United States v. DTE Energy Co.

• Decision Date: 28 March 2013
• Docket Number: No. 11–2328.,11–2328.
• Citation: 711 F.3d 643
• Parties: UNITED STATES of America, Plaintiff–Appellant, v. DTE ENERGY COMPANY; Detroit Edison Company, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

711 F.3d 643

UNITED STATES of America, Plaintiff–Appellant,

v.DTE ENERGY COMPANY; Detroit Edison Company, Defendants–Appellees.

No. 11–2328.

United States Court of Appeals,Sixth Circuit.

Argued: Nov. 27, 2012.

Decided and Filed: March 28, 2013.

ARGUED:Thomas A. Benson, United States Department of Justice, Washington, D.C., for Appellant. F. William Brownell, Hunton & Williams LLP, Washington, D.C., for Appellees. ON BRIEF:Thomas A. Benson, Sambhav N. Sankar, United States Department of Justice, Washington, D.C., for Appellant. F. William Brownell, Mark B. Bierbower, Makram B. Jaber, Hunton & Williams LLP, Washington, D.C., Harry M. Johnson III, George P. Sibley III, Hunton & Williams LLP, Richmond, Virginia, Michael J. Solo, DTE Energy Company, Detroit, Michigan, for Appellees. William L. Wehrum, Hunton & Williams LLP, Washington, D.C., Jessie J. Rossman, Natural Resources Defense Council, Chicago, Illinois, for Amici Curiae.

Before: BATCHELDER, Chief Judge; DAUGHTREY and ROGERS, Circuit Judges.

ROGERS, J., delivered the opinion of the court, in which DAUGHTREY, J., joined. BATCHELDER, C.J. (pp. 652–53), delivered a separate dissenting opinion.

OPINION

ROGERS, Circuit Judge.

Environmental Protection Agency regulations implementing the Clean Air Act require owners and operators of any major pollutant emitting source who plan construction projects at the source to make a preconstruction projection of whether and to what extent emissions from the source will increase following construction. That projection determines whether the project constitutes a “major modification” and thus requires a permit. This appeal raises a single question: can EPA challenge that projection before there is post-construction data to prove or disprove it? The district court held that it cannot and granted summary judgment to defendants DTE Energy and Detroit Edison. While the regulations allow operators to undertake projects without having EPA second-guess their projections, EPA is not categorically prevented from challenging even blatant violations of its regulations until long after modifications are made. The district court's sweeping reading of the regulations to that effect is at odds with the Clean Air Act. It is therefore necessary to reverse and remand.

I.

A.

The 1977 Amendments to the Clean Air Act created a program titled New Source Review.¹ New Source Review forbids the construction of new sources of air pollution without a permit. 42 U.S.C. § 7475. In order to achieve the act's goals of “a proper balance between environmental controls and economic growth,” sources already in existence when the program was implemented do not have to obtain a permit unless and until they are modified. New York v. EPA, 413 F.3d 3, 13 (D.C.Cir.2005) (quoting 123 Cong. Rec. 27,076 (1977) (statement of Rep. Waxman)). Congress defined a 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(a)(4). EPA requires owners or operators ² of sources to obtain permits if they plan a “major modification.” A source is anything that has the potential to emit large quantities of a regulated pollutant. A major modification is “any physical change in or change in the method of operation of a major stationary source that would result in: a significant emissions increase ... of a regulated [New Source Review] pollutant ... and a significant net emissions increase of that pollutant from the major stationary source.” 40 C.F.R. § 52.21(b)(2)(i). To determine whether an emissions increase is significant, an operator consults a chart included in the regulation. For example, an increase of forty tons per year of nitrogen oxides or sulfur dioxide is significant. See id. § 52.21(b)(23)(i). If the emissions increase is significant, the operator must obtain a permit. The permit would require the facility to use “best available control technology” for each regulated pollutant.³42 U.S.C. § 7475(a)(4). For grandfathered sources, installing this technology generally leads to a drastic decrease in emissions, even when compared to the preconstruction baseline, at great expense for the operator.

