Petition for Writ of Certiorari — Cinergy Corp. v. United States (No. 06-850)

PRA ERE RRR RS NN TS RAT : ENGEL NE OS TOT ENS TERE LITE LEE SESE SO I LI MII aM ANS

: Supreme Court

' j FIL ED U.S.

4

No.06- Q6-850DEC15 2006

INTHE =OFFICE OF THE CLERK

Supreme Court of the Uuited States

CINERGY CORPORATION. PS] ENERGY, INC.. CINCINNATI GAS

& ELECTRIC CO.. AND CINERGY SERVICES. INC..

Petitioners,

¥.

UNITED STATES OF AMERICA

AND

STATE OF NEW YORK. STATE OF CONNECTICUT.

STATE OF NEW JERSEY. HOOSIER ENVIRONMENTAL COUNCIL.

AND OHIO ENVIRONMENTAL COUNCIL.

Respondents

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

MARC E. MANLY | CARTER G. PHILLIPS*

GROUP EXECUTIVE AND MARK D. HOPSON

CHIEF LEGAL OFFICER KATHRYN B. THOMSON

CATHERINE S. STEMPIEN STEPHEN M. NICKELSBURG

ASSOCIATE GENERAL COUNSEL SiDt&EY AUSTIN LLP

JULIE LL. EZELL 1501 K Street. N.W.

SENIOR COUNSEL Washington. D.C. 20005

DUKE ENFRGY CORPORATION (202) 736-8000

526 South Church Street

Charlotte. NC 28242

(704) 382-8111

Counsel for Petitioners

December 15. 2006 * Counsel of Record

OR IO Me Se ae TRIE ee Le eT oe Pe ee Sara TAN

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

QUESTION PRESENTED FOR REVIEW

Whether the Seventh Circuit erred in deciding—in square

conflict with a Fourth Circuit decision under review this Term

in Environmental Defense v. Duke Energy Corp., No. 05-848

(oral argument heard Nov. |, 2006)—-that EPA may use en-

forcement litigation to re-interpret its New Source Review

rules to convert existing electric generating plants into “new

sources,” even though those plants had not undergone “‘modi-

fications” within the meaning of those rules.

(1)

ETT RT A TEA TT LI I TCE A A I ON RY TN TE TOI tA oe IS Tf

i]

PARTIES TO THE PROCEEDINGS

Pursuant to Supreme Court Rule 14.1, petitioners state that

al] parties to the proceedings in the court whose judgment is

sought to be reviewed are listed in the caption.

RULE 29.6 STATEMENT

Cinergy Corp. merged with Duke Energy Corporation dur-

ing the proceedings below. Duke Energy is the surviving en-

tity. The corporate parties identified in the caption are now

subsidiaries of Duke Energy and are now named (in the order

they appear in the caption) Cinergy Corp., Duke Energy Indi--

ana, Inc., Duke Energy Ohio, Inc., and Duke Energy Shared

Services, Inc.

Duke Energy is publicly traded. No other publicly held

company owns more than 10% of Duke Energy’s stock.

TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR REVIEW. .................... I

PARTIES TO THE PROCEEDINGG.......0.....c:ceeeeseeee li

SPER od ee ERS PUIIN TS sricdssiescesaipeicsoistdabepunicivivuacueinus il

BP IE FU FE MD isiininsveseg cs tivdsinancniysaspcenabvin Vv

JUDGMENT FOR WHICH REVIEW IS SOUGHT ........ ]

FETT COI i srtihsici dps iidctcols dace Ereceiteigatiinuitiebivancasibies I

STATUTES OR OTHER PROVISIONS INVOLVED... 1

OLE EIRP Oe CEE Orion inn coseinssevdcverisaccvscaensens 2

REASONS FOR GRANTING THE PETITION............. 6

I. THE DECISION BELOW SQUARELY CON-

FLICTS WITH A FOURTH CIRCUIT DECI-

SION UNDER REVIEW THIS TERM .................. 7

Il. THE ISSUES PRESENTED ARE OF SIGNIFI-

CANT NATIONAL IMPORTANCE................:0068 9

lil. THE SEVENTH CIRCUIT’S DECISION IS

PR iiiicisaxicinbsinisabcshcsaallasfiediaeddnspedeesoshtiiasaiiendes 10

A. The NSR Rules Apply Only To “Modifica-

tions,” As Defined Under NSPS. ..................08 1]

B. The Seventh Circuit Ignored EPA’s Prior In-

terpretations Of The Regulations....................... P

C. Congress Defined “Modification” Under NSR

As It Was Defined Under NSPS And Regula-

tory PSD—Limiting EPA’s Interpretive Dis-

COIR sind chinese emi merol 14

iV

TABLE OF CONTENTS—continued

Page

D. The CAA’s Jurisdictional Provisions Did Not

Limit The Seventh Circuit’s Review Of EPA’s

Enforcement Interpretation................::cccceceseees 16

Sa Ae A carctnctcoaihseciotenseencdaccxiverceicceaxaneanenree ba 17

V

TABLE OF AUTHORITIES

CASES

Page

Alaska Dep't Envtl. Conservation v. EPA, 540

ae EE BITE i scvrennakccesjasinsliiliadapenixestuibdnsguuntdeieres 10

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204

ak taciica hesseedicencidivicscea Anes ataielne pebictaeieliatibocyiobcaien 14

Bragdon v. Abbott, 524 U.S. 624 (1998).........0...06 15

Chisom v. Roemer, 501 U.S. 380 (1991)... 16

Davis v. United States, 495 U.S. 472 (1990) .......... 13

Department of Commerce v. U.S. House of Rep-

resentatives, 525 U.S. 316 (1999)... eee 16

FDA v. Brown & Williamson Tobacco Corp., 529

Riis © ee OM Riess vcttdexsacsshcasaksdinacntelspiniceiabeadeteicuats 16

Gonzales v. Oregon, 126 S. Ct. 904 (2006) ............ 14

IBP, Inc. v. Alvarez, 126 S. Ct. 514 (2005)............. 15

New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005) ...... 8

Sullivan v. Stroop, 496 U.S. 478 (1990) ........... 5,15

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

PPPs icsaihcinessih tach angus ccosenieaticuithakoumpoeticuie bexbetans 13

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

Supp. 2d 1283 (N.D. Ala. 2005), appeal dock-

eted, No. 06-15547 (11th Cir. filed Oct. 19,

SN cis cenaniashc Sscsicciscaacibasduaatalaboies sopeeaas-eavkanoiaeetiaigics 8, 12

United States v. American Elec. Power Co., No.

C2-99-1182 (S.D. Ohio filed Nov. 3, 1999)........ 8

United States v. Duke Energy Corp., 278 F. Supp.

2d 619 (M.D.N.C. 2003), aff'd, 411 F.3d 539

(4th Cir. 2005), cert. granted sub nom. Envi-

ronmental Defense v. Duke Energy Corp., 126

he Mechs ME CR srcacacensepociscrinesciaconpnas Gi Wis tev ae

United States v. Duke Energy Corp., 411 F.3d

539 (4th Cir. 2005). cert. granted sub nom. En-

vironmental Defense v. Duke Energy Corp..

ae eee Se Bre CO icictstatnivcdceniysciemnsiehon 67,1

United States v. Eastern Ky. Power Co.. No.

5:04-CV-00034 (E.D. Ky. filed Jan. 28, 2004)... 8

Vi

TABLE OF AUTHORITIES—continued

Page

United States v. Mead Corp. 533 U.S. 218

5 SRC ramp pea ame ater oun as tuamae iting Ne! TRNAS a 14

STATUTES AND REGULATIONS

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I cio accureisanabicsiontatncausecscebnmucnoeen 3,11

BE rrisisdiceeseladacs oauiesedacerhibectaiodenx aa eee ee

OF FOG. Reg. 36,990 (OC. TD, TF IA) in scvcsecescnincase 14

EUS CIO: D,. BF ei cctinkeoccsc dace 15

45 Fed. Reg. 52,676 (Aug. 7, 1980).......... Be 1]

70 Fed. Reg. 61,081 (Oct. 20, 2005)... ee ye

320 WG. AGH. CO be 2682: oo... ccc cicrncicvssesscnsiveiens 4

Ohio Admin. Code 3745: 15-00 ..0...006c0cccccsctocevesees 4

BNE rcurcicchianenncscdin 9

LEGISLATIVE HISTORY

FEB: PR. TNO. Foe LOTTI AD vvscinccniccrccovecsecvsctsstovien 16

Rik SUE WN. MARINE ULE FE ED vadsrcrtarctinststincienrartnnee. 3004

PETITION "OR A WRIT OF CERTIORARI

Petitioners Cinerxy Corporation, Cinergy Services, Inc.,

PSI Energy, Inc., and Cincinnati: Gas & Electric Co. (collec-

tively “Cinergy”’) respectfully petition for a writ of certiorari

to review the judgment of the United States Court of Appeals

for the Seventh Circuit.

JUDGMENT FOR WHICH REVIEW IS SOUGHT

The decision of the Seventh Circuit is published at 458 F.3d

705'(7th Cir. 2006), and is reproduced in the Petition Appen-

dix (“App.”) at la-8a. The district court’s summary judgment

order is reported at 384 F. Supp. 2d 1272 (S.D. Ind. 2005),

and is reproduced at App. 9a-20a. The district court’s order

certifying the summary judgment order for interlocutory re-

view is reproduced at App. 23a-25a. The order of the Sev-

enth Circuit granting leave to appeal is reproduced at App.

2 1a-22a.

JURISDICTION

The Seventh Circuit entered its judgment on August 17,

2006. App. la. On November 6, 2006, Justice Stevens ex-

tended the time to file this Petition to and including December

15, 2006. This Court has jurisdiction pursuant to 28 U.S.C.

§ 1254(1).

STATUTES OR OTHER PROVISIONS INVOLVED

Relevant portions of the Clean Air Act, 42 U.S.C. §§ 7401

et seq., are reproduced at App. 26a-32a. Relevant portions of

the Environmental Protection Agency’s regulations, 40 C.F.R.

pt. 52, are reproduced at App. 33a-39a.

5

STATEMENT OF THE CASE

This Petition presents the precise issues that the Court

granted certiorari to consider in Environmental Defense v.

Duke Energy Corp. (No. 05-848) (“Environmental Defense’’).

Accordingly, this Petition should be held pending the decision

and disposed of in light of the holding in Environmental De-

fense. If, however, the Court does not decide the questions

presented in that case, then it should grant this Petition and

reverse the judgment of the Seventh Circuit.

This case, like Environmental Defense, is an enforcement

action brought by the Environmental Protection Agency

(“EPA”) as part of its 1999 utility “enforcement initiative’ —

which was an unprecedented and extraordinary attempt to ex-

tend the New Source Review (“NSR*) requirements of the

Clean Air Act (“CAA”) to commonplace maintenance, repair,

and replacement projects performed over many years at doz-

ens of coal-fired electric power plants. EPA did not interpret

the NSR requirements to apply to such projects in the two

decades before it launched the enforcement initiative. None-

theless, the Seventh Circuit held that EPA could interpret its

regulations for enforcement purposes to impose massive ret-

roactive liability on Cinergy—endorsing EPA’s conclusion

that the entire industry had blatantly violated the rules for

years while state and federal regulators sat by and watched.

1. Regulatory Background.

The Seventh Circuit’s decision is contrary to the CAA and

EPA’s regulations. NSR requires “new sources” of air emis-

sions to obtain permits before “construction.” Because the

permit approval process can take years— while the nation’s

electric supply depends on utilities’ availability to run on de-

mand— such “new source review” would be unworkable for

ordinary maintenance projects at existing facilities. EPA has

acknowledged as much. See 70 Fed. Reg. 61,081, 61,088

(Oct. 20, 2005) (admitting that EPA*s enforcement position

3

“leads to outcomes that have not advanced the central policy

of the... NSR program”).

Recognizing this problem, Congress applied NSR as a gen-

eral matter “to new major emitting facilities and .. . not .

existing facilities.” 123 Cong. Rec. 18,02] (1977). To that

end, NSR applies only to “construction”—which includes ex-

isting facilities only when they undergo “modification[s].” 42

U.S.C. §§ 7479(2)(c), 7501(4).'

