Sierra Pacific Power Co. v. U.S. E.P.A., s. 79-7542
| Decision Date | 05 June 1981 |
| Docket Number | Nos. 79-7542,80-7301,s. 79-7542 |
| Citation | 647 F.2d 60 |
| Parties | , 11 Envtl. L. Rep. 20,671 SIERRA PACIFIC POWER COMPANY and Idaho Power Company, Petitioners, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, Respondent. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Tom Watson, Crowell & Moring, Washington, D. C., argued for petitioners.
Earl Salo, EPA, Washington, D. C., argued, Angus Macbeth, Washington, D. C., on brief, for respondent.
On Petition for Review of Final Action of the Environmental Protection agency.
Before DUNIWAY, Senior Circuit Judge, BOOCHEVER, Circuit Judge, and TAYLOR, * Senior District Judge.
This case involves the applicability of the anti-pollution requirements of the Clean Air Act, section 111 (42 U.S.C. § 7411), and the regulations promulgated under that section. Sierra Pacific Power Company and Idaho Power Company appeal Environmental Protection Agency (EPA) decisions holding that Unit 2 of their coal-fired power plant must conform to the stringent anti-pollution regulations promulgated by the EPA in 1978. The power companies argue that they had "commenced construction" of Unit 2 prior to September 19, 1978, and are therefore exempt from proposed standards promulgated on that date. The EPA interpreted its regulations to require actual physical construction of or a binding construction contract for Unit 2, independent of Unit 1, prior to the relevant regulatory date, and refused to consider planning and design activity. Because the EPA did not abuse its discretion in so interpreting its regulations, we affirm.
Sierra Pacific Power Company and Idaho Power Company (Sierra Pacific) are jointly constructing 1 a coal-fired electric power plant at North Valmy Station in Humboldt County, Nevada. The plant consists of two boilers (Unit 1 and Unit 2) which are located at the same site and share common equipment. In two separate decisions, the EPA determined that Sierra Pacific had not "commenced construction" on Unit 2 before September 19, 1978, the date the EPA proposed new, more restrictive regulations. The EPA therefore determined that Sierra Pacific would have to meet the more stringent air pollution equipment requirements contained in the proposed regulations. Unit 1 is exempt from the 1978 regulations because construction of that unit was commenced prior to September 19, 1978. Sierra Pacific has appealed the Unit 2 EPA determinations directly to this court pursuant to 42 U.S.C. § 7607(b)(1). 2
In 1970, Congress extensively amended the Clean Air Act of 1955, for the first time enacting a comprehensive program to combat air pollution at both the state and federal level. Pub.L.No. 91-604, 84 Stat. 1676 (1970). Section 111 of the Act authorized the EPA to issue regulations for new stationary sources of air pollution, which would include such facilities as power plants. In 1971, the EPA issued "new source performance standards" for coal-fired power plants such as Sierra Pacific's, requiring the use of either a high-grade (low sulfur) type of coal, or the installation of flue gas desulfurization equipment, commonly called "scrubbers." 3 36 Fed.Reg. 24876 (Dec. 23, 1971). Both units of Sierra Pacific's proposed plant were originally designed to meet these requirements by burning high-grade coal, and did not contemplate scrubbers.
In 1977, Congress amended section 111 of the Clean Air Act and directed the EPA to issue regulations requiring new pollution sources to use the best adequately demonstrated technology available. Pub.L.No. 95-95 § 109, 91 Stat. 685 (1977). See H.R.Rep.No. 1175, 94th Cong., 2d Sess. 156-59 (1976). Section 111 now provides in part that "(a)ny new or modified fossil fuel fired stationary source which commences construction prior to the date of publication of the proposed revised standards shall not be required to comply with such revised standards." 42 U.S.C. § 7411(b)(6) (emphasis added). On September 19, 1978, the EPA published the proposed revised standards, 4 which, in effect, required scrubbers on all coal-fired power plants above a certain size. 43 Fed.Reg. 42154 et seq. (1978); 40 C.F.R. § 60.40a (1980). Because Sierra Pacific had entered into a binding construction contract for Unit 1 prior to September 19, 1978, this unit is exempt from the new regulations. The issue in this case is whether Sierra Pacific "commenced construction" on Unit 2 prior to September 19, 1978. If not, the company will be forced to install a scrubber on Unit 2.
