PNM Reply Brief Tenth Cir€¦ · Public Service Company of New Mexico Richard L. Alvidrez Miller Stratvert P.A. 500 Marquette, Suite 1100 Albuquerque, NM 87125 (505) 842-1950 Counsel

ORAL ARGUMENT SCHEDULED FOR OCTOBER 23, 2012

NOS. 11-9552, 11-9557 & 11-9567

IN THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

WILDEARTH GUARDIANS, Petitioner,

v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and

Lisa Jackson, Administrator, United States Environmental Protection Agency, Respondents.

PUBLIC SERVICE COMPANY OF NEW MEXICO, Petitioner,

v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and

Lisa Jackson, Administrator, United States Environmental Protection Agency, Respondents.

SUSANA MARTINEZ, GOVERNOR OF THE STATE OF NEW MEXICO, AND NEW MEXICO ENVIRONMENT DEPARTMENT,

Petitioners, v.

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY and Lisa Jackson, Administrator, United States Environmental Protection Agency,

Respondents. ____________

ON PETITIONS FOR REVIEW OF FINAL ACTION OF THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

_______________________________________

REPLY BRIEF OF PETITIONER IN NO. 11-9557 PUBLIC SERVICE COMPANY OF NEW MEXICO

(DEFERRED APPENDIX APPEAL) ______________________________________ (List of Counsel Appears on Next Page)

Appellate Case: 11-9557 Document: 01018915040 Date Filed: 09/14/2012 Page: 1

Henry V. Nickel Norman W. Fichthorn Hunton & Williams LLP 2200 Pennsylvania Ave., N.W. Washington, DC 20037 (202) 955-1500 Counsel for Petitioner Public Service Company of New Mexico Richard L. Alvidrez Miller Stratvert P.A. 500 Marquette, Suite 1100 Albuquerque, NM 87125 (505) 842-1950 Counsel for Petitioner Public Service Company of New Mexico September 14, 2012

Patrick V. Apodaca Senior Vice President, General Counsel and Secretary Public Service Company of New Mexico 414 Silver Ave., S.W., MS 1200 Albuquerque, NM 87158 (505) 241-2700 Counsel for Petitioner Public Service Company of New Mexico


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TABLE OF CONTENTS

TABLE OF AUTHORITIES .................................................................................... ii

GLOSSARY OF TERMS ..........................................................................................v

INTRODUCTION .....................................................................................................1

ARGUMENT .............................................................................................................3

I. EPA Lacked Authority To Promulgate a FIP Without First Reviewing and Acting on New Mexico’s Complete SIP. .................................................8

II. New Mexico’s 2007 Interstate Transport SIP Was Fully Approvable, and EPA Therefore Had No Lawful Reason To Promulgate Its FIP. .............9

III. EPA’s BART Determination Is Arbitrary, Capricious, and Contrary to Law. ...............................................................................................................16

A. EPA’s Compliance-Cost Assessment Was Arbitrary, Capricious, and Otherwise Contrary to Law.......................................16

B. EPA Failed To Assess Incremental Cost-Effectiveness as Required by the BART Guidelines. ....................................................28

C. EPA’s Assessment of the Presumptive Limits Did Not Comply with the BART Rules. .........................................................................30

D. EPA’s Reliance on Its Assessment of “Cumulative” Visibility Improvements Is Contrary to Law and Arbitrary................................32

E. EPA Arbitrarily Refused To Consider Visibility Modeling Results from the Most Recent Version of CALPUFF and To Use Real-World Ammonia Data in Its Modeling. ..............................34

F. The Record Does Not Support EPA’s Conclusion that a 0.05 lb/mmBtu NOx Limit Is Achievable at SJGS. ....................................36

G. EPA’s Failure To Allow Plantwide Averaging Is Arbitrary...............39

CONCLUSION........................................................................................................40


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TABLE OF AUTHORITIES

FEDERAL CASES

American Corn Growers Association v. EPA, 291 F.3d 1 (D.C. Cir. 2002)..........................................................................................1, 5, 16, 17, 21

City of Colorado Springs v. Solis, 589 F.3d 1121 (10th Cir. 2009) ...................29, 30 EME Homer City Generation, L.P. v. EPA, --F.3d--, 2012 WL

3570721 (D.C. Cir. Aug. 21, 2012)...............................................8, 11, 12, 36 Los Angeles v. U.S. Department of Commerce, 307 F.3d 859 (9th Cir.

2002)..............................................................................................................33 Luminant Generation Co., LLC. v. EPA, 675 F.3d 917 (5th Cir. 2012)...................15 Montana Sulphur & Chemical Co. v. EPA, 666 F.3d 1174 (9th Cir.

2012)................................................................................................................8 Natural Resources Defense Council, Inc. v. EPA, 22 F.3d 1125 (D.C.

Cir. 1994).................................................................................................10, 14 South Coast Air Quality Management District v. EPA, 472 F.3d 882

(D.C. Cir. 2007), decision clarified, on unrelated issues, on denial of reh’g, 489 F.3d 1245 (D.C. Cir. 2007) ..........................................28

Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506

(D.C. Cir. 1983).............................................................................................20 WildEarth Guardians v. Jackson, No. 3:09-cv-02453-EDL, 2011 WL

6779276 (N.D. Cal. Dec. 27, 2011) (unpublished) .........................................5

FEDERAL STATUTES

Clean Air Act, 42 U.S.C. §§ 7401 et seq. CAA § 110, 42 U.S.C. § 7410 .....................................................................1, 2 CAA § 110(a)(2)(D)(i), 42 U.S.C. § 7410(a)(2)(D)(i) ..................................13


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CAA § 110(a)(2)(D)(i)(I), 42 U.S.C. § 7410(a)(2)(D)(i)(I)....................11, 12 CAA § 110(a)(2)(D)(i)(II), 42 U.S.C. § 7410(a)(2)(D)(i)(II) ........4, 9, 10, 11,

12, 13, 15 CAA § 110(c)(1), 42 U.S.C. § 7410(c)(1).................................................5, 13 CAA § 110(k), 42 U.S.C. § 7410(k)........................................................10, 13 CAA § 110(k)(1), 42 U.S.C. § 7410(k)(1) ................................................7, 10 CAA § 110(k)(2), 42 U.S.C. § 7410(k)(2) ................................................7, 10 CAA § 112(d)(2), 42 U.S.C. § 7412(d)(2) ....................................................17 CAA § 169A, 42 U.S.C. § 7491 ......................................................................1 CAA § 169A(b)(2)(A), 42 U.S.C. § 7491(b)(2)(A) ......................................35 CAA § 171(3), 42 U.S.C. § 7501(3)..............................................................17 CAA § 173(a)(2), 42 U.S.C. § 7503(a)(2).....................................................17 CAA § 302(y), 42 U.S.C. § 7602(y)..........................................................8, 13 CAA § 307(d)(1)(B), 42 U.S.C. § 7607(d)(1)(B) .........................................26 CAA § 307(d)(3), 42 U.S.C. § 7607(d)(3) ..............................................27, 29 CAA § 307(d)(6)(A), 42 U.S.C. § 7607(d)(6)(A) .........................................29 CAA § 307(d)(7)(B), 42 U.S.C. § 7607(d)(7)(B) .............................25, 26, 27 CAA § 307(d)(9), 42 U.S.C. § 7607(d)(9) ....................................................20 CAA Title I, 42 U.S.C. §§ 7470-7492...........................................................11


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FEDERAL REGULATIONS 40 C.F.R. Part 51, App. Y........................................................................................17 40 C.F.R. § 51.301 ...................................................................................................31

FEDERAL REGISTER

70 Fed. Reg. 39,104 (July 6, 2005).................................................17, 18, 20, 21, 23, 26, 28, 30,

31, 32, 33, 38, 39

76 Fed. Reg. 491 (Jan. 5, 2011) .............................................................14, 17, 29, 36 76 Fed. Reg. 52,388 (Aug. 22, 2011) ................................. 2, 4, 5, 10, 13, 34, 35, 38 77 Fed. Reg. 36,044 (June 15, 2012) .........................................................................6 77 Fed. Reg. 38,185 (June 27, 2012) .......................................................................10 77 Fed. Reg. 38,509 (June 28, 2012) .......................................................................10 77 Fed. Reg. 42,834 (July 20, 2012)........................................................................24

MISCELLANEOUS EPA, “Guidance for State Implementation Plan (SIP) Submissions to

Meet Current Outstanding Obligations Under Section 110(a)(2)(D)(i) for the 8-Hour Ozone and PM2.5 National Ambient Air Quality Standards,” Doc. No. EPA-R06-OAR-2010-0846-0005 (Aug. 15, 2006)......................................................3, 4, 9, 14


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GLOSSARY OF TERMS

Act: Clean Air Act Agency: U.S. Environmental Protection Agency B&V: Black & Veatch BART: Best Available Retrofit Technology BART Guidelines: Guidelines for Best Available Retrofit Technology Determinations Under the Regional Haze Rule, codified in 40 C.F.R. Part 51, Appendix Y, and promulgated at 70 Fed. Reg. 39,104, 39,156 (July 6, 2005) BOD: Boiler Operating Day CAA: Clean Air Act Cost Manual: EPA, EPA/452/B-02-001, “EPA Air Pollution Control

Cost Manual” (6th ed. Jan. 2002) CSAPR: Cross-State Air Pollution Rule EPA: U.S. Environmental Protection Agency Final Rule: EPA, “Approval and Promulgation of Implementation

