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OAR Box 1778 

Prepped by Ollie Stewart 

Document Number: 

186)11-1-18 

Docket Number: 

A-90-06 

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• • I • • V _ . i_ U* . I ._ 90-01 

II-I-18 

3a ii\t 

Hnttsfc &tatM (Court of Appeal* 

for Uje deuentii Clrnitt 

Nos. 88-3264 & 89-1339 

WISCONSIN ELECTRIC POWER COMPANY, 

Petitioner, 

v. 

WJLLIAJK K. REILLY, Administrator and UNITED STATES 

ENVIRONMENTAL PROTECTION ACENCY, 

Ihtpondentt. 

On Petitions to Review Final Action 

of the United States Environmental Protection Agency 

ARGUED SEPTEMBER 15, 1989-DECIDED JANUARY 19, 1990 

Before CUDAHY and FLAUM, Circuit Judges, and GRANT, 

Senior Dietriet Judge.* 

CUDAHY, Circuit Judge. The Petitioner, Wisconsin Electric Power Company ("WEPCO"), challenges two final determinations issued by the Environmental Protection Agency 

(the "EPA"). In these determinations, the EPA concluded 

that WEPCO's proposed renovations to its Port Washington power plant would subject the plant to certain pollu-

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

Northern District 0/ Indiana^ U titling by designation. 
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tion control provisions of the Gean Air Act, as amended, 

42 U.S.C. (I 7401 et uq. (1982). We affirm in part, vacate 

in part and remand to the EPA. 

A. 

I. The Underlying Dispute 

Relevant Provisions of the Clean Air Act 

Some discussion of the Qean Air Act is required before 

turning to the merits of this case. In 1970, Congress enacted the Qean Air Act Amendments, Pub. L No. 91-604, 

84 Stat. 1676, to establish minimum air quality standards 

that would regulate the emission of certain pollutants into 

the atmosphere. To this end, Congress Instructed the 

EPA to develop National Ambient Air Quality Standards 

("NAAQS") that would specify the maximum permissible 

concentration of air pollutants in different areas across 

the country. 

In section 111 of the 1970 Amendments, Congress required the EPA to promulgate New Source Performance 

Standards CNSPS'O in order to regulate the emission of 

air pollutants from new sources. These standards addressed 

hourly rates of emission and, in addition to new sources. 

applied to modifications of existing facilities that created 

new or increased pollution. Indeed, section Ul(aX2) of the 

Act stated that NSPS would apply to 

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. 

42 U.S.C. ft 7411(a)(2) (emphasis supplied). Congress then 

defined "modification" aa 

any physical change in, or change in the method of 

operation of, a stationary source which increases tA* 

amount of any air pollutant emitted by such source 

or which remits In the emission of any air pollutant 

not previously emitted. 

42 U.S.C. I 74UUX4) (emphaaia supplied). 
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Subsequently, faced with only varying degrees of success in controlling pollution in different parts of the country, Congress enacted the Qean Air Act Amendments of 

1977, Pub. L. No. 95-96, 91 Stat 686 (codified at 42 U.&C 

M 7401-7642 (1982)). Congress revised the NSPS so that 

regulated sources of pollution would have to use "the best 

system of continuous emission reduction which (taking into 

consideration the costs of achieving such emission reduction, and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated "42 U.S.C. 

5 7411(aXlXQ- In addition. Congress added a program for 

the Prevention of Significant Deterioration ("PSD"), concerned with increases in total annual emissions, to ensure 

that operators of regulated sources in relatively unpolluted 

areas would not allow a decline of air quality to the minimum level permitted by NAAQS. Air quality is preserved 

in this program by requiring sources to limit their emissions to a "baseline rate"; regulated owners or operators 

in areas that have attained NAAQS must obtain a permit before constructing or modifying facilities. 42 U.S.C. 

I 7475(aXl). Congress also essentially adopted its NSPS 

definition of "modification" for the PSD program. 42 U.S.C. 

I 7479(2X0. 

From this statutory framework, the EPA promulgated 

regulations for both the NSPS and PSD programs. In this 

case, Ha regulations concerning modifications are central 

The EPA defines "modification** In substantially the same 

terms used by Congress: 

(A]ny physical or operational change to an existing 

facility which results in an increase in the emission 

rate to the atmoaphere of any pollutant to which a 

standard applies shall be considered a modification 

within the meaning of section Ul [42 U.S.C. I 7411] 

of the Act 

40 C.F.R. 160.14(a) (1968). To determine whether a ol 

cal change constitutes a modification for purposes of N£_ _, 

tha EPA must determine whether the change increaaea 
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the facility's hourly rate of emission. 40 C.F.R. 9 60.14 

(1988). For PSD purposes, current EPA regulations provide that an increaae in the total amount of emissions 

activates the modification provisions of the regulations. 

40 C.F.R ft 52£l(bX3) (1988). 

Even at first blush, the potential reach of these modification provisions is apparent the most trivial activities— 

the replacement of leafy pipes, for example-may trigger 

the modification provisions if the change results in an increase in the emissions of a facility. As a result, the EPA 

promulgated specific exceptions to the modification provisions: 

The following shall not, by themselves, be considered modifications under this part 

(1) Maintenance, repair, and replacement which the 

Administrator determines to be routine for a source 

category . . . 

(2) An increase in production rate of an existing 

facility, if that increase can be accomplished without 

• capital expenditure on that facility. 

(8) An increase in the hours of operation. . . . 

40 CF.R. * 60.14(e) (1988) (NSPS program); see 40 C.F.R. 

I 52-21(bX2Xiii) (1988) (PSD program). These regulations 

(and the statutes from which they derive) are the focal 

point of this case. 

A WEPCO'i Proposed Life-Eztention Project 

WEPCO's Port Washington electric power plant is located on Lake Michigan north of Milwaukee, Wisconsin. 

The plant consists of five coal-fired steam generating units 

that were placed in operation between 1986 ana 1950. 

Each generating unit has a design capacity of 80 megawatts, but the recent performance of some of the units 

has declined due to age-related deterioration of the physical plant 
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WEPCO and its consultant, Bechtel Eastern Power Cor 

poration, conducted a Plant Availability Study in 1983 to 

examine and assess the condition of the power plant As 

a result of the Study, WEPCO concluded "that extensive 

renovation of the five units and the plant common facilities is needed if operation of the plant is to be continued." 

Letter from Thomas J. Cassidy, Executive Vice President 

of WEPCO, to Jacqueline K. Reynolds, Secretary to the 

Public Service Commission of Wisconsin, at 2 (July 8,1987) 

(Cassidy Letter] (emphasis supplied). The Study noted that 

the air heaters on the first four units had deteriorated 

severely, while the rear steam drums in units 2 through 

6 had experienced serious cracking.1 Air heater deterioration prevented units 1 and 4 from operating at full capacity, while the potential for steam drum blowout t-equured 

a reduction in pressure (and output) in units 2 and a. The 

possibility of catastrophic failure (steam drum blowout) in 

unit 6 was so great that WEPCO shut down the unit 

completely. 

As a result of this Study. WEPCO submitted a proposed 

replacement program (which it termed a "life extenaion" 

project) to the Wisconsin Public Service Commission for 

its approval, as required by state law. Wis. Stat ft 196.49 

(1987V WEPCO explained in it* proposal that "(renovation ia necessary to allow the Port Washington units to 

operate beyond their currently planned retirement dates 

of 1992 (units 1 and 2) and 1999 (units 3, 4 and 6). . . 

[and that renovation would render the plant] capable of 

generating at its designed capability until year 2010...." 

