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WASHINGTON REPORT - July 1998 Welcome to the Clean Air Act Information Network

EPA Announces It Is Considering a New
Approach for Determining New Source
Review Applicability

In a recent Federal Register notice, EPA has
indicated that it is considering a new approach
for determining the applicability of new source
review (NSR) requirements to existing sources
undertaking plant changes. 63 Fed. Reg. 39,857
(July 24, 1998). The notice characterizes the new
approach as an "actual-to-enforceable actual"
approach. That approach, which would replace
the "actual-to-potential" approach that EPA
currently applies to sources outside of the
electric utility industry, would require use of an
enforceable "temporary" ten-year emissions level
to avoid triggering NSR requirements. The same
approach would also be used in making NSR
applicability determinations for electric utility
sources.

The new applicability approach being
considered, if adopted, would likely have a
significant impact on the way that NSR
applicability determinations are made. Although
the approach would do away with the "actual-to-potential" test a test which the notice states
currently governs changes at existing non-utility
sources, the approach falls far short of addressing
concerns previously raised by industry
commenters. In key respects, the approach
appears to be more restrictive than the current
system. (Because the July 24 notice contains no
proposed regulatory language, the precise impact
of the approach is difficult to determine.)

The notice also explains that EPA is
considering the circumstances under which
permitting authorities should revise the
emissions levels set under a plantwide
applicability limitation (PAL). The changes to
the PAL approach suggested in the notice would
likely limit the utility of PALs even further than
previously proposed.

The New NSR Applicability
Approach

EPA states in the July 24 notice that the
new applicability scheme being considered is a
"followup" to the July 1996 NSR reform
proposal. See May 1996 Washington Report at
WR-61. In the 1996 proposal, EPA proposed to
authorize permitting agencies to make NSR
applicability determinations for non-utility
sources based on the "actual-to-future actual" test
contained in the 1992 "WEPCO Rule." The
WEPCO Rule expressly authorizes sources in
the electric utility industry to calculate their
post-change emissions based on a projection of
their actual emissions. The projection is the
product of the source's hourly emissions rate and
its projected capacity utilization. Increases in
capacity resulting from demand growth may be
excluded from the calculation. Under the 1996
proposal, the "actual-to-future actual" method
would be available as an alternative to the
"actual-to-potential" method in the federal
regulations and the states would have the option
of adopting the "actual-to-future actual" method
for all source categories.

According to EPA, the new approach
discussed for the first time in the July 24 notice
would extend to non-utility sources a form of
the "actual-to-future actual" test now governing
electric utility sources. However, that test would
be altered in certain respects to address certain
Agency concerns. In fact, the new approach
outlined in the July 24 notice is a significant
departure from the approach set forth in the
1996 proposal and would also substantially
change the current NSR applicability scheme.
The new approach would contain three principal
features:

the new "actual-to-enforceable actual"
test would apply to all industrial sources
utility and non-utility

to avoid triggering NSR requirements,
sources undertaking changes would be
subject to an enforceable "temporary"
emissions limit for a ten-year period

the demand growth exclusion contained
in the WEPCO Rule would be
eliminated

The notice indicates that the temporary
emissions limit referred to above would most
likely take the form of a minor NSR permit.

The notice also contains a discussion of
the reasons why EPA is proposing to
substantially modify the "actual-to-future actual"
test set forth in the WEPCO Rule. Specifically,
EPA believes that the deregulation of the utility
industry and the introduction of market
economics have changed some of the
assumptions underlying the WEPCO Rule and
make it desirable to eliminate the demand
growth exclusion. For much the same reasons,
EPA believes that the demand growth exclusion
should not be extended to non-utility sources. In
addition, EPA is concerned that there may not
be adequate verification of future emissions for
sources employing the current actual-to-future
actual test. As a result, the modified test would
make the emission levels used by the source in
projecting actual emissions enforceable for a
ten-year period.

