Respondents Brief — Environmental Defense v. Duke Energy Corporation

Supreme Court brief2007

Ask Donna

What actually matters in this document.

Text

AG3B 29 FILED

rrr

IN THE SUPREME COURT, U.S.

Supreme Court of the United States

ENVIRONMENTAL DEFENSE, ef ai.,

Petitioners,

Vv.

DUKE ENERGY CORPORATION, ef ai.,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Fourth Circuit

BRIEF FOR RESPONDENT

DUKE ENERGY CORPORATION

MARC E. MANLY CARTER G. PHILLI®S*

GROUP EXECUTIVE AND MARK D. HOPSON

CHIEF LEGAL OFFICER KATHRYN B. THOMSON

CATHERINE S. STEMPIEN STEPHEN M. NICKELSBURG

VICE PRESIDENT AND GENERAL SIDLEY AUSTIN LLP

COUNSEL CORPORATE LEGAL 1501 K Street, N.W.

GARRY S. RICE Washington, D.C. 20005

ASSOCIATE GENERAL COUNSEL (202) 736-8000

DUKE ENERGY CORPORATION

Legal Department HENRY V. NICKEL

526 South Church Street F. WILLIAM BROWNELL

ECO3T MAKRAM JABER

Charlotte, NC 28242 HUNTON & WILLIAMS LLP

(704) 382-8111 1900 K Street, N.W.

Washington, D.C. 20006

(202) 955-1500

Counsel for Respondent Duke Energy Corporation

September 15, 2006 * Counsel of Record

[Additional Counsel on Inside Cover]

aaa a dhe ecreaerae eta ERED | Mais pa rigaa icmp rams: ia

WALSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20001

T. THOMAS COTTINGHAM III

NASH E. LONG, Ill

HUNTON & WILLIAMS LLP

101 South Tryon Street

Suite 3500

Charlotte, NC 28242

(704) 382-8111

Counsel for Respondent Duke Energy Corporation

QUESTIONS PRESENTED

1. Whether the Clean Air Act’s provision for expedited ju-

dicial review of “final action” promulgated by EPA, 42

U.S.C. § 7607(b), stripped the courts below of authority to

consider a new interpretation of EPA’s 1980 New Source Re-

view rules that was developed and imposed in an enforcement

action initiated in 1999; and

2. Whether EPA unlawfully interpreted its New Source Re-

view rules to convert existing electric generating plants into

“new sources,” even though those plants had not undergone

“modifications” as that term has been defined and used for

decades under those rules and under the Acct.

TABLE OF CONTENTS

QUESTIONS PRESENTED..........ccccsscsssesessssecsssesseseseees

TABLE OF AUTHORITIES .......-.cssescssssesssssseessssseesessnee

ne deekoue

STATEMENT OF THE CASE........sccssssssesessssesesssecsnsseees

I. REGULATORY BACKGROUND......0..:sssesess0e000

A. Existing Source Programs .............0.cccseseeceeeeeeses

B. “New Source” Programs..............:ccccesseeesseseeeeees

The NSPS Program Applies to Newly

Constructed and “Modified” Emissions

The Statutory PSD Program Did Not

Change the Definition of “Modification” ......

a. NSPS “Modification” Was the Trigger

for Pre-construction Permitting in the

Pre-1977 Regulatory NSR Programs ........

-b. Congress Enacted the NSPS “Modifi-

cation” Concept into Statutory PSD..........

. EPA’s Post-1977 PSD Rules Required An

NSPS “Modification” As The Trigger For

A “Major Modification” Analysis .................

Bi Fe Ee i icerintnsinniascominsincincacipipsninions

i Te ee ascii seicdnrnicnipieieticinnitbinatdecges

c. The CMA Rule Challenge..........................

. Implementation Of The PSD Program...........

a. EPA’s Contemporancous Interpretation

of “Major Modification” Required a

Threshold “Modification” ..................:0000

(iii)

TABLE OF CONTENTS—continued

b. Early Circuit Decisions Confirmed that

an NSPS “Modification” Is a Precon-

dition to PSD Applicability ....................... 12

c. In 1992 EPA Promulgated the Optional

PET Ae NN ccscusishancesindvindshnnishniviaandsaens 14

5. The 1990 Amendments And EPA’s Post-

WEPCo Pronouncements Confirm The

Established Definition Of “Modification” ..... 14

Il. EPA CHANGED ITS INTERPRETATION IN

THE 1999 “ENFORCEMENT INITIATIVE”........ 16

A. EPA’s Enforcement Position ......................0000000- 16

B. The D.C. Circuit Did Not Address EPA’s En-

forcement Position In New York 1...........ccccccceeeee 20

C. In October 2005, EPA Proposed A New Rule ;

Abandoning Its Enforcement Position................ 21

SUMMARY OF ARGUMENT .............0....cccececececececeeeee 22

FTE AEA STEEN REALE Se TERS AS RE ST SE 25

I. THE COURTS BELOW HAD JURISDICTION

TO CONSIDER EPA’S ENFORCEMENT

BOUT SRR BRS BAA SATIS: coccecsonpessasiccssacosogecpseesaconssceseoss 25

A. Duke Does Not Challenge The Validity Of

The 1980 Rules, It Challenges EPA’s 1999

RUINS onc nescnessvviivivtininesninteviitettibedeteinmansidei 25

B. Duke Could Not Have Raised Its Arguments

In An Expedited Petition Under § 307(b)(1)...... 28

C. Insulating EPA’s Position From Scrutiny Has

No Basis In § 307(b) And Is Inconsistent With

Fundamental Fairness. ..................-. sdoouaiosdenhoneiieteld 29

IL.

UL.

TABLE OF CONTENTS—continued

D. Petitioners’ And The United States’ Juris-

dictional Argument Is [nseparable From Their

E. Duke’s Challenge Was Not Raised By Others

Following The Promulgation Of The 1980

SEER tinidnduiindnendecsenatpiischdhenddibiteestneniechcintnd>tochtnditge

UNDER EPA’S RULES, A PROJECT IS A

“MAJOR MODIFICATION” ONLY IF IT

FIRST IS A “MODIFICATION,” WHICH

REQUIRES AN INCREASE IN A _ UNIT’S

STEP ERDUEED dndcaterdciabesanncheacteqrincvccbesageaninte

A. The Plain Language Of The 1980 Rules

Establishes An NSPS “Modification” As The

Trigger For PSD “Major Modification”

Sins daentechepninetnitincsinieaditipinsintnininiscndeabninteters

B. EPA’s Contemporaneous Interpretation Of The

Rules Was That An NSPS “Modification” Is

The Trigger For PSD “Major Modification”

RPE BRS Se Ce oF ES

C. Petitioners’ And The United States’

Regulatory Arguments Are Incomplete And

RL ES a Se Sa

EPA’S ENFORCEMENT INTERPRETATION

IS INCONSISTENT WITH THE ACT...................

A. Congress’s Express Incorporation Of The

NSPS Definition Into PSD Means That A

PSD “Modification” Requires An NSPS

III | cichetilnchtbiadindiebelniaigtbitnedonbentbnind

TABLE OF CONTENTS—continued

Page

B. The Structure And Context Of The CAA

Confirm That A PSD “Modification” Requires

An NSPS “Modification.” ....................:ccccceeseeeee 44

C. The “Purposes” Of PSD And NSPS Do Net

Support EPA’s Enforcement Interpretation........ 47

ee eS Ee ee ee eee 50

Vil

TABLE OF AUTHORITIES

CASES Page

Abbott Labs. v. Gardner, 387 U.S. 136 (1967)....... 29

Adamo Wrecking Co. v. United States, 434 ‘U.S.

RS Rr RES Se A or 29

Alabama Power Co. v. Costle, 636 F.2d 323

ae: ey PO ccesrternchniinchicinsicninntineclgciiteliegeiasicsiiipciciantin passim

Alaska Dep't Envtl. Conserv. v. EPA, 540 U.S.

Ci ittitiniincacicibititiattetnitnicaiinskieaiieniciterbadptbicpijad 4,7

Alaska Prof’! Hunters Ass'n v. FAA, 177 F.3d

ens et i cttnntitcndincitedanimncghindectmnsasiainn 37

Bragdon v. Abbott, 524 U.S. 624 (1998)................. 44

In re Cassidy, 892 F.2d 637 (7th Cir. 1990)............ 14

Chisom v. Roemer, 501 U.S. 380 (1991)............... 45, 46

Christensen yv. Harris County, 529 U.S. 576

eae arensipninsesicencteiciiadaittalenessnbulanindaictineasisiiicisteiinitebadiiai 39

Clean Air Implementation Project v. EPA, 150

Fee Re Ce eR ctiintescntvtwescniontesivennteidee 29

Cleveland Elec. Illuminating Co. v. EPA, 572

Pp fis fs & ees 5

Department of Commerce v. United States House

of Reps., 525 U.S. 316 (1999) ooo... eceeceteeeeees 46

FDA v. Brown & Williamson Tobacco Corp., 529

a eI asiisrinteichphctichistinieitasiptititaadiittp senha 41,45

Harrison v. PPG Indus., Inc., 446 U.S. 578

ere bnichisindietsinsdicniesaniientaianitiiniibichiacinesiinllabcimaigbicniysidicein 28

IBP. Inc. v. Alvarez, 126 S. Ct. $14 (2005)........... 24, 43

Lorillard v. Pons, 434 U.S. 575 (1978)................. 24, 44

Madison Gas & Elec. Co. v. EPA, 4 F.3d 529 (7th

Be edits csnienintenensiisdptencceiencinidadnnionalianaaans 27

Monsanto Co. v. EPA, 19 F.3d 1201 (7th Cir.

See eiadliiiieiiieniisicnesieiaicininainaiaintepianiniiisintanlatenbateniiawin 29

North Haven Bd. of Educ. v. Bell, 456 U.S. 512

See icinindtvsitienienbaniaputeinieteniteiiaiiiindintadmseisnsttnn 41

New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005) .... passim

vill

TABLE OF AUTHORITIES—continued

Page

Northern Ind. Pub. Serv. Co. v. Colorado West-

moreland, Inc., 667 F. Supp. 613 (N.D. Ind.

2, ESE ie ee ares ne eT ae OD Oe ee RO 17

Northern Plains Res. Council v. EPA, 645 F.2d

| ER TURE ESO Seer ORI 48

Ohio Dep't of Human Servs. v. HHS, 862 F. 2d

RE TRIE WII tenis cisnitniistinrrenetcgncsiletionasentnabeines 37

Potomac Elec. Power Co. v. EPA, 650 F.2d 509

| ESP res SR ree re 48

PPG Indus. Inc. vy. Harrison, 587 F.2d 237 (Sth

Cir. 1979), rev'd on other grounds, 446 U.S.

ERE REE TE ID Mahl SAE I A TE RR Bs 28

Pension Benefit Guar. Corp. v. LTV Corp, 496

SR, Ce cies theta ennierecinntoetinsmtniiiniptansasaipiiies 47

Puerto Rican Cement v. EPA, 889 F.2d 292 (lst

8 RRS REECE ve eS eee 13, 14, 27

Robinson v. Shell Oil Co., 519 U.S. 337 (1997) ..... 47

Rodriguez v. United States, 480 U.S. 522 (1987)... 48

Rowan Cos. v. United States, 452 U.S. 247

Cie vnhetticinicedtinnntiticbeiiahistiatindiiiiideitdaapiaiecitaisentibid 43

Solid Waste Agency v. United States Army Corps

of Eng'rs, 531 U.S. 159 (2001)..0.0......ecceeeeeeeeeee 37, 47

Stinson v. United States, 508 U.S. 36 (1993).. 24, 27, 42

Sullivan v. Stroop, 496 U.S. 478 (1990) .............20 42

TVA v. Whitman, 336 F.3d 1236 (Lith Cir.

DUE icicles chisteineginceiahniaiiliiabiinapigiiaainmanianatil 20, 40

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504

ee ceiciasdeeicishisivarscistentnscemsscitncipitiiectmaiasinadbiialtictabegieitias 37

Toyota Motor Mfg., Ky., Inc. v. Williams, 534

FR aE Sa renee 44

Train v. NRDC, 421 U.S. 60 (1975)...0.......ccccceeeees 5

United States v. Alabama Power Co., 372 F.

Supp. 2d 1283 (N.D. Ala. 2005) ...............:ccee0es passim

United States vy. American Elec. Power Serv. Co.,

218 F. Supp. 2d 931 (S.D. Ohio 2002)................ 27 |

TABLE OF AUTHORITIES—continued

Page

United States v. Cinergy Corp., 384 F. Supp. 2d

1272 (S.D. Ind. 2005), aff'd, 458 F.3d 705 (7th

Sk ee ah teerveseebesdienciediieicniincs dedseneitabensinignieitciuins 27

United States v. Cinergy Corp., 458 F.3d 705 (7th

a Be iecechidnnienkcdiathiteincietindnepenenebnietete~> iui 19,27, 49

United States v. Ohio Edison Corp., 276 F. Supp.