“Modification” had a well-established meaning in 1977,

because Congress used that term in the pre-existing New

Source Performance Standards (“NSPS”) program. To ensure

that NSR would be clearly and consistently applied, Congress

defined “modification” under NSR to be the same as under

NSPS. See id. § 7479(2)(c) (“The term ‘construction” when

used in connection with any source or facility, includes the

modification (as defined in section 7411(a) of this title) of any

source or facility.”) (emphasis added); id. § 7501(4) (defining

“modification” to “mean the same as the term ‘modification’

as used in section 7411(a)(4)”) (emphasis added). Thus, as

under NSPS, an NSR “modification” occurs only when a

“physical change” to a facility will cause an emissions in-

crease. /d. § 7411(a)(4). In tur, a project causes an “emis-

sions increase” only if it increases a facility’s actual capacity

to emit pollutants, in effect creating a “new” emissions

source. See 40 C.F.R. §§ 51.100, 52.01(d), 60.2, & 60.14.

NSR imposes more stringent requirements than NSPS, and

NSR applies those requirements to a subset of “modifica-

tions,” called “major modifications.” /d. §§ 51.166, 52.21. A

“major modification” occurs if a “modification” will signifi-

'NSR consists of two programs, Prevention of Significant Deteriora-

tron, or “PSD,” and Nonattainment New Source Review, or “NNSR.” See

42 U.S.C. §§ 7470-7492 (PSD), id. §§ 7501-7515 (NNSR). Although

both programs are at issue in this case, the relevant provisions of cach are

materially identical. This Petition will refer to them together as “NSR.~

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

4

cantly increase total annual emissions at the overall source.

Id. § 52.21(b)(2)-(3), (21). However, the NSR rules’ use of

“major modification” does not eliminate the requirement that

a “modification” must occur to trigger both NSPS and NSR.

EPA made clear immediately after it promulgated its NSR

rules that only a “modification” triggers a “major modifica-

tion” analysis under NSR. See Mem. from Edward E. Reich

to Charles Whitmore (Jan. 22, 1981) (“Cargill Determina-

tion”) (Appellants’ Supp. App. 279-80); Mem. from Edward

E. Reich to Amasjit S. Gill (June 24, 1981) (“GE Determina-

tion”) (Appellants’ Supp. App. 281-82). In its 1999 enforce-

ment initiative, however, EPA adopted a different approach,

arguing that commonplace repair projects trigger NSR even if

they do not increase a facility's emissions capacity, because

they may allow a facility to avoid breakdowns and thus to op-

erate more hours in the future.”

2. This Litigation.

EPA filed its complaint in this case in November 1999, as

part of its initial salvo of utility enforcement lawsuits. EPA

contended that 55 projects at six of Cinergy’s existing mid-

western power plants between 1984 and 2001 violated NSR.

Each of these projects involved the maintenance, repair, or

like-kind replacement of equipment. None of these projects

expanded a unit’s capacity or altered a unit’s design. Each

simply allowed Cinergy to continue to run its facilities as they

were licensed to run. Thus, at the time these projects oc-

curred, no one at Cinergy believed that they triggered NSR.

Nor, evidently, did the various federal, state, and local offi-

* The specific rules applicable here are those adopted in the Indiana and

Ohio State Implementation Plans —which for PSD are the federal rules set

forth in Part 52, see 40 C.F.R. § 52.793 (Indiana); 40 C.F.R. § 52.1884

(Ohio). The relevant provisions of the state NNSR programs are simular.

See Ohio Admin. Code 3745:15-01 (defining “modification” as in 40

C.F.R. § §2.01(d)); 326 Ind. Admin. Code 1-2-42 (defining “modifica-

tion” in terms of a unit’s potential emissions capacity). For convenience,

this Petition will cite the rules set forth in 40 C.F.R. pt. 52.

5

cials who oversaw and inspected Cinergy’s facilities—none

of whom ever suggested that NSR permitting requirements

had been triggered.

EPA first raised the “emissions increase” issue by moving

for partial summary judgment in this litigation. See U.S. Mot.

S.J. EPA claimed it has the discretion to adopt a test based on

changes in a unit’s hours of operation, even without a change

in the facility’s emissions capacity. /d. at 2. Cinergy filed a

cross-motion for partial summary judgment, contending that

the statute, the regulations, and Seventh Circuit precedent

provided that a project causes an emissions increase only if an

hourly emissions increase occurs—i.e., if a project is an

NSPS “modification’—because only then will the unit's

emissions capacity increase. Cinergy Mot. S.J. at 2-3.

In an order issued on August 29 and corrected on Septem-

ber 8, 2005, the district court granted EPA’s motion and de-

nied Cinergy’s cross-motion. App. 9a, 20a. Rejecting the

long-standing presumption that “identical words used in dif-

ferent parts of the same act are intended to have the same

meaning,” Sullivan v. Stroop, 496 U.S. 478, 484 (1990), the

court held that Congress’s incorporation of “modification”

from NSPS into NSR “did not limit the EPA’s authority to

further define ‘modification’ in the regulations as it deemed

fit.” App. 16a. :

On Cinergy’s timely motion, the district court certified its

order for interlocutory review. App. 24a. The Seventh Cir-

cuit granted permission to appeal, id. at 22a, and after briefing

and oral argument affirmed the district court’s order. /d. at

8a. In a cursory opinion, the court failed to address the com-

mon-sense argument that a “modification” is required before

a “major modification” can occur under EPA’s rules. Instead,

the court rested its decision on the simplistic observation that

the “major modification” rules speak in terms of ‘‘annual” in-

creases, not “hourly” increases—a point that no one disputes.

Id. at 3a-4a. From that basic proposition, the Seventh Circuit

leapt to the conclusion that “anv physical change or change in

6

operating methods that increases annual emissions is cov-

ered.” /d. at 3a (emphasis added). As a policy justification

for this ahistorical conclusion, the court claimed that

Cinergy’s position “would give the company an artificial in-

centive to renovate a plant and by so doing increase the

plant’s hours of operation, rather than to replace the plant,”

id. at 4a—even though nothing in the CAA requires anyone to

retire or replace facilities rather than repair them.

The Seventh Circuit acknowledged that the Fourth Circuit

reached the opposite conclusion in United States v. Duke En-

ergy Corp.. 411 F.3d $39 (4th Cir. 2005), cert. granted sub

nom. Environmental Defense v. Duke Energy Corp., 126 S.

Ct. 2019 (2006). However, the Seventh Circuit dismissed the

Fourth Circuit's decision as “out of bounds,” based on the

misconception that the CAA’s provision for expedited judi-

cial review (§ 307(b)) barred consideration of EPA’s en-

forcement interpretation of its rules. App. 7a. The court went

on to cite a purported distinction between the NSPS and PSD

programs that no party argued and that does not exist, see id.

at 8a (incorrectly stating that NSPS regulates “input,” while

PSD regulates “output’), and without further analysis held

that EPA had the discretion to interpret the term “modifica-

tion” differently in the NSPS and NSR programs. /d.

REASONS FOR GRANTING THE PETITION

The Seventh Circuit’s decision conflicts with the Fourth

Circuit's decision in Duke Energy, which the Court ts review-

ing this Term in Environmental Defense. That case was ar-

gued on November | and is waiting a final decision. Accord-

ingly, the Court should hold this Petition for appropriate dis-

position in light of its decision in that case. If the Court af-

firms the Fourth Circuit’s decision, then it should grant this

Petition, vacate the Seventh Circuit's conflicting decision.

and remand this case for further proceedings below.

If the Court does not reach the questions presented in Envi-

ronmental Defense, it should grant this Petition to resolve

J

them. The Seventh Circuit’s and the Fourth Circuit’s deci-

sions squarely conflict, and similar enforcement actions are

pending in the lower courts in the Sixth and Eleventh Cir-

cuits. The questions presented also are important, as the grant

of certiorari in Environmental Defense demonstrates. Finally,

the Seventh Circuit’s decision is manifestly wrong.

I. THE DECISION BELOW SQUARELY CON-

FLICTS WITH A FOURTH C’RCUIT DECISION

UNDER REVIEW THIS TERM.

The Seventh Circuit acknowledged that its decision con-

flicts with the Fourth Circuit’s decision in Duke Energy.

Considering the same EPA interpretation of the same regula-

tions, the Fourth Circuit held that Congress’s cross-reference

between the NSR and NSPS definitions of “modification” re-

quired EPA to interpret the term congruently for NSR and

NSPS purposes. See Duke Energy, 411 F.3d at 550. Because

the NSR regulations can be interpreted consistently with the

NSPS regulations—as the district court demonstrated in the

decision under appeal in Duke Energy—the Fourth Circuit

held that they must be so interpreted. /d. at 549 n.7. Thus,

“in order to undergo ‘construction’ as defined in [NSR], an

existing source must also undergo a ‘modification’ as defined

in NSPS”—meaning “an increase in the hourly rate of emis-

sions.” United States v. Duke Energy Corp., 278 F. Supp. 2d

619, 642-43 (M.D.N.C. 2003), aff'd, 411 F.3d 539 (4th Cir.

2005), cert. granted sub nom. Environmental Defense v. Duke

Energy Corp., 126 S. Ct. 2019 (2006). The CAA’s expedited

review provisions were no barrier to this conclusion, because

the court was addressing an agency interpretation and not the

validity of the regulations. Duke Energy, 411 F.3d at 549 n.7.

Contrary to the Fourth Circuit’s conclusion, the Seventh

Circuit held that the statutory cross-reference between the

NSR and NSPS definitions does nor constrain EPA’s discre-

tion to interpret the same term differently under the two pro-

grams. App. 8a. Thus, the Seventh Circuit held that the fact

that NSPS “modifications” require an hourly rate increase is

8

irrelevant to NSR. The court also rejected aspects of the “ma-

jor modification” rules relied upon by the district court and

endorsed by the Fourth Circuit in Duke Energy—including

the exclusion of hours of operation and the use of constant,

representative hours in the “emissions increase” calculation.

Compare App. 2a-4a, with Duke Energy, 278 F. Supp. 2d at

640-44. Finally, the Seventh Circuit rejected the notion that

the Fourth Circuit addressed only EPA’s interpretation,

wrongly concluding that Cinergy (and the Fourth Circuit)

raised “an attack on the validity of the regulation rather than

an argument about its meaning.” App. 6a.”

If the Court does not decide the issues in Environmental

Defense and in this case, this split in authority will obviously

“persist. Five enforcement actions are pending against utility

companies in four circuits: this case; Environmental Defense:

United States v. Alabama Power Co., 372 F. Supp. 2d 1283

(N.D. Ala. 2005), appeal docketed, No. 06-15547 (11th Cir.

filed Oct. 19, 2006): United States v. American Electric

Power Co., No. C2-99-1182 (S.D. Ohio filed Nov. 3, 1999);

and United States v. Eastern Kentucky Power Co., No. 5:04-

CV-00034 (E.D. Ky. filed Jan. 28, 2004). The court in Ala-

bama Power Co. sided with the Fourth Circuit, observing that

the Agency is attempting “to redefine [NSR] through en-

forcement actions and litigation.” 372 F. Supp. 2d at 1306-

07. That decision has been appealed. The remaining cases

are stayed pending a decision in Environmental Defense.

* Although it did not reach the questions presented here— because it

held that EPA’s interpretations should be addressed in individual en-

forcement actions—the D.C. Circuit created further tension in this area

with New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005) (per curiam). In New

york, the D.C. Circuit rejected the argument that Congress incorporated

the NSPS niles wholesale into NSR—which was an argument relied upon

in the analysis endorsed by the Fourth Circuit in Duke Energy. See id. at

19-20; see also App. 6a-7a (referring to a “circuit conflict” between the

Fourth and D.C. Circuits).

9

Il. THE ISSUES PRESENTED ARE OF SIGNIFI-

CANT NATIONAL IMPORTANCE.