The new applicability approach outlined
in the notice raises major concerns for industrial
sources. First, EPA's approach would have the
effect of eliminating the causation requirement in
the Act and EPA's current regulations. EPA
would assume that any future emissions increases
would result from any physical and operational
changes that are made and require that a source
be subject to NSR requirements in order to be
able to continue in the future to operate at the
higher levels authorized before the change.
Second, sources making changes that will have
little or no effect on actual emissions, or possibly
even decrease actual emissions, would be
required to install BACT or LAER controls on
unchanged parts of the facility because of EPA's
current expansive definition of what constitutes
the modified emissions unit unless the source
agrees to cap its emissions at actual levels before
a change is made. The practical effect would be
to make it impossible for a source with growing
consumer demand to meet that demand with
current capacity without becoming subject to
major NSR if it makes any plant changes.

Possible Changes to PALs

In a related area, EPA is requesting
comments on issues pertaining to PALs and
options for downward adjustment of such limits
over time. PALs are established to allow a
facility greater operational flexibility. Under a
PAL, so long as source activities do not result in
emissions above the plantwide emissions cap, the
source will not be subject to major NSR. For
example, a PAL may allow a facility to make
timely changes in response to market demands
and provide certainty that NSR has not been
triggered.

However, EPA believes that it may be
necessary to make downward adjustments in
PAL emission caps for a number of policy
reasons and is considering modifying the
regulatory language contained in its NSR reform
package. Among these reasons is EPA's concern
that a PAL of indefinite length would allow a
source to keep rather than eventually to forfeit
to the environment additional emission
reductions at the source, such as those achieved
by replacing existing units with more efficient,
lower-polluting equipment.

EPA is considering several options for
periodically revisiting PAL emission levels and is
soliciting comments on the appropriateness of
reviewing PAL emission levels every 10 years.
The main options are outlined below.

permitting authorities may adjust the
PAL to account for emission reductions
from covered units that are shutdown or
dismantled and the resulting emission
reductions unused for a period of 10
years

the PAL may be reevaluated to account
for emission reductions where an
emissions unit operated for at least 10
years below its capacity level

PALs would expire after 10 years or be
renewed to reflect current actual
emissions

In addition, EPA is considering whether it is
appropriate to adjust PALs downward at all
where the emission units subject to the PAL
have good controls already in place (such as
BACT or LAER), or where a source voluntarily
implemented pollution prevention strategies
with resulting reductions in emissions.

The July 24 notice states that comments
on both the NSR applicability test and the PAL
adjustment issues are due by August 24, 1998.
However, EPA officials have indicated that the
comment period will be extended until at least
September 14, 1998.

EPA Issues Guidance on
State Implementation of
Revised Ozone and PM
Standards

EPA has issued a new guidance memorandum
addressing certain initial steps that states are
to take in implementing the revised ozone and
PM standards promulgated in July 1997. "Early
Planning Guidance for the Revised Ozone and
Particulate Matter (PM) National Ambient Air
Quality Standards (NAAQS)" (June 16, 1998).
That memorandum discusses two main subjects:
(1) the requirement that Governors submit
recommendations for designation of areas as
either attainment, nonattainment, or
unclassifiable whenever a NAAQS is
promulgated or revised; and (2) the process EPA
plans to follow in approving SIPs to address
general authority and infrastructure issues
concerning the revised standards. The most
significant aspect of the guidance memorandum
is that it extends the deadlines by which states
are to submit recommendations for designations
to EPA.
Enactment of the Transportation
Equity Act for the 21st Century

Among other things, the June 16
memorandum revises a prior guidance document
to reflect the enactment of the Transportation
Equity Act for the 21st Century (TEA-21),
Public Law No. 105-178, on June 9, 1998. TEA-21 contains provisions that alter prior statutory
and regulatory deadlines for submission of
recommended designations by the states and for
EPA action on those recommendations. The
statute changes the deadlines for recommended
designations involving the new 8-hour ozone
standard and the PM-2.5 standard but does not
affect implementation of the PM-10 standard. It
also requires coordination of EPA's proposed
regional haze program with implementation of
the PM-2.5 standard.

Deadlines for the Ozone Standard

Prior to enactment of TEA-21, states had
one year under the Clean Air Act to submit
designation recommendations for the 8-hour
ozone standard, i.e., until July 1998. TEA-21
extends this deadline by one year to July 1999
and provides that EPA is to take action on the
recommendations by July 2000. The June 16
guidance also provides that, at the same time
recommended designations are submitted, the
states are to submit proposed boundaries for
areas that do not attain the standard. The
guidance explains that the Consolidated
Metropolitan Statistical Area (CMSA) may no
longer be the presumptive ozone nonattainment
area. Although subpart 2 of part D contained
such a requirement, EPA plans to implement the
new ozone standard pursuant to subpart 1 of
part D, which does not contain this requirement.
As a result, many suburban counties may no
longer be included in the designated ozone
nonattainment area. By the end of 1998, EPA
intends to issue guidance on how ozone
nonattainment area boundaries should be drawn.