Caaaidy Letter at 1-2. Among the renovations required 

were repair and replacement of the turbine-generator*, 

boflers. mechanical and electrical auxiliaries and the common plant support facilities. Id. at 1. After preliminary 

review of the program, the Public Service Commission 

* Air heaten preheat combustion sir to Improve tbe efficiency 

of the ftoara generating units. Sttasm: lit (toieratim end Use 1*4 

(19TB) (Beheack ft Wilcox). Steam drums separate tsturated steam 

from water within the boiler. Id at 1-6. 
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6 Nos. 88-3264 ft 89-1339 

consulted the Wisconsin Department of Natural Resources 

(which then consulted EPA Region V) to determine whether 

WEPCO needed to obtain a PSD permit before commencing the repair and replacement program. David Kee, the 

Director of EPA Region Vs Air and Radiation Division, 

then referred the matter to EPA Headquarters. See, e.g., 

40 C.F.R. ft 60.5 (1988) (discussing the EPA's procedures 

regarding determinations of construction or modification). 

EPA staff members conferred with WEPCO representatives between March and September 1988 to gain additional information regarding the proposed repair and 

replacement project, On September 9, 1988, EPA Acting 

Assistant Administrator Don R. Qay issued a memorandum in which he preliminarily concluded that the project 

would subject the plant to both NSPS and PSD requirements. Memorandum from Don R. Qay, Acting Assistant 

Administrator for Air and Radiation of the EPA, to David 

A. Kee, Director of Air and Radiation Division, Region 

V (Sept 9, 1988) [Clay Memorandum]. The Clay Memorandum pointed out that the project would constitute a "physical change" resulting in an increase of production and 

emissions, which would therefore subject the plant to the 

relevant strictures of the Qean Air Act. Id. at 34. Further, 

the Clay Memorandum dismissed WEPCO's contention that 

the program was routine and was therefore exempt from 

the requirements of NSPS and PSD. This conclusion was 

adopted in toto by EPA Administrator Lee M. Thomas. 

Letter from Lee M. Thomas, Administrator of the EPA, 

to John Boston, Vice President of WEPCO (Oct. 14,1988) 

[Thomas Letter]. 

Following the Thomas Letter, WEPCO continued to 

conduct capacity tests on the units. Based upon these 

teste, Assistant Administrator Qay issued a "revised final 

determination" that generally affirmed the EPA's earlier 

findings, but modified the baseline figures used by the 

EPA Tor unite 2 and 8. Letter from Don R. day, Acting 

Assistant Administrator for Air and Radiation of the EPA, 

to John W. Boston, Vice President of WEPCO (Feb. 16, 

1989) [Supplemental Determination]. _ 
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Alleging that the EPA has misconstrued both the Qean 

Air Act and its own regulations, WEPCO appeals the EPA's 

final determination. We have jurisdiction to hear this appeal pursuant to 42 U.S.C. 9 7607(b) (1982). 

II. Standard of Review 

Courts have generally accorded substantial deference to 

the EPA's interpretation of the Qean Air Act Amendments, reasoning that "considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer...." Chevron 

U.S.A. Inc. v. Natural Resources Defense Council* Inc., 

467 U.S. 837, 844 (1984); sss Union Else Co. v. EPA, 

427 U.S. 246, 256 (1976); Train v. Natural Resources De* 

feme Council, Inc., 421 U.S. 60, 75, 87 (1975); ASARCO 

Inc. v. EPA, 578 F.2d 319, 326 (D.C. Cir. 1978). This 

deference with regard to the Qean Air Act follows logically from the highly technical provisions of the Amendments, Chevron, 467 U.S. at 848, and is consistent with 

the Administrative Procedure Act, which provides that 

agency actions are to be set aside only if thev are "arbitrary, capricious, an abuse of discretion, or otherwise not 

in accordance with law." 5 U.S.C. 5 706(2). 

To be sure, this standard does not give the EPA unbridled discretion to construe the Qean Air Act Amendments free from judicial oversight. We must consider 

whether the EPArs construction comports with its statutory mandate and Congress's intent in enacting clean air 

legislation. But we cannot simply substitute our judgment 

for that of the EPA. Our role has been sharply defined 

and limited by the Supreme Court; 

When a court reviews an agency's construction of 

the statute which it administers, it is confronted with 

two questions. First, always, is the question whether 

Congress has directly spoken to the precise question 

at issue. If the Intent of Congress Is dear, that is 

the end of the matter, for the court, aa well aa the 

agency, must give effect to the unambiguously ex-

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pressed intent of Congress. If, however, the court 

determines Congress has not directly addressed the 

precise question at issue, the court does not simply 

impose its own construction on the statute, as would 

be necessary in the absence of an administrative interpretation. Rather, if the statute ts 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. 

CJurvron. 467 U.S. at 84243 (footnotes omitted). 

Further, we defer even more to an agency's construction of its own regulations. Lyng v. Pavru, 476 U.S. 926, 

989 (1986); see Wlkins v. Sullivan, 889 Fid 135,189 (7th 

Or. 1989); Homernaken North Shore, Ine. v. Bourn, 832 

F i d 408, 411 (7th Cir. 1987) (agency construction of its 

regulations usually upheld). An agency's interpretation 

must be upheld "^unless it is plainly erroneous or inconsistent witK the regulation.'" UdaU v. Tollman, 380 U.S. 

1,16-17 (1966) (quoting, in part, Bowls* v. Seminole Rock 

is Sand Co,, 825 U.S. 410, 413-14 (1945)), The principle 

of deference has particular force where, as Is the case 

here, the subject oeing regulated Is technical and complex. Aluminum Co. of Am. v. Central Lincoln Peoples' 

VtiL Dist, 467 U.S. 8S0, 890 (1984); Wilkin* v. Sullivan, 

889 Fi d at 140; *es also Shidmor* v. Swift & Co., 323 

U.S. 184, 140 (1944) (rulings of agency constitute bodies 

of experience and informed judgment). 

HI. like-Kind Replacement and Modification 

under the Act 

A. The Underlying Statutory Framewfrk 

With these principles in mind, we may address the merits. 

We must first consider whether WEPCO's Port Washington replacement program constitutea a modification under 

this terms of the controlling statute, 42 U.S.C. section 

7411(a)(4). Cf. Blue Chip Stamp* v. Manor Drug Stores, 

421U JB* 723,756 (1975) frowell, J-» concurring) ("The starting point in every case involving construction of a statute is 
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Nos. 88-3264 & 89-1339 » 

the language itself."). Section 7411(aX4) defines modification 

as "any physical change .. . which increases the amount 

of any air pollutant emitted "42 U.S.C. $ 7411(aX4). 

Both parts of this definition—any physical change and an 

increase in emissions—must be satisfied before a replacement will be considered a "modification." 

1. Physical Change 

Certainly, under the plain terms of the Act, WEPCO's 

replacement program constitutes a "physical change." 

WEPCO proposes to replace rear steam drums on units 

2, 3, 4 and 6; each of these steam drums measures 60 

feet in length, 50.5 inches in diameter and 5.25 inches In 

thicknesB. clay Memorandum at 4. In addition, WEPCO 

plans to replace another major component, the air heaters, 

in units 14. To implement this four-year program, WEPCO 

will need to make the replacements by taking the units 

successively out of service for nine-month periods. Id, 

These steps clearly amount to a "physical change" in the 

Port Washington plant. See Butler, New Source Netting 

in NcmUainment Areas under the Clean Air Act, 11 

Ecology L.Q. 343, 349-50 (1984) ("fflhe new source review 

requirements are triggered not only when an operator 

builds a new plant, but also whenever the operator in* 

stalls or alters a piece of equipment in an existing tdant 

and thereby increases emissions.") (emphasis supplied). 