The questions presented are of significant national impor-

tance, because EPA’s enforcement theory exposes utilities

and countless other industries to massive retroactive liability

as a result of decisions made over the course of more than two

decades. In the case of Cinergy and the other electric utilities

that have been sued, these decisions were the natural result of

efforts to meet the legal obligation to generate an adequate

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

Code § 8-1-2-4; Ohio Admin. Code 4901:1-10-02. To mect

this obligation, utilities must continuously maintain and repair

their units. Accordingly, Cine:yy and other utilitics repair

and replace thousands- of small and large components every

year—through projects of precisely the type EPA has targeted

in this case. Amicus briefs filed in Environmental Defense

explain the importance of this issue to other industries, in-

cluding the chemical, manufacturing, and petroleum indus-

tries,” as well as to the thousands of people who rely on those

industries for their jobs.°

If EPA’s litigating position is correct, then virtually all

manufacturers have been violating NSR for years through

their ongoing maintenance and repair efforts. In the electric

utility industry alone, EPA’s enforcement initiative originally

targeted more than 500 maintenance projects at 60 power

plants. This enforcement effort thus exposes American indus-

try to massive liability claims. Given the retroactive nature of

these liabilities, they present unusually disturbing economic

consequences that warrant this Court’s attention.

* See Br. Mfrs. Ass’n Work Group as Amicus Curiae Supp. Resp. Duke

Energy Corp. (No. 05-848); Br. Amicus Curiae Nat’! Envtl. Dev. Assn‘s

Clean Air Project Supp. Resp. Duke Energy Corp. (No. 05-848).

* See Br. Int’] Bhd. of Boilermakers, Iron Ship Builders, Blacksmiths,

Forgers & Helpers, AFL-CIO, & the Elec. Reliability Coordinating Coun-

cil as Amici Curiae Supp. Resp. (05-848).

10

This case also presents significant issues regarding the sys-

tem of cooperative federalism established in the CAA. The

CAA “relies on a close and equal partnership between federal

and state authorities to accomplish congressional objectives.”

Alaska Dep't Envtl. Conservation v. EPA, 540 U.S. 461, 518

(2004) (“ADEC’) (Kennedy, J., dissenting). Within that part-

nership, States have “primary responsibility” for “air pollu-

tion prevention . . . and air pollution control.” 42 U.S.C.

§ 7401(3). As is set forth in the Amicus Brief of Alabama and

ten other States in Environmental Defense, the EPA position

endorsed by the Seventh Circuit “[c]ontradicts ... EPA’s past

guidance to state regulators”; “[e]nvisions a_ breathtaking

transfer of enforcement authority from the States to the fed-

eral government’: and “[r]isks needlessly overwhelming the

limited resources available to state environmental agencies.”

Brief of the States of Alabama at 1. “By .. . pulling the rug

out from underneath” these state agencics “20 years after the

fact, EPA has indulged in precisely the inequitable conduct

this Court implicitly forbade in” ADEC. /d. at 10. (internal

quotation marks and alteration omitted).

The misuse of litigation as a policymaking tool will not end

even if EPA never brings another NSR case. After EPA

abandoned its enforcement initiative, advocacy groups con-

tinued to file copycat lawsuits against individual companies.

In one such suit, the Sierra Club has alleged that a utility per-

formed “major modifications” 60 times at a single facility be-

tween 1978 and 2001. See First Am. Compl. § 46, 52-58 in

Sierra Club v. Davton Power & Light, No. 04-905 (S.D. Ohio

filed Oct. 13, 2006). In short, unless and until this Court re-

solves this issue, it will continue to require the attention and

resources of the courts.

Il. THE SEVENTH CIRCUIT’S DECISION = IS

WRONG.

In the end, the Court should grant this Petition because the

interpretation EPA is advancing is manifestly wrong. The

very notion that utility companies should have obtained NSR

1]

permits for more than 500 maintenance projects at existing

plants when Congress intended NSR “not [to] affect existing

facilities” cannot be justified. 123 Cong. Rec. at 18,021. It is

contrary to EPA’s rules, to EPA’s original interpretation of

those rules, and to the controlling statute.

A. The NSR Rules Apply Only To “Modifications,”

As Defined Under NSPS.

EPA promulgated the regulations that apply in this case in

1980. See 45 Fed. Reg. 52,676 (Aug. 7, 1980) (the “1980

Rules”). Like the CAA, the 1980 Rules require a source to

obtain a permit before beginning “construction” on a project

that is subject-to NSR. 40 C.F.R. § 52.21(i)(). “Construc-

tion” means the “fabrication, erection, installation, demolition

or modification” of a facility. Jd. § 52.21(b)(8) (emphasis

added). A “modification,” in turn, is defined as it is under the

pre-existing NSPS program and under the Act. See id.

§ 52.01(d) (defining “modification” as “any physical change

in, or change in the method of operation of, a stationary

source which increases the emission rate of any pollutant’);

see also id. § 51.100 (“[A]ll terms not defined herein will

have the meaning given them in the Act....”). There is no

dispute that a project is an NSPS “modification” only if it in-

creases a unit’s emissions capacity, as measured by the hourly

emissions rate. See id. §§ 60.2, 60.14.

The Seventh Circuit ignored these regulations entirely,

jumping straight to the definition of “major modification.”

App. 2a. However, the plain language of the regulations and

simple common sense dictate that a project cannot be a “ma-

jor modification” if it does not constitute a “modification” in

the first instance. See Duke Energy, 278 F. Supp. 2d at 642-

43; 40 C.F.R. § §52.21(b)(8), (i)(1)-(2).

“

The structure of the “major modification” regulation further

limits NSR applicability to projects that increase emissions

capacity by increasing a unit’s hourly emissions rate. Consis-

tent with EPA’s prior regulations, the NSR regulations pro-

12

vide that neither the term “modification” nor the term “major

modification” includes “[a]n increase in the hours of opera-

tion.” Jd. §§ 52.01(d)(2)(i1); 52.21(b)(2)(ii)(f).. In addition, a

“modification” is a “major modification” only if it causes a

‘significant net emissions increase” at the facility at which a

“modified” unit is located. /d. § 52.21(b)(2)(i)-(il). To de-

termine whether a “net” emissions increase will occur as a

result of the projyect—and, if so, how large the annual emis-

sions increase will be—‘actual emissions” after the project

are determined annually, in tons-per-year, using constant, rep-

resentative hours of operation. /d. § 52.21(b)(21)(ii). “The

practical effect [of holding hours of operation constant] is that

a net emissions increase can result only from an increase in

the hourly rate of emissions.” Alabama Power Co., 372 F.

Supp. 2d at 1293; see also Duke Energy, 278 F. Supp. 2d at

643.

Noting that this “significant net emissions increase” calcu-

lation uses “total annual emissions,” the Seventh Circuit

wrongly concluded that “any physical change or change in

operating methods that increases annual emissions 1s cov-

ered.” App. 3a. Nowhere do the statute or rules suggest that

the use of “tons per year” for “significance” and “netting”

purposes expands NSR to apply to a new universe of existing

sources—as the Seventh Circuit’s decision does. Instead, for

the “net emissions increase” calculation, hourly emissions

rates (for threshold NSR applicability) are simply converted

into annual emissions rates (for netting and significance lev-

els) by multiplying the hourly rate by constant annual hours

of operation. See 40 C.F.R. § 52.21(b)(21)(i1). In short, the

Seventh Circuit badly misread the rules.

B. The Seventh Circuit Ignored EPA’s Prior Inter-

pretations Of The Regulations.

The Seventh Circuit reached its erroneous conclusion in

part by ignoring EPA’s own interpretation of the rules. 1Im-

mediately after the promulgation of the 1980 Rules, EPA con-

firmed in two authoritative applicability determinations that

13

the rules incorporate an hourly rate test. In January 1981,

Edward Reich, the Director of EPA’s Division of Stationary

Source Enforcement (“DSSE”), ruled that an increase in

hours of operation, even when coupled with a physical

change, was not a “modification.” Cargill Determination, su-

pra. \n June 1981, Reich ruled again that a project that would

not cause an increase in a unit’s hourly rate-of emissions did

not trigger NSR. GE Determination, supra. Mr. Reich “was

the head of the division at the EPA responsible for

provid[ing] guidance for interpretations which address the

implementation of [the NSR] regulations.” Duke Energy, 278

F. Supp. 2d at 642 (quotation marks omitted) (second altera-

tion in original). He thus spoke for the Agency when he is-

sued these determinations.

Nor was Mr. Reich the only EPA representative to confirm

that the hourly rate test controlled. In July 1982, the Chief of

the Air Management Branch in EPA Region 4 issued a guid-

ance memorandum stating that a project that did not cause an

“increase in. . . hourly particulate emissions” could not trig-

ger NSR. Mem. from James T. Wilburn to State & Local

Agency Directors 3 (Jul. 12, 1982) (Appellants’ Supp. App.

285). In question-and-answer format, this guidance memo-

randum hypothesized a physical change that would allow a

source to increase its hours of operation nearly 100%, with

“no increase in the hourly particulate emissions.” /d. Asked

whether this would “be judged a significant increase in par-

ticulate emissions, and cause the source to be subject to PSD

for particulate,” EPA responded: “No.” /d. According to

EPA, “[s]ince the modification does not cause any increase in

emissions, no increase in annual emissions should be calcu-

lated.” /d. (emphasis omitted).

Agency interpretations issued shortly after regulations are

promulgated are the best evidence of the regulations’ true

meaning and intent. See, e.g., Thomas Jefferson Univ. v. Sha-

lala, 512 U.S. 504, 512 (1994); see also Davis v. United

States, 495 U.S. 472, 484 (1990) (contemporaneous statutory

14

interpretation). The lower courts were therefore wrong sim-

ply to sweep these statements aside as “not authoritative” (as

the district court did, App. 20a), or to ignore them altogether

(as did the court of appeals).’

C. Congress Defined “Modification” Under NSR As

It Was Defined Under NSPS And Regulatory

PSD—Limiting EPA’s Interpretive Discretion.

Even if EPA has some discretion to interpret its 1980 Rules

in various ways, it may not adopt an interpretation that vio-

lates the CAA. And the CAA does not grant EPA discretion

to interpret the scope of the term “modification” under NSR

to expand the program’s applicability to existing sources.

Instead, by defining NSR “modification” as that term 1s

“defined” and “used” in NSPS, Congress invoked a well-

established concept. See 42 U.S.C. $$ 7479(2)(C). 7501(4).

Before NSR, Congress had applied NSPS to newly con-

structed emissions units and to “modifications” to existing

units. /d. § 7411(a)(2), (4). And, by 1977 EPA had clarified

the “modification” concept through extensive regulation. In-

deed, in 1974 EPA proposed and in 1975 it promulgated a

regulation specifically stating that the “emissions increase”

required for an NSPS “modification” is an increase in a unit’s

hourly emissions rate. See 40 C.F.R. § 60.14(a)-(b)."

"To the extent the decisions below reflect deference to EPA’s litigating

position, such deference is inappropriate. Agency interpretations that

emerge in litigation. change without rational explanation, or vacillate be-

tween positions—as EPA’s have here—receive little-to-no deference.

See. e.g., United States v. Mead Corp., §33 U.S. 218, 233-34 (2001); Bo-

wen Vv. Georgetown Univ. Hosp., 488 U.S. 204, 212-13 (1988). Moreover,

the inconsistency between EPA’s litigating position and its original posi-

tion provides strong grounds for denying deference here. See Gonzales v.

Oregon. 126 S. Ct. 904, 916 (2006).

“ EPA adopted the hourly rate test because it properly confines NSPS

“modifications” to the “new sources” of emissions that Congress author-

ized EPA to regulate. 39 Fed. Reg. 36.946, 36.946-47 (Oct. 15, 1974).

As EPA later explained, the hourly emissions rate test “eliminates the bur-

15

Thus, by incorporating the NSPS definition of “‘modifica-

tion” into NSR, Congress ensured that an NSR “modifica-

tion” occurs only if a physical change will increase a unit’s

actual emissions capacity. In addition, Congress largely

based NSR on another program that existed at the time the

1977 Amendments were enacted—known as “regulatory

PSD”—which defined “modification” in the same way. See

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

The Seventh Circuit was therefore wrong to conclude that

the term “modification” was “‘employed in different parts of

the act with different intent,’ App. 7a (quoting Aflantic ,

Cleaners & Dvers, Inc. v. United States, 286 U.S. 427, 433

(1932)), and that it imposed no limit on EPA’s discretion to

interpret the regulations. Congress plainly cross-referenced

between NSR and NSPS with the intention of requiring con-

sistency between the two programs. See Sullivan, 496 U:S. at

484; IBP, Inc. v. Alvarez, 126 S. Ct. 514, 523 (2005).”

