NSR Enforcement Cases

David Rosskam David Rosskam

U.S. Dept. of JusticeU.S. Dept. of Justice

New Source ReviewNew Source Review

Applies to new “construction” which is defined to include certain “modifications” of existing sources

“Modification” is “any physical change in, or change in method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source . . . .” Clean Air Act Section 111(a)(4), 42 U.S.C. § 7411(a)(4)

New Source Review (cont’d)New Source Review (cont’d)

Prevention of Significant Deterioration (PSD) - part of NSR - applying to areas designated as attaining National Ambient Air Quality Standards (NAAQS) or unclassified; analogous NSR provisions for non-attainment areas

Core PSD requirement: a preconstruction permit incorporating emissions limitations reflecting Best Available Control Technology (BACT).

New Source Review (cont’d)New Source Review (cont’d)For a “modified” existing source, this could mean

expensive retrofitting, e.g., FGDs (scrubbers) and selective catalytic reduction (SCR)

SIPs must contain NSR programs, 42 U.S.C. § 7410(a)(2)(C)

New Source Performance Standards (NSPS): technology-based performance standards based on best demonstrated emission reduction systems, also applicable to new and modified sources regardless of local air quality

New Source Review (cont’d)New Source Review (cont’d)Both PSD and NSPS programs have exclusion (from definition of physical or operational change) for “routine maintenance, repair, and replacement,” so “routine maintenance” is not a modification and does not trigger PSD or NSPS requirements

PSD and NSPS set forth different tests for “emissions increases” – PSD requires “significant net emissions increase” based on “actual emissions” measured in “tons per year,” 40 C.F.R. § 51.166(b)(2), (3), (21), whereas NSPS refers to emission rates measured in kilograms per hour, 40 C.F.R. § 60.14(b).

NSR Reform Rules and Court NSR Reform Rules and Court ChallengesChallengesPhase I of EPA NSR Reform: December 31, 2002 rules. Provisions for calculating emission levels before and after a facility change that make it less likely to trigger NSR; provisions to exempt certain other activities that would otherwise trigger NSR (“plant-wide applicability limit,” “pollution control project,” “clean unit”)

Phase I rules are being challenged by a group of Northeastern states and by environmental groups in Court of Appeals for the D.C. Circuit

NSR Reform Rules and Court NSR Reform Rules and Court Challenges (cont’d)Challenges (cont’d)

D.C. Circuit denied challengers’ request to stay the Phase I rules pending court review

Briefing is underway - decision could come in 2005

Industry generally supportive of Phase I with one major exception: Utility Air Regulatory Group (UARG) and other industry groups challenge PSD “emissions increase” methodology that does not require an increase in unit’s “capacity to emit”

NSR Reform Rules and Court NSR Reform Rules and Court Challenges (cont’d)Challenges (cont’d)

Phase II of EPA NSR Reform: October 27, 2003 “Equipment Replacement Provision” (ERP) rule

ERP would broaden exception for “routine maintenance, repair, and replacement” by exempting projects that cost up to 20% of unit’s replacement cost, subject to various conditions

ERP rule is being challenged by a group of Northeastern states and by environmental groups in Court of Appeals for the D.C. Circuit

NSR Reform Rules and Court NSR Reform Rules and Court Challenges (cont’d)Challenges (cont’d)

D.C. Circuit granted challengers’ request to stay the Phase II rules pending court review on December 24, 2003, so rule is not now in effect

Briefing is now on hold because EPA has reopened its rulemaking to consider and respond further to additional comments, a process that is still ongoing

Difficult to predict future course of this litigation

NSR Enforcement:NSR Enforcement:Coal Fired UtilitiesCoal Fired Utilities

Enforcement actions filed, decided, pending, and still in litigation

Settlements

Why did EPA examine the coalWhy did EPA examine the coal--fired utility sector?fired utility sector?

Increase in electric generating capacity

Increase in coal consumption

Aging of power plant fleet

Lack of permitting activity

Total U.S. 1999 SOTotal U.S. 1999 SO22 Emissions Emissions InventoryInventory

Total U.S. 1999 NOTotal U.S. 1999 NOXX Emissions Emissions InventoryInventory

Health ImpactsHealth Impacts

SO2

Affects breathing and may aggravate existing respiratory and cardiovascular disease; primary contributor to acid rain

Health ImpactsHealth Impacts

NOX

Health and environmental impacts include, ground-level ozone, acid rain, particulate matter, global warming, water quality deterioration, and visual impairment.

Health ImpactsHealth Impacts

Ozone and PMLinked with serious illnesses such as chronic bronchitis and heart attacks, and respiratory illnesses such as asthma exacerbations and, in the case of PM, premature death.

