Supreme Court Rules Against Utilities in Enforcement Action

On April 2, 2007, in Environmental Defense v. Duke Energy Corporation, the Supreme Court sided with the EPA and ruled unanimously that industrial facilities and power plants seeking to change or expand their operations may be forced to use modern clean air technology to reduce pollution.  

The decision comes at a time when several similar cases are currently making their way through the legal system as a part of the EPA’s enforcement initiative against electric utility companies, which may result in significant fines for utility companies.  Although the ruling in Environmental Defense will clarify one legal standard that must be used in these types of enforcement actions, several other issues are still hotly contested.

Lower Courts Misread the Clean Air Act

The Supreme Court found that lower courts misread the Clean Air Act by incorrectly interpreting the term “modification” for the purposes of the Clean Air Act’s Prevention of Significant Deterioration standards.  The Court ultimately remanded the case, but the definitions of “modification” settled by the Court may force Duke Energy Corporation and several other utility companies to comply with the Clean Air Act’s Prevention of Significant Deterioration regulations in the near future.

Background

In the 1970’s, two new air pollution control schemes were enacted: New Source Performance Standards in 1970, and Prevention of Significant Deterioration in 1977.  The control schemes were designed to manage economic growth in a way that ultimately balances environmental and economic goals.    Both control schemes require stationary sources of pollution, such as power plants or oil refineries, to use pollution-reducing technology, or obtain permits when there is a modification to a polluting source, such as new construction, or a change in operations.  The confusion arose over how to define what constituted a “modification” under the two schemes, and whether the term was intended to have the same meaning within both.

In 2000, suit was filed against Duke Energy Corporation for violating the Prevention of Significant Deterioration provisions after Duke replaced and redesigned some of its coal-fired electric generating units without obtaining a permit.  Duke argued that none of the projects it had constructed were “major modifications” that would require a permit.  The issue the Court considered was whether there has to be an increase in the maximum hourly emissions rather than the maximum annual emissions in order for there to be a “modification” of a polluting source.

Both the District Court and the Fourth Circuit sided with Duke, holding that there is only a “modification” when there is an hourly increase in emissions.  The lower courts urged that the term “modification” should be read with the same definition throughout the relevant provisions of the Clean Air Act.  The Supreme Court disagreed, however, noting that although the same term can have the same meaning within a statute, “(most) 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.”  Thus, the Supreme Court held that under the Prevention of Significant Deterioration standards, there is a “modification” of a polluting source if there is an annual increase in emissions, rather than an hourly increase in emissions.

Small Victory

While the decision in Environmental Defense was a victory for the EPA, it may be a small one.  There are several outstanding legal issues that have not yet been seriously litigated that could substantially affect the outcome of an enforcement action in the utility companies’ favor.  Among the issues that the Supreme Court declined to rule on in Environmental Defense was the proper legal standard that applies to the “routine maintenance, repair and replacement” exclusion from New Source Review.  If Duke were to prevail on this issue on remand, the Environmental Defense case would essentially be rendered meaningless against Duke, and several other enforcement actions would potentially be affected.

This legal update is for informational purposes only as a service to clients and other friends, is not a complete summary of the rules relating to the subject matter discussed above, and is neither to be construed as legal advice nor intended as basis for decisions in specific situations. For more information about this subject matter or other recent developments, please contact the attorneys in our Environmental, Energy and Resources practice group or any other attorney in our firm with whom you normally consult by calling (303) 825-4200.