On April 2nd, the U.S. Supreme Court ruled that Prevention of Significant Deterioration (“PSD”) permitting is triggered when facility modifications result in an increase in the annual amount of pollution emitted even where the hourly rate of emissions is not affected. The Supreme Court’s decision in Environmental Defense, et al. v. Duke Energy Corp., ended a long running battle between Duke Energy and EPA concerning applicability of PSD permitting to specific facility modifications. Duke Energy replaced or redesigned numerous tube assemblies on its coal-fired generators to allow its generators to run longer each day. These actions did not actually increase the rate of pollutants emitted per hour from the facilities, but due to the increased hours the generators were able to operate each day, the facility emitted more pollutants annually. The United States sued Duke Energy alleging that the actions constituted a “modification” triggering PSD permitting requirements. Duke Energy argued it was in essence conducting maintenance and a PSD permit was not required, because absent an increase in the amount of pollution emitted per hour, the maintenance on the facility did not meet the definition of a “major modification.” Duke also argued that its approach was accepted practice and EPA was now taking a position inconsistent with historical rules interpretation.

The Clean Air Act’s PSD provisions require a permit when “modifications” are made to a “major emitting facility.” “Modification,” for the PSD program is defined by reference to the definition of “modification” found in the New Source Performance Standards (“NSPS”) section of the Clean Air Act. The NSPS provisions define “modification” as “any physical change . . . which increases the amount of any air pollutant emitted . . . or which results in the emission of any air pollutant not previously emitted.” 42 U.S.C. §7411(a)(4). EPA passed regulations in 1975 implementing the statutory definition which construed a “modification” as “any physical change . . . which results in an increase in the emission rate to the atmosphere of any pollutant” and that the emission rate “shall be expressed in kg/hr of any pollutant discharged….” 40 C.F.R. §60.14(a)(b). In 1980, though, the EPA promulgated rules specific to the PSD program, which did not define “modification” in terms of hourly rate increases of pollutants emitted as it had under the NSPS provisions, but instead in terms of a rate of “tons per year.” 40 C.F.R. §51.166(b). Duke Energy argued that the NSPS definition of “modification” that referred to an hourly emissions rate was controlling because the PSD definition of “modification” referred to the NSPS definition. Duke Energy argued that because it did not increase the hourly emissions rate, its activities were tantamount to maintenance and not a “major modification,” requiring PSD permitting. Both the trial court and the Fourth Circuit agreed with Duke Energy, finding that PSD permitting was not required. The Supreme Court overruled the Fourth Circuit’s opinion finding that while the definition of “modification” in the PSD provisions “included” the definition found in the NSPS, the definitions did not have to be identical. The Court held that when EPA promulgated the PSD regulations in 1980, EPA was authorized to clarify the definition of “modification” for the PSD program so long as the clarifications were “reasonable.” The Court believed that deeming a modification to occur based on a pollutant increase measured in annual emissions was reasonable.

The practical result of the Court’s holding is that virtually any facility change that increases annual emissions may trigger PSD permitting requirements. Even activities that may be in the nature of maintenance will fall within the concept of “modifications” if annual emissions increases occur. The Supreme Court, however, expressly left unresolved whether EPA “was retroactively targeting twenty years of accepted practice,” and stated a claim could be addressed in further litigation.