NSR Reform: Courts, Crystal Balls and Cautions AIR & WASTE MANAGEMENT ASSOCIATION – NEW ENGLAND CHAPTER FALL Conference OCTOber 11, 2018 BRIAN FREEMAN, Esq.

Background: NSR wayfinding for the uninitiated (and the pros)

Select NSR reforms or potential reforms Project netting (a/k/a project emissions accounting) Projected actuals vs. “actual actuals” Aggregation: “Adjacent” Aggregation: “Common control” Proposed ACE rule – NSR provisions

Select NSR reforms and potential reforms Project netting (a/k/a project emissions accounting) Projected actuals vs. “actual actuals” Aggregation: “Common control” Aggregation: “Adjacent” Proposed ACE rule – NSR provisions GUIDANCE GUIDANCE GUIDANCE GUIDANCE EXPECTED KEYS: Different from Wehrum’s first attempts under Bush II: * Piecemeal Guidance where possible

Practical consequences of guidance strategy Not “final action” subject to judicial review Delegated states: Must individually adopt So: Challenges will likely come once used E.g., in permitting decision Set up for NGO citizen suit against the source So: more uncertainty for regulated parties

Project netting (project emissions accounting)   Old interpretation New interpretation (3/13/18 guidance memo) Step 1: “Significant emissions increase”? Consider only increases from the project Consider both increases and decreases from any units that part of the project. Need not be federally enforceable; need only be projected post-project. Step 2: “Significant net emissions increase”? Netting: Consider increases and federally enforceable decreases source-wide (including federally enforceable decreases from the project) Netting: Consider increases and decreases source-wide (other than the project) Memorandum, E. Scott Pruitt, “Project Emissions Accounting Under the New Source Review Preconstruction Permitting Program” (Mar. 13, 2018). Old approach for determining if a modification would be a “major modification” subject to NSR permitting: Step 1: Determine if a “significant emissions increase” from the project (i.e., determine the difference between baseline actual emissions to projected actuals, considering increases only, and compare to the emissions level specified in the NSR regulations) Step 2: Determine if a “significant net emissions increase” from the project (i.e., adjust the Step 1 result by all contemporaneous (within past 5 years) emissions increases and federally-enforceable decreases (including from the project, e.g., a New Source Performance Standard (NSPS) that would be triggered by the change), and compare to the significant net emissions increase levels specified in the NSR regulations) See 40 CFR 52.21(a) (for PSD); analogous definitions and requirements in the Nonattainment NSR (NNSR) program at 40 CFR 51.165(a)(2), 51.166(a)(7), and Appendix S of Part 51.

Project netting (project emissions accounting) Court challenge pending – but on hold pending … … proposed rule to codify the new policy Also to address defining the scope of the “project” (“project aggregation”)? This fall? Beware: Guidance does not address additional wrinkles under Nonattainment NSR Regardless of court challenge, policy is reversible State law EDF v. EPA (D.C. Cir. Dkt. No. 18-1149, filed 5/29/18): * APA: Rulemaking required Cf. EPA under Bush II (2006, under Wehrum) had proposed a rule to allow for this, under the view that the existing regulatory language was uncertain. However, the rule was not finalized. EPA is now essentially disclaiming that prior view as unduly conservative and unnecessary, allowing for this issue to resolved via guidance Status: __________________________________________ “Project”: defined as “a physical change in, or change in the method of operation of, an existing major stationary source” 40 CFR 52.21(b)(52) The 3/13/18 guidance memo cautions against defining a project in a way that circumvents NSR … but environmentalist groups see the policy as enabling just that. Cautions Minor NSR program NNSR wrinkles guidance notes that NNSR regulations have additional specific requirements for certain nonattainment area classifications which do not have analogs in PSD (e.g., CAA 182(e)(2), 40 CFR Part 51, Appendix S II.A.5(v)) EPA flagged but did not attempt to address the impact of the guidance on those provisions Unless codified, it’s still a policy … and reversible by future administration State law: State may need to amend to follow this new direction – or may decline to do so

Actual-to-projected-actual calculations For “Step 1” 12/7/17 guidance memorandum: “Clear error” standard, no more “second-guessing” No harm, no foul Good-faith presumption for an intent to control actuals Again, issue is whether “major mod” at existing facility “Actual-to-projected-actual” applicability test. 40 CFR 52.21(a)(2)(iv)(c). Guidance: “Clear error” standard: EPA will no longer “second-guess” a facility’s calculation Clear error: e.g., application of wrong significance threshold “No harm, no foul”: EPA will enforce for failure to go thru NSR only where post-project actual emissions in fact show a significant emissions increase or significant net emissions increase. Focus on 5 or 10 year recordkeeping and reporting period “Intent counts”: Facilities can use its intent to manage future actual emissions in projecting such emissions Guidance directly responds to two CA6 decisions (U.S. v. DTE Energy Co., 711 F.3d 643 (6th Cir. 2013); U.S. v. DTE Energy Co., 845 F.3d 735 (6th Cir. 2017) Essentially, EPA declines, for now, to exercise its authority that those cases endorsed for EPA to enforce on basis of procedural issues only (improper calculation of actual-to-projected-actual emissions), even if post-project emissions turn out not to have exceeded the NSR trigger values for pre-project calculations.

