The Case Against Wisconsin Electric
Wisconsin Electric submitted a proposal to
the EPA in 1988 to replace deteriorating steam drums, air heaters,
and other worn machinery at five old units within its Port
Washington generating plant. WEPCo believed that because these
modifications were being made to old (pre-1977) plants and involved
the replacement of old equipment--"routine maintenance, repair, and
replacement" rather than major modifications--the plant would be
exempt from the New Source Review requirements.
the EPA released an administrative decision that WEPCo's activities
would extend the life of the plant, and therefore were nonroutine
and fell under New Source Review requirements for pollution-control
technology upgrades. According to the agency, it had arrived at a
"commonsense finding" by "weighing the nature, extent, purpose,
frequency, and cost of the work, as well as other relevant
Among its considerations, in addition to the cost of the project,
were (1) that replacements included "numerous major components,"
(2) that WEPCo's intentions were to extend the plant's life beyond
its initial retirement date, and (3) that the project was "highly
unusual, if not unprecedented."
Significantly, the EPA also determined
that WEPCo was making "major modifications" based on projected
future emissions, since NSR requirements apply if major
modifications result in "a significant net emissions increase." But in
this case, the EPA altered the way it measured future emissions.
Previously, it had measured the change by comparing actual
emissions before installation to predicted actual emissions after
installation--an "actual-to-future-actual" test, as stipulated
under law by the modification rule.
WEPCo's case, however, the EPA measured the plant's "potential to
emit" after installation--that is, it estimated the largest amount
that the plant could possibly emit, assuming the modification would
result in maximum operation 24 hours a day, 365 days a year--rather
than measuring predicted future emissions from actual emissions
records. The EPA's assumption was that a source undergoing
nonroutine modifications had not yet begun normal operations. In
other words, the agency had applied an assumption of maximum
emission increases based on an assumption of future full
WEPCo believed this was a gross
misrepresentation of the plant's change in emissions. Other
companies were equally concerned about this new definition and what
it could mean for their activities that, under the traditional
definition, did not increase emissions. Even the EPA had observed
in an earlier document that a "potential" emissions level is
"considerably higher than what it is actually emitting." In fact,
under this new definition, any modification would show an increase
in emissions, even if there were no actual increase in pollution,
due to an assumption of increased productivity. Such a change in
the method of measuring emissions would trigger stringent NSR
requirements for any stationary source making modifications to
improve plant operational efficiency, no matter how small.
Against "Actual-to-Potential" Test.
WEPCo appealed the EPA's decision, and the case went before the
federal Seventh Circuit Court of Appeals. In 1990, the court ruled
that because WEPCo's activities were both "massive" and
"unprecedented," they were in fact "nonroutine." Of particular significance,
however, the court also ruled against the EPA, stating that WEPCo
was not subject to NSR's modification rule. It found that the
agency's test using the "potential to emit"--also called the
"actual-to-potential" test--did not follow existing law, and it was
not clear that the plant would increase actual emissions as a
result of renovations, even though its activities were nonroutine.
The judge wrote that if the EPA so wished, it could change its
definition of "major modification" under the rulemaking process.
But under the law as currently written, the EPA was unlawfully
changing its method of measuring future emissions.
Following the court's ruling, the EPA
sought to appease concerns--both within the affected industries and
at the U.S. Department of Energy (DOE)--that old power generating
plants universally could be subjected to EPA's new application of
"life extension projects" if they replaced old equipment, since the
court had concurred with the EPA that WEPCo's activities were
"nonroutine." The DOE, in particular, was concerned over the
reliability and cost-efficiency of electricity service, since the
new application could seriously discourage utilities from
refurbishing antiquated equipment. But the EPA assured
officials that WEPCo was an unusual case and did not apply to
facilities' "life extension projects" per se. According to the EPA
(as reported by the U.S. General Accounting Office), "WEPCo's life
extension project is not typical of the majority of utilities' life
extension projects, and concerns that the agency will broadly apply
the ruling it applied to WEPCo's project are unfounded."
Effectively Codifies "Actual-to-Actual" Test.
In 1992, the EPA codified the "actual-to-actual" test as the
proper means of measuring emission changes for nonroutine
modifications, rather than the "actual-to-potential" test. Called
the "WEPCo Rule," it intended to clarify what specific activities
trigger NSR and the proper way to measure projected emissions.
EPA established in the WEPCo Rule's preamble that an existing plant
that, responding to market forces, increases production or hours of
operation and in the process increases its net emissions should not
be subjected to the modification rule. The agency acknowledged that
it "in no way intends to discourage [routine] physical or
operational changes that increase efficiency or reliability or
lower operating costs, or improve other operational characteristics
of the unit," and that Congress "obviously did not intend to make
every activity at a source subject to new source requirements."
Though the EPA's WEPCo Rule in many ways clarified and
codified which activities would trigger the NSR modification rule
and which would not, its WEPCo administrative decision had
nonetheless caused enormous confusion, as many stationary source
companies feared that actions to improve or upgrade their plants
would fall under NSR.
addition to confusing industry, the NSR program had gained the
reputation of being excessively burdensome, complex, unfair, and
ineffective. Although the initial NSR ruling is only 20 pages long,
the EPA has released over 4,000 pages of guidance documents and
memos that detail and revise the requirements. In many cases, the
newer documents contradict the earlier guidance text, compounding
Another serious problem has been the
amount of time it takes the EPA to process a pre-construction
permit--on average, 18 months --even though the agency is
required by statute to issue a permit within 12 months of
application. Such delays severely hurt
industries and restrict competition, particularly among those with
officials first promised to reduce the confusion and streamline the
review process as far back as 1991. The following year, the
agency created the NSR Reform Subcommittee comprised of agency
officials, industry representatives, environmental groups, and
state and local government officials "for the purpose of making
recommendations on improving NSR." Statements of commitment to
reform NSR intensified in the early 1990s; acknowledging that "the
rules seem to work against the purpose of why they were
established," new EPA officials promised
"to examine ways to simplify and streamline the NSR process...to
reduce chances of legal challenge, and enhance the ability of EPA
and state and local governments to achieve effective implementation
of the Act."
the summer of 1995, following five years of review, meetings, and
testimony, the EPA outlined its recommendations for reforming NSR.
- A flexible permit structure to enable
plants "to operate without changes to its permit as long as the
plant's emissions do not exceed a cap."
- Exemptions for plants that undertake
pollution control and prevention projects "as long as it is
`environmentally beneficial' and will not cause or contribute to
[Clean Air Act violations]."
- Elimination of penalties against plants
that practice failed good-faith efforts.
- Reduction in delays and disputes over