p.1 

OAR Box 1778 

Prepped by Ollie Stewart 

Document Number: 

237)11-1-17 

Docket Number: 

A-90-06 

Printed 10/28/2008 9:51:02 AM Sheet 237of 276 
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* V 

I I :i 

C D ! ' i i ^ 

II-I-17 

IN THE UNITED STATES COURT OF APPEALS 

FOR THE SEVENTH CIRCUIT 

Nos. 88-3264 

88-1339 

WISCONSIN ELECTRIC POWER COMPANY, 

Petitioner, 

v. 

WILLIAM K. REILLY, Administrator 

United States Environmental 

Protection Agency, et al.. 

ON PETITIONS TO REVIEW FINAL ACTION 

OF THE UNITED STATES ENVIRONMENTAL 

PROTECTION AGENCY 

BRIEF FOR THE RESPONDENTS 
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TABLE OF C0NTENT8 

Page 

APPELLEES' JURISDICTIONAL STATEMENT 1 

ISSUES TO BE PRESENTED 1 

STATEMENT OF THE CASE 2 

I. STATUTORY PROVISIONS 2 

A. The 1970 Clean Air Act — 2 

B. The 1977 Amendments to the Clean Air Act 4 

1. Revisions to the NSPS 4 

2. The PSD Program....... 5 

C. Judicial Review Under the Clean Air Act 6 

II. REGULATORY BACKGROUND OF THE NSPS AND PSD 

MODIFICATION REQUIREMENTS 6 

A. The Two-Step Test for Modifications: Twin 

Branches of A Single Tree 6 

B. Physical or Operational Change 7 

C. Emissions Increase Under NSPS: The 

Difference Between Current Maximum Emissions 

Rate and Maximum Emissions Rate After the 

Physical or Operational Change 12 

D. Emissions Increase Under PSD: The 

Difference Between Representative Actual 

Emissions and Potential to Emit After the 

Change 13 

1. EPA's Initial Regulations and Alabama 

Power 13 

2. The Current PSD Regulations 14 

E. The NSPS Reconstruction Rule: The Distinction 

Between Modification and Reconstruction Under 

NSPS 18 

F. EPA's Issuance of NSPS and PSD Applicability 

Determinations r- 19 
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III. EPA'S MODIFICATION REGULATIONS AND UTILITY 

LIFE EXTENSION PROGRAM 20 

IV. WEPCO'S PORT WASHINGTON LIFE EXTENSION 

PROJECT 24 

A. WEPCO's Renovation Proposal to the Public 

Service Commission: Restore Design Capacity 

and Extend Plant Life 24 

B. EPA's NSPS and PSD Applicability 

Determinations 26 

1. The September 9, 1988 Memorandum from 

Don R. Clay 26 

a. Physical Change 27 

b. Increase in Production Rate and 

Hours of Operation 28 

c. Significant Net Emissions Increase 

Under PSD 30 

d. Increase in Emission Rate under 

NSPS 31 

2. The October 14, 1988 letter from Lee M. 

Thomas 31 

3. The February 15, 1989 Supplemental 

Determination from Don R. Clay 3 3 

SUMMARY OF ARGUMENT 36 

I. STANDARD OF REVIEW: EPA's INTERPRETATIONS OF THE 

CLEAN AIR ACT AND ITS OWN REGULATIONS MUST BE 

ACCORDED GREAT DEFERENCE 38 

II. EPA HAD NO OBLIGATION TO CONDUCT NEW RULEMAKING TO 

SPECIFICALLY ADDRESS "LIFE EXTENSIONS" BEFORE 

PROCEEDING WITH INFORMAL ADJUDICATION, BECAUSE 

THE RENOVATION WORK AT PORT WASHINGTON 

CONSTITUTES A MODIFICATION UNDER EPA'S EXISTING 

REGULATIONS 41 

A. EPA Properly Applied Its Existing Modification 

Regulations to the Facts of This Case 41 

ii 
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B. WEPCO'S Life Extension Project Involving 

"Like-Kind Replacement" Is Within the 

Definition of Modification Under EPA 

Regulations 44 

C. The NSPS and PSD Regulations Are Not Subject 

to Review in This Court; WEPCO's Remedy 

Lies in a Rulemaking Petition 49 

III. EPA'S FACTUAL FINDING THAT WEPCO'S $80 MILLION 

LIFE EXTENSION PROJECT IS NOT ROUTINE IS 

CONSISTENT WITH THE CLEAN AIR ACT, EPA 

REGULATIONS, AND PRIOR DECISIONS 49 

A. The Renovation Work Is Costly and Extensive, 

and Apparently Has Never Been Done By Any 

Other Utility 49 

B. The Purpose of the Project Is to Restore 

Lost Capacity and Extend the Useful Life 

of the Port Washington Plant 54 

C. WEPCO Would Have the "Routine" Exclusion 

Swallow the Rule 56 

IV. EPA'S FACTUAL FINDINGS THAT WEPCO EXCEEDED NSPS 

AND PSD BASELINE EMISSIONS ARE REASONABLE AND IN 

ACCORDANCE WITH APPLICABLE REGULATIONS 57 

A. Where Emissions Increases Due to Increased 

Production Rate or Hours of Operation Are 

Attributable to Physical or Operational 

Changes, They Trigger NSPS and PSD 

Coverage 57 

B. Original Design Capacity Is Not Relevant 

Under NSPS or PSD; Fuel Switching Is Not 

Relevant Under NSPS 61 

1. Achievable Capacity, Not Original Design 

Capacity, Is the Baseline For Determining 

Emissions Increase Under NSPS 61 

2. Fuel Switching Is Not A Means Of 

Avoiding NSPS Applicability 63 

T \ •,.,-• • . 

C. EPA's PSD Regulations Require that Emissions 

Increases Be Determined by Comparing Actual 

Emissions Before the Physical or Operational 

Change to Potential Emissions After the 

Change ._* 65 

iii 
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( 

it E. WEPCO Has A Number of Options To "Net Out 

of NSPS and PSD Coverage 68 

CONCLUSION 69 

IV 
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foote disk AA: wepbrief.626 

OGC DRAFT 6/26/89 

RESPONDENT'S JURISDICTIONAL STATEMENT 

The jurisdictional summary in the petitioner's brief is 

correct insofar as it asserts the jurisdiction of this Court to 

review the final determinations of the U.S. Environmental 

Protection Agency (EPA) regarding the applicability of new source 

performance standards (NSPS) and the prevention of significant 

deterioration (PSD) program to petitioner's Port Washington life 

extension project. Petitioner's jurisdictional statement is 

incorrect to the extent that its petitions for review constitute 

a collateral challenge to EPA's underlying NSPS and PSD 

regulations. Pursuant to Clean Air Act section 307(b)(1), 42 

U.S.C. § 7607(b)(1), those nationally applicable regulations were 

subject to review only in the U.S. Court of Appeals for the 

District of Columbia Circuit within 60 days of their 

promulgation, and may not be reviewed in this Court. 

ISSUES PRESENTED 

1. Whether EPA reasonably interpreted the definition 

of "modification" under the Clean Air Act and its own regulations 

as encompassing any physical or operational change not 

specifically excluded by that definition, including "like kind 

replacements" under electric utility "life extension" projects. 

2. Whether EPA reasonably found that WEPCO's life 

extension project, involving the unprecedented replacement of 

major components at the Port Washington plant in order to restore 

generating capacity lost because of age-related deterioration and 
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to extend useful life by 2 0 years as the plant nears its 

retirement date, is not within the narrow NSPS and PSD exemptions 

for "routine" maintenance, repair and replacement. 

3. Whether EPA reasonably found that emissions 

increases made physically and economically possible by extensive 

renovations to WEPCO's Port Washington plant are not within the 

narrow NSPS and PSD exemption for emissions increases that result 

from increased production rates or hours of operation which are 

necessary to respond to market fluctuations. 

4. Whether EPA reasonably interpreted its NSPS 

regulations as defining an increase in emissions rate as an 

increase in current pollution-generating capacity, without regard 

to fuel switches. 

5. Whether EPA reasonably interpreted its PSD 

regulations as determining a net emissions increase by comparing 

representative actual emissions before prospective physical 

changes with potential emissions following those changes where 

the modified emissions unit has not begun normal operations. 

STATEMENT OF THE CASE 

I. STATUTORY PROVISIONS 

A. The Clean Air Act 

The Clean Air Act ("CAA" or the "Act"), 42 U;S.C. § 

1857, establishes a combined federal and state program to control 
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air pollution. Under sections 108 and 109 of the CAA,1 EPA is to 

promulgate national ambient air quality standards ("NAAQS") 

specifying maximum permissible concentrations of air 

pollutants.2 Section 110 of the CAA requires each state to 

develop and submit to EPA for approval a state implementation 

plan ("SIP") that provides for attainment and maintenance of the 

NAAQS. 

In section 111(b)(1)(A) of the Act, Congress also 

required EPA to promulgate technology-based standards of 

performance for certain categories of new stationary sources that 

cause or contribute significantly to air pollution which may 

reasonably be anticipated to endanger public health or welfare. 

Under section 111(a)(2)of the Act, a stationary source for which 

a new source standard of performance (NSPS) is applicable is 

defined as 

any stationary source, the construction or 

modification of which is commenced after the publication 

of regulations (or, if earlier, proposed regulations) 

prescribing a standard of performance under this section 

which will be applicable to such source. 

"Modification" is defined broadly in section 111(a)(4) as 

any physical change in, or change in the method 

of operation of, a stationary source which increases the 

amount of any air pollutant emitted by such source or 

1For convenience, all specific citations will be to sections 

of the Clean Air Act. Parallel citations to the U.S. Code are 

provided in the Table of Authorities. 

2 NAAQS consist of primary and secondary standards which 

are required to protect the public health and welfare, 

respectively, from adverse effects resulting from exposure to 

criteria pollutants in the ambient air. 
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which results in the emission of any air pollutant not 

previously emitted. 

(emphasis added). 

Section 111 was "designed to prevent new [air] pollution 

problems" by regulating both newly constructed sources of 

pollution and existing sources that increase their emissions. 

National Asphalt Pavement Ass'n v. Train. 539 F.2d 775, 783 (D.C. 

Cir. 1976). See also H.R. Rep. No. 1146, 91st Cong., 2d Sess. 3, 

reprinted in 1970 U.S. Code Cong. & Admin. News 5356, 5358. 

B. The 1977 Amendments to the Clean Air Act. 

In August 1977, Congress adopted further extensive 

changes to the CAA, and recodified the amended Act at 42 U.S.C. 

7401 et sea. Pub. L. 95-95, 91 Stat. 685. 

1. Revisions to the NSPS. 

The NSPS provisions were revised in several ways. Congress 

amended section 111 to require sources regulated under that 

section to achieve the best technological system of emissions 

reduction the Administrator determined to be adequately 

demonstrated and feasible considering a variety of factors, 

[cite] Further, Congress required that for fossil fuel-fired 

stationary sources emissions standards could not to be met by 

simply burning low sulfur fuels. Thus, Congress added a 

provision requiring that a percentage reduction standard be 

established as part of the standard of performance. [cite] See 

H.R. Rep. 294, 95th Cong., 1st Sess., reprinted in 1977 U.S. Code 

Cong. & Admin. News 1077, 1262-67. Congress made clear that for 
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units subject to the NSPS for utility boilers, the technological 

system it contemplated for the reduction of sulfur dioxide 

emissions was the installation of scrubbers, [cite] 

2. The PSD Program. 

The 1977 Amendments also added a new Part C to the CAA 

including, in sections 160 - 169, a program for the prevention of 

significant deterioration of air quality (the "PSD* program) in 

clean air areas which had achieved the NAAQS. The congressional 

purposes were to protect the public from adverse health and 

welfare effects that might result from exposure to a pollutant at 

levels below the NAAQS, to maximize opportunities for economic 

growth consistent with the preservation of existing clean air 

resources, and to insure that any decision to increase air 

pollution is made only after a careful, public evaluation of all 

the consequences of such a decision. Section 160(1) - (5). 

These PSD purposes are implemented through a complex 

preconstruction review and permitting program applicable to the 

construction or modification of a "major emitting facility"3 in 

areas of the country that have attained the NAAQS for a given 

pollutant. Most fundamentally, air quality is preserved by 

3Section 165(a)(1) requires that every major emitting 

facility obtain a permit meeting the substantive PSD requirements 

prior to construction. Section 169(1) defines "major emitting 

facility" as a stationary source which emits or has the potential 

to emit 250 tons per year or, in the case of a source in certain 

industrial categories, 100 tons per year, of any air pollutant. 

Section 169(2)(C) defines "construction" to include 

"modification" of a facility as defined for NSPS purposes in 

section 111(a)(4). 
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establishing incremental ceilings that limit total increases over 

ambient "baseline" pollutant concentrations in a given area. See 

Sections 163, 165(a)(3), and 166. The first permit application 

in an area triggers the baseline; subsequent applicants may draw 

upon the remaining "increment." 

