November 1998 WASHINGTON REPORT

             EPA Issues Guidance on Enforcement of
                 New Source Review Requirements

On November 17, 1998, EPA issued a
guidance memorandum addressing what
types of injunctive relief the Agency intends to
seek in settlements of enforcement actions
involving major new source review (NSR)
requirements.  Among other things, the guidance
calls for consent decrees to impose stringent
control requirements on (1) sources that have not
obtained a necessary major NSR permit or (2)
sources with a synthetic minor limit that have
"knowingly or regularly violated that limit."  The
guidance is being viewed as another step in EPA's
initiative to place greater emphasis on enforcing
NSR requirements.

                       Failure to Obtain 
                       a Major NSR Permit

     EPA's guidance addresses two separate
situations in which a facility with potential
emissions above the applicable major source
threshold has not obtained either a major NSR
permit or synthetic minor limits before
constructing a new major source or undertaking a
major modification.  The first scenario involves a
source whose actual emissions have exceeded the
major source or major modification threshold. 
The second scenario involves a source whose actual
emissions have never exceeded the major source or
major modification threshold.
     
     The guidance provides that, under the first
scenario (actual emissions exceed the threshold),
"the source should be required to comply fully
with all applicable NSR requirements, including
major NSR permitting, control technology, air
quality impact analysis and offsets."  According to
the guidance, any consent decree involving this
situation should require a level of control that
ensures BACT/LAER equivalent reductions. 
However, when such a violation occurs and the
source's potential emissions fall below the major
source threshold after application of BACT/LAER
equivalent controls, the EPA Regions have
discretion on a case-by-case basis to allow the
source to obtain a synthetic minor permit after it
achieves BACT/LAER equivalent reductions.

     Under the second scenario (actual
emissions never exceed the threshold), the guidance
provides that the source should be required to
achieve BACT/LAER equivalent reductions, but it
does not state that the source must ordinarily meet
the full range of NSR requirements.  If the source's
potential emissions fall below the major source
threshold after application of BACT/LAER
equivalent controls, the Regions have discretion to
determine whether to require full NSR compliance
or to allow the source to obtain a synthetic minor
permit after it achieves BACT/LAER equivalent
reductions.

     An important aspect of the guidance is that
EPA states that it "has determined that it is no
longer appropriate merely to allow a source to
'correct' an NSR violation by dismantling an illegal
modification, unless emissions from the new or
modified unit would essentially become zero (e.g.,
the entire process line was shutdown)."  According
to the guidance, EPA does not believe that a source
should generally be allowed merely to return to
pre-violation conditions in order to avoid
installation of control equipment or
implementation of process changes.

     The guidance does provide that the
determination of appropriate relief for the
scenarios described above is subject to
consideration of "compelling circumstances." 
Although the guidance does not define "compelling
circumstances," it offers examples of situations
where injunctive relief should be tempered to
reflect specific conditions.  Examples include the
following: (1) the source's actual emissions are so
low that imposition of add-on controls would
constitute "economic waste"; (2) the source is
replacing the units in question with new units
whose emission levels will be near those achieved
by BACT/LAER equivalent controls; or (3) there
are significant litigation risks for EPA.

               Failure to Comply With an Existing
                     Synthetic Minor Limit

     The guidance states that EPA will not
regard a source's synthetic minor limit as
effectively limiting the source's potential emissions
when evidence indicates that the source has
"knowingly or regularly violated" that synthetic
minor limit.  In that circumstance, the Agency will
not consider the limit when calculating the source's
potential to emit and determining whether the
relevant major source or major modification
threshold has been exceeded.  Where the threshold
has been exceeded, EPA will generally seek
enforcement alleging violations of  major NSR
requirements.  Moreover, EPA's position in such
situations is that the source should be treated as a
major source or major modification even when the
source's actual emissions do not exceed the major
source threshold or significance level.

     The guidance provides that there may be
circumstances where the appropriate response is
enforcement of the existing synthetic minor limit. 
It indicates that such circumstances may include
situations where (1) the permit violations are
relatively infrequent, (2) the violations are minor in
nature, and (3) the limit is significantly lower than
the relevant applicability threshold.

