February 15, 2013

Deborah Jordan Director, Air Division 

## Avenal Power Center, LLC 500 Dallas Street, Level 31 Houston, TX 77002

U.S

.Envirorunental Protection Agency, Region 

### IX 75 Hawthorne Street San Francisco, CA 94105
Subject: Applicationfor Extension ofthe PSD Permitfor the Avenal Energy Project

DearMs. Jordan:

Avenal Power Center, LLC (APC), submitted a request for an 18-month extension ofthe Prevention ofSignificant Deterioration (PSD) permit for the Avenal Energy Project on December 19,2012. OnFebruary 5, 2013, we received a letter from Assistant Administrator Gina McCarthy recognizing that our extension request was complete and informing usthat Region 

### IX would be responsible for its processing. This letter is a follow-up to ourDecember 19 extension request.

Asnoted inourDecember 19, 2012letter, APC received a final, effective PSDpermit for the Avenal Energy Project onAugust 18, 2011. Pursuantto40 C.F.R. § 52.21(rX2), this permit expires ifconstruction is not commenced within 18 months; that is, by February 18, 2013. But§ 52.21(r)(2) also provides that the "Administratormay extend the 18- monthperiod upon a satisfactory showing that an extension isjustified

." OurDecember 19,2012, request for an extension explained the reasons for ourrequest, but we believe that the additional detail contained in this letter will assist your office in processing the request and understanding that an extension isjustified.
Although we are certainthat you are aware ofthe project'shistory, the extensionrequest cannot be fully appreciated without reference to it. APC applied for a PSD permit for a natural gas-fired power facility near Avenal, California, in February 2008 and EPA deemed the application complete in March 2008. Despite a statutory requirement to grant
ordeny the Permit within one year, 42 U.S.C. § 7475(c), EPA did not issue a "Statement ofBasis" supporting its proposed decision to grant the permit until June 2009

. (March 2011 Supplemental Statement ofBasis at 1-2.) EPAthen extended the public comment period for anotherfour months, butno final action onthe permit was forthcoming.

InDecember 2009, APC notified EPAofits intent to sue over EPA'sfailure to act on the permit within one year asrequired by law, and filed a lawsuit to force a decision on its permit application after the mandatory waiting period

. EPA acknowledged that it had violatedthe statutory requirement to take action on the permit within one year, and characterized the delay as "unusual," "extreme," and "unacceptable." During the

130l541 IMs. DeborahJordan February 11, 2013

litigation, EPA adopted new National Ambient Air Quality Standards ("NAAQS") for nitrogen dioxide ("N02 ") effective April2010, for sulfur dioxide ("S02") effective August 201 0, and beganregulating "greenhouse gasses" underthe Clean Air Act, effective January 2011. Each ofthese standards was adopted afterthe original deadline for action on the permit, and after APC had sued to compel EPA to take final action on the permit application. EPA initially took the position thatthese new standards would apply based on a memorandwn issued by the Office ofAir Quality Planning & Standards stating that EPA would generally follow that practice. EPA later reversed its position in a declaration that the Assistant Administrator filed with the District Court.

In the declaration, the Assistant Administrator recognized thatEPA had encountered "unforeseen challenges" in applying the new standards to pending permit applications, and had undertaken a "policy review" to determine howto make decisions in a "timely manner" in view ofthese challenges. Assistant Administrator McCarthy's sworn declaration further explained that EPA had concluded that it was "appropriate, under certain narrow circwnstances," to apply the standards in place at the time the application
was complete, and notto apply the new standards to pendingpermit applications. In addition, EPA determined that applying the new standards to APC's application would be unfair and would cause further delay, and thus exercised its discretion to apply the standards in place when the statutory deadline for acting on the permit expired. The District Court orderedthe agency to take action on the permit by May 27, 20 11, and allowed an additional 90 days for any internal agency appeals.

EPA then completed its work in a timely fashion, issuing the permit on May 27, 2011. Several interested groups sought review ofthat decision before the Environmental Appeals Board, which denied the petitions for review in August 2011. Not to be deterred, several ofthose groups filed petitions for review inthe U.S. Court ofAppeals for the Ninth Circuit, challenging the legality ofEPA's decision to apply the standards in place at the statutory deadline for action on thepermit.I The initial petitions for review in the Ninth Circuit were filed inNovember 2011, and the case was fully briefed by May 22, 2012. Yet the delays continue. According to its latest annual report, the Ninth Circuit takes an average of 17.4 months from date offiling to the resolution ofan appeal. Recognizing that this delay wouldjeopardize its permit and continue to cause it serious harm, APC sought and received agreement from the other parties to seek expedited review from the Ninth Circuit. After argument, the average case is resolved in 6 weeks. Thus, APC filed an unopposed motion to expedite argwnent onMay 30, 2012, but the Ninth Circuit denied that motion without explanation onJune 12, 2012. The case is not yet set for argwnent, although statistics suggestthat itwill be set sometime this spring or
swnmer.

In view ofthis history, it is clear thatthis request meets EPA's standard, as set forth in40 C.F.R. 

### § 52.21(r)(2), ofa "satisfactory showing that an extension isjustified." APC has doggedly pursued every chance to begin work onthisproject, but has been thwarted by process and delaytactics at every tum. Indeed, it is apparent that some ofthe groups

1Those cases are listed as Sierra Club, etal. vs. UnitedStates Environmental ProtectionAgency, etal, and AvenalPower Center, LLC and ElPueblo Para ElAireY AguaLimpio v. UnitedStates Environmental ProtectionAgency, et. al, Nos. 1173342 and 11-73356.

1302541 IMs. Deborah Jordan February 11, 2013

challenging APC's permit intend to prolong the resolution ofthe pending disputes inthe hopes ofthwarting the project or delaying it as long as possible. This is not mere speculation or attribution ofmotivation. When APC initiated discussions ofa possible settlement with petitioners to explore whether any mitigation orfurther studies might resolve theirconcerns aboutthis specific project, their counsel stated in no uncertain terms that their goal was to stop any further powerplants in California's Central Valley,
orto "hold them off' as long as possible. Based onthis extreme position, the Ninth Circuit mediatorrejected the case for mediation and set it for briefing.

APC has done everything possible to advance a final determination and commence construction on this project, but could not do so. It is also clearthat APC cannotnow commence construction on this project2. Ifit were simply a matter ofsite clearing, grading, or other minor work, APC would have commenced construction some time ago. But the operative statute and regulations provide a much higher standard for "commencement ofconstruction" sufficientto keep the permit from expiring. For more than 30years, EPA has made it clear that the term "commenced construction" requires a "continuous, physical on-site construction program." See 43 Fed.Reg. 26388, 26395 (1978). EPA has emphasized that "only significant and continuous sitepreparation work" is sufficient to "commence" construction, and that "placement, assembly, or installation ofunique facilities orequipment atthe site" is generally required. See Memorandum ofDecember 18, 1975, from Roger Strelow, Assistant Administrator, to Regional Administrators, available athttp://www.epa.gov/region07/air/nsr/nsrmemos/ psdapdet.pdf.3

The otherwayto "commence" construction is to enterinto anirrevocable contract for a continuous, on site construction program. This is likewise impossible at this time because defining the actions and schedule required to construct are impossible giventhe uncertain outcome ofthe litigation. Thefirst major step to entering into a bidding process is to clearly and completely define the project to be bid. As this isthe largest single component ofthe project cost of$500-$600 million, it is not possible to clearly define the "scope" and associated cost ofthe projectuntil the litigation is concluded. Further defining that scope requires further details to be added and plans to be drawn afterthe permit is final and financing obligations canbe obtained. In brief, the detail necessary to obtain financing and binding contracts from suppliers can not be completed until there is certainty in the projects ability to move from constructionto commercial operation, which can not be done until the litigation is complete.
Lastly, evenifAPC could theoretically attemptto "commence" construction inthe near future, it could notdo so as a practical matter. As noted above, this is a significant project, and it will cost several hundred million dollars to get the project to final design, bid, and through construction. Suchprojects cannot be started orcompleted without financing, but financing is impossible to obtain with pending litigation that threatens to

2 APC has spent millions ofdollars and continues to spend money to maintain the viability ofthe project, including the amendments to the CEC permitand executing a binding interconnection agreementwith the California ISO which does demonstrate a continued commitmentto advance the project and move to construction and commercial operation as soon as possible. 3 Other regions are in accord. See, e.g., http:/l www.envinfo.com/caain/ ALLPSD.TXT

1302541 IMs. DeborahJordan February 11, 2013

invalidate the required PSD permit. Even the academic literature has recognized this fact, explaining that "all licenses and permits will be obtained before Financial Close, because the Lenders will not wish to advance funds unless they are confident that the project canproceed through to operation." Stephen Peppiat, Introduction to Power Station Project Financing, 13 BerkeleyJ. Int'lLaw46, 56 (1995). As a practical matter, it is impossible to convince a lending institution to put more than a halfbillion dollars at risk for a projectthat may be delayed for years orrendered invalid by litigation. Without such financing, the project cannot evenreach final design, muchless commence construction.

Forrelated reasons, construction cannot "commence" immediately upon the expected favorable decision from the federal court ofappeals. Ifthe Ninth Circuit upholds EPA's careful and well-reasoned permit decision, APC will have to obtain financing, complete engineering and satisfy all ofthe California Energy Commission'spreconstruction requirements. These actions all take significant time, and the date and substance ofthe Ninth Circuit's decision is presently unknown. The necessary contracting, documentation and preconstruction filing obligations ofthe California Energy Commission alone could result in as much as 12 months delay in starting construction from the date ofany ruling by theNinth Circuit. APC is committed to taking every action to expedite the court'sdecision, and is considering renewing its motion to expedite ifRegion IX grants the permit extension request.

Forthe reasons set forth above, APC believes that it meets the applicable regulatory standard for anextension: a satisfactory showing that an extension isjustified. 40 C.F.R. § 52.21(r)(2). Given the significant delays during the permitting process, the prior litigation inthe D.C. District Court to force a permitting decision, and the 9th Circuit petition for review, it would be inequitable to let APC's PSD permit expire. This is particularly so where the groups blocking the project have expressly stated that they intend to kill the project by delay and have no real interest incompromising on the underlying substantive issues that make up the claims intheir lawsuit.

. Moreover, and although APC believes 

### itis not binding, APC satisfies Region IX's policy

on PSD Permit Extensions. See Memorandum ofSeptember 8, 1988, from Wayne Blackard, Chief, New Source Section, to Region IX States and Districts. That memorandum sets forth three basic factors, all ofwhich are methere. The administrative requirements are all met here, inthatAPC submitted ajustification by a "responsible representative" prior to the deadline. As Ms. McCarthy' February 5, 2013, letter notes, my December 19, 2012, letter meets each factor. As to the procedural issues, we do not believe that public comment is appropriate given the extensivepublic participation inthis project, nor do we believe that a 12-month limit is appropriate given the history ofthis project.

APC also believes that it is important to note thattheproject is in compliance with all applicable standards. As set forth inthe March 2011 Supplemental Statement ofBasisMs. Deborah Jordan February 11, 2013

for PSD Permit Application for Avenal Energy Project, EPA has determined that it would be inappropriate to require APC to showthat the project would not "cause orcontribute to a violation ofthe hourly N02 and S02NAAQS or establishing emissions limitations for greenhouse gases in the permit." EPA explained that the project would be a "wellcontrolled, natural-gas fired" facility that would "apply BACT for N02and not cause or contribute to a violation ofthe NAAQS that were inplace before promulgation ofthe hourly standards." In view ofthis fact, the delays noted above, the challenges in applying the later-adopted standards in the available time, and EPA'sprior and valid decision to apply the standards in effect at the statutory deadline, it is clear that the project meets the applicable standards. Any otherresult would eviscerate EPA's prior decisions and reward the delay tactics in which opposing entities have engaged, hijacking EPA's process and handing control to groups opposed to a project.
Finally, and although APC strongly objects to applying any standards adopted after EPA's statutory deadline for action on the permit, APC has in the past and continues to engage in modeling analysis and concludes that itsproject would meet the newly adopted standards in any event. Further, EPA and other delegated authorities in California have previously and currently conclude that natural gas fueled combined cyclepowerplants similar to APC's project are BACT for GHG. This is hardly surprising in view ofEPA's statements above and the California Energy Commission's finding thatthe Project will produce net GHGbenefits across California's electric system.

While considering adoption ofthe Clean Air Act, Congressrecognized that delays are "[i]nherent in anyreview-and-permit process" but specifically enjoined state and federal agencies to "do all that is feasible to move quickly and responsibly on permit applications andthose studies necessary tojudge the impact ofan application." S. Rep. No. 94-717, at 

### 23 (1976). Congress concluded that "[n]othing could be more detrimental to the intent ofthis section and the integrity ofthis Act than to have the process encumbered by bureaucratic delay." Id. Yet that is what has happened to APC. Although EPA can do little to remedy the impacts ofthe past delays, 

### itwould be manifestly unjust for APC's permit to expire and its project to be scuttled bydelays for which it was notresponsible and overwhich it has no control

Given the Ninth Circuit historical timing for these types ofcases and the required activities (including CEC preconstruction obligations) to move to construction immediately following the ruling, APC would reiterate its request for an 18th month extension ofthe permit.**)(1 2~4** **1** IMs. DeborahJordan February 11, 2013

Thank you for considering ourrequest. Ifyou have any questions regarding this application, please don't hesitate to call me at 713-275-6147 or email at jim.rexroad@macquarie.com.

cc: Gerardo Rios, Chief, Permits Office, USEPA, Region 9, 75 Hawthorne Street, SanFrancisco, CA 94105 Dave Warner, Director, Permit Services, SJV APCD, 1900 E. Gettysburg Avenue, Fresno, CA 93726-0244