To maximize the available increment and to further the 

spread of advanced pollution control technologies, section 

165(a)(4) requires that PSD permits specify use of the best 

available control technology ("BACT"), which must be at least as 

stringent as any applicable NSPS.4 

C. Judicial Review Under the Clean Air Act. 

Section 307(b)(1) of the Clean Air Act authorizes the 

courts of appeals to review certain enumerated regulatory 

decisions and "any other final action of the Administrator." See 

generally Harrison v. PPG Industries. Inc. 446 U.S. 578 (1980). 

Actions that are locally or regionally applicable are reviewable 

in the appropriate circuit, while an action of nationwide scope 

and effect may be reviewed only in the D.C. Circuit. Section 

307(b)(1). In general, a petition for review must be filed 

within 60 days of EPA's final action. A petition for review may 

be filed at a later date only if it is based solely on grounds 

arising after the sixtieth day. Id. As a prerequisite to 

4In addition to demonstrating compliance with air quality 

increments and BACT, a PSD applicant must demonstrate that there 

will be no adverse impacts on the air qualiJty related values of 

national parks and other specified areas (section 165(d)), and 

conduct an air quality analysis, including impacts on soils, 

vegetation, and visibility (section 165(e). 
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appellate jurisdiction under this "arising after" exception, a 

party must first petition EPA for rulemaking based on the new 

grounds. E.g.. State of Maine v. Thomas. F.2d (1st Cir. 

1989); Group Against Smog & Pollution. Inc. v. EPA. 665 F.2d. 

1284, 1289-90 (D.C. Cir. 1981); 01-iato Chapter of the Navaio 

Tribe v. Train. 515 F.2d 654, 661 (D.C. Cir. 1975). 

II. REGULATORY BACKGROUND OF THE NSPS AND PSD MODIFICATION 

REQUIREMENTS 

A. The Two-Step Test for Modifications: Twin Branches of 

A Single Tree. 

The modification provisions of the NSPS and PSD 

programs grow from a single statutory trunk, the very broad 

definition of "modification" in section 111(a)(4). Under both 

respective programs, EPA has developed a highly refined two-step 

test for determining whether activities at an existing facility 

constitute a modification subject to new source requirements. In 

the first step, which is largely the same for NSPS and PSD, EPA 

determines whether a physical or operational change has occurred. 

If so, EPA proceeds in the second step to determine whether the 

physical or operational change will result in an emissions 

increase over baseline levels. In this second step, the 

applicable rules branch apart, reflecting the fundamental 

distinctions between the technology-based purposes of NSPS and 

the technology and air quality concerns of PSD. 

Briefly, the NSPS program is concerned with hourly 
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emissions rates, expressed in kilograms or pounds per hour.5 

Emissions increases for NSPS purposes are determined by changes 

in the hourly emissions rates. PSD is concerned with total annual 

emissions to the atmosphere, expressed in tons per year.6 

Emissions increases under PSD are determined by changes in annual 

emissions. In order to understand the current requirements 

governing NSPS and PSD applicability determinations, it is useful 

to summarize the evolution of the modification rules for the 

respective programs. 

B. Physical or Operational Change. 

The very broad definition of physical or operational 

change in section 111(a)(4) could, standing alone, theoretically 

encompass the most mundane activities at an industrial facility -

- even the repair or replacement of a single leaky pipe or a 

change in the way that pipe is utilized. However, EPA has always 

recognized that Congress obviously did not intend to require 

every physical or operational change to be potentially subject to 

new source requirements, and that it would be administratively 

impracticable to do so. Accordingly, EPA has substantially 

narrowed this term in its NSPS and PSD regulatory definitions 

5 An hourly emissions rate is the product of the 

instantaneous emissions rate, i.e., the amount of pollution per 

unit of full combusted or materials processed, such as pounds of 

sulfur dioxide per ton of coal burned) times production rate 

(e.g., tons of coal burned per hour). 

6 Annual emissions are the product of the hourly 

emissions rate (which is the sole concern of NSPS) times the 

hours of operation per year. 
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through the adoption of common-sense exemptions excluding certain 

categories of charges. 

Regarding NSPS, EPA's original regulations provided 

that certain physical and operational changes would not trigger a 

modification. See 36 Fed. Reg. 24877, 24 (1971) (codified at 

40 C.F.R. § 60.2(h) (197_). Under 40 C.F.R. § 60.2(h)(1) (1973), 

a routine replacement or repair would not be considered a 

physical change. The definition of modification also excluded 

from the term "change in method of operation" an increase in the 

production rate, if such increase does not exceed the operating 

design capacity of the affected facility. 40 C.F.R. § 60.2(h)(2) 

(1973). In 1974, EPA proposed amendments to clarify the 

definition of "modification" as it would be applied by the Agency 

in determining NSPS applicability. In particular, the proposal 

added a new section 60.14(e) further detailing what physical and 

operational changes would "not, by themselves, be considered 

modifications" even though the emission rate may increase. See 

39 Fed. Reg. 36,946, 36,948, col. 1, 36949, col. 3. EPA 

promulgated the revised NSPS rules in 1975. 40 Fed. Reg. 58,416. 

They were subject to judicial review in the D.C. Circuit at that 

time under section 307(b), and were the subject of challenge by 

both industry and environmental groups. See ASARCO. Inc. v. EPA. 

578 F.2d 319 (D.C. Cir. 1978). The court of appeals upheld those 

portions of the NSPS regulations relevant to this case. 

The 1975 NSPS regulations exclude" three types of 

physical or operational changes relevant to this case: 
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(1) Maintenance, repair, and replacement which the 

Administrator determines to be routine ... . 

(2) An increase in production rate of an existing 

facility, if that increase can be accomplished without 

a major capital expenditure on the stationary source 

containing that facility. 

(3) An increase in the hours of operation. 

40 C.F.R. § 60.14(e)(1) - (3). 

The current PSD regulations contain similar exclusions: 

(a) Routine maintenance, repair, and replacement; 

**** * 

(f) An increase in the hours of operation or in 

the production rate, unless such change would be 

prohibited under any federally enforceable permit 

condition ... . 

40 C.F.R. § 52.21(b)(2)(iii)(a), (f). 

The preambles to the NSPS and PSD regulations adopting 

the exclusions for "routine" maintenance, repair, and replacement 

contain no specific discussion of how "routine" was to be 

construed, implying that EPA would interpret that term in a 

straightforward, common-sense manner. 

Both preambles, however, reflect that EPA specifically 

intended to shape the exclusions for increases in production 

rates and hours of operation in accordance with the purposes of 

the new source programs. In promulgating the NSPS production 

rate exclusion, EPA expressly deleted a provision from the 1971 

regulations that had applied the exclusion to production 

increases up to the operating "design capacity" of the facility. 

Instead, EPA declared, the exclusion would be limited to 
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production rate increases that do not exceed actual operating 

capacity. 39 Fed. Reg. 36,948 (proposed rule). 

EPA further limited the production rate exclusion to 

increases which can be accomplished without a "capital 

expenditure," i.e., investments in long-term betterments in 

excess of the Internal Revenue Services annual asset repair 

guidelines. 40 C.F.R. § 60.14(e)(2) (19 ). See 39 Fed. Reg. 

36,949, col. 1 (proposed rule); 40 Fed. Reg. 58,416, col. 2 

(final rule). 

The exclusions for increases in production rates and 

hours of operation are lumped together in the PSD regulations, 

and contain no explicit link to capital expenditure. 40 C.F.R. § 

52.21((b)(2)(iii)(f). However, EPA identified three factors as 

delineating the exclusions' scope, two of which echo the concerns 

underlying the capital expenditure limitation in the analogous 

NSPS exclusion. The Agency stated: 

[EPA] is also convinced that Congress could not have 

intended a company to have to get a [PSD] permit before 

it could lawfully change hours or rate of operation. 

Plainly, such a requirement would severely and unduly 

hamper the ability of any company to take advantage of 

favorable market conditions. The emphasis of the 

relevant statutory provisions on "construction" 

strongly supports EPA's interpretation of Congress' 

intent. See, e.g.. section 165(a), 42 U.S.C. 7475. At 

the same time, any change in hours or rate of operation 

that would disturb a prior assessment of a source's 

environmental impact should have to undergo scrutiny. 

45 Fed. Reg. 52,704. Thus, simple changes in production levels 

to keep abreast of market fluctuations do not trigger PSD, but 

review is required where production increases are linked to 
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construction activity. The third factor — disallowing the 

exclusion where it would affect assumptions regarding a source's 

environmental impact — addresses PSD air quality planning 

concerns not at issue under NSPS. 

C. Emissions Increases Under NSPS: The Difference Between 

Current Maximum Emissions Rate and Maximum Emissions 

Rate After the Physical or Operational Chance. 

Section 60.14 of 40 C.F.R. clarified the definition of an 

emissions increase for NSPS purposes and the methods for 

determining whether an increase will occur. Under section 60.14 

an increase in emissions occurs if the hourly emissions rate 

increases. EPA considered and rejected other mechanisms such as 

total annual emissions. See 40 Fed. Reg. . 40 C.F.R. § 

60.14(b) sets forth four specific mechanisms by which EPA (or a 

source) can determine whether a physical or operational change 

results in an emissions increase: emission factors, material 

balances, continuous monitoring systems and manual emission 

tests. Where emissions factors do not demonstrate to the 

Administrator's satisfaction whether an increase will occur, one 

of the other methods may be used. Where actual emissions tests 

are run, tests shall be run under such conditions as the 

Administrator shall specify to the owner or operator based on 

representative current performance of the facility. 40 C.F.R. 

§ 60.14(b)(2). All operating parameters which may affect the 

emission rate are to be held constant. In addition, there is no 

de minimis exemption as such in the NSPS mo~difications 

provisions, although where actual tests are conducted the test 
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runs are analyzed to ensure that there is a statistically 

significant increase in emissions. Minor changes in emissions in 

response to routine daily fluctuations in operations not the type 

of changes contemplated in the regulations. See 39 Fed. Reg. at 

36,947. 

D. Emissions Increases Under PSD: The Difference Between 

Representative Actual Emissions and Potential to Emit 

After the Chance. 

1. EPA's Initial Regulations and the Alabama Power 

Decision. 

In 1978 EPA promulgated PSD regulations to implement 

the 1977 CAA Amendments. Those regulations limited PSD coverage 

to only "major" modifications, where a physical or operational 

change increased a source's "potential to emit" by the same 100 

or 250 tons per year threshold that Congress established for 

brand new major emitting facilities, without regard to the effect 

of pollution control devices on uncontrolled emissions. See 43 

Fed. Reg. 26380, 26391 (1978). 

In a decision addressing numerous provisions of the 

1978 regulations, the D.C. Circuit remanded EPA's definition of 

"modification" in three key respects. Alabama Power Co. v. 

Costle. 636 F.2d 323 (D.C. Cir. 1979). First, the court held 

that a source's potential to emit must take into account the 

anticipated functioning of air pollution control equipment 

designed into the facility. 636 F.2d at 353. The court also 

held open the possibility that enforceable restrictions on 

operations could also(the\ "limit potential to emit." Id. at 355 
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n.73. Second, in light of the broad definition of modification 

in section 111(a)(4) as "any" increase in emissions, the court 

ruled that EPA lacks authority to exempt emissions increases 

except on grounds of de minimis or administrative necessity, 

noting further that this would be inconvenient and costly to 

industry. Id. at 400. Third, the D.C. Circuit ruled that EPA had 

broad discretion to apply the netting or "bubble" concept, such 

that physical or operational changes which increase emissions 

could be offset by contemporaneous emissions decreases, and PSD 

would not apply at all if there were no net emissions increase. 

Id. at 402-03. 

2. The Current PSD Regulations. 

In response to Alabama Power. EPA substantially revised 

its PSD regulations in August 1980. 45 Fed. Reg. 52,676.7 The 

changes regarding modifications reflected all of the court's key 

findings noted above. In particular, EPA provided that increases 

in actual emissions would govern coverage. See id. at 52700 

(citing Alabama Power). Thus, the 1980 regulations redefined 

"major modification," as 

7EPA: promulgated two largely identical sets of PSD 

regulations. 40 C.F.R. § 51.166 (originally designated as 

§ 51.24), established requirements that state PSD plans must meet 

to be approved by EPA as part of a SIP. 40 C.F.R. § 52.21 

contains federal PSD regulations, presently applicable in roughly 

20 states, including Wisconsin, which have failed to submit their 

own PSD rules under § 51.166. For most states in this category, 

again including Wisconsin, EPA has delegated PSD permit-issuing 

authority back to the state pursuant to § 52.21(u). [cite PSD 

delegation.] Because 40 C.F.R. § 52.21 is-the relevant set of 

PSD regulations in this case, references in this brief will be 

made to that section. 
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any physical change in or change in the method of operation 

of a major stationary source that would result in a 

significant[8]net emissions increase of any pollutant 

subject to regulation under the Act. 

40 C.F.R. § 52.21(b)(2)(i) (emphasis added). 

EPA established a three-step process for determining 

net emissions increase. The first step is to determine whether 

the particular physical or operational change would itself result 

in an increase in "actual emissions." Section 

52.21(b)(3)(i)(a).9 The second step is to quantify any other 

increases and decreases in actual emissions that would be 

contemporaneous with the particular change and otherwise 

creditable. Section 52.21(b)(3)(i)(b). The third step is to sum 

the increases and decreases and determine whether there is a 

significant net increase overall. See 45 Fed. Reg. 52,698, col. 

