The Regional Air Pollution Control Agency

Duke Energy Case

Regulatory Background
The Clean Air Act of 1970 directed the U.S. EPA to establish National Ambient Air Qualtiy Standards (NAAQS) to "protect and enhance the quality of the Nation's air resources". As a result, U.S. EPA established maximum concentrations of certain air pollutants and required each State to design a State Implementation Plan (SIP) to comply with these standards.

To help attain and maintain these air quality standards, the U.S. EPA began promulgating New Source Performance Standards (NSPS) for newly constructed and modified sources of pollution at power plants. Under the NSPS provisions, Congress defined "modification" as "any physical change in, or change in the method of operation of, a stationary source or which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previoulsy emitted". In 1975, EPA elaborated on this definition and defined modification by reference to an increase in the hourly emission rate (Kg/hour).

After a lawsuit in 1972, the U.S. District Court for the District of Columbia issued a preliminary injuction directing the U.S. EPA to promulgate regulations to supplement the NSPS program and protect air quality from deterioration in areas that had met or exceeded the relevent ambient air quality standards. In 1977, Congress enacted a Prevention of Significant Destruction (PSD) in the Clean Air Act Amendents of 1977. Under the PSD program, preconstruction review and permit requirements on new or modified sources in areas that have attained or exceeded their air quality standards were required to determine if modifications would result in a increased emissions. While NSPS focuses on specific technology to control pollution, PSD focuses on net emissions increase as a result of any physical change in or change in operation of a major stationary source. PSD regulations measure emissions increases relative to baseline calculations of "actual emissions" (the average rate, in tons per, year, at which the unit actually emitted) using actual operating hours, production rates, and types of material processed, stored, or combusted during a selected time period prior to modification.

Case Background
Duke Energy Corp. (Duke) operates eight plants in North and South Carolina that include 30 coal-fired generating units what were placed in service between 1940 and 1975. Between 1988 and 2000, as part of a plant modernization program, Duke performed 29 projects consisting of replacing and/or redesigning one or more of the boiler tube assemblies that would allow both extended life and increases in daily hours of operation. Duke did not apply for or acquire new permits from the U.S. EPA for these projects.

In late 2000, at the direction of the Administrator of the EPA, the Attorney General brought an enforcement action against Duke, alleging that the life-extension project violated the Clean Air Act's PSD provisions. In 2001, Environemntal Defense, the North Carolina Sierra Club, and the North Carolina Public Interest Research Group Citizen Lobby/Education Fund was granted leave to intervene as plantiffs and these groups filed a complaint against Duke alleging similar violations.

U.S. EPA and the plaintiffs argued that these life-extension projects constitue "major modications" as defined in the PSD provisions and enabled the units to operate for more hours and lead to an increase in actual annual emissions. Duke contested that the projects do not constitute modifications subject to PSD because they did not increase the units' hourly emissions rates and therefore did not have to obtain permits.

The federal district court for the middle district of North Carolina granted summary judgment for Duke Energy and a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit unanimously affirmed the lower court’s ruling on June 15, 2005, and held that a modification subject to PSD exits only if there is a post-project increase in the hourly rate of emissions from a unit.

Nine days later, the U.S. Court of Appeals in Washington, DC reached a contrary result in reviewing industry challenges to national new source review (NSR) rules and the Fourth Circuit subsequently denied the U.S. EPA's and Environmental Defense’s request for rehearing.

In late 2005, Environmental Defense petitioned the Supreme Court to hear the case and on May 15, 2006, the Supreme Court granted a writ of certiorari. The case was added to the Supreme Court's fall calendar and oral arguments were heard on November 1st. An opinion is expected within a year after the oral arguments were heard.

The two questions the Supreme Court will be ruling are the following:

Whether the 4th Circuit's decision violated Section 307(b) of the Act, which provides that national Clean Air Act regulations are subject to challenge "only" in the D.C. Circuit by petition for review filed within 60 days of their promulation, and "shall not be subject to judicial review" in enforcement proceedings, 42 U.S.C. 7607(b); and
Whether the Act's definition of "modification, " which turns on whether there is an "increase" in emissions and which applies to both the NSPS and PSD programs, rendered unlawful EPA's longstanding regulatory test defining PSD "increases" by reference to actual, annual emisions.