2d 829 (S.D. Olio 2003)................ceecececeeseeeeeereee 27, 40

Wisconsin Elec. Power Co. v. Reilly, 893 F.2d

gy 8 SEE SLOPE Hee passim

Zedner v. United States, 126 S. Ct. 1976 (2006)..... 14

STATUTES AND REGULATIONS

a ee Oe ID is ciccnieincncsncinderipeininenetncventindets 30

Be re Fe cstctnncnepannctqihccsenipteiisiannntlivasiaiés 30

ee Rs Oe ED wikivtchioncctonebtcivisdebniiaiemetelcaseperuenes 30

ese ee ietdecsttiscinsnseipesneindsibcinnniasinde tina 30

FF rs OF I Sehdicntintilaiicisnnstintsdipabeihietndieebabeaphesnis 4

RRR et Se eee 5

TTD ciieidcetpeinemidetesinitncnteceapdbcinaied 5

STI chicheceeaneemntpscenendiicaiadelipdandebenpandeipenindgein 5

| ELS ee eee eee Sen 43

Op eee hienidhsicisnneabcinctainitpianebeniintintiiaiieiicddpibinn 48

FRR ntchinntpcntdiinncihcinnndnegeinipinndgdindidgsiiion 7,42

Sp pee ciiinclcinidaedahabdimniachidepigiicpiiinlatndyiidotdeh 44

Ep SE chistes nebvelaicigaieaietiaidadecnthetepebdwabdnina passim

ES Pee hebadebasneenledbatrishuinieinsbeeteebigaiitdaantitis 47

iF SHE sebcipdndsinbiabidnaieninedpcnanstedsinbencdehitalasbilie 47

4} REFERRERS SaaS ES 42, 45

SD UTI sciditdiedaitistesiialiediiasabeintudintie 22, 26, 27, 30

Se PN cintiinsiniindipciticinteniiatnitnitinpinitedel 16

Oe ee Er ee cchsdetnlsbcslieseprindsticasiogboninanretictaluads 30

i CE Ts SPIO i citctinansincacndiinkiinapdbdeinniciranes 12, 17

S.C. Code Ann. § 58-27-1510 ....cccccccceccecssecsoeeseeen 12, 17

TABLE OF AUTHORITIES—continued

40 C.F.R. § 51.24 (1987) ..ccccccciesseesssvecsssesessecessecesen

§°51.100 (1987)..c.ecceccecevceseeene 2, 10, 23, 28, 34

§ 51.166 (1987)...ccccccccececsvessuecsseesseesssee

§ 51.166(b)(21)(v) (1993)....cccccceesseessees

§ 5$1.166(a7)iv)(C) (2005) .......ceceeeeee

§ 52.01(d) (1975) .escecccecsessecsvessecsuesneesecens

§ 52.01(d) (1987) ..ccesccecccvcecsvecsssesesveesses

ee TS SRE

SAA

ee, Cea aa

ee PERETRIEE:

ee ; ea ee nee 2, 6, 32

36 Fed. Reg. 24,876 (Dec. 23, L971) .......ccceeeeeeees

39 Fed. Reg. 36,946 (Oct. 15, 1974) c.cccsccecesseeen 6, 20, 35

42,510 (Dec. 5, 1974) ceccececcsseesseee 6, 23, 34

40 Fed. Reg. 58,416 (Dec. 16, 1975) v.c..csccessssseesen

41 Fed. Reg. 55,524 (Dec. 21, 1976) ..c.ccccccssssseeesen

43 Fed. Reg. 26,380 (June 19, 1978).................. 8, 10, 35

44 Fed. Reg. 51,924 (Sept. 5, 1979) ...c..ccccesssseeseee

45 Fed. Reg. 52,676 (Aug. 7, 1980) ........cccesessseee

47 Fed. Reg. 6017 (Feb. 10, 1982) .....c..cccscesssseseceen

7836 (Feb. 23, 1982)....ccccccsececsseesesvees

49 Fed. Reg. 43,211 (Oct. 26, 1984).................. 8, 35, 45

57 Fed. Reg. 32,314 (July 21, 1992) .....cccccccsseesseenes

61 Fed. Reg. 38,250 (July 23, 1996) ......ccs.cceessseeeee

67 Fed. Reg. 80,186 (Dec. 31, 2002) .......csseeecsesees

68 Fed. Reg. 61,248 (Oct. 27, 2003) ...........22.00+: 8, 35, 47

70 Fed. Reg. 25,162 (May 12, 2005)...........::scceese0ee

61,081 (Oct: 20, 2005).....0.. eee

S.C. Code Ann. Regs. 103-360 ..........ccccccecerseeeees

61-62.5 (2001) .0.... ee eeeeeeeeees

TABLE OF AUTHORITIES—continued

LEGISLATIVE HISTORY Page

BD, Fa, CR CE, CIGD csv oscvnssccsvensscsesciseccescccsseses 15

S. 2200, 99th Cong. (1986) .........cccccecseeseeteeeseeeneees 15

S. 2203, 99th Cong. (1986) 2.0.0.0... ce ccceeeeeeeeeeeeeeees 15

S. 2813, 99th Cong, (1986) 00.000... eceeeeeeeeeeetesereenes 15

S. 316, 100th Cong. (1987) .......ccccccceeeeeeseeeeeeeeeeees 15

S. 321, 100th Cong. (1987) ......ccccececcceeeeteeeeeeeeneees 15

S. 300, 100th Cong. (1987) ..0....0.c cc cccececeteeeeeeteeneees 1S

H.R. 4567, 99th Cong. (1986) .0...........cceceeeeeeeeeeeeeee 15

Clean Air Reauthorization (Pt. 2): Hearings be-

fore the Subcomm. on Energy & Power of the

H. Comm. on Energy & Commerce, 10\st .

SL IU hcasietiasneniisishipraplesmiedbrocecastidninuntbobsteneape 16

S. Rep. No. 91-1196 (1970) ooo. ccecceceteeeeseceeeeeeees 5

S. Rep. No. 101-228 (1989) oo... eee eeeeeeeeeees 14

H.R. Rep. No. 95-294 (1977) ....ccccccccccceceeesseeseeeeeee 24, 46

H.R. Rep. No. 101-490, pt. 1 (1990)... 16

123 Cong. Rec. 18,021 (1977) 0.0... cececccseeeeeeeeeeeees 46

Be CPE PD cicctiteccccticnsiencieatinanins 48

GET UD ictobtaccitsiiapepstsconsscnnein 8, 45

OTHER AUTHORITIES

E.P.A., Basic Facts On CAIR, at http://www.epa.

gov/cair/basic.html (last visited Aug. 6, 2006)..... 47

E.P.A., Fact Sheet - Final Amendments to the Re-

gional Haze Rule and Guidelines for Best

Available Retrofit Techonology (BART) Deter-

minations, 2005, available at http://www.epa.

gov/visibility/fs 2005 6 15.html (last visited

i ___ RETEST SORE EROS TT TOE TO 47

E.P.A., New Source Review (NSR), Policy &

Guidance, at http://www.epa.gov/nsr/guidance.

FUDD i scxccsaccntipsnecdiscpennecchnmbcnesintitaibiatsivvetscndtnapecscises

INTRODUCTION

The issue in this enforcement action is: When is an existing

power plant transformed into a “new source” under the Clean

Air Act (“CAA”) and its implementing rules, requiring the

plant to obtain a pre-construction permit and install “new

source” emissions controls? Under the CAA and its rules, an

existing source becomes a “new source” only when it under-

goes a “modification.” In 1977, Congress defined “modifica-

tion” under New Source Review (“NSR”) to be the same as

the definition of “modification” under the pre-existing New

Source Performance Standards (“NSPS”). See 42 U.S.C.

§ 7479(2)(C) (“The term ‘construction’ when used in connec-

tion with any source or facility, includes the modification (as

defined in section 7411 (a) of this title) of any source or facil-

ity.”) (emphasis added). The Environmental Protection

Agency (“EPA”) promulgated its NSR rules in 1980 (the

“1980 Rules”) and originally interpreted them to mean ex-

actly that. And the electric utility industry followed those

rules for two decades. Nonetheless, in this enforcement ac-

tion EPA retroactively announced a new and conflicting ap-

proach—suddenly contending that the entire industry had bla-

tantly violated the rules for years.

EPA’s enforcement approach is out of step with history and

the basic statutory and regulatory framework. Congress used

the term “modification” in all of the “new source” programs

for good reason. Like NSPS, NSR requires new sources of

pollution to engage in pre-construction review and install

state-of-the-art pollution controls—a massive undertaking

that EPA acknowledges would be “very costly and can pre-

sent significant technical challenges” for existing facilities.

70 Fed. Reg. 61,081, 61,093 (Oct. 20, 2005). To ensure that

NSR is triggered only when compliance with its requirements

makes economic and practical sense and fits within the statu-

tory scheme, Congress applied NSR only to “construction,”

which includes the building of new facilities and the “modifi-

cation” of existing facilities. 42 U.S.C. § 7479(2)(C).

The term “modification” had a well-established meaning

when the 1977 Amendments were enacted. And EPA carried

that precise meaning forward in its rules. Under both NSPS

and NSR, a project is a “modification” only if it causes an

increase in a unit’s basic emissions capacity (measured by its

hourly emissions rate), effectively creating a “new,” larger

source of emissions. 40 C.F.R. §§ 51.100, 52.01(d), 60.14, &

60.2.' NSR then imposes more stringent requirements on cer-

tain “modifications,” known as “major modifications.” Jd

$§ 51.166, 52.21. A “major modification” occurs if the pro-

ject significantly increases total annual emissions at the over-

all source, calculated using representative hours of operation.

Id. § 51.166(b){2)-(3), (21).

In 1999, however, EPA launched its “unprecedented” NSR

enforcement initiative, including this lawsuit against Duke

Energy Corporation (“Duke”). See Press Release, U.S.

D.O.J., U.S. Sues Electric Utilities in Unprecedented Action

to Enforce the Clean Air Act (Nov. 3, 1999) (Duke Mot.

Summ. J. Ex.7). In this enforcement initiative, EPA at-

tempted through litigation to force the electric utility industry _

to retrofit mew-source controls on all coal-fired power

plants—at a cost of billions of dollars and under the threat of

billions more in civil penalties. To obtain this result, EPA re-

interpreted the NSR rules to eliminate the well-established

“modification” trigger. Instead, EPA contended that NSR

could be triggered by commonplace projects that merely

maintain a facility’s operating capabilities and do not increase

the facility’s emissions rate.

This case involves 29 such projects, which Duke undertook

as long ago as 1988 at eight different power plants in North

and South Carolina. Contrary to the impression Petitioners

attempt to foster, these plants are by no means unregulated,

because “NSR is not the primary mechanism for reducing

emissions from existing sources.” New York v. EPA, 413

F.3d 3, 28 (D.C. Cir. 2005) (“New York r’). Other CAA re-

' Unless otherwise noted, all C.F.R. citations are to the 1987 edition.

quirements and state clean air laws set strict limits on the

emissions of sulfur dioxide (SO2), nitrogen oxides (NO,) and

particulate matter from each of these plants. For example,

Duke’s plants are subject to health-based emission limits set

forth in their state operating permits. JA165. In addition, the

plants are regulated under (1) the CAA’s “Acid Rain” pro-

gram, which requires existing plants to reduce their SO? and

NO, emissions; (2) the “NO, SIP Call” and the “Clean Air

Interstate Rule,” which require utilities in the eastern States to

achieve additional reductions in SO2 and NO,; and (3) North

Carolina’s Clean Smokestacks legislation, one of the nation’s

most stringent air emission control laws. JA166-67.

The projects EPA deemed to violate NSR involved the re-

placement and repair of corroded boiler components—

principally steel tubes that carry water or steam. JA159-61.

None of the projects violated any condition of Duke’s operat-

ing permits. JA161. None increased any unit’s capacity to

emit pollutants. /d. Moreover, these projects were performed

in full view and with the knowledge of EPA and the state au-

thoritics charged with enforcing the Act; but neither ever

hinted that Duke’s maintenance activities required “new

source” permits. Nor, before the 1999 enforcement initiative,

did any private party challenge any of these projects in any

citizen suit. No one suggested that Duke’s activities required

NSR permits for a simple reason: EPA, the States, and the

industry all understood and interpreted the rules to apply to

existing emissions units only when those units underwent

NSPS “modifications”—fundamentally changing the units’

ability to emit pollutants.

EPA’s enforcement position is particularly odd in light of

the Agency’s concession in a recent notice-and-comment

rulemaking that its position “leads to outcomes that have not

advanced the central policy of the major NSR program.”

70 Fed. Reg. at 61,088. In that rulemaking, initiated in late

2005, EPA proposed a rule consistent with Duke’s position

here and the decisions below. /d. at 61,081. Even before that

proposal, EPA effectively had ended its enforcement initia-

tive, stating that it would bring no new cases under its pre-

2002 rules. See United States v. Alabama Power Co., 372 F.

Supp. 2d 1283, 1306 n.44 (N.D. Ala. 2005).?

In the end, Petitioners’ and the United States’ arguments do

not withstand common-sense scrutiny. Under their view, the

electric utility industry has engaged in decades-long, univer-

sal noncompliance—in plain view of and in complicity with

state and federal regulators. The far more sensible conclusion

is that EPA changed its interpretation of the statute and rules

in this enforcement initiative—adopting an interpretation it

now has disavowed as bad policy. Thus, this case is based on

a made-for-litigation theory that is inconsistent with the lan-

guage and history of the rules, EPA’s historical interpretation

of those rules, and EPA’s current policy position. The Court

should reject this litigation-based approach to regulation and

affirm the judgment below.

STATEMENT OF THE CASE

1. REGULATORY BACKGROUND.

A. Existing Source Programs.

The 1970 Amendments established the basic framework of

federal air pollution regulation. These Amendments directed

EPA to develop National Ambient Air Quality Standards

(“NAAQS”), which establish allowable ambient pollution

levels to protect public health and welfare with an adequate

margin of safety. See 42 U.S.C. § 7409; Alaska Dep't Envtl.

Conserv. v. EPA, 540 U.S. 461, 469 (2004) (“ADEC’”).

“The provisions for the attainment and maintenance of

NAAQS were to operate primarily through controls on exist-

ing sources of pollution,” established in implementation plans

developed and enforced by the States. Alabama Power Co. v.

Costle, 636 F.2d 323, 346 (D.C. Cir. 1979). These State Ilm-

? Consistent with that position, the United States urged this Court to

deny the petition for certiorari and allow EPA’s policymaking process to

continue. See U.S. Opp’n Pet. Cert. at 8-9.

plementation Plans (“SIPs”) establish source-by-source emis-

sions limits, see 42 U.S.C. § 7410; Train v. NRDC, 421 U.S.

60, 66-67 (1975), which are based on the assumption that ex-

isting sources “operate 24 hours a day at full capacity”—

“every day of the year.” Cleveland Elec. Illuminating Co. v.

EPA, 572 F.2d 1150, 1160 (6th Cir. 1978).

B. “New Source” Programs.

1. The NSPS Program Applies to Newly Con-

structed and “Modified” Emissions Sources.

To assist States in meeting their ambient air quality stan-

dards, the 1970 Amendments directed EPA to issue NSPS,

which are technology-based standards that regulate emissions

from “new sources.” 42 U.S.C. § 7411(b). In general, these

controls are “more stringent than those needed to meet [the]

NAAQS.” Alabama Power Co., 636 F.2d at 346. The

Amendments also required pre-construction review of all

“new sources” subject to NSPS. See 42 U.S.C.

§ 7410(a)(2)(D), (a)(4) (1971).

Congress chose not to apply NSPS to existing sources as a

gencral matter, however, because of the high cost and diffi-

culty of installing new control technology on such sources.

See, e.g., S. Rep. No. 91-1196, at 15-17 (1970). Instead,

NSPS applied only to “new sources”—defined as newly-

constructed units and “modification[s]” to existing units. 42

U.S.C. § 741 1(a)(2). Thus, NSPS applies to existing sources

only where a “modification” occurs—-defined as “any physi-

cal change in, or change in the method of operation of, a sta-

tionary source which increases the amount of any air pollutant

emitted by such source or which results in the emission of any

air pollutant not previously emitted.” /d. § 7411(a)(4).

For more than 30 years, “modifications” have included only

activities that in essence create a “new source” by increasing

a unit’s actual emissions capabilities—as measured by the

unit’s hourly emissions rate, not by variations in hours of op-

eration. The definition of “modification” promulgated in

1971 tracked the statutory definition almost verbatim. See 40

C.F.R. § 60.2(h) (1972). In addition, the rules specified that

“increase[s] in hours of operation” and “increase[s] in the

production rate ... [within a facility’s] operating design ca-

pacity” are not modifications. 36 Fed. Reg. 24,876, 24,877

(Dec. 23, 1971). Thus, for existing units, an increase in the

“amount” of emissions always has meant an increase in the

unit’s basic capacity to emit pollutants, resulting in a “new,”

larger emissions unit.