3. 

An integral component of the netting rules is a 

source's ability to gain credit for contemporaneous emissions 

decreases by obtaining "federally enforceable" restrictions on 

its "allowable emissions." Federally enforceable restrictions 

8EPA defined "significant" in terms of de minimis values for 

the regulated pollutants. For example, the significance 

threshold for sulfur dioxide is 40 tons per year- See 40 C.F.R. 

§ 52.21(b)(21); 45 Fed. Reg. 52705. 

9In general, "actual emissions" is defined as the average 

emissions to the atmosphere, in tons per year, during the twoyear period immediately preceding the physical or operational 

change in question, or such other period th~at the Administrator 

determines is more representative of normal source operation. 

See § 52.21(b)(21)(ii). 
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are those which can be enforced by EPA, such as certain types of 

permit conditions. 40 C.F.R. § 52.21(b)(17). A source's 

"allowable emissions" are essentially similar to its "potential 

to emit." Under both terms, maximum physical and operational 

capacity to emit can be restricted not only by the use of 

pollution control devices in accordance with Alabama Power, but 

also by restrictions on production rates, hours of operations, 

and types and amounts of materials processed or combusted. 

Compare § 52.21(b)(4) with § 52.21(b)(16). 

In order to make applicability determinations in 

advance of prospective modifications, EPA's decision to use an 

actual emissions baseline created a need to make assumptions 

regarding the level of post-modification emissions before the 

"particular date" on which the physical or operational change 

would occur. EPA addressed this problem by equating "actual 

emissions" with "potential to emit" in such circumstances: 

For any emissions unit which has not begun normal 

operations on the particular date, actual emissions 

shall egual the potential to emit of the unit on that 

date. 

40 C.F.R. § 52.21(b)(21)(iv) (emphasis added). In the preamble, 

EPA furthar clarified that permitting authorities would rely on 

this assumption both for "new or modified units, since these 

units are not yet operational at a normal level of operation." 

45 Fed. Reg. 52718, col. 3 (emphasis added).10 

10Although EPA made this remark in the context of increment 

consumption determinations, the Agency emphasized that the 

(continued...) 
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Standing alone, the required comparison between 

representative actual emissions before a physical or operational 

change and potential emissions after the change could render any 

such change subject to PSD review

 13- whenever pre-modification 

actual emissions are significantly less than post-modification 

potential emissions. The PSD regulations avoid this result by 

providing that sources may avoid a net emissions increase, and 

hence PSD review, by obtaining federally-enforceable restrictions 

on potential (i.e., allowable) emissions, as discussed supra. 

E. The NSPS Reconstruction Rule: The Distinction Between 

Modification and Reconstruction Under NSPS 

In 1975, EPA added a reconstruction provision to the NSPS 

regulations. [cite] An existing facility that undergoes 

reconstruction becomes an affected facility subject to the NSPS 

if a very substantial portion of the facility is replaced, i.e., 

capital costs in excess of 50% of the cost of building an 

entirely new facility, without regard to whether there is an 

emissions increase. [cite] The Administrator is afforded the 

discretion to consider on a case-by-case basis whether to require 

the application of the NSPS technology to a reconstructed source. 

10(...continued) 

preamble discussion on "actual emissions" in the section on 

increment consumption would the apply to the meaning of that term 

for modification baseline purposes as well. 45 Fed. Reg. 52,699, 

col. 1. In providing that increment consumption wold be guided 

by actual emissions, EPA likewise relied on Alabama Power. Id. 

at 52,718, col. 1. 

11[DESCRIBE BRIEFLY WHAT PSD REVIEW IS — JUST CITE 

SECTIONS] 
P.24 

- 23 -

[cite] The purpose of the reconstruction provision is to 

recognize that replacement of many of the components of the 

facility can be substantially equivalent to replacing it at the 

end of its useful life with a new facility that would be subject 

to the NSPS. The final rule adopting the modification and 

reconstruction provisions emphasized the distinction between the 

two provisions: 

For existing facilities which substantially retain 

their character as existing facilities, application 

of best adequately demonstrated control technology is 

appropriate when any physical or operational change is 

made which causes an increase in emissions to the atmosphere 

(this is modification). Thus, the criteria for 

"reconstruction" are independent from the criteria for 

modification. 

40 Fed. Reg. at 58,417. 

One of the purposes of the reconstruction provision is to 

discourage the perpetuation of a facility, where there would be 

no emissions increase, instead of replacing it with a new one at 

the end of its useful life. 39 Fed. Reg. 36,948 (proposed rule). 

At the time of proposing the rule, EPA observed that in the 

industries subject to NSPS (the utility industry was the most 

significant source category at that time) "it is generally the 

practica £o close an old existing facility rather than to 

reconstruct it by using a minor part of it and replacing the 

remaining portion." Id. 

F. EPA's Issuance of NSPS and PSD Applicability 

Determinations 

EPA has established an informal procedure by which it 

issues applicability determinations to owners or operators of 
P.25 

- 24 -

sources contemplating some activity at a facility which may 

trigger NSPS or PSD applicability. For NSPS determinations, this 

procedure is codified in the general NSPS provisions at 40 C.F.R. 

§ 60.5. Although there is no comparable regulatory provision for 

PSD determinations, the procedure is much the same. Typically, a 

source will contact a state or EPA's Regional Office and presents 

the proposed activity to it for consideration. EPA then reviews 

the facts and issues an informal determination. See, e.g. 

Supplemental PSD Applicability Determination. Cyprus Casa Grande 

Corp. (1987) (PSD Determination) [Record at 2.17]; Memorandum 

From E. Reich, EPA, to W. Sawyer, EPA, EPA Region III, (1980) 

(NSPS Determination) [Record at 2.10]. Final applicability 

determinations generally are subject to review in the court of 

appeals under section 307(b)(i). See Harrison v. PPG Industries, 

Inc.. 446 U.S. 578 (1980); see also PEPCO v. EPA. 650 F.2d 509 

(4th Cir. 1981), cert, denied. 455 U.S. 1016 (1982). In states 

where the NSPS and PSD program are delegated to the state, states 

generally make a preliminary determination subject to review and 

concurrence by EPA. Wisconsin is in this category. See, e.g., 

letter, Valdas V. Adamkus, EPA, to Carrol Besadny, Wisconsin DNR, 

April 8, 1988, 11 5, 8 [Record at 4.4] (NSPS delegation.) 

III. EPA'S MODIFICATION REGULATIONS AND UTILITY LIFE EXTENSION 

PROGRAMS 

Electric utilities continually undertake planning 

measures to meet the future demand for electricity. The expected 

useful lifetime of fossil-fuel power plants has been 30 to 40 
P.26 

- 25 -

years, and traditionally utilities have built new plants to meet 

growth in demand or to replace old plants. Estimating the 

Capital Costs of Life Extension for Fossil-Fuel Steam Plants. 

U.S. Department of Energy, Energy Information Administration 

(July 1988) [Record at 3.15] at 1 (hereafter cited as "Capital 

Costs of Life Extension".; EPRI Journal. July/August 1987 [Record 

at 3.10], at 20.12 In assessing the impact of its NSPS 

modification and reconstruction regulations on the electric 

utility industry, EPA too assumed that, in general, old electric 

utility generating units would simply be replaced at the end of 

their original design life rather than significantly modified or 

reconstructed. See 39 Fed. Reg. 36,948 (proposal of NSPS 

reconstruction provision), discussed supra at p. . Thus, EPA 

anticipated that "few, if any, existing steam generators . . . 

are expected to qualify under the modification/reconstruction 

provisions." 44 Fed. Reg. 33591 (promulgation of NSPS for 

electric utility steam generating units). 

In recent years, however, the economic risks associated 

with building new plants have increased due to substantial 

increase* in construction costs, and uncertainties in future 

demand, ability to recover new-plant costs, and environmental 

requirements. Capital Costs of Life Extension at 1; EPRI 

Journal. July/August 1987, at 20. As a consequence, utilities 

12EPRI Journal is published by the Electric Power Research 

Institute ("EPRI"), the principal research organization of the 

electric utility industry. 
P.27 

- 26 -

are now exploring nontraditional options as they seek the most 

economical method of meeting electrical demand. These new 

options include conservation and load management programs (to 

reduce total and peak demand, respectively), bulk power purchases 

from other utilities, and repowering — replacing the boiler with 

a new combustion unit. Capital Costs of Life Extension at 1-2. 

Another option now being considered is "life extension" or 

refurbishment of existing plants. Id. at 2. Upon consideration 

of all the available alternatives, life extension may be the most 

cost-effective choice to meet future demand because "[u]nlike the 

celebrated 'one-hoss shay,' which kept on going until it 

completely fell apart, a power plant doesn't so much wear out as 

become uneconomical to use." EPRI Journal. July/August 1987, at 

20. 

Because "life extension" is a relatively new technical 

term, specific definitions of the term can vary. However, the 

three core elements are consistent and readily identifiable: (1) 

A planned program of capital investments; (2) to restore and/or 

maintain original generating capacity at acceptable levels of 

efficiency, and availability; (3) for an extended period of time, 

usually 20 years or more, beyond original design life or 

currently planned retirement date. Capital costs of Life 

Extension at 2; EPRI Journal. July/August 1987, at 20-21; "Life 

Extension — A Glorified Maintenance Program?", J.A. Derdiger, et 

al. [Record at 3.4], at 322-23. Life extension programs focus on 

replacement or substantial refurbishment of major components not 
P.28 

- 27 -

traditionally performed during a plant's initial design life, and 

thus are readily distinguishable from routine corrective or 

preventative maintenance of major equipment and periodic 

replacement of minor equipment. Id. at 324. 

IV. WEPCO'S PORT WASHINGTON LIFE EXTENSION PROJECT 

A. WEPCO's Renovation Proposal to the Public Service 

Commission: Restore Design Capacity and Extend Plant 

Life. 

Wepco's Port Washington power plant near Milwaukee, 

Wisconsin consists of five coal-fired steam generating units 

placed into service between 1935 and 1950. Each has a design 

capacity of 80 megawatts. Inventory of Power Plants in the 

United States. DOE/EIA-0095(85) (U.S. Department of Energy 1985) 

at 226 [Record at 3.18]. However, the capacity and performance 

of the units has deteriorated in recent years due to age-related 

degradation of the physical plant. 

In 1983, WEPCO initiated a Plant Availability Study to 

assess the physical condition of the Port Washington plant. "The 

study confirmed . . . that extensive renovation of the five units 

and the plant common facilities is needed if operation of the 

plant is to be continued." Letter, Thomas J. Cassidy, WEPCO, to 

Jacqueline K. Reynolds, Public Service Commission of Wisconsin 

("PSC"), at 1 [Record at 6.1 (attachment)]. 

Combustion Engineering ("C-E"), the fabricator of the 

facilities, inspected the boilers in 1984 and reported to WEPCO 
P.29 

- 28 -

that severe cracking of the steam drums had occurred. •

LJ C-E 

recommended shutting down unit 5 because of the potential for 

catastrophic failure (steam drum blow out), and recommended 

reducing the maximum operating pressures, i.e., capacities, for 

units 2-4 where the safety concerns were less severe. WEPCO 

complied with these recommendations. 

In light of these events, WEPCO in 1987 applied to the 

PSC for authority to renovate the Port Washington plant. WEPCO 

noted that total plant capacity had declined by 4 0%, and that 

extensive renovation was necessary to continue operation. 

Accordingly, WEPCO sought approval to conduct a life extension 

program which would restore full design capacity and enable 

operation beyond the units' planned retirement dates of 1992 and 

1999 until the year 2010. Letter from Thomas J. Cassidy, supra. 

at 1-3. The renovation was expected to improve plant 

availability, capability, heat rate, efficiency, and reliability. 

Id. at 3. WEPCO pointed out that it had considered various 

alternatives, but rejected them as less cost-effective than the 

proposed renovation project. Id. 

....-inSPCO's proposal included a four-year schedule for the 

renovation of the major components at Port Washington, including 

boilers, turbine-generators, mechanical and electrical 

auxiliaries, and plant support facilities. Id. at 1. Among the 

13Steam drums are large pressure vessels for the separation 

and distribution of steam and water within the boiler, steam — 

Its Generation and Use (Babcock 4 Wilcox) Id. at 1-5. 
JL3Q^ 

- 29 -

listed projects was replacement of the steam drums on units 2-5 

and replacement of the air heaters on units 1-4. See id.. 

Exhibit A.14 

In its application, WEPCO pointed out that it had not 

included work items "falling into the category of repetitive 

maintenance" which do not require PSC approval. [Record at 

]. The total project cost was estimated at $83.8 million, of 

which $45.6 million was designated as capital expenditures. Id. 

at 2.15 

B. EPA's NSPS and PSD Applicability Determinations. 

1. The September 9. 1988 Memorandum from Don R. Clay. 

Between March and September 1988, EPA staff members met 

with representatives of WEPCO on numerous occasions to gain 

additional information regarding the renovations at Port 

Washington. In a September 9, 1988 memorandum, EPA Acting 

Assistant Administrator Don R. Clay made several preliminary 

14Air heaters preheat combustion air and improve boiler 

efficiency, thereby increasing boiler capacity and associated air 

pollution emissions. See Steam — Its Generation and Use 

(Babcock 6 Wilcox) at 13-4 [Record at 6.17]. 

15T6».Public Service Commission referred the WEPCO proposal 

to the Wisconsin Department of Natural Resources. That agency 

concluded (1) that the life extension project would not qualify 

as a reconstruction, so NSPS requirements would not apply; and 

(2) that the project was excluded from PSD coverage as a major 

modification due to the exclusions for routine maintenance, 

repair, and replacement, and for increases in production rate or 

operating hours. Pursuant to the PSD delegation agreement, the 

State sought the concurrence of EPA Region V regarding the 

question of PSD applicability. [Record at*~6.1]; [Record at 6.2]. 

EPA Region V disagreed with Wisconsin's conclusions, but sought 

advice in turn from EPA headquarters. [Record at 3.11]. 
P.31 

- 30 -

findings regarding NSPS and PSD applicability to WEPCO's life 

extension project (cited hereafter as the "Clay Memorandum"). 

The Clay Memorandum applied the known facts to the applicability 

criteria in EPA's regulations and concluded that, as proposed, 

the project would be subject to both NSPS and PSD. However, EPA 

declined to make any final determinations because additional 

factual information was still necessary. Clay Memorandum at 

1-2." 

a. Physical Change. 

EPA found that the life extension project would 

constitute a "physical change" for PSD and NSPS purposes. Id. at 

3, 10. 

EPA construed the regulatory definition broadly to 

include all alterations to an existing plant other than those 

within the exclusion for routine maintenance, repair and 

replacement. Id. at 3. EPA then set out the specific criteria 

for a finding of routineness and made a factual finding that 

WEPCO's project was not routine. Clay Memorandum at 3-4. 

The Agency first pointed out that the work would be 

major and. extensive. Specifically, EPA found that replacement of 

ir 

the steas drums — measuring 60 feet long, 50.5 inches in 

diameter,,and 5.25 inches thick •<— is necessary for continued 

safe operation at units 2-5, and that WEPCO also intended to 

16EPA Region V conveyed the Clay Memorandum to WEPCO, noting 

the need for further information to enable final applicability 

determinations. [Record at 4.2]. 
P.32 

- 31 -

replace air heaters at units 1-4, as well as renovate other major 

components and common plant support facilities. Id. at 4. EPA 

further noted that WEPCO's own characterization of the work to 

the PSC supported a finding that it is not routine. Id. 

EPA next concluded that the "purpose of the project is 

to significantly enhance the present efficiency and capacity of 

the plant and substantially extend its useful economic life," 

pointing to WEPCO's own statements regarding the 40 percent 

decline in capacity, near-term retirement dates, need for 

renovation to continue operations, and prospective life extension 

to the year 2010. Id. 

Third, EPA found that the work in question is rarely, 

if ever, performed, citing WEPCO's statement to the PSC that 

these items "would normally occur only once or twice during a 

unit's expected life cycle." Id. at 5 (quoting Letter from 

Thomas J. Cassidy, supra. at 1).

 1 7 

b. Increase in Production Rate and Hours of 

Operation. 

EPA found that the regulatory exemptions for increases 

in production rate and operating hours would not apply. 

fafcsgarding NSPS, EPA pointed out that WEPCO's renovation 

investments apparently would be large enough to qualify as 

17WEPCO had been unable to identify any steam drum 

replacements at any of its other facilities, and EPA concluded 

that the examples of other "header" pressure component 

replacements submitted by WEPCO were not comparable in size, 

function, or importance to the drums at Port Washington. Clay 

Memorandum at 5-6. 
P.33 

- 32 -

capital expenditures, and thus outside of the regulatory 

exclusion. Id. at 9. 

Regarding PSD, EPA determined that the exemption does 

not apply to production or operational increases associated with 

non-excluded physical or operational changes. Id. at 7. EPA 

cited the preamble to the PSD regulations for the proposition 

that the exemptions are intended to apply where a source simply 

combusts a larger amount of fuel in response to market 

conditions. Id. at 8 (citing 45 Fed. Reg. 52704). Conversely, 

EPA explained, the increases planned by WEPCO were the type 

Congress intended to be subject to review, because they "are 

inextricably intertwined with the physical changes planned under 

the life extension project." Clay Memorandum at 8. 

c. Increase in Emission Rate under NSPS. 

EPA explained that pursuant to longstanding Agency 

policy, the emission rate before and after a physical or 

operational change is evaluated at each unit by comparing the 

hourly potential emissions under current maximum capacity to 

emissions at maximum capacity after the change. The Agency added 

that facility's original maximum design capacity, to the extent 

••»- : 

it diffea from current actual capacity, is irrelevant to this 

calculation. Id. at 9-10. EPA also pointed out that the 

regulations allowed only the addition of pollution control 

equipment, and not the use of less-polluting fuels, to offset 

increases in emissions rates that would otherwise result from the 

change. Id. at 9. EPA concluded that WEPCO's renovations would 
P.34 

- 33 -

cause emissions rate increases, but withheld a final 

determination because it was unclear whether WEPCO intended to 

add or enhance pollution controls at Port Washington in order to 

lawfully avoid NSPS. IcL. at 11. 

d. Significant Net Emissions Increase Under PSD. 

EPA explained that under the PSD baseline regulations, 

whether the physical changes proposed under WEPCO's life 

extension project would result in a significant net emissions 

increase depended on a comparison in actual emissions before and 

after the change. Because the source had not yet begun 

operations following the renovations, actual emissions following 

the renovations were deemed to be WEPCO's "potential to emit." 

_____ at 7 (citing 40 C.F.R. § 52.21(b) (21) (iv)) . 

EPA then noted there apparently would be a significant 

net increase for PSD purposes because potential emissions after 

restoring the Port Washington units to their original design 

capacity would greatly exceed representative actual emissions 

before the change. Clay Memorandum at 7. EPA declined, however, 

to make a final determination because WEPCO had not submitted 

adequate<je»issions data, and because it was unclear whether WEPCO 

would seeiit to "net out" of PSD review by agreeing to limit 

potential emissions to a level not significantly greater than 

representative actual emissions prior to the life extension 

project. Id. at 7-8. 

2. The October 14. 1988 Letter "from Lee M. Thomas. 
P.35 

- 34 -

Following issuance of the Clay Memorandum, EPA 

Administrator Lee M. Thomas met with senior WEPCO officials, and 

agreed to reconsider certain points in that memorandum. EPA also 

reviewed additional emissions data supplied by WEPCO. On October 

14, 1988, Mr. Thomas issued final applicability determinations: 

if constructed as proposed, WEPCO's life extension project would 

be subject to NSPS and PSD requirements. Letter from Lee M. 

Thomas, EPA, to John Boston, WEPCO, October 14, 1988, at 1-2 

("Thomas Letter"). Finding no basis for departing from the 

reasoning of the Clay Memorandum, the Administrator adopted- EPA's 

prior conclusions by reference. Id. 

The Administrator specifically reconsidered and 

reaffirmed Mr. Clay's findings that the proposed work is not 

routine. Id. at 3. Mr. Thomas also addressed a related "equity" 

question regarding EPA's treatment of other utility renovation 

projects that had been raised in his meeting with WEPCO, but 

found no inconsistency with EPA's prior determinations. Id.

 1 8 

The Thomas Letter enclosed figures on emissions 

increases over baseline. These calculations reflected EPA's 

conclusion that a baseline of annual emissions in 1983-1984 — 

prior to discovery of the steam drum cracks — was more 

1 8 In particular, the Administrator considered and 

rejected information regarding four steam drum replacements 

submitted by WEPCO, concluding they were too dissimilar to affect 

the Port Washington decisions. Id. at 3-4. The Administrator 

also reported that EPA had conducted an informal survey and found 

no instances of steam drum replacement at aged power plants, and 

no instances where the Agency had reviewed a major life extension 

project of any kind. Id. at 4. 
P.36 

- 35 -

representative of normal source operations for PSD purposes than 

the most recent two-year period. Id. at 5 and Enclosure A. EPA 

calculated NSPS emissions increases using WEPCO's actual 

operating data, finding that other submissions by WEPCO were 

inadequate to show that higher capacities could be achieved on an 

economically sustainable basis. Id. at 5 and Enclosure B. EPA 

left open the possibility, however, that WEPCO could demonstrate 

higher current maximum capacities for the five units. Id. at 5. 

In conclusion, Mr. Thomas echoed the earlier statement 

by Mr. Clay that in adopting the NSPS and PSD programs, Congress 

intended to address the type of long-term capital investments in 

pollution-emitting facilities at issue in the Port Washington 

life extension project. Id. at 5; see also Clay Memorandum at 

12. 

3. The February 15. 1989 Supplemental Determination 

from Don R. Clav. 

EPA continued to meet with WEPCO following issuance of 

the Thomas letter, and WEPCO conducted emissions tests and 

submitted other additional factual material regarding the Port 

Washington project. On February 15, 1989, Mr. Clay issued a 

revised final determination addressing the new information and 

other matters raised by WEPCO. That determination generally 

reaffirmed again EPA's earlier findings and conclusions. Letter 

from Don R. Clay, EPA, to John Boston, WEPCO, February 15, 1989 

(hereafter cited as "Supplemental Determination"). 
P.37 

- 36 -

EPA first addressed new information from WEPCO 

regarding capital expenditure calculations for NSPS purposes. 

However, EPA again concluded that WEPCO's prospective production 

rate increases would involve a capital expenditure. Id. at 1-5. 

Next, EPA reiterated that air heater replacement on 

unit 1 should be viewed as part of the entire life extension 

project, and as such would be subject to NSPS and PSD. EPA 

pointed to WEPCO's own statement that the plate-type air heaters 

such as those at Port Washington units 1-4 do not lend themselves 

to replacement of individual elements, but must be replaced in 

whole, whereas the Ljungstrom basket-type elements at unit 5 and 

at WEPCO's other plants may be readily replaced. Supplemental 

Determination at 6 (citing Letter from John Boston, WEPCO, to 

Gary McCutchen, EPA, April 22, 1988 [Record at 6.10, Attachment 

at 6]). 

EPA also addressed capacity testing performed by WEPCO 

in hope of demonstrating that the actual capacities of the Port 

Washington units were higher than those reflected in the 

operating data that formed the basis for the Thomas Letter. 

Based on ."the new data, EPA concluded that units 2 and 3 could be 

operated "at their original design capacities on a sustainable 

basis. Consequently, EPA superseded in part its earlier 

determination and found that NSPS would not apply to those units 

following the life extension project. Id. at 8. 

Regarding units 1 and 4, WEPCO was able to operate 

those units at only 72% and 89% of their respective original 
P.38 

- 37 -

design capacities. EPA found the tests adequate to confirm EPA's 

original determination that the life extension program would 

increase current capacity at units 1 and 4 and thereby trigger 

NSPS coverage. Id. However, EPA rejected the test data for 

purposes of establishing the specific NSPS baselines for units 1 

- 4, because the tested capacities had been accompanied by 

several exceedances of applicable opacity and mass emission 

limits under the Wisconsin SIP. Id. at 8-9. Regarding unit 5, 

EPA found that by declining to conduct capacity tests, WEPCO had 

conceded that the unit is inoperable; hence, EPA reaffirmed that 

its NSPS baseline is zero. Id. at 9. 

with respect to PSD, EPA determined that WEPCO's 

capacity tests were irrelevant in determining emissions 

increases. EPA explained that the testing could only determine 

current maximum hourly capacity and associated hourly emissions 

rates. In contrast, "actual emissions" for PSD purposes are 

total annual emissions i.e., tons per year. Id. See also supra 

p. (discussing differences in emissions calculations for NSPS 

and PSD purposes). WEPCO's test results were also irrelevant for i 

PSD purposes, EPA explained, because PSD baseline emissions are | 

• • j 

determined by representative, not current, actual emissions. Id. ; 

at 10. _^ 

Finally, EPA reiterated that WEPCO could not obtain 

offsetting emissions reductions for NSPS purposes by burning 

lower-sulfur coal after the renovation project, because it would 

be contrary both to the statutory requirement that a percentage 
P.39 

- 38 -

reduction in uncontrolled emissions was necessary for NSPS 

compliance by fossil fuel-fired sources, and to the NSPS 

regulations. Id. 

4. History of This Litigation 

On November 28, 1988 WEPCO filed a petition for review 

of Lee M. Thomas', October 14, 1988 final applicability 

determination. (No. 88-3264). On February 22, 1989, WEPCO filed 

a petition for review of a revised final determination issued by 

EPA on February 15, 1989 (No. 89-1339). Upon joint motion by the 

parties, the Court consolidated the case by Order entered herein 

on April 4, 1989. 

SUMMARY OF ARGUMENT 

This case concerns EPA's determinations that the 

massive "life extension" project at WEPCO's Port Washington plant 

constitutes a "modification" under the NSPS and PSD provisions of 

the Clean Air Act. EPA's determinations are based on detailed 

factual findings and legal interpretations that are reasonable. 