Deadlines for the PM-2.5 Standard

The guidance explains that TEA-21
provides that EPA will not make designation
decisions relative to the PM-2.5 standard until at
least three calendar years of data from the newly
created federal monitoring network for PM-2.5
have been collected. States are to submit
designation recommendations to EPA one year
after the data have been received for the area in
question. EPA is to promulgate designations
within one year after the state submits its
recommended designations or by December 31,
2005, whichever is earlier.

Because of the enactment of these
provisions addressing the PM-2.5 standard, EPA
will no longer need to pursue its original
implementation approach for the PM-2.5
standard. Under that approach, EPA would
have initially designated all areas in the country
as "unclassifiable" in order to provide sufficient
time to obtain PM-2.5 data to serve as a basis for
the states' recommended designations.

EPA also indicates in the guidance that it
expects that three years of data will be available
from the first set of monitors by 2002 and from
all other monitors by 2003. As a result, states
would be required to submit recommended
designations for the PM-2.5 standard in the 2003-2004 range.

The Proposed Regional Haze
Program

TEA-21 provides that, notwithstanding
the requirement in the Clean Air Act that states
submit revised SIPs within one year after the
promulgation of regional haze program
regulations, such revised SIPs shall not be due for
PM-2.5 nonattainment areas until revised SIPs
for the PM-2.5 standard are due and shall not be
due for PM-2.5 attainment areas or unclassifiable
areas until one year after such designation has
been made. The June 16 guidance states that
regional haze program deadline issues will be
addressed further in the final regional haze
regulations.

In a separate but related development,
EPA officials have indicated that promulgation
of the final regional haze program regulations
will be postponed so that EPA can address
concerns about the program raised by many
parties. Those regulations had been scheduled
for promulgation in September of this year.
Future Guidance

EPA has indicated that it will issue
proposed Initial Planning Guidance later this
summer. That guidance will provide an
overview of the nonattainment area classification
scheme and related requirements for the revised
ozone and PM standards. Among other things,
the guidance will discuss the process by which an
ozone nonattainment area can seek to be
classified as a "transitional" area. The guidance
will also set forth EPA's policy for "reasonable
available control measures" ("RACM") for ozone
nonattainment areas.

EPA Issues Guidance on
Extending Ozone Attainment
Deadlines for Downwind
Areas

On July 17, 1998, EPA issued a guidance
memorandum setting forth the conditions
under which the attainment deadlines for
nonattainment areas affected by ozone transport
can be extended. The guidance applies to all
ozone nonattainment areas that are classified as
either "moderate" or "serious" with regard to the
1-hour ozone standard.

The principal effect of the guidance will
be to enable downwind areas that satisfy the
criteria contained in the guidance to avoid being
reclassified or "bumped up" to a higher
nonattainment classification because statutory
attainment deadlines cannot be met. Unless the
statutory attainment deadlines are extended,
those areas would become subject to additional,
more stringent measures until attainment is
achieved. Because the guidance will lessen the
pressure on downwind states to enact additional
local control measures, upwind states and
midwestern utilities have indicated displeasure
with the policy set forth in the guidance.

The guidance explains that EPA's
attainment deadline policy is based on its finding
that the transport of ozone and its precursors
from upwind areas is interfering with the ability
of downwind areas to demonstrate attainment by
the statutory deadlines. The Act provides that,
unless EPA grants an extension, "moderate"
ozone nonattainment areas are to demonstrate
attainment by November 1996 and "serious"
ozone nonattainment areas are to demonstrate
attainment by November 1999. If a "moderate"
area fails to meet its attainment demonstration
deadline, the statute provides that it will be
reclassified as a "serious" area. Similarly, a
"serious" area failing to meet its deadline will be
reclassified as a "severe" area.