By contrast, nothing suggests that Congress intended or ex-

pected NSR to apply to a far broader category of existing

sources than NSPS did. The district court acknowledged

Congress’s silence, but interpreted it as a failure to “limit the

EPA’s authority to further define ‘modification’ .. . as it

den of projecting future emissions and distinguishing between emissions

increases caused by the change from those due solely to demand growth,

because any increase in the emissions under the maximum achievable

emissions test would logically be attributed to the change,” while emis-

sions increases due to other factors would not. 70 Fed. Reg. at 61,094.

* It is immaterial for the purpose of this case whether Congress’s cross-

reference denotes an intent to require EPA to interpret “modification” in

the same fashion under NSPS and NSR, see Duke Energy, 411 F.3d at

550-51, or whether Congress intended to codify the NSPS regulations that

were in effect at the time. See Bragdon v. Abbott, 524 U.S. 624, 631

(1998). Congress was clearly “aware, before it enacted the 1977 Amend-

ments, that [EPA] calculated emissions increases in terms of kg/hr to de-

termine whether a project resulted in a ‘modification,’” 70 Fed. Reg. at

61,100, and the NSPS definition of “modification” has not changed in any |

material respect since it was adopted in 1971] and clarified in 1974.

16

deemed fit.” App. 16a. This analysis is exactly backwards.

Courts do not presume that Congress authorizes weighty or

wide-ranging changes through statutory language that sug-

gests stability. See, e.g., FDA v. Brown & Williamson To-

bacco Corp., 529 U.S. 120, 160 (2000) (“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....”). Moreover, here Congress consistently

expressed its intention no/ to impose the cost of retrofitting

new NSR controls on existing units that simply maintain their

existing capabilities. See, ¢.g.. H.R. Rep. No. 95-294, at 185

(1977).

“[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 sig-

nificant change in” the application of the CAA emissions con-

trol requirements to existing sources. Department of Com-

merce V. U.S. House of Representatives, 525 U.S. 316, 343

(1999) (opinion of O'Connor, J.). The lower courts’ statutory

interpretation was simply wrong.

D. The CAA’s Jurisdictional Provisions Did Not

Limit The Seventh Circuit’s Review Of EPA’s

Enforcement Interpretation.

As the Fourth Circuit correctly held, § 307(b) does not di-

vest the courts of jurisdiction to review EPA’s enforcement

interpretation. The statute states that “[a]ction[s] of the Ad-

ministrator with respect to which review could have been ob-

tained” by filing a “petition for review” in the D.C. Circuit

within 60 days of the publication of those actions “in the Fed-

eral Register” are not reviewable in later enforcement pro-

ceedings. 42 U.S.C. § 7607(b)(1)-(2).

Cinergy is not challenging the 1980 Rules: it is challenging

EPA’s interpretation announced in this very enforcement ini-

17

tiative. Moreover, Cinergy could not have raised its chal-

lenge in 1980, because EPA did not interpret the rules then as

it does now. To hold that Cinergy cannot raise all of its ar-

guments here—as the Seventh Circuit apparently did—is to

hold that Cinergy can never make these arguments. This is

contrary to § 307(b) and to basic concepts of fairness.

CONCLUSION

For the foregoing reasons, this Petition should be held for

Environmental Defense v. Duke Energy Corp. (No. 05-848).

If the Court affirms the Fourth Circuit’s decision, it should

Vacale ine Sevemn Cucun’s accision and remand for further

proceedings. If, however, the Court does not reach the ques-

tions presented in No. 05-848, it should grant this Petition.

Respectfully submitted,

MARC E. MANLY CARTER G. PHILLIPS*

GROUP EXECUTIVE AND MARK D. HOPSON

CHIEF LEGAL OFFICER KATHRYN B. THOMSON

CATHERINE S. STEMPIEN STEPHEN M. NICKELSBURG

ASSOCIATE GENERAL COUNSEL SIDLEY AUSTIN LLP

JULIE L. EZELL 1501 K Street, N.W.

SENIOR COUNSEL Washington, D.C. 20005

DUKE ENERGY CORPORATION (202) 736-8000

526 South Church Street

Charlotte, NC 26242

(704) 382-8111

Counsel for Petitioners

December 15, 2006 * Counsel of Record

BEST AVAILABLE COPY

APPENDIX

la

APPENDIX A

UNITED STATES COURT OF APPEALS

SEVENTH CIRCUIT

No. 06-1224

UNITED STATES OF AMERICA,

Plaintiff-A ppellee,

and

STATF OF NEW YORK. ef ai..

Plaintiffs-Intervenors/Appellees,

Vv.

CINERGY CORPORATION, ef al.,

Defendants-Appellants.

Argued June 2, 2006

Decided Aug. 17, 2006

Before POSNER, EASTERBROOK, and ROVNER, Cir-

cuit Judges.

POSNER, Circuit Judge.

The Environmental Protection Agency sued the owner of a

number of coal-fired electric power plants claiming that the

owner (Cinergy) had violated section 165(a) of the Clean Air

Act, 42 U.S.C. § 7475(a), by physically modifying the plants

without first obtaining from the EPA a permit that the agency

contends is required by EPA regulation 40 C.F.R. § 52.21 for

the type of modification that Cinergy made. (Other regu-

lations are applicable to some of Cinergy’s facilities but are

materially identical to section 52.21, see New York v. EPA,

413 F.3d 3, 13 (D.C.Cir.2005) (per curiam), and so needn’t be

discussed separately.) The FPA contends that the modifi-

2a

cations produced increases in the nitrogen oxides and sulfur

dioxide annually emitted by the plants. If the EPA prevails in

the suit, Cinergy will be required to retrofit the plants with

costly pollution-control equipment (“best available control

technology”). § 52.21(j)(3).

Cinergy argues that the regulation does not require a permit

for modifications that do not increase the hourly rate at which

a plant emits pollutants, even if the modifications increase the

annual rate. The EPA argues that Cinergy is misreading the

regulation. The district judge agreed with the EPA but

authorized Cinergy to take an interlocutory appeal from his

ruling, and we have consented to take the appeal. 28 U.S.C.

§ 1292(b).

The validity of the regulation is not in issue, just its

meaning. Only the U.S. Court of Appeals for the District of

Columbia Circuit has jurisdiction to review the validity of

nationally applicable regulations issued pursuant to the Clean

Air Act, 42 U.S.C. § 7607(b)(1); Wisconsin Electric Power

Co. v. Reilly, 893 F.2d 901, 914 n. 6 (7th Cir.1990); Natural

Resources Defense Council, Inc. v. EPA, 194 F.3d 130, 135

(D.C.Cir.1999), and 40 C.F.R. § 52.21 is such a regulation.

It requires a permit for any “major modification,” defined

as “any physical change in or change in the method of

operation of a major stationary source that would result in a

Significant net emissions increase of any pollutant subject to

regulation under the [Clean Air] Act.” § 52.21(b)(2)(i). (All

our quotations are from the regulation as it read before

revisions in 2002 that are inapplicable to this proceeding and.

if applicable, would not affect our analysis.) “Physical

change” excludes among other things “routine maintenance,

repair and replacement,” which Cinergy concedes its plant

modifications were not. But it also excludes “an increase

in the hours of operation or in the production rate.”

$§ 52.21(b)(2)(i11)(a), (4). That is, merely running the plant

closer to its maximum capacity is not a major modification

3a

because it does not involve either a physical change or a

change in the method of operation. If, however, a physical

change enables the plant to increase its output, then,

according to the EPA’s interpretation, the exclusion for

merely operating the plant for longer hours is inapplicable.

“Net emissions increase” is defined, so far as bears on this

case, as “any increase in actual emissions from a particu-

lar physical change or change in method of operation.”

§ (b)(3)()(a). A “significant” net emissions increase 1s meas-

ured by the “rate of emissions that would equal or exceed”

snecified numbers of “tons per year” of the various pollutants.

§ (b)(23)(1). “Actual emissions as of a particular date shall

equal the average rate, in tons per year, at which the unit

actually emitted the pollutant during a two-year period. .. .

Actual admissions shall be calculated using the unit’s actual

operating hours, production rates, and types of matcrials

processed, stored, or combusted during the selected time

period.” § (b)(21 (ii).

Since both the base emissions rate from which a significant

increase is calculated, and the amount of the increase, are in

terms of tons per year rather than per hour, the natural reading

of the regulation is that any physical change or change in

operating methods that increases annual emissions is covered.

Cinergy argues that calculating “actual emissions . . . using

. . actual operating hours,” § (b)(21)(i1), “means that an

‘emissions increase’ is found only if the hourly rate of

emissions increases as a result of physical change.” But

“actual operating hours” is more naturally read to mean the

total number of hours that the plant is in operation. Suppose

that before some physical change the plant operated an

average of 18 hours a day, and the change enabled it to

operate 24 hours a day. Since the regulation is concerned

with the “increase in actual emissions” rather than with a

potential increase in emissions, § 52.21(b)(21)(v); Wisconsin

Electric Power Co. vy. Reilly, supra, 893 F.2d. at 916; New

4a

York v. EPA, supra, 413 F.3d at 15, the plant could not

automatically be assumed to operate 24 hours a day after the

modification was made—there might not be enough demand

to justify such continuous operation. But suppose a reason-

able estimate was that the plant ‘would operate an average

of 20 hours a day with the modification; then, as a first

approximation, a reasonable estimate of the contribution of

the modification to pollution would be that the modification

had increased the plant’s annual emissions by about 10 per-

cent. This estimate would determine whether the company

needed a permit for the modification.

Cinergy’s suggested interpretation, besides not conforming

well to the language of the regulation, would if adopted give a

company that had a choice between making a _ physical

modification that increased the hourly emissions rate and one

that enabled an increase in the number of hours of operation

an incentive to make the latter change even if that would

produce a higher annual level of emissions, because it would

elude the permit requirement.

Cinergy’s interpretation would also distort the choice

between rebuilding an old plant and replacing it with a new

one. The Clean Air Act treats old plants more leniently than

new ones because of the expense of retrofitting pollution-

control equipment. Wisconsin Electric Power Co. v. Reilly,

supra, 893 F.2d at 909-10. But there is an expectation that

old plants will wear out and be replaced by new ones that will

be subject to the more stringent pollution controls that the

Clean Air Act imposes on new plants. One thing that

stimulates replacement of an old plant is that aging produces

more frequent breakdowns and so reduces a plant’s hours

of operation and hence its output. Cinergy’s interpretation

would give the company an artificial incentive to renovate a

plant and by so doing increase the plant’s hours of operation,

rather than to replace the plant. For by going the first route

Sa

~

it could increase the plant’s output without having to invest

in preventing the enhanced output from generating increased

pollution.

The fact that the EPA’s interpretation avoids some bad

consequences doesn’t prove that it’s correct. But it does

scotch the argument that the interpretation produces such

outlandish consequences that it must be incorrect—which is

not to say that Cinergy’s interpretation must be incorrect

because it would produce outlandish results. It would not, as

suggested by the EPA’s having put out for comment a

pronosal to change the regulation to the hourly-emissions

standard favored by Cinergy. See Prevention of New Source

Deterioration, Nonattainment New Source Review, and New

Source Performance Standards: Emissions Test for Electric

Generating Units, 70 Fed.Reg. 61081 (Oct. 20, 2005). Under

the existing regulation as interpreted by the EPA, Cinergy,

rather than having to choose between repair and replacement

to enhance output, might decide to buy electricity from other

electric utilities, and their plants might pollute more than

Cinergy’s do. And while Cinergy can determine a plant’s

hourly rate of emissions easily enough just by observing

the plant in operation, it cannot predict the plant’s annual

emissions rate because that depends on the number of hours

of operation; and who knows in advance how many hours a

plant will operate? Of course the company can always curtail

those hours if it sees itself approaching the ceiling. But that

might complicate its customer relations, as well as sacrificing

significant revenue. True, what is required for determining

whether a construction permit must be sought for a planned

physical change in the plant is not prescience, but merely a

reasonable estimate of the amount of additional emissions

that the change will cause; yet it may be a very difficult

estimate to make.