WEPCO does not dispute that its Bteam drum and air 

heater replacements will result in an altered plant. But 

WEPCO does assert that Congress did not intend for simple equipment replacement to constitute a physical change 

for purposes of the Qean Air Act's modification provisions: 

The plain meaning of "modify" is "to change or alter" [Webster's New World Dictionary! or

 ,rto make 

basic or fundamental changes in." [Webster's Ninth 

New Collegiate Dictionary] Reflecting the plain meaning of this \jtrm, Congress provided that a facility 

(1) must undergo a physical or operational "change" 
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before it is evaluated under the modification provision. .. . Thus, under the plain meaning of the Act, 

a unit should not be deemed "modified as a result 

of replacement of equipment with equipment similar 

to that replaced. As in the case of Port Washington, 

such like-kind replacement does not "change or alter1' 

the design or nature of the facility. Rather, it merely allows the facility to operate again as it had before 

the specific equipment deteriorated. 

Petitioner's Brief at 32-33. 

Chevron instructs us to rely more on congressional direction and on agency construction (pursuant to congressional delegation) than on glosses found in the dictionary. 

What WEPCO calls "plain" is anything but plain and 

takes the definition far beyond the words enacted by Congress. Chevron, 467 U.S. at 843-45; see Generally, R. Anthony, Report to the Administrative Conference of the 

Untied States: Which Agency Interpretations Should Bind 

the Courts and the Public? (1989) (explaining Chevron approach). Thus, whether the replacement of air heaters and 

steam drums is a "basic or pindamental change" In the 

Port Washington plant is irrelevant for our purposes, 

given Congress's directions on the subject; "The term 

^modification' means any physical change "42 U.S.C. 

8 7411(a)(4) (emphasis supplied). We follow Congress's definition of *hnodification"--not Webster's-when interpreting 

this term within the context of the Clean Air Act. Cf. 

Chevron, 467 U.S. at 861 ("[T]he meaning of a word must 

be ascertained in the context of achieving particular objectives. . . .")• 

Nor can we find any support in the relevant case law 

for the narrow constructions of "modification" and "physical change" offered by WEPCO. The Supreme Court reported in Chevron that Senator Muskie, one of the principal supporters of the Qean Air Act, remarked: "A source 

. . . ia subject to all the nonattainment requirements as 

a modified source if it makes any physical change which 

Increases the amount of any air pollutant. . . ." 467 U.S. 
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at 853 (quoting 123 Cong. Rec. 26847 (1977)) (emphasis 

supplied). And other courts considering the modification 

provisions of NSPS and PSD have assumed that "any 

physical change" means precisely that. See, e.g., NationalSouthivir* Aluminum Co. v. EPA, 838 Fid 835 (6th Cir.), 

cert, denied, 109 S. Ct. 390 (1988) (turning off pollution 

control equipment constitutes "physical change" and modification); Alabama Power Co. v. Costle, 636 Fid 323, 400 

(D.C. Cir. 1979) ("CTlhe term 'modification' is nowhere 

limited to physical changes exceeding a certain magnitude."); ASARCO Inc. v. EPA, 578 Fid 819, 822 (D.C. 

Cir. 1978) (NSPS applies to any stationary source that 

is "physically or operationally changed in such a way that 

its emission of any air pollutant increases.") (emphasis 

removed). Cf, United States v. NarraganseU Improvement 

Co., 571 F. Supp. 688, 694*95 (D.R.f. 1983) (replacement 

program not modification because, despite physical change, 

no increase in emissions). 

Further, to adopt WEPCO's definition of "physical 

change" would open vistas of indefinite immunity from 

the provisions of NSPS and PSD. Were we to hold that 

the replacement of major generating station systems—including steam drums and air heaters-does not constitute 

a physical change (and is therefore not a modification), 

the application of NSPS and PSD to important facilities 

might he postponed into the indefinite future. There is 

no reason to believe that such a result was intended by 

Congress. The Clean Air Act Amendments were enacted 

to "speed up, expand, and intensify the war against air 

pollution in the united States with a view to assuring 

that the air we breathe throughout the Nation is wholesome once again." H.R. Rep. No. 91-1146, 91st Cong., 2d 

Sesa. 1, 1, revrinted in 1970 U.S. Code Cong, & Admin. 

News 5356,5356. In particular, the permit program established by the 1977 Amendments to tho Qean Air Act rep 

resented a balance between "the economic interests In 

permitting capital improvements to continue and the environmental Interest in Improving sir quality." Chevron, 

467 U.S. at 851. The House echoed this theme in its Com-
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mittee report: "[The compliance program is designed, in 

part,} Co allow reasonable economic growth to continue in 

an area while making reasonable further progress to assure attainment of the [pollution-control] standards by a 

fixed date " H.R. Rep. No. 294, 95th Cong., 1st Sese. 

211, reprinted in 1977 U.S. Code Cong 6 Admin. News 

1077, 1290. A too restrictive interpretation of "modification" might upset the economic-environmental balance in 

unintended ways. 

Consistent with its balanced approach, Congress chose 

not to subject existing plants to tne requirements of NSPS 

and PSD. Members of the House recognized that "[bluilding control technology into new plants at time of construction will plainly be less costly then [sic] requiring retrofit 

when pollution control ceilings are reached." H.R. Rep. 

No. 294, 96th Cong., 1st Sess. 185, reprinted in 1977 U.S. 

Code Cong. A Aomin. News at 1264. But Congress did 

not permanently exempt existing plants from these reouirements; section 7411(aX2) provides that existing plants 

that have been modified are subject to the Qean Air Act 

programs at Issue here. As Judge Boggs, dissenting in 

National-SouthvAre, reasoned: "Tne purpose of the 'modification' rule is to ensure that pollution control measures 

are undertaken when they can be most effective, at the 

time of new or modified construction. See 116 Cong. Rec. 

32,918. (remarks of Sen. Cooper), reprinted in 1 Senate 

Committee on Public Works, A Legislative History of 

the Qean Air Act Amendments of 1970 (1974), at 260." 

Natwnal'Southwire Aluminum Co. v. EPA, 838 Fid 

836, 848 (6th Cir.) (Boggs, J., dissenting), cert, denied, 109 

S. Ct. 390 (1988). Judge Boggs argued that the shutting 

down of pollution control equipment in an existing plant 

should not be considered a modification because it would 

not afford the utility an opportunity for "effective placement of new control technology." /a. Here the record la 

silent on this point (although tne point is important). How 

easy or difficult would be "the effective placement of new 

control technology" in these renovated units is not dear, 

but we do know that the project already contemplates 
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replacement of steam drums, air heaters and other components; each unit would, therefore, in any event be shut 

down for nine months. 

Our reading of the phrase "any physical change" is also 

consistent with another of the basic goals of the 1977 

Amendments: technology-forcing. The legislative history 

suggests and courts have recognized that in passing the 

Qean Air Act Amendments, Congress intended to stimulate the advancement of pollution control technology. See, 

e.g., S. Rep. No. 91-1196, 91st Cong., 2d Sess. 17 (1970) 

("Standards of performance should provide an incentive 

for industries to work toward constant improvement in 

techniques for preventing and controlling emissions from 

stationary sources. . . .'*; Duauesne Light Co. v. EPA, 

698 F.2d 456, 475 (D.C. Cir. 1983); A/o6oma Power, 636 

Fid at 372; ASARCO, 578 Fid at 327; United State* 

v. SCM Corp., 667 F. Supp. 1110, 1126-27 (D. Md. 1987). 

The development of emissions control systems is not furthered if operators could, without exposure to the standards of the 1977 Amendments, increase production (and 

pollution) through the extensive replacement of deteriorated generating systems. 

2. Increase in Emissions 

The controversy involving WEPCO's alleged increase in 

emissions primarily concerns the regulations, not the statute; WEPCO argues that the EPA's regulatory method 

of measuring emissions is arbitrary and capricious, From a 

statutory standpoint, however, the modification provisions 

ot the Clean Air Act Amendments are activated once a 

physical change is coupled with an "increase ] [in] the 

amount of any air pollutant emitted." 42 U.S.C, 8 7411(aX4). 