     Finally, the guidance explains that "to the
extent earlier guidance, memoranda or other EPA
documents imply that injunctive relief requiring a
source to come into compliance with existing
'synthetic' minor source limits, or obtain synthetic
limits, is an acceptable resolution of an
enforcement case, it is superseded by this
guidance."  


D.C. Circuit Denies Petitions
for Rehearing in Credible
Evidence Case

On November 20, 1998, the U.S. Court of
Appeals for the D.C. Circuit denied
petitions for rehearing and requests for rehearing
before the full court in the "Credible Evidence"
case.  The petitions sought rehearing of the Court's
August 14 decision, which had dismissed industry
petitioners' challenges to the "Credible Evidence"
(CE) rule solely on ripeness grounds.  See
September 1998 Washington Report at WR-205. 
Consistent with its normal practice, the Court
issued two brief orders denying the petitions and
requests without providing any explanation of the
grounds for its denials.

     In light of the Court's orders, industry
petitioners have three possible avenues for
challenging the CE rule or its implications for
specific standards:

    "Grounds Arising Under" Petitions
     Pending in the D.C. Circuit   Numerous
     trade associations also filed petitions for
     review asserting that changes made under
     the rule constitute "grounds arising under"
     for challenging specific NSPSs and
     NESHAPs.  These petitions have been
     held in abeyance pending the outcome of
     the principal CE rule challenge.  The
     petitioners could now request that a
     briefing schedule be established for one or
     more of the standards.  The principal
     arguments to be made in these challenges
     would be that EPA should have conducted
     rulemakings to change the method for
     determining compliance with these
     standards and, where there is an adequate
     supporting record, that the change resulted
     in the standard being made more stringent
     than when it was promulgated.

    Supreme Court Review   Industry
     petitioners could file a petition for
     certiorari with the Supreme Court,
     arguing that it should reverse the D.C.
     Circuit decision because the challenges to
     the CE rule are ripe.  Any such petitions
     would be due within 90 days of the denial
     of the petitions for rehearing.

    Individual Enforcement Actions   The
     D.C. Circuit decision indicates that
     challenges to the CE rule should be made
     in the context of individual enforcement
     actions.  Thus, if EPA brings enforcement
     actions based exclusively on non-reference
     test "credible evidence" and alleges
     violations of a standard for which a
     reference test was previously the exclusive
     method for determining compliance, the
     source will be able to argue that the CE
     rule changed the compliance obligation. 
     Accordingly, the source could contend
     that the CE rule should be vacated or, at a
     minimum, should not be upheld in the
     context of the standard at issue.

     Industry petitioners are currently weighing
the options outlined above.  

EPA Issues Revised  Draft
Implementation Guidance for
Ozone/PM/Regional Haze
Programs

On November 27, 1998, EPA published a
notice of availability regarding a revised
version of the draft implementation guidance for its
ozone, PM, and regional haze programs.  63 Fed.
Reg. 65,593.  The revised draft contains numerous
changes to the draft guidance released in August
1998.  See September Washington Report at WR-212.  The principal change to the prior draft is
that
the attainment deadlines for most nonattainment
areas for the 8-hour ozone standard would be
extended.  In addition, the revised document
provides guidance on regional planning measures to
be taken by the states.

               Extension of Attainment Deadlines

     Under the August 1998 draft guidance,
most areas not attaining the new 8-hour ozone
standard would be given one year to demonstrate
compliance with the standard after the deadline for
implementing all control measures necessary for
attainment.  However, the revised guidance would
extend that period so that a state would have three
ozone seasons (a season is May 1 to September 30)
in which to determine attainment.  The change was
made so that the compliance scheme would be
more consistent with the form of the 8-hour
standard.  Under that standard, an area is in
attainment with the standard when the monitoring
sites in the area show that the 3-year average of the
fourth-highest daily maximum 8-hour ozone
concentration is less than or equal to .08 parts per
million (ppm).  

     As a result of the change in EPA's
approach, the attainment date for "transitional"
nonattainment areas, i.e., those areas that have had
the 1-hour standard revoked but do not attain the
8-hour standard, would be December 31, 2005. 
This date is based on the May 1, 2003 deadline in
the recent NOx SIP Call by which states subject to
the SIP Call are to have necessary controls in place. 
(Under the August 1998 draft, the attainment date
would have been December 31, 2004.)  For many
"traditional" ozone nonattainment areas, i.e.,
nonattainment areas for the 8-hour standard that
do not qualify as "transitional" areas, the
implementation date for controls would be
December 31, 2005, and the attainment date would
be December 31, 2007.  Areas that have been
classified as "severe" or "extreme" under the
classification scheme in the 1990 amendments
would have later implementation and attainment
dates.

