UPDATE ON NSR American Public Power Association’s Energy and Air Quality Task Force

1. UPDATE ON NSRAmerican Public Power Association’sEnergy and Air Quality Task Force Leslie Sue Ritts, Ritts Law Group, PLLC Washington, DC October 11, 2011

2. Topics To Cover • Why We Hate NSR • EPA NSR Investigations and Enforcement • Sierra Club National Beyond Coal Campaign • NSR Regulatory or Legislative Relief • Add Additional Topics?

3. Background – The Regulations As Justice Souter observed for the U.S. Supreme Court, “While it would be bold to try to synthesize (NSR ) in a concise paragraph, three points are relatively clear about the (NSR) regime – • (a)    The Act defines modification of a stationary source of a pollutant as a physical change to it, or a change in the method of its operation, that increases the amount of a pollutant discharged or emits a new one. • (b)    EPA’s NSPS regulations require a source to use the best available pollution-limiting technology only when a modification would increase the rate of discharge of pollutants measured in kilograms per hour. • (c)    EPA’s 1980 PSD regulations require a permit for a modification (with the same statutory definition) only when it is a major one and only when it would increase the actual annual emission of a pollutant above the actual average for the two prior years.” EDF v. Duke Energy (2007)

4. 10 Top Reasons To Hate NSR (10) NSR affects new sources and projects at existing plants. (9) NSR requires a “pre-construction” permit and it can take 5 years to get one. (8) There are myriad opportunities for EPA, the public, or national NGOs to oppose a project once a a state issues a proposed draft permit. There’s a NYPIRG book about how to do it that EPA paid for. (7) To get a permit, operators have to install BACT or LAER on new equipment which often “kills” proposed projects still on the drawing table. (6) EPA and the States can’t figure out who is in charge of permitting and BACT determinations. (5) It is almost impossible to permit a coal-burning plant any more. (4) Title V permits offer interested parties the opportunity to collaterally attack whether a plant should have gotten an NSR permit 10 years ago. (3) The U.S. Treasury receives many millions in civil penalties from NSR enforcement settlements. (2) Sometimes you have to settle enforcement actions even though no NSR violations occurred just to move forward.

5. And the #1 Reason to Hate NSR Mayor Blumberg just gave the Sierra Club another $50 million to sue utilities for historic NSR violations as part of Sierra Club’s “Beyond Coal” Campaign. http://beyondcoal.org/ http://www.sierraclub.org/sierra/200903/kingcoal.aspx

6. Why PSD/NSR is Confusing for Operators • The Federal Code • Thirty years of NSR Determinations • Additional Random EPA Guidance Not All of Which is Published in Any One Place • The Separation Between the Offices of Air and Enforcement and Compliance at EPA

7. Congressional Review • Since 1979 Congress has conducted oversight of the NSR program periodically but has refused to amend the program: • When it overhauled the Clean Air Act in 1990, Chairman Dingell refused to touch PSD or NSR; but Congress did add citizen suit provisions to allow members of the public to pursue plants for alleged NSR violations • Several opportunities over the last decade to weigh in on EPA’s enforcement of the program, particularly with regard to agency “flip flops” on importance guidance like what the exclusion for routine maintenance is ---- • Several efforts to grant companies “amnesty” for past violation and put them on a “glide path” for new controls.

8. NSR Investigations & Enforcement • U.S. EPA has been filing Clean Air Act enforcement actions since 1999 against electric utilities and other industries. • Original enforcement policies were driven by a desire for NOx reduction without rulemaking. • While hugely significant in terms of manpower, NSR enforcement has led to more emission reductions than regulations at many facilities. 177,000 tons per year in combined NOx and SO2 reductions from cases in which the companies have settled, plus an additional 591,000 tons per year in combined NOx and SO2 reductions from companies that have reached and publicly announced an agreement in principle with the government. $ 52.4 million spent for environmental mitigation projects for cases settled or that have publicly announced agreements in principle. http://www.epa.gov/compliance/civil/caa/caaenfenvresults.html#stationary • Having sued most of the investor-owned utilities and several large public systems and co-ops, EPA began investigating municipally-operated utilities and electric “co-ops” in 2009. • The Region 5 NSR Enforcement Initiative Involves 58 municipally owned utilities. • EPA Headquarters has essentially wrested “decision-making” from Region al Counsel • Sierra Club also has a national coal campaign that is designed to use the threat of NSR enforcement as a means of getting utilities to reduce burning coal.