Plans; New Mexico; Federal Implementation Plan for Interstate Transport of Pollution Affecting Visibility and Best Available Retrofit Technology Determination, Final Rule.” 76 Fed. Reg. 52,388 (Aug. 22, 2011)

FIP: Federal Implementation Plan

Interstate Transport Guidance: EPA, “Guidance for State Implementation Plan (SIP) Submissions to Meet Current Outstanding Obligations Under Section 110(a)(2)(D)(i) for the 8-Hour Ozone and PM2.5 National Ambient Air Quality Standards,” EPA- R06-OAR-2010- 0846-0005 (Aug. 15, 2006)


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JA: Joint Appendix lb/mmBtu: Pound Per Million British Thermal Units

NAAQS: National Ambient Air Quality Standards

NMED: New Mexico Environment Department

NOx: Nitrogen Oxide

Part C: Part C of Title I of the Clean Air Act, 42 U.S.C. §§ 7470-7492

PM: Particulate Matter

PM2.5: Fine Particulate Matter

PNM: Public Service Company of New Mexico

PNM Comments: Comments Prepared by Public Service Company of New Mexico, EPA Region 6 Draft Interstate Transport FIP and NOx BART Determination for the San Juan Generating Station, EPA-R06-OAR-2010-0846-0093 (Apr. 4, 2011)

Proposed Rule: EPA “Approval and Promulgation of Implementation

Plans; New Mexico; Federal Implementation Plan for Interstate Transport of Pollution Affecting Visibility and Best Available Retrofit Technology Determination, Proposed Rule,” 76 Fed. Reg. 491 (Jan. 5, 2011)

RMB: RMB Consulting & Research, Inc. RMB Memorandum: RMB Consulting & Research, Inc., “Analysis of the

Achievability of the FIP NOx Limit for San Juan Generating Station and Comparison to Other Ultra-Low NOx Units” (Oct. 21, 2011)

S&L: Sargent & Lundy


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San Juan: San Juan Generating Station

SCR: Selective Catalytic Reduction

SIP: State Implementation Plan

SJGS: San Juan Generating Station

SO2: Sulfur Dioxide SSM: Start-up, Shut-down, and Malfunction

UARG: Utility Air Regulatory Group

WRAP: Western Regional Air Partnership


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INTRODUCTION

Under section 110 of the Clean Air Act (“CAA” or “Act”), 42 U.S.C.

§ 7410, states have “primary responsibility” for implementing standards and

regulations under various CAA programs through establishment of state

implementation plans (“SIPs”). State discretion to make policy choices for

implementing CAA requirements is nowhere broader than when states adopt

regional haze SIPs containing “best available retrofit technology” (“BART”)

emission limitations under the “visibility protection” program of CAA § 169A, 42

U.S.C. § 7491. Am. Corn Growers Ass’n v. EPA, 291 F.3d 1 (D.C. Cir. 2002).

In this case, Respondent Environmental Protection Agency (“EPA” or

“Agency”) rushed to impose its policy judgment regarding BART for nitrogen

oxide (“NOx”) emissions from the San Juan Generating Station (“San Juan” or

“SJGS”), notwithstanding New Mexico’s fundamentally different policy judgment

reflected in a Regional Haze SIP pending before EPA. As the briefs of petitioners

Governor Martinez and the New Mexico Environment Department (collectively

“NMED”) demonstrate, EPA’s conduct ignored constraints Congress imposed on

EPA’s authority to adopt federal implementation plans (“FIPs”) that would

contradict a submitted SIP awaiting EPA’s approval. Rather than coordinate final

action on the submitted SIP with final action on the proposed FIP, EPA chose to

promulgate immediately a combined Interstate Transport and BART FIP, asserting


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that immediate promulgation of a combined limit was needed to avoid “confusion”

by petitioner Public Service Company of New Mexico (“PNM”) and provide PNM

“certainty.” 76 Fed. Reg. 52,388, 52,390, 52,419 (Aug. 22, 2011) (“Final Rule”)

(JA__, __). The disingenuous goal of providing “certainty” does not excuse

noncompliance with the principle of state primacy established in CAA § 110.

EPA’s rush to judgment is further reflected in its fundamentally flawed

BART analysis for San Juan. As discussed herein, PNM submitted the results of

site-specific cost analyses during and after the public comment period in EPA’s

FIP rulemaking. Those analyses contradicted generic cost estimates on which EPA

relied. Disregarding substantial evidence that San Juan BART costs would greatly

exceed EPA’s estimates, EPA proceeded to finalize its FIP. Following EPA’s rush

to promulgation, PNM submitted more detailed engineering analyses and vendor

bids to EPA, confirming errors in EPA’s cost estimates that PNM had identified in

its rulemaking comments based on its site-specific cost analysis. While EPA was

using artificially deflated cost estimates to try to justify selective catalytic

reduction (“SCR”) as BART for SJGS (and ignoring the BART Guidelines’

directive to conduct an assessment of incremental cost-effectiveness of BART

candidate controls), EPA manufactured inflated visibility-benefit projections to try

to establish SCR’s cost-effectiveness. To accomplish this, EPA relied on a

hypothetical “cumulative” visibility improvement analysis that departed from the


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BART Guidelines. EPA also ignored the BART Guidelines’ requirement to justify

any deviation from the “presumptive” BART limit for facilities like San Juan. In

addition, EPA arbitrarily refused to use updated models and real-world data in

projecting visibility impacts, disregarded substantial evidence of the

unachievability of the Final Rule’s emission limit, and failed to allow the

plantwide compliance averaging method contemplated by its own BART

Guidelines.

All of these defects illustrate that EPA was committed to having its BART

policy determination trump New Mexico’s very different policy choice. EPA

could do this only through hurriedly promulgating its proposed BART FIP in

preference to New Mexico’s NOx BART SIP, on which EPA still, over a year

later, has taken no action.

For the reasons discussed below, and in PNM’s opening brief and NMED’s

briefs, EPA’s Final Rule is irretrievably flawed and unlawful and should be

vacated.

ARGUMENT

As NMED’s briefs and PNM’s opening brief explain, New Mexico’s 2007

Interstate Transport SIP was fully approvable: it complied with EPA Guidance1

1 EPA, “Guidance for State Implementation Plan (SIP) Submissions to Meet Current Outstanding Obligations Under Section 110(a)(2)(D)(i) for the 8-Hour Ozone and PM2.5 National Ambient Air Quality Standards,” EPA-R06-OAR-2010-


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that, consistent with the statute, recognizes that it is not possible to determine the

visibility-protecting “measures” that are “required” within the meaning of CAA

§ 110(a)(2)(D)(i)(II), 42 U.S.C. § 7410(a)(2)(D)(i)(II) – and it is therefore

impossible to impose specific interstate transport obligations on states – until

regional haze SIPs have been submitted by states and approved by EPA.

Nonetheless, in its Final Rule, EPA disregarded the statute and its own Guidance

and disapproved New Mexico’s Interstate Transport SIP, announcing that

modeling assumptions by the Western Regional Air Partnership (“WRAP”)

allowed EPA to identify NOx limits (0.27 and 0.28 lb/mmBtu) for San Juan that

would satisfy New Mexico’s interstate transport obligations with respect to

visibility. 76 Fed. Reg. at 52,424 (JA__). EPA promulgated a FIP for interstate

transport less than a month after receiving New Mexico’s Regional Haze SIP and

its 2011 revised Interstate Transport SIP. That FIP imposes a 0.05 lb/mmBtu NOx

limit for SJGS that is far more stringent than the SIPs’ 0.23 lb/mmBtu limit – even

though the SIPs’ limit is more stringent than the 0.27/0.28 lb/mmBtu level EPA

had called for. At the same time, EPA decided it was also necessary – to avoid

“confusion” on PNM’s part – to conduct its own BART analysis for NOx at SJGS

and impose a BART NOx limit in a FIP. See 76 Fed. Reg. at 52,390 (JA__).

0846-0005 (Aug. 15, 2006) (the “Interstate Transport Guidance”), AR Doc. 114 (JA__-__).


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The CAA authorizes states to determine BART requirements for NOx and

other visibility-impairing pollutants like sulfur dioxide (“SO2”) and particulate

matter (“PM”) based on consideration of five statutory BART factors. The CAA

gives states broad discretion as to how to consider and weigh BART factors, and

the CAA makes clear that Congress intended that states, not EPA, make BART

determinations. Corn Growers, 291 F.3d at 5-9. Only when a state has not

submitted a regional haze SIP that meets the CAA’s requirements is EPA then

authorized to promulgate a FIP to stand in the place of such a SIP. CAA

§ 110(c)(1), 42 U.S.C. § 7410(c)(1).

Yet here, EPA rushed to promulgate a NOx BART FIP even though it was

subject to no applicable deadline to do so2 and even though New Mexico had

submitted its own complete SIP that addressed all regional haze program

requirements (not only NOx BART for SJGS) and set a 0.23 lb/mmBtu NOx

2 Contrary to the suggestion in the Environmental Intervenor-Respondents’ Brief (at 7) (“Envt’l Br.”), PNM does not argue that the consent decree for EPA action on interstate transport requirements compelled EPA action on regional haze. But cf. 76 Fed. Reg. at 52,412 (JA___) (“The FIP clocks of both statutory requirements [i.e., interstate transport and regional haze] have expired and we therefore have an obligation to act now under the CAA.”) Further, the district court order they cite (at 8-9), WildEarth Guardians v. Jackson, 2011 WL 6779276 (N.D. Cal. Dec. 27, 2011) (unpublished), is inapposite. The court said it denied North Dakota intervention because EPA’s authority and obligations regarding regional haze and FIP-promulgating authority “were never at issue in this case.” Id. at *1, 3.