According to the guidance, EPA will
consider extending the attainment deadline for
any "moderate"or "serious" area that meets the
following criteria:

the area has been identified as a
downwind area affected by transport
from either an upwind area in the same
state with a later attainment date or an
upwind area in another state that
significantly contributes to downwind
nonattainment

the area has submitted an approvable
attainment demonstration with any
necessary local measures and with an
attainment date that shows it will attain
the 1-hour standard by the date that
upwind areas are expected to make
necessary reductions under the final
NOx SIP call

the area has adopted all applicable local
measures required under the area's
current classification

the area has indicated that it will
implement all adopted measures as
expeditiously as possible

The guidance states that EPA will
address specific requests to extend the attainment
date for an area through subsequent rulemaking
action on an area-by-area basis. An area
qualifying for an extension will not be
reclassified or "bumped up" upon missing its
current deadline.

EPA Extends Its "Potential to
Emit" Transition Policy until
December 31, 1999

In a guidance memorandum dated July
10, 1998, EPA has further extended its transition
policy addressing limits on sources' "potential to
emit" (PTE) under the section 112 MACT
standard program and the Title V operating
permits program. That transition policy,
which was originally set forth in a January 25,
1995 memorandum, allows permitting
authorities to treat certain sources as non-major
sources under those programs until EPA clarifies
the means by which sources can limit their PTE
for purposes of major source determinations.
The July 10 memorandum extends the transition
policy until December 31, 1999. The transition
policy would have otherwise expired on July 31,
1998.

Under the January 1995 transition
policy, state or local permitting authorities may
treat the following types of sources as non-major
sources:

sources which maintain adequate records
to demonstrate that their actual
emissions are less than 50 percent of the
major source threshold, and

sources whose actual emissions are
between 50 and 100 percent of the major
source threshold if the sources are
subject to state limits that are practicably
enforceable

That transition policy was subsequently
extended to July 31, 1998. See September 1996
Washington Report at WR-83.

The July 10 memorandum indicates that
the transition policy was extended in large part
because of three D.C. Circuit decisions
addressing the "federal enforceability"
requirement in EPA's PTE definitions, i.e., the
requirement that limits on a source's PTE be
"federally enforceable" before they may be
considered. Those decisions are National Mining
Association v. EPA, 59 F.3d 1362 (D.C. Cir. 1995)
(court remanded PTE definition in section 112
program); Chemical Manufacturers Association v.
EPA, No. 89-1514 (D.C. Cir., Sept. 15, 1995)
(court vacated and remanded PTE definitions in
new source review program); and Clean Air
Implementation Project v. EPA, No. 96-1224
(D.C. Cir., June 28, 1996) (court vacated and
remanded PTE definition in Title V program).

EPA explains in the July 10
memorandum that, in light of these decisions, it
is currently engaged in a rulemaking process "to
consider amendments to the current
requirements." Because it will not complete the
rulemaking by July 31, 1998, the Agency states
that it is necessary to extend the transition policy
for the section 112 and Title V programs "until
December 31, 1999, or until the effective date of
the final rule in the PTE rulemaking, whichever
is sooner." The memorandum is silent as to
when a PTE rule might be proposed or finalized.

Court of Appeals Relies on
Steel Co. Decision in Holding
That a Citizen Suit Has
Become Moot

In one of the first cases to address the Supreme
Court's recent decision on standing in Steel
Co. v. Citizens for a Better Environment, 118
S.Ct. 1003 (1998), the U.S. Court of Appeals for
the Fourth Circuit has held that a citizen suit
under the Clean Water Act became moot once
the plaintiffs were no longer entitled to
injunctive relief. Friends of the Earth v. Laidlaw
Environmental Services, Nos. 97-1246 et al. (4th
Cir., July 16, 1998). The court of appeals
determined that, under the holding of Steel Co.,
the plaintiffs' claims for the imposition of civil
penalties against the company involved were, by
themselves, insufficient to constitute a live
controversy.

In Steel Co., which arose under the
Emergency Planning and Community
Right-to-Know Act (EPCRA), the Supreme
Court ruled that a citizen suit plaintiff lacks
standing under Article III of the Constitution
unless it can show that it is entitled to injunctive
relief to remedy a concrete injury to itself. See
March 1998 Washington Report at WR-177.
The Supreme Court held that a plaintiff seeking
only to recover civil penalties for the U.S.
Treasury cannot meet this fundamental
"redressability" requirement.