See, e.g., Umted States v. Narragansett Improvement Co., 

671 F. Supp. at 694. In the case before us, WEPCO does 

not dispute that ite replacement program-Intended to 

enable its deteriorated generators to operate at lull capacity—will cause its emissions to increase from their current 

operating levels. The question for resolution, however, is 
EPH-OGC TEL: 3827615 Jan 23,90 10 = 09 No.003 P.15 

14 Nos. 88-3264 6 89-1339 

whether the EPA properly construed its regulations by 

comparing actual emission rates with so-called "baseline" 

rates to determine the increase in emissions for NSPS 

and PSD purposes. We will discuss this subject later; but 

for purposes of the statutory requirement, we simply observe that the rejuvenated Port Washington plant will 

produce more emissions after the completion of the renovation project than the operating deteriorated plant produced shortly before the project was undertaken. 

B. The EPA's Regulations 

Although we have determined that WEPCO's repair and 

replacement program satisfies the modification provisions 

of the Qean Air Act Amendments, this is not the end 

of our inquiry. WEPCO's attack focuses primarily on EPA 

regulations, which in a number of respects are narrower 

than the statute. WEPCO argues that the EPA applied 

ite regulations arbitrarily and capriciously to the Port 

Washington project. 

1. Physical Change and the "Routine" Exception 

EPA regulations define "modification" as "any physical 

or operational change to an existing facility which results 

in an increase in the emission rate to the atmosphere of 

any pollutant to which a standard applies." 40 C.F.R. 

S 60.14(a) (1988). To a major degree, this definition parallels 42 U.S.C. section 74U(aX2), and it is unnecessary to 

repeat the analysis already applied to the statute. See 

supra IIKAXD- However, the EPA has, in addition, used 

its regulations to exempt a number of activities from the 

broaaer definition. The exemption that may be relevant 

here is accomplished by the following language: 

The following shall not, by themselves, be considered modifications under this part: 

(1) Maintenance, repair, and replacement which the 

Administrator determines to be routine for a source 

categoiy. .. . __ 
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Nos. 88-3264 4 89-1339 16 

40 C.F.R. I 60.14(e) (1988). See 40 C.F.R. 5 52il(bX2Xiii). 

WEPCO relies on this language to argue that, even if ite 

repair and replacement program amounts to a physical 

change, it was specifically exempted by the regulations. 

Again, we accord substantial deference to an agency's 

interpretation of its own regulations, especially with respect to technical and complex matters. Lyng v. Payne, 

476 U.S. 926, 939 (1986); Aluminum Co. of Am. v. Central Lincoln Peoples' UHL Dist., 467 U.S. 380, 390 (1984). 

In this connection, to determine whether proposed work 

at a facility is routine, "EPA makes a case-by-case determination by weighing the nature, extent, purpose, freJjuency, and cost of tne work, as well as other relevant 

actors, to arrive at a common-sense finding." Clay Memorandum at 3. The EPA considered all these factors In 

determining that the Port Washington project was not 

routine; first, the EPA observed that the nature and extent of the project was substantial: WEPCO proposed to 

replace sixty-foot steam drums (In unite 2, 3, 4 and 5) and 

air heaters (in unite 1, 2, 3 and 4) during successive ninemonth outages at each unit. Id. at 4. Certainly, the magnitude of the project (as well as the down-time required 

to implement it) suggests' that it Is more than routine. 

Further, the EPA points to WEPCO's admission in ite 

application that "[work items] falling into the category of 

repetitive maintenance that are normally performed during scheduled equipment outages . . . are not included 

in this application/' Caasidy Letter at 1 (emphasis supplied). This admission suggests that WEPCO at first blush 

did not regard the repair and replacement project as or 

dinaiy or routine. 

In addition, the EPA noted that far from being routine, 

tba Port Washington project apparently was unprecedented: "WEPCO did not identify, and EPA did not find, 

even a single instance of renovation work at any electric 

utility generating station that approached the Port Washington life extension project in nature, scope or extent." 

Respondent's Brief at 44; see Qay Memorandum at 4 
P.17 

EPFi-OGC TEL: 3827615 Jan 23,90 10:09 No .003 P.17 

16 Nos. 88-3264 & 89-1339 

CT-Hhis is a highly unusual, if not unprecedented, and costly project.")- We surmise, although the record is silent, 

that the "case of first impression" character of the project 

may reflect historical practice in the electric utility industry of replacing old plante (at the expiration of their 

useful lives) with new plants, employing improved technologies and achieving improved emaendee. This was the 

typical practice, rather than the mere extension of life 

of existing plants through massive like-kind replacements. 

Cf. Qay Memorandum at 4 ("[The Port Washington project's] purpose is to completely rehabilitate aging power 

generating unite whose capacity has significantly deteriorated over a period of yean, 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 

lift."). 

WEPCO asks us to overlook the factors outlined in the 

Clay Memorandum and reverse the EPA primarily on the 

basis of earlier EPA decisions characterizing certain replacement programs as routine; WEPCO argues that the 

nature and extent of these "routine" projects parallel 

those of its Port Washington project. For example, WEPCO 

presented the EPA with a list of forty air heaters in other 

plants that had been replaced without triggering NSPS 

or PSD provisions. Letter from Mark P. Steinberg, Superintendent-Air Quality of WEPCO, to Dale Ziege, Wisconsin Department of Natural Resources (Jan. 11,1989). But 

aa WEPCO has acknowledged, the plate-type air heaters 

at issue in the Port Washington project must be replaced 

in whole; in contrast, the forty units where replacement 

was apparently considered routine contained a Ljungatrom 

basket or tubular type heater, a type that permits the 

replacement of the heat transfer surface without requiring the removal of the entire unit. Supplemental Determination at 6-7. Obviously, the precise nature of the physical change is a material factor in determining whether 

the change is routine, and for this purpose it is important that the subject of past EPA practice be closely com-
EF'A-OGC TEL: 3827615 Jan 23,90 10=09 No .003 P.18 

Noa. 88-3264 & 89-1339 17 

parable with the change under consideration here. See 

Thomaa Letter at 3 ("PSD and NSPS applicability determinations are made on a case-by-case basis."). WEPCO 

has not demonstrated that the EPA's conclusion that the 

forty other air heater replacements were dissimilar is arbitrary and capricious.' 

The puipose, frequency and cost of the work also support the EPA'B decision here. WEPCO admits that the 

plans for extensive renovation "represent a life extension 

of the unite from their planned retirement dates," Cassidy 

Letter at 2-3 (emphasis supplied), and it recognizes that 

"the renovation work items included in this appUcation 

are those that would normally occur only once or twice 

during a unit's expected life cycle." id. at 1. Indeed, 

WEPCO reported that it had never previously replaced 

a steam drum or "header" of comparable size at any of 

ite coal-fired electrical generating facilities. Qay Memorandum at 5. Further, the Port Washington renovation project will coat at least $70.5 million. Letter from John W. 

Boston, Senior Vice President of WEPCO, to Gary D. 

McCutchen, Chief New Source Review Section of the EPA, 

at 4 (May 19,1988). These factors suggest that the project 

is not routine. 

WEPCO urges that the EPA's conclusions are supported 

by neither the evidence nor the provisions of the Qean 

Air Act Amendments. WEPCO reasons that because any 

replacement project will presumably extend the life of a 

facility, the EPA's reliance on life extension as a factor 

* We simflariy view supplemental evidence mardalled by WEPCO 

on this point WEPCO argues that tht EPA has treated the replacement of coal culvert**** and regenerator eyelonss as routine; 

nowem, WEPCO fails to demonstrate the similarities between 

these units snd the air heaters snd steam drums st issue here. 

While it is true that some repair and replacement programs are 

routine, H does not necessarily follow that all such programs are 

routine. Without more evidence, we are not convinced that the 

EPA's characterisation of the massive Port Washington project 

M non-routine is inconsistent with its prior rulings. 
P.19 

EPA-OGC TEL= 3827615 Jan 23,90 10=09 No.003 P.19 

18 Nos. 88-3264 6 89-1339 

in denying the "routine" nature of a project is overbroad. 