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BART limit for SJGS.3 EPA’s BART analysis purported to support its

determination that NOx BART at SJGS was 0.05 lb/mmBtu based on SCR at each

SJGS unit – more than five times as stringent as the level EPA said was adequate

to satisfy the interstate-transport provision.

The timing of EPA’s decision to promulgate a NOx BART FIP was,

according to EPA, driven by the August 5, 2011 consent-decree deadline that

constrained the timing of final EPA action on interstate transport – not BART –

requirements, and by EPA’s asserted goal of avoiding purported “confusion” by

PNM as to which number – 0.05 (the EPA-preferred BART limit) or 0.27/0.28 (the

limits EPA said were needed to resolve interstate transport) – was lower and would

therefore govern PNM’s compliance efforts. Applying this logic, EPA imposed a

0.05 interstate-transport limit despite the absence of any record support for such a

limit and simultaneously imposed the same limit for BART without engaging the

merits of the BART SIP. EPA disregarded the fact that its decision on FIP

promulgation, as to substance and timing, in no way resolved “confusion,” given

3 EPA felt no need to determine BART requirements for San Juan’s SO2 and PM emissions at that time, a fact EPA’s brief does not dispute. EPA has since proposed to approve New Mexico’s SO2 and PM BART determinations for SJGS in the state’s 2011 SIP submittal that also contains New Mexico’s NOx BART determination for SJGS, but without proposing action on the state’s NOx BART determination. 77 Fed. Reg. 36,044 (June 15, 2012). EPA’s divergent responses to different aspects of the BART SIP reflect its preference for a NOx BART determination that conflicts with the state’s.


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that: (i) the BART and Interstate Transport SIPs, with 0.23 lb/mmBtu limits, were

pending before EPA (and still are, without even proposed EPA action on New

Mexico’s NOx limits for the SJGS units); (ii) EPA has a binding statutory

obligation to take final action on approval of those SIPs by January 5, 2013, less

than four months from now;4 and (iii) those SIPs are fully approvable.

In making its own BART determination to override the state’s, EPA

conducted a BART assessment and reached a conclusion that differed radically

from the complete, fully documented assessment conducted, and the conclusion

reached, by New Mexico. As noted above and explained in NMED and PNM’s

opening briefs, under the statutory design, it is the state’s, not EPA’s, assessment

of the BART factors that warrants deference. Moreover, EPA’s BART assessment

conflicts with EPA’s own BART rules and the CAA’s requirements.

EPA and Environmental Intervenor-Respondents offer no persuasive

responses to the arguments of NMED and PNM that EPA: (1) lacked authority to

promulgate a FIP while New Mexico’s Interstate Transport and Regional Haze SIP

submittals were pending before it; (2) was obligated to approve the 2007 Interstate

Transport SIP; and (3) made an unreasonable and unlawful BART determination.

4 EPA received the SIPs on July 5, 2011. CAA § 110(k)(1) and (2), 42 U.S.C. § 7410(k)(1) & (2), require final EPA action on them within 18 months thereafter.


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The Final Rule is arbitrary, capricious, and otherwise contrary to law and should be

vacated.

I. EPA Lacked Authority To Promulgate a FIP Without First Reviewing and Acting on New Mexico’s Complete SIP.

EPA mischaracterizes PNM’s position on EPA’s FIP authority. Contrary to

EPA’s brief (at 43 n.8), PNM does not argue that EPA “lose[s] jurisdiction to issue

a FIP” where it “fails to take such action within two years.” Thus, there is no

conflict between PNM’s position and the decision in Montana Sulphur & Chemical

Co. v. EPA, 666 F.3d 1174, 1190-91 (9th Cir. 2012), that EPA’s “failure to act

within two years does not utterly deprive the EPA of authority to promulgate [a]

FIP.” PNM acknowledges that, notwithstanding EPA’s failure to act within two

years, it is not “utterly” deprived of FIP-promulgating authority. Montana

Sulphur, however, is inapposite on the present facts: where EPA has not acted

within that two-year period, the Agency may promulgate a final FIP only where

either no SIP has been submitted or a submitted SIP is not “complete” or is

otherwise defective. See CAA § 302(y), 42 U.S.C. § 7602(y) (defining a FIP as a

plan “to fill all or a portion of a gap or otherwise correct all or a portion of an

inadequacy in a State implementation plan”); EME Homer City Generation, L.P. v.

EPA, – F.3d – , 2012 WL 3570721 at *18 (D.C. Cir. Aug. 21, 2012) (“[T]he

triggers for a FIP are EPA’s finding that the SIP fails to contain a ‘required

submission’ or EPA’s disapproving a SIP because of a ‘deficiency.’ …. Only if [a]


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revised or new SIP is properly deemed to lack a required submission or is properly

deemed deficient may EPA resort to a FIP ….”).

New Mexico’s Regional Haze SIP is complete and was required to be

approved or disapproved before EPA took any final action on its proposed FIP.

II. New Mexico’s 2007 Interstate Transport SIP Was Fully Approvable, and EPA Therefore Had No Lawful Reason To Promulgate Its FIP.

The interpretation of CAA § 110(a)(2)(D)(i)(II) expressed in EPA’s 2006

Interstate Transport Guidance continues to support the conclusion that EPA had an

obligation to approve New Mexico’s 2007 Interstate Transport SIP. As that

Guidance explained, until states have final regional haze SIPs (or FIPs) in place

and approved by EPA, it is not possible for states to determine whether and to what

extent their SIPs contain “provisions adequate to avoid interference with other

States’ regional haze measures.” EPA Br. at 19-20. Accordingly, EPA’s Interstate

Transport Guidance properly instructs states to make simple interstate transport

SIP submittals indicating that specific interstate transport obligations could be

ascertained only when regional haze SIPs have been developed and submitted by

states and approved by EPA. Interstate Transport Guidance at 9-10, AR Doc. 114

(JA__-__).

EPA in its brief seeks to justify departing from the Guidance by claiming the

2007 Interstate Transport SIP indicated New Mexico would satisfy section

110(a)(2)(D)(i)(II) “by submitting a timely regional haze SIP.” EPA Br. at 20; see


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also id. at 48 (“Contrary to its statement in its 2007 interstate transport SIP

submission, New Mexico failed to submit a regional haze SIP by the December

2007 due date.”). EPA is wrong to suggest the Interstate Transport SIP was tied to

submission of a regional haze SIP by December 2007 or any other specific date.

Although New Mexico, like most states,5 did not submit a regional haze SIP by

2007, submittal of New Mexico’s regional haze SIP was irrelevant to New

Mexico’s interstate transport obligations at that time under CAA

§ 110(a)(2)(D)(i)(II).6 Instead, establishment of such SIPs in nearby states is what

triggers potential interstate transport reductions by New Mexico.

5 Only North Carolina and South Carolina submitted regional haze SIPs by December 2007. EPA failed to take final action on even those timely SIPs until June 2012, 77 Fed. Reg. 38,185 (June 27, 2012) (North Carolina); 77 Fed. Reg. 38,509 (June 28, 2012) (South Carolina) – three years after EPA’s June 2009 deadline for final action on those SIPs pursuant to the 18-month schedule for EPA action in CAA § 110(k)(1) and (2). Indeed, EPA missed its § 110(k) deadlines for final action on most regional haze SIPs. See 76 Fed. Reg. at 52,418 (“We acknowledge that there have been delays with both [regional haze] SIP submissions by states and our actions on those [regional haze] SIP submissions.”) (JA__). Thus, EPA failed to act timely to approve regional haze SIPs to allow determination of interstate transport obligations pursuant to the statute and the Interstate Transport Guidance. Cf. Natural Res. Def. Council, Inc. v. EPA, 22 F.3d 1125, 1130-31, 1135 (D.C. Cir. 1994) (“NRDC v. EPA”) (states are to be held harmless where they would miss a SIP-submittal deadline due to EPA delay in meeting its CAA deadline). 6 As NMED explained, New Mexico’s delay resulted from circumstances beyond its control. See Reply of Petitioners Governor Susana Martinez and New Mexico Environment Department to Respondents’ and Intervenors’ Oppositions to Motions for Stay at 5-9 (Feb. 17, 2012). NMED explained that (1) New Mexico originally submitted a regional haze SIP in 2003, but EPA never acted on it due to


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As EPA’s Interstate Transport Guidance explains:

States may make a simple SIP submission confirming that it is not possible at this time to assess whether there is any interference with measures in the applicable SIP for another State designed to “protect visibility” … until regional haze SIPs are submitted and approved.

Interstate Transport Guidance at 9-10 (emphasis added). As EPA recognized, an

interstate transport assessment is “not possible” until neighboring states and EPA

have approved regional haze SIPs in place. Until SIPs are submitted and approved,

it cannot be determined which specific “measures [are] required” in SIPs “under

[CAA Title I Part C, i.e., the regional haze program] … to protect visibility.” CAA

§ 110(a)(2)(D)(i)(II). Accordingly, New Mexico’s 2007 Interstate Transport SIP

satisfied the statute as construed in EPA’s Interstate Transport Guidance and

should have been approved by EPA.