Cinergy’s principal argument, however, has nothing to do

with the consequences of the alternative interpretations; it is

6a

that Congress required that the regulation define “modifi-

cation” as a change in the hourly emissions rate. Since the

regulation does not define it so, this seems an attack on the

validity of the regulation rather than an argument about its

meaning, and issues of validity, we pointed out, are beyond

the jurisdiction of a regional circuit to resolve. In any event,

the argument is unconvincing.

The Clean Air Act, as amended in 1970, required the EPA

to devise “New Source Performance Standards” (NSPS),

including standards for “modifications,” defined as physical

changes, or changes in operating methods, that increased the

amount of pollutants emitted. 42 U.S.C. § 7411(a)(4).. One

of the standards that the agency adopted placed hourly limits

on emissions from coal-fired electric power plants. After

further amending the Act in 1977 to require the EPA to take

Steps to prevent significant deterioration (PSD) in air qual-

ity—it 1s pursuant to these amendments that the regulation at

issue in this case was promulgated, see 42 U.S.C. § 7477—

Congress amended the amendments to provide that “modifi-

cations” would bear the same meaning in the PSD provisions

as the word bore in the NSPS provisions. § 7479(2){C);

Wisconsin Electric Power Co. v. Reilly, supra, 893 F.2d

at 905; New York v. EPA, supra, 413 F.3d at 13. But the

statutory definition of “modifications” to which Congress was

referring says nothing about hourly versus annual emissions.

§ 7411(a)(4). The hourly-emission standard under the New

Source Performance Standards is a creature of regulation, 40

C.F.R. §§ 60.14(a)-(b), and the “same meaning” statutory

amendment does not purport to incorporate the agency’s

regulatory definition of modifications under the New Source

Performance Standards into the provisions relating to the

Prevention of Significant Deterioration program.

Cinergy’s argument was rejected by the D.C. Circuit in

New York v. EPA, supra, which upheld the EPA’s inter-

pretation of the regulation. But it was accepted by the Fourth

7a

Circuit in United States v. Duke Energy Corp., 411 F.3d 539,

546-51 (4th Cir.2005), cert. granted, U.S. , 126 S.Ct.

2019, 164 L.Ed.2d 778 (2006), creating a circuit conflict that

the Supreme Court presumably granted certiorari in the Duke

Energy case to resolve.

In so ruling, the Fourth Circuit stepped out of bounds, as

we have said in describing Cinergy’s argument. But in any

event the argument’s premise is incorrect. The same word

can mean different things in the same statute. See General

Dynamics Land Systems, Inc. v. Cline, 540 U.S. 581, 595-96,

124 S.Ct. 1236. 157 1. Fd.2d 1094 (2004): Rohinson v Shell

Oil Co., 519 U.S. 337, 342-44, 117 S.Ct. 843, 136 L.Ed.2d

808 (1997); Indianapolis Life Insurance Co. v. United States,

115 F.3d 430, 434-35 (7th Cir.1997), and with specific

reference to the Clean Air Act Potomac Electric Power Co. v.

EPA, 650 F.2d 509, 518 (4th Cir.1981); Northern Plains

Resource Council v. EPA, 645 F.2d 1349, 1355-56 (9th

Cir.1981). “There is a natural presumption that identical

words used in different parts of the same act are intended to

have the same meaning. But the presumption is not rigid and

readily yields whenever there is such variation in the

connection in which the words are used as reasonably to

warrant the conclusion that they were employed in different

parts of the act with different intent.” A/lantic Cleaners &

Dyers, Inc. v. United States, 286 U.S. 427, 433, 52 S.Ct. 607,

76 L.Ed. 1204 (1932).

Because many words have multiple meanings, the same

word might well be used in one sense in one part of a statute

and another sense in another. That is certainly the case with a

vague word like “modification,” and all the more when the

Statutory provisions that contain the word were enacted by

different Congresses for different purposes. United States ex

rel. Long v. SCS Business & Technical Institute, Inc., 173

F.3d 870, 881 n. 15 (D.C.Cir.1999). The New Source Per-

formance Standards part of the Act, the older part, imposes

8a

specific technical requirements on polluters, and it is natural

therefore that “modification” in that part of the Act should

refer to physical changes in the plant. The Prevention of

Significant Deterioration part of the Act leans toward the

more modern approach of limiting output (pollution) rather

than inputs (technology), and so it is equally natural to

interpret “modification” in that part more broadly in order to

prevent opening a loophole that would allow pollution to soar

unregulated. See Potomac Electric Power Co. v. EPA, supra,

650 F.2d at 518; Alabama Power Co. v. Costle, 636 F.2d 323,

402 (D.C.Cir. 1980) (per curiam).

Furthermore, a vague statutory term in a regulatory statute

can operate as a delegation to the regulatory agency to supply

meaning. Washington State Dept. of Social & Health

Services v. Guardianship Estate of Danny Keffeler, 537 U.S.

371, 389-90, 123 S.Ct. 1017, 154 L.Ed.2d 972 (2003); Smilev

v. Citibank (South Dakota), N.A., 517 U.S. 735, 739, 116

S.Ct. 1730, 135 L.Ed.2d 25 (1996); Chevron U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837, 842-

46, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The New Source

Performance Standards and Prevention of Significant

Deterioration provisions of the Clean Air Act are at one in

defining a modification as a physical change in a plant that

results in an increase in emissions, but are silent on whether

the increase is in the hourly rate of emissions or in some other

rate. The task of deciding was left to the EPA. There was

nothing to require that it flesh out the vague statutory

meaning in the identical way in different parts of the Clean

Air Act adopted years apart and reflecting, to an extent

anyway, different philosophies of pollution control.

Cinergy’s other arguments are makeweights, and we will

not extend this opinion to discuss them.

AFFIRMED.

9a

APPENDIX B

UNITED STATES DISTRICT COURT

S.D. INDIANA,

INDIANAPOLIS DIVISION

No. 199CV01693LJIMVSS

UNITED STATES OF AMERICA,

Plaintiff,

STATE OF New Yoer, STATE OF CONNECTICUT,

STATE Or Nw JERSEY,

Plaintiff-Intervenors,

HOOSIER ENVIRONMENTAL COUNCIL,

OHIO ENVIRONMENT COUNCIL,

Third-Party Plaintiffs,

V.

CINERGY CORPORATION; PS] ENERGY, INC.;

CINCINNATI GAS & ELECTRIC Co.,

Defendants.

Aug. 29, 2005

As Amended Sept. 8, 2005

ORDER ON CROSS-MOTIONS FOR PARTIAL

SUMMARY JUDGMENT REGARDING THE

APPLICABLE TEST FOR EMISSIONS INCREASES

MCKINNEY, Chief Judge.

This matter is before the Court on the parties’ request for

the Court to decide the purely legal question of what test

applies to determine whether an emissions increase occurs so

as to trigger the Clean Air Act’s (“CAA”) New Source

Review (“NSR”) permit provisions. The United States of

10a

America (the “USA”) filed a Motion for Partial) Summary

Judgment on Emissions Test. In response, defendants Cinergy

Corporation; PSI Energy, Inc.; and Cincinnati Gas & Electric

Co. (collectively, “Cinergy”) filed a Motion for Summary

Judgment on the Applicable Test for Emission Increases. The

parties have fully briefed the issue and it is now ripe for

ruling. For the reasons explained herein, the USA’s motion is

GRANTED, and Cinergy’s motion is DENIED.

I. BACKGROUND

The USA has brought this action against Cinergy alleging,

inter alia, that it violated NSR' provisions when it made

physical changes to its units that were “modifications”

without first having obtained a pre-construction permit. The

Prevention of Significant Deterioration (“PSD”) program

requires that: “No major emitting facility on which con-

struction [or modification] is commenced after August 7,

1977, may be constructed [or modified] . . . unless (1) a

permit has been issued for such proposed facility in ac-

cordance with this part... .” 42 U.S.C. § 7475(a). The

Nonattainment New Source Review (“NNSR”) program

requires “permits for the construction or operation of new or

modified major stationary sources anywhere in the non-

attainment area.” /d. § 7502(c)(5). Central to this lawsuit,

then, is whether the changes Cinergy made to its emitting

sources were modifications.

Congress enacted the CAA in 1970, including the New

Source Performance Standard (“NSPS”) provisions, which

directed the Environmental Protection Agency (“EPA”) to

promulgate technology-based performance standards for new

or modified emitting facilities. Jd § 7411. The EPA

promulgated the regulatory PSD program in 1974, in re-

'NSR includes both the Prevention of Significant Deterioration

(“PSD”) provisions and the Nonattainment New Source Review

(“NNSR") provisions.

lla

sponse to litigation over its obligation under the CAA to

require states to implement plans to prevent significant

deterioration of air quality in areas where minimum standards

had been attained. See Alabama Power Co. v. Costle, 636

F.2d 323, 347 (D.C.Cir.1979). The “NSPS” regulatory defi-

nition of “modification” specifically directed that emission

rates be measured in kilograms per hour, 40 C.F-R. § 60.14,

but the PSD regulatory definition of “modification” did not.

Rather, the PSD regulation defined “modification” as “any

physical change in, or change in the method of operation of, a

Stationary source which increases the emission rate of any

|reguiated| pollutant.” 39 Fed.Reg. 42,510, 42,514 (Dec. 5,

1974). In 1977, Congress amended the CAA to include a

statutory PSD program, as well as the NNSR program.

When Congress first enacted the statutory PSD program in

1977, the permit provisions applied only to the “construction”

of major emitting facilities. See Clean Air Act Amendments

of 1977, Pub.L. No. 95-95, 91 Stat. 685, 735 (1977). Just a

few months later, Congress passed “technical and conforming

amendments” to the CAA, which added to the “Definitions”

section of the PSD provisions the following: “The term

‘construction’ when used in connection with any source or

facility, includes the modification (as defined in section

7411(a) of this title) of any source or facility.” Pub.L.

No. 95-190, 91 Stat. 1293, 1402 (1977); see 42 U.S.C.

§ 7479(1)(C). Section 7411(a), part of the NSPS provisions,

defines “modification” as “any physical change in, or change

in the method of operation of, a stationary 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.” 42 U.S.C. § 7411. The definition of

“modification” in NNSR also refers to section 7411(a). Jd.

§ 7501(4).

EPA regulations further define “modification” for NSPS

purposes as “any physical or operational change to an exist-

2a

ing facility which results in an increase in the emissions rate

to the atmosphere of any [regulated] pollutant . . . expressed

as kg/hr.” 40 C.F.R. § 60.14(a) & (b). In 1980, after several

rule changes that defined “modification” for NSR purposes,

the final regulation defined the term “major modification” as

“any physical change tn or change in the method of operation

of a major stationary source that would result in a significant

net emissions increase of any pollutant subject to regulation

under the Act.” 45 Fed.Reg. 52,676, 52,735 (Aug. 7, 1980);

see New York v. U.S. EPA, 413 F.3d 3, 12 (D.C.Cir.2005) for

discussion of regulation’s history.

After it promulgated the 1980 rule, EPA advocated using

an “actual-to-potential” test to measure increased emissions

for PSD permitting purposes. The actual-to-potential test

compared a source’s past annual emissions to its potential

future annual emissions after the physical change, assuming

the source would operate at full capacity in the future. See

Wisconsin Elec. Power Co. v. Reilly, 893 F.2d 901, 916-18

(7th Cir.1990). The Seventh Circuit rejected the actual-to-

potential test in Wisconsin Elec. Power Co. v. Reilly, 893

F.2d 901 (7th Cir.1990). Instead, the court agreed with De-

fendant WEPCO that the EPA should measure future emis-

sions based on a projection of future actual emissions. This

has become known as the “actual-to-projected-actual” test.