Petitioners' Brief at 44. Although perhaps persuasive on 

its face, WEPCO's analysis is ultimately wide of the mark. 

While it is certainly true that the repair of deteriorated 

equipment will contribute to the useful life of any facility, 

it does not necessarily follow that the repairs in question 

would extend the life exoectancy of the facility. The need 

for some repairs along tne line is a given in determining 

in the first instance the life expectancy of a plant. WEPCO 

cannot seriously argue that ite unite planned retirement 

dates of 1992 (unite 1 and 2) and 1999 (units 3, 4 and 5) 

did not take into account at least minor equipment repairs 

and replacements.' And WEPCO concedes that the Port 

Washington program will extend the life expectancy of the 

plant until 2010. The EPA concluded that the proposed 

project will Increase the life expectancy of the Port Washington facility, and this conclusion was a factor in the finding that the work was not routine. These determinations 

were not arbitrary and capricious. 

Still, WEPCO asserts that the cost, magnitude and 

nature of ite Port Washington project are irrelevant for 

purposes of the "routine" exception to NSPS and PSD. 

WEPCO contends that the EPA has already addressed 

these factors-Including the perpetuation of existing 

sources—through ite so-called ''reconstruction" rule: 

(a) An existing facility, upon reconstruction, becomes an affected facility [subject to NSPS], irrespective of any change in emission rate. 

• By WEPCO's own admission, "even a new facility could not 

Operate normally but for a relatively short period of time . . . 

[without any repair or replacement. . . ." Petitioner's Brief at 

44. Because the plants were plaesd into service between 1935 and 

1960-tnd because WEPCO acknowledges that the life expectancy of these plants was approximately fifty years-it is clear that 

WEPCO included minor part repair and replacement in its calculations. Of course, the planned retirement dates appear to be merely 

estimates and do not seem to be binding. 
EPA-OG( TEL: <27615 Jan 23,90 10=09 

••• • •• , 

No .003 P.20 

P.20 

Nos. 88-3264 & 89-1339 19 

(b) "Reconstruction" means the replacement of 

components of an existing facility to such an extent 

that; 

(1) The fixed capital cost of the new components 

exceeds 50 percent of the fixed capital cost that 

would be required to construct a comparable entirely new facility. . . . 

40 C.F.R. 5 60.16 (1988).4 See United States Environmental Protection Agency, Electric Utility Steam Generating 

Units: Background Information for Proposed Particulate 

Matter Emission Standards 5-7 (1978). WEPCO believes 

that, because the air heater replacements will presumably 

cost less than six percent of a wholly new facility, the 

reconstruction provisions are not triggered. Therefore, 

WEPCO argues that the cost and scope of the project 

are relevant only to a "reconstruction' analysis and are 

not material for purposes of the routine exception to the 

modification provisions. Petitioner's Brief at 46. 

WEPCO's analysis fails to note, however, the fundamental differences distinguishing the reconstruction and modification provisions. The reconstruction provision applies 

to any substantial replacement (more than 50% of the cost 

of a new facility) even if the replacement causes no subseauent increase in emissions. In sharp contrast, the modification provisions apply only when a physical change is 

accompanied by an increase in emissions. To argue, 

therefore, that the reconstruction provision is the exclusive determinant of whether the cost, nature and magnitude of a project will require the application of NSPS ia 

to Ignore the substantially different objectives of the 

reconstruction and modification provisions: The reconstruction provision is aimed principally at "discouraging] the 

perpetuation of a facility, instead of replacing it at the 

« The reconstruction provisions of the regulations apoly only to 

NSPS; given the existing regulatory framework, the EPA decided 

that they would not be necessary for PSD. See 46 Fed, Reg. 62676, 

62708 (1980). 
EPft-OGC 

P.21 

TEL: 3827615 Jan 23,90 10=09 No .003 P.21 

20 Nos. 88-3264 It 89-1339 

end of Its useful life with a newly constructed affected 

facility," without regard to emissions, 89 Fed. Reg. 36946, 

36948 (1974), while the modification provision applies to 

any physical change, without regard to cost, that causes 

an increase in emissions. See, e.g., ASARCO Inc. v. EPA, 

578 F.2d 319 (D.C. Cir. 1978); United States v. Narragansett Improvement Co., 571 F. Supp. 688, 696 (D.R.1.1983) 

("a 'reconstruction' of an existing facility would occur 'Irrespective of any change in emission rate' upon the replacement of a 'substantial portion of the existing facility's 

components.' "). Hence, we cannot agree that the EPA's 

consideration of the cost, magnitude and nature of the 

Port Washington project, for purposes of the modification 

£

revision of the regulations (and ite "routine" exception), 

\ somehow preempted" by the reconstruction provisions 

of the regulations. The EPA's examination of these factors, therefore, was not arbitrary or capricious. 

t. Increase in Emissions 

Thus far, we have not had to address the important differences between the PSD and NSPS programs. At this 

point, however, the differences become crucial, because 

each program measures emissions in a fundamentally distinct manner. 

a. NSPS Measurements 

Aa previously noted, the EPA's NSPS program Is concerned primarily with increases in emission rateB, expressed in kilograms per hour of discharged pollutants. 

40 C.F.R, } 60.14 (1958). The EPA compares the hourly emissions of the unit at ite current maximum capacity to ite potential emissions at maximum capacity after 

the change. Clay Memorandum at 9; see 40 C.F.R. . 60 

App. C (1988) (providing complex formulae for determining emission rate change). In this calculation, the agency 

disregards the unit's maximum design capacity; this fac-
P.22 

EPfl-OGC- TEL: 3327615 Jan 23,90 10=09 No.003 P.22 

is 

1 

Nos. 88-3264 & 89-1339 21 

tor often sheds little lifht on the unit's oritur/ current 

capacity to produce emissions.' 

The EPA applied these procedures in examining the 

generating unite at Port Washington. The EPA asked 

wEPCO to submit figures for the actual operations and 

emissions of each unit at the Port Washington plant for 

the years 1978 to 1987; the EPA then relied upon the 

1987 flgures to calculate the emissions baseline against 

which post-replacement emissions could be compared. 

WEPCO, however, challenged the EPA's acceptance of 

these preliminary baseline figures, arguing that unite 1, 

2, 3 and 4 were capable of operating at higher rates of 

production than those calculated by tne EPA based upon 

the 1987 flgures. WEPCO conducted five ten-hour teste 

at each unit to determine its maximum capacity. Upon 

reviewing the test results, the EPA agreed that unite 2 

and 3 could be operated at their design capacities, snd 

it revised the baseline levels for these unite. The agency 

concluded that because there would be no increase in production or emissions, NSPS would not apply to these unite 

following the renovation project. Nonetheless, the EPA 

refused to alter the baseline levels for unite 1 and 4, 

noting that WEPCO's testa had not been conducted pursuant to the test protocol as required by the regulations 

and the Wisconsin Stete Implementation Plan (units 1 and 

4 exceeded certain maximum allowable emission limits). 

Supplemental Determination at 8-9. Comparing these 1987 

baseline levels to the maximum capacity of the plant after 

renovation, the EPA concluded that the renovation project 

would be subject to the provisions of NSPS. 

WEPCO asks us to overturn the EPA's final ruling that 

the Port Washington project triggers NSPS. Specifically, WEPCO argues that, by using 1987 flgures in deter1

 Of course, if tht unit is currently operating at maximum design 

capacity, there will be no difference between the measure of emissions st maximum design capacity and st current maximum capacity. Since the units st Port Washington were operating well below 

maximum dssign capacity (and unit 6 wu completely shut down), 

that is not the case here. 
P.23 

EPfl-QGC TEL= 3827615 Jan 23.90 10=09 No.003 P.23 

1 

22 Nos. 88-3264 & 89-1339 

mining the emissions baseline, the EPA failed to apply 

ite own regulations: WEPCO asserts that these figures 

"reflected voluntary decisions by WEPQO] regarding 

safety considerations (e.2., the 'zero' rate for Unit 5) and 

an electricity demand which did not require operation of 

the units at higher capacities." Petitioner's Brief at 15-16. 

