On April 2, 2007, the same day the U.S. Supreme Court issued its landmark decision in the case of Massachusetts v. EPA, 2007 WL 957332 (U.S. No. 05-1120 Apr. 2, 2007), regarding the regulation of greenhouse gases (click HERE for opinion), the Court also issued another important decision involving the Clean Air Act. In the case of Environmental Defense v. Duke Energy Corp., 2007 WL 957002 (U.S. No. 05- 848 Apr. 2, 2007) (click HERE for opinion), an enforcement action initiated by the U.S. Environmental Protection Agency (“EPA”), a unanimous Court upheld the EPA’s regulation as to when a company seeking to repair, redesign, upgrade, replace or otherwise physically change a facility that emits an air pollutant requires a permit for those modifications under the Clean Air Act. This is an important issue for businesses modifying existing and already permitted facilities, because the required permit may result in costly new air pollution requirements for the facility.1 It is also significant because this permit can become the critical-path item for the facility’s changes, creating unintended delays.

In Duke Energy, the Court reversed the Fourth Circuit2 and agreed that a physical change to a facility which did not qualify as routine under EPA’s regulations could trigger the EPA’s rules for modifications in clean areas3 if the change results in an increase in the facility’s annual emissions, but not its hourly emission rate. Since the resulting annual increase in emissions is measured against emissions for the two years prior to changes,4 this can be a difficult test to meet, particularly for older facilities whose efficiency tends to decline over time. The company’s argument turned on the fact that despite a common statutory definition of the term “modification” in the Clean Air Act, the EPA, through regulations, had developed two different and inconsistent definitions under separate air quality regulatory programs: one relating to its program to control sources in clean air areas5 and the other regarding the application of its standards of performance for all new sources. 6

The Court concluded that the EPA’s use of two different regulatory definitions for separate and distinct programs was reasonable, and that rules of statutory construction were not so rigid as to prevent it. The Court said:

Although we presume that the same term has the same meaning when it occurs here and there in a single statute, the Court of Appeals mischaracterized that presumption as :”effectively irrebutable”…. We also understand that “[m]ost words have different shades of meaning and consequently may be variously construed, not only when they occur in different statutes, but when used more than once in the same statute or even in the same section.”

A given term in the same statute may take on distinct statutory objects calling for different implementation strategies.

Duke Energy, 2007 WL 957002 at 9, 10.

The Supreme Court remanded the case to the Court of Appeals for the Fourth Circuit to determine if the EPA had historically taken different positions regarding its definition.

This case has immediate application to the many enforcement actions the EPA has initiated across the country against companies who have proceeded with physical changes to older facilities and, in particular, to those involving the electric generation companies that have initiated various projects to maintain the efficiency or extend the life of their generating facilities. Penalties assessed for commencing construction without a permit could mean penalties will be assessed for each day the facility is operated without a permit for up to five years prior to the initiation of the enforcement action. See National Parks Conservation Assn., et al. v. Tennessee Valley Authority, 2007 WL 623474 (6th Cir. Mar. 2, 2007). (click HERE for opinion)

If your company is financing an upgrade to its facilities or is otherwise involved in a significant change to its facilities, you may want to consult with a member of Reed Smith’s Environmental Group to discuss the implications of that change. The EPA’s rules in this regard are complex and the issues raised in Duke Energy are not the only ones that are the subject of dispute and court decisions. Among other things, the Environmental Group may be able to help you obtain a formal applicability determination from the EPA to protect your company from the uncertainty inherent in these rules.