Following WEPCO, Congress amended the CAA in 1990,

The 1990 Amendments included some changes related to

NSR, but did not address the issue raised in WEPCO of the

correct way to measure future emissions, and did not revisit

the statutory definition of modification. See New York, 413

F.3d at 15-16. The EPA subsequently adopted the actual-

to-projected-actual test. See 40 C.F.R. § 52.21(a)(2)(iv)(c)

(2004).

The issue to be decided herein ts the purely legal question

of what is the appropriate method of determining whether a

physical change at a source has caused an increase in

}3a

emissions for purposes of NSR. The parties and their experts

may then apply this method to the facts of this case in

preparation for trial.

II]. STANDARD

As stated by the Supreme Court, summary judgment is not

a disfavored procedural shortcut, but rather is an integral part

of the federal procedural rules as a whole, which are designed

to secure the just, speedy, and inexpensive determination of

every action. Celotex Corp. v. Catrett, 477 U.S. 317, 327,

106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see United Ass'n of

Black Landscapers v. City of Milwaukee, 916 F.2d 1261,

1267-68 (7th Cir.1990). Summary judgment is granted if the

all the evidence shows “that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law.” Fed.R.Civ.P. 56(c). An issuc

is genuine only if the evidence is such that a reasonable jury

could return a verdict for the opposing party. See Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91

L.Ed.2d 202 (1986). A disputed fact is material only if it

might affect the outcome of the suit in light of the substantive

law. See id.

The moving party has the initial burden to show the ab-

sence of genuine issucs of material fact. See Wollin v.

Gondert, 192 F.3d 616, 620 (7th Cir.1999):; Schroeder v.

Barth, Inc., 969 F.2d 421, 423 (7th Cir.1992). This burden

does not entail producing evidence to negate claims on which

the opposing party has the burden of proof. See Green vy.

Whiteco Indus., Inc., 17 F.3d 199, 201 & n. 3 (7th Cir.1994).

The party opposing a summary judgment motion bears an

affirmative burden of presenting evidence that a disputed

issuc of material fact exists. See Wollin, 192 F.3d at 621.

When considering a summary judgment motion, a court

must draw all reasonable inferences “in the light most

favorable” to the opposing party. /d. at 621; Thomas & Betts

l4a

Corp. v. Panduit Corp., 138 F.3d 277, 291 (7th Cir.1998):

Spraying Sys. Co. v. Delavan, Inc., 975 F.2d 387, 392 (7th

Cir.1992). If a reasonable fact finder could find for the

opposing party, then summary judgment is inappropriate.

Stop-N-Go of Madison, Inc. v. Uno-Ven Co., 184 F.3d 672,

677 (7th Cir.1999); Shields Enters., Inc. v. First Chicago

Corp., 975 F.2d 1290, 1294 (7th Cir.1992). When the

standard embraced in Rule 56(c) is met, summary judgment is

mandatory. Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548:

Thomas & Betts Corp., 138 F.3d at 291; Shields Enters., Inc.,

975 F.2d at 1294.

Ill. DISCUSSION

The appropriate test for measuring emissions under the

PSD program has been the subject of numerous judicial

opinions over the years, including one from this Court,

United States of America v. Southern Indiana Gas and

Electric Co., No. IP 99-1692-C-M/F, 2002 WL 1629817

(S.D.Ind. July 18, 2002) (“S7/GECO”), and from the Seventh

Circuit Court of Appeals, Wisconsin Elec. Power Co. vy.

Reilly, 893 F.2d 901 (7th Cir.1990) (*WEPCO”). In SIGECO

this Court held that the PSD program requires an owner or

operator to determine whether a preconstruction permit is

required before construction begins. S/GECO, at *3. In

WEPCO the Seventh Circuit addressed inter alia, how to

assess emissions increases for PSD purposes. Specifically,

the court ruled that the EPA could not assume a unit would

Operate at its full potential after physical change, but must

consider past operating conditions. WEPCO, at 917-18.

More recently the District of Columbia and Fourth Circuit

Courts of Appeals have issued opinions that bear directly on

this issue. In United States v. Duke Energy Corp., 411 F.3d

539 (4th Cir.2005), the Fourth Circuit Court of Appeals found

that once Congress incorporated the statutory definition of

“modification” from the NSPS program into the PSD statute,

the EPA could not interpret the definitions differently. Duke

lSa

Energy, 411 F.3d at 546-47. The court looked to the plain

language of the CAA to find that because the terms are

defined identically, Congress could not have intended con-

tradictory interpretations. /d. at 548 (relying on Rowan Cos.

v. United States, 452 U.S. 247, 101 S.Ct. 2288, 68 L.Ed.2d

814 (1981)). The court also found that the legislative history

of the PSD statutes supported the view that Congress

intended EPA to use the same definition for both programs.

Id. (citing 123 Cong. Rec. 36,253 (Nov. 1, 1977) (amending

the statute to “conform to usage in other parts of the Act’)).

In New York v. U.S. EPA. 413 F.3d 3 (D.C.Cir.2005), the

District of Columbia Court of Appeals held that nothing in

the statutory language or history suggested that in enacting

the 1977 CAA Amendments Congress intended to incor-

porate the NSPS regulatory definition of “modification” into

the PSD statute. New York, 413 F.3d at 19-20. However, the

court purposefully did not address whether Congress intended

to require the EPA to provide identical regulatory definitions

for “modification” throughout the NSPS and NSR programs.

Id. at 20.

A. PROJECTED EMISSIONS

The first part of determining the correct emission test is

whether the post-project emissions should be determined by 2

pre-project projection or a post-project measurement. The

USA argues that the EPA must estimate post-project emis-

sions before construction begins. Cinergy does not raise this

argument in its own cross-motion, but recognizes in its reply

memorandum that this Court has previously decided. the

issue. See SIGECO. Thus, in line with the purpose and

logical interpretation of the PSD permit requirement, this

Court reaffirms that an owner or operator must make a pre-

construction projection of whether and how much emissions

will increase at a particular unit following construction.

l6a

B. EMISSIONS CALCULATION

The second and more complicated issue is whether an

owner or operator under the NSR provisions must calculate

an “increase[ in] the amount of any air pollutant emitted” by a

source based on an hourly or yearly emissions rate. See 42

U.S.C. § 7411. This Court previously has adopted the view

that the PSD permit provisions apply when there will be an

increase in the total annual emissions. See United States

v. Southern Ind. Gas & Elec. Co., 245 F.Supp.2d 994, 998

(S.D.Ind.2003).

|. Congressional Language and Intent

The parties’ most formidable dispute is about how

Congress intended the EPA to make the calculation. This

Court begins by following the line of analysis the District of

Columbia Circuit used in New York. When Congress altered

the definition of “construction” to include “modification”

under PSD as it is used for NSPS, it did not, expressly or

otherwise, incorporate the regulatory definition. See New

York, 413 F.3d at 19-20. Nothing in the Congressional

history indicates Congress intended to incorporate the regu-

latory definition. See id. By contrast, Congress did expressly

incorporate regulatory provisions in other areas of the CAA.

See id. at 19 (citing Pub.L. No. 95-95, § 129(a)(1), 91 Stat.

685, 745 (1977)).

Further, Congress did not limit the EPA’s authority to

further define “modification” in the regulations as it deemed

fit to serve the purposes of the PSD program. See, e.g.,

Alabama Power, 636 F.2d at 397-98 (recognizing that the

EPA had the authority to adopt different regulatory defi-

nitions for “source” in NSR and NSPS in light of the

“differences in the purpose and structure of the two pro-

“rams’). Nor did Congress direct the EPA to change its

regulatory definition, which differed from the NSPS regu-

latory definition at the time Congress promulgated NSR in

17a

(1977. See, e.g., 39 Fed.Reg. 42,510, 42,514 (Dec. 5, 1974).

Finally, nothing about the EPA’s definition of “modification”

contradicts the statutory definition.

2. EPA’s Language and Intent

Next, the Court must address Cinergy’s argument that the

EPA’s own rules require it to hold the hours of operation and

production rates constant when determining whether a net

emissions increase will occur. Cinergy first argues that

EPA’s current litigation position is contrary to its own earlier

acknowledgments that Congress intended for the EPA to

contorm the meaning and usage of “moditication in PSU to

that in NSPS. Second, Cinergy argues that EPA’s current

litigation position is contrary to its own rules.

a. Prior Construction

The Court rejects Cinergy’s argument that the EPA’s cur-

rent litigation position is contrary to earlicr acknowledgments

that Congress intended for the EPA to define “modification”

for NSR as it does for NSPS. Cinergy has mistaken the

circumstances surrounding some of these “acknowledg-

ments.” For example, when the EPA stated in 1984 that

Congress intended the NSPS statute to also apply to EPA

regulations implementing section 111(a)(4), the EPA was

referring to the inclusion of “fugitive emissions” in the

concept of overall emissions. See 49 Fed.Reg. 43, 211,

43,213 (Oct. 26, 1984). When the EPA stated tn 2003 that

“We have understood [Congress’ statements] to be a

reference to our preexisting rules interpreting the term

‘modification’ in the NSPS context” it was a reference to

what is excluded from “modification,” specifically, the

routine maintenance, repair and replacement exception. 68

Fed.Reg. 61248, 61269 (Oct. 27, 2003). Later in that same

rulemaking, the EPA reiterated that it takes the same general

approach to what constitutes an increase in emissions for

18a

NSPS and NSR, except that the NSR rule uses an annual

measurement. /d.

The 1980 rule defines “major modification” as a change

that causes a significant net increase in a unit’s “actual

emissions.” See 45 Fed.Reg. 52.676, 52,698 (Aug. 7, 1980).

“Actual emissions” are to be measured using the unit's ac-

tual operating hours and production rates. 40 C.F.R.

§ 52.21(b)(21)(11). The Court disagrees with both Cinergy

and the Duke Energy court that the EPA’s definition of

“actual emissions,” means that “ a net emissions increase can

result only from an increase in the hourly rate of emissions.”

See Duke Energy, 278 F.Supp.2d at 640. Consistent with

the 1980 rule defining “actual emission,” in an actual-to-

projected-actual comparison, the projected actual emissions

would be measured using projected actual operating hours

and projected actual production rates. Thus, if a physical

change will result in a unit increasing its operating hours, the

projected actual operating hours would include the increase.

Cinergy argues that the WEPCO decision and the EPA’s

own interpretation of the 1980 rules compels that a net

emissions increase under NSR must be measured holding

hours of operation and production rates constant. This Court

reads WEPCO only to have rejected the actual-to-potential

comparison and EPA’s assumption in that case of continuous

operations. See WEPCO, 893 F.2d at 917. Instead, the

Seventh Circuit thought “‘a more realistic assessment of [a

source's] impact on ambient air quality levels is possible.” ~

Id. (quoting Alabama Power, 636 F.2d at 379). The issue in

that case was not the same issue this Court must address; the

issue was simply whether the actual-to-potential comparison

was appropriate. Nothing in the WEPCO decision directed

EPA to ignore the impact a physical change would have on

the actual future operating hours of a unit. The Seventh

Circuit in WEPCO recognized that for NSPS purposes, the

EPA would determine whether a source’s hourly rate in-

19a

creased and that for PSD purposes, the EPA would determine

whether a source’s total amount of emissions would increase.

See id. at 905.

b. Increased Hours Exclusion

Cinergy fears that allowing the EPA to interpret “modi-

fication” this way for NSR will eliminate a causation element.

Cinergy argues that the EPA would not be able to discern

when an increase in emissions was caused by a “modifi-

cation” rather than another factor, such as demand. Cinergy’s

fear is unfounded. The definition of “modification” in NSR

and NSPS has several exceptions, including route main-

tenance, repair and replacement, as well as an increase in

hours or emissions not tied to a physical change. See 40

C.F.R. § 52.21(b)(2).

The PSD regulations state that an increase in hours or

production rate are not considered physical changes. /d.

§ 52.21(b)(2)(ii1)(f). A reference back to the definition of

“major modification” demonstrates that it is a_ physical

change that results in an emissions increase. /d. § 52.21(b)(1).