In 1975, EPA clarified that the phrase “increases the

amount of any air pollutant” in the definition of “modifica-

tion” means an increase “in the emission rate,” measured “as

kg/hr.” 40 C.F.R. § 60.14(a)-(b); 40 Fed. Reg. 58,416, 58,416

(Dec. 16, 1975). This hourly rate assures that the rule “auto-

matically allow[s] increases in operating hours as intended by

[the operating hours exclusion in] 40 C.F.R. 60.2(h).” 39

Fed. Reg. 36,946, 36,947 (Oct. 15, 1974). In promulgating

this rule, EPA “did not create a new definition of modifica-

tion,” but rather “define[d] how to determine an actual emis-

sions increase.” 70 Fed. Reg. at 61,096.

2. The Statutory PSD Program Did Not Change

the Definition of “Modification.”

a. NSPS “Modification” Was the Trigger

for Pre-construction Permitting in the

Pre-1977 Regulatory NSR Programs.

Before Congress enacted the NSR provisions at issue

here—the “Prevention of Significant Deterioration” (“PSD”)

provisions—EPA had promulgated a regulatory PSD pro-

gram. See Alabama Power, 636 F.2d at 346-49. These PSD

rules regulated the “construction” of new sources and the

“modification” of existing sources—defining those terms es-

sentially the same as the existing NSPS rules 40 C.F.R.

§ 52.01(d) (1975). EPA also stated that the “general defini-

tion of modified source” in regulatory PSD was meant to be

“consistent with the definition used in Part 60”—the NSPS

program. 39 Fed. Reg. 42,510, 42,513 (Dec. 5, 1974).

EPA introduced the term “major modification” in a 1976

interpretive ruling. See 41 Fed. Reg. 55,524 (Dec. 21, 1976).

This ruling imposed additional requirements on certain NSPS

“modifications” in so-called “nonattainment” areas. These

requirements applied only to those “modifications” that were

“major” (or would have a greater air quality impact)—defined

as “modifications” that increased annual emissions over a par-

ticular tons-per-year level. /d. at 55,528.

b. Congress Enacted the NSPS “Modifi-

cation” Concept into Statutory PSD.

In 1977, Congress enacted the statutory PSD program.

“The PSD requirements ... ‘are designed to ensure that the air

quality in attainment areas or areas that are already ‘clean’

will not degrade.’” ADEC, 540 U.S. at 470.

In enacting the 1977 Amendments, Congress codified many

elements of the existing new source rules and “tightened” oth-

ers. Alabama Power, 636 F.2d at 349-50; see also 45 Fed.

Reg. 52,676, 52,679 (Aug. 7, 1980). The statutory PSD pro-

gram expanded upon the pre-existing NSPS and regulatury

PSD programs by extending “new source” coverage to addi-

tional source categories and pollutants. See Alabama Power,

636 F.2d at 350-51. Congress also tightened the regulatory

PSD definition of Best Available Control Technology

(“BACT”), to require control technology at least as stringent

as the technology required under NSPS. See ADEC, 540 U.S.

at 472-73; 42 U.S.C. § 7475(a)(4). And Congress imposed

rigorous new permitting requirements—including extensive

air quality modeling, a public hearing, and a public comment

period. 42 U.S.C § 7475(a). “[A]n applicant sometimes must

spend up to $500,000 on [this] permit process and ... for a

complex project, the time for approval can take from five to

seven years.” ADEC, 540 U.S. at 516-17 (Kennedy, J. dis-

senting).

Because this pre-construction process cannot sensibly apply

to ordinary maintenance projects at existing sources, Con-

gress did not require EPA to change its definition of “modifi-

cation.” Instead, Congress expressly incorporated the exist-

ing definition of “modification” into PSD. See 42 U.S.C.

§ 7479(2)(C).

In fact, as enacted the PSD provisions referred only to

“construction”; they did not include the term “modification”

at all. Three months after their enactment, Congress clarified

in a “technical and conforming amendment” that the “con-

struction” activity subject to PSD includes “modifications” as

defined under NSPS. See 123 Cong. Rec. 36,250, 36,331

(Nov. |, 1977) (capitalization omitted). It was “not the pur-

pose of these amendments to re-open substantive issues in the

[CAA].” /d. at 36,252. Instead, the amendments “defin[ed]

‘construction’ in [PSD] to conform to usage in other parts of

the Act.” Jd. at 36,331. EPA has repeatedly acknowledged

that this reference to “‘usage in other parts of the Act’ ... re-

fers, not only to section 1 11(a)(4), but also to the EPA regula-

tions implementing section 111 that were in effect at the

time.” 49 Fed. Reg. 43,211, 43,213 (Oct. 26, 1984); see also

43 Fed. Reg. 26,380, 26,394 (Jun. 19, 1978); 68 Fed. Reg.

61,248, 61,269 (Oct. 27, 2003).

3. EPA’s Post-1977 PSD Rules Required An

NSPS “Modification” As The Trigger For A

“Major Modification” Analysis.

a. The 1978 Rules.

In 1978, EPA promulgated its first rules implementing the

1977 Amendments. See 43 Fed. Reg. 26,380 (June 19, 1978).

Consistent with the Act, EPA applied PSD to the “‘construc-

tion’” of new sources—which includes “modification[s]” to

existing sources. /d. at 26,383. EPA did not create a new

definition of “modification,” however. Instead, consistent

with PSD’s focus on “‘major emitting facilit[ies],’” 42 U.S.C.

§ 7479(1), the 1978 rules imposed PSD requirements only on

a subset of NSPS “modifications”: those that are “major.” 43

Fed. Reg. at 26,382; see also id. at 26,385 (stating that SIPs

“may provide that [such] requirements shall apply to a pro-

posed source or modification only with respect to those pol-

lutants for which the proposed construction would be a major

source or major modification”). EPA adopted the “major

modification” standard to avoid imposing more stringent PSD

requirements on NSPS “modifications” that, because of their

size or other factors, would not cause significant changes in

ambient air quality.

The 1978 rules defined “major modification” to require an

increase in a unit’s “potential” annual emissions rate—

assuming that the unit operates 24 hours per day, 365 days per

year before and after the project—by more than either 100 or

250 tons per year, depending on the type of source. See Ala-

bama Power, 636 F.2d at 399. Because emissions thus were

measured using constant pre- and post-project “potential”

hours of operation, only NSPS “modifications” (activity that

increased a unit’s hourly emission rate, without regard to

hours of operation) that was large enough to cause a “major”

increase in annual emissions would trigger PSD.

Nearly all of the 1978 rules were challenged. However, no

one challenged the requirement that an NSPS “modification”

occur before a PSD “major modification” could occur. And,

although the D.C. Circuit agreed that the PSD program should

not “delay and impede industrial changes that Congress did

not intend to regulate,” the court rejected the 100/250 tpy

threshold for “major modifications.” /d. at 399-404. Instead,

the court suggested other mechanisms—specifically, a

source-wide emissions “netting” provision and a “de minimis”

exception—to avoid applying PSD to “modifications” that

would not significantly affect air quality. Jd.

b. The 1980 Rules.

In 1979, EPA proposed revisions in response to Alabama

Power. EPA left unchanged the definition of “modification”

for individual units, but proposed that “major modifications”

require “a significant net increase in [a source’s] potential to

emit.” 44 Fed. Reg. 51,924, 51,952 (Sept. 5, 1979). This

change replaced the 100/250 ton-per-year threshold with a

lower “significance” test and a source-wide “netting” calcula-

tion. The “netting” provision limited “major modifications”

to those “modifications” that would cause a source-wide “net

emissions increase”—calculated using contemporaneous

emissions increases and decreases at all units at the source

(also known as the “bubble approach”).

EPA issued its final PSD rules in 1980. The 1980 Rules

maintained the condition that a “modification” occur at a unit

before a source-wide “major modification” analysis is re-

quired. See 40 C.F.R. §§ 51.100, 52.01(d). But the rules re-

vised the method of determining whether a “modification ...

qualifies as major.” 45 Fed. Reg. at 52,677. Under the 1980

Rules, a “major modification” occurs only if a significant net

increase in the source’s “actual” emissions occurs. See 40

C.F.R. § 51.166(b)(2)(i), (3)(1), (21). The rules required “ac-

tual emissions” to be calculated using constant operating

hours from a “representative” period before the change. See

id. § 51.166(b)(21)(1i); Wisconsin Elec. Power Co. v. Reilly,

893 F.2d 901, 918 n.14 (7th Cir. 1990) (“WEPCo’’).

In the preamble, EPA explained that it “shifted the focus of

its regulatory definitions from ‘potential to emit’ to ‘actual

_ emissions’” to address a “‘paper offset’” problem associated

with the netting of hypothetical (“potential”) emissions. 45

Fed. Reg. at 52,700. This change in netting methodology nei-

ther repealed the requirement that only NSPS “modifications”

trigger a “major modification” analysis, nor dramatically ex-

panded the activities subject to PSD review. To the contrary,

the rules specifically provided that the terms “physical [or

operational] change” do not include an “increase in the hours

> The PSD rules applicable here are those adopted in the North Carolina

and South Carolina SIPs and approved by EPA. See 47 Fed. Reg. 7836

(Feb. 23, 1982); 40 C.F.R. § 52.1770 (North Carolina); 47 Fed. Reg. 6017

(Feb. 10, 1982); 40 C.F.R. § 52.2120 (South Carolina). These provisions

follow the federal 1980 PSD rules, originally promulgated at 40 C.F.R.

§§ 51.24 (rules for SIPs—recodified at 40 C.F.R. § 51.166 in 1987), and

52.21 (federal rules). These rules “are essentially identical, with the dif-

ference in reviewing agency, EPA as opposed to State, being the major

distinction.” 43 Fed. Reg. at 26,380.

of operation,” 40 C.F.R. § 51.166(b)(2)(iii(H, confirming

that only new emissions capacity is treated as an emissions

increase. In its economic impact analysis, EPA explained that

the final rules’ coverage was similar to that of the 1978 rules

and the 1979 proposal. 45 Fed. Reg. at 52,729.

c. The CMA Rule Challenge.

Various parties challenged the 1980 Rules. Once again, no

one challenged the rules’ requirement that a “modification”

occur before a “major modification” analysis is required.

And, of course, no one contended that a “modification” had to

occur for a “major modification” analysis to occur, because

that was exactly what the 1980 Rules provided. The sole

challenge to the “major modification” requirement was by

General Motors (“GM”) on the ground that the source-wide

“netting” calculation used “actual” rather than “potential”

cmissions-——a ground not joined by most industry petitioners.

See Br. Industry Pets. on Actual Emissions Definition of Net

Increase at 5, Chemical Mfrs. Ass'n v. EPA, No. 79-1112

(D.C. Cir. Feb. 12, 1981) (“This case seeks review of the

manner in which EPA has chosen to implement the bubble

approach ....”); id. at 2S (contending “no modification occurs”

if source-wide “potential emissions” do not increase). Thus,

the GM challenge to the “major modification” netting test had

nothing to do with Duke’s position here. The various chal-

lenges ultimately resulted in the “CMA settlement,” and the

case was administratively closed.

4. Implementation Of The PSD Program.

a. EPA’s Contemporaneous Interpretation

of “Major Modification” Required a

Threshold “Modification.”

Shortly after finalizing the 1980 Rules, EPA confirmed in

two applicability determinations that only a “modification” as

defined under NSPS triggers a PSD “major modification”

analysis. In 1981, EPA explained that “PSD applicability is

determined by evaluating any change in emissions rates

caused by” the physical or operational change under review.

JA28 (“GE Determination”). Absent a change in the hourly

emission rate, EPA concluded, actual emissions “could in-

crease only if there is an increase in the production rate or

hours of operation, both of which are specifically exempt

from PSD review.” /d. In a second determination, EPA

stated that an increase in a unit’s hours of operation enabled

by a physical change did not trigger PSD. See JA35-37

(“Cargill Determination”). Thus, under EPA’s contempora-

neous interpretation of the 1980 Rules, a physical change that

only increases an existing unit’s hours of operation is not a

“modification” and cannot be a “major modification.”

b. Early Circuit Decisions Confirmed that

an NSPS “Modification” Is a Precon-

dition to PSD Applicability.

Throughout the 1980s, the electric utility industry contin-

ued to engage in and improve its maintenance and repair prac-

tices, to ensure that its generating units could be counted upon

to operate reliably. Of course, maintaining an existing unit at

its existing emissions rate does not trigger NSPS or PSD.

Nor—contrary to Petitioners’ apparent position, see Pet. Br.

6-7—does the CAA or any other statute require utilities to

retire their units after a certain number of years of operation.

Indeed, electric utilities are required to maintain and repair

their units to meet their statutory duty to provide an efficient

and reliable supply of electricity for the public. See, e.g.,

N.C. Gen. Stat. § 62-2; S.C. Code Ann. § 58-27-1510; S.C.

Code Ann. Regs. 103-360.

Before 1999, EPA’s only attempt to apply PSD to a project

at an existing electric utility involved a “highly unusual, if not

unprecedented” “renovation” of five units at the Wisconsin

Electric Power Company’s (“WEPCo”) Port Washington

Plant, which had operated well below capacity for over 10

years. See JA249-50 (Clay Mem.). EPA determined that an

NSPS “modification” would occur at three of the units—

because the projects would increase the units’ maximum

achievable hourly emissions rates. EPA also determined that

a PSD “major modification” would occur at all five units. To

reach that result, EPA applied a new and unusual interpreta-

tion of its 1980 Rules to the units that were not NSPS “modi-

fications.” Specifically, EPA claimed that a “‘major modifi-

cation’” could occur if a unit’s post-project “‘potential to

emit” would exceed its “actual emissions” before the pro-

ject—the so-called “actual-to-potential” test. JA255-56.

WEPCo petitioned for review, and the Seventh Circuit re-

versed EPA’s PSD determination on the merits. Noting that

the 1980 Rules on their face apply the “potential to emit” con-

cept only to a “unit which has not begun normal operations”

40 C.F.R. § 51.166(b)(21)(iv), the court described EPA’s in-

terpretation as “assum[ing] what it seeks to prove”—because,

“in -order to demonstrate that [WEPCo’s] like-kind replace-

ment project constitutes a modification, ... EPA assumes that

the plant is a ‘modified’ unit.” WEPCo, 893 F.2d at 917 (em-

phasis added). On remand, the court ordered EPA to deter-

mine “whether the renovated plant would cause a significant

net emissions increase if it were operated under present hours

and conditions”—assuming constant, representative annual

operating hours and conditions. /d. at 918 n.14. “The practi-

cal effect [of the ‘present hours and conditions’ requirement]

is that a net emissions increase can result only from an in-

crease in the hourly rate of emissions,” Alabama Power, 372

F. Supp. 2d at 1308—in other words, only if an NSPS “modi-

fication” first occurs. EPA and WEPCo ultimately settled.

In Puerto Rican Cement Co. v. EPA, the First Circuit up-

held the application of PSD to a proposal “to build a new ce-

ment kiln, replacing older kilns” at a source. 889 F.2d 292,

293 (ist Cir. 1989) (Breyer, J.). The court found no anomaly

in applying PSD to the installation of a “new” unit even

though the company could have “increase[d] production at its

old kilns to 100 percent of capacity, thereby vastly increasing

actual emissions” without triggering PSD. /d. at 298. Ac-

cording to the court, the reason for this distinction “lies in the

statute itself, for the statute refers to the ‘construction’ of fa-

cilities, not to increased use of existing facilities.” Id.

Thus, both WEPCo and Puerto Rican Cement held that

PSD may be triggered when there is NSPS “construction” ac-

tivity—NSPS “modifications” of three existing units in

WEPCo, and the installation of a brand new unit in Puerto

Rican Cement. Neither court held that a project that was not a

“modification” at all could be a “major modification.”

c. In 1992 EPA Promulgated the Optional

“WEPCo Rule.”

In 1992, EPA promulgated a new rule known as the

“WEPCo Rule.” 57 Fed. Reg. 32,314 (July 21, 1992). This

rule did not change the 1980 Rules governing the method for

calculating emissions increases. Instead, the 1992 WEPCo

Rule created an optional test for electric utilities, and the

1980 Rules remained the default. See Pet. App. 7la n.25.

Under this test, utilities could compare pre-project “actual”

emissions to post-project “projected actual” emissions. 40

C.F.R. § 51.166(b)(21)(v) (1993). However, this test is avail-

able only to utilities that satisfy certain post-project reporting

requirements, see id —which Duke did not do.*

5. The 1990 Amendments And EPA’s Post-

WEPCo Pronouncements Confirm The Es-

tablished Definition Of “Modification.”

The WEPCo case arose when EPA, Congress, industry, and

environmental organizations were concerned that SO) emis-

sions from coal-fired plants were causing acid rain. Sce, e.g.,

S. Rep. No. 101-228, at 261-301 (1989). Addressing poten-

* After successfully arguing that the 1992 Rules were irrelevant to the

district court’s analysis-——because they are “optional”—the United States

now appears to argue for their application here. U.S. Br. 20 & n.4. The

United States’ new position not only is wrong, it is improper. See Zedner

v. United States, 126 S. Ct. 1976, 1987 (2006); see also In re Cassidy, 892

F.2d 637, 641 (7th Cir. 1990) (barring party from changing position with

respect to a “subsidiary question” on which he prevailed in prior proceed-

ings, “{e]ven though [he] did not prevail on the appeal as a whole”).

tial solutions to that problem, EPA’s Assistant Administrator

for Air stated at an “Acid Rain Conference” that the CAA’s

new source provisions had only limited applicability to exist-

ing coal-fired power plants. See JA84-88. He further ex-

plained that the Act’s definition of “modification” did not

cover “activities at a plant which tend to extend the useful life

of that plant or tend to increase the total emissions generated

over the total life of that plant.” JA87.

Similarly, in 1987, EPA’s Administrator testified that the

new source programs did not require retrofitting new source

controls on existing coal-fired power plants and that EPA op-

posed any legislation that would mandate such unit-by-unit

controls. See JA89-95 (statement of Lee Thomas). Accord-

ing to the Administrator, “[t]here is nothing that EPA can do

to prevent a powerplant which had previously been emitting

at a level well below its SIP limit from increasing its emis-

sions, as long as it remains below its legally sanctioned ceil-

ing.” JAI4.

Congress ultimately enacted legislation to reduce SO; and

NO, emissions in the 1990 CAA Amendments, known as Ti-

tle [V or the Acid Rain Program. During the Title [V debates,

EPA provided analyses stating that existing coal-fired boilers

would operate for an average of 55-65 years and that refur-

bishments would be undertaken without triggering PSD. See

JA121-22; JA126-29; see also JA100-04. Several proposals

would have required such boilers to retrofit new source con-

trol technologies—the precise result Petitioners and the

United States seek here.” Congress rejected those proposals

and enacted instead a national emissions “cap” and a “trad-

ing” regime that allows utilities to meet that cap through a

variety of means, including installing pollution controls at

* See S. 300, 100th Cong. § 2(a) (1987); S. 2203, 99th Cong. § 2(a)

(1986); see also S. 316, 100th Cong. §§ 183(bX1), (cL), 187 (1987); S.

321, 100th Cong. § 182(a) (1987); S. 2813, 99th Cong. §§ 183(b)(1),

(c)(1), 187 (1986); S. 2200, 99th Cong. §§ 182(a), 184 (1986); H.R. 4567,

99th Cong. §§ 182(b), 184(f) (1986); S. 52, 99th Cong. § 183(e) (1985).

particular units, fuel switching, emissions trading, and other

measures. See 42 U.S.C. §§ 7651-76510; H.R. Rep. No. 101-

490, pt. 1, at 365 (1990); Clean Air Reauthorization (Pt. 2):

Hearings before the Subcomm. on Energy & Power of the H.

Comm. on Energy & Commerce, 10\st Cong. 234-36 (1989)

(statement of W.G. Rosenberg, Assistant Adm’r, Air and Ra-

diation, EPA).

Before and after the 1990 Amendments, EPA repeatedly

stated that its WEPCo determination did not reflect any at-

tempt to expand PSD. See Pet. App. 50a-53a. Thus, in re-

sponse to a Government Accounting Office (“GAO”) inquiry,

EPA stated it did “not consider WEPCO’s project typical of

most utility life extension projects, and [it] expect[s] that the

ruling will not significantly affect utilities’ decisions to under-

take power plant life extension projects.” JA137; see JAL55

(stating most power plant repair projects would not trigger

PSD).” Indeed, if most power plant repair or replacement

projects triggered PSD, then every power plant would have to

install BACT, and the more flexible, market-based trading

approach of Title [V would serve no purpose.

Il. EPA CHANGED ITS INTERPRETATION IN THE

1999 “ENFORCEMENT INITIATIVE.”

A. EPA’s Enforcement Position.

In an abrupt reversal of position, EPA launched the “en-

forcement initiative” in November 1999. EPA filed lawsuits

against numerous utility companies claiming that 549 mainte-

nance, repair and replacement projects at 148 generating units

located at 56 existing coal-fired power plants had violated

NSR. See Duke C.A. App. 493-511. In this case, EPA al-

* EPA knew of utility repair practices prevalent at the time—including

several of Duke's projects here. See Letter from Reilly, EPA, to Rep.

Dingell (Apr. 19, 1989), (Duke Mot. Summ. J. Ex. 45) (responding to

question regarding Duke PMP project at Dan River Station); JA176-82

(Farmer Mem.) (identifying Duke PMP projects at Dan River, Allen, Riv-

erbend, Cliffside and Buck Stations). See also Pet. App. 50a n.13 (de-

scribing EPA’s knowledge of utility “life extension” projects).

leged violations at virtually all of Duke’s 30 coal-fired units,

located at eight plants in the Carolinas. The targeted projects

took place as early as 1988.

Duke’s plants consist of multiple generating units, and each

unit has a permit allowing operations at full capacity 24 hours

per day, 365 days per year, subject to emissions rate limits.

JA165. Of course, many factors determine whether a particu-

lar unit runs at any given time—principally, consumer de-

mand. Each unit is part of the integrated electricity grid, and -

changes in fuel cost, the unit’s operating cost, congestion on

the grid, shutdowns of other units, and demand for electricity

(which, in turn, depends on time of day, weather, and eco-

nomic factors) determine when and for how long a given unit

is run. See, e.g., Northern Ind. Pub. Serv. Co. v. Colorado

Westmoreland, Inc., 667 F. Supp. 613, 616-19 (N.D. Ind.

1987) (describing an electric generating dispatch system).

Notwithstanding these unpredictable fluctuations, Duke’s

units must be ready to run whenever they are needed—

particularly during peak periods such as the hottest summer

weekdays. Thus, Duke must maintain its units so they will be

available at peak times to meet its duty to provide a reliable

electricity supply. See N.C. Gen. Stat. § 62-2; S.C. Code

Ann. § 58-27-1510; S.C. Code Ann. Regs. 103-360.

Most of the projects at issue involved repairs to and re-

placements of boiler tube assemblies during regularly-

scheduled outages. Pet. App. 29a.’ Typically, these outages

are planned for spring or fall when demand is relatively low,

and they can last from several weeks to months. The other

projects occurred during “extended cold shutdown”

(“ECS”)—a period when Duke’s smallest units were not

needed, principally because new nuclear units were sufficient

to satisfy demand. During this period, Duke “made definitive

plans for preserving and conditioning the units ... so they

” The “Buck 4” project was featured in the district court’s decision be-

cause EPA sought summary judgment for that project, not because it was

“representative” of all projects as Petitioners claim. See Pet. App. 26a n.3.

could be returned to service when demand dictated.” Pet.

App. 27a-28a; JA165-66. Duke also developed an enhanced

maintenance program, the “Plant Modernization Program”

(“PMP”), which involved consolidating projects so that they

could be performed together. Pet. App. 28a; JAL66. Al-

though consolidated, the work was no different from the

boiler and turbine repair and replacements commonly under-

taken throughout Duke’s system and the industry.

Throughout this time, Duke was in frequent contact with

state regulators and informed them of the work to be done at

its units. JA183-88. The agencies responded that re-starting

the units after temporary shutdown would not trigger NSPS or

PSD, so long as the units’ permits were current and they re-

’ mained in the States’ emissions inventories. JA191-92 (North

Carolina); JA189-90 (South Carolina).

State regulators also inspected Duke’s plants regularly and

witnessed the work being performed. Duke’s records contain

at least 23 inspection reports that include observations that

units were under repair and certifications of compliance with

all applicable air quality regulations. For example, during a

1987 permit renewal for Buck 4, the state permit writer ob-

served: “Unit Nos. 3, 4 & 5 are currently in the Plant Mod-

ernization Program (PMP) ... until 1989,” and noted that

“PSD, NSR, [and] NSPS ... do not apply.” JA197.

EPA, too, was aware of utility repair practices, including

the “industry practice of engaging in life extension projects.”

Pet. App. 50a n.13. In the two decades before the “enforce-

ment initiative,” EPA conducted thousands of utility plant

inspections. It visited plants while boiler component re-

placements were ongoing, but never cited them as PSD viola-

tions. /d. Indeed, EPA knew of many of the projects at issue

here, but raised no questions about them. See id. Thus, ac-

cepting EPA’s newly-minted interpretation of PSD would

mean that the Agency ignored the law for two decades.

None of the projects at issue created any new or unregu-

lated emissions, and none of the work allowed the units to

operate any differently than they had operated in the past. In

fact, the parties stipulate that none of the projects increased

the maximum achievable hourly emission rate of any of the

units (i.e., none was a “modification”). Pet. App. 88a-89a.

Rather, Petitioners say Duke’s projects enabled the facilities

to respond more reliably to calls for electrical generation and

thus should have been “projected to result in increased utiliza-

tion of the units at issue.” /d. at 88a.

In the district court, EPA moved for partial summary judg-

ment on the question of how to calculate an “emissions in-

crease,” and Duke cross-moved for summary judgment. The

district court held that the plain language of the 1980 Rules,

the plain language of the statute, EPA’s prior interpretations,

and the WEPCo decision all demonstrated that EPA’s position

is wrong—-because “in order to undergo ‘construction’ as de-

fined in PSD, an existing source must also undergo a ‘modifi-

cation’ as defined in NSPS.” Pet. App. 63a. The Fourth Cir-

cuit affirmed. /d. at 19a.

By contrast, in the most recent appellate decision involving

the enforcement initiative—issued after the Court granted

certiorari in this case—the Seventh Circuit deferred to EPA’s

interpretation of its rules. See United States v. Cinergy Corp.,

458 F.3d 705 (7th Cir. 2006). However, the court did not ad-

dress the argument that a “modification” is required before a

“major modification” occurs. Instead, the court rested its de-

cision on the observation that the “major modification” rules

speak in terms of “annual” increases, not “hourly” in-

creases—a point that no one disputes. /d. at 709-10. The

court also pointed to a purported distinction between the pur-

pose or the NSPS and PSD programs that no party argued and

that does not exist, see id. at 710-11 (incorrectly stating that

NSPS regulates “input,” while PSD regulates “output”), and

without further analysis simply deferred to EPA’s interpreta-

tion.

* In an earlier case, the Eleventh Circuit vacated EPA’s effort to impose

its interpretation on TVA through an “exceedingly unusual,” “ad hoc”

B. The D.C. Circuit Did Not Address EPA’s En-

forcement Position In New York I.

In 2002, while this case was being litigated, EPA promul-

gated new rules revising the “major modification” provisions.

See 67 Fed. Reg. 80,186 (Dec. 31, 2002). These rules do not

apply to the projects at issue—all of which occurred before

2002. Moreover, these rules likely will be superseded. See

infra at 21. In any event, these rules look to whether a “pro-

ject” results in an “actual-to-projected-actual” emissions in-

crease—the test EPA now tries to distort the 1980 Rules to

incorporate. 40 C.F.R. § 51.166(a)(7)(iv)(c) (2005).

All sides challenged the 2002 rules, and some moved to re-

open their challenges to the 1980 and 1992 rules. The court

consolidated the challenges and generally upheld the 2002

rules in an opinion issued after the decisions in this case. See

New York I, 413 F.3d 3. Although the court rejected the ar-

gument that Congress adopted the NSPS rules wholesale into

the PSD statute,’ the court declined to address the Fourth Cir-

cuit’s decision, “express[ing] no opinion as to whether Con-

gress intended to require that EPA use identical regulatory

definitions of modification across the NSPS and NSR pro-

grams.” Jd. at 19-20. The court also declined to address in--

dustry’s challenge to a “new interpretation of the 1980 rule”

articulated in later preambles, on the ground that it was un-

ripe. Jd. at 20. According to the D.C. Circuit, “[i]f there are

still pending applications of the 1980 rule in which EPA at-

tempts to employ the disputed [interpretation] ... judicial pro-

administrative proceeding that “entirely ignore[ed] the concept of the rule

of law.” TVA v. Whitman, 336 F.3d 1236, 1240-41 & n.9, 1245-46 (11th

Cir. 2003).

? In rejecting industry’s challenge, the D.C. Circuit incorrectly read the

NSPS regulations as including two, “inconsistent” definitions of “modifi-

cation.” New York I, 413 F.3d at 19-20 (citing 40 C.F.R. §§ 60.2(h),

60.14(b)). As EPA stated at the time of promulgation, the second regula-

tion is not “inconsistent” with the first, but merely describes in detail the

method for calculating emissions. See 39 Fed. Reg. at 36,947.

ceedings addressed to the application could solve the problem

of any affected firm.” Jd. at 20-21.'°

C. In October 2005, EPA Proposed A New Rule

Abandoning [ts Enforcement Position.

In October 2005, EPA proposed to resolve the confusion

created by its enforcement initiative and to re-affirm its origi-

nal standard for determining whether a “modification” has

occurred—a standard that “is the same as that in the ...

[NSPS] program.” 70 Fed. Reg. at 61,081. Under the pro-

posed rule, EPA will use the “same maximum achievable

hourly emissions test [it] appllies] under NSPS to determine

whether a physical change in or change in the method of op-

eration ... results in an emissions increase.” /d. at 61,088.

EPA admitted that the “approach [it has] been taking [in the

enforcement initiative] leads to outcomes that have not ad-

vanced the central policy of the major NSR program.” /d. In

particular, EPA’s enforcement position “discourages sources

from replacing components, and encourages them to replace

components with inferior components or to artificially con-

strain production in other ways,” and “has impeded or re-

sulted in the cancellation of projects that would have main-

tained and improved the reliability, efficiency, or safety of

existing energy capacity.” Jd. at 61,094. These perverse ef-

fects occur because the standard applied in this litigation as-

sumes that any component repair will cause the unit to run

more hours and produce more emissions, even if the unit’s

actual emission rate will not change. See Alabama Power,

372 F. Supp. 2d at 1297. Thus, like the position rejected in

WEPCo, EPA’s enforcement initiative approach “assume[s]

what [it] seek[s] to prove.” 893 F.2d at 917. By contrast. the

longstanding “modification” standard properly focuses on in-

The D.C. Circuit decision confirms that it is up to the regional courts

to decide whether a new interpretation of the 1980 Rules withstands scru-

tiny—contrary to Petitioners’ hyperbolic claim that the Fourth Circuit's

decision was the most “serious affront” imaginable to D.C. Circuit's juris-

diction. Pet. Br. 2.

creases in an emission unit’s actual emissions capacity, and

thus “‘allow[s] owner/operators to make changes that, without

increasing existing capacity, promote the safety, reliability,

and efficiency” of their units. 70 Fed. Reg. at 61,093.

SUMMARY OF ARGUMENT

The court of appeals and district court correctly held that

EPA improperly used this enforcement litigation to impose

PSD pre-construction requirements where the statute and

regulations do not apply.

I. As an initial matter, § 307(b) does not divest the courts

of jurisdiction to address EPA’s enforcement interpretation.

Section 307(b) states that “[ajction{[s] of the Administrator

with respect to which review could have been obtained” by

filing an expedited “petition for review” in the D.C. Circuit

are not reviewable in later enforcement proceedings. 42

U.S.C. § 7607(b)(1)-(2). This case does not involve

“(alction[s] ... with respect to which review could have been

obtained” in a petition to review the 1980 Rules. Duke does

not contend the 1980 Rules are invalid; it contends EPA’s

subsequent re-interpretation of them is improper.

Nor could Duke have raised its objections to EPA’s inter-

pretation in 1980, for the simple reason that EPA did not in-

terpret the regulations then as it does now. In 1980, EPA in-

terpreted its regulations consistently with their plain language

and the text of the CAA—as requiring an NSPS “modifica-

tion” to trigger PSD “major modification” review. EPA ar-

ticulated this interpretation in two contemporaneous determi-

nations—which, although the United States attempts to dis-

avow them, presented the Agency’s authoritative view at the

time. JA27-28; JA35-37. Had anyone filed a petition in 1980

contending EPA might change its position in the future, the

petition would have been dismissed as unripe. Thus, to hold

that EPA’s position is unassailable here would insulate that

position from challenge altogether. Given that the CAA car-

ries criminal and civil penalties, this result would be inconsis-

tent with fundamental fairness.

Allowing courts to address EPA’s enforcement position in

no way undermines the purposes of § 307(b), as the United

States contends. If EPA wanted to obtain expedited D.C. Cir-

cuit review, it should have articulated its interpretation in a

nationally applicable, prospective “final action,” not in retro-

spective individual enforcement proceedings as it did here.

In any event, Petitioners’ and the United States’ contention

that the courts below exceeded their jurisdiction is inseparable

from their contention that those courts misconstrued the regu-

lations. Because the Court thus must resolve the merits ques-

tion, conflating the two serves no purpose.

Finally, Duke’s objections to EPA’s position were not

raised in a challenge to the 1980 Rules. The 1981 brief the

United States cites for this proposition raised an entirely dif-

ferent argument regarding EPA’s method of “netting” emis-

sions. And the D.C. Circuit in New York / refused to rule on

EPA’s later interpretations, instead deferring to pending en-

forcement proceedings for their resolution.

Il. The plain language of the 1980 Rules establisiies

“modification” as the trigger for PSD “major modification”

review. The 1980 Rules require PSD permits for “construc-

tion,” which is defined to include “modifications.” 40 C.F.R.

§ 51.166(0;)(1), (b)(8). And the rules’ “general provisions”

define “modification” as it is defined under the NSPS rules

and the Act. Jd. §§ 51.100, 52.01(d). In promulgating this

definition, EPA stated that it was intended to be “consistent

with the definition used in” NSPS. 39 Fed. Reg. at 42,513.

Thus, like NSPS, PSD applies only to projects that change a

unit’s basic emissions capacity—which always has been

measured in terms of the unit’s hourly emissions rate.

If an NSPS modification does occur at a unit, then the

source’s annual emissions are examined to see if the modifi-

cation is “major.” The structure of the “major modification”

rule confirms that increases in operating hours do not trigger

PSD. A “major modification” requires an increase in “actual

emissions,” which does not include increases in hours of op-

eration. 40 C.F.R. § 51.166(b)(2)(iii)(f). “Actual emissions”

are measured on an annual basis using a constant, “represen-

tative” operating period prior to the change. Td.

§ 51.166(b)(21)Gi); WEPCo, 893 F.2d at 918 n.14. Thus, an

“actual,” “annual” emissions increase occurs only if a unit’s

hourly emissions rate increases—i.e., if there is a change in

the unit’s fundamental ability to emit pollutants.

In 1981, EPA confirmed that these regulations mean what

they say in two formal applicability determinations. These

contemporaneous interpretations demonstrate the 1980 Rules’

meaning and intent, which EPA cannot retroactively change

through enforcement litigation.

__IIf. EPA’s enforcement interpretation is inconsistent with

the Clean Air Act. The plain language of the statute limits

PSD review to projects that are “modifications” under NSPS.

See 42 U.S.C. § 7479(2)(C) (defining “modification” “as de-

fined in section 741 1(a) of this title”). The express incorpora-

tion of the NSPS concept of “modification” into PSD is ir-

refutable evidence that Congress intended to limit that con-

cept under PSD. See JBP, Inc. v. Alvarez, 126 S. Ct. 514, 523

(2005). EPA cannot interpret the rules in a manner that vio-

lates this statutory restriction. See Stinson v. United States,

508 U.S. 36, 45 (1993).

Congress based the statutory PSD program on the pre-

existing regulatory PSD program, codifying certain provi-

sions, modifying others, and rejecting others altogether. This

selective incorporation further confirms that Congress delib-

erately chose the term “modification” to define the scope of

PSD applicability to existing sources. Lorillard v. Pons, 434

U.S. 575, 582 (1978). The legisiative debates similarly re-

flect Congress’s intent to avoid imposing PSD’s pre-

construction requirements on existing sources as a general

matter. See, e.g., H.R. Rep. No. 95-294, at 185 (1977). By

contrast, there is no mention in the statute or legislative his-

tory that Congress intended to apply this “new source” pro-

gram to existing facilities in an entirely different and much

broader way than the CAA prev‘ously had applied to them.

If Congress had intended such a sweeping change, it surely

would have said so. Not until the 1990 Acid Rain Amend-

ments did Congress address the issue of long-term SO and

NO, emissions from existing power plants. And in enacting

those amendments Congress rejected the universal application

of PSD controls in favor of a market-based trading program—

‘which is incompatible with Petitioners’ and the United States’

approach here.

In the end, Petitioners and the United States invoke the

purported purposes of PSD to avoid the statute’s plain lan-

guage. This approach violates basic principles of statutory

construction. Moreover, it overstates the differences between

PSD and NSPS, because both impose technological control

requirements and both protect the ambient air. The language

of the statute is the true ndicator of how Congress intended to

further its general purpuses. And EPA’s enforcement posi-

tion is inconsistent with that language and intent.

ARGUMENT

I. THE COURTS BELOW HAD JURISDICTION TO

CONSIDER EPA’S ENFORCEMENT INTER-

PRETATION.

Petitioners and the United States contend that the courts be-

low lacked jurisdiction to address EPA’s enforcement inter-

pretation because Duke’s objections to that interpretation

“could have been’ resolved” in a petition to review the 1980

Rules in the D.C. Circuit pursuant to § 307(b)({1) of the Act.

Pet. Br. 29; U.S. Br. 17. They are incorrect.

A. Duke Does Not Challenge The Validity Of The

1980 Rules, It Challenges EPA’s 1999 Interpre-

tation.

Section 307(b)(2) provides that “[a]ction|s] of the Adminis-

trator with respect to which review could have been obtained”

through a petition for review pursuant to § 307(b)(1) “shall

not be subject to review in civil or criminal proceedings for

enforcement.” 42 U.S.C. § 7607(b)(2). Section 307(b)(1), in

turn, authorizes “petitions for review” of certain “action{s] of

the Administrator’—including “promulgating any national

primary or secondary ambient air quality standard... or any

other nationally applicable regulations promulgated, or final

action taken, by the Administrator.” Jd. § 7607(b)(1). Any

such challenge must be filed in the D.C. Circuit “within sixty

days from the date notice of such promulgation, approval, or

action appears in the Federal Register.” Jd.

In this case, there was no “[a]ction” that could have been

the subject of a petition for review under § 307(b)(1). Duke

objects to EPA’s subsequent interpretation of its regulations,

which the Agency created and attempted to apply in its 1999

enforcement initiative. Indeed, the issue of the proper inter-

pretation of the 1980 Rules was first raised by EPA in this

case, in a motion for summary judgment seeking a ruling that

“emissions calculations for PSD applicability must... con-

sider future utilization.” U.S. Mot. Summ. J. at 15.

In response to EPA’s motion, Duke did not contend that the

1980 Rules are contrary to the statute or otherwise invalid.

Rather, Duke argued that the plain language of the statute and

the 1980 Rules do not support EPA’s litigating position. The

district court agreed, basing its analysis “on the PSD rules, the

contemporaneous interpretations of the PSD rules, and the

statutory language incorporating the NSPS concept of modifi-

cation into PSD.” Pet. App. 58a. Thus, the court did not “in-

validate” the 1980 Rules. It merely rejected EPA’s new in-

terpretation as inconsistent with them.

In the Fourth Circuit EPA asked the court to “resolve th[e]

question” whether it “‘can interpret the statutory term modifi-

cation under PSD differently from how’ it has interpreted that

term under NSPS.” Pet. App. 15a n.7. “[N]o question as to

the validity of the PSD regulations [was] presented ....” /d.

Only after the Fourth Circuit signaled in a supplemental brief-

ing request that it was not accepting EPA’s position did EPA

argue that the court lacked jurisdiction. See id. at 21a.

This eleventh-hour argument is without merit. It is well es-

tablished that the regional courts may consider agency inter-

pretations of the PSD regulations, particularly in an enforce-

ment action. See, e.g., WEPCo, 893 F.2d at 914 n.6 (holding

§ 307(b) did not bar consideration of the question “whether

the EPA properly applied these regulations”); Puerto Rican

Cement, 889 F.2d at 296, 299 (considering whether EPA had

applied an “arbitrary, and contradictory interpretation of

EPA’s own regulations”). Thus, the D.C. Circuit has required

parties to challenge interpretations of these rules in individual

proceedings rather than in omnibus rule challenges. See New

York I, 413 F.3d at 21 (refusing to consider an interpretation

of the 1980 Rules in favor of “judicial proceedings” in indi-

vidual cases). And every court to consider EPA’s enforce-

ment interpretation has (usually on EPA’s motion) resolved

the issue on the merits. See Cinergy, 458 F.3d at 709; United

States v. Cinergy Corp., 384 F. Supp. 2d 1272, 1276 (S D.

Ind. 2005), aff'd, 458 F.3d 705; Alabama Power, 372 F.

Supp. 2d at 1299-1300; United States vy. Ohio Edison Corp.,

276 F. Supp. 2d 829, 862 (S.D. Ohio 2003); see also United

States v. American Elec. Power Serv. Co., 218 F. Supp. 2d

931, 951 (S.D. Ohio 2002).

Nor does § 307(b) bar courts from deciding “statutory ques-

tions” or “statutory” arguments as Petitioners and the United

States imply. See, e.g., Pet. Br. 3, 33 & nn.24-25, 37-38; U.S.

Br. 17, 19. It bars the review of “/ajction ... with respect to

which review could have been obtained” under § 307(b)(1).

42 U.S.C. § 7607(b)(2) (emphasis added); see also Madison

Gas & Elec. Co. v. EPA, 4 F.3d 529, 531 (7th Cir. 1993)

(“Congress could have channeled all Clean Air Act cases to

the D.C. Circuit but obviously decided not to.”). An agency

always is bound by the governing statute, even when inter-

preting its underlying rules. See, e.g., Stinson, 508 U.S. at 45.

If review (even “statutory” review) of an agency interpreta-

tion “could not have been obtained” via a petition for review,

it is not barred by § 307(b)(2).

B. Duke Could Not Have Raised Its Arguments In

An Expedited Petition Under § 307(b)(1).

Duke could not have challenged EPA’s enforcement posi-

tion in a petition for review in 1980 because EPA did not in-

terpret its rules then the way it does now. To the contrary, at

the time EPA interpreted its rules to require an NSPS “modi-

fication” to trigger a “major modification” analysis under

PSD—as Duke contends they should be interpreted.

The rules as promulgated clearly provided that a PSD “ma-

jor modification” first requires an NSPS “modification.” 40

C.F.R. §§ 51.100, 52.01(d). The rules also made plain that

increases in operating hours were neither “modifications” nor

“major modifications,” id. § 51.166(b)(2)(i1i)(f), and EPA’s

own contemporaneous statements confirmed that this exclu-

sion required an emissions rate increase. See infra at 36-37.

For example, EPA’s Director of its Division of Stationary

Source Enforcement (“DSSE”), shortly after the rules were

promulgated, twice announced that a project that causes an

increase in a unit’s hours of operation but does not increase

the unit’s hourly emissions rate is not a “modification” under

PSD. JA27-28, 35-37. Although the United States now deni-

grates the Director as a “mid-level EPA official” who made

an “incorrect” conclusion, U.S. Br. 28, the Director was

charged by EPA with issuing official interpretations of the

PSD rules. JA477-79. Moreover, there are no contrary

Agency pronouncements, and the Director’s determinations

have previously served as “final agency action” subject to ju-

dicial review in this Court. See Harrison v. PPG Indus., Inc.,

446 U.S. 578, 583 n.2 (1980); PPG Indus. Inc. v. Harrison,

587 F.2d 237, 241-42 (Sth Cir. 1979).""'

'' EPA has posted these applicability determinations on its database of

guidance documents, http://www.epa.gov/nsr/guidance.html. See http://

www.epa.gov/Region7/programs/artd/air/nsr/nsrmemos/gastrbns.pdf (GE

Determination); /crgilinc.pdf (Cargill Determination). A search conducted

Had anyone filed a petition in 1980 claiming that an in-

crease in operating hours could not be,a “major modifica-

tion,” it would have been dismissed as unripe. Section 307(b)

cannot and does not grant jurisdiction to adjudicate hypotheti-

cal issues. See Clean Air Implementation Project v. EPA,

150 F.3d 1200, 1204 (D.C. Cir. 1998). Of course, “[a] neces-

sary corollary [of this principle] is that if the issues later be-

come justiciable, as a result for instance of an enforcement

action, the petitioner may then raise those issues, notwith-

standing” § 307(b)(2). Jd. See also Monsanto Co. v. EPA, 19

F.3d 1201, 1203 n.2 (7th Cir. 1994) (observing that “judicial

review ‘could [not] have been obtained’ under § 307(b)(1),”

and thus would not be barred later, if no controversy existed

at the time of a rule’s promulgation) (alteration in original).

C. Insulating EPA’s Position From Scrutiny Has No

Basis In § 307(b) And Is Inconsistent With Fun-

damental Fairness.

The United States essentially is seeking a ruling that its en-

forcement position is insulated from review altogether, Se-

cause that position was not articulated until decades after the

time for challenging the 1980 Rules had expired. Given the

substantial. civil and criminal penalties that flow from a PSD

violation, this Catch-22 argument cannot be reconciled with

principles of fundamental fairness. See Adamo Wrecking Co.

v. United States, 434 U.S. 275, 284 (1978). It also would

contravene the ordinary presumption that agency decisions

are subject to judiciai review. See Abbott Labs. vy. Gardner,

387 U.S. 136, 140 (1967).

Allowing a court to address EPA’s interpretation in an en-

forcement action does not undermine the purposes of

§ 307(b). See U.S. Br. 18. Congress drafted § 307(b) to re-

quire expedited D.C. Circuit review of certain EPA actions—

and only those actions. Where, as here, EPA attempts to im-

pose new interpretations of its rules in multiple retrospective

during the proceedings below found that the Director authored 105 of the

557 documents posted on that site. See Duke C.A. Br. 70 n.66.

enforcement actions, it necessarily exposes those interpreta-

tions to multiple instances of judicial scrutiny.

The way to ensure the uniform application and expeditious

review of a new agency interpretation is to articulate that in-

terpretation in nationally applicable “final action” published

“in the Federal Register.” 42 U.S.C. § 7607(b)(1). This well-

recognized procedure has numerous benefits. These include

providing the regulated community notice of and an opportu-

nity to plan for a new interpretation—which is particularly

important where, as here, complying with the interpretation

would cost billions and recovery of those costs may require

regulatory approval—and allowing comprehensive review on

the basis of an administrative record. In return, Congress de-

termined that agency decisions made and announced through

such procedures deserve exclusive and expedited review un-

der § 307(b), for all of the laudable reasons Petitioners and

the United States extol. Because EPA has followed none of

those requirements in this case, § 307(b) does not insulate

EPA’s interpretation from consideration now.'*

D. Petitioners’ And The United States’ Jurisdic-

tional Argument Is Inseparable From Their Ar-

gument That The Courts Below Erred On The

Merits.

Petitioners’ and the United States’ claim that the courts be-

low “offended” § 307(b) depends entirely upon their claim

that those courts erred on the merits. Their arguments begin

'? Allowing EPA to insulate its interpretations from judicial review also

wouid encourage agencies to promulgate vague regulations and implement

policy through later, unreviewable interpretations. The regulated commu-

nity, in turn, would be forced to challenge a host of hypothetical interpre-

tations in expedited § 307(b) proceedings. Neither proposition is desirable

as a matter of fairness to litigants or the orderly administration of the

courts— particularly as similar expedited review provisions appear in a

number of statutory schemes. See, e.g., Consumer Product Safety Act, 15

U.S.C. §2060(a); Federal Trade Commission Act, 15 U.S.C.

§ 57a(e)(1 (A); Federal Power Act, 16 U.S.C. § 8251(b); Clean Water Act,

33 U.S.C. § 1369(b); Federal Communications Act, 47 U.S.C. § 402(a).

by setting up a “straw man” mischaracterizing Duke’s argu-

ments and the decisions below. Specifically, Petitioners con-

tend that Duke’s position is that “the plain language of the

_ [CAA] mandated that EPA adopt identical modification regu-

lations for the NSPS and the NSR programs.” They then as-

sert that such a claim would have presented a ““‘facial’ chal-

lenge” to the 1980 Rules. Pet. Br. 29-31; see U.S. Br. 19-25.

But this does not accurately describe Duke’s position—which

is that there must be a “modification” before there can be a

“major modification” under the 1980 Rules.

Petitioners’ jurisdictional argument ultimately rests on the

proposition that the district court’s “reading” of the rules “is

manifestly wrong.” Pet. Br. 35. The United States goes even

farther, presenting its entire regulatory argument in the juris-

dictional section of its brief. U.S. Br. 20-35. In essence, Peti-

tioners and the United States contend that their interpretation

of the 1980 Rules is “correct” and any contrary argument is

an attack on the rules that had to be brought under § 307(b).

Conflating the jurisdictional and merits arguments in this

manner renders the jurisdictional argument superfluous—

which is presumably why EPA did not make the argument

until its position on the merits was in jeopardy. The Court

should reject this effort to expand the scope of § 307(b) and

should reach the question whether EPA’s enforcement posi-

tion is consistent with the CAA and 1980 Rules.

E. Duke’s Challenge Was Not Raised By Others

Following The Promulgation Of The 1980 Rules.

Finally, the United States mischaracterizes a brief filed in

1981 by GM and others (the “CMA petitioners”) to argue that

parties did seek review of EPA’s enforcement position in

1981. U.S. Br. 32-33. As noted above, that brief—which

Duke did not join—contended that EPA’s switch from a

source-wide “design capacity” (or “potential-to-potential”)

test to a source-wide “actual emissions” test for the “major

modification” “netting” analysis violated the CAA. See su-

praat 11. That is not Duke’s argument.'*

Duke’s contention is that an NSPS “modification” is re-

quired before a “major modification” analysis can occur. An

NSPS “modification” occurs only if an increase in a unit’s

maximum achievable hourly emissions rate occurs. 40 C.F.R.

§ 60.14. As EPA has stated, “a test based on maximum

achievable hourly emissions is a test based on actual emis-

sions.” 70 Fed. Reg. at 61,091 (emphasis added). This is the

opposite of the CMA petitioners’ position, which was that

EPA violated the statute by using a test for a “net increase in

actual rather than potential emissions.” _MA Br. 17.

New York J, in turn, principally invoived a challenge to the

2002 rules. Industry also challenged EPA’s attempt to re-

interpret the 1980 Rules, through preamble statements in the

1998 proposal and 2002 rules, to require an “actual-to-

potential” test for projects at existing units, regardless of

whether the unit has begun normal operations. New York I,

413 F.3d at 18. Industry alternatively contended that the 1980

Rules would be inconsistent with the Act if they were so in-

terpreted and that a final rule with that meaning would not

have been a “‘logical outgrowth’” of the proposed rule. Joint

Br. Industry Pet’rs at 34-36, New York J, No. 02-1387 (D.C.

Cir. May 11, 2004). Moreover, although the D.C. Circuit did

‘not agree that Congress adopted the NSPS rules wholesale

into PSD, the court ultimately did not resolve industry’s ar-

guments, because it refused to pass on EPA’s interpretation of

the 1980 Rules. New York J, 413 F.3d at 19-20. Instead, the

court held that the issue was unripe and observed that “judi-

cial proceedings” involving “pending applications” of the

1980 Rules—i.e., individual enforcement proceedings such as

'? The United States muddles the two arguments through loose use of

the term “capacity,” incorrectly treating “design capacity” (a measurement

of emissions potential advanced by the CMA petitioners for netting pur-

poses) and “actual capacity” (the measurement of actual emissions capa-

bility required by the 1980 Rules) as interchangeable. U.S. Br. 32.

this one—“could solve the problem of any affected firm.” /d.

at 20.

In short, the question whether EPA’s enforcement interpre-

tation of the 1980 Rules is proper has not been resolved by

the D.C. Circuit and is not subject to the exclusive jurisdic-

tional provision of § 307(b)—as even that court has held.

Il. UNDER EPA’S RULES, A PROJECT IS A “MA-

JOR MODIFICATION” ONLY IF [T IS FIRST A

“MODIFICATION,” WHICH REQUIRES AN IN-

CREASE IN A UNIT’S EMISSIONS RATE.

The PSD statute and rules require pre-construction review

of a project at an existing unit only if that project is a “major

modification.” The plain language and structure of the rules

compel the conclusion that a PSD “major modification” first

requires an NSPS “modification”—a change that causes an

increase in a unit’s hourly emissions rate. A project that does

not increase that emissions rate, even if it allows increased

hours of operation, is not a “modification” and therefore a

fortiori is not a “major modification.”

A. The Plain Language Of The 1980 Rules Estab-

lishes An NSPS “Modification” As The Trigger

For PSD “Major Modification” Review.

Consistent with the Act, the 1980 Rules require sources to

obtain a permit before “begin[ning] actual construction” on a

project that is subject to PSD. 40 C.F.R. § 51.166(i)(1).

“Construction” means the “fabrication, erection, installation,

demolition or modification” of a facility “which would result

in a change in actual emissions.” /d. § 51.166(b)(8) (empha-

sis added).'*

'* See also 40 C.F.R. § 52.21(i)(1), (2) (requiring pre-construction per-

mitting only for “modification[s] to which the requirements of paragraphs

(j) through (r) of this section apply,” and stating that “{t}he requirements

of paragraphs (j) through (r) of this section” apply to “major modifica-

tion{s]”); S.C. Code Ann. Regs. 61-62.5, Standard 7, § (i)(1), (2) (2001)

(same).

The general provisions of both Parts of the 1980 Rules de-

fine “modification” as that term is defined under the Act—an

NSPS “modification.” The “general definitions” of Part 52

define “modification” as “any physical change in, or change

in the method of operation of, a stationary source which in-

creases the emission rate of any pollutant,” excluding any

increase in hours of operation, 40 C.F.R. § 52.01(d) (empha-

sis added). EPA stated in promulgating this definition that it

was meant to be “consistent with the definition used in”

NSPS. 39 Fed. Reg. at 42,513. Similarly, the “general defi-

nitions” section of Part 51, which contains no definition of

“modification” but essentially mirrors Part 52, states that “all

terms not defined herein will have the meaning given them in

the Act.” 40 C.F.R. § 51.100. Thus, under the 1980 Rules,a |

project at an existing unit is eligible for PSD review only if it

is a “modification” as defined by Congress, which expressly

incorporated the NSPS definition. If EPA had intended to

eliminate “modifications” as a requirement for PSD review, it

would have adopted a rule that said so.

Moreover, not all NSPS “modifications” are ultimately sub-

ject to PSD. PSD applies only to larger, source-wide in-

creases that have significant air quality impacts. Reflecting

this focus on “‘major emitting facilit[ies],"°" 42 U.S.C.

§ 7479(1), the 1980 Rules require pre-construction permitting

only for those “modifications” at individual units that result in

“major modifications” at the overall source. See 40 C.F.R.

§ 51.166(b)(2)(i).

The definition of “major modification” assures that PSD

applies only to NSPS “modifications” that are “major.” In-

deed, the whole structure of the “major modification” provi-

sion confirms the conclusion that an NSPS “modification” is

required to trigger a PSD “major modification” analysis.

First, for a “major modification” to occur, any “increase” in

actual emissions must result from a “physical [or operational]

change,” which even EPA concedes by definition excludes

“{ajn increase in the hours of operation” unless restricted by

permit. /d. § 51.166(b)(2)(iii)(f). Since the inception of the

new source rules, this “hours of operation exclusion” has as-

sured that a “modification” would occur only where an hourly

rate increase occurs. See 39 Fed. Reg. at 36,947 (explaining

that the kg/hr test would “automatically allow increases in

operating hours as intended by [the operating hours exclusion

in} 40 C.F.R. 60.2(h)’”).

EPA excluded increases in operating hours from the PSD

definitions of “modification” and “major modification,” see

40 C.F.R. §§ 52.01(d), 51.166(b)(2)(iii)(f}—reasoning in part

that Congress intended those terms “to include all exemptions

included in the NSPS regulations promulgated . . . prior to the

date of [PSD’s] enactment.” JA25; see also 49 Fed. Reg. at

43,213; 43 Fed. Reg. at 26,394; 68 Fed. Reg. at 61,269.

Thus, a “major modification” analysis is required for an exist-

ing unit only where activity increases the hourly emissions

rate—i.e., only for “construction,” which includes NSPS

“modification{s}.” 40 C.F.R. § 51.166(b)(8).

Second, a “major modification” occurs only if a project in-

creases the “actual emissions” of a pollutant at the overall

source. The rules include a single definition of “actual emis-

sions” for units that have begun normal operations. “Actual

emissions” are based on the average annual emissions during

a period that is “representative of normal source operation.”

Id. § 51.166(b)(21)(ii). To determine whether an emissions

increase will occur—and, if so, how large that annual emis-

sions increase will be—‘actual emissions” must be deter-

mined using the same representative period before and after

the project. /d.; see also WEPCo, 893 F.2d at 918 n.14.

Once “actual,” “annual” emissions are determined, sources

may offset any emissions increase at the unit with contempo-

raneous decreases at the source. See 45 Fed. Reg. at 52,698.

In.this netting process, emissions increases and decreases are

again expressed in total pollutant loads (tons per year), rather

than in short-term emissions rates (kilograms per hour). But

using constant, representative hours of operation for these

calculations ensures that an annual emissions increase is

found only if a unit’s hourly emissions rate increases, reflect-

ing an increase in the unit’s actual capacity to emit. See Ala-

bama Power, 372 F. Supp. 2d at 1293; Pet. App. 60a.

B. EPA’s Contemporaneous Interpretation Of The

Rules Was That An NSPS “Modification” Is The

Trigger For PSD “Major Modification” Review.

Immediately after the promulgation of the 1980 Rules, EPA

issued authoritative determinations that a PSD “major modifi-

cation” will not occur if an NSPS “modification” does not

occur—and that an increase in hours of operation does not

trigger “major modification” review.

In January 1981, EPA’s Director of DSSE responded to an

inquiry from a company that was considering adding a new

unit (an ethanol plant), which would “cause a large increase

in the hours of operation of the [existing] power plant and a

fuel switch to burn coal exclusively.” JA35. The Director

followed a two-step process. First, he noted that the addition

of the ethanol plant “should be considered a modification.”

Second, he addressed how “to determine if the modification is

major and subject to pre-construction PSD review”—

including by considering “netting” and “significance” levels.

JA36. However, the Director went on to explain that “in the

absence of any SIP or permit limitations, neither the increase

in emissions from the [fuel] switch ... nor the increase in

hours of operation at the power plant would be considered a

modification,” citing the hours of operation exclusion and its

companion fuel switch exclusion. /d. (citing 40 C.F.R.

