Energy Law Alert: Legal Challenge to Avenal Energy Project's PSD Permit Filed with the Ninth Circuit

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On November 3, 2011, the proposed Avenal Energy Project, a 600-megawatt natural gas-fired power plant proposed in the city of Avenal near Kettleman City in Kings County, California, encountered another legal challenge to providing electricity to the southern San Joaquin Valley. Sierra Club, Center for Biological Diversity, and Greenaction for Health and Environmental Justice challenged the Environmental Protection Agency's issuance of a Prevention of Significant Deterioration ("PSD") permit for the Avenal project via a Petition for Review filed with the Ninth Circuit Court of Appeals pursuant to section 307(b)(1) of the federal Clