Originally published as a Schiff Hardin Environmental Update newsletter

On August 23, 2011, the United States District Court for the Eastern District of Michigan in United States v. DTE Energy Co., et al., 10-cv-13101-BAF-RSW, granted summary judgment in favor of DTE in the first court decision in an enforcement action addressing alleged violations by an owner or operator of a coal-fired electric generating plant of the 2002 amendments to the Clean Air Act’s (“CAA”) New Source Review (“NSR”) regulations (“2002 NSR Reform Rules”). The court held that, because DTE chose to comply with the NSR “source obligations” specified in that rule for such plants (which, in DTE’s case, included a pre-project emission prediction and notice, and post-project recordkeeping and reporting requirements) and DTE predicted that construction on one of its electric generating units would not result in a significant net emissions increase of any regulated NSR pollutant from the unit, the United States Environmental Protection Agency (“USEPA”) could prove that the construction was a “major modification” only based on actual post-project emission data. USEPA could not challenge DTE’s pre-project projection that the project would not cause an emission increase. Because USEPA filed this case less than one year after completion of the alleged modification, the court held that it was premature.

The day before beginning a construction outage in March 2010, DTE submitted to the state permitting authority a pre-project notice concerning its pre-project emissions prediction pursuant to the reporting requirements under the 2002 NSR Reform Rules. The notice indicated that DTE intended to perform several changes and that DTE projected that none of the changes would result in a significant emissions increase of any regulated NSR pollutant. USEPA subsequently filed suit, alleging that DTE violated the CAA and NSR regulations by failing to obtain an NSR permit prior to the changes. According to USEPA’s own projection of emissions, USEPA alleged that DTE should have predicted that the project would result in a significant emissions increase. In response, DTE filed for summary judgment on grounds that the 2002 NSR Reform Rules precluded USEPA from challenging DTE’s pre-project projections where DTE had complied with the applicable pre-project reporting requirements.

The court agreed with DTE. The court found that the 2002 NSR Reform Rules preclude USEPA from challenging DTE’s pre-project determination at this time and that a violation cannot be established unless and until actual post-project data demonstrate that the changes resulted in a significant emissions increase. Significantly, the court characterized the source obligations under the 2002 NSR Reform Rules as providing source operators a “post-construction opportunity to fulfill their obligations under the CAA” so long as the pre-project emission projection requirements were followed. Because post-project actual emissions at the time USEPA filed the lawsuit (less than one year after completion of the projects) had not demonstrated that the projects did, in fact, cause a significant emissions increase, the court found USEPA’s enforcement action “premature” and granted summary judgment in favor of DTE. In other words, actual post-project emissions, rather than USEPA’s own projections of what DTE should have predicted, will be determinative.

This was also the first enforcement action court decision concerning the required timing and substance of pre-project emissions notifications. The court rejected USEPA’s challenge to the timing of DTE’s notification, holding that the submittal of the pre-project projections the day before physical construction began was “minimally sufficient” and the 2002 NSR Reform Rules do not require earlier notice. Similarly, the court rejected USEPA’s attack on the sufficiency of DTE’s notification. The court found that the 2002 NSR Reform Rules did not require DTE to explain why it excluded certain emissions from its analysis under the “could have accommodated” analysis. In addition, the court found that the submittal of the results of DTE’s calculations was sufficient and that DTE was not required to submit the “back-up data.”

In light of the significance of this holding, it is anticipated that USEPA will appeal the decision to the United States Court of Appeals for the Sixth Circuit.