§ 52.21(b)(2)(iii(e) & (f)). Thus, not only did the Director

address the “modification”/“major modification” distinction,

he also applied the hours of operation exclusion to a physical

change that caused an increase in operating hours.

In June 1981, the Director issued a second formal applica-

bility determination, regarding a project that would allow tur-

bines to convert to natural gas. JA27-28. Noting that the

units’ emissions rates would decrease as a result of the pro-

ject, the Director stated that-NSPS would not apply. JA27.

Furthermore, because the hourly emissions rate would not

increase, “[a]ctual emissions could increase only if there is an

increase in the production rate or hours of operation.” JA28.

The Director again relied upon the hours of operation exclu-

sion in determining that PSD review was not triggered. /d.

These authoritative EPA statements, issued at the time the

1980 Rules were promulgated, confirm the plain meaning of

those rules. See, e.g., Ohio Dep't of Human Servs. v. HHS,

862 F.2d 1228, 1234-35 (6th Cir. 1988); see also Solid Waste

Agency v. U.S. Army Corps of Eng’rs, 531 U.S. 159, 168

(2001) (“SWANCC’’) (relying on agency’s original interpreta-

tion, reflected in rules “promulgated two years after its en-

actment,” to determine the meaning of a statute). Where, as

here, a meaning “‘is compelled by the regulation’s plain lan-

guage [and] by other indications of the [agency]’s intent at the

time of the regulation’s promulgation,’” that meaning con-

trols. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512

(1994) (quoting Gardebring v. Jenkins, 485 U.S. 415. 430

(1988)). Even if the rules were ambiguous as the United

States contends, EPA may not reverse its interpretation by

means of an enforcement action retroactively targeting twenty

years of accepted practice. See Alaska Prof’! Hunters Ass'n

v. FAA, 177 F.3d 1030, 1034 (D.C. Cir. 1999) (original au-

thoritative interpretation of a rule can be changed only by ~

prospective rulemaking, because “[t]hose regulated by an ad-

ministrative agency are entitled to know the rules by which

the game will be played” and to participate in the rulemaking

process (quotation omitted)).

C. Petitioners’ And The United States’ Regulatory

Arguments Are Incomplete And Incorrect.

Petitioners and the United States make three principal ar-

guments to support their new interpretation of the rules at is-

sue. First, they assert that Duke’s position is not based on

“actual” emissions. Pet. Br. 39 (emphasis added). Second,

they contend that Duke’s position ignores the PSD rules’ use

of “annual” emissions. Jd. at 40 (emphasis added). Third,

they attack the district court’s reliance on the hours of opera-

tion exclusion, claiming this provision excludes increased

utilization only when it is ““‘unaccompanied by physical con-

struction to the unit itself.’” /d. at 36; see U.S. Br. 25-29.

The first two arguments are red herrings. Duke’s position

is based upon an analysis of both “actual” and “annual” emis-

sions. The NSPS hourly “emissions rate” test is an “actual

emissions” test, as EPA itself has acknowledged. See 70 Fed.

Reg. at 61,091 (“[A] test based on maximum achievable

hourly emissions is a test based on actual emissions.”). This

is because “[t]he maximum achievable hourly emissions test

measures what a source has been actually able to emit based

on physical and operating capacity during a representative

period prior to the change.” /d. And Duke has never disputed

that the “major modification” analysis uses “annual emis-

sions” —if a “modification” first occurs. As the district court

observed, a “significant net emissions increase” under the

1980 Rules “must be calculated on an annual basis [because]

measuring emissions in tons per year makes possible netting

(addition and subtraction) of emissions rates between various

units at the plant.” Pet. App. 64a-65a.

Petitioners’ and the United States’ attack on the hours of

operation exclusion focuses on EPA’s own 1981 applicability

determinations, which they disparage as a “mid-level” offi-

cial’s errors. But, the Director was not “a low-level employee

from an irrelevant division opining as to what he believed the

appropriate interpretation of the EPA regulations should be”;

he was “the head of the division at the EPA responsible for

‘providing guidance for interpretations which address the im-

plementation of [the PSD] regulations.’” Pet. App. 6la-62a

(alteration in original). To “ensure uniform national policy....

[EPA] policy require[d] that DSSE ... make the final recom-

mendation for interpretation of these requirements.” JA479.

Nor did DSSE make these determinations alone. For cxam-

ple, the Cargill Determination was “made with the concur-

rence of the Office of Air Quality Planning and Standards

[OAQPS]”—the division that writes and promulgates CAA

rules——“‘and the Office of General Counsel [OGC].” JA36.

At bottom, Petitioners’ arguments seek to re-write the hours

of operation exclusion to say that an increase in hours of op-

eration “standing alone” does not constitute a modification.

Pet. Br. 36 (regulation excludes increase in hours of operation

only when increase is “‘unaccompanied by physical construc-

tion’”). This argument contradicts the rules’ plain language,

which contains only one limitation: the increase in hours of

operation must not exceed any permit limit. See 45 Fed. Reg.

at 52,677, 52,698, 52704-05. EPA recognized as much in

1996, when it proposed to insert “standing alone” at the be-

ginning of the exclusion in a proposed rule. See 61 Fed. Reg.

38,250, 38,254 (July 23, 1996). Adding a condition to a regu-

lation that is not reflected in its text is not “interpretation.” It

is an attempt to change the rule. See Christensen v. Harris

County, 529 U.S. 576, 588 (2000) (“To defer to the agency’s

position would be to permit the agency, under the guise of

interpreting a regulation, to create de facto a new regula-

tion.””).'°

Moreover, the “standing alone” condition makes no sense,

because it implies that any change in a unit’s hours of opera-

tion is a change in the “method of operation” that requires an

express exclusion. Utilities change their hours of operation

every day in response to demand, to weather, and to myriad

other factors. That is not a “change in the method of opera-

tion”—it is how industry normally operates. Because

'S The United States incorrectly cites a “hypothetical” in the 1980 Pre-

amble as demonstrating the “function” of the hours of operation exclusion.

U.S. Br. 23-24 & n.6. In the hypothetical, the change in operating hours

triggered PSD only because EPA “assum{[ed] that the reviewing authority

revised [the] permit to reflect” actual emissions before the change—

meaning the new operations would exceed the revised permit limit. 45

Fed. Reg. at 52,705. The hypothetical says nothing about whether in-

creased hours of operation within permit limits are ever “major modifica-

tions.”

changes in hours of operation, standing alone, are not changes

in the “method of operation,” the “hours of operation” exclu-

sion must do more.

In essence, Petitioners and the United States contend that in

changing the “netting” methodology in 1980 EPA fundamen-

tally redefined the “construction” that triggers pre-

construction review and radically expanded the reach of the

program to existing facilities never before subject to PSD,

including under the 1974 and 1978 rules, and the 1979 pro-

posed rules. In the preamble to the 1980 Rules, EPA did not

Ssay—as it contends now—that changing the netting provi-

sions from “potential” to “actual” emissions would expand

NSR applicability to activities at existing units that were not

“modifications.” To the contrary, EPA’s economic analysis

concluded that the 1980 “netting” methodology would result

in /ess coverage than the 1979 proposal. See 45 Fed. Reg. at

52,729.

Finally, as the amici curiae States explain in detail and sev-

eral courts have observed, EPA’s enforcement position has

never been the Agency’s consistent interpretation of the

rules—not even in this very litigation. See Br. States of Ala-

bama et al., at 10-13.'° The United States concedes that EPA

has attempted to interpret the rules to require two different

emissions tests at an existing unit: the so-called “actual-to-

potential” and “actual-to-projected-actual” tests. U.S. Br. 25

n.8 (suggesting that which interpretation is the Agency’s true

interpretation is not “important’). In fact, EPA advocated

both tests at various times in the district court below. See Pet.

App. 58a & n.17. This search for a test is the result of EPA’s

departure from the language of the rules. Indeed, if the 1980

EPA for its inconsistent and result-oriented actions. See, e.g., Alabama

Power, 372 F. Supp. 2d at 1306-07 (observing that EPA “has not spoken

with one voice, or a consistent voice, or even a clear voice, on this issue”);

Ohio Edison, 276 F. Supp. 2d at 832-33 (describing EPA’s administration

of NSR as an “abysmal breakdown’), see also TVA, 336 F.3d at 1240-41

& n.9, 1245-46, quoted supra at n.8.

Rules expanded the construction trigger from “modification”

to any project that might affect utilization, then neither the

1992 nor the 2002 rule revisions would have been necessary.

See 40 C.F.R. § 51.166(b)(21)(v) (1993) (adopting the op-

tional “actual-to-projected-actual” test for electric generating

units); id. § 51.166(a)(7)(iv)(c) (2005) (adopting the “actual-

to-projected-actual” test for all sources, and establishing a

“project{]” as the trigger for that test).

EPA’s effort to retroactively “redefine PSD through en-

forcement actions and litigation” is “not the type of regulatory

activity entitled to Chevron deference.” Alabama Power, 372

F. Supp. 2d at 1306. At the least, no deference is due an

agency’s interpretation that has “fluctuated” in this manner as

this “case has progressed.” North Haven Bd. of Educ. v. Bell,

456 U.S. 512, 539 n.29 (1982).

Il. EPA’S ENFORCEMENT INTERPRETATION IS

INCONSISTENT WITH THE ACT.

EPA’s enforcement interpretation not only is inconsistent

with the 1980 Rules, it also is inconsistent with the CAA it-

self. The plain text of the CAA requires an NSPS “modifica-

tion” as the trigger for PSD review. And Congress’s clear

intention in enacting the 1977 Amendments was to avoid ap-

plying PSD to existing sources unless and until a “modifica-

tion”——the meaning of which was well-established in 1977—

occurred.

In the face of this plain language and clear intent, Petition-

ers and the United States invoke the purported purposes of

NSPS and PSD. U.S. Br. 35-50; Pet. Br. 44-48. Even if their

articulation of these purposes were correct, a general purpose

does not trump statutory language. In the agency’s “‘anxiety

to effectuate the congressional purpose of protecting the pub-

lic,”” it “*must take care not to extend the scope of the statute

beyond the point where Congress indicated it would stop.’”

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

161 (2000). Petitioners and EPA would extend NSR review

well beyond the language and clear intent of the statute.

A. Congress’s Express Incorporation Of The NSPS

Definition Into PSD Means That A PSD “Modi-

fication” Requires An NSPS “Modification.”

The text of the CAA makes clear that a “modification” for

PSD purposes requires a “modification” under NSPS. The

statute thus bars EPA’s enforcement position, which applies

the PSD “major modification” analysis to projects that are not

NSPS “modifications.” See Stinson, 508 U.S. at 45 (no

weight can be given to a regulatory interpretation that would

“violate the Constitution or a federal statute’’).

Specifically, the NSR provisions prohibit facilities “on

which construction is commenced” from beginning new

source “construction” without undergoing pre-construction

review and installing state-of-the-art emissions controls. 42

U.S.C. § 7475(a). Recognizing that some changes to existing

sources are tantamount to the “construction” of a new

source—as it did in enacting NSPS—Congress defined “con-

struction” to include “modifications” to existing sources, as

the term “modification” is “defined” and “used” under NSPS.

See id. § 7479(2)(C) (PSD) (“The term ‘construction’ when

used in connection with any source or facility, includes the

modification (as defined in section 741 1(a) of this title) of any

source or facility.”); see also id. § 7501(4) (“nonattainment”

NSR) (defining “modification” to “mean the same as the term

‘modification’ as used in section 741 1(a)(4)”).

By incorporating the NSPS term “modification” and its

definition into PSD, Congress limited the scope of “modifica-

tions” under PSD to those covered by NSPS. “The substan-

tial relation between the two programs presents a classic case

for application of the normal rule of statutory construction

that identical words used in different parts of the same act are

intended to have the same meaning.” Sullivan v. Stroop, 496

U.S. 478, 484 (1990) (citations omitted). Here, not only did

Congress use identical terms in two related parts of the CAA,

but the NSR “modification” provisions expressly cross-

reference and incorporate the NSPS “modification” provision.

This cross-reference to the existing NSPS provisions makes

the presumption of uniform usage irrebutable. See /BP, 126

S. Ct. at 523-24 (concluding, in light of one part of a statute’s

“explicit reference to the use of [an] identical term” from an-

other part of the statute, that “there is no plausible argument

that these terms mean something different”). Petitioners’ and

the United States’ contrary argument—that this cross-

reference gave EPA discretion to expand the coverage of PSD

dramatically beyond NSPS—makes a hash of statutory inter-

pretation.

The United States contends Congress’s cross-reference is

merely a “shorthand reference [that] is not meaningfully dif-

ferent from a repetition of the Section 7411(a) definition.”

U.S. Br. 39. But the statute does not merely repeat the NSPS

_ definition in the PSD sections; it defines “modification” for

PSD as that term is “defined” and “used” for NSPS. More-

over, where Congress intended to repeat a definition in a

separate provision of the Act, it did so. Compare 42 U.S.C.

§ 7412(a)(3) (defining “stationary source” by reference to the

NSPS definition), with § 7412(a)(9) & (10) (repeating verba-

tim the NSPS definitions of “owner or operator” and “existing

source”). Congress’s deliberate choice to cross-reference a

pre-cxisting definition as written and used, instead of merely

repeating that same definition, must be given effect.

Petitioners’ and the United States’ attack on Rowan Cos. v.

United States, 452 U.S. 247 (1981), also is wide of the mark.

This case does not turn on Rowan alone. And Rowan simply

presents one application of the uncontroversial canon that the

same term ordinarily should be given the same meaning

throughout a statute. Of course, the Fourth Circuit held that

the express statutory cross-reference made that presumption

“effectively irrebutable” here. Pet. App. 17a. This Court

subsequently reached the same conclusion in /BP.

B. The Structure And Context Of The CAA Con-

firm That A PSD “Modification” Requires An

NSPS “Modification.”

When Congress enacted the 1977 PSD program, it did not

write on a clean slate. The regulatory PSD program had been

in existence since 1974. And Congress incorporated specific

provisions of that program (including “modification” in

§ 52.01(d)) and rejected or “tightened” others (including

“BACT” in § 52.01(f)). Alabama Power, 636 F.2d at 349-50.

This selectivity shows that incorporation, where it occurred,

was deliberate. See Lorillard, 434 U.S. at 582 (“This selec-

tivity that Congress exhibited in incorporating provisions and

in modifying certain FLSA practices [into the ADEA]

strongly suggests that but for those changes Congress ex-

pressly made, it intended to incorporate fully the remedies

and procedures of the FLSA [into the ADEA].”). Moreover,

use of the pre-existing term “modification” “carries the impli-

cation that Congress intended the term to be construed in ac-

cordance with pre-existing regulatory interpretations.” Brag-

don v. Abbott, 524 U.S. 624, 631. (1998); see also Toyota Mo-

tor Mfg., Ky., Inc. v. Williams, 534 U.S. 184, 193-94 (2002).