In every respect, EPA's conclusions are squarely in keeping with 

the Act and the Agency's own regulations. Accordingly, EPA must 

be upheld. 

In making applicability determinations under the NSPS 

and PSD provisions of the Clean Air Act, EPA is not required 

either to anticipate all new developments in industrial planning 

or to revise its regulations to address such changes. Thus, 

although utility life extension programs are a new form of plant 

renewal, EPA reasonably found that the renovation work planned 
P.40 

- 39 -

for Port Washington falls within the broad statutory and 

regulatory definition of "modification." That term encompasses 

any physical or operational change which increases emissions. 

Specifically, it does not exempt "like kind replacements" of 

major components. Nor does the Act relegate consideration of 

utility life extension programs to the NSPS "reconstruction" 

regulation, which addresses only complete replacement of an 

existing facility without regard to emissions increases. EPA's 

determinations are in keeping with the basic congressional intent 

in adopting the NSPS and PSD programs to focus pollution control 

efforts at an efficient and logical point: the making of 

substantial capital investments in new or modified pollutiongenerating facilities. 

EPA reasonably found that WEPCO's unprecedented 

replacement of numerous major components at aged and deteriorated 

facilities for the purpose of restoring lost generating capacity 

and extending useful plant life by as much as 20 years is not 

"routine" within the meaning of the NSPS and PSD regulatory 

exclusion for routine maintenance, repair, and replacement. A 

contrary finding would have effectively defined all maintenance, 

repair, and replacement as routine, thereby allowing a narrow 

exemption to swallow the general rule. 

The regulatory exclusion for emissions increases from 

increased production rates or hours of operations was meant to 

reach only those increases in response to "fluctuations in the 

business cycle. Absent the extensive renovations at Port 
P.41 

- 40 -

Washington, WEPCO's emissions increases would not have been 

physically possible, and would have had no sustainable economic 

basis. Thus, EPA reasonably interpreted its NSPS and PSD 

regulations as not excluding those increases. 

EPA regulations require that emissions increases for 

NSPS purposes be determined on the basis of current actual 

capacity, and without regard to fuel switches. Thus, EPA acted 

reasonably in denying WEPCO's claim that the Agency should have 

looked only at increases over original design capacity. 

Regarding emissions increases for PSD purposes, EPA's 

regulations require a comparison between representative actual 

emissions prior to the life extension project and potential 

emissions after the renovations. Neither the regulations nor the 

basic purposes of the PSD program allow EPA to rely on WEPCO's 

own projections of future actual emissions in the absence of 

federally enforceable restrictions holding WEPCO to its projected 

level of actual emissions. 

At bottom, WEPCO's challenge is not to EPA's 

applicability determinations, but to the underlying NSPS and PSD 

regulations. However, those regulations could only be challenged 

in the D.C.' Circuit within 60 days of their promulgation and are 

not reviewable in this Court.. If WEPCO or amid are aggrieved by 

EPA's reasonable interpretation of its own regulations, their 

remedy is to petition EPA to alter those rules. 

STANDARD OF REVIEW" 
P.42 

- 41 -

The standard of review of EPA determinations of NSPS 

and PSD applicability is specified in the Administrative 

Procedure Act, 5 U.S.C. § 706(2)(A), which provides that agency 

action may be set aside only if it is found to be "arbitrary, 

capricious, an abuse of discretion, or otherwise not in 

accordance with the law." This standard is a deferential one 

that presumes the validity of agency action. Citizens to 

Preserve Overton Park v. Voloe. 401 U.S. 402, 415-16 (1971); 

State of New York v. EPA. 716 F.2d 440, 444 (7th Cir. 1983).. 

The Supreme Court has established a two-step procedure 

for judicial review of statutory construction by an 

administrative agency. "First, always, is the question whether 

Congress has directly spoken to the precise question at issue. 

If the intent of Congress is clear, that is the end of the 

matter." Chevron U.S.A.. Inc. v. Natural Resources Defense 

Council. Inc.. 467 U.S. 837, 842 (1984). If, however, "the 

statute is silent or ambiguous with respect to the specific 

issue, the question for the court is whether the agency's answer 

is based on a permissible construction of the statute." Id. at 

843 (footnote omitted). "[A] court may not substitute its own 

construction of a statutory provision for a reasonable 

interpretation made by the administrator of an agency." Id. at 

844. 

Moreover, an agency's interpretation of its own 

regulations is entitled to special deference. "When the 

construction of an administrative regulation rather than a 
P.43 

- 42 -

statute is in issue, deference is even more clearly in order," 

and must be upheld "unless it is plainly erroneous or 

inconsistent with the regulation." Udall v. Tallman. 380 U.S. 1, 

16-17 (1965). Therefore, this Court should afford great 

deference to EPA's application of its own regulations, and uphold 

EPA's determinations unless they are plainly erroneous. 

ARGUMENT 

EPA PROPERLY CONCLUDED THAT THE RENOVATION WORK AT PORT 

WASHINGTON CONSTITUTES A MODIFICATION UNDER EPA'S EXISTING 

REGULATIONS 

WEPCO's proposed renovations at Port Washington are 

squarely within the ambit of the NSPS and PSD "modification" 

regulations, which derive directly from the statutory definition 

of modification found in section 111(a)(4). The effect of 

including modified sources as well as newly-constructed sources 

under the new source requirements is to establish the current 

level of emissions as a baseline above which an existing source 

may not pollute without becoming subject to those requirements. 

As the D.C. Circuit has explained: 

[T]he operator of an existing facility can make 

any alterations he wishes in facility without becoming 

subject to the NSPS as long as the level of emissions from 

facility does not increase. Thus, the level of emissions 

before the alterations takes place . . . effectively defines 

the standard that an altered facility must meet. 

ASARCO. Inc. v. EPA. 578 F.2d 319, 328-29 (D.C. Cir. 1978). 

(challenge to amendments to the general NSPS provisions including 

40 C.F.R. §§ 60.14, 60.15); see also Alabama Power. 636 F.2d at 

401 (PSD applies only to those industrial changes which might 
P.44 

- 43 -

increase pollution). Thus, the regulations define a 

modification as any physical or operational change, not 

specifically exempted, which increases emissions over baseline 

levels. The regulations do not exempt "life extension projects." 

Hence, such projects must be treated in the same manner as any 

other type of prospective physical or operational change. That 

is precisely what EPA did in this case. 

A. EPA Properly Applied Its Existing Modification 

Regulations to the Facts of This Case. 

In addressing WEPCO's life extension project, EPA 

conducted extensive factfinding, weighed the relevant factors, 

and issued comprehensive applicability determinations. The 

record reflects the lengthly and sophisticated consideration 

given this matter, which far exceeded the norm for NSPS or PSD 

applicability determinations. In addition, the matter was 

reviewed at the highest levels, as both the Administrator and 

Acting Assistant Administrator, issued the determinations in 

question. EPA found that the extensive renovation work 

constituted physical or operational changes which are not within 

any exempted category. The Agency also explained that, far from 

being "routine," the changes at Port Washington are apparently 

unprecedented. EPA likewise found that the exclusion for 

increases in production rates and hours of operations would not 

apply, because those increases would not occur absent the 

renovation work. The Agency then determined that the renovations 

would result in an increase over baseline emissions for NSPS and 
P.45 

- 44 -

PSD purposes, and hence would be subject to new source 

requirements. In so doing, EPA rejected WEPCO's proffered 

methods for determining emissions increases as being contrary to 

law. See supra pp. . 

Despite the plain languge of the modification 

regulations, WEPCO argues EPA was wrong in even considering 

whether the Port Washington renovations constituted a 

modification under the facts presented in this case. In WEPCO's 

view, EPA must first conduct new rulemaking specifically 

addressing life extensions before asserting that NSPS or PSD 

apply to the Port Washington renovations. There is no basis in 

law for WEPCO's assertions. 

EPA was under no obligation to conduct separate 

rulemaking, or accord other special treatment to physical or 

operational changes growing out of life extension programs in the 

electric utility industry, before applying its existing rules. 

EPA regulations and long-established Agency practice provide for 

case-by-case adjudicatory determinations of whether new source 

requirements apply to prospective alterations at existing 

facilities. E.g.. 40 C.F.R. § 60.5; see also supra p. 

(discussion of EPA practice of issuing NSPS and PSD applicability 

determinations). Such determinations are properly reviewable in 

the court of appeals. Harrison v. PPG Industries. Inc. 

Moreover, -as a practical matter, it is essential that 

EPA be able to respond to new factual circumstances as they 

arise. The Agency cannot anticipate every form that industrial 
P.46 

- 45 -

development may take in promulgating rules "of general .. . 

applicability and future effect," 5 U.S.C. § 551(4), nor does 

the law require EPA to do so. [Add cite re: agencies not 

required to anticipate every factual circumstance to which 

regulations may be applied.] So long as the current regulations 

may be reasonably interpreted as encompassing the proposed 

renovations at Port Washington, EPA's applicability 

determinations must be upheld. E.g.. Udall v. Tallman. 380 U.S. 

1, 16-17 (1965); Wisconsin Electric Power Co. v. OSHRC. 567 f.2D 

735, 738 (7TH CIR. 1977). 

It is clear that regulatory agencies have authority to 

proceed by adjudication rather than rulemaking in appropriate 

circumstances, e.g.. NLRB v. Wvman-Gordon Co.. 394 U.S. 759 

(1969). [MORE CITES], Absent an explicit statutory constraint, 

EPA has broad discretion to employ those procedures and methods 

it feels are best suited to discharging its numerous and varied 

duties. See, e.g.. Vermont Yankee Nuclear Power Corp. v. NRDC. 

435 U.S. 519, 543 (1978). 

Nevertheless, WEPCO argues that EPA has impermissibly 

applied its rules prospectively, by effectively creating new 

- r 

regulatory requirements through adjudication and without 

explanation or opportunity to comment. Br. at 21-23. This is 

not so. As will be shown, EPA merely applied existing 

regulations to the facts of this case. WEPCO has failed to 

demonstrate that EPA departed from either trhe letter or intent of 

those regulations in issuing its applicability determinations. 
- 46 -

The fact that the subject of those determinations was a life 

extension project, a subclass of modification not previously 

encountered by EPA, is of no consequence. 

B. WEPCO's Life Extension Project Involving "Like-Kind 

Replacement" Is Within the Definition of "Modification" 

Under EPA Regulations. 

Neither the statutory definition in section 111(a)(4) 

nor EPA's regulations contain any restrictions on the type of 

physical or operational changes that may be deemed modifications. 

Nor can such a restriction fairly be read into the legislative or 

administrative history of the NSPS or PSD programs. WEPCO 

insists, however, that the life extension project at Port 

Washington is beyond the reach of the Clean Air Act's 

modification requirements. The company is mistaken. 

WEPCO argues on one hand that "the term 'life 

extension' describes only what utilities and other industrial 

facilities have done for decades," because every time a plant 

component — even a single leaky pipe — is replaced in 

accordance with original plant design, the facility's life is 

extended.. Br. at 28. On the other hand, WEPCO claims that when 

EPA adopted its NSPS and PSD modification regulations the Agency 

••*%*:: . 

did not specifically anticipate that utilities would seek to 

renew their-facilities through life extension programs, and thus 

EPA must now conduct new rulemaking rather than apply its 

existing rules. Br. at 29. Both WEPCO's facile truism and its 

pinched reading of EPA's modification regulations are inaccurate. 
P.48 

- 47 -

EPA has nowhere asserted that NSPS or PSD applies to 

repair of a leaky pipe, which technically extends the life of a 

facility. As discussed infra, such routine repairs and 

replacements are beyond the reach of the CAA's modification 

provisions. WEPCO's straw man is not at issue here; the Port 

Washington project involves much more than leaky pipes. 

It is true that EPA — and industry — did not foresee 

the type of life extension project at issue here at the time the 

NSPS and PSD modification regulations were adopted. See supra p. 

[cite beginning of life extension discussion.] But, as noted 

previously, those regulations by their very terms encompass the 

specific renovations proposed at Port Washington. Moreover, as 

the prospect of life extension programs has loomed larger in 

recent years, the electric utility industry has acknowledged that 

there may be regulatory consequences. In particular, industry 

also understands that those consequences may include the need to 

comply with NSPS and PSD requirements. WEPCO's professed 

surprise at the prospect of coverage in this case is, in fact, no 

shock at all, but rather a natural consequence of industry's own 

well-considered choice. 

In deciding what route to pursue in planning to meet 

future electrical demand, utilities must assess the costs and 

benefits, including risks and uncertainties, associated with life 

extension versus those entailed by other available alternatives. 

Capital Costs of Life Extension at 5; EPRI -Journal. July/August 

1987, at 24-26. [Record at .]. The utility industry 
P.49 

- 48 -

understands that among the cost factors that must be considered 

is the possibility that a given life extension project may be 

subject to the NSPS and PSD provisions of the Clean Air Act, and 

may be required to install scrubbers or other pollution control 

technology as a result. 