Thus, the plain meaning of the increased hours exclusion is

that an increase in hours or production rate are not a “physical

change” and thus cannot, alone, be a modification. Increased

hours and production rate are not excluded from the

definition of “modification”; that is, if a physical change

results in an increase in hours of operation that causes a net

emissions increase, a modification has occurred. Not only is

this the plain and most logical reading of the regulation, it

prevents the very situation about which Cinergy is con-

cerned—that in which an increase in hours or production rate

unrelated to any physical change would be considered a

modification and subject the source to PSD review. The EPA

20a

confirmed this view by way of the “Clay Memorandum”

issued on September 9, 1988.~

Cinergy argues that two statements Edward Reich, then-

Director of EPA’s Division of Stationary Source Enforce-

ment, made in 1981 (the “Reich Mcmos’”’) indicate otherwise,

and also that the Reich Memos demonstrate an EPA

interpretation that is contrary to its current litigation position.

This Court agrees with the Southern District of Ohio’s view

that the Reich Memos are contrary to the plain language of

the CAA and EPA’s regulations. See United States v. Ohio

Edison Co., 276 F.Supp.2d 829, 877 (S.D.Ohio.2003). The

Reich Memos are not authoritative here.

IV. CONCLUSION

For all of the reasons set forth above, the USA’s motion for

summary judgment is GRANTED and Cinergy’s motion for

summary judgment is DENIED.

° “The preamble to the rule (45 FR 52676, 52704 (August 7, 1980)),

makes it clear that this exclusion is intended to allow a company to

lawfully increase emissions through a simple change in hours or rate of

Operation up to its potential to emit . . . without having to obtain a PSD

permit... . However, .. . the exclusion for increases in hours of operation

or production rate does not take the project beyond the reach of PSD

coverage if those increases to [sic] not stand alone but rather are asso-

ciated with non-excluded physical or operational changes.” Clay Memo-

randum at 6-7.

2la

APPENDIX C

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

No. 05-8029

In re: CINERGY CORPORATION, CINERGY SERVICES,

INCORPORATED, PSI ENERGY. INCORPORATED, et al.,

Fertioners.

Petition for Permission to Appeal Pursuant to 28 U.S.C.

§ 1292(b) Southern District of Indiana, Indianapolis Division

Larry J. McKinney, Chief Judge.

January 3, 2006

Before

Hon. RICHARD A. POSNER, Circuit Judge

Hon. KENNETH F. RIPPLE, Circuit Judge

Hon. DIANE P. WOOD, Circuit Judge

The following are before the court:

1. DEFENDANTS/PETITIONERS CINERGY CORP.,

CINERGY SERVICES, INC., PS] ENERGY, AND

CINCINNATI GAS & ELECTRIC COMPANY’S

PETITION FOR PERMISSION TO APPEAL, filed

on October 18, 2005, by counsel for the petitioners.

2. UNITED STATES’ RESPONSE TO PETITION

FOR PERMISSION TO APPEAL, filed on Novem-

ber 3, 2005, by counsel for respondent United States

of America.

RESPONSE OF PLAINTIFF-INTERVENOR/RE-

SPONDENT STATES AND ENVIRONMENTAL

GROUPS TO DEFENDANT/PETITIONERS’ PE-

TITION FOR PERMISSION TO APPEAL, filed on

November 3, 2005, by counsel for respondents State

of New York. State of New Jersey, State of Con-

necticut, and Hoosier Environmental. Council.

IT IS ORDERED that #1 is GRANTED. The petitioners

shall pay the required appellate fees to the clerk of the district

court within 10 days from the entry of this order pursuant to

Federal Rule of Appellate Procedure 5(d)(1). Once the district

court notifies this court that the fees have been paid, the

appeal will be entered on this court's general docket.

23a

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF INDIANA

INDIANAPOLIS DIVISION

1:99-cv-1693-LJM-VSS

UNITED STATES OF AMERICA,

Plaintiffs,

STATE OF New Vor State oF New Ieesry STATE OF

CONNECTICUT, HOOSIER ENVIRONMENTAL COUNCIL,

Plaintiff-Intervenors,

VS.

CINERGY CorpP., PSI ENERGY, INC., and

THE CINCINNATI GAS & ELECTRIC COMPANY,

Defendants,

ORDER ON DEFENDANTS’ MOTION TO CERTIFY

This matter is before the Court on the motion of the

defendants, Cinergy Corp., PS] Energy, Inc., and The Cin-

cinnati Gas & Electric Company (collectively “Cinergy”), for

the Court to amend its order of September 8, 2005 (the

“Order”), pursuant to 28 U.S.C. § 1292(b) and Rule 5(a)(3) of

the Federal Rules of Appellate Procedure, to permit interlock-

utory appeal. The Court hereby GRANTS Cinergy s motion.

The current motion follows this Court’s resolution of

whether, under the Clean Air Act (the “Act’) and the Act’s

New Source Review (“NSR”) permit provisions, a source

modification occurs only when the hourly emissions increase,

or when the yearly emissions increase as a result of increased

hours- of productions. See 42 U.S.C. 7475(a). Cinergy had

argued that an emissions increase that constitutes a modi-

24a

fication under the Act can occur only if the hourly rate of

emissions increased. In the Order, this Court ruled that “if a

physical change results in an increase in hours of operation

that causes a net emissions increase, a modification has oc-

curred.” Cinergy now secks to immediately appeal the Order.

The Court will certify an order for interlocutory appeal

pursuant to 28 U.S.C. § 1292(b) if the Court is of the opinion

that “(1) the appeal presents a question of law; (2) it is

controlling; (3) it is contestable; (4) its resolution will ex-

pedite the resolution of the litigation, and (5) the petition to

appeal is filed in the district court within a reasonable amount

of time after entry of the order sought to be appealed.” Boim

v. Quranic Literacy Inst., 291 F.3d 1000, 1007 (7th Cir.

2002).

The Order addressed a purely legal issue of interpreting the

Act. The resolution of that issue controls how the parties must

calculate emissions increases to determine the facts of this

case for trial. Whether Cinergy violated NSR_ permitting

provisions is central to this litigation. Cinergy’s position was

not without support, as the Court noted in the Order; thus, the

issue is reasonably contested. A Seventh Circuit Court of

Appeals ruling will aid these parties, as well as other simt-

larly-situated litigants. The Court also believes an appellate

ruling on the issue will expedite the resolution of this case.

Once the parties make final emissions calculations, it may be

possible for the parties to stipulate some facts, leading to

settlement or judgment on some claims without a trial.

Finally, Cinergy filed the present motion within two days

of the Order, which this Court finds is a reasonable period

of time.

Thus, Cinergy’s motion is GRANTED. The Court hereby

certifies as appealable its Order of September &, 2005.

IT IS SO ORDERED this 4th day of October, 2005.

25a

/s/ Larry J. McKinney

LARRY J. MCKINNEY, Chief Judge

United States District Court

Southern District of Indiana

Distribution attached.

26a

APPENDIX E

STATUTES

42 U.S.C. § 7411. Standards of performance for new station-

ary sources

(a) Definitions

For purposes of this section:

* * * *

(2) The term “new source” means any stationary source, the

construction or modification of which is commenced after the

publication of regulations (or, if earlier, proposed regulations)

prescribing a standard of performance under this section

which will be applicable to such source.

* * * *

(4) The term “modification” means any physical change in, or

change in the method of operation of, a stationary 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.

* * * *

42 U.S.C. § 7475. Preconstruction requirements

(a) Major emitting facilities on which construction is

commenced

No major emitting facility on which construction is

commenced after August 7, 1977, may be constructed in any

area to which this part applies unless—

(1) a permit has been issued for such proposed facility in

accordance with this part setting forth emission

limitations for such facility which conform to the

requirements of this part;

27a

(2) the proposed permit has been subject to a review in

accordance with this section, the required analysis has

been conducted in accordance with regulations

promulgated by the Administrator, and a public hearing

has been held with opportunity for interested persons

including representatives of the Administrator to appear

and submit written or oral presentations on the air

quality impact of such source, alternatives thereto,

control technology requirements, and other appropriate

considerations;

(3) the owner or operator of such facility demonstrates,

as required pursuamt to secuon 7410) Of ils Utie, Liat

emissions trom construction or operation of such facility

will not cause, or contribute to, air pollution in excess of

any (A) maximum allowable increase or maximum

allowable concentration for any pollutant in any area to

which this part applies more than one time per year, (B)

national ambient air quality standard in any air quality

control region, or (C) any other applicable emission

standard or standard of performance under this chapter;

(4) the proposed facility is subject to the best available

control technology for each pollutant subject to

regulation under this chapter emitted from, or which

results from, such facility:

(5) the provisions of subsection (d) of this section with

respect to protection of class I areas have been complied

with for such facility;

(6) there has been an analysis of any air quality impacts

projected for the area as a result of growth associated

with such facility;

(7) the person who owns or operates, or proposes to own

or Operate, a major emitting facility for which a permit is

required under this part agrees to conduct such

monitoring as may be necessary to determine the effect

which emissions from any such facility may have, or is

28a

having, on air quality in any area which may be affected

by emissions from such source; and

(8) in the case of a source which proposes to construct in

a class III area, emissions from which would cause or

contribute to exceeding the maximum allowable

increments applicable in a class li area and where no

standard under section 7411 of this ttle has been

promulgated subsequent to August 7, 1977, for such

source category, the Administrator has approved the

determination of best available technology as set forth in

the permit.

* * * *

42 U.S.C. § 7479. Definitions

For purposes of this part—

(1) The term “major emitting facility’ means any of the

following stationary sources of air pollutants which emit, or

have the potential to emit, onc hundred tons per year or more

of any air pollutant from the following types of stationary

sources: fossil-fuel fired steam electric plants of more than

two hundred and fifty million British thermal units per hour

heat input, coal cleaning plants (thermal dryers), kraft pulp

mills, Portland Cement plants, primary zinc smelters, iron and

stecl mill plants, primary aluminum ore reduction plants,

primary copper smelters, municipal incinerators capable of

charging more than fifty tons of refuse per day. hydrofluoric,

sulfuric, and nitric acid plants, petroleum re. neries, lime

plants, phosphate rock processing plants, coke oven batteries,

sulfur recovery plants, carbon black plants (furnace process),

primary lead s nelters, fuel conversion plants, sintering plants,

secondary metal production facilities, chemical process

plants, fossil-fuel boilers of more than two hundred and fifty

million British thermal units per hour heat input, petroleum

storage and transfer facilities with a capacity exceeding three

29a

hundred thousand barrels, taconite ore processing facilities,

glass fiber processing plants, charcoal production facilities.

Such term also includes any other source with the potential to

emit two hundred and fifty tons per year or more of any air

pollutant. This term shall not include new or modified

facilities which are nonprofit health or education institutions

which have been exempted by the State.

(2)(A) The term “commenced” as applied to construction of a

major emitting facility means that the owner or operator has

obtained all necessary preconstruction approvals or permits

required by Federal, State, or local air pollution emissions and

air quality iaws or reguiations aud citiie: tas (1) Veyun, ur

caused to begin, a continuous program of physical on-site

construction of the facility or (ii) entered into binding

agreements or contractual obligations, which cannot be

canceled or modified without substantial loss to the owner or

operator, to undertake a program of construction of the

facility to be completed within a reasonable time.

(B) The term “necessary preconstruction approvals or

permits” means those permits or approvals, required by

the permitting authority as a precondition to undertaking

any activity under clauses (i) or (11) of subparagraph (A)

of this paragraph.

(C) 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.

(3) The term “best available control technology” means an

emission limitation based on the maximum degree of

reduction of each pollutant subject to regulation under this

chapter emitted from or which results from any major

emitting facility, which the permitting authority, on a case-by-

case basis, taking into account cnergy, environmental, and

economic impacts and other costs, determines is achievable

for such facility through application of production processes

30a

and available methods, systems, and techniques, including

fuel cleaning, clean fuels, or treatment or innovative fuel

combustion techniques for control of each such pollutant. In

no event shall application of “best available control

technology” result in emissions of any pollutants which will

exceed the emissions allowed by any applicable standard

established pursuant to section 7411 or 7412 of this title.

Emissions from any source utilizing clean fuels, or any other

means, to comply with this paragraph shall not be allowed to

increase above levels that would have been required under

this paragraph as it existed prior to November 15, 1990.

*x* * *

42 U.S.C. § 7501. Definitions

For the purpose of this part—

* * kK *

(4) Modifications; modified

The terms “modifications” and “modified” mean the same as

the term “modification” as used in section 741 1(a)(4) of this

title.

