Wisconsin Elec. Power Co. v. Reilly

• Decision Date: 03 April 1990
• Docket Number: Nos. 88-3264,89-1339,s. 88-3264
• Citation: 893 F.2d 901
• Parties: , 58 USLW 2463, 20 Envtl. L. Rep. 20,414 WISCONSIN ELECTRIC POWER COMPANY, Petitioner, v. William K. REILLY, Administrator and United States Environmental Protection Agency, Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 901

893 F.2d 901

30 ERC 1889, 58 USLW 2463, 20 Envtl.

L. Rep. 20,414

WISCONSIN ELECTRIC POWER COMPANY, Petitioner, v. William K. REILLY, Administrator and United States Environmental Protection Agency, Respondents.

Nos. 88-3264, 89-1339.

United States Court of Appeals Seventh Circuit.

Argued Sept. 15, 1989.

Decided Jan. 19, 1990.

As Amended on Denial of Rehearing and Rehearing En Banc April 3, 1990.

Henry V. Nickel (argued), Mel S. Schulze, Hunton & Williams, Washington, D.C., Walter T. Woelfle, Milwaukee, Wis., for petitioner.

Richard L. Thornburg, U.S. Atty. Gen., Washington, D.C., Eileen T. McDonough, Dept. of Justice, Land & Natural Resources Div., Washington, D.C., Deborah D. Djeu, Gregory B. Foote, Environmental Protection Agency (argue), Chicago, Ill., Lawrence J. Jensen, Environmental Protection Agency, Washington, D.C., Michael A. McCord, Dept. of Justice, Land & Natural Resources Div., Washington, D.C., for respondents.

David G. Walsh, Foley & Lardner, Madison, Wis., for Wisconsin Utilities Ass'n, Inc., amicus curiae.

F. William Brownell, Norman W. Fichthorn, Hunton & Williams, Washington, D.C., for Alabama Power Co., amicus curiae.

Jeffrey S. Holik, Baker & Hostetler, Washington, D.C., for Aluminum Ass'n, Inc., amicus curiae.

Barton C. Green, Washington, D.C., for American Iron and Steel Institute, amicus curiae.

G. William Frick, Washington, D.C., for American Petroleum Institute, amicus curiae.

William E. Hynan, Washington, D.C., for National Coal Ass'n, amicus curiae.

Edward P. Giblin, Jr., Gaithersburg, Md., for Bechtel Power Corp., amicus curiae.

Paul J. Lambert, Bingham, Dana & Gould, Washington, D.C., for General Elec. Credit Corp., amicus curiae.

Carol L. Dalcanton, Pittsburgh, Pa., for Westinghouse Elec. Corp., amicus curiae.

Russell S. Frye, Chadbourne & Parke, Matthew B. VanHook, Washington, D.C., for American Paper Institute, Inc., amicus curiae.

Before CUDAHY and FLAUM, Circuit Judges, and GRANT, Senior District Judge. ^*

CUDAHY, Circuit Judge.

The Petitioner, Wisconsin Electric Power Company ("WEPCO"), challenges two final determinations issued by the Environmental Protection Agency (the "EPA"). In these determinations, the EPA concluded that WEPCO's proposed renovations to its Port Washington power plant would subject the plant to certain pollution control provisions of the Clean Air Act, as amended, 42 U.S.C. Secs. 7401 et seq. (1982). We affirm in part, vacate in part and remand to the EPA.

I. The Underlying Dispute

A. Relevant Provisions of the Clean Air Act

Some discussion of the Clean Air Act is required before turning to the merits of this case. In 1970, Congress enacted the Clean Air Act Amendments, Pub.L. No. 91-604, 84 Stat. 1676, to establish minimum air quality standards that would regulate the emission of certain pollutants into the atmosphere. To this end, Congress instructed the EPA to develop National Ambient Air Quality Standards ("NAAQS") that would specify the maximum permissible concentration of air pollutants in different areas across the country.

In section 111 of the 1970 Amendments, Congress required the EPA to promulgate New Source Performance Standards ("NSPS") in order to regulate the emission of air pollutants from new sources. These standards addressed hourly rates of emission and, in addition to new sources, applied to modifications of existing facilities that created new or increased pollution. Indeed, section 111(a)(2) of the Act stated that NSPS would apply to

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.

42 U.S.C. Sec. 7411(a)(2) (emphasis supplied). Congress then defined "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. Sec. 7411(a)(4) (emphasis supplied).