Thus, in their respective guidelines for assessing life 

extension costs, both the Department of Energy and the industry's 

principal research group expressly state that a decision to 

proceed with a particular life extension project may subject the 

plant to new source requirements. See capital Costs of Life 

Extension at 6 (NSPS apply to units when refurbishment makes them 

"modified"); EPRI Journal. July/Auqust 1987, at 26 ("an extendedlife plant could also be subject to NSPS if the emission rate of 

any pollutant covered by these standards increased by 

refurbishment"). The Department stated its belief that it is not 

clear what kind of refurbishment activities will make a plant 

subject to NSPS, capital Costs of Life Extension at 6, while EPRI 

pointed out that coverage is "a risk that depends on regulatory 

interpretation," EPRI Journal. July/August 1987, at 27.19 

WEPCO asserts that the only provision addressing 

renewal or perpetuation of existing facilities through "like-kind 

19EPRI also pointed out that "[w]hether life extension would 

remain economically attractive if refurbished plants had to 

comply with NSPS would depend on the specific cases." The 

research group further stated in this regard that even if 

compliance were required, it may still before cost-effective 

than a new unit. Id. In part this is because new clean coal 

technologies may be able to satisfy new source requirements 

without resort to scrubbers. Id. 
P.50 

- 49 -

replacement" of deteriorated components is the NSPS 

"reconstruction" regulation, applicable where capital costs of 

reconstruction exceed 50% of the cost of a new facility even if 

emissions do not increase. See 40 C.F.R. § 60.15. Since capital 

costs at Port Washington are below 50%, WEPCO argues, there are 

no Clean Air Act implications to WEPCO's life extension project. 

Br. at . 

In fact, in adopting the reconstruction provision, EPA 

explicitly distinguished reconstruction from modification, 

[cite] The Agency left no doubt that the modification rule would 

apply where, as here, changes did not alter the character of the 

facility, but did result in emissions increases.

 2 0 Reconstruction applies only where work at an existing facility is 

"substantially equivalent to totally replacing it at the end of 

its useful life," even if there are no resulting emissions 

increases.] 40 Fed. Reg. 58417, col. 3. The Agency addressed 

WEPCO's "like-kind replacement" argument by clearly providing 

that projects of lesser scope, where renovated facilities 

"substantially retain their character," will be addressed by the 

20It is clear from the technical literature that the 

utility industry is well aware that life extensions in particular 

may be subject to either the modification provisions of NSPS or 

the reconstruction provisions, depending on the facts of a given 

case. Thus, both the Department of Energy and EPRI have been 

careful to distinguish between the risk of NSPS coverage under 

the reconstruction provisions if life extension exceeded 50% of 

capital costs, and the potential for coverage under modification 

provisions if refurbishment activities increased emissions rates. 

Capital Costs of Life Extension at 6; EPRI Journal. July/August 

1987, at 26. 
P.51 

- 50 -

modification regulations. JJL.

 EP A stated quite simply and 

without qualification as to such facilities that "application of 

[NSPS] is appropriate when any physical or operational change is 

made which causes an increase in emissions to the atmosphere 

(this is modification)." Id. (emphasis added); see also supra p. 

(discussion of NSPS reconstruction provision).21 

WEPCO emphasizes that EPA regulations place 

qualifications on application of NSPS to reconstructions despite 

their large scope. Br. at . But this ignores the obvious and 

important fact that by definition, modifications involve 

emissions increases while reconstructions may not. Thus, EPA has 

a much greater interest in requiring advanced pollution controls 

on modifications despite their lesser scope, [add discussion of 

Subpart Da background doc. as cited in WEPCO Br. at 29 n.86.] 

II. EPA'S FACTUAL FINDING THAT WEPCO'S $80 MILLION LIFE 

EXTENSION PROJECT IS NOT ROUTINE IS CONSISTENT WITH THE 

CLEAN AIR ACT. EPA REGULATIONS. AND PRIOR DECISIONS 

A. The Renovation Work Is Costly and Extensive, and 

Apparently Has Never Been Done bv Anv Other Utility. 

In finding that the renovations at Port Washington 

would constitute a physical or operational change under NSPS and 

PSD, EPA first considered and rejected WEPCO's claim that such 

21EPA decided not to include a reconstruction provision in 

its 1980 PSD rules largely because, in light of the general PSD 

objective of protecting air quality, there was not a significant 

need for such a requirement. EPA instead-relied on the 

modification regulation addressing improvements at existing 

facilities which would cause a significant net emissions 

increase. See 45 Fed. Reg. 52703, col. 2. 
P.52 

- 51 -

work is within the regulatory exclusions for "routine 

maintenance, repair and replacement." EPA evinced no intent to 

depart from the common-sense meaning of "routine" when it adopted 

these exclusions. [cite dictionary definition.] The Agency has 

applied the term in a straightforward and reasonable manner here, 

consistent with the general rule that, as exemptions from the 

statutory definition encompassing any physical or operational 

change, the exclusions for "routine" work must be narrowly 

construed. [cite.] 

EPA conducted an extensive factual inquiry into the 

circumstances of the Port Washington renovations. The Agency 

obtained a large quantity of information from WEPCO regarding the 

company's plans and how they compared to WEPCO and industry 

practice. Clay Memorandum at 5-6. EPA also reviewed its own 

files in search of analogous situations. Thomas letter at 3-4. 

At one point WEPCO asserted that the proposed work would normally 

occur only once or twice during a unit's expected life. Letter 

from Thomas J. Cassidy, supra. at 1. But WEPCO did not identify, 

and EPA did not find, even a single instance of renovation work 

1 a t 

at any eSiectric utility generating station that approached the 

Port Washington life extension project in nature, scope or 

extent. In-particular, as far as could be determined, 

replacement of steam drums and plate-type air heaters at an aged 

power plant had never before been undertaken at any utility in 

the United States. Thomas Letter at 3-4; Clay Memorandum at 3-4. 
P.53 

- 52 -

EPA summarized the approach and outcome of its factual inquiry as 

follows: 

In determining whether proposed work at an 

existing facility is "routine," EPA makes a case-bycase determination by weighing the nature, extent, 

purpose, frequency, and cost of the work, as well as 

other relevant factors, to arrive at a common-sense 

finding. In this case, all of these factors suggest 

that the work required under WEPCO's life extension 

project appears not to be "routine." The available 

information indicates that the work proposed at Port 

Washington is far from being a regular, customary, or 

standard undertaking for the purpose of maintaining the 

plant in its present condition. Rather, this is a 

highly unusual, if not unprecedented, and costly 

project. Its purpose is to completely rehabilitate 

aging power generating units whose capacity has 

significantly deteriorated over a period of years, 

thereby restoring their original capacity and 

substantially extending the period of their utilization 

as an alternative to retiring them as they approach the 

end of their useful physical and economic life. 

Clay Memorandum at 3-4. 

Despite this exhaustively considered and well-reasoned 

finding, WEPCO continues to insist that its life extension 

project is routine. The company asserts that an activity is 

"routine" for NSPS and PSD purposes if it is "customary" or a 

"regular" procedure. Br. at 42. WEPCO follows this premise with 

another: like-kind replacement of deteriorated equipment is 

customary and regular industry practice. Id. These premises 

lead WEPCO to the general conclusion that all replacements, 

including those at issue here, are customary and regular, and 

therefore routine. Id. Assuming, arguendo. that WEPCO's 

premises are true, its conclusion does not_follow in logic or in 

fact. 
P.54 

- 53 -

While some replacement of deteriorated equipment may be 

customary and regular, and therefore routine, it does not follow 

that all replacements are either customary, regular, or routine. 

Based on an extensive record, EPA concluded that no steam drums 

or plate-type air heaters had ever been replaced at a U.S. 

utility. Significantly, WEPCO does not dispute this finding. 

Moreover, WEPCO itself, in applying for state approval of its 

life extension project, specified that work items "falling into 

the category of repetitive maintenance that are normally 

performed during scheduled equipment outages . . . are not 

included in this application." Letter from Thomas J. Cassidy, 

supra. at 1. EPA's finding that the work WEPCO did plan to 

undertake is neither regular, customary, nor "routine" is 

reasonable. 

WEPCO claims that EPA's treatment of air heater 

replacement is arbitrary and capricious. Br. at 45-48. This 

accusation is groundless. The company would have EPA consider 

the cost of those replacements separately from the life extension 

project as a whole. Br. at 46. But as EPA explained, there is 

no basis: for according separate treatment to one portion of this 

integrated project. Such piecemeal review would be contrary to 

reason and the intent of the Act's new source provisions. 

Supplemental Determination at 7-8. Rather, as explained above, 

EPA reasonably employs a totality of the circumstances test that 

considers all the relevant factors. See Clay Memorandum at 3. 

As to air heaters, among the relevant factors is that 
P.55 

- 54 -

the plate-type heaters on units 1-4 apparently have never been 

replaced at any other facility. In determining industry 

practice, it is not enough, as WEPCO asserts (Br. at 47) that all 

kinds of air heaters perform the same general function. WEPCO 

makes this specific point to illustrate its general position that 

like-kind replacement that does not alter plant design or 

emissions characteristics is per se routine. However, as EPA has 

shown, supra at , there is no regulatory exclusion for likekind replacements in general. It may be the case that a 

particular like-kind replacement is routine. Thus, in the 

context of WEPCO's life extension program, EPA has ruled that 

replacement of steam drums at an aged and deteriorated plant is 

not routine. However, replacement of a steam drum that failed 

during initial testing at a new facility probably would be viewed 

as routine if the alternative was to abandon that facility and 

the unamortized capital investment in new equipment. Clay 

Memorandum at 6 n. 2.

 2 2 

22 WEPCO cites EPA's findings that replacement of 

regenerator cyclones at a refinery after eight years, and 

replacement of coal pulverizers at an electric utility, are 

routine as contrary to the Agency's position in this case. Br. 

at 43 (citing Letter from Kenneth Eng, EPA Region II, to Dale 

Choate, Mobil Oil, September 7, 1988 [Record at 2.21], 45 

(citing NSPS Background Document at 5-4 [Record at 3.19]. .. 

Whether a particular project is routine requires a case-by-case 

weighing of all the relevant factors, Clay Memorandum at 3, and 

the record does not reflect what facts EPA relied on in reaching 

those conclusions. In particular, there is nothing to support 

WEPCO's assertion that coal pulverizers are rarely replaced. 

Thus, it is just as reasonable to assume that it is customary for 

these individual items to wear out and be replaced as a regular 

practice. 
P.56 

- 55 -

WEPCO cites several Agency memoranda as support for its 

position that restoring a plant to its original capacity does not 

trigger NSPS. Br. at 36-37, n. 101. WEPCO either selectively 

misreads the memoranda or the memoranda simply do not provide 

enough factual basis to support WEPCO's assertions that the 

Agency acted arbitrarily. For example, WEPCO cites a memorandum 

from Michael James to Jack Farmer [Record at 2.1]. providing 

that the NSPS modification provision would not be triggered by a 

source reopening after being closed for a period of time. That 

memo clearly states, however, that the modification provision 

would not be triggered because "neither the source's physical 

structure nor its method of operation is changed from its 

condition under previous operation." Thus, the facts in that 

case are entirely different from WEPCO where significant physical 

changes were to be made to the facility. EPA has always taken 

the position that reactivation of a source without other physical 

or operational changes does not trigger NSPS modification; where 

physical or operational changes do occur the Agency makes a fact 

specific determination of whether those changes are routine. See. 

e.g.. Memorandum from E. Reich to W. Sawyer (1980) [Record at 

2.10.] In examining reactivations under PSD, EPA likewise 

inquires as to whether physical or operational changes are 

necessary to restart to facility. E.g., Supplemental PSD 

Applicability Determination. Cyprus Casa Grande Corp.. Nov. 6, 

1987 [Record at 2.17] (reactivation of source is subject to PSD 
P.57 

- 56 -

due to extensive physical and operational changes necessary for 

restart). See also infra p. . 

B. The Purpose of the Project Is to Restore Lost Capacity 

and Extend the Useful Life of the Port Washington Plant. 

EPA found that the life extension project would not 

merely maintain the units in their present deteriorated state, 

but restore them to their original design capacity and 

substantially extend their useful physical and economic life. 

Thomas Letter at 3; Clay Memorandum at 4. WEPCO itself had 

conceded that total plant capability had declined by 4 0%, and 

that extensive renovation was necessary to continue operations. 

Letter from Thomas J. Cassidy, supra. at 1. 

WEPCO later conducted capacity tests on units 1-4 which 

demonstrated that units 2 and 3 could be operated at maximum to*^** 

capacity. EPA accepted those test results and revised its 

determination by providing that NSPS would not apply to those 

units. Supplemental Determination at 8. However, those same 

test results showed that, at best, units 1 and 4 could only 

operated at levels substantially below design capacity, [add Fn 

here?: x% derate per tests, but even then only with exceedances, 

suggestifl^ that units' true sustainable capacity for baseline 

purposes aay be much lower.] Regarding unit 5, WEPCO declined to 

test or otherwise resume operations at that unit, leaving EPA no 

reason to alter its conclusion that unit/B could not be operated 

at all without, at a minimum, the (unprecedented) replacement of 

the steam drum as called for by WEPCO's consultant, .[cite.] 