WEPCO also posits that the EPA's refusal to compare 

representative pre-renovation emissions with actual postrenovation emissions is contrary to EPA regulations and 

amounts to an abuse of agency discretion.' 

WEPCO's first assertion is easily dismissed. The EPA's 

choice of the 1987 figures was based entirely upon WEPCO's 

own data. And, when WEPCO complained that its own 

data did not reflect WEPCO's pre-renovation capabilities, 

the EPA permitted WEPCO to conduct new teste (pursuant to 40 C.F.R. i 60 App, C (1988)) that eventually 

resulted in the revision of the baselines for unite 2 and 3. 

WEPCO's second charge is far more substantial. WEPCO 

argues that NSPS regulations require the EPA to use a 

"representative" year in determining a baseline rate of 

emissions. The EPA disputes this claim, arguing that "(a]s 

to NSPS, there is no 'representative emissions' concept. 

. . . Rather .. . the baseline emission rates for unite 1-5 

are determined by hourly maximum capacity just prior 

to the renovations."7 Thomas Letter at 5. 

1

 As a preliminary matter, we note that WEPCO has not asked 

us to review the propriety of the NSPS regulations themselves. 

Indeed, we have no jurisdiction to conduct such an inquiry: 42 

U.S.C. section 7607(b)(1) reserves such questions for the United 

Stetes Court of Appeals for the District of Columbia Circuit. In 

this case, WEPCO simply requests that we consider whether the 

EPA properly applied these regulations to the Port Washington 

generating units. We have jurisdiction to undertake such an inquiry. 42 U.S.C. I 76Q7(bXl). 

1

 The regulations themselves provide, in part: 

(a) .. . any physical or operational change to an existing 

facility which results in an Increase in the emission rate to 

(Tootnou ooatmiMd on follovinf pace) 
P.24 

EPfl-OGC TEL= 332761 5 Jan 23,9 0 10:0 9 No .00 3 P.2 4 

• • • • • • * ,i _ 

Nos. 88-3264 & 89-1339 23 

WEPCO'a interpretation of the regulations, at first blush, 

seems sensible: since the regulations require that the manual emission teats and continuous monitoring systems be 

based upon the "representetive performance" of the facility, the emission factor test approach must also be based 

upon "representative performance." 40 C.F.R. f 60.14 

continued 

the atmosphere of any pollutant to which a standard applies 

shall be considered a modification. . . . 

(b) Emission rate shall be expressed as kg/hr of any pollutant discharged into the atmosphere for which a atandard Is 

applicable. The Administrator shall use the following to determine the emission rate: 

(1) Emission factors as specified in the latest issue of "Compilation of Air Pollutant Emission Factors," EPA Publication 

No. AP-42, or other emission factors determined by the Administrator to be superior to AP-42 emission factors, in eases 

where utilization of •mission factors demonstrate that the emission level resulting from the physical or operational change 

will either clearly increase or clearly not increaae. 

(2) Material balances, continuous monitor date, or manual 

emission tests in cases where utilization of emission factors 

as referenced in paragraph (bXl) of this section does not demonstrate to the Administrator's satisfaction whether the emission level resulting from the physical or operational change 

will either clearly increase or dearly not increase, or where 

an owner or operator demonstrates to the Administrator's sat* 

Ufaction that there are reasonable grounds to dispute the result obtained by the Administrator utilizing emission factors 

sa referenced tn paragraph (bXD of this section. When the 

emission rate is based on results firom manual emission tests 

or continuous monitoring systems, the procedures specified in 

Appendix C of this part snail be used to determine whether 

an increase in emission rate has occurred. Teste shall be conducted under such conditions as the Administrator shall specify 

to the owner or operator based on representative performance 

of the facUity. At least three valid test runs must be conducted 

before and at least three after the physical or operational 

change. All operating parameters which may affect emissions 

must be held constant to the maximum feasible degree for all 

test runs. 

40 C.F.R. I 60.14 (1988). 
EPH~OG( TEL: 3327615 Jan 23,90 10:09 No.003 P.2! 

24 Nos. 8S-3264 & 89-1339 

(1988); see 39 Fed. Reg. 36946, 36947 (1974) (explaining 

provision).' Otherwise, the teste might reach inconsistent 

results, making the rate of emissions entirely dependent 

upon the type of test used by the facility. Hence, argues 

WEPCO, the EPA must examine the emission rates during a representetive period, not 1987. 

WEPCO's analysis, however, relies upon a flawed premise. WEPCO assumes that the phrase ''representative performance of the facility" suggests that the EPA must 

choose a representetive year. Read in context, however, 

the phrase refers generally to all the conditions of the 

test, not specifically to ite timing; 

Teste shall be conducted under such conditions as the 

Administrator shall specify to the owner or operator 

baaed on representative performance of the facility. 

At least three valid test runs must be conducted 

before and at least three after the physical or operational change. All operating parameters which may 

affect emissions must be held constant to the maximum feasible degree for all test runs. 

40 C.F.R. ft 60.14(bX2) (1988). Compare 40 C.F.R. 5 52.21-

(bX2lXii) (1988) (PSD program) ("The Administrator shall 

allow the use of a different time period upon a determination that it is more representative of normal source operation.") (emphasis supplied). Put simply, section 60.14 ensures that the operator will not doctor testing conditions 

to produce favorable emission results. The EPA's explanation of ite regulations, which of course is given deference, 

supports this interpretation: "According to the proposed 

regulation, each set of emission tests (using manual teste 

or continuous monitors) conducted before and after a physical or operational change would consist of at least three 

• The emission factor teat Is the only technique that can prtdiet 

emission rates after renovations. Because the determination at issue here must be made before the renovations are undertaken, 

the EPA relied on this test in evaluating the Port Washington 

project. 
P.26 

:pfi-OGC TEL 527615 Jan 90 10:09 No .003 P.26 

-1339 Nos. 88-3264 & 89-1339 25 

aning 

.stent 

adent 

rgues 

* durpreme permust 

ever, 

->fthe 

\& the 

>rator 

dlity. 

ucted 

>perai may 

max52.21-

'shall 

•minaapera14 enitions 

planarence, 

posed 

teste 

physthree 

ortdict 

t at ia-

-taken, 

ington 

runs, and would be conducted under representative operating conditions." 39 Fed. Reg. 36946, 36947 (1974) (emphasis supplied). WEPCO has not argued that it conducted 

its own teste under unrepresentative conditions, nor has 

it challenged any other part of the test protocol.* And 

WEPCO does not claim that the teste were conducted 

during a period of operations that substantially differed 

from the normal operations of the deteriorated Port Washington plant. Further, the fact that the EPA permitted 

WEPCO to conduct additional emissions teste on the unite 

(during which, presumably, WEPCO could maintain representative operating conditions) undermines WEPCO's assertion that the regulations were applied arbitrarily or 

capriciously. 

6. PSD Measurements 

Unlike NSPS, PSD is concerned with changes in total 

annual emissions, expressed in tons per year. The PSD 

regulations require preconstruction review of the construction or modification of major emitting facilities. These reg* 

ulations define their key term-"major modification "-as 

"any physical change in or change in the method of operation of a major stationary source that would result in a 

significant10 net emissions increase of any pollutant sub-

* WEPCO does assert that the EPA improperly examined only 

the lowest hourly capacity achieved during the test periods. Even 

if the EPA had accepted the highest capacity tests, however, tht 

rate of emissions ox units 1, 4 and 5 still would have subjected 

those units to NSPS after the renovation. Further, the EPA acknowledges that there will be no difference between the rate of 

emissions of units 2 and 3 before and after the renovation, regardless of the chosen capacity level. &* Letter from Walt Stevenson 

to Jack Fanner (Jan. 5, 1989) (summarizing Port Washington capacity tests). We therefore need not consider whether the Administrator may rely upon the lowest capacity level. 