                       Regional Planning

     The guidance explains that the purposes of
the discussion on regional planning are:

    to provide a framework for future regional
     air quality planning efforts for the ozone
     NAAQS, PM NAAQS, and regional haze
     programs,

    to emphasize that SIP credit toward
     attainment demonstrations can be
     obtained from emissions reductions
     outside individual nonattainment areas
     under certain circumstances, and

    to address requirements for SIP attainment
     dates, attainment demonstrations, and
     other SIP requirements for areas using a
     regional planning approach or for areas
     that are affected by transport

     EPA's discussion of regional planning
focuses primarily on the benefits of such planning
for the regional haze program and the related PM
standards.  EPA does not indicate that it will
require the use of any regional planning
mechanism, but it "strongly recommends" that all
states participate at least in the organizational
development of regional haze planning and
coordination programs.  In addition, the guidance
generally discusses circumstances where, upon an
adequate technical demonstration, a state could
take credit for enforceable emissions reduction
strategies that will be implemented in another state. 
The guidance does not attempt to establish any
specific regional planning mechanisms but does
provide general criteria that the states may use to
establish regional planning organizations.

              Additional Steps to be Taken by EPA

     The Federal Register notice states that EPA
will receive public comments on the revised draft
guidance (including those portions already set forth
in the August 1998 draft) until December 28, 1998. 
EPA intends to issue a final version of the
implementation guidance by February 1999.  EPA
also intends to issue additional guidance addressing
the regional haze program sometime after it
publishes a final rule establishing that program in
the spring of 1999.  

EPA Issues Draft Guidance
on High Priority Violations

In a recently released draft guidance
memorandum dated September 1998, EPA has
set forth its new policy on high priority violations
(HPVs) under the Clean Air Act.  The guidance
would establish a new system under which state or
local enforcement agencies would devote special
attention to certain categories of violations.  The
HPV policy would replace EPA's current
Significant Violator policy, which has been widely
criticized by state and industry representatives. 

     The draft guidance sets forth a list of
"general criteria" as well as a separate "HPV
matrix" to be used by state or local enforcement
agencies to determine whether a violation should
be considered a high priority violation.  The draft
guidance provides that certain violations that do
not qualify as HPVs under the criteria or the
matrix may nonetheless be designated as high
priority violations.  "Additional violations,
whether at major or minor sources, may rise to the
level of a high priority violation at the mutual
agreement of the [EPA] Region and the delegated
agency on a case-by-case basis."  The guidance
provides that state or local agencies will "focus
appropriate and adequate enforcement and
compliance activities on those violations identified
by this policy."  The draft guidance does not
address what specific enforcement or compliance
activities are to be undertaken by the agencies.

                        General Criteria

     The draft guidance lists the following
factors as general HPV criteria:

    Failure to obtain a PSD permit (and/or to
     install BACT), an NSR permit (and/or to
     install LAER or obtain offsets) and/or a
     permit for a major modification of either.

    Violation of an air toxics requirement (i.e.,
     NESHAP, MACT) that either results in
     excess emissions or violates operating
     parameter restrictions.

    Violation by a synthetic minor of an
     emission limit or permit condition that
     affects the source's PSD, NSR or Title V
     status . . . .

    Violation of any substantive term of any
     local, state or federal order, consent decree
     or administrative order.
    Substantial violation of the source's Title
     V certification obligation, e.g., failure to
     submit a certification.

    Substantial violation of the source's
     obligation to submit a Title V permit
     application.

    Violations that involve testing,
     monitoring, recordkeeping or reporting
     that substantially interfere with
     enforcement or determining the source's
     compliance with applicable emission
     limits.

    A violation of an allowable emission limit
     detected during a reference method stack
     test.

    Clean Air Act (CAA) violations by
     chronic or recalcitrant violators.

    Substantial violation of Clean Air Act
     Section 112(r) requirements . . . .