The interpretation of CAA § 110(a)(2)(D)(i)(II) embodied in EPA’s

Interstate Transport Guidance is supported by Homer City. There, the court

a successful third-party litigation challenge to a relevant part of EPA’s regional haze regulations; (2) EPA failed until 2006 to revise its regional haze regulations to address the resulting court decision; (3) until January 2009, at the time EPA issued its finding of states’ failure to submit regional haze SIPs, New Mexico and other states had been negotiating with EPA over how to implement EPA’s new regulations; and (4) after concluding negotiations were at an impasse, New Mexico developed its Regional Haze SIP as expeditiously as possible. Id. That submitted SIP is now pending before EPA, where it has sat for over a year without even proposed EPA action regarding the SIP’s NOx BART determination. Cf. Envt’l Br. at 3 (erroneously stating New Mexico had “multiple opportunities” to submit a SIP).


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vacated an EPA multi-state emission reduction rule (the Cross-State Air Pollution

Rule (“CSAPR”)) promulgated under CAA § 110(a)(2)(D)(i)(I), 42 U.S.C.

§ 7410(a)(2)(D)(i)(I), to address interstate pollution transport that contributes

significantly to “nonattainment” of national ambient air quality standards

(“NAAQS”).7 The court held unlawful EPA’s decision to promulgate FIPs to

implement CSAPR before giving states an opportunity to develop and submit SIPs

to address interstate transport by reducing their in-state emissions to meet EPA-

established targets. Homer City, 2012 WL 3570721 at *22 (holding it was

improper for EPA to have insisted that each state take a “stab in the dark” in

calculating its interstate transport obligations). Just as, in Homer City, EPA

determinations of required emission reductions were needed before states’

interstate transport obligations regarding NAAQS nonattainment could be

specifically defined, here EPA approval of regional haze SIPs for neighboring

states was needed to determine what “measures” were “required” in those states

before New Mexico could be required to establish specific SIP provisions to avoid

“interfere[nce]” with those measures. CAA § 110(a)(2)(D)(i)(II).

7 CAA § 110(a)(2)(D)(i)(I), the sister provision to section 110(a)(2)(D)(i)(II), requires states to include in SIPs measures prohibiting sources within the state from emitting in amounts that will “contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to” NAAQS. Because this provision is closely related to section 110(a)(2)(D)(i)(II), Homer City is especially pertinent here.


13

In its Final Rule, EPA argued it would have been “illogical” to have awaited

evaluation of a state’s compliance with any interstate transport obligations until the

regional haze SIPs of neighboring states were approved because such an approach

would fail to address what would happen if states never submitted approvable

regional haze SIPs. See EPA Br. at 52 (quoting 76 Fed. Reg. at 52,418 (JA__)) .

EPA ignores that states cannot prevent implementation of the regional haze

program by failing to submit SIPs or submitting only unapprovable SIPs. If the

state refuses to act, or submits only an incomplete SIP or one that does not reflect

any consideration of the statutory BART factors, EPA can step into the state’s

shoes and issue a FIP to fill the gap. CAA §§ 110(c)(1), 302(y). Either through

state or – where necessary – EPA action, therefore, a plan to implement regional

haze requirements will be put in place, allowing determination of states’ interstate

transport obligations.

EPA argued in the Final Rule that maintaining the approach described in the

Interstate Transport Guidance “is inconsistent with the statutory requirement

specifying that SIP submissions to address section 110(a)(2)(D)(i), including the

visibility prong of that section, must be made within three years of the

promulgation of any new or revised NAAQS.” EPA Br. at 52 (quoting 76 Fed.

Reg. at 52,418 (JA__)). That premise is wrong. New Mexico met its section

110(a)(2)(D)(i) requirement by developing and submitting its Interstate Transport


14

SIP in 2007, promptly after EPA issued its Guidance describing how states should

respond to CAA § 110(a)(2)(D)(i)(II) following NAAQS promulgation. Had EPA

complied with its CAA § 110(k) deadline for action on SIP submittals, it would

have fully approved that SIP by 2009, obviating the need for any consent decree

compelling EPA action by August 2011. Contrary to EPA’s suggestion, New

Mexico did not delay its Interstate Transport SIP submission. Rather, EPA

unaccountably delayed its statutorily required action approving that SIP, and then,

in its Final Rule challenged here, used its own unlawful delay as an excuse to

convert what should have been a SIP approval into an unjustified SIP disapproval.

See EPA Br. at 54 (pointing to “the changing factual landscape since 2006” as

reason to retroactively reject states’ reliance on EPA’s own Guidance). EPA’s

game of bait-and-switch at the expense of state SIP authority – involving, in this

case, EPA’s own violation of its statutory duty to act timely on SIPs and purported

“chang[ed]” circumstances occurring during the period of EPA’s own delay –

cannot be countenanced.8 See, e.g., NRDC v. EPA, 22 F.3d at 1135.

8 EPA’s argument (EPA Br. at 53) that its January 2011 proposed disapproval of the 2007 Interstate Transport SIP “presaged” an intent to abandon the statutorily grounded approach in the Interstate Transport Guidance, thus saving it from PNM’s objection that EPA failed to give commenters adequate notice of its policy reversal, see PNM Opening Br. at 54, is unavailing. The sole passage from the proposed rule’s preamble that EPA cites on its face gave no notice of abandonment of EPA’s Guidance, and that preamble itself recounted the terms of the Guidance without announcing any intent to disregard it. See 76 Fed. Reg. 491, 494 (Jan. 5, 2011) (“Proposed Rule”) (JA__). EPA’s further argument – that a rulemaking


15

In sum, EPA had no valid, lawful reason to disapprove New Mexico’s 2007

Interstate Transport SIP. That SIP fully complied with CAA § 110(a)(2)(D)(i)(II),

and the 2006 Interstate Transport Guidance’s interpretation and application of that

statutory provision represents the only reasonable approach to addressing interstate

transport-related visibility requirements before regional haze SIPs are approved by

EPA. Because the SIP met the Act’s requirements, EPA had no lawful choice but

to approve it in full. See, e.g., Luminant Generation Co., LLC v. EPA, 675 F.3d

917, 926 (5th Cir. 2012) (“EPA may consider only the requirements of the CAA

when reviewing SIP submissions. … [T]he agency [has] no discretion to do

anything other than ensure that a state’s submission meets the CAA’s requirements

and, if it does, approve it before the passage of [EPA’s] statutory deadline.”).

EPA’s disapproval of the 2007 SIP, together with its concomitant action of

promulgating a combined Interstate Transport and NOx BART FIP, must therefore

be set aside.

comment urging EPA not to disapprove the Interstate Transport SIP because it conformed to the Guidance shows that the public knew of EPA’s intended policy reversal – is nonsensical. There is nothing in a comment that simply reminded EPA that the SIP satisfied statutory requirements, as reflected in EPA’s Guidance, that did or could provide any public notice that the statutorily grounded Guidance would be abandoned.


16

III. EPA’s BART Determination Is Arbitrary, Capricious, and Contrary to Law.

EPA argues that its selection and imposition of a NOx limit of 0.05

lb/mmBtu, requiring SCR as BART for SJGS, was reasonable in light of record

evidence. EPA argues further that its BART analysis was consistent with the

BART rules and BART Guidelines. The record demonstrates instead that EPA’s

rush to finalize a BART FIP resulted in a BART analysis that does not comply

with EPA’s rules, EPA’s BART Guidelines, and the CAA, rendering EPA’s BART

determination and Final Rule arbitrary, capricious, and otherwise unlawful.

A. EPA’s Compliance-Cost Assessment Was Arbitrary, Capricious, and Otherwise Contrary to Law.

The CAA and EPA’s BART Guidelines require that a BART-determining

authority consider the actual costs of compliance when evaluating a candidate

emission control technology and associated emission limit. The BART Guidelines,

adopted following notice-and-comment rulemaking, require, consistent with Corn

Growers, that BART control cost estimates represent real-world, site-specific

compliance costs at a particular facility. See 291 F.3d at 6-7. PNM conducted cost

assessments of the various emission control technologies that could be deployed at

SJGS, and those assessments were presented in rulemaking comments objecting to

EPA’s much lower cost estimates for retrofitting SCR at SJGS. EPA’s cost

assessment was based on its Control Cost Manual (“Cost Manual”), which contains


17

broad-brush, generic estimates of costs that do not account for site-specific facts

unique to the SJGS units.