,iA* 
- 57 -

Despite these facts, WEPCO persists in characterizing 

its life extension project as enabling the plant to "operate 

normally." Br. at 42. In 1989, however, normal operations are 

well below design capacity, reflecting the hard fact of severe 

age-related deterioration of the plant. [Fn. cite low operating 

loads for last 10 years.] The true purpose of the project, as 

WEPCO advised the Public Service Commission, is to restore lost 

capacity and extend plant life. Letter from Thomas J. Cassidy, 

supra, at 1-2. 

EPA's finding that WEPCO's life extension project is 

not "routine" is eminently reasonable. 

C. WEPCO Would Have the "Routine" Exclusion Swallow the 

Rule. 

WEPCO's interpretation of the routine exclusion in 40 

C.F.R. §§ 60.14(e)(1) and 52.21(b)(2)(iii)(a) would have the 

exceptions swallow the rules. WEPCO ignores that the basic 

starting point is the definition of "modification" found in 

section 111(a)(4) of the Clean Air Act. That provision states 

that any physical change or change in the method of operation of 

a source vhich increases emissions can subject a source to the 

NSPS and.PSD modification provisions. The regulatory exclusions 

found in 40 C.F.R. §§ 60.14(e) and 52.21(b)(2)(iii)(a) are 

exemptions to this general requirement. That WEPCO disagrees 

with the breadth of the exclusion does not render the Agency's 

determination invalid. EPA's constructionist its own regulations 

is entitled to great deference. Udall v. Tallman. 3 80 U.S. -ST" 
P.59 

- 58 -

16-17. Moreover, as construed by WEPCO, the routine exception 

would render large portions of the modification definition 

meaningless. WEPCO asserts that any physical change which is a 

replacement of an existing component is by definition routine. It 

further contends that the Agency cannot consider extent, scope, 

cost or frequency of the renovation work; its impact on the 

useful life of the facility; or similar, obviously relevant 

considerations. Br. at 42. 

Perhaps the best way to highlight the absurdity of 

WEPCO's argument is to consider the analogy of a car. EPA's 

regulatory exception for routine maintenance, repair and 

replacement, was meant to cover such things as an oil change, 

replacing a broken headlamp or worn-out tires, changing the 

sparkplugs, or other similar activities. Granted, each of these 

elements is essential to the operation of the vehicle and each by 

being repaired or replaced technically "extends" the life of car. 

In most instances, however, it is not routine to replace major 

components such as the engine or the transmission, and it is 

certainly not routine to do so on an aged, deteriorated car. 

WEPCO's proposed renovations are more analogous to the latter 

type of activity than the former.[see discussion in clay memo at-

-.] WEPCO's interpretation of the modification rule would 

eliminate the distinction between routine and nonroutine physical 

changes, with the former engulfing the latter. This would 

undermine an important purpose of the modification provision, and 

violate the precept that exemptions be narrowly construed. 
P.60 

- 59 -

III. EPA'S FACTUAL FINDINGS THAT WEPCO EXCEEDED NSPS ANn pep 

BASELINE EMISSIONS ARE REASONABLE AND IN ACCORDANCE WJTH 

APPLICABLE REGULATIONS 

A. Where Emissions Increases Due to Increased Production 

Rate or Hours of Operation Are Attributable to Physical 

or Operational Changes. Thev Trigger NSPS and PSD 

Coverage. 

WEPCO asserts that PSD does not apply to the Port 

Washington renovations because any emissions increases will be 

attributable to increases in rates of production or hours of 

operation which are excluded from the definition of "major 

modification." Br. at 61-64. This claim misreads the scope of 

the regulatory exclusion. EPA's interpretation of this exemption 

as limited to stand-alone increases in production or operations 

is in keeping with the purpose and intent of the exemption, and 

should be upheld. 

In adopting NSPS and PSD regulatory exclusions for 

increases in production rates and hours of operation, EPA sought 

to afford sources ample freedom in responding to changes in 

market conditions. With respect to NSPS, where only hourly 

emissions rates are at issue, EPA gave sources broad leeway to 

increase production so long as it does not entail a capital 

expenditure for "long-term additions or improvements." See 39 

Fed. Reg. 36948, col. I.23 

2 3 Here, EPA found that the restoration of design capacity 

at units 1, 4, and 5 — and corresponding increases in production 

rates and emissions rates — would require-a capital expenditure. 

Thomas letter at 1-5. WEPCO has not challenged EPA's finding, 

effectively conceding this point. 
P.61 

- 60 -

Regarding PSD, on their face the exclusions are limited 

to federally enforceable emissions ceilings, and are not 

specifically tied to the existence of capital expenditures. 

However, the preamble to the 1980 PSD regulations is clear that, 

as in matters involving modification regulations generally, EPA 

was following the lead of its earlier NSPS regulations. See 

supra p. .

 2 4 Thus, requiring PSD review for a mere 

increase in production or operation "would severely and unduly 

hamper the ability of any company to take advantage of favorable 

market conditions." 45 Fed. Reg. 52704. In the very next 

sentence, however, EPA strongly implied that production and 

operational increases would be exempt only insofar as they were 

not linked to the new construction activity that is the linchpin 

of PSD coverage: "The emphasis of the relevant statutory 

provisions on "construction" strongly supports EPA's 

interpretation of Congress' intent. See, e.g.. section 165(a)." 

45 Fed. Reg. 52704. EPA then proceeded to address the air 

quality planning concerns of the PSD program by emphasizing that 

"any change in hours or rate of operation that would disturb a 

prior assess- ment of a source's environmental impact should have 

to undergo scrutiny." Id. 

In the Clay Memorandum, EPA considered the regulatory 

exclusion in light of these underlying purposes and the facts of 

24The legislative history also reflects that, as a general 

matter, Congress intended to conform the meaning of 

"modification" for PSD purposes to usage under NSPS. See 123 

Cong. Rec. H11957 (Nov. 1, 1977) [check cite]. 
P.62 

- 61 -

this case. EPA noted that WEPCO's planned production increases 

were not a temporary reaction to current market conditions, and 

thus interpreted the exclusion as not applicable here. Rather, 

EPA stated: 

it is obvious that WEPCO's plans to increase production 

rate or hours of operation are inextricably intertwined 

with the physical changes planned under the life 

extension project. Absent the extensive renovations 

proposed at Port Washington, WEPCO would have little 

market incentive to, and in part would be physically 

unable to, increase operations at these aged and 

deteriorated facilities which, absent the renovations, 

would likely be retired from service in the near 

future. Thus, WEPCO's plans call for precisely the 

type of "change in hours or rate of operation that 

would disturb a prior assessment of a source's 

environmental impact [and] should have to undergo [PSD 

review] scrutiny" (see 45 FR 52704). Conversely, 

accepting WEPCO's interpretation of the major 

modification regulations would serve to exclude from 

consideration all physical or operational changes 

except those which cause increased emissions per unit 

of production. Clearly, EPA never intended this 

result. It would allow, through substantial capital 

investment, significant expansion of the pollutionemitting capacity and longevity of major industrial 

facilities without PSD review of the impacts on air 

quality and opportunities for future economic growth. 

Clay Memorandum at 8. 

The environment bears the brunt of an increase in 

actual emissions from a source regardless of whether it comes 

from incrsased pollution per unit of production or from increased 

production. EPA can, and does, allow an exemption for simple 

increases in production rate or hours of operations, which are 

unconnected to physical or operational changes. See Alabama 

Power Co. v. Costle. 636 F.2d 323, 400 (D.C. Cir. 1979) 

(discussed supra at ). But the regulatory exclusion does not 
P.63 

- 62 -

allow significant expansion of the pollution emitting capacity or 

longevity of major industrial facilities without PSD review of 

impacts on air quality and opportunities for future economic 

growth. Clay Memorandum at 8. Such a reading would be contrary 

to the statutory intent to require a PSD permit "where industrial 

changes might increase pollution in an area." I£. at 4 0'1; see 

also CAA section 160(5). 

WEPCO claims that EPA's interpretation of the 

regulatory exclusion is contrary to past practice. Br. at 63-64. 

But WEPCO distorts a 1987 applicability determination that in 

fact explicitly interpreted this very provision in precisely the 

same manner as EPA has in this case. Supplemental Applicability 

Determination. Cyprus Casa Grade Corp.. Nov. 6, 1987 [Recorded at 

2.17]. In that case, EPA held that reactivation of a source 

after a lengthy shutdown was not subject to the exclusion for 

increased production rate or hours of operation, because the 

reactivation could not be accomplished without extensive physical 

changes to rehabilitate the deteriorated physical plant. Id. at 

4-7. EPA also relied on the fact that the state had removed the 

source froa its emissions inventory and thus reactivation would 

"'disturb a prior assessment of a source's environmental 

impact.'" Id. (quoting 45 Fed. Reg. 52704). Similarly, in this 

case, WEPCO's plans to expand production cannot be accomplished 

without extensive physical changes, and the lengthy life 

extension clearly will disturb Wisconsin's- prior assessment of 
P.64 

- 63 -

environmental impact, which assumed retirement of the Port 

Washington units in the near future. 

[Add rebuttal to WEPCO Br. at p. 63 re fuel switch.] 

B. Original Design Capacity Is Not Relevant Under NSPS or 

PSD; Fuel Switching Is Not Relevant Under NSPS. 

1. Achievable Capacity. Not Original Design Capacity. 

Is the Baseline For Determining Emissions Increase 

Under NSPS 

As it had done throughout the administrative 

decisionmaking process, WEPCO repeatedly asserts that for 

purposes of determining baseline emissions under NSPS, EPA must 

use the original operating design capacity of the unit, not the 

current achievable capacity. Br. at — . This assertion is 

incorrect. 

NSPS applicability is determined as follows: compare 

maximum achievable capacity immediately before a proposed change 

to maximum achievable emissions after the change to establish 

whether there will be an emissions increase resulting from the 

change. 40 C.F.R. §§ 60.14 . See supra p. . Where, as 

here, an increase in production rate is at issue, EPA explicitly 

rejected original design capacity in favor of current operating 

.ii* . . 

capacity as the baseline for guaging emissions increases: 

The exemption of increases in production rate is no 

longer dependent upon the "operating design capacity." This 

term is not easily defined, and for certain industries the 

"design capacity" bears little relationship to the actual 

operating capacity of the facility. 

39 Fed. Reg. 36948 (proposed rule). This case proves the 

rules'point precisely: the actual capacity of the Port 
P.65 

- 64 -

Washington units to operate has been significantly reduced, and 

in fact Unit 5 is unable to operate, [cite to discussion above.] 

/" Therefore, EPA initially used the highest capacity demonstrated 

during the previous year for the purpose of determining whether 

an emissions increase would occur as a result of the proposed 

renovation work. Thomas Letter at 5. However, EPA left open the 

opportunity for WEPCO to demonstrate that the units could achieve 

higher capacities. During November and December of 1988 WEPCO 

did demonstrate that Units 2 and 3 could operate now at original 

design capacity, and thus, the renovations would not increase 

current capacity or emissions. Accordingly, in the Supplemental 

Determination EPA found that the proposed renovation work at 

units 2 and 3 would not subject those units to NSPS coverage. 

Supplemental Determination at 8.25 Thus, WEPCO is free to make 

substantial physical changes to Units 2 and 3 without triggering 

NSPS review, contrary to WEPCO's assertions that EPA's 

• Lxx-X 

res*- ^^ 

25WEPCO further argues that EPA's test protocol for 

determining actual capacity is invalid because it used the lowest 

1 hour capacity achieved furing a/50 hour test period. Br. at 

49. This* argument has no merit. /Whether EPA used the highest, 

lowest, or some average of the 50/ hour test has no bearing on the 

determination that NSPS applies. '/Even tn e highest hour during 

the test period demonstrated that Unit l's capacity was % below 

projected' post renovation capacity/and that Unit 4's baseline 

capacity was __\ % less than projected capacity, f In any eyent, 

the Administrator has the discretion to determine what 

constitutes the maximum production rate^ttflder representative 

operating conditions, see 40 C/F-R^HToO. 14(by, and this test 

protocol was reasonably desigried^€o achieve its purpose of\ 

determining a capacity whleh^/could be achieved on a sustanable 

basis over a period gf^tlme./ /^Record at >» . 

(u,y* ** ^ -\ ti 
P.66 

- 65 -

interpretation of the NSPS regulations effectively bars any likekind replacements of equipment. 

WEPCO cites several prior applicability determinations, 

contending they support its position that in the past EPA has 

always looked at maximum design capacity to determine whether 

emissions will increase. Br. at 39-40, (citing Record Items 2.2, 

2.3, and 2.15). A careful examination of those determinations 

makes clear that nothing therein is inconsistent with EPA's 

position here that the baseline capacity for modification 

purposes is the maximum achievable capacity just prior to the 

proposed renovation. Those determintions speak of highest 

emission levels at normal operating conditions. [cite] Here, as 

noted above, the applicability determinations likewise were based 

on the maximum physical capacity at which the plant could operate 

under normal conditions at the time. For Units 1 and 4 that was 

.7-7 |< 

— and % percent below orginal design capacity, for units 2 

and 3 it was the design capacity, and for Unit 5 it was zero 

because the unit could not operate. 

