Montana Power Co. v. E.P.A.

Decision Date16 July 1979
Docket NumberNos. 77-2521,77-2253 and 78-1140,s. 77-2521
Citation608 F.2d 334,13 ERC 1385
Parties, 9 Envtl. L. Rep. 20,667 MONTANA POWER COMPANY, a corporation, et al., Plaintiffs-Appellees, v. ENVIRONMENTAL PROTECTION AGENCY et al., Defendants-Appellants, and Northern Cheyenne Tribe and Northern Plains Resource Council, Intervenors. MONTANA POWER COMPANY, a corporation, et al., Plaintiffs-Appellees, v. ENVIRONMENTAL PROTECTION AGENCY et al., Defendants, and Northern Plains Resource Council and Northern Cheyenne Tribe, Intervenors-Appellants. The MONTANA POWER COMPANY, Washington Water Power Company, Puget Sound Power and Light Company, Portland General Electric Company and Pacific Power and Light Company, Petitioners-Appellants, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

John L. Peterson, Butte, Mont., for Montana Power Co.

Bruce J. Terris, Washington D. C. (argued), Larry G. Gutterridge, Dept. of Justice, Washington, D. C., for E. P. A.

Appeals from the United States District Court for the District of Montana.

On Petition to Review a Decision of the Environmental

Protection Agency.

Before MERRILL and WRIGHT, Circuit Judges, and SWEIGERT, District Judge. 1

EUGENE A. WRIGHT, Circuit Judge:

These consolidated cases are classic examples of the difficulties inherent in interpreting the Clean Air Act, as amended, 42 U.S.C.A. Secs. 7401, et seq. (West Supp.1978). 2 At issue is whether Montana Power and others 3 'commenced construction', under the Clean Air Act and Environmental Protection Agency (EPA) regulations, of two 750 megawatt coal-fired electric generating plants at Colstrip, Montana (Colstrip Units 3 & 4) before a grandfathering cutoff date. If so, the units are exempt from preconstruction review and permitting procedures for the 'prevention of significant deterioration' of air qualify (PSD review and permitting).

Number 77-2253 and 77-2521 are appeals by the EPA and intervenors Northern Plains Resource Council and the Northern Cheyenne Tribe (collectively called the Tribe) from the district court's declaratory judgment that Colstrip Units 3 & 4 had 'commenced construction' before June 1, 1975, within the meaning of EPA's then effective regulations and therefore were grandfathered from PSD review and permitting. Number 78-1140 is a petition by Montana Power to review the EPA's determination that, despite the district court's holding, the 1977 amendments to the Clean Air Act (1977 Amendments) subject Colstrip Units 3 & 4 to PSD review and permitting under a new and stricter definition of 'commenced construction.'

We have jurisdiction over the appeals by EPA and the Tribe under 28 U.S.C. Sec. 1291 and over Montana Power's petition under Sec. 307(b)(1) of the Clean Air Act. We reverse the judgment of the district court and affirm the EPA's determination.

I. BACKGROUND
A. The PSD Regulations.

The EPA promulgated regulations under the Clean Air Act, effective on January 6, 1975, to prevent the significant deterioration of air quality. 4 40 C.F.R. 52.21 (1975). The purpose of the regulations was to restrict the increase in levels of particulate matter and sulfur dioxide in areas with air cleaner than that required by the national ambient air quality standards. Three classes of clean air areas were designated, in which differing additional amounts of these two pollutants would be allowed over levels existing on the baseline date. 5 Increases exceeding the specified limits were prohibited.

Enforcement of the restrictions was provided through preconstruction review and permitting of specified stationary pollution sources that included electric coal-burning power plants like Colstrip Units 3 & 4. If the EPA suspected a violation of the applicable class increments would occur, it refused the source a permit and prohibited construction.

The regulations contained a grandfather clause, excluding from PSD review and permitting those sources that 'commenced construction or modification prior to June 1, 1975.' Id. at 52.21(d)(1). 'Construction' was defined as 'fabrication, erection or installation of a stationary source.' Id. at 52.21(b)(6). More important here is the definition of 'commenced', which means that

an owner or operator has undertaken a continuous program of construction or modification or that an owner or operator has entered into a contractual obligation to undertake and complete, within a reasonable time, a continuous program of construction or modification.