The Fourth Circuit's decision is
significant because it extends the holding of the
Steel Co. decision in two important ways. First,
by applying Steel Co. to a Clean Water Act
citizen suit, the Fourth Circuit's decision
confirms that the Steel Co. holding broadly
applies to the citizen suit provisions of all
environmental statutes and is not limited to
citizen suits addressing the reporting
requirements of EPCRA. Second, by ruling that
the case before it had become moot, the Fourth
Circuit made clear that a citizen suit plaintiff
must demonstrate that it meets Article III
requirements at every stage of the litigation. In
other words, even if a plaintiff has standing
when it files its complaint, the citizen suit will
subsequently become moot if the defendant takes
actions which result in the plaintiff no longer
being entitled to injunctive relief.

In this case, the plaintiffs brought a
citizen suit action in federal district court based
on allegations that the company had violated its
Clean Water Act permit. The plaintiffs sought
both injunctive relief and the imposition of civil
penalties against the company. Following a trial,
the district court ordered the company to pay
civil penalties. However, the district court
denied the request for injunctive relief because it
concluded that the violations had not caused any
environmental harm and that, at the time of the
court's final order, the company had been in
compliance with its permit for several years.
The plaintiffs did not appeal the district court's
denial of injunctive relief. After the company
appealed the district court's award of civil
penalties and attorneys fees, the Fourth Circuit
concluded that, because the plaintiffs were no
longer entitled to injunctive relief, the rationale
of the Steel Co. decision dictated that the case be
dismissed as moot.

As a result of its mootness
determination, the Fourth Circuit overturned a
civil penalty assessment of more than $400,000.
The court also disallowed plaintiffs' requests for
attorneys fees of more than $2,000,000. It is
expected that the plaintiffs will seek Supreme
Court review.

Appellate Court Rules That
Statute of Limitations Does
Not Prevent EPA From
Obtaining an Injunction for
Past Violations

On June 25, 1998, the U.S. Court of Appeals
for the Tenth Circuit issued a decision
holding that the general federal statute of
limitations does not apply to an EPA
enforcement action seeking injunctive relief to
remedy past statutory violations. United States v.
Telluride Co., No. 97-1236 (10th Cir.). That
provision 28 U.S.C. 2462 states that an
action "for the enforcement of any civil fine,
penalty, or forfeiture, pecuniary or otherwise"
will be barred unless it is commenced "within
five years from the date when the claim first
accrued." The appellate decision reversed a prior
district court decision that had interpreted 2462
as governing requests for injunctions as well as
requests for monetary penalties. United States v.
Telluride Co., 884 F.Supp. 404 (D. Colo. 1995).

Although the case arose under the Clean
Water Act, EPA will likely attempt to rely on
the general principles underlying the Tenth
Circuit's decision in Clean Air Act enforcement
cases as well. The decision constitutes a binding
precedent only in the federal courts within the
states comprising the Tenth Circuit (the western
states essentially surrounding Colorado).
However, EPA will presumably invoke the
reasoning of the Tenth Circuit's decision in any
enforcement case where it seeks injunctive relief
for violations occurring more than five years
before it files the action.

This case involved an enforcement action
in which EPA alleged that the Telluride
Company had illegally filled certain wetlands.
EPA sought civil penalties as well as an
injunction requiring the company to restore the
wetlands or create new wetlands to replace those
that could not be restored. The federal district
court ruled that 2462 barred EPA from
obtaining any monetary or injunctive relief for
those wetlands that had been filled more than
five years before EPA had filed its complaint.
EPA appealed the district court's decision that
2462 applied to its request for an injunction.

On appeal, the Tenth Circuit agreed
with the company as an initial matter that 2462
applies to both monetary and non-monetary
penalties. The court then determined that the
primary question before it was whether the
injunctive relief requested by EPA constituted a
"penalty" under 2462. In this regard, the court
sought to determine whether EPA was seeking
compensation that was unrelated to, or in excess
of, the damage allegedly caused by the company.
The court concluded that the injunction
requested in this case was remedial in nature
because EPA sought only to restore wetlands or
create replacement wetlands, not to punish the
company. Therefore, the appellate court
reversed the district court's ruling that 2462
barred the injunctive relief requested by EPA.
At the same time, the decision implicitly
recognized that, under different circumstances,
an injunction could entail such far-reaching relief
that it would constitute a "penalty" for purposes
of the statute of limitations.

