As predicted, in the first two years of the Obama Administration, US EPA is aggressively pursuing coal-fired facilities for violations of the Clean Air Act’s (the Act) prevention of significant deterioration/new source review (PSD/NSR) provisions.

Phillip Brooks, EPA’s Director of Air Enforcement in the Office of Compliance Assurance (OECA), recently predicted that more aging coal-fired plants will elect to close rather than fight EPA’s aggressive enforcement of PSD/NSR.1 If violations of PSD/NSR are found at a facility, the plant may be required to install the best available control technology (BACT), the cost of which may be hugely expensive. Speaking at a recent American Law Institute/American Bar Association conference, Director Brooks predicted that more facilities will pursue "settlements that involve shutdown of units and creative solutions to solve problems."2

Many coal-fired facilities in the Eastern half of the country contain "vintage" coal-fired units dating back to the 1950’s or 1960’s, and these units were essentially grandfathered into the Clean Air Act’s permitting scheme under the PSD/NSR provisions. The theory behind the grandfathering scheme is that at some date certain, these older units will reach the end of their useful lives and not be functional unless they undergo "major modifications." Once this point is reached and a "major modification" occurs, PSD/NSR review is triggered and the older unit is subject to BACT. If, however, the unit is merely maintained in a "routine" manner (routine maintenance, repair and replacement (RMRR)), PSD/NSR review is not triggered. Even if a "major modification" occurs, PSD/NSR review still does not apply unless the modification causes a "significant net emissions increase." Since the inception of the PSD/NSR provisions, the battle between coal-fired facilities, EPA and citizen groups has largely been over these two key questions — what constitutes RMRR, and how does one determine whether a "significant net emissions increase" has occurred?

While conceptually clear, the history of the RMRR exception has been anything but clear. To date, courts have reached differing conclusions on what constitutes RMRR, even for nearly identical projects.3 On top of that, EPA has been less than consistent in its own interpretation of the RMRR exception.4 What is clear is that despite aggressive application of the RMRR rule by EPA and citizen groups, courts have rejected overreaching under this provision on numerous occasions.5

Despite the fact that many facilities may have strong arguments to rebut the applicability of the Act’s PSD/NSR provisions, they may nevertheless conclude that fighting isn’t worthwhile for a number of reasons. First, fighting is expensive. Litigation is costly, and PSD/NSR lawsuits require significant resources, intensive fact-finding, and the involvement of consulting and testifying experts. Second, a number of new regulations such as the utility MACT and the Commercial, Industrial and Institutional Boiler MACT and Area Source rules will impose significant additional requirements on many coal-fired units and require the installation of emission reduction controls. Third, regulation of greenhouse gases may impose increasing burdens on combustion-based electric generation. Faced with ultimately having to install expensive controls regardless of the outcome of any PSD/NSR applicability, facilities may decide on a schedule of controls to resolve past compliance issues and meet future obligations, or they may decide to move away from coal-fired generation towards lower-emitting generating units and/or alternative fuels.

The treatment of past violations, pending permit applications, and future new units and fuels will likely be addressed through negotiation and complex settlement agreements. Director Brooks suggested that EPA will take more interest in the future plans of coal-fired facilities and work to avoid litigation, thereby reducing the time to rectify past violations and future plans for the facilities.

Latham represents a number of companies and municipalities with coal-fired generation in various EPA regions around the United States. We are aware of efforts by various EPA regions to contact the owners of coal-fired facilities for the purpose of addressing past conduct and future electric generation plans. In particular, we believe EPA is targeting municipal utilities operating coal-fired facilities for PSD/NSR enforcement, in part because of a perception that they may have fewer resources to fight the resultant legal battle. Recognizing the differences between private and public power, EPA is taking a less formal approach regarding municipalities in an effort to find negotiated solutions, and that may ultimately prove to be a more effective approach.

In our experience, negotiated solutions can be very effective, provided that the parties adverse to the facility take reasonable positions, which is often not the case. To the extent EPA and citizens are open to alternative fuels such as biomass, tire derived fuels and natural gas, facilities may be able to negotiate a way out of any past PSD/NSR applicability and towards a more sustainable generating future. In addition, of course, the addition of wind, solar or geothermal generating capacity will generally receive favorable treatment by EPA and citizen groups, but the cost-effectiveness and storage limitations for renewable energy still impede a mass conversion from coal. Notably, efforts toward clean coal and carbon sequestration continue, and any meaningful progress on these fronts may ensure a greater role for coal in the future. As with most significant transitions, the progress forward will be step-by-step, facility-by-facility, and will take decades to complete.

What is clear is that many coal-fired facilities, including municipalities, will face scrutiny by EPA and citizen groups, if they haven’t already. The issues are complex, and the resolution of past and future issues requires careful planning and analysis, preferably guided by capable counsel and consultants, working strategically with facility personnel and management to chart a cost-effective and durable solution. This may come before, during or after litigation, depending on the facts and the posture of EPA or a citizen plaintiff. Experience in litigating, negotiating and resolving these issues is paramount, because EPA and many citizen groups are knowledgeable, capable and highly motivated. And, they have now been re-energized by a new Administration committed to vigorous Clean Air Act enforcement against coal-fired utilities.