In order to determine whether a proposed change would cause a significant emissions increase, and thus require a permit, an operator must project post-change emissions. Before 1992, EPA required operators to use a test called the “actual-to-potential test.” That test requires operators to determine the maximum potential emissions of the source after the change and compare them to current emissions. If the difference is “significant,” as defined by the chart, the change is considered a major modification. 40 C.F.R. § 52.21(a)(2)(iv)(d). However, the Seventh Circuit struck down that test as a requirement for power plants in Wisconsin Electric Power Co. v. Reilly, holding that it improperly relies on an assumption of continuous operations. 893 F.2d 901, 917 (7th Cir.1990). Accordingly, EPA instituted a new test for power plants in 1992. The new test, called the “actual-to-future-actual” test, required operators to project the source's actual, instead of potential, emissions after the change. See57 Fed. Reg. 32,314 (July 21, 1992). To ensure that the operators did not deliberately underestimate emissions to avoid the permit requirement, EPA required sources using this test to track their emissions for five years and provide to the reviewing authority, generally a state environmental agency, information demonstrating that the change did not result in an emissions increase. Id. at 32,325. Because the modification must be the cause of the emissions increase to qualify as a major modification, EPA allowed utilities to exclude from their calculations any increase in emissions caused by an independent factor. Id. at 32,326. Since the most common independent factor is growth in demand for electricity, the exclusion is called the “demand growth exclusion.” For the demand growth exclusion to apply, however, the pre-change source must have been able to accommodate the projected demand growth physically and legally. EPA noted that whether the exclusion applies “is a fact-dependent determination that must be resolved on a case-by-case basis.” Id. at 32,327.

In 2002, EPA made more changes to the rule. EPA restored uniformity between utility and non-utility sources by allowing both to use an “actual-to-projected-actual” test. 67 Fed. Reg. 80,186, 80,191 (Dec. 31, 2002). EPA called this test “a sensible refinement of the rules [EPA] promulgated in 1992.” Id. at 80,192. EPA noted that, for utilities, “[t]he effect of this consolidation is [to] make minor changes to the existing procedures.” Id. One of these changes was that an operator “need only make and report a projection ... when there is a reasonable possibility that the given project may result in a significant emissions increase.” Id. However, utilities projecting post-change emissions of any kind would still have to submit their projections and post-construction tracked emissions to their reviewing authority. EPA stated that the changed recordkeeping and reporting requirements would allow reviewing authorities to assure that any changes sources make are consistent with Clean Air Act requirements. See id.

A number of states and environmental groups challenged the 2002 rule changes. The D.C. Circuit upheld most of the rule changes. However, the D.C. Circuit was not satisfied with the changes to the recordkeeping requirements. The court stated that “EPA has failed to explain how, absent recordkeeping, it will be able to determine whether sources have accurately concluded that they have no ‘reasonable possibility’ of significantly increased emissions.” New York, 413 F.3d at 34. The court further noted that sources could take advantage of the reasonable possibility standard to avoid recordkeeping altogether, thus thwarting EPA's ability to enforce the New Source Review provisions. Id. EPA argued that the methodology was enforceable because EPA has inherent enforcement authority allowing it to conduct inspections and request information. The D.C. Circuit acknowledged that EPA has such inherent enforcement authority, but noted that “even inherent authority depends on evidence.” Id. at 35. The D.C. Circuit remanded to EPA to either provide an acceptable explanation for its reasonable possibility standard or to devise an appropriately supported alternative. Id. at 35–36.

EPA completed the remand rulemaking in 2007 by producing the set of regulations that govern this case. EPA answered the D.C. Circuit's concerns by defining the term “reasonable possibility.” There is a reasonable possibility that a project that is not a major modification may result in a significant emissions increase if the operator projects, after applying the demand growth exclusion, an actual emissions increase of at least fifty percent of what the chart defines as significant. 40 C.F.R. § 52.21(r)(6)(vi)(a). An operator making such a projection must report it to the relevant reviewing authority. Id. § 52.21(r)(6)(ii). Furthermore, the operator must monitor the source's emissions for at least five—and in some cases ten—years after resuming normal operations and must report its findings to the reviewing authority. Id. § 52.21(r)(6)(iii)-(iv). If the operator projects an actual emissions increase of less than fifty percent of what is significant, it must remove the demand growth exclusion from its projections. If, ignoring the exclusion, the projected emissions increase then becomes at least fifty percent of what is significant, the source also falls under the recordkeeping requirement. Id. § 52.21(r)(6)(vi)(b). However, such a source does not fall under either the monitoring or reporting requirements described above. Id.

Therefore, under the current regulations,...