2. Fuel Switching Is Not A Means Of Avoiding NSPS 

ApplicabilityLrWEPCO also contends that EPA's determination that 

switching to a lower-sulfur fuel is not an appropriate means of 

avoiding NSPS applicability is contrary to law. Br. at 50. 

WEPCO misreads section Ill's plain language. 

In the Clay Memorandum, EPA explained that the NSPS 

regulations bar the use of lower-sulfur fuel to avoid coverage. 
P.67 

- 66 -

Clay Memorandum at 9 (citing 40 C.F.R. §§ 60.14(B)(2) and 

60.14(E)(4).) In its Supplemental Determination EPA further 

explained why it rejected WEPCO's proposal to avoid NSPS coverage 

by accepting a permit condition requiring it to burn low sulfur 

fuel so as to prevent any actual emissions increase. EPA noted 

that section 111 as amended in 1977 reflected a basic 

congressional decision that fossil fuel-fired sources not rely on 

naturally low polluting fuels to comply with the NSPS. 

Supplemental Determination at 10. Thus, Congress added the 

percentage reduction requirement within the definition of 

standard of performance. See section 111(a)(1)(A)(ii); see also 

supra at pp. . This core policy judgment is reflected in the 

legislative history of the 1977 Clean Air Act Amendments. For 

example, the Conference Report states: 

The Senate concurs in the House provision with 

minor amendments. The agreement requires (1) that the 

standards of performance for fossil fuel-fired boilers 

be substantially upgraded to require the use of the 

best technological system of continuous emission reduction 

and to preclude use of untreated low sulfur coal alone as 

a means of compliance; . . . (3) that for fossil fuel-fired 

sources, the new source performance standards must be 

comprised of both a standard of performance for emissions 

and an enforceable requirement for a percentage reduction in 

pollution from untreated fuel. 

H.R. Rep^j Ho. 95-964, 95th Cong., 1st Sess. 130 (1977). 

EPA came to the conclusion that because the will of 

Congress was so clear that lower-sulfur fuels alone will not 

suffice to comply with NSPS, "it would be inconsistent with the 

legislative intent for EPA to allow sources to avoid coverage of 
P.68 

- 67 -

NSPS in the first instance in the manner suggested by WEPCO." 

Supplemental Determination at 11. 

In response, WEPCO makes the curious assertion that 

EPA's interpretation is invalid because "Congress did not, 

however, make any similar change [requirement of percent 

reduction] in the 'modification' provision that apply to existing 

sources." Br. at 51-52 (footnote omitted). This statement 

reflects a basic misunderstanding about the relationship between 

new and modified sources under section 111. As defined in the 

statute, a "new" source subject to NSPS provisions is a source 

"the construction or modification of which" occurs after the 

proposal of a standard of performance for that source category. 

Section 111(a)(2) (emphasis added). Thus, the requirements of 

section 111 apply to both new and modified sources equally. Had 

Congress intended to exempt modified sources from such a key 

provision of the standard of performance, it would have done so. 

C. EPA's PSD Regulations Reguire that Emissions Increases 

Be Determined by Comparing Actual Emissions Before the 

Physical or Operational Chance to Potential Emissions 

After the Change. 

EPA regulations require calculation of "net emissions 

increase*- for PSD purposes by comparing representative actual 

emissions before the physical or operational change and potential 

emissions after the change. See supra pp. - . In this 

case, using sulfur dioxide as an example, representative actual 

emissions are 24, 236 tons per year, while potential emissions 

following the renovations are 52, 621 tons per year. Thomas 
P.69 

- 68 -

Letter, Envlosure A. Despite the clear requirements of the 

regulations and the uncontested facts, reguire such a 

calculation. The company suggests that emissions increases be 

calculated by comparing the representative past actual emissions 

with WEPCO's "projected representative, actual emissions that 

would occur after" the life extension project ~ a maximum of 

13,000 tons per year.. Br. at 56 n. 152. There is no basis in. 

the regulations for such a comparison. 

EPA has explained in detail the evolution of the 

current system for calculating emissions increases under PSD. 

See supra § . After the Alabama Power decision, EPA revised 

its PSD regulations by establishing an actual emissions baseline 

for modification and increment consumption purposes. However, it 

is logically impossible to determine actual emissions for a new 

or modified unit prior to its construction or modification. 

Hence, EPA regulations must assume that such units will emit at 

their maximum physical and legal limits. This is done by 

providing that for any emissions unit which has not begun normal 

operations as of the date of the modification, actual emissions 

"shall oen*l the potential to emit of the unit on that date." 40 

C.F.R. S SS.21(b)(21)(iv). EPA explained that this assumption 

applied both to "new or modified units." See supra (citing) 

45 Fed. Reg. 52713, col. 3.). 

The rigor that the actual-to-potential comparison might 

otherwise impose on the PSD system is relieved by the "netting" 

provisions of the regulations. Sources undergoing physical or 
- 69 -

operational changes routinely avoid PSD review by accepting 

federally enforceable restrictions which prevent significant 

emissions increases over pre-modification levels. See supra • 

These basic features of the PSD system are well 

understood, if not liked, by the electric utility indistry. 

Numerous industry groups sought judicial review of several facets 

of EPA's 1980 PSD regulations. Chemical Manufacturers 

Association v. EPA. No. 79-1113 (D.C. Cir.).26 Among the 

petitioners were several of the amici in this case, including 

Alabama Power Co., et al. These petitioners asserted that EPA's 

establishment of an actual emissions baseline is contrary to the 

CAA and that EPA should have instead determined emissions 

increases based on potential to emit, i.e., design capacity as 

limited by legal restrictions on operations. Id.. Brief for 

Industry Petitioners on Actual Emissions Definition of Net 

Increase, Feb. 12, 1981, at 19, 28. [Cite to supplemental 

appendix?] They further objected to the requirement for 

comparison of actual emissions before a physical or operational 

change with potential emissions after the addition of a new 

emissionavunit sx. the "alteration" of an existing unit, and the 

need to obtain operational restrictions in order to avoid a net 

26The parties in Chemical Manufacturers Association entered 

into a settlement agreement under which EPA agreed, inter alia, 

to propose, and take final action on, a potential emissions 

baseline for modifications. Id.. Settlement Agreement, Exhibit 

B, Feb. 22, 1982. The case was stayed pending execution of the 

settlement agreement. To date, however, EPA has not proposed any 

regulatory changes pursuant to Exhibit B. 
P.71 

- 70 -

emissions increase. Id. at 29.27 See supra . WEPCO cannot 

now deny the basic functioning of the PSD baseline regulations. 

[Add Fn. re cites to show is clear this is how world works: prior 

EPA memos, law review articles, etc.] 

Moreover, WEPCO's proposed alternative — to determine 

emissions increases based on the company's own projections of its 

future actual emissions — is unworkable and clearly contrary to 

the regulations. An essential purpose of the PSD program is 

public review of decisions to increase pollution in a clean air 

area. CAA section 160(5). This purpose would be defeated if the 

polluter's own estimates of its future activities were 

determinative of regulatory consequences. Instead, the 

regulations provide that a company may avoid PSD review by 

embodying its projections of future emissions in an instrument 

enforceable by EPA. See supra p. . That is the path 

followed by innumerable sources since 1980, and the path EPA has 

repeatedly offered to WEPCO during the present controversy. 

Thomas Letter at 3, 5; Clay Memorandum at 8. Thus, if WEPCO is 

willing to stand by its projections that maximum postA 

modification emissions will be 14,000 tons per year of sulfur 

dioxide, t&ere would be no PSD consequences. Indeed, WEPCO could 

27The parties in Chemical Manufacturers Association entered 

into a settlement agreement under which EPA agreed, inter alia, 

to propose, and take final action on, a potential emissions 

baseline for modifications. Id.., Settlement Agreement, Exhibit 

B. Feb. 22, 1982. The case was stayed pending execution of the 

settlement agreement. To date, however, EPA has not proposed any 

regulatory changes pursuant to Exhibit B. 
P.72 

- 71 -

accept an emissions cap almost twice as large as its projections 

before triggering PSD review. 

[Add rebuttal to prior determinations cited by WEPCO on 

p. 60.] 

D. WEPCO Has A Number of Options To "Net Out" of NSPS and 

PSD Coverage. 

WEPCO and amici present a parade of horribles regarding 

the alleged consequences of EPA's interpretation of its PSD and 

NSPS regulations. WEPCO Br. at . WEPCO suggests that the 

consequence of EPA's interpretation of the law is to force the 

company to install expensive scrubbers to meet the NSPS 

requirements and satisfy the BACT required under the PSD 

provisions if it wants to continue to operate its Port Washington 

facilities after the proposed renovations. However, there are a 

number of ways by which WEPCO could renovate its plant without 

installing scrubbers at all five units. See Thomas Letter at 

For NSPS purposes, the emission rate must increase for a 

modification to occur. At Unit 1 for example, the increase in 

capacity .ever baseline is projected to be V\ % [Record at 6.13, 

Attachment C]. Thus, WEPCO could impose some physical control, 

such as a control device which achieves ^F % reduction of 

emissions, which would have the effect of reducing emissions by 

more than the increase in capacity to emit. There would be no 

increase in emissions, yet the source would not have to meet the 

NSPS requirements applicable to new sources. Under PSD, as 
P.73 

- 72 -

explained suprq at p. _, WEPCO could readily take credit for 

federally enforceable limitations which reduce its potential to 

emit and thereby "net out" of PSD review by simply standing by 

its own projections of future emissions. 

V. THE NSPS AND PSD REGULATIONS ARE NOT SUBJECT TO REVIEW 

IN THIS COURT: WEPCO'S REMEDY LIES IN A RULEMAKING 

PETITION 

It is evidence from the foregoing that the gravamen of 

WEPCO's challenge is not to EPA's interpretation of its own 

regulations, or its application of the law to the facts of this 

case, for EPA's actiona are reasonable. Rather WEPCO attacks 

the very substance of those underlying regulations and the Clean 

Air Act. However, the NSPS and PSD regulations, as nationally 

applicable rules, are subject to review only in the District of 

Columbia circuit within 60 days of their promulgation, CAA 

section 307(b)(1), and may not be challenged in a collateral 

proceeding in this court, PEPCO v. EPA. 650 F.2d at 513. The 

remedy available to WEPCO and amici for redress of any grievance 

arising out of EPA's determinations is to petition EPA to revise 

its rules or seek legislative amendments. EPA's action in 

response to a rulemaking petition will be reviewable in the D.C. 

Circuit. [Cite Oljato, etc.] In the meantime, WEPCO must comply 

with present law. 

CONCLUSION 

For the foregoing reasons, the petitions for review 

should be denied. __ 

Respectfully submitted, 
P.74 

- 73 -

DONALD A. CARR 

Acting Assistant Attorney General 

EILEEN T. MCDONOUGH 

Environmental Defense Section 

U.S. Department of Justice 

Washington, D.C. 20530 

GREGORY B. FOOTE 

U.S. Environmental Protection 

Agency 

Office of General Counsel 

Air and Radiation Division 

(LE-132A) 

401 M Street, S.W. 

Washington, D.C. 20460 

ROBERT J. MARTINEAU <fr. 

U.S. Environmental Protection 

Agency 

Office of General Counsel 

Air and Radiation Division 

(LE-132A) 

401 M Street, S.W. 

Washington, D.C. 20460 

OF COUNSEL 

GERALD H. YAMADA 

Acting General Counsel 

Alan W. Eckert 

Associate General Counsel 

Michael S. Winer 

Assistant General Counsel 
P.75 

Intteii %>UUz (Unuri nf Appeals 

For the Seventh Circuit 

*) 

Chicago, Illinois 60604 /jjpo ^ 

April 3 90

 LEGALD£pT 19 

Before 

RICHARD D. CUDAHY, Circuit Judge 

Hon 

JOEL K. TLAUM, Circuit Judge 

Hon. a 

ROBERT A. GRANT, Senior District Judge* 

Hon. 

WISCONSIN ELECTRIC POWER COMPANY, 

Petitioner, 

N03. 88-3264 and vs. 

89-1339 

On Petitions to Review 

• Final Action of the United 

States Environmental Protec 

Agency 

WILLIAM K. REILLY, Administrator and 

UNITED STATES ENVIRONMENTAL PROTECTION

 J 

AGENCY, J 

Respondents. ) 

ORDE R 

This case is before the court on a Petition for Rehearing 

and Suggestion for Rehearing En Banc. On consideration of the 

Petition and the Respondents' Response, the court's opinion, 

issued January 19, 1990, is amended as follows: 

On page 16, line 33 (after "heater"), delete ", a type that" 

and replace with ". The Ljungstrom basket type, at least," 

Further, no judge in active service has requested a vote and 

all of the judges on the original panel have voted to deny a 

rehearing. Accordingly, 

IT IS ORDERED that the aforesaid Petition for Rehearing and 

Suggestion for Rehearing En Banc be, and the same is hereby, 

DENIED. 

The Honorable Robert A. Grant, Senior District Judge for the 

Northern District of Indiana, is sitting by designation. 

rpl-MAK 12.12-7<-IZM-IISI