Statement from Duke Energy Chief Legal Officer Regarding 'New Source Review' Case Before U.S. Supreme Court - Duke Energy

News Release
Nov. 1, 2006

Statement from Duke Energy Chief Legal Officer Regarding 'New Source Review' Case Before U.S. Supreme Court

CHARLOTTE, N.C. – Duke Energy released the following statement from Chief Legal Officer Marc Manly after the company’s hearing this morning before the U.S. Supreme Court regarding the U.S. Environmental Protection Agency’s (EPA) “New Source Review” (NSR) program:

“Duke Energy is pleased to have its NSR case heard this morning before the U.S. Supreme Court. The U.S. District Court ruled in Duke Energy’s favor and the U.S. 4th Circuit Court of Appeals unanimously affirmed the district court’s decision. We are hopeful that the U.S. Supreme Court affirms the sound decisions of these courts.

“As our briefs and arguments to the Supreme Court made clear, we believe that the courts have properly found that Duke Energy’s maintenance activities at its power plants did not violate NSR requirements. Rather, the interpretation now advanced by the appellants of what constitutes an ‘emissions increase’ under NSR is an after-the-fact, made-for-litigation theory that was correctly rejected by the lower courts.

“Our position is consistent with Duke Energy’s track record of environmental stewardship. Emissions from our coal plants are being reduced substantially as a result of increasingly stringent federal Clean Air Act requirements and North Carolina’s ‘Clean Smokestacks’ legislation, which passed with the company’s full support and goes beyond federal standards.

“These emissions reductions clearly demonstrate that the made-for-litigation interpretation of NSR is not the primary mechanism for reducing emissions from power plants or other emission sources. Other Clean Air Act and state requirements set strict and effective limits on emissions such as sulfur dioxide, nitrogen oxides and particulate matter from power plants.

“It is also important to note that EPA’s 2005 ‘Air Trends’ data show that air quality is improving. It states: “Between 1970 and 2005, gross domestic product increased 195 percent, vehicle miles traveled increased 178 percent, energy consumption increased 48 percent and the U.S. population increased 42 percent. During the same time period, total emissions of the six principal air pollutants dropped by 53 percent.”

The following is key background and points made by Duke Energy from the company’s brief filed with the U.S. Supreme Court.

  • The issue in this enforcement action is: When is an existing power plant transformed into a “new source” under the Clean Air Act and its implementing rules, requiring the plant to obtain a pre-construction permit and install “new source” emissions controls?
  • Under both New Source Performance Standards (NSPS) and New Source Review (NSR), a project is a “modification” only if it causes an increase in a unit’s basic emissions capacity (measured by its hourly emissions rate), effectively creating a “new,” larger source of emissions.
  • A “major modification” occurs if the project significantly increases total annual emissions at the overall source, calculated using representative hours of operation.
  • In this enforcement initiative, EPA attempted through litigation to force the electric utility industry to retrofit new-source controls on all coal-fired power plants – at a cost of billions of dollars and under the threat of billions more in civil penalties.
  • To obtain this result, EPA re-interpreted the NSR rules to eliminate the well-established “modification” trigger. Instead, EPA contended that NSR could be triggered by commonplace projects that merely maintain a facility’s operating capabilities and do not increase the facility’s emissions rate.
  • This case involves 29 such projects, which Duke undertook as long ago as 1988 at eight different power plants in North and South Carolina.
  • The projects EPA deemed to violate NSR involved the replacement and repair of corroded boiler components – principally steel tubes that carry water or steam. None of the projects violated any condition of Duke’s operating permits. None increased any unit’s capacity to emit pollutants.
  • Moreover, these projects were performed in full view and with the knowledge of EPA and the state authorities charged with enforcing the Act; but neither ever hinted that Duke’s maintenance activities required “new source” permits.
  • Nor, before the 1999 enforcement initiative, did any private party challenge any of these projects in any citizen suit. No one suggested that Duke’s activities required NSR permits for a simple reason: EPA, the states, and the industry all understood and interpreted the rules to apply to existing emissions units only when those units underwent NSPS “modifications” – fundamentally changing the units’ ability to emit pollutants.
  • In the end, Petitioners’ and the United States’ arguments do not withstand common-sense scrutiny. Under their view, the electric utility industry has engaged in decades-long, universal noncompliance – in plain view of and in complicity with state and federal regulators.
  • The far more sensible conclusion is that EPA changed its interpretation of the statute and rules in this enforcement initiative – adopting an interpretation it now has disavowed as bad policy. Thus, this case is based on a made-for-litigation theory that is inconsistent with the language and history of the rules, EPA’s historical interpretation of those rules, and EPA’s current policy position.

Duke Energy is a diversified energy company with a portfolio of natural gas and electric businesses, both regulated and unregulated, and an affiliated real estate company. Duke Energy supplies, delivers and processes energy for customers in the Americas. Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: www.duke-energy.com.

Contact: Tom Williams
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