The federal Environmental Protection Agency (EPA) suffered an important loss on August 21 when the U.S. Court of Appeals for the Third Circuit affirmed the dismissal EPA’s prevention of significant deterioration (PSD) enforcement action against the current and former owners of Pennsylvania’s coal-fired Homer City Generating Station.

In United States v. EME Homer City Generation, L.P., No. 11-4408 (3d Cir. Aug. 21, 2013), the Third Circuit held that although the Clean Air Act’s PSD provisions prohibit plant owners from modifying their facilities without getting a PSD permit and implementing the best available control technology (BACT), those provisions do not prohibit operating modified facilities without those items.  That means that owners who acquire a plant after it has been modified may be shielded from PSD liability for those modifications and may be able to avoid having to install costly pollution control equipment.  The decision also contains many other important holdings and is a significant loss for EPA. 

Some commentators have suggested that the Homer City decision may spell the end of EPA’s PSD enforcement initiative against older coal-fired power plants.  But do not expect EPA (or other plaintiffs) to give up so easily.  The decision depends in part on the nuances of the Pennsylvania state implementation plan (SIP), which may differ from other SIPs, and EPA may find other ways to distinguish the decision.  EPA may also seek Supreme Court review. 

Just as important – perhaps even more important – the Homer City decision points to three things that power plant owners will want to be conscious of going forward:

First, the decision all but encourages EPA to investigate planned equipment upgrades, not just past upgrades that might have triggered PSD obligations.  The court explained:  “we see no reason why the EPA and States lack authority to require the advance reporting of some or all proposed changes to facilities, whether or not they rise to a modification.”

Second, the decision may also prompt EPA to pay greater attention to Title V permit renewal applications for power plants.  One significant feature of the decision is that it rejects, on jurisdictional grounds, EPA’s contention that the plant’s existing Title V operating permit was incomplete (because it failed to contain a requirement to use BACT). If EPA cannot complain about “incomplete” operating permits during enforcement actions, it may become more aggressive about raising PSD-related concerns during the permitting process. 

Third, the court’s discussion of civil penalties for PSD violations is eye-opening.  The court cautioned that where a plant owner modifies a plant in violation of the PSD requirements, civil penalties may not be limited to merely one day of violation.  Rather, civil penalties may be available for each day that the modification is underway.  For a modification that takes a month-long outage to implement, that could result in penalties greater than $1 million per modification.