“Actual-to-projected-actual” calculations Result: More latitude for avoiding NSR Court challenge: ?? Cautions: Just a policy, subject to future reversal State interpretations Court challenge: Possibly if EPA retroactively applies (via case-by-case) to DTE Energy (E.D.Mich.) Takeaways: Fine-tune documentation of projected actuals accordingly Keep focused on post-project emissions If higher than projected, identify and document any other factors not due to the project

Aggregation: “Common control” EPA letter to PADEP (4/30/18): Narrows the term Old: “Substantial relationship” (e.g., ability to influence, esp. support or dependency relationship) New: “power or authority to dictate decisions” … … AND these decisions must “affect the applicability of, or compliance with, relevant air pollution regulatory requirements” Proposed rule this fall? Again, beware states … “major stationary source” definition in NSR regs: “Contiguous or adjacent properties,” “Common control”, and Same SIC major group   EPA letter to PADEP (4/30/18): Narrows “common control”  * Meadowbrook Energy LLC (April 30, 2018) (biogas processing facility and adjacent landfill; separate ownership; neither facility directly controlling the other)  * Prior interpretation: Multi-factor “substantial relationship” test (e.g., shared employees, management, administrative functions, equipment, or responsibility for emissions control) New position: NOTE: seems opposite outcome from earlier case-specific determination involving landfill/biogas (power production?) EPA’s stated goal: More clarity, consistency and certainty. BUT letter defers to PA as delegated state Procedural note: The expected proposed rule this fall would finalize a reconsideration (and terminate the stay) of an 11th-hour Bush-2 “interpretive rule” by the Obama EPA. The “NSR Aggregation Amendments” had prospectively established the standard that activities at an industrial facility must be “substantially related” to another facility in order to be aggregated with it. The “NSR Aggregation Amendments” had also determined that activities undertaken more than three years apart should not be aggregated. - See 74 Fed. Reg. 2376 (1/15/09); Notice of Reconsideration: 75 Fed. Reg. 19567 (4/15/10)

Aggregation: “Adjacent” EPA draft guidance to regional air chiefs (9/4/2018) Prior: “functional interrelatedness” Proposed new: Physical proximity Stated goal: More objective, certain If adopted, court challenge likely Note: Would not apply to oil & gas sector EPA took internal comment thru last Friday 10/5 Prior “functional interrelatedness” rejected by court Summit Petroleum Corp. v. EPA (CA6, 2012) New: * side-by-side or neighboring, with potential limited separate (r/o/way) * But no “bright line” for proximity” Oil & gas sector: separate rule (<=1/4 mile + shared equipment = “adjacent”) (2016)

Proposed ACE rule: “Emissions rate” For large fossil power plants only Goal: Allow power plants to comply with ACE requirements for efficiency improvements without triggering NSR Proposes to change NSR trigger basis from annual to hourly emissions Comment sought on three alternatives for how to determine hourly emission rate baseline All alternatives would be within a 5-year lookback period Would apply to “electricity generating units” (EGUs), generally defined as * >25 MW fossil-fuel-fired boilers or combustion turbines, or * cogeneration units serving a >25 MW generator that has supplied >1/3 of its output (or 219,000 MWh, whichever is greater) to the grid. See details and further conditions and carve-outs at 40 CFR 51.124(q). 3 proposed alternatives for determining hourly emission rate baseline: Statistically representative average Maximum actual Maximum achievable

ACE in the courts? Challenge likely to focus on GHG/§111 issues But NSR revisions as Achilles heel? GHG//§111 issues: does EPA have authority to regulate only inside the fenceline? Similar NSR efforts during Bush II administration were shot down in the courts Proposed NSR provision is severable … but without, ACE won’t work? * costlier for coal plants to implement the efficiency improvements that are ACE’s goal * So … fewer coal plant owners to move ahead with efficiency modifications, * …. and the whole policy effort to boost the coal industry would be a wash * …. courts might also rule that without the NSR changes, ACE isn’t enough

Bonus issue: “Once In, Always In” 1995 Memorandum from EPA’s Office of Air Quality Planning & Standards Policy: After the first substantive compliance date of a MACT, no exit from “major source” status by reducing PTE 2007: EPA proposed to trump it with a regulatory change – but tripped up by Congress January 2017: EPA withdraws the policy

“Once In, Always In” Is Out Contrary to plain language of CAA: Definition of “major source”: “emits or has the potential to emit” No timing cut-off Disincentive to voluntary pollution abatement/ prevention and technology innovations So: At any time, a major source can take an enforceable limit on its PTE  become minor (“area”) source

“Once In, Always In”, per NGOs: Down, but not out Court challenge pending Claims: Violates APA*: Requires rulemaking, “arbitary and capricious” Violates CAA §112 Status: Decision at least several months away Crystal ball says …. _____________________ * Administrative Procedures Act Court challenge pending Brought by California, EDF, Sierra Club, NRDC, several NGOs Claims: Violates APA: Requires rulemaking Creates new rights, eases CAA permitting requirements for new sources Violates CAA §112 requirement Major sources must implement maximum controls (MACT) Violates APA: “Arbitary and capricious” because EPA failed to consider Potential for increased HAP emissions, Resultant public health impacts

Questions? Brian Freeman, Esq. Robinson & Cole LLP 280 Trumbull Street Hartford, CT 06103 (860) 275-8310 bfreeman@rc.com