initiative New Source Review (NSR) cases and was subsequently retained by Ohio Edison to prepare its remedy case for trial.

First of all, congratulations to Sean for his victory. He and the others who filed briefs on behalf of petitioners correctly focused on several of the weak reeds on which Duke’s arguments depended. First, Duke argued, on the basis of little legislative history that Congress adopted a pre-existing regulatory interpretation of “modification” when it added the NSR program to the Clean Air Act. Second, having been led in that direction by the 4th Circuit, Duke argued that the term “modification” had to be interpreted identically for both NSR and new source performance standards (NSPS). Third, Duke relied upon two decisions by one-time Director of Stationary Source Enforcement, Ed Reich, that NSR required proof of both an hourly emissions rate increase and an increase in annual emissions. In each instance, the Court eviscerated those arguments and, given the history of regulatory distinction between the NSR and NSPS programs, reached the correct result.

Having said that, however, I do not believe the Supreme Court’s decision in Duke will have significant long-term effects for either the enforcement cases or the future of NSR regulations. Before addressing those points, I want to respond to Sean’s contention that the NSR cases have significant public health implications. I spent many months on behalf of Illinois Power and Ohio Edison challenging EPA’s claims of environmental and public health impacts from the supposed “excess” emissions from the power plants and the proof the agency was able to muster in its behalf. While the topic would require too much of a detour to address fully and all the American Lung Association and Environmental Integrity Project reports to the contrary notwithstanding, EPA’s proof of harm was distinctly underwhelming.

As David Rivkin points out and Sean acknowledges, the Court did not address the first prong of EPA’s proof of an NSR violation – whether there was a physical change or change in the method of operation. The Duke district court held that whether Duke’s projects qualify as routine maintenance, repair and replacement must be determined based on what is routine in the industry and not, as EPA contends, by looking at the particular generating unit. Even as to emissions increase, EPA’s burden of proving an NSR violation remains difficult. In the cases tried so far, EPA has not come to grips with such issues as whether the unit was “capable of accommodating” any emission increase irrespective of any construction project, whether any emission increase was due to “demand growth,” and whether a project “caused” an emissions increase. While the government has many advantages in enforcement litigation, these are issues that, tried properly by the defendant, can result in findings of no liability.

Lastly, as it seems we all agree, the Court’s decision does not seem to do any significant harm to the Bush Administrations’ reform efforts. There did not appear to be anything in the Court’s decision that would derail existing and proposed changes to the NSR rules for measuring emissions increase. With respect to the remaining cert. petitions related to NSR issues currently before the Court, it seems less likely the court will grant cert. The Cinergy petition presents issues much like those in Duke and seems to be a good candidate for remand for reconsideration in light of Duke. The petition filed by UARG on the Equipment Replacement Rules relied heavily on the NSPS/NSR overlap arguments pressed by Duke and will likely face a similar fate. The United States’ petition on the same set of rules asserted different grounds and could be successful.