On September 19, 2012, the U.S. District Court of the Middle District of Louisiana handed EPA a victory in its Clean Air Act (“CAA”) enforcement action against Louisiana Generating (“LaGen”) over its Big Cajun II electric generating station. United States, et al. v. Louisiana Generating, LLC, No. 09-100-JJB-CN (M.D. La., September 19, 2012). The plaintiffs, EPA and the Louisiana Department of Environmental Quality, alleged in their Complaint that the primary reheater replacements at the plant in 1998 and 1999 violated the Prevention of Significant Deterioration (“PSD”) provisions of the CAA. The parties had filed cross-motions for summary judgment on the interpretation and application of the PSD regulations – specifically, the routine maintenance, repair and replacement (“RMRR”) provision, which excludes certain projects from PSD review. The court ruled – without the benefit of oral argument – that the primary reheater replacements could not qualify as RMRR and rejected that defense.

Had the court entertained oral argument, perhaps it could have avoided several errors apparent on the face of the opinion. For example, the court acknowledged that it should consider all the work that occurs in the relevant source category (coal-fired electric generating units) to perform the RMRR analysis, just as EPA and the Seventh Circuit did in Wisconsin Electric Power Company v. Reilly, 893.2d 901 (7th Cir. 1990) (“WEPCo”). This requires one to engage in a multi-factor analysis, looking at the nature of the project, the extent of the project, the purpose of the project, the frequency of the project, the cost of the project, and any other relevant factor, and at each step compare the project to industry practice. The LaGen court, however, failed to do this. For example, it held that a capital project is not RMRR, United States et al. v. Louisiana Generating, supra, at *14, without acknowledging that capital projects are everyday occurrences for electric utilities and indicative of nothing in the nature of the project other than the application of FERC accounting principles. Second, the court concluded that the reheater replacements are not frequent enough to be routine, id. at 17-18, without acknowledging that the reheater is merely a set of tube assemblies, and boiler tube replacements occur frequently at the unit and across the industry. The LaGen’s court unnecessarily focused on the name of the component rather than its true nature and function. This is akin to finding it non-routine for the head coach to remove a starting linebacker from the game, when in reality football players shuttle in and out of the game constantly. Third, the LeGen court held that RMRR can only “preserve the status quo” at a unit (p. 16) and cannot make it “better than its present condition.” Id. at *16-17. That interpretation, however, would read the word “repair” out of the plain text of the regulation, the plain meaning of which is “to restore by replacing a part or putting together what is torn or broken.”

Most fundamentally, the problem with the LaGen court’s analysis is that it diverges from EPA’s historical interpretation of RMRR, even though the court says it would not do so. United States et al. v. Louisiana Generating, supra, at 8 (“Plaintiffs will not be allowed to interpret [RMRR] more narrowly now than it has in the past”). For decades, from 1978 to 1999, EPA interpreted RMRR to cover large-scale component replacements that did not increase the firing capacity of the unit. For example, EPA’s office charged with issuing final interpretation of PSD regulations stated in 1978 that RMRR meant the routine-replacement of parts, within the limits of reconstruction (i.e., less than 50% of the replacement cost of the unit). Memorandum from E. Riech, Director, Stationary Source Enforcement Division, EPA to H. Bergman, Director, Enforcement Division, EPA Region VI (Oct. 3, 1978). In 1989 and 1990, EPA surveyed a number of large-scale component replacements at electric utilities, given the name “life extension,” and told Congress that they did not consider such projects as potential PSD violations. Letter from W. Reilly, Adm’r, EPA to Cong. J. Dingell (Apr. 19, 1989). Instead, EPA told Congress that it expected all utility units to undergo life extension projects at age 30, and operate an additional 35 years, without triggering PSD. GAO Report, “Electricity Supply: Older Plants’ Impact on Reliability and Air Quality” (Sept. 1, 1990). In fact, EPA’s Assistant Administrator for Air assured Congress that life extension projects in the electric utility industry can indeed be RMRR. Letter from W. Rosenberg, Ass’t Adm’r for Air, EPA to Cong. J. Dingell (June 19, 1991). The summary judgment opinion by the LaGen court is fundamentally incompatible with EPA’s historic interpretation and historic practice in applying RMRR. Had it adhered to that historic interpretation, it could not have granted summary judgment for plaintiffs. See Nat’l Parks Conservation Association v. Tennessee Valley Authority, No. 3:01-cv-71, 2010 WL 1291335 (E.D. Tenn., Mar. 31, 2010) (applying EPA’s historical interpretation and finding economizer replacement and superheater replacement RMRR).

The news in enforcement cases in not all bad for utilities, however. Yesterday, the Seventh Circuit heard oral argument on EPA’s appeal of the dismissal of its PSD claims against Midwest Generation and Commonwealth Edison. USA et al. v. Midwest Generation, LLC et al. (Nos. 12-1026, 12-1051). The issue presented was whether either utility can be held liable now, after expiration of the statute of limitations, for PSD violations that accrued, if at all, between 1994 and 1999, before the transfer of the plants from Commonwealth Edison to Midwest Generation. The Seventh Circuit panel expressed deep skepticism of EPA’s theory of liability, grilling appellant’s counsel closely. In a similar vein, the most recent decisions by district courts in EPA’s enforcement initiative have rejected EPA’s PSD claims. See, e.g., United States v. DTE Energy, 2:10-cv-13101-BAF-RSW (E.D. Mich., Aug. 23, 2011) and United States v. Alabama Power Company, No. 01-152 (N.D. Ala., March 14, 2011).