Environmental Appeals
Board Upholds Ruling That
EPA May Not Prove a
Violation Without Required
Test Data

In a decision that may have significant
implications for EPA's "credible evidence"
rule, the Agency's Environmental Appeals Board
(EAB) has ruled that the Agency could not
enforce a requirement in its gasoline volatility
regulations against a company because the
Agency had failed to obtain test results required
by the regulations to demonstrate
noncompliance. In re: Commercial Cartage
Company, CAA Appeal No. 97-9 (July 30, 1998).
In so ruling, the EAB upheld the key conclusions
of an administrative law judge who had dismissed
the Agency's administrative complaint. See the
September 1997 Washington Report at WR-155.

Although the "credible evidence" rule
was not directly involved in this case, the
Board's holding implicitly rejects the rationale
underlying the "credible evidence" rule. The
Board ruled that, because the regulation specifies
a testing method for determining violations,
EPA could not rely on documentary evidence to
establish a violation of the regulations. Thus, the
Board's decision clearly supports the position
that, where a testing procedure or other
compliance method is specified in a regulation,
that procedure or method should be the sole
means of determining whether a violation has
occurred.

This case involved EPA's enforcement of
its gasoline volatility regulations against a
trucking company that delivered gasoline to
retail outlets in the St. Louis area. The Agency,
acting through the Office of Enforcement and
Compliance Assistance (OECA), alleged that the
company had delivered high volatility gasoline to
a retail gasoline outlet in a county where the
volatility of gasoline sold is restricted to a lower
level by EPA's regulations. OECA claimed that
the company had directly violated provisions
applicable to carriers of gasoline and had also
violated provisions applicable to retail outlets by
"causing" violations at the outlet in question.

OECA's contention that the volatility
regulations had been violated was based on two
elements of proof: (1) tests conducted by EPA on
gasoline contained in tanks at the retail outlet
which showed that the volatility exceeded
permissible limits and (2) various documents
(bills of lading, delivery tickets, and test logs)
indicating that the trucking company had
delivered gasoline to the outlet during the
relevant time period. However, EPA had not
tested gasoline in the company's tank trucks.

The Board rejected OECA's position
that documentary evidence linking the company
to the high volatility gasoline was sufficient to
establish a violation of the provisions applicable
to carriers of gasoline. The Board ruled that the
plain language of the pertinent regulation was
determinative of what constituted compliance or
noncompliance with that regulation. It
emphasized that the regulation provides that a
carrier is liable for a violation of the volatility
restrictions only "where a violation of the
applicable standard . . . is detected at a carrier's
facility." Based on its analysis of the regulatory
language and the rulemaking history of the
regulation, the Board interpreted the word
"detected" to mean that the violation must be
discovered through sampling and testing
procedures specified in the volatility regulations.
Accordingly, the Board concluded that, because
the carrier had simply transported gasoline from
an independent distributor to the retail outlet,
any violation must be detected in one of the
company's tank trucks. Because EPA had never
tested the volatility of the gasoline in those tank
trucks, the Board ruled that EPA's documentary
evidence was not sufficient to establish a
violation.

With regard to the separate allegations
that the company had also caused violations at
the retail outlet, the Board concluded that the
company had "negligently contributed" to such
violations. The Board distinguished this
situation from the allegations involving the
company's liability as a carrier because EPA had
tested the gasoline at the retail outlet in
accordance with the regulatory requirements.

SAVE THE DATE
Clean Air Act Information
Network Fall Meeting,
November 16-17, 1998,
Park Hyatt Hotel,
Washington, D.C.

Invitations will be going out in September for
the Fall 1998 Meeting of the Clean Air Act
Information Network. The program will cover
a broad range of clean air topics, and will bring
together experts from EPA, state agencies, and
industry for two days of discussions and
workshops. Mark your calendars now for
November 16-17, and plan to participate in this
event.

Please e-mail any comments or questions to the Clean Air Act Information Network.

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