Congress’s awareness of and attention to the details of the

pre-existing regulatory PSD program are clear from the face

of the statute. As an initial matter, recognizing that it would

take some time before new PSD rules would be promulgated

and adopted into the SIPs, Congress instructed that the bulk

of the pre-existing rules “shall remain in effect” and amended

other provisions. See 42 U.S.C. § 7478(a). Moreover, where

Congress intended the new PSD rules to differ from the exist-

ing NSPS and regulatory PSD, it said so. For example, Con-

gress enacted a new definition of the term “commenced” and

a new and more stringent BACT requirement. See id.

§§ 7479(2)(A) (defining “commenced” differently than the

pre-existing rules), 7479(3) (providing that BACT must be at

least as stringent as the applicable NSPS, while the pre-

existing PSD rules equated BACT with NSPS).

By contrast, Congress made no change in the existing defi-

nition of “modification.” Not only did the 1977 Amendments

leave that definition untouched, Congress expressly incorpo-

rated the NSPS definition and usage of modification into the

NSR statutory programs. Id. §§ 7479(2)(C), 7501(4); see also

123 Cong. Rec. at 36,331. This is not the mere, mindless “re-

enactment” of a pre-existing statutory provision, as the United

States asserts. It reflects the conscious adoption and careful

incorporation of that provision’s pre-existing meaning.

Notably absent from the language and history of the statute

is any suggestion that Congress intended or expected PSD to

apply to a far broader category of existing sources than NSPS

did, which would be the case under Petitioners’ and the

United States’ reading. Neither agencies nor courts should

presume that Congress authorizes weighty or wide-ranging

changes through statutory language that strongly suggests

stability. See, e.g., Brown & Williamson Tobacco Corp., 529

U.S. at 160 (“Congress could not have intended to delegate a

decision of such economic and political significance to an

agency in so cryptic a fashion.”); Chisom v. Roemer, 501 U.S.

380, 396 & n.23 (1991) (“{I]f Congress had such an intent,

[it] would have made it explicit in the statute ....”). Simply

put, if Congress in 1977 intended to expand PSD to tens of

thousands of projects at existing power plants that neither

NSPS nor regulatory PSD then reached, Congress would have

said so in unmistakable terms, not by a technical and con-

forming amendment. There is not a word in the statute sug-

gesting that Congress intended such a revolution—as EPA

itself has conceded. See 49 Fed. Reg. at 43,213 (“If Congress

had intended a change as to modifications [when it created

NSR] it probably would have said so explicitly, yet it said

nothing.”).

_ The legislative history also confirms Congress’s clear intent

to limit the application of PSD to new and expanded sources,

just as under NSPS. Congress consistently expressed its in-

tention not to impose the cost of retrofitting new PSD controls

on existing units that simply maintain their capabilities, while

ensuring that newly constructed or expanded units installed

the best available controls. See, e.g., H.R. Rep. No. 95-294,

at 185 (“Building control technology into new plants at time

of construction will plainly be less costly than requiring retro-

fit when pollution ceilings are reached.”). Thus, the sponsor

of the Senate bill stated that PSD would “apply only to new

major emitting facilities and do not affect existing facilities.”

123 Cong. Rec. 18,021 (1977) (Sen. Muskie).

Nothing in the legislative record suggests that Congress in-

tended to extend PSD to existing sources that merely maintain

their capacity. “[I]t tests the limits of reason to suggest that

despite such silence, Members of Congress voting for those

amendments intended to enact what would arguably be the

single most significant change in” the application of PSD to

existing sources. Department of Commerce v. United States |

House of Reps., 525 U.S. 316, 342-43 (1999); see also Chi-

som, 501 U.S. at 396 & n.23 (“[I]f Congress had such an in-

tent ... at least some of the Members would have identified or

mentioned it at some point in the unusually extensive legisla-

tive history ....”). In short, the PSD provisions reflect a con-

gressional policy choice “not ... to cut back on emissions from

existing major stationary sources through limitations on their

productive capacity, but rather to ensure that they will install

state-of-the-art pollution controls at a juncture where it oth-

erwise makes [economic] sense to do so.” 70 Fed. Reg. at

61,088. To effectuate this policy judgment, Congress di-

rected EPA not to apply PSD to existing facilities, “since they

and their emissions capacity are ‘grandfathered.”” H.R. Rep.

No. 95-294, at 144.

Other provisions of the statute further demonstrate that

EPA’s enforcement interpretation is wrong. Under the en-

forcement interpretation, PSD’s BACT requirement would

unavoidably be triggered, repeatedly, during the life of any

industrial facility. However, as EPA has observed, an inter-

pretation of the modification provision under which “all ma-

jor facilities eventually trigger NSR.... cannot be squared

with the plain language of the CAA.” 68 Fed. Reg. at 61,273.

In particular, the imposition of BACT requirements at every

electric utility would override the Acid Rain Program’s flexi-

ble cap-and-trade mechanism.'’ Subsequent market-based

regulatory provisions—specifically, the NO, SIP Call, CAIR,

and regional haze program'*—are similarly premised on the

expectation that existing coal-fired utility boilers will operate

into the future without triggering PSD.

C. The “Purposes” Of PSD And NSPS Do Not Sup-

port EPA’s Enforcement Interpretation.

The United States and Petitioners ultimately invoke the

“purposes” of NSPS and PSD to argue that PSD can (as the

United States claims) or must (as Petitioners claim) cover

maintenance activities that allow an existing facility to con-

tinue Operating as constructed and permitted to operate—thus

expanding PSD coverage far beyond any activity that is a

“modification” under NSPS and the statute. Cf. Robinson v.

Shell Oil Co., 519 U.S. 337, 340 (1997). They are incorrec*.

'’ Petitioners suggest that Congress’s failure in 1990 to enact “propos-

als to amend the Act’s PSD provisions to exclude modernization projects

like the one at issue in WEPCo,” means Congress intended NSR to apply

broadly to existing utility boilers. See Pet. Br. 15. The courts repeatedly

have declined to search for a prior Congress’s intent in a later Congress’s

failure to enact proposed legislation. See SWANCC, 531 U.S. at 170-71;

Pension Benefit Guar. Corp. v. LTV Corp, 496 U.S. 633, 650 (1990).

'* CAIR establishes a cap-and-trade program to address transport of

pollution in the eastern United States. 70 Fed. Reg. 25,162 (May 12,

2005). See also E.P.A., Basic Facts On CAIR, at http://www.epa.gov/

cair/basic.htm! (last visited Aug. 6, 2006). The regional haze program

establishes visibility protection for national parks and other areas, 42

U.S.C. §§ 7491, 7492, and its regulations require power plants to install

Best Available Retrofit Technology (“BART”). See E.P.A., Fact Sheet -

Final Amendments to the Regional Haze Rule and Guidelines for Best

Available Retrofit Technology (BART) Determinations, available at

http://www.epa.gov/visibility/fs_2005 6 15.html (last visited Aug. 6,

2006).

To the extent the United States and Petitioners rely on the

remedial purposes of PSD, they improperly are elevating one

statutory purpose over all others. Like most legislation, PSD

is a compromise among purposes: “to protect public health

and welfare from any actual or potential adverse effect” of air

pollutants and “to insure that economic growth will occur ...

consistent with the preservation of existing clean air re-

sources.” 42 U.S.C. § 7470(1), (3); see also 123 Cong. Rec.

26,841 (1977) (Sen. Muskie) (“{T]he conference agreement

on the Clean Air Act ... is a compromise in every sense of the

term.”). [t is wrong to use one of these purposes to override

the Act’s plain language. “Deciding what competing values

will or will not be sacrificed to the achievement of a particu-

lar objective is the very essence of legislative choice—and it

frustrates rather than effectuates legislative intent simplisti-

cally to assume that whatever furthers the statute’s primary

objective must be the law.” Rodriguez v. United States, 480

U.S. 522, 525-26 (1987).

Of course, some PSD provisions are more stringent than the

NSPS provisions, as Petitioners repeatedly note. But the stat-

ute specifies exactly how PSD should apply more stringently.

PSD applies to more pollutants and more source categories

than NSPS. And when a source triggers PSD, it must comply

with the complicated PSD pre-construction permitting process

and install BACT, which may be more stringent than the “ap-

plicable [NSPS].” 42 U.S.C. § 7479(3). These provisions

reflect Congress’s judgment as to the manner in which to

tighten NSPS—and they do not include the radical expansion

of the “modification” concept that Petitioners and the United

States advocate here.'”

'? The principal decisions that Petitioners and the United States rely

upon reflect instances where Congress has adopted a specific requirement

for PSD—for example, the different statutory definitions of “source” and

of “commenced.” See Pet. App. 16a-18a (discussing Potomac Elec.

Power Co. v. EPA, 650 F.2d 509 (4th Cir. 1981) and Northern Plains Res.

Council v. EPA, 645 F.2d 1349 (9th Cir. 1981)); id. at 64a-67a (discussing

Alabama Power and Northern Plains). They do not stand for the proposi-

Petitioners’ and the United States’ further descriptions of

the differing purposes of NSPS (as a “technology-based” pro-

gram) and PSD (as an “ambient air quality” program) also are

misguided. Both NSPS and PSD protect ambient air quality,

and both NSPS and PSD regulate emissions “output” through

technological requirements. As EPA has explained, “the de-

cision to develop the NSPS is clearly based on ambient air

quality concerns,” 45 Fed. Reg. at 52,692—-specifically, the

need to protect the NAAQS, which are “ambient” air quality

standards. And, as the BACT provisions make clear, PSD

imposes technology-based controls, regardless of whether

such level of control is actually needed to protect air quality.

See 42 U.S.C. § 7479(3).°

Constr‘ng the 1980 Rules so that PSD is triggered only if

there is 2S modification activity at an existing unit, and

then only if the source-wide emissions exceed a de minimis

threshold, effectuates both the technology and air quality pur-

poses of PSD. However, this is the result of different defini-

tions of “source,” not “modification,” under NSR and NSPS.

And it is implemented through the regulatory concept of “ma-

jor modification,” which narrows the universe of activities

subject to the more stringent technology requirements of PSD

by limiting PSD applicability to “modifications” that might

have “major” impacts on air quality.

Petitioners also argue that pre-construction permit coverage

must include activities that consume the PSD “increment{s}.”

Pet. Br. 40-41. This argument “conflates the different yet

complementary functions of [pre-construction] review and

calculation of increment consumption.” Alabama Power, 636

F.2d at 378. The statute and rules provide the remedy for in-

crement consumption, which is the requirement that States

tion that differences in NSPS and PSD alone justify departing from con-

sistent statutory language.

* The Seventh Circuit's statement that PSD limits “output (pollution),”

while the NSPS limits “inputs (technology)” is simply wrong. Cinergy,

458 F.3d at 711.

50 !

must review air quality and take “corrective action” if the in-

crements are exceeded. See 45 Fed. Reg. at 52,677; 40

C.F.R. § 51.166(a)(3)-(4). It is not the expansion of the

“modification” provision. Indeed, PSD has never covered all

activities that affect ambient air quality or potentially con-

sume increment. For example, it does not cover “non-

modification” activity (e.g., a fuel switch or increases in oper-

ating hours allowed by permit), and it does not cover the con-

struction of sources that are not “‘major emitting facilit[ies].””

42 U.S.C. § 7479(1). Under Petitioners’ reasoning, each of

the PSD rules’ exclusions would be improper, as each in-

volves activity that potentially consumes increment but is not

subject to pre-construction review. This cannot be correct.

** * *

In the end, Petitioners’ and the United States’ arguments do

not comport with longstanding law and policy or common

sense. For 35 years, and at the time Congress enacted the

1977 Amendments, the NSPS rules provided that a “modifi-

cation” occurs if and only if a project will convert an existing

source into a “new source,” by increasing the emission rate.

This requirement was incorporated into the subsequent regu-

latory and.statutory PSD programs. EPA is not free to inter-

pret its rules in this enforcement action to abandon the “modi-

fication” requirement and radically and retroactively expand

the scope of the rules.

CONCLUSION

For the foregoing reasons, the Court should affirm the

judgment of the court of appeals.

MARC E. MANLY

GRoOuP EXECUTIVE AND

CHIEF LEGAL OFFICER

CATHERINE S. STEMPIEN

VICE PRESIDENT AND GENERAL

COUNSEL CORPORATE LEGAL

GARRY S. RICE

ASSOCIATE GENERAL COUNSEL

DUKE ENERGY CORPORATION

Legal Department

$26 South Church Street

ECO3T

Charlotte, NC 28242

(704) 382-8111

Respectfully submitted.

CARTER G. PHILLIPS*

MARK D. HOPSON

KATHRYN B. THOMSON

STEPHEN M. NICKELSBURG

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005 .

(202) 736-8000

HENRY V. NICKEL

F. WILLIAM BROWNELL

MAKRAM JABER

HUNTON & WILLIAMS LLP

1900 K Street, N.W.

Washington, D.C. 20006

(202) 955-1500

T. THOMAS COTTINGHAM II]

NASH E. LONG, III

HUNTON & WILLIAMS LLP

101 South Tryon Street

Suite 3500

Charlotte, NC 28242

(704) 382-8111

Counsel for Respondent Duke Energy Corporation

September 15, 2006

* Counsel of Record

a acti ¥ - fs one a CAAd Bn os ayer

Sea ec ate are eae espe pees 3 “f ¥

al . reg As iS BRE ae be aed, Py sie . ' oe “ ae : mat

oe ae as bya. ar nae a ai “hap warts : pas y ~~ . “2. a, Ae iter ¥

hearst PIT mid hehehe: Lat A>. 1§aIN ay os ow Baal s dn Ae cay ie SN ce tiage

, i, ‘

Vat ye te ok, x

Ra e

co pee SP

a Eng ae

wt am 4 . e

¢ ‘

“dase etd

von bak Brey

a» ™ ij

ea) Oo

> +

; . ye ts

P cote Ge eae : Ps, Decies ¥ ; > a ‘ : j ilae =r SR: ans rset

eh) Jae E we y at he Ae oe : as ac tees ,

Law 2 &

eet Atte

Pe tk

: aarp “* thee

fg QD! Pid acta Ug MAR Sang o eh ed Sa sat *

bit. 26 he lind Ooe DORNAN IF Bef | ra

Eile SANE NE saa ae ie ee abc’ ay

. My al ee i - hgh ale ~ Mage” :

eee: wt at te a ata) Five oer oe Saat i ota, 2 t in erp

, 4 ee | 9 in ade f ‘ , ‘ p - y °

P Naok «gern Ser : en vate A Pa , f ; ar Se ene pot eo *y fureaaase

sah Sas ha Sai A lr Sie SO SRR pleas te nahi ars. Tsai oT Papi Fong te ns aa ea 3

CEPA DAEs Coe’ o€ ; el Ga ae EA r £9 cat Fite AO ie.

Pine

oe 3 iteSe ewe +

igs wa ty % >» af asta ‘f ;

thd i Scarycea hs Dadeen parts x eae diehen

* ot: . 5

: my = . 4 B Adowe-+ pe Seay ie ie) Ne : ; eadnmphdick

Ne eee ee el eng ¥ ¢

rs ater Suniel sts.

Pte ‘- taf res ~ Se gp rope ~*

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.