Sierra Pacific initially began planning the North Valmy power plant in 1974. There is no dispute that the company planned to build both units from the very beginning. In 1975 its Board of Directors authorized construction of both units. On February 17, 1976, Sierra Pacific contracted with Babcock and Wilcox to purchase and construct the boiler for Unit 1. Sierra Pacific had an option for the purchase and construction of the Unit 2 boiler which it never exercised. Also in 1976, Sierra Pacific prepared an environmental report which it filed with the State of Nevada. The company received certification from Nevada for the entire project in several stages in late 1976 and 1977. On December 19, 1977, it received a permit for physical, on-site construction of Unit 1 and some common facilities for both units from the Nevada Public Service Commission. Nevada Utility Environmental Protection Act, Nev.Rev.Stat. § 704.865. The state advised Sierra Pacific that it should apply for the Unit 2 permit after determination of the role Unit 2 was to play in the company's overall load and supply program.
On April 4, 1978, the EPA issued a "prevention of significant deterioration" permit for the entire project as it was then planned, which did not include scrubbers. Issuance of such a permit merely indicates that the EPA believes the plant will not result in significant deterioration of the ambient air quality; the permit does not excuse compliance with the new source pollution standards of 40 C.F.R. Part 60. 5 On September 12, 1978, Sierra Pacific appeared before the Nevada State Environmental Commission requesting a one-year extension on the expiration date for its Unit 2 construction certificate. A company representative, Mr. Saibini, told the Commission that "only preliminary design work has been done on the (Unit 2) boiler" because the company had been unable to enter into a binding contractual commitment. The request for an extension was granted, and the Unit 2 permit was finally issued on March 26, 1979. Therefore, on September 18, 1978, the last day to "commence construction," the company had an on-site construction permit for Unit 1, but by its own statements was not ready to complete its application for a permit or begin actual construction on Unit 2. On April 11, 1979, Sierra Pacific contracted with the Foster Wheeler Company for the purchase of the Unit 2 boiler.
The company notified Region IX of the EPA that actual construction commenced on Unit 1 and some of the common facilities on September 11, 1978. At this time, then, approximately a week before the EPA proposed its new regulations, the company had received all necessary state air quality permits and its federal prevention of significant deterioration permit, and had begun design and engineering work for both units. Significantly though, the company had not yet entered into a boiler contract, received on-site construction permits, or begun actual construction on Unit 2. The company was aware that Unit 2 might be governed by the 1978 regulations, and therefore requested an EPA determination on the matter.
On April 4, 1979, in response to Sierra Pacific's request, the Nevada regional office of the EPA informed the company that Unit 2 was covered by the new regulations because the company had not entered into either a binding construction contract or a continuous program of construction. The company appealed this decision to EPA headquarters in Washington. Pending a final determination, Sierra Pacific officials met with the EPA and submitted cost information indicating its losses if the new source performance standards compliance was required. It hoped that this information would show a continuous program of construction. Sierra Pacific's "lost investments" included: (1) design and engineering costs, (2) capital costs, (3) premium coal contracts, (4) environmental studies, and (5) costs incurred by delayed construction. These costs allegedly totaled over $35 million. 6
On August 24, 1979, the EPA issued a "final determination" requiring Sierra Pacific to comply with the 1978 regulations for Unit 2. This determination carefully analyzed each of the company's claimed expenses and found that most of the costs were merely costs of compliance, and were not increased by any forced changes in its existing construction plans. In addition, the EPA found that some of the increased expense was de minimis in relation to the overall project cost. Due to confusion over the appropriate jurisdictional forum, Sierra Pacific challenged this determination in both the federal district and circuit courts. 7
On May 23, 1980, before any substantive action in either federal court, the EPA issued a revised determination which revoked and replaced the 1979 determination. Based on different grounds, the new determination reached the same result, namely that Sierra Pacific must comply with the new regulations for Unit 2. In the later opinion the EPA rejected use of the "lost investments" test. It stated that none of the lost investments were directly related to the "fabrication, erection, or installation" of the boiler for Unit 2, and therefore the investments were inappropriately considered in the first EPA determination. 40 C.F.R. § 60.2(g). The EPA interpreted its regulations to require either a contract or...
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