Regional Reports: Region 5

Laurence A. McHugh
Barnes & Thornburg
South Bend, Indiana
Lmchugh@btlaw.com

Indiana

On July 26, 2002, the District Court for the Southern District of Indiana issued a significant decision in a PSD enforcement case, U.S. v Southern Indiana Gas and Electric Company (S.D. Ind., No. IP 99-1692-C-M/F) (SIGECO {3}).

The case involves the refurbishment of an electric generating unit (Culley Unit 3). Prior to performing the work, SIGECO requested an applicability determination from the Indiana Department of Environmental Management (IDEM) for both NSPS and PSD. IDEM issued a formal determination that the work was not subject to these requirements because it fell within the "routine maintenance, repair, and replacement" exemption. Based on that determination of nonapplicability, SIGECO completed the work.

Sometime later, EPA determined that IDEM's determination was inaccurate and that the work was a major modification, and not routine maintenance, repair, or replacement. It followed with an NOV, and the subject lawsuit. SIGECO sought summary judgment on the grounds that EPA was barred from pursuing its claims because 1) the Clean Air Act makes IDEM's decision binding on EPA, 2) IDEM is EPA's agent for implementing the CAA and EPA is bound by IDEM's determination based on their agency relationship, and 3) EPA is equitably estopped from asserting a view inconsistent with IDEM's determination.

The court denied the motion because:

1) Section 7413(a) allows EPA to bring an action in accordance with 7413(b)(1) whenever it finds that any person has violated or is in violation of "any requirement or prohibition of an applicable implementation plan or permit," and there is no language in the Act that precludes the government from initiating an enforcement action if a source has already obtained a permit, or in this case, an applicability determination, from a state agency. The court distinguished U.S. v. A.M. General, 34 F.3d 472 (7th Cir. 1994) because the government therein was proceeding under 7413(b)(3), and U.S. v. Solar Turbines, 732 F. Supp. 535 (M.D. Pa. 1989), because that action was brought under CAA Section 7477. The court did note that it might make sense as a matter of policy to allow a source a safe harbor, but that is up to Congress;

2) Regarding the issue of whether IDEM's determination was binding on EPA, the court stated that the IDEM had been delegated certain authority for the PSD program, but in that delegation, EPA retained the authority to pursue enforcement for PSD violations if IDEM enforced the delegated provisions in a manner inconsistent with the terms and conditions of the delegation. Due to this retained enforcement authority, EPA was not bound by IDEM's applicability determination; and,

3) The court also denied the equitable estoppel claim because there was no evidence of affirmative misconduct by either EPA or IDEM.

Because most non-applicability determinations are made by state agencies, either by determining that NSR is not triggered, or that the source has agreed to sufficient controls on potential emissions to qualify as a synthetic minor, this opinion is a poster child for NSR reform. However, this is probably a risk to past permits more than future permits, because, at least in Indiana, major modifications (or synthetic minor determinations) will be processed as modifications to the source's Title V permit, and subject to EPA's 45-day review. That review period should estop EPA from a later collateral attack on a permit it failed to disapprove.