                           HPV Matrix

     The HPV matrix included in the draft
guidance contains specific factors for determining
whether violations not falling within the general
criteria listed above should be considered  "high
priority."  The matrix consists of six columns that
identify the following:

    the violation

    the method of detection

    the applicable standard

    the supplemental significance threshold
     (surrogate threshold based on PSD
     significance level)

    percent in excess of the reference limit or
     standard
    time in excess of the limit or standard

     According to the draft guidance, the
"yardstick" for determining whether a violation is
"high priority" is the column entitled "percent in
excess of the reference limit or standard."  In many
instances, that factor is to be considered in
conjunction with the "time in excess of the limit or
standard."  For example, according to the matrix,
if a parameter limit used as a surrogate for an
emissions limitation is exceeded by more than 5%
for more than 3% of the time, that violation would
be considered a high priority violation.  Similarly,
for a standard providing for continuous opacity
monitoring and containing an opacity limit of less
than 20%, exceedances of the limit by more than
5% for more than 5% of the time would be
considered high priority violations.

     EPA has not indicated when it plans to
finalize the guidance or what additional issues it
may be considering.  
 
EPA Dismisses Environmental
Justice Complaint in
Michigan Case

On October 30, 1998, EPA's Office of Civil
Rights issued a decision denying the
complaint of a citizen group that had challenged,
on environmental justice grounds, the issuance of
a state air permit by the Michigan Department of
Environmental Quality (MDEQ).  The complaint
alleged that the issuance of the permit to Select
Steel Corporation for construction of a new facility
in Genesee County, Michigan, would have a
discriminatory impact on minority residents near
the proposed site.  EPA's decision is being closely
analyzed since it is the first substantive decision
addressing a complaint filed under EPA's
regulations implementing Title VI of the Civil
Rights Act and EPA's "Interim Guidance for
Investigating Title VI Administrative Complaints
Challenging Permits."  See January 1998
Washington Report at WR-172 to 173 for a
discussion of the Interim Guidance.

     EPA's denial of the complaint was
primarily based on its conclusion that the
complainants had failed to show that the new
facility would cause "adverse" impacts on any
affected population.  In finding no adverse impacts,
EPA examined the record to determine whether
emissions of VOCs, lead, air toxics, or dioxin from
the new facility would have an adverse impact on
residents in the vicinity of the facility.  Because
EPA concluded that there would be no adverse
impacts, it was unnecessary to proceed to the next
stage, i.e., determining whether affected
populations would be impacted in a discriminatory
manner.

     A significant aspect of EPA's approach to
resolving the complaint is that EPA stated that it
gave great weight to MDEQ's analyses of the
evidence in the record before it.  Moreover, in
analyzing the issues, EPA apparently did not
follow its own Interim Guidance in certain
respects.  (EPA's Interim Guidance has been widely
criticized for numerous reasons by state and local
officials as well as by industry representatives.)  For
example, although the Interim Guidance indicates
that permits that clearly satisfy basic health
standards under the Act may nevertheless have
discriminatory effects on minority populations,
EPA's decision in this case relied heavily on the
fact that the permit ensured that the health
standards would be met.

     Despite the fact that the decision defers
heavily to MDEQ's analyses of the evidence, the
extent to which the decision will constitute a
precedent for future environmental justice
decisions remains unclear. 

     In a related development, on November
24, 1998, a state appeals court in Michigan
overturned the order of a state trial court that had
enjoined MDEQ from issuing new permits in
Genesee County until MDEQ modified its
permitting procedures to deal more fully with
environmental justice issues.  The court of appeals
ruled that the lower court judge lacked any
authority to issue such an injunction and that the
plaintiffs had failed to establish that any intentional
discrimination had occurred.  

Court of Appeals Rules That
Company Did Not Receive 
"Fair Notice" of Test
Method

In a decision confirming the principle that a
regulated party must receive "fair notice" of its
regulatory obligations, the U.S. Court of Appeals
for the D.C. Circuit recently ruled that an
automobile manufacturer could not be compelled
to recall vehicles where it had not been provided
sufficient notice regarding the test method for
determining whether a violation had occurred. 
United States v. Chrysler Corp., No. 98-5047 (D.C.
Cir., October 30, 1998).  Although the decision
involved a recall under the National Traffic and
Motor Vehicle Safety Act, the basic reasoning of
the decision would apply in environmental cases as
well.

