Introduction

The Seventh Circuit Court of Appeals’ July 8, 2013 decision in United States v. Midwest Generation, LLC, Case Nos. 12-206 & 12-1051, could have implications on EPA’s longstanding Flaring Enforcement Initiative. In Midwest Generation, the Seventh Circuit held that the failure to obtain a preconstruction permit and install best available control technology (“BACT”) in accordance with the Clean Air Act’s Prevention of Significant Deterioration (“PSD”) provisions are not continuing violations and that lawsuits alleging noncompliance with those requirements are time-barred five years after construction is completed. As a consequence of this decision, EPA may encounter difficulty when threatening facilities with enforcement over alleged NSR and PSD violations as a means of imposing more stringent flaring obligations that go far beyond the regulatory requirements.

Background on EPA’s Flaring Initiative

EPA’s focus on flare operating practices has been long-standing. In 2000, EPA released an Enforcement Alert outlining its concerns about excessive flaring, primarily within the petroleum refining industry. See EPA Office of Enforcement and Compliance Assurance, Enforcement Alert: Frequent Routine Flaring May Cause Excessive, Uncontrolled Sulfur Dioxide Releases (EPA 300-N-00-014, October 2000). Subsequently, EPA identified flaring as one of its four marquee issues under the original Petroleum Enforcement Refinery Initiative. See EPA Office of Enforcement and Compliance Assurance, Petroleum Refinery National Case Results, available athttp://www2.epa.gov/enforcement/petroleum-refinery-national-case-results. Under the Petroleum Refinery Initiative, EPA sought to impose flare gas recovery requirements, stipulated penalties for large flaring events, and the requirement for root cause flaring analyses for large flaring events on facilities that EPA was entering into Consent Decrees with for alleged violations of NSPS Subpart J.

Over time, EPA broadened its flaring focus to other issues and began to seek more far-reaching injunctive relief across a broader range of industries. In particular, EPA has expanded its initiative to include chemical manufacturers, even though there are no Subpart J equivalent NSPSs that govern the flare emissions from chemical manufacturers. In the absence of a substantive regulatory regime to enforce against flares used in other industries, EPA has developed a number of legal theories to threaten enforcement against facilities and impose injunctive relief against those facilities in Consent Decrees. Among those theories, EPA has asserted that facilities’ current flare practices may trigger possible NSR and PSD violations, alleging that “low flare efficiency” would have made past projects major modifications. See e.g., Brian Dickens, U.S. EPA Flare Activity Overview (Draft Presentation) at 27 (ca. February 2013).

U.S. v. Midwest Generation Decision

In Midwest Generation, the Seventh Circuit was faced with the question of whether the United States and the State of Illinois could bring a lawsuit against the current and former owners of five-coal fired power plants for failure to obtain a preconstruction permit and install BACT at the time the facilities were modified, which ranged from ten to fifteen years prior to the initiation of the lawsuit. The Seventh Circuit held that they could not.

With respect to the failure to obtain a pre-construction permit, the court explained that obtaining a permit is “a step the operator must take before constructing or modifying a ‘major emitting facility’” and that the “violation is complete when construction commences without a permit in hand.” SeeSlip Opinion at 5. The court noted that this decision was consistent with the two other courts of appeals that have considered this issue. See Sierra Club v. Otter Tail Power Co., 615 F.3d 1008 (8^thCir. 2010); National Parks and Conservation Association Inc. v. Tennessee Valley Authority, 502 F.3d 1316 (11^th Cir. 2007).

Likewise, with regard to the failure to install BACT, the court explained that the BACT requirements pertain to “what must be built” and “not how the source operates after construction.” See id. at 6. As a result, BACT violations are deemed complete when construction has been completed. See id. The court distinguished a Sixth Circuit decision that held that the failure to install BACT was a continuing violation, because that lawsuit was premised on a state statute that required sources not only to “install” BACT, but to “use” BACT in their operations. Based on these findings, the court determined that the governments’ lawsuit was barred by the federal five-year statute of limitations.

In reaching its holding, the court rejected the arguments that every day a plant operates without a preconstruction permit is a fresh violation of the Clean Air Act. The court commented that “[n]othing in the text of § 7475 even hints at the possibility that a fresh violation occurs every day until the end of the universe if an owner that lacks a construction permit operates a completed facility.” See id. at 5. The court also rejected the argument that a continuing injury from a discrete violation would indefinitely toll the statute of limitations. See id. at 7.

Implications For EPA’s Flaring Initiative

Although Midwest Generation did not arise in the context of EPA’s Flaring Initiative and did not discuss substantive flaring requirements, it could have a significant impact on that Initiative. The Seventh Circuit made clear that EPA may not bring enforcement actions relating to the failure to obtain a preconstruction permit or to install specified technology at the time of construction, if that construction occurred over five years ago. As a result, EPA will have difficulty arguing that NSR or PSD was triggered as a result of low flaring efficiency for projects that occurred over five years ago.