19

 The regulations define "significant" in terms of threshold emissions increases of individual pollutants: for example, an increase 

of 40 tons per year of nitrogen oxides U a "significant" net emissions increase. See 40 C.F.R. I S2.21(bX28) (1988). 
P.27 

; EPfl-OGC TEL: 3S27615 Jan 23,90 10=09 No .003 P.27 

26 Nos. 88-3264 & 89-1339 

ject to regulation under the Act." 40 C.F.R. ft 52.21(bX2Xi) 

(1988) (footnote supplied). 

Here the question is whether WEPCO's renovation project will result in "a significant net emissions increase"' 

so aa to trigger the "major modification" provision of the 

regulations and, as a result, PSD. To determine whether 

the project would result in an emissions increase, the EPA 

compared actual pre-renovation emissions with potential 

post-renovation emissions at the Port Washington plant. 

Specifically, the EPA first examined the two-year period 

of 1983 through 1984 as the pre-renovation baseline period, 

pursuant to 40 C.F.R. section 52.2l(bX21 Xii): 

In general, actual emissions as of a particular date 

shall eaual the average rate, in tons per year, at 

which the unit actually emitted the pollutant during 

a two-year period which precedes the particular date 

and which is representative of normal source operation. The Administrator shall allow the use of a different lime period upon a determination that it is 

more representative of normal source operation. Actual emissions shall be calculated using the unit's actual operating hours, production rates, and types of 

materials processed, stored, or combusted during the 

selected tune period. 

40 C.F-R. s 62.21(bX21Xii) (1988) (emphasis supplied). Because Administrator Thomas determined that tne discovery of cracks in the rear steam drums led to a more recent "source curtailment," he relied upon the data from 

earlier years, 1983 and 1984, as the baseline to determine 

whether the renovation would cause an increase in emis* 

sions. Thomas Letter at 5. WEPCO does not challenge 

this component of the EPA's calculation. 

Second, the EPA calculated the actual emissions of the 

plant following completion of the project. Generally, in 

order to apply PSD, the regulations require the EPA to 

find an "increaae in actual emissions from a particular 

physical change or change in method of operation." 40 

C.F.R. 9 52.21(bX3XiXa) (1988) (emphasis supplied). The 
: Epfl-OGC TEL: 3327615 Jan 23,9 0 10=09 No.003 P.28 

Nos. 88-3264 & 89-1339 27 

EPA reasoned, however, that because the source "hstdl 

not yet begun operations following the renovation, 'actual 

emissions' following the renovation (werej deemed to be 

the source's 'potential to emit.'" Clay Memorandum at 7. 

In support oi ite reliance on WEPCO's potential to emit, 

the EPA pointed to the regulations: "For any emissions 

unit which has not begun normal operations on the particular date, actual emissions shall equal the potential to 

emit of the unit on that date." 40 C.F.R. ft 52.21(bX21Xiv) 

(1988). 

WEPCO objects strenuously, and with good reason. In 

calculating the plant's post-renovation potential to emit, 

the EPA oases its figures on round-the-clock operations 

(24 hours per day, 365 days per year) because WEPCO 

could potentially operate its facility continuously, despite 

the fact that WEPCO has never done so in the past. And 

the EPA has admitted that it "assumed that emissions 

increases at Port Washington would come not from an increase in emission rate, but rather from increases in production rate or hours of operation." Supplemental Determination at 9; see Clay Memorandum at 7-8. The EPA 

responds that WEPCO can avoid these maximum calculations simply by consenting to federally enforceable restrictions on production rates and hours of operation, but 

WEPCO declines to do so. Qay Memorandum at 8; see 

40 C.F.R. ftft 52.21(bX4). 62.21(bX16) (1988). Thus, srvues 

the EPA, it has no choice but to assume that the plant 

will be operated continuously.11 

>• Despite WEPCO's protestations, we note initially that the EPA's 

refusal to apply the "production rate/hours of operation" exclusion 

was proper, 40 C.F.R. ft S2.21(bX2XiiiX/) (1988). This exelusionwhlch states that "ta] physical change or change in the method 

of operation shall not include . . . la)n increase in the hour* of 

operation or in the production rate, td.-was provided to allow 

facilities to take advantage of fluctuating market conditions, not 

construction or modification activity. See 46 Fed* Reg. 62676, 62704 

(1880). 
EPR-OGC TEL: 3S27615 Jan 23,90 10=09 No.003 P.29 

28 Nos. 88-3264 & 89-1339 

The first issue to be addressed is whether the EPA prop, 

eriy invoked the "potential to emit" concept In calculating 

the emissions increase. As explained above, the PSD regulations stete that the EPA may rely upon a facility's potential to emit if the unit "has not begun normal operations on the particular date." 40 C.F.R. ft 52.21(bX2lXiv) 

(1988) (emphasis supplied). WEPCO argues that this phrase 

should be interpreted to include only those unite that have 

never been in operation, while the EPA urges that the 

phrase can be applied to both new and modified units. 

The regulatory history of this phrase sheds little light 

on its proper interpretation. The EPA argues that it nas 

always interpreted this phrase to include modified units; 

it asserts that ite formulae for determining emissions increases have consistently assumed that "new or modified 

units" would be deemed to operate at maximum physical 

or federally enforceable levels. 46 Fed. Reg. 52676, 52718 

(1980) (emphasis supplied). But the EPA's analysis here 

seems circular in order to demonstrate that the Port 

Washington like-kind replacement project constitutes a 

modification, the EPA applies the potential to emit concept (to show an increase in emissions). And in order to 

apply the potential to emit concept to like-kind replacement, the EPA assumes that the plant is a "modified" 

unit. Although we accord great deference to an agency 

construing the statute it administers, Chevron, 467 U.S. 

at 844, and even more deference to an agency Interpreting 

ite own complex regulations, Aluminum Co. of Am. v. 

Central Lincoln Peoples' Util. Dist, 467 U.S. at 390, we 

cannot defer to agency interpretations that, as applied 

here, appear to assume what they seek to prove.11 

u

 In a supplemental filing pursuant to Seventh Circuit Rule 28(j), 

the EPA intimates that the Pint Circuit's recent decision in Puerto 

Rican Cement Co. v. EPA, 889 F2d 292 (1st Cir. 1989), permits 

the use of the potential to emit concept in similar circumstances. 

However, unlike the case at issue here, .Puerto Rican Cement Involved the construction of a new emissions-unit at an existing 

(Footnote continued on foilowtag pif«> 
i EPA-OGC TEL: 3327615 Jan 23,90 10=09 No.003 P.30 

Nos. 88-3264 & 89-1339 29 

We are also troubled by the EPA's assumption of continuous operations in calculating potential to emit at the 

Port Washington plant. Although we agree that the EPA 

cannot reasonably rely on a utility's own unenforceable_, 

estimates of its annual emissions,1' we find no support 

in the regulations for the EPA's decision wholly to disregard past operating conditions at the plant. Indeed, 

Alabama Power Co. v, Costle, 636 F.2d 323 (D.C. Cir. 

1979), which contributes importantly to the EPA's cur 

rent PSD program, suggests otherwise. There, the D.C 

Circuit held, in part, that the EPA must "teke( ] into ac 

count the anticipated functioning of the air pollution con 

trol equipment designed into the facility" when calculating 

the facility's potential to emit. Id. at 353. More important 

for our purposes, however, was the court's discussion of 

a unit's potential to emit: 

'* continued 

source. Further, the First Circuit distinguished its holding from 

controversies having something in common with the one before us. 

