Federal District Court Ruling May Undercut Enforcement and Citizen Suit Challenges Aimed at Coal-Fired Power Plants

The recent opinion in National Parks Conservation Association v. TVA took the frequently contested question of what constitutes “routine” maintenance of coal-fired power plants in a new direction.[1] That case is the latest decision in a long-running dispute over whether Tennessee Valley Authority (TVA) triggered permitting requirements under the Clean Air Act’s Prevention of Significant Deterioration (PSD) regulations when it upgraded its Bull Run power plant in 1988. In its fact-intensive order, the U.S. District Court for the Eastern District of Tennessee concluded that, although TVA’s improvements costs millions of dollars and extended the facility’s operational life by 20 years, they fell within the “routine maintenance, repair, and replacement” exemption of the PSD regulations. This ruling may undercut agency enforcement actions and citizen suits aimed at modifications to existing facilities, like the nation’s aging fleet of coal-fired power plants. But it also may set up intra- and extra-Circuit splits, as District Courts in the Sixth and Seventh Circuits have ruled that similar activities are not exempted from PSD preconstruction permitting requirements.[2] It remains to be seen whether the TVA decision marks a new path or a dead end.

Clean Air Act New Source Review

The Clean Air Act establishes a cooperative framework under which the EPA and the states regulate air quality. At the federal level, EPA has developed limits (known as National Ambient Air Quality Standards, or NAAQS) on the maximum concentrations of air pollutants allowable in various parts of the country.[3] States are obligated by the Act to develop plans (known as State Implementation Plans, or SIPs) for implementing, maintaining, and enhancing NAAQS.[4]

In 1977, Congress amended the Clean Air Act to include, among other changes, the New Source Review (NSR) program, which includes measures for protecting air quality in regions that meet NAAQS. Section 165(a) of the Clean Air Act, among other things, prohibits the construction and operation of a “major emitting facility” in an attainment area without first obtaining a PSD Permit.[5] Section 165(a) requires, in part, that a PSD facility use best available control technology (BACT) for each pollutant that the facility emits.[6] Facilities that fail to obtain these permits are subject to injunctive relief and significant civil penalties via EPA or citizen enforcement actions.[7]

The Clean Air Act defines “construction” to include “modification.”[8] Modification generally means any physical change in, or change in the method of operation of, a stationary source that increases pollution emissions or results in new pollutants not previously emitted.[9] EPA’s PSD regulations limit PSD permit requirements to major modifications.[10] The rules define a “major modification” as a change that would result in a significant net increase in emissions,[11] and set “significance” thresholds for each of the regulated NSR pollutants.[12]

The rules also identify physical changes or changes in the method of operation that will not be considered “modifications” for purposes of PSD permitting, including “routine maintenance, repair and replacement” (RMRR).[13] Without such an exception, major sources, such as power plants, that are modified in ways that could significantly increase their actual or potential emissions must demonstrate that they implemented BACT, or be subject to potential regulatory enforcement or litigation. Indeed, many of the federal and citizen enforcement actions against utilities have involved whether a modification is exempt from permitting requirements because it was a “routine” repair or replacement. See Back to the Future: EPA Renews New Source Review Enforcement, Marten Law Environmental News (Mar. 5, 2009).

The TVA Bull Run Facility

TVA began operating the Bull Run facility in 1967. The plant is a 950 megawatt, single unit, supercritical, coal-fired electricity generating plant located near Great Smokey Mountain National Park.[14] In response to a series of maintenance-related forced outages, TVA overhauled the plant in 1988, including replacing the economizer; replacing 58,000 feet of tubing within the superheater; replacing portions of the blades in the high-pressure and low-pressure turbines; and chemically washing copper deposits that had accumulated on the turbine.

TVA never applied for, nor received, a PSD construction permit for this work. In 1999, EPA issued an order concluding that TVA’s boiler overhaul constituted a “major modification” requiring a PSD permit under the Tennessee regulations. Believing that it could not sue TVA in federal court, EPA adjudicated its order in the EPA’s Environmental Appeals Board. The Board substantially affirmed EPA’s order. The Eleventh Circuit Court of Appeals subsequently concluded that it had no jurisdiction over the dispute because EPA’s order violated due process and did not constitute a final agency action.[15] The Eleventh Circuit held that EPA must prove Clean Air Act violations in an enforcement action before a United States district court. Since that time, EPA has not filed a follow-up action in district court against TVA.