EPA acknowledges that “[t]he [BART] Guidelines provide that in

determining the costs of control of particular BART alternatives, the analyst should

first identify the control technology alternatives (i.e., the different kinds of retrofit

technologies) and then develop estimates of capital and annual costs for each

alternative.” EPA Br. at 13-14. By contrast, rather than evaluate the cost of BART

“control technology alternatives,” EPA evaluated the cost of only a single,

extraordinarily expensive technology – SCR – because EPA found that use of that

technology (unsurprisingly) would yield greater modeled visibility improvement

than less stringent and less costly BART candidate controls would. Consequently,

EPA “did not further evaluate” those other technologies. 76 Fed. Reg. at 502

(JA__). In other words, under EPA’s methodology, the costs of only the most

stringent and expensive technology were fully evaluated, assuring that only that

technology could be chosen as BART. That is not the approach required or

authorized by the CAA or EPA’s BART Guidelines.9

9 In contrast to the visibility program, which addresses aesthetic interests, other CAA programs address public-health threats and, for example, require, for air toxics, “the maximum degree of reduction in emissions” that is achievable, CAA § 112(d)(2), 42 U.S.C. § 7412(d)(2), and, for preconstruction permits in areas not meeting NAAQS, “the lowest achievable emission rate,” which is defined as “the most stringent emission limitation,” CAA §§ 173(a)(2), 171(3), 42 U.S.C. §§ 7503(a)(2), 7501(3). Contrary to the Environmental Intervenor-Respondents’


18

EPA’s result-mandated approach – structured to require the conclusion that

SCR is the only technology that can be “BART” for SJGS – violated the statutory

and regulatory requirement that cost and visibility impacts must be considered for a

full range of BART candidate controls, from least to most stringent. See Corn

Growers, 291 F.3d at 6-7; 70 Fed. Reg. 39,104, 39,163, 39,164 & n.12 (July 6,

2005) (BART Guidelines codified at 40 C.F.R. pt. 51 App. Y) (JA__,__ ). Given

the methodology created and applied by EPA for this rulemaking, the BART FIP

must be vacated.

EPA’s cost assessment must be rejected also because overwhelming

evidence in the rulemaking record demonstrates that EPA’s application of the Cost

Manual here vastly understated actual SCR retrofit costs at SJGS. EPA

acknowledges the Cost Manual is not binding, that it should be relied on only

“where possible,” EPA Br. at 65, and that a BART “cost analysis may also

consider data supplied by equipment vendors and ‘should also take into account

any site-specific design or other conditions identified … that affect the cost of a

particular BART technology option,’” id. at 14 (quoting BART Guidelines at 70

Fed. Reg. at 39,166 (JA__)). That information was provided in PNM’s comments

during the rulemaking.

argument, see Envt’l Br. at 10, 22-23, “best” in “BART” does not mean, even presumptively, the “maximum” or “most stringent.”


19

PNM’s comments on the Proposed Rule provided information on the costs

of installing SCR at San Juan and supported its cost estimate with a detailed, site-

specific assessment conducted by the engineering firm Black & Veatch (“B&V”).

See PNM Comments at 29-45, AR Doc. 38 (JA__-__). That analysis showed that

EPA’s estimate in the Proposed Rule was far below PNM’s estimate – i.e.,

approximately $679 million less than the B&V estimate.10 Id. at 29 (JA__). EPA

responded with a new analysis that weeded out site-specific costs that PNM and

B&V had identified and replaced those costs with substantially reduced generic

estimated costs that in most respects were derived from the Cost Manual.

In light of the enormous gulf between EPA and B&V’s cost estimates, PNM

engaged Sargent & Lundy (“S&L”) to assess the accuracy of the B&V estimate.

S&L did so by conducting an even more detailed analysis of the SJGS site and

developing engineering specifications for SCR installation there. In a July 20,

2011 report submitted to EPA while its BART FIP rulemaking was pending, S&L

10 PNM’s comments showed that EPA failed to account for, or substantially underestimated, costs associated with auxiliary power upgrades needed to operate the SCRs, modifications to protect the air preheater, boiler stiffening to prevent explosions and to ensure compliance with applicable codes, installation of initial catalyst layers, installation of a necessary sorbent injection system, additional steel requirements due to site congestion at SJGS, a needed SCR-bypass system, and annual operating costs. PNM Comments at 29-39, AR Doc. 38 (JA__-__). These legitimate cost items are based on a site-specific analysis that was far more comprehensive than EPA’s estimate, which, among other things, failed to reflect appropriately the congestion at SJGS and resulting challenges for SCR installation there. Id. at 39-45 (JA__-__).


20

confirmed that EPA’s cost estimate greatly understated expected SCR costs at San

Juan. Despite receiving this report before promulgating the Final Rule, EPA did

not include it in the rulemaking docket and did not acknowledge it in the Final

Rule or its supporting documents.11

The SCR cost estimates for SJGS contained in PNM’s comments are, thus,

supported by substantial evidence presented to EPA, both during and after the

comment period. See Small Refiner Lead Phase-Down Task Force v. EPA, 705

F.2d 506, 520 & n.32, 526, 544 (D.C. Cir. 1983) (the “arbitrary and capricious”

standard applicable under CAA § 307(d)(9), 42 U.S.C. § 7607(d)(9), incorporates a

requirement that, as to factual matters, Agency actions be supported by “substantial

evidence”). Because EPA’s cost assessment on which it based its Final Rule is not

supported by substantial evidence, the Final Rule is arbitrary and capricious.

EPA’s asserted reasons for adhering to its generic Cost Manual in the face of

uncontroverted site-specific evidence are unpersuasive. EPA states, for instance,

that reliance on the Cost Manual is appropriate, “…‘where possible,’ in order ‘to

maintain and improve consistency’” across BART determinations. EPA Br. at 66

11 EPA has never acknowledged – or challenged – the conclusions of the July 2011 report in this litigation, even though PNM discussed the report in its November 25, 2011 motion in this Court for a stay of the Final Rule and included it as Exhibit 13 to that motion. See Motion of Petitioner Public Service Company of New Mexico for Stay of Agency Rule at 16-17 & n.15 (Nov. 25, 2012) (“PNM Stay Motion”) & Exh. 13 thereto.


21

(quoting 70 Fed. Reg. at 39,166 (JA__)). But using the same BART costs for

different sources located across multiple states will not produce consistent results,

only arbitrary ones.12 Because control costs are not uniform, Congress would not

(and did not) mandate pursuit of an unwise and illusory “consistency.” Rather,

Congress unmistakably directed that BART determinations be based on case-by-

case, site-specific evaluation of costs in the real world. See Corn Growers, 291

F.3d at 6-7.

While the BART Guidelines recognize that appropriate reference to the Cost

Manual can promote consistency in BART determinations, the Guidelines make

clear that reliance on the Cost Manual is appropriate only “where possible” and,

indeed, that the Cost Manual is but one of a number of possible “reference[]

source[s].” 70 Fed. Reg. at 39,166 (JA__). As the BART Guidelines explain:

The basis for equipment cost estimates … should be documented, either with data supplied by an equipment vendor (i.e., budget estimates or bids) or by a referenced source (such as the OAQPS Control Cost Manual ….).

Id. (emphases added). Deviation from the Cost Manual is entirely appropriate, and

required, to account for site-specific cost considerations. Id. at n.15 (“You should

12 Environmental Intervenor-Respondents also insist that the BART Guidelines require a “standardized” cost assessment approach and suggest that the Guidelines “forbid” methodologies other than the Cost Manual. Envt’l Br. at 17. The Guidelines in fact require just the opposite – site-specific assessments based on individualized cost information.


22

include documentation for any additional information you used for the cost

calculations, including any information supplied by vendors that affects your

assumptions regarding purchased equipment costs, equipment life, replacement of

major components, and any other element of the calculation that differs from the

Control Cost Manual.”) (emphasis added) (JA__).13

In the face of the BART Guidelines’ plain statement that consideration of

costs often must include site-specific costs not accounted for in the Cost Manual,

EPA attempts to rationalize its disregard of these legitimate costs by relying on the

Guidelines’ statement that “documentation” should be included to support cost

considerations that differ from the Cost Manual. As PNM has explained, the PNM

site-specific cost estimates at SJGS are documented, but, in its Final Rule, EPA

announced, for the first time, a new level of purportedly required documentation in

order to justify ignoring the majority of these costs. PNM Opening Br. at 38-39.

13 EPA claims that “[u]nder the methodology of the Control Cost Manual, a price index is used to translate prices used in the 2002 edition [of the Cost Manual] when conducting analyses in later years. Each chapter of the Manual discloses the limitations of the costing information found in that chapter, allowing adjustments as deemed necessary.” EPA Br. at 67 n.10. On this basis, EPA implies the Cost Manual is not out-of-date and obsolete. Although the Manual provides that its cost estimates may be revised from time to time, the Manual has not been revised and remains outdated, failing (for example) to reflect recent cost increases, see, e.g., PNM Comments at 41, AR Doc. 38 (JA __), a point to which EPA does not respond. The Manual may still be valid for some applications but not for SJGS given its unique characteristics reflected in the site-specific analyses submitted to EPA in the rulemaking.


23

In its brief, EPA now claims the BART Guidelines compel this new

documentation standard. See EPA Br. at 66. That is not so. As PNM’s Opening

Brief notes (at 39), EPA’s documentation standard requires analyses comparable to

those that would be required to support complete engineering and actual

construction of SCR at SJGS. Such a standard is not called for in the BART

Guidelines. The Guidelines simply state that, to support non-Cost Manual cost

estimates, the BART-determining authority “should include documentation for any

additional information … used for the cost calculations, including any information

supplied by vendors that affects … assumptions regarding purchased equipment

costs, equipment life, replacement of major components, and any other element of

the calculation that differs from the Control Cost Manual.” 70 Fed. Reg. at 39,166

n.15 (JA__). PNM’s cost assessments plainly satisfied this requirement, a fact that

EPA does not refute, and EPA does not and cannot cite any statutory or regulatory

provision that required more.14

14 EPA’s brief contains the artfully worded statement that “EPA did not, strictly speaking, impose any documentation standard on PNM or its consultants.” EPA Br. at 67 (emphasis added). The relevant point is that, in promulgating the Final Rule, but not earlier than that, EPA in fact did hold PNM to an unreasonable standard, notice of which EPA had never given to PNM. See PNM Opening Br. at 38-39 & n.17. As PNM’s Opening Brief explains, it was not clear until the Final Rule that EPA viewed PNM’s cost documentation as lacking, and PNM was able to discern what might pass muster with the Agency only based on a few examples provided in EPA’s Response to Comments, issued after completion of the rulemaking. The opaqueness of EPA’s documentation standard, and EPA’s lack of notice, underscores the arbitrariness of the Final Rule.