Enforcement HistoryApprox. 190 CAA 114 Information Requests issued to utilities11 Complaints Filed

American Electric Power (1999)Cinergy Corp. (1999)First Energy (1999)Illinois Power (1999)Southern Indiana Gas & Electric Company (1999)Southern Company (split into Alabama Power and Georgia Power)(1999)Tampa Electric Company (TECO) (1999)Tennessee Valley Authority (TVA) (administrative action) (1999)Duke Energy (2000)East Kentucky Power Cooperative (2004)

NSR Enforcement Status of CasesNSR Enforcement Status of Cases

EPA largely prevailed in administrative case against TVA, but its final administrative compliance order was ruled “legally inconsequential” by the Eleventh Circuit Court of Appeals on constitutional grounds. Supreme Court denied U.S. request for review.

Two cases went to trial on liability in 2003 – Ohio Edison and Illinois Power. U.S. prevailed in Ohio Edison; Illinois Power still pending. Ohio Edisonremedy trial scheduled for January 2005.

NSR Enforcement Status of CasesNSR Enforcement Status of Cases(cont’d)(cont’d)Two cases had significant pre-trial rulings that led to resolution without trial - SIGECO settled after rulings largely favorable to U.S. In Duke, parties agreed to judgment to allow for immediate appeal of rulings largely favorable to Duke.

Duke decision is on appeal to the Fourth Circuit Court of Appeals - a decision may well come in 2005.

NSR Enforcement Status of CasesNSR Enforcement Status of Cases(cont’d)(cont’d)AEP and Cinergy cases are in active litigation. AEP case is also in court-ordered mediation. Trial on liability is currently scheduled for mid-2005 in AEPand early 2006 in Cinergy.

Cases against Southern Company operating affiliates (Alabama Power, Georgia Power, Savannah Electric) were split by jurisdictional rulings, then stayed while TVA matter was on appeal. Alabama Power case has been returned to active docket this year. The court has asked for briefing on same issues that are on appeal in Duke; no trial schedule yet.

NSR Enforcement Status of CasesNSR Enforcement Status of Cases(cont’d)(cont’d)East Kentucky Power Cooperative case was filed in January 2004. The parties initially informed the court that they were exploring settlement. The court has scheduled trial for December 2005.

Excerpts from Court Rulings in NSR Enforcement Cases

Elements of Past NSR Utility Settlements

Settlements to DateSettlements to Date7 settlements, 23 facilities, 75 units

VEPCO, WEPCO, PSEG, TECO, SIGECO, Santee Cooper, ALCOA (industrial boiler)

SO2 estimated annual reductions of 446,000 tons

NOx estimated annual reductions of 214,000 tons

Civil penalties = $17.5 million

Environmental Projects = $60.4 million

Significant Reduction of PM Emissions

Settlements: Components for Settlements: Components for SystemSystem--Wide SettlementsWide Settlements

State-of-the-Art Pollution Controls on 70% of the System-Wide Coal-Fired Megawattage

90% NOx Reduction (i.e. Selective Catalytic Reduction); 95% SO2 Reduction (i.e. Scrubbers);Retirement; orRepowering

Declining System-Wide Tonnage Caps and Rates SO2 Allowances and NOX Trading Used Only Within System; Excess Allowances Surrendered as a General Matter

Components of Settlements (cont.)Components of Settlements (cont.)PM

Meet NSPS rate of 0.030 lb/mmBtu at all units or elect to undergo BACT-Lite process

Immediate optimization of PM pollution controls

PM CEMs (on 50% of units)

Timeframes

Hardware in place before December 31, 2012

NSR repose for future operations until 2015

Settlement FeaturesSettlement FeaturesGuaranteed court-order emission reductions to be incorporated into Federally enforceable operating permits

Year-round operation of technology (not required by trading programs)

Installation of proven state-of-the-art hardware

Upgrade of existing controls to state-of-the-art levels

SO2 allowance surrenders

NOx credits trading limitations

NONOxx Reductions from Final Reductions from Final SettlementsSettlements

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Reduction of NOx Emissions from PSEG Agreement

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Reduction of NOx Emissions from TECO Agreement

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Reduction of NOx Emissions from VEPCo Agreement

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Anticipated Santee Cooper NOx Emission Reductions from Existing Units

NONOXX Reductions from Final Reductions from Final Settlements (cont.)Settlements (cont.)

SOSO22 Reductions from Final Reductions from Final SettlementsSettlements

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Reduction of SO2 Emissions From PSEG Agreement

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Reduction of SO2 Emissions From TECO Agreement

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Anticipated Santee Cooper SO2 Emission Reductions from Existing Units

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Reduction of SO2 Emissions From VEPCo Agreement

SOSO22 Reductions from Final Reductions from Final Settlements (cont.)Settlements (cont.)

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Anticipated SIGECO Culley SO2 Emissions