42 U.S.C. § 7607. Administrative proceedings and judicial

review

x * kK *

(b) Judicial review

(1) A petition for review of action of the Administrator

in promulgating any national primary or secondary

ambient air quality standard, any emission standard or

requirement under section 7412 of this title, any standard

of performance or requirement under section 7411 of

this title, any standard under section 7521 of this title

(other than a standard required to be prescribed under

3la

section 7521(b)(1) of this title), any determination under

section 7521(b)(5) of this title, any control or prohibition

under section 7545 of this title, any standard under

section 7571 of this title, any rule issued under section

7413, 7419, or under section 7420 of this title, or any

other nationally applicable regulations promulgated, or

final action taken, by the Administrator under this

chapter may be filed only in the United States Court of

Appeals for the District of Columbia. A petition for

review of the Administrator’s action in approving or

promulgating any implementation plan under section

7410 of this title or section 7411(d) of this title, any

order under section 7411(j) of this title. under section

7412 of this title,” under section 7419 of this title, or

under section 7420 of this title, or his action under

section 1857c-10(c)(2)(A), (B), or (C) of this title (as in

effect before August 7, 1977) or under regulations

thereunder, or revising regulations for enhanced

monitoring and comphance certification programs under

section 7414(a)(3) of this title, or any other final action

of the Administrator under this chapter (including any

denial or disapproval by the Administrator under

subchapter I of this chapter) which is locally or

regionally applicable may be filed only in the United

States Court of Appeals for the appropriate circuit.

Notwithstanding the preceding sentence a petition for

review of any action referred to in such sentence may be

filed only in the United States Court of Appeals for the

District of Columbia if such action is based on a

determination of nationwide scope or effect and if in

taking such action the Administrator finds and publishes

that such action is based on such a determination. Any

petition for review under this subsection shall be filed

within sixty days from the date notice of such

promulgation, approval, or action appears in the Federal

~ So in original.

32a

Register, except that if such petition is based solely on

grounds arising after such sixticth day, then any petition

for review under this subsection shall be filed within

sixty days after such grounds arise. The filing of a

petition for reconsideration by the Administrator of any

vtherwise final rule or action shall not affect the finality

of such rule or action for purposes of judicial review nor

extend the time within which a petition for judicial

review of such rule or action under this section may be

filed, and shall not postpone the effectiveness of such

rule or action.

(2) Action of the Administrator with respect to which

review could have been obtained under paragraph (1)

shall not be subject to judicial review in civil or criminal

proceedings for enforcement. Where a final decision by

the Administrator defers performance of any

nondiscretionary statutory action to a later time, any

person may challenge the deferral pursuant to paragraph

(1).

33a

APPENDIX F

1987 CODE OF FEDERAL REGULATIONS

40 C.F.R. § 51.100 Definitions.

As used in this part, all terms not defined herein will have the

meaning given them in the Act:

(a) “Act” means the Clean Air Act (42 U.S.C. 7401 et seq., as

amended by Pub. L. 91-604, 84 Stat. 1676 Pub. L. 95-95, 91

Stat., 685 and Pub. L. 95-190, 91 Stat., 1399.)

* * * *

40 C.F.R. § 52.01 Definitions.

All terms used in this part but not defined herein shall have

the meaning given them in the Clean Air Act and in Parts 51

and 60 of this chapter.

* * * *

(d) The phrases “modification” or “modified source” mean

any physical change in, or change in the method of operation

of, a stationary source which increases the emission rate of

any pollutant for which a national standard has_ been

promulgated under Part 50 of this chapter or which results in

the emission of any such pollutant not previously emitted,

except that:

(d)(1) Routine maintenance, repair, and replacement shall not

be considered a physical change, and

(d)(2) The following shall not be considered a change in the

method of operation:

(d)(2)(1) An increase in the production rate, if such increase

does not exceed the operating design capacity of the source;

(d)(2)(11) An increase in the hours of operation;

(d)(2)(ii1) Use of an alternative fuel or raw material, if prior to

the effective date of a paragraph in this part which imposes

34a

conditions on or limits modifications, the source is designed

to accommodate such alternative use.

* * kK *

40 C.F.R. § 52.21 Prevention of significant deterioration of

air quality.

*x* * kK

(b) Definitions For the purposes of this section:

* * * *

(b)(2)(i) “Major modification” means any physical change in

or change in the method of operation of a major stationary

source that would result in a significant net emissions

increase of any pollutant subject to regulation under the Act.

(b)(2)(ii) Any net emissions increase that is significant for

volatile organic compounds shall be considered significant for

ozone.

(b)(2)(ii1) A physical change or change in the method of

operation shall not include:

(b)(2)(111)(a) Routine maintenance, repair and replacement;

(b)(2)(i11)(b) Use of an alternative fuel or raw material by

reason of an order under sections 2 (a) and (b) of the Energy

Supply and Environmental Coordination Act of 1974 (or any

superseding legislation) or by reason of a natural gas

curtailment plant pursuant to the Federal Power Act;

(b)(2)(i11)(c) Use of an alternative fuel by reason of an order

or rule under section 125 of the Act;

(b)(2)(iti)(d) Use of an alternative fuel at a steam generating

unit to the extent that the fuel is generated from municipal

solid waste;

(b)(2)(iii)(e) Use of an alternative fuel or raw material by a

stationary source which:

35a

(b)(2)(in)(e)(1) The source was capable of accommodating

before January 6, 1975, unless such change would be

prohibited under any federally enforceable permit condition

which was established after January 6, 1975 pursuant to 40

CFR 52.21 or under regulations approved pursuant to 40 CFR

Subpart | or 40 CFR 51.166; or

(b)(2)(in)(c)(2) The source is approved to use under any

permit issued under 40 CFR 52.21 or under regulations

approved pursuant to 40 CFR 51.166;

(b)(2)(i11)(f) An increase in the hours of operation or in the

production rate. unless such change would he nrohibited

under any federally enforceable permit condition which was

established after January 6, 1975, pursuant to 40 CFR 52.21

or under regulations approved pursuant to 40 CFR Subpart I

or 40 CFR 51.166.

(b)(2 )(111)(g) Any change in ownership at a stationary source.

(b)(3)(1) “Net emissions increase” means the amount by

which the sum of the following exceeds zero:

(b)(3)(1)(a) Any increase in actual emissions from a particular

physical change or change in method of operation at a

stationary source; and

(b)(3)(i)(b) Any other increases and decreases in actual

emissions at the source that are contemporaneous with the

particular change and are otherwise creditable.

(b)(3)(11) An increase or decrease in actual emissions is

contemporaneous with the increase from the particular change

only if it occurs between:

(b)(3)(11)(a) The date five years before construction on the

particular change commentees; and

(b)(3)(i1)(b) The date that the increase from the particular

change occurs.

(b)(3)(111) An increase or decrease in actual emissions is

creditable only if the Administrator has not relied on it in

36a

issuing a permit for the source under this section, which

permit is in effect when the increase in actual emissions from

the particular change occurs.

(b)(3)(iv) An increase or decrease in actual emissions of

sulfur dioxide or particulate matter which occurs before the

applicable baseline date is creditable only if it is required to

be considered in calculating the amount of maximum

allowable increases remaining available.

(b)(3)(v) An increase in actual emissions is creditable only to

the extent that the new level of actual emissions exceeds the

old level.

(b)(3){vi) A decrease in actual emissions is creditable only to

the extent that:

(b)(3)(vi)(a) The old level of actual emissions or the old level

of allowable emissions, whichever is lower, exceeds the new

level of actual emissions;

(b)(3)(vi)(b) It is federally enforceable at and after the ume

that actual construction on the particular change begins; and

(b)(3)(vi)(c) It has approximately the same qualitative signifi-

cance for public health and welfare as that attributed to the

increase from the particular change.

(b)(3)(vii) [Reserved]

(b)(3)(viii) An increase that results from a physical change at

a source occurs when the emissions unit on which con-

struction occurred becomes operational and begins to emit a

particular pollutant. Any replacement unit that requires

shakedown becomes operational only after a reasonable

shakedown period, not to exceed 180 days.

x* * * *

(b)(8) “Construction” means any physical change or change

in the method of operation (including fabrication, erection,

installation, demolition, or modification of an emissions unit)

which would result in a change in actual emissions.

37a

x * * *

(b)(21}(i) “Actual emissions” means the actual rate of emis-

sions of a pollutant from an emissions unit, as determined in

accordance with paragraphs (b)(21)(11)-(b)(21)(iv)(iv) of this

section.

(b)(21)(11) In general, actual emissions as of a particular date

shall equal the average rate. in tons per year, at which the unit

actually emitted the pollutant during a two-year period which

precedes the particular date and which is representative of

normal source operation. The Administrator shall allow the

use of a different time period upon a determination that it is

more representative of normal source operation. Actual

emissions shal] be calculated using the unit’s actual operating

hours, production rates, and types of materials processed,

stored, or combusted during the selected time period.

(b)(21)(it1) The Administrator may presume that source-

specific allowable emissions for the unit are equivalent to the

actual emissions of the unit.

(b)(21)(tv) For any emissions unit which has not begun

normal operations on the particular date, actual emissions

shall equai the potential to emit of the unit on that date.

* * kK *

(1) Review of Major Stationary Sources and Major Modifi-

cations—Source Applicability and Exemptions

(1) No stationary source or modification to which the

requirements of paragraphs (j) through (r) of this section

apply shall begin actual construction without a permit which

states that the stationary source or modification would meet

those requirements. The Administrator has authority to issue

any such permit.

(2) The requirements of paragraphs (j) through (r) of this

section shall apply to any major stationary source and any

major modification with respect to each pollutant subject to

38a

regulation under the Act that it would emit, except as this

section otherwise provides.

* * *k *

40 C.F.R. § 60.2 Definitions.

* * * *

“Modification” means any physical change in, or change in

the method of operation of, an existing facility which

increases the amount of any air pollutant (to which a standard

applies) emitted into the atmosphere by that facility or which

results in the emission of any air pollutant (to which a

standard applies) into the atmosphere not previously emitted.

* * * *

40 C.F.R. § 60.14 Modification.

(a) Except as provided under paragraphs (ec) and (f) of this

section, any physical or operational change to an existing

facility which results in an increase in the emission rate to the

atmosphere of any pollutant to which a standard applies shall

be considered a modification within the meaning of section

111 of the Act. Upon modification, an existing facility shall

become an affected facility for each pollutant to which a

standard applies amd for which there is an increase in the

emiss.2" rate to the atmosphere.

(b) Emission rate shall be expressed as kg/hr of any pollutant

discharged into the atmosphere for which a standard is

applicable. The Administrator shall use the following to

determine emission rate:

* * *k *

(ec) The following shall not, by themselves, be considered

modifications under this part:

39a

(c)(1) Maintenance, repair, and replacement which the

Administrator determines to be routine for a source category,

subject to the provisions of paragraph (c) of this section and

§ 60.15

9 ~ B

(c)(2) An increase in production rate of an existing facility, if

that increase can be accomplished without a capital expen-

diture on that facility.

(e)(3) An increase in the hours of operation.

(e)(4) Use of an alternative fuel or raw material if, prior to the

date any standard under this part becomes applicable to that

SUUILE iype, ad provided bY § GO.1, the cxisting facihty was

designed to accommodate that alternative use. A facility shall

be considered to be designed to accommodate an alternative

fuel or raw material if that use could be accomplished under

the facility’s construction specifications as amended prior to

the change. Conversion to coal required for energy

considerations, as specified in section 11](a)(8) of the Act,

shall not be considered a modification.

(e)(5) The addition or use of any system or device whose

primary function is the reduction of air pollutants, except

when an emission control system is removed or is replaced by

a system which the Administrator determines to be less

environmentally beneficial.

(c)(6) The relocation or change in ownership of an existing

facility.

(f) Special provisions set forth under an applicable subpart of

this part shall supersede any conflicting provisions of this

section.

(g) Within 180 days of the completion of any physical or

operational change subject to the control measures specified

in paragraph (a) of this section, compliance with all

applicable standards must be achieved.

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