24

EPA’s novel documentation standard is facially arbitrary. EPA notes, for

example, that in at least one instance, EPA accepted PNM’s assessment of

structural steel costs without highly specific documentation. EPA Br. at 68. More

important, EPA’s cost assessment itself deviates from the Cost Manual without

documentation in adopting a 30-year rather than a 20-year lifespan assumption for

SCR at SJGS, thereby artificially depressing EPA’s estimate of annualized SCR

costs. In its brief, EPA continues to assert incorrectly that the Cost Manual’s 20-

year lifespan assumption is merely a “calculation example,” EPA Br. at 70, failing

to respond to PNM’s demonstration to the contrary. PNM Opening Br. at 39-41.

Indeed, in EPA’s recently proposed regional haze rule for certain electric

generating facilities in Arizona, the Agency repeatedly states that, in assessing

costs for SCR, it relied on “the default 20-year amortization period in the EPA Cost

Control Manual.” 77 Fed. Reg. 42,834, 42,841, 42,854 (July 20, 2012) (emphasis

added); see also id. at 42,858, 42,861, 42,864. The “mere calculation example”

interpretation EPA presses in its brief is not only at odds with the language of the

Cost Manual itself, as PNM’s opening brief (at 40) demonstrates, but that

interpretation also cannot be squared with EPA’s own public acknowledgment that

20 years is the “default” period in the Cost Manual and cannot justify EPA’s

failure to explain its departure from that default period.


25

In contrast to PNM and New Mexico’s site-specific assessment, EPA’s use

of a 30-year lifespan, rather than the default 20-year period, is not based on site-

specific analysis. EPA simply cites lifespans for SCRs “installed in Europe in the

1980s” and for a smattering of other facilities. EPA Br. at 71. If, as EPA asserted,

PNM’s site-specific analysis is inadequate under EPA’s newly announced

documentation standard, EPA’s mere references to other facilities located

throughout the world must similarly fail. Finally, contrary to EPA’s assertion, id.,

EPA’s selection of a 30-year lifespan for SCR at SJGS did not go “unchallenged”

in the record. PNM’s comments on the Proposed Rule specifically challenged

EPA’s basis for using a 30-year lifespan at SJGS. PNM Comments at 43-44

(challenging EPA’s use of 30 years and noting its decision on this issue accounted

for over $15 million in cost underestimation), AR Doc. 38 (JA__-__).

In response to the new documentation standard revealed in EPA’s Final

Rule, PNM engaged S&L to provide a rigorous analysis of the costs PNM had

identified in the rulemaking. S&L provided a report describing its analysis, which

confirmed the validity of PNM’s earlier estimates, and PNM submitted this report

to EPA as part of its October 21, 2011 petition for reconsideration of the Final

Rule pursuant to CAA § 307(d)(7)(B), 42 U.S.C. § 7607(d)(7)(B). EPA argues

against consideration of this S&L analysis because it was conducted and submitted

after the rulemaking comment period. EPA Br. at 68.


26

Because EPA did not announce its documentation standard in its Proposed

Rule and (as PNM’s Opening Brief discusses) EPA gave PNM no indication

before it promulgated the Final Rule that EPA believed PNM had not adequately

documented its cost assessment, the S&L analysis (submitted to this Court as

Exhibit 6 to the PNM Stay Motion) was undertaken after the rulemaking. See also

Exhibit 13 to PNM Stay Motion (S&L’s July 20, 2011 report, submitted by PNM

to EPA during the rulemaking). PNM’s October 2011 submission to EPA

confirmed after further analysis the accuracy of PNM’s cost estimates that were in

the rulemaking record. Moreover, as EPA’s brief notes (at 68-69), PNM in May

2012 supplemented its October 2011 submission to EPA, providing SJGS-specific

SCR cost information from equipment-vendor bids. As described in a declaration

attached to that supplement, the four equipment-vendor bids that PNM received in

response to its request for proposals to install SCR at San Juan were comparable to

the SCR cost estimates PNM identified in its submissions during the rulemaking

and, again, far exceeded the estimated costs on which EPA based its Final Rule.

See 70 Fed. Reg. at 39,166 & n.15 (EPA’s BART Guidelines, expressly noting the

importance of “data supplied by an equipment vendor (i.e., budget estimates or

bids)”; “[y]ou should include … any information supplied by vendors that affects

your assumptions regarding purchased equipment costs”) (JA__).


27

In light of the fact that, as PNM’s comments plainly show, PNM objected to

EPA’s cost data and analysis in its rulemaking comments and PNM’s objections

are supported by substantial evidence in the rulemaking record, the Court need not

consider post-promulgation evidence that confirms rulemaking comments in order

to vacate the rule.

With respect to the issue of EPA’s announcement, in promulgating the Final

Rule, of a new cost-documentation standard, PNM’s CAA § 307(d)(7)(B) petition

for reconsideration remains pending before EPA.15 That petition argues that EPA’s

new standard deprived commenters of adequate notice, as required by CAA

§ 307(d)(3), 42 U.S.C. § 7607(d)(3). Having failed to provide adequate notice of

its purportedly applicable cost-documentation standard, EPA cannot indefinitely

delay an administrative response to PNM’s cost information that confirms PNM’s

rulemaking comments and meets the documentation standard announced in the

Final Rule.16 PNM respectfully suggests that, if the Final Rule is not vacated on

15 See 42 U.S.C. § 7607(d)(7)(B) (providing that, under circumstances applicable here, EPA “shall convene a proceeding for reconsideration,” and Agency “refus[al] to convene such a proceeding” is reviewable in the appropriate court of appeals); see CAA § 307(d)(1)(B), 42 U.S.C. § 7607(d)(1)(B) (section 307(d)’s requirements apply to EPA’s FIP rulemakings). Nearly a year has passed since PNM submitted its petition for reconsideration. EPA has not responded to the petition and has not told PNM when – or whether – it will. 16 Although no EPA official has responded to PNM’s petition for reconsideration, EPA’s brief critiques the October 2011 S&L analysis, arguing, for example, that the analysis “contemplates additional equipment such that [its] cost estimation is


28

the basis of objections raised in rulemaking comments and other information in the

rulemaking, PNM is entitled to judicial review based on its October 2011 petition

for reconsideration, its supplement thereto, and information provided with those

documents, and requests that the Court direct EPA to issue a final, reviewable

decision addressing PNM’s CAA § 307(d)(7)(B) petition.

B. EPA Failed To Assess Incremental Cost-Effectiveness as Required by the BART Guidelines.

The BART Guidelines provide that costs should, inter alia, be assessed on

an “incremental” basis, requiring “a comparison of the cost and performance level

of a control option to the next most stringent control method.” EPA Br. at 14; 70

Fed. Reg. at 39,167 (JA__). Because EPA’s BART analysis is not supported by

such an incremental-cost comparison, EPA’s BART determination is factually and

legally defective.

EPA incorrectly claims this flaw was not raised in rulemaking comments.

EPA Br. at 72. EPA’s failure to undertake an assessment was raised in comments

of the Utility Air Regulatory Group (“UARG”). AR Doc. 23 at 9 (JA__). The

comment stated that if EPA is to justify departure from the presumptive BART

not comparable to EPA’s cost estimation.” EPA Br. at 69. This circular criticism presupposes the validity and adequacy of EPA’s cost estimate, one of the issues sub judice; it ignores that BART cost estimates must reflect site-specific analysis and that S&L’s cost conclusions properly included costs of additional equipment because use of such equipment at SJGS is supported by site-specific analysis.


29

limit (here, 0.23 lb/mmBtu), it must conduct a full “five-factor BART analysis,”

beginning with “the least stringent control options” and examining “increasingly

stringent control options,” “assess[ing] incremental costs (and cost-effectiveness)

and any benefits of requiring more stringent controls.” Id. But, the commenter

continued, “EPA has not made that justification here with its improperly truncated

assessment of control technologies.” Id. Thus, contrary to EPA’s assertion, the

relevance of an assessment of incremental cost-effectiveness and EPA’s improper

failure to conduct it were both squarely raised in comments. This was plainly

“adequate notification of the general substance of the complaint.” S. Coast Air

Quality Mgmt. Dist. v. EPA, 472 F.3d 882, 891 (D.C. Cir. 2006), clarified on

denial of reh’g, 489 F.3d 1245 (D.C. Cir. 2007).

EPA argues (at 73) that the Proposed Rule did include an incremental cost

assessment, citing Tables 2 through 5, which merely listed incremental cost-

effectiveness calculations from PNM’s analysis. See 76 Fed. Reg. at 500-01

(JA__-___). EPA did not present its own analysis or even use these tables to

justify choosing one technology over another or otherwise explain any role

incremental cost-effectiveness played in EPA’s decisionmaking. See id. at 500-02

(JA__-__).