Id. at 52.21(b)(7). 6

If a source could establish it should be grandfathered, it might avoid additional expensive pollution control efforts. In some cases, exemption from PSD review and permitting might be the only way a source could be built in a particular location even if best available pollution control technology were used.

Before June 1, 1975, Montana Power had taken some significant preliminary steps for the construction of Colstrip Units 3 & 4. Plans for Units 1 & 2, being built in the same area planned for Units 3 & 4, included excess capacity for common facilities such as a surge pond, water intake structures, and power transmission lines to serve all four plants.

The company arranged for an environmental analysis of the Colstrip project in early 1973. It applied for a state construction permit in June under the Montana Major Facility Siting Act, Mont.Rev.Codes Ann. Sec. 70-801 et seq. (Supp.1977), and executed several contracts. 7 Due to delay in processing the permit application, Montana Power entered into no other major contracts after October 1974. The Siting Act permit was finally granted in July 1976. 8

In September 1975, the administrator of EPA's Region VIII informed Montana Power that its plans to build Colstrip Units 3 & 4 might be subject to PSD review and permitting, and requested more information about the project. The company responded in February 1976 and petitioned the EPA for a ruling on the applicability of the PSD regulations.

B. The Strelow Memoranda.

In evaluating Montana Power's request for exemption from PSD review and permitting, Region VIII's administrator relied upon two memoranda written by Roger Strelow, then EPA's Assistant Administrator for Air and Waste Management, which interpreted the phrase 'commenced construction'.

The first memorandum, dated December 18, 1975, provided in relevant part:

[T]he term 'commencement of construction' . . . refers to on-site construction. Ordinarily therefore only significant and continuous site preparation work such as major clearing or excavation or placement, assembly, or installation of unique facilities or equipment at the site should be considered a 'program of construction or modification' for purposes of Sec. 52.21(b)(7). However each case must be reviewed on its own facts.

.............................................................

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* * *

There may also be situations where, although actual on-site work has not commenced or been contracted for, the source is so irrevocably committed to a particular site that it should be considered as having commenced construction. Such situations could include sources which are only a few days or weeks from commencing on-site construction or sources which have contracted for or constructed unique site specific facilities or equipment which are not yet being installed on-site. Such situation will be rare but may be taken into account in determining whether the source is in effectively the same position as if it had commenced on-site construction.

.............................................................

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* * *

Finally, 40 CFR Sec. 52.21(b)(7) states that an owner or operator has commenced construction not only when he has undertaken a continuous program of construction or modification himself but also when he has entered into a 'contractual obligation to undertake and complete, within a reasonable time, a continuous program of construction or modification'. The question of whether a contract represents a 'contractual obligation' will depend upon the unavoidable loss that would be suffered by a source if it is required to cancel such contract. . . . [W]here the contract may be cancelled or modified at an insubstantial loss to the plant operator, the proposed source should not be allowed to escape review under these regulations. The determination of whether a source will suffer a substantial loss if the contract were terminated and therefore whether there is, in fact a 'contractual obligation', must be made on a case-by-case basis as there are no general guidelines that would cover all situations. [Emphasis added.]

The second memorandum of April 21, 1976, clarified what was necessary for a contractual obligation to qualify a source for exemption from PSD review and permitting:

[A]s a general rule, for one to qualify for the contractual exemption, he must have contracted for continuous on-site construction work. The discussion [on the 'contractual obligation' exemption in] my December 18 memo is not intended to provide exceptions to this general rule. That discussion relates to situations in which even though a 'contract' for onsite work were executed prior to June 1975, the 'contract' might still not qualify the source for an exemption [because the source would experience no substantial loss].

Accordingly, the mere fact that a source had contracted for the fabrication of a piece of equipment prior to June 1975 (i. e., placing an order for a boiler) would not ordinarily exempt the source. Only if a non-site-work contract could fit within the 'irrevocably committed' exception . . . would it qualify the source for an exemption from review. As my memo indicates, such situations should be 'rare.'

The second memorandum also stated that the absence of a state construction permit should be a 'relevant factor' in determining whether a source should be exempt from PSD review and permitting because it was irrevocably committed...

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