     The case involved an order of the National
Highway and Traffic Safety Administration
(NHTSA) directing Chrysler to recall 91,000
vehicles because they allegedly did not comply
with a safety standard governing safety belt
assembly anchorages.  Chrysler challenged the
order, arguing that its own tests had shown that the
anchorages complied with the standard.  In
contending that Chrysler had not complied with
the standard, NHTSA relied upon test results
reached by its contractor.  The contractor had
placed pelvic body blocks (objects representing the
human pelvis) away from rear seat backs when
conducting its tests   unlike Chrysler, which had
placed the blocks against the seat backs.

     Relying on its decision in General Electric
Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995), the
D.C. Circuit held that, as a matter of due process,
a party must receive "fair notice" of regulatory
requirements before it can be found liable for
violating those requirements.  Based on the record,
the Court ruled that Chrysler had not received
sufficient notice that the tests were to be conducted
with the blocks away from the seat backs.

     The decision expressly rejected the
government's contention that the "fair notice"
doctrine applies only where the government is
seeking civil penalties or some other punitive
measure against the regulated party.  The Court
concluded that the recall order itself must be
overturned for lack of "fair notice."  Thus, the
Court made clear that the doctrine applies to
actions seeking injunctive relief as well as actions
seeking monetary penalties.

     The Court's decision should be a useful
precedent for sources in Clean Air Act
enforcement actions where the standard in question
fails to provide reasonable notice of what the
source must do to achieve compliance.  In
particular, because it involved the precise manner
in which a compliance test was conducted, the
decision may apply in situations where a standard
prescribes a reference test method but EPA
attempts to rely on "credible evidence" of a
violation under a different approach concerning
which the source did not receive "fair notice."  

EAB Rejects Arguments That
BACT Determinations 
In PSD Permit Were Not
Sufficiently Stringent

On September 10, 1998, EPA's Environmental
Appeals Board (EAB) upheld the issuance of
a PSD permit against contentions that the permit
issuer should have included more demanding "best
available control technology" (BACT)
requirements.  In re: Maui Electric Company, PSD
Appeal No. 98-2 (EAB).  In so ruling, the EAB
confirmed that a particular technology must be
both "technically feasible" and "available" in order
to constitute BACT.

     The case involved a challenge to a PSD
permit that would allow the Maui Electric
Company (Maui) to expand an existing electric
generating station.  The permit specified that the
use of fuel oil no. 2 was BACT for control of SO2
emissions and that water injection was BACT for
control of NOx emissions.  The permit had been
issued by the State of Hawaii pursuant to authority
delegated to it by EPA.  Waimana Enterprises, a
competitor of Maui, appealed the State's issuance of
the permit and contended that BACT should be
the use of naptha fuel and selective catalytic
reduction (SCR) for control of SO2 and NOx
emissions, respectively.

     On appeal, the EAB first rejected
Waimana's argument that the BACT determination
for SO2 emissions was unlawful because it was
inconsistent with a prior determination made by
the State in a PSD permit issued to Waimana.  The
Board ruled that the issue had not been raised
during the public comment period and therefore
could not be considered on appeal.  

     The EAB then addressed Waimana's
contention that the SO2 BACT determination was
improper because a report prepared by the State
had indicated that use of naptha fuel was
technically feasible for the generating system to be
installed by Maui.  The Board, relying upon EPA's
1990 Draft NSR Manual, ruled that the permit
issuer must consider both the technical feasibility
and the availability of a given technology in
determining whether it constitutes BACT.  It
further concluded that the State's determination
that the long-term availability of naptha fuel was
"questionable" was not clearly erroneous and
therefore that the State's permitting decision must
be upheld in this respect.

     With regard to BACT for control of NOx
emissions, the EAB ruled that the State had not
erred in allowing Maui to obtain a permit for only
the first phase of the project and not including a
requirement in the permit for more stringent
BACT in the second phase of the project.  The
Board also rejected the contention that vendor
guarantees were sufficient to show that SCR was
BACT for the "simple cycle" operation mode to be
employed by Maui for the turbines in question.  It
upheld the State's conclusion that SCR would not
be appropriate for Maui's project because the
exhaust temperatures of simple cycle turbines, like
those of  Maui, are generally high and outside the
operating range of SCR units.