Subsequently, faced with only varying degrees of success in controlling pollution in different parts of the country, Congress enacted the Clean Air Act Amendments of 1977, Pub.L. No. 95-95, 91 Stat. 685 (codified at 42 U.S.C. Secs. 7401-7642 (1982)). Congress revised the NSPS so that regulated sources of pollution would have to use "the best system of continuous emission reduction which (taking into consideration the costs of achieving such emission reduction, and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated...." 42 U.S.C. Sec. 7411(a)(1)(C). In addition, Congress added a program for the Prevention of Significant Deterioration ("PSD"), concerned with increases in total annual emissions, to ensure that operators of regulated sources in relatively unpolluted areas would not allow a decline of air quality to the minimum level permitted by NAAQS. Air quality is preserved in this program by requiring sources to limit their emissions to a "baseline rate"; regulated owners or operators in areas that have attained NAAQS must obtain a permit before constructing or modifying facilities. 42 U.S.C. Sec. 7475(a)(1). Congress also essentially adopted its NSPS definition of "modification" for the PSD program. 42 U.S.C. Sec. 7479(2)(C).

From this statutory framework, the EPA promulgated regulations for both the NSPS and PSD programs. In this case, its regulations concerning modifications are central. The EPA defines "modification" in substantially the same terms used by Congress:

[A]ny 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 [42 U.S.C. Sec. 7411] of the Act.

40 C.F.R. Sec. 60.14(a) (1988). To determine whether a physical change constitutes a modification for purposes of NSPS, the EPA must determine whether the change increases the facility's hourly rate of emission. 40 C.F.R. Sec. 60.14 (1988). For PSD purposes, current EPA regulations provide that an increase in the total amount of emissions activates the modification provisions of the regulations. 40 C.F.R. Sec. 52.21(b)(3) (1988).

Even at first blush, the potential reach of these modification provisions is apparent: the most trivial activities--the replacement of leaky pipes, for example--may trigger the modification provisions if the change results in an increase in the emissions of a facility. As a result, the EPA promulgated specific exceptions to the modification provisions:

The following shall not, by themselves, be considered modifications under this part:

(1) Maintenance, repair, and replacement which the Administrator determines to be routine for a source category ...

(2) An increase in production rate of an existing facility, if that increase can be accomplished without a capital expenditure on that facility.

(3) An increase in the hours of operation....

40 C.F.R. Sec. 60.14(e) (1988) (NSPS program); see 40 C.F.R. Sec. 52.21(b)(2)(iii) (1988) (PSD program). These regulations (and the statutes from which they derive) are the focal point of this case.

B. WEPCO's Proposed Life-Extension Project

WEPCO's Port Washington electric power plant is located on Lake Michigan north of Milwaukee, Wisconsin. The plant consists of five coal-fired steam generating units that were placed in operation between 1935 and 1950. Each generating unit has a design capacity of 80 megawatts, but the recent performance of some of the units has declined due to age-related deterioration of the physical plant.

WEPCO and its consultant, Bechtel Eastern Power Corporation, conducted a Plant Availability Study in 1983 to examine and assess the condition of the power plant. As a result of the Study, WEPCO concluded "that extensive renovation of the five units and the plant common facilities is needed if operation of the plant is to be continued." Letter from Thomas J. Cassidy, Executive Vice President of WEPCO, to Jacqueline K. Reynolds, Secretary to the Public Service Commission of Wisconsin, at 2 (July 8, 1987) [Cassidy Letter] (emphasis supplied). The Study noted that the air heaters on the first four units had deteriorated severely, while the rear steam drums in units 2 through 5 had experienced serious cracking. ¹ Air heater deterioration prevented units 1 and 4 from operating at full capacity, while the potential for steam drum blowout required a reduction in pressure (and output) in units 2 and 3. The possibility of catastrophic failure (steam drum blowout) in unit 5 was so great that WEPCO shut down the unit completely.

As a result of this Study, WEPCO submitted a proposed replacement program (which it termed a "life extension" project) to the Wisconsin Public Service Commission for its approval, as required by state law. Wis.Stat. Sec. 196.49 (1987). WEPCO explained in its proposal that "[r]enovation is necessary to allow the Port Washington units to operate beyond their currently planned retirement dates of 1992 (units 1 and 2) and 1999 (units 3, 4 and 5) ... [and that renovation would render the plant] capable of generating at its designed capability until year 2010...." Cassidy Letter at 1-2. Among the renovations required were repair and replacement of the turbine-generators, boilers, mechanical and electrical auxiliaries and the common plant support facilities. Id. at 1. After preliminary review of the program, the Public Service Commission consulted the Wisconsin Department of Natural Resources (which then consulted EPA Region V) to determine whether WEPCO needed to obtain a PSD permit before commencing the repair and replacement program. David Kee, the Director of EPA Region V's Air and Radiation Division, then referred the matter to...