EPA argues “[t]he BART Guidelines do not require a narrative discussion of

incremental cost effectiveness.” EPA Br. at 74. Because the BART Guidelines


30

call for the assessment, the CAA and administrative law principles contemplate,

and require, an explanation of how the assessment was conducted and considered

by EPA in determining BART for SJGS. See CAA § 307(d)(3), (6)(A), 42 U.S.C.

§ 7607(d)(3), (6)(A). Indeed, as EPA concedes, “there is no reason to think this

measurement [was] of particular relevance to the outcome of the Final Rule.” EPA

Br. at 74. Exactly. No basis exists in the record to conclude that incremental cost-

effectiveness played any role in EPA’s decisionmaking because EPA failed to

consider or explain it in formulating and promulgating the Final Rule. EPA’s

failure to consider incremental costs was arbitrary and capricious. See, e.g., City of

Colorado Springs v. Solis, 589 F.3d 1121, 1131 (10th Cir. 2009) (agency action

must reflect “consideration of the relevant factors”) (citation omitted).

C. EPA’s Assessment of the Presumptive Limits Did Not Comply with the BART Rules.

EPA’s BART Guidelines establish a presumptive BART limit for NOx for

the SJGS units. That presumptive limit, adopted in the Code of Federal

Regulations as a product of EPA public notice-and-comment rulemaking, is 0.23

lb/mmBtu, see 70 Fed. Reg. at 39,172 Table 1 (JA__), whereas EPA’s Final Rule

establishes a far more stringent 0.05 lb/mmBtu limit for the SJGS units. EPA was

required to evaluate the applicable presumptive limit and provide a justification for

such a dramatic deviation from that limit.


31

EPA’s brief tries to downplay the significance of the presumptive limits,

saying that they were “based on a generic assessment” and that states can depart

from them. EPA Br. at 15. Certainly, a presumption is not irrebuttable, but a

presumption must be considered and departures from it must be explained and

supported. EPA’s Final Rule failed to address the presumptive limits applicable to

SJGS. That omission is fatal. EPA’s BART Guidelines make clear that departures

from the presumptive limits are allowed, but only “based on a careful consideration

of the statutory factors.” 70 Fed. Reg. at 39,171 (JA__). “Careful consideration”

requires, at a minimum, “consider[ing]” the presumptive limits. EPA failed to do

that, making its BART decision arbitrary and capricious.

Contrary to EPA’s suggestion, PNM does not argue that “the simple

adoption of the presumptive NOx emission limits” is compelled, and does not

dispute that BART determinations require site-specific “consideration of the

statutory [BART] factors.” EPA Br. at 60. PNM argues rather that EPA must

squarely address the presumptive limits, as they identify what an appropriate

BART determination is for particular facility types, before promulgating a BART

rule that departs from those limits. See 70 Fed. Reg. at 39,172 Table 1

(establishing a specific presumptive NOx BART limit for each of 11 different types

of boiler-fuel combinations) (JA__). While site-specific factors must be


32

considered,17 they must be considered in the context of deciding whether and to

what extent to depart from the presumptive limits. EPA arbitrarily and unlawfully

failed to do that here.18

D. EPA’s Reliance on Its Assessment of “Cumulative” Visibility Improvements Is Contrary to Law and Arbitrary.

As PNM’s opening brief explained, EPA’s Final Rule bases its BART

determination on an assessment of “cumulative” visibility improvements over a

number of Class I areas. In other words, EPA projected numerical visibility

improvements (attributed to SCR emission reductions at SJGS) at different Class I

areas located across a multi-state region and added these projected improvements

together to yield a large “improvement” that no location in any Class I area would

ever experience. EPA used this chimera of imaginary visibility gains to justify the

17 Contrary to EPA’s suggestion (at 63-64), PNM does not argue that steps in BART analyses may be “skipped.” Indeed, PNM challenges EPA’s BART determination, in part, on the basis that EPA “skipped” required elements of a proper BART analysis, including incremental cost-effectiveness assessment as discussed supra Argument III.B. 18 EPA argues that “[t]o accept PNM’s argument regarding presumptive limits (i.e., that the emission limit for SCR should be no less than the ‘presumptive’ level of 0.23 lb/MMBtu) would be to conclude that SCR should only be evaluated to operate at a fraction of its actual pollution-reducing capability.” EPA Br. at 62 (emphasis added). PNM never argued that SCR should be evaluated at the 0.23 lb/mmBtu presumptive-limit rate. Rather, PNM argued that in evaluating SCR, EPA must use an “achievable” emission rate, which, at SJGS, is not 0.05 lb/mmBtu. See infra Argument III.F.; 40 C.F.R. § 51.301 (BART must be “achievable” by the specific source for which BART is being determined).


33

extraordinarily high cost of SCR-based emission reductions at SJGS. EPA reliance

on this fiction is inconsistent with the BART Guidelines.

The BART Guidelines recognize that visibility improvement must be tied to

actual changes in visibility that can and will be perceived by people.19 The

maximum-impact-area methodology contained in the BART Guidelines, see 70

Fed. Reg. at 39,170 (JA__), in contrast to EPA’s “cumulative” impacts approach

used to justify the Final Rule, evaluates real-world visibility improvements.20

Because it relied on contrived, hypothetical visibility improvement projections

derived from a methodology not found in its BART Guidelines, EPA’s BART

determination is arbitrary and capricious. See, e.g., Los Angeles v. Dep’t of 19 EPA responds to a straw man by arguing against a supposed “PNM[] hypothesis that EPA could arbitrarily inflate the aggregate visibility improvement resulting from controlling emissions at a source by subdividing Class I areas into additional parks.” EPA Br. at 77-78 n.16. Of course PNM does not suggest EPA can actually create new national parks. Rather, PNM’s point is that EPA’s cumulative-impact assessment as used here is disconnected from any real measure of visibility improvement and is inherently artificial because it depends on the happenstance of Class I area boundaries. Visibility improvement is not “greater” because, for instance, smaller improvements happen to occur (in varying amounts) in several parks rather than at several locations in one or a few parks. 20 Environmental Intervenor-Respondents argue (at 28) that because the BART Guidelines allow consideration of the “magnitude” of visibility impacts, the Guidelines condone use of the cumulative methodology. See also EPA Br. at 78-79. But “magnitude” applies more readily to maximum impact. Intervenor-Respondents cite an EPA statement that cumulative impact may be considered “at the eligibility stage,” i.e., to determine whether sources are “subject to BART” at all, 70 Fed. Reg. at 39,107 (JA__), which is distinct from the BART-determination stage at issue here. Nothing in the Guidelines suggests BART determinations are properly based on accumulating impacts over multiple areas.


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Commerce, 307 F.3d 859, 874 (9th Cir. 2002) (“a decision is ‘considered arbitrary

and capricious’ if the agency relied on irrelevant factors”) (citation omitted).

E. EPA Arbitrarily Refused To Consider Visibility Modeling Results from the Most Recent Version of CALPUFF and To Use Real-World Ammonia Data in Its Modeling.

In its comments, PNM urged EPA to revise its proposed FIP after taking into

consideration visibility modeling results from the most recent version of

CALPUFF, the EPA-preferred model for projecting visibility impacts. EPA

instead relied exclusively on CALPUFF version 5.8, which has been outdated and

obsolete for years. More recent versions improve accuracy of projections and

incorporate corrections of identified flaws in CALPUFF’s software. The newer

versions have been vetted extensively, and the model’s developer has concluded

they are more accurate than the version EPA insisted on using.

EPA argues it “used the approved version of the model in accordance with

the appropriate procedures.” EPA Br. at 81 (quoting 76 Fed. Reg. at 52,432

(JA___)). EPA’s failure to approve more recent versions of CALPUFF for

regulatory use cannot shield EPA from being required to evaluate BART based on

the best available science. EPA routinely updates models pursuant to its


35

regulations (often without public notice-and-comment procedures),21 and EPA

presents no valid technical reason for not using the latest CALPUFF version.22

EPA’s modeling is also flawed due to its treatment of background ammonia

concentrations. In its modeling, EPA used what it called a “default” 1.0 part per

billion background ammonia value. 76 Fed. Reg. at 52,434 (JA__). PNM, WRAP,

and NMED instead used measured background ammonia concentrations, which

showed considerable variation over time. EPA’s assumption ignored reality, while

PNM, WRAP, and the state’s modeling were grounded in real-world

measurements. In PNM’s comments on the record, the CALPUFF model’s

developer concluded that PNM’s approach was more realistic than EPA’s default

value and that PNM’s approach remained conservative. See PNM Comments at

54, AR Doc. 38 (JA__). EPA’s only response here is that it “explained that

ammonia near ‘the source that is available to interact with the plume as it is

emitted is of greater concern for determining visibility impacts from the source due

to the atmospheric chemical reactions that occur as the pollutants and ammonia are 21 See, e.g., Robert Paine and David Heinold, UARG Comments to EPA Docket for 10th Modeling Conference, Doc. No. EPA-HQ-OAR-2012-0056-0030, at 9-10 (June 15, 2012) (available at www.regulations.gov) (significant modeling changes made without notice-and-comment). 22 PNM’s opening brief also argued it was arbitrary for EPA to use coarse-grid modeling. EPA claims (at 83) this argument should be ignored because PNM cited an affidavit. But PNM presented this argument in rulemaking comments, and it provides proper grounds for judicial relief from the Final Rule. PNM Comments, Attachment E at 2-3, 10, AR Doc. 38 (JA__-__, __).