One can imagine circumstances that might test the reasonableness of EPA's regulation. An electricity company, for example, might wish to replace a peak load generator-one that 

operates only a few days per year-with a new peak load generator that the Arm could, but almost certainly will not, 

operate every day. . . . Whatever the arguments about the 

"irrationality1' of EPA's Interpretation in such circumstances, 

however, those circumstances are not present here. 

Id. at 297-98. 

11

 The EPA argues that WEPCO can avoid the presumption of 

continuous operations simply by consenting to federally enforceable 

emission limits. However, the EPA has not brought to our attention a clear regulatory basis for Ha conclusion that the provision 

of this alternate justifies the assumption of continuous operation 

if the utility refuses to consent And WEPCO may have legitimate 

reasons for declining to submit to federally enforceable emission 

limits: "[Ufcertainties about the precise shape of future electricity 

peak demand might make the firm hesitate to promise EPA it wm 

never increase actual emissions.., ." Puerto Rican Cement Co. v. 

EPA, 889 F2d 292, 296 (1st Cir. 1989). 
P.31 

1 EPft-OGC TEL: 3327615 Jan 23,90 10:09 No.003 P.31 

30 Nos. 88-3264 & 89-1339 

If the source has no actual emissions because it has 

yet to commence operating, ite hypothetical, projected 

emissions are included in the baseline. //, however, 

the source is an established operation, a more realistic assessment of its impact on ambient air quality 

levels is possible, and thus is directed. 

Id. at 379 (emphasis supplied). The district court In United 

States v, Louxsiana-Pacific Corp., 682 F. Supp. 1141 (D. 

Colo. 1988), reiving on Alabama Power, recently reached 

the same conclusion: 

The broad holding of Alabama Power is that potential to emit does not refer to the maximum emissions 

that can be generated by a source hypothesizing the 

worst conceivable operation. Rather, the concept contemplates the maximum emissions that can be generated while operating the source as it is intended 

to be operated and as it is normally operated. Of 

course, ft is possible that a source could be operated 

without the control eauipment designed into it or that 

a Konua heater coula be operated so badly that the 

fire would go out. Yet, Alabama Power stands for 

the proposition that hypothesizing the worst possible emissions from the worst possible operation is the 

wrong way to calculate potential to emit. 

Id. at 1168. 

In sum, we certainly do not suggest that the EPA may 

never subject replaced units to the potential to emit concept under ite regulations. The EPA may, if it wishes, 

undertake notice and comment procedures to apply the 

potential to emit concept to like-kind replacement. See 42 

U.S.C. ft 7607(d). But existing regulations do not seem 

to us to support such an appUcation. We therefore believe 

that the EPA's reliance on an assumed continuous operation aa a basis for finding an emissions increase is not 

properly supported. The EPA's determination that there 
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t EPfl-OGC TEL: 3827615 Jan 23,90 10 = 09 No .003 P.32 

Nos. 88-3264 & 89-1339 31 

has been a major modification for PSD purposes must be 

set aside.14 

IV. Fuel Switching 

The final significant dispute in this case involves fuel 

switching. WEPCO proposed to the EPA that its "replacement project combined with an enforceable fuel switch 

would not 'resuJtf} in an increase in the [sulfur dioxide 

and particulate matter] emission ratefs)' from those unite." 

Petitioner's Brief at 50 (brackets in original); see 40 C.F.R. 

ft 60.14(a) (1988). Nonetheless, the EPA refused to permit WEPCO to utilize lower sulfur coal instead of implementing pollution control technologies to prevent an in> 

crease in emissions. The EPA explained that "the stetute 

reflects a basic political decision that fossil fuel-fired 

sources not rely only on natural occurring less-polluting 

fuels to comply with the NSPS. Instead, Congress declared that compliance must depend in part upon the appUcation of flue gas treatment or other pollution control technologies." Supplemental Determination at 10. Further, the 

EPA pointed to 40 C.F.R. section 60.14(bX2) (1988), which 

requires that "operating parameters"-including fuel and 

raw materials-must be held constant in measuring emissions before and after renovations to determine whether 

the utility has undertaken a modification. WEPCO disputes the EPA's interpretation of the relevant provisions 

of the Clean Air Act Amendments. 

Consistent with the Supreme Court's approach in Chev* 

rm, we first examine whether the stetute evinces a clear 

14 It appears that WEPCO never submitted polhitant-ipedflc data 

to the EPA. Clay Memorandum at 7-8. Consequently, the EPA 

could not, at the time the matter wu before it, conclude whether 

the renovated plant would cause a significant net emissions increase if ft were operated under present hours snd conditions. 

WEPCO should make such data available ao that the EPA can 

determine on that basis whether the Port Washington plant will 

be subject to the PSD program. 
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Jan 23,90 10 = 09 No .003 P.33 

UU • • •••» • I • • 

32 Nos. 88-3264 6 891339 

congressional intent on the matter. We believe it does. 

Although the plain language of 42 U.S.C section 7411 

does not resolve the issue, the relevant legislative history 

provides ample support for the EPA's position. The House 

Conference Report, for example, states: 

The agreement remiires (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 us* 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 poUution from untreated fuel. 

H.R. Rep, No. 564, 96th Cong., 1st Sess. 130, reprinted 

m 1977 U.S. Code Cong. & Admin. News 1077, 1610 (emphasis supplied). In addition, passages from the congressional debates reflect Congress's refusal to allow stationary sources to substitute low sulfur fuels to avoid a 

requirement of pollution control technology. See, e.g., Ill 

Senate Committee on Environment 6 Public Works, A 

Legislative History ofthe Clean Air Act Amendments of 

1977, at 823, 363 (1978) (disapproving substitution of low 

sulfur coal for poUution control technology); IV Senate 

Committee on Environment ft Public Works, supra, at 

2663 (same). In these reports, Congress reasoned that the 

Administrator's pnvious standards-which had allowed 

ftiel switching in lieu of pollution control technology-dii-vetiy conflicted with the purposes of the NSPS program: 

1. The standards give s competitive advantage to 

those States with cheaper low-sulfur coal and create 

a disadvantage for Midwestern and Eastern States 

where predominantly higher sulfur coals are available; 

2. These standards do not provide for maximum 

S

racticable emission reduction using locally available 

lels, and therefore do not maximize potential for 

long-term growth; 
EP-P-CGC TEL= 3827615 Jan 23,90 10=09 No.003 P.34 

Nos. 88-3264 & 89-1339 33 

3. These standards do not help to expand the 

enerey resources (that is, higher sulfur coal) that 

coula be burned in compliance with emission limits 

as intended; 

4. These standards aggravate compliance problems 

for existing coal-burning stationary sources which cannot retrofit and which must compete with larger, new 

sources for low-sulfur coal; 

5. These standards increase the risk of early plant 

shutdowns by existing plants (for the reasons stated 

above), with greater risk of unemployment; and 

6. These standards operate as a disincentive to the 

improvement of technology of new sources, since untreated fuels could be burned instead of using such 

new, more effective technology. 

Ill Senate Committee on Environment & Public Works, 

supra, at 323. These purposes, reflecting technological and 

political choices, demonstrate that Congress rejected fuel 

switching as a method of avoiding the impact of NSPS. 

We believe Congress left us no choice on this issue. 

V. CONCLUSION 

In an era of increasing environmental concern, Congress 

enacted the Clean Air Act to "speed up. expand, and in* 

tensify the war against air pollution in tne united States 

with a view to assuring that the air we breathe throughout the Nation is wholesome once again." H.R. Rep. No. 

1146, 91st Cong., 2d Sesa. 1, 1, 1970 U.S. Code Cong. £ 

Admin. News 5366, 5366. The EPA is entitled to substantial deference in interpreting the technical provisions of 

the Act and ite own regulations. We cannot grant deference, however, where the EPA has attempted to implement the Act's lofty soals in contravention of ite own 

statutory regime. We therefore affirm in part and vacate 

in part, remanding the cause to the EPA for further proceedings not Inconsistent with this opinion.