Procedural History

In February 2001, a coalition of conservation groups filed a citizens suit action in the Eastern District of Tennessee alleging that TVA violated the Clean Air Act and Tennessee’s implementing regulations when it failed to obtain a PSD construction permit before modifying the Bull Run facility 1988, and for subsequently operating the plant without a permit, without performing emissions monitoring, and without applying BACT to minimize emissions. Although TVA modified the facility in 1988 – 13 years before the citizen suit was filed – Plaintiffs argued that their claims fell within the Clean Air Act’s five-year statute of limitations because TVA’s alleged failure to comply with the Clean Air Act and Tennessee’s implementing regulations constituted a continuing violation.

In 2007, the Sixth Circuit rejected Plaintiffs’ continuing violation theory, noting that “the term ‘continuing violation’ suggests the original violation … is somehow the source of [Plaintiffs’] present ability to recover … [and] also implies that there is but one incessant violation.”[16] See Citizens Suit Allowed to Proceed Thirteen Years after Air Permit Issued, Marten Law Environmental News (Mar. 28, 2007). The Sixth Circuit, however, ultimately concluded that some of Plaintiffs’ claims were not time barred on grounds that the plaintiffs had alleged a series of repetitive discrete violations, which constituted independently actionable individual causes of action.[17] Assuming, but not deciding, that the project constituted a “major modification,” the Sixth Circuit held that TVA’s alleged failure to apply BACT “manifests itself anew each day a plant operates without BACT limits on emissions.”[18] The Court held that violations occurring more than five years before the complaint was filed (i.e. claims for violations prior to February 13, 1996) were time-barred, but that Plaintiffs’ claims for later violations fell within the statute of limitations.[19]

Analysis

On remand from the Sixth Circuit, U.S. District Court Judge Thomas A. Varlan ruled that replacement of the economizer and superheater at the Bull Run facility fell within the routine maintenance, repair, and replacement exception to the PSD regulations. In determining whether an activity is subject to this exception, courts consider four factors: (1) the nature and extent of the projects; (2) the purpose of the projects; (3) the frequency of the projects; and (4) the cost of the projects.[20]

First, the court concluded that, while the replacements were no “small task,” they were also “not … extraordinary” because other projects listed on the Bull Run furnace rehabilitation history would have required similar rigging and material handling structures and labor.

Second, the court ruled that the purpose of the replacements was to reduce the number of force outages. While the economizer replacement would extend the life of portions of the Bull Run facility by 20 years, the court concluded that “[a]ny ‘life extension’ affected as a result of the economizer replacement was thus a byproduct of, rather than the primary purpose of, that replacement.”

Third, the court ruled that although replacing an economizer and/or superheater tubing was not commonly performed more than once at an individual facility, the projects were routine in the context of maintaining coal-fired power plants. Finally, the court concluded that the costs associated with the projects were not uncommonly high, and represented a small fraction of TVA’s $300 million annual capital budget.

Implications

In a sharp shift from the Bush Administration, the Department of Justice and EPA under President Obama have revived NSR enforcement efforts against coal-fired power plants. These actions tend to focus on the substantial or complete replacement of various power plant components, with one of the key issues being whether those projects constituted “routine” maintenance and repair. Similar PSD enforcement cases have been brought against other industrial sources, such as refineries. Judge Varlan’s order in National Parks Association v. TVA may have implications for EPA and citizen NSR enforcement actions, particularly in the coal-dependent Sixth Circuit. The decision, however, may also set up intra- and extra-Circuit splits of authority, as District Court’s in the Sixth and Seventh Circuit have ruled that similar activities are not exempted from PSD preconstruction permitting requirements.[21]

Furthermore, the decision will also be closely watched by operators of facilities that are subject to EPA’s recently published mandatory greenhouse gas emission regulations. See EPA Issues Final Rule Regulating Greenhouse Gases From New and Modified Sources, Marten Law Environmental News (May 14, 2010).[22] EPA estimates that about 900 new and modified facilities a year will be required to obtain PSD permits with greenhouse gas limits, mostly coal-fired plants, refineries, cement plants and solid waste landfills. EPA set a 75,000 ton initial threshold for modifications to existing facilities that would trigger greenhouse gas permitting requirements. While it will require a truly major modification to an existing facility to increase actual or potential GHG emissions by 75,000 tons a year, the TVA decision suggests that some such modifications could be exempt “routine maintenance, repair, and replacement.” Also, EPA is expected to lower the greenhouse gas thresholds, although probably not before 2016. If and when lower greenhouse gas thresholds are in place, the “routine repair and replacement” question will likely become a more common area of dispute in the PSD program, as it is today with other regulated air pollutants.

For more information on the TVA case or other Clean Air Act issues, please contact Dustin Till or another member of Marten Law’s Air Quality practice group.