36

transported together to a class I area,’” and that PNM did not “contest[] (or …

acknowledge[]) this explanation.” EPA Br. at 84 (quoting 76 Fed. Reg. at 52,434

(JA__). But PNM’s comments expressly took on this specific contention and

explained why EPA's approach is flawed. See PNM Comments, Attachment E at

11, AR Doc. 38 (JA__). EPA provided no adequate response.

F. The Record Does Not Support EPA’s Conclusion that a 0.05 lb/mmBtu NOx Limit Is Achievable at SJGS.

EPA’s Final Rule concludes that a 0.05 lb/mmBtu NOx emission rate is

achievable at SJGS using SCR. PNM maintained throughout the rulemaking that

such a limit is unprecedented for a retrofit and that SJGS cannot practicably meet

that limit on a continuous basis. See, e.g., CAA § 169A(b)(2)(A), 42 U.S.C.

§ 7491(b)(2)(A) (compliance must be “practicable”).

EPA responds by asserting this Court should ignore EPA’s past

determinations of what NOx limits are achievable as BART and PNM’s expert

analysis of whether 0.05 lb/mmBtu can be met at SJGS on a continuous basis,

including during startup, shutdown, and malfunction (“SSM”) conditions. See

EPA Br. at 84-87. But PNM’s objections were raised in its rulemaking comments

and are properly presented here.

EPA asserts that the CSAPR rulemaking, which included an EPA

determination that a 0.06 lb/mmBtu rate was the “floor” for retrofit NOx emission

limits, “did not purport to decide the lowest achievable NOx emission rate for SCR


37

at any specific facility, but rather is the ‘assumed’ rate used to model across many

types of coal-fired power plants.”23 Id. at 85. EPA’s characterization strains the

language EPA used in that rulemaking. Nevertheless, even assuming arguendo

this “floor” is generalized, the record demonstrates that SJGS is, if anything, less

likely than the average facility to be able to meet such a stringent limit. A proper,

site-specific BART analysis demonstrates that even a 0.06 lb/mmBtu limit is not

appropriate as an SCR-based NOx BART limit for SJGS, as demonstrated by New

Mexico’s conclusion as to the NOx emission rate (0.07 lb/mmBtu) SJGS could

achieve with SCR. See 76 Fed. Reg. at 503 (JA__).

Discussing PNM’s expert study by RMB, EPA claims the study contains

“some analytical errors” because a facility (Havana Unit 9) referenced in PNM’s

comments (AR Doc. 38 at 50, JA__) and in that study achieved a 0.05 lb/mmBtu

rate during an 18-month period. See EPA Br. at 86-87 (discussing RMB

Memorandum, at PNM Stay Motion Exh. 8). But EPA does not dispute the finding

that “there are a significant number of periods where the 30-day average exceeds

0.05 lb/mmBtu, which suggests that the unit would not be able to consistently

demonstrate compliance with a FIP-equivalent limit.” Id. (quoting RMB

Memorandum at 7). EPA appears to misapprehend the meaning of “achievable” in

23 Although the D.C. Circuit in Homer City vacated CSAPR, it had no occasion to address this aspect of CSAPR.


38

the BART rules. It is not sufficient that a facility meet the stated limit some or

even most of the time. Particularly where, as here, EPA requires that the limit be

met even during SSM periods, facilities must meet it all of the time.

EPA also disputes PNM’s argument that EPA’s rulemaking actions for

North Dakota and South Dakota indicate that 0.05 lb/mmBtu is unachievable.24 In

those rulemakings, EPA assumed a 0.05 lb/mmBtu limit when modeling SCR, but

then concluded that higher emission rates were required to allow an adequate

margin of compliance. EPA claims SJGS was afforded a similar margin through

the FIP’s adoption of a 30-day “boiler operating day” (“BOD”) averaging

technique. EPA Br. at 90-91. But “a 30-day rolling average” using “BOD” is,

under EPA’s BART Guidelines, required in the ordinary course for BART limits

for electric generating facilities, 70 Fed. Reg. at 39,172 (JA__); it is not a means of

providing a “sufficient margin of compliance.”25 EPA Br. at 91.

24 EPA claims that PNM’s citation of what EPA has determined to be achievable at other facilities is unavailing because it is “inconsistent with the BART Guidelines, which require that a BART analysis be performed on an individual basis.” EPA Br. at 92. Site-specific analysis counters EPA’s conclusion that SJGS can achieve 0.05 lb/mmBtu continuously, and it is appropriate for PNM to further support its position by reference to other facilities’ limits that have been determined to be achievable or unachievable. 25 Environmental Intervenor-Respondents suggest that PNM commented that BOD-based averaging would “adequately account for SSM periods.” Envt’l Br. at 31. PNM made no such comment. See PNM Comments at 50, AR Doc. 38 (JA__).


39

G. EPA’s Failure To Allow Plantwide Averaging Is Arbitrary.

EPA’s BART Guidelines expressly state that the BART-determining

authority “should consider allowing sources to ‘average’ emissions across any set

of BART-eligible emission units within a fenceline, so long as the emission

reductions from each pollutant being controlled for BART would be equal to those

reductions that would be obtained by simply controlling each of the BART-eligible

units.” 70 Fed. Reg. at 39,172 (JA__). PNM’s comments argued that EPA failed

to, but should, allow plantwide averaging for BART compliance at SJGS.

EPA stated that it considered plantwide averaging but that its decision to use

BOD averaging “add[ed] … complexity” to a plantwide average calculation. 76

Fed. Reg. at 52,405 (JA__). EPA’s brief tacitly acknowledges that the BART

Guidelines call for consideration of both plantwide and BOD averaging. EPA Br.

at 95; see 70 Fed. Reg. at 39,172 (JA__). EPA nevertheless argues it lacked time

to address the complexity introduced by combining BOD and plantwide averaging

and that it was therefore appropriate to disallow plantwide averaging, at least until

“presented with the opportunity to consider plantwide averaging in the future.”

EPA Br. at 95.

Because EPA’s BART Guidelines both require BOD in 30-day averaging

and indicate plantwide averaging “should” be considered, EPA had no basis for

claiming surprise over this issue. EPA should have been prepared to resolve any


40

complexities introduced by combining these two averaging conventions from the

time it drafted its Proposed Rule. Considering that EPA promulgated its BART

Guidelines with these provisions years before its SJGS BART rulemaking, EPA

has no excuse for its failure to have addressed this issue.

As discussed above, EPA had no obligation to promulgate a BART FIP

when it did. EPA thus had time to resolve this and all other issues that were

presented in rulemaking comments before taking any final action on a BART FIP.

EPA’s failure to do so illustrates that its decision to impose its BART FIP when it

did was unlawful and arbitrary.

CONCLUSION

For the foregoing reasons and those stated in PNM’s opening brief and

NMED’s briefs, EPA’s Final Rule should be vacated.

/s/Richard L. Alvidrez

Respectfully submitted,

/s/Norman W. Fichthorn Richard L. Alvidrez Henry V. Nickel MILLER STRATVERT P.A. Norman W. Fichthorn 500 Marquette, Suite 1100 HUNTON & WILLIAMS LLP P.O. Box 25687 Albuquerque, NM 87125

2200 Pennsylvania Ave., N.W. Washington, DC 20037

(505) 842-1950 Email: [email protected]

(202) 955-1500 Email: [email protected] Email: [email protected]

Counsel for Public Service Company of New Mexico

Counsel for Public Service Company of New Mexico


41

/s/Patrick V. Apodaca Date: September 14, 2012

Patrick V. Apodaca Senior Vice President, General Counsel and Secretary Public Service Company of New Mexico 414 Silver Ave., S.W., MS 1200 Albuquerque, NM 87158 (505) 241-2700 Email: [email protected]


CERTIFICATE OF COMPLIANCE

I hereby certify, pursuant to Fed. R. App. P. 32(a)(7)(C) and Circuit

Rule 32(b), that this brief contains 9,977 words as counted by a word

processing system that includes headings, footnotes, quotations, and

citations in the count, and excluding the parts of the brief exempted by Fed.

R. App. P. 32(a)(7)(B)(iii), and therefore is within the 10,000-word limit set

by Order of this Court dated March 23, 2012.

/s/ Norman W. Fichthorn Norman W. Fichthorn HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., N.W. Washington, DC 20037 (202) 955-1500 Email: [email protected]


CERTIFICATE OF DIGITAL SUBMISSION AND PRIVACY REDACTIONS

The undersigned certifies that: (1) All required privacy redactions have been made; (2) The hard copies of this filing to be submitted to the Clerk’s office

will be exact copies of the ECF filing; and (3) This digital submission was scanned for viruses with McAfee

Virus Scan Enterprise 8.7i, version 6835, which was last updated on September 14, 2012. According to this program, this submission is free of viruses.

Dated: September 14, 2012



CERTIFICATE OF SERVICE

I hereby certify that on this 14th day of September, 2012 (in the time

zone of the principal office of the Clerk of the U.S. Court of Appeals for the

Tenth Circuit, Fed. R. App. P. 26(a)(4)(B)), the foregoing Reply Brief of

Petitioner in No. 11-9557, Public Service Company of New Mexico, was

served electronically on all counsel of record through the Court’s CM/ECF

system.



Documents

PNM Reply Brief Tenth Cir€¦ · Public Service Company of New Mexico Richard L. Alvidrez Miller Stratvert P.A. 500 Marquette, Suite 1100 Albuquerque, NM 87125 (505) 842-1950 Counsel