9. Sierra Club and Other NGO Cases • Sierra Club, Wild Earth Guardians, State Public Interest Research Groups, Bucket Brigade, GASP, Tulane University. • Active in Nearly Every State • Frequently Involve University Activists such as University of Wisconsin Plants, Iowa State University at Ames, University of Minnesota, Purdue • Pursued as (1) State Open Records Investigations and/or (2) Opposition to Title V Permit Revisions and Renewals and/or in PSC/ PUC proceedings. • Sierra Club “ Victories” Updated Periodicallyhttp://www.sierraclub.org/environmentallaw/coal/victories.aspx • SC Claims to Have Stopped 150 new coal projects since 2008.

10. The Courts Also Have Muddied the Waters • Federal Courts Uphold WEPCO and 2002 NSR Reforms, But • Held that NSR exclusions for Pollution Control Projects and Clean units are illegal because they could result in “increases” in regulated air pollutants New York v. EPA I (D.C. Cir.) • Hold RMRR Exclusion based on 20% Cost Test is patently illegal. New York v. EPA II D.C. Cir.) • Ten different Circuits in the United States, Ten different takes on NSR applicability, Statutes of Limitation Applicable to NSR Enforcement, NSR Emission Increase Test, Etc.

11. Interesting Recent Opinions • Detroit Edison – No violation until NSR significance levels violated under “Projected Actual Emission (PAE) emission increase methodology: United States v. DTE Energy Co., E.D. Mich., No. 10-13101, 8/23/11). • Cinergy –7th Circuit reverses W.D. Ind. on SJ in Oct. 2010 holding that (1) EPA experts improperly calculated emissions increases assuming plants were base-load plants and (2) EPA-approved Indiana SIP emission increase test (an increase in hourly emissions rate) trumps federal rules. Calling EPA’s approval of the SIP a “blunder,” the Court said that EPA must live with it. http://www.lawandenvironment.com/uploads/file/Cinergy%20October%202010.pdf • Alabama Power – J. Hopkins dismisses decade long suit against Alabama Power holding on S.J. no admissible evidence of violation tossing expert witness testimony . Civil Action No. 2:01-CV-152-VEH (S.D. Al. March 14, 2011). Case is on appeal in 5th Circuit. • United States v. Midwest Generation LLC, N.D. Ill. Civil Action No. 09-cv-5277, (N.D. Ill. 3/16/11) holding on SJ that Midwest Gen did not violate PSD. • Sierra Club v. Otter Tail (S.Dak. 2010) Statute of Limitations Bars Sierra Club Action for Civil Penalties And Injunctive Relief; but see Sierra Club v . Dairyland Cooperative (W. D.Wis. 2010) holding that federal statute of limitations does not bar complaint for civil penalties or injunctive relief.

12. 2011Utility Settlements With EPA • TVA 2011: In decade-long case, FCA between EPA and TVA secures injunctive relief that is estimated to cost from $3 to $5 billion; provides $350 million in environmental projects, and a $10 million civil penalty to EPA and States. • Emission Reductions from 2008 Baseline: • For NOx, a reduction of at least 115,977 tons per year (69 percent reduction) • For SO2, a reduction of at least 225,757 tons per year (67 percent reduction)

13. Other Recent Settlements • Northern Indiana Public Service Co. (NIPSCO) has signed a settlement agreement in which it has agreed to invest approximately $600 million in pollution controls, 9.5 million on environmental mitigation projects and pay a civil penalty of $3.5 million. • Hoosier Energy Rural Electric Cooperative, Inc. agreed to pay a civil penalty of $950,000 and install and upgrade pollution control technology at its two Indiana coal-fired power plants at a cost of $300-500 million with $5 million in SEPS. • Install and operate a reagent injection system to control sulfuric acid mist emissions, and achieve an emission rate of 0.007 lb/mmBTU • Upgrade the existing SCRs at Merom to achieve and maintain an emission rate of 0.080 lb/mmBTU • Install and continuously operate SNCR at the two Ratts units • Upgrade the existing FGDs at Merom to a design removal efficiency of 98 percent • Surrender any “excess” allowances

14. Region 5 Public Power NSR Initiative • Section 114 Letters Initiating Investigation of 58 Municipalities • Two-Three Notices of Violations • No Judicial Complaints • Settlement with One Wisconsin Utility Facing Bankruptcy? • Several Investigations Involve Municipalities That Are Being Investigated or Have Settled With Sierra Club • EPA Changing Tone of Negotiations?

15. CONCLUSIONS • EPA Will Not Fix NSR under the Obama Administration • Congress Will Not Fix NSR in the First Session of the 112th Congress • Confusion in Courts Will Continue Until Supreme Court Steps In (perhaps first on 8th Circuit and 6th Circuit disagreement on State of Limitations issue). • Municipal utilities that burn coal, and the communities that they serve, are at peril from NSR and related Clean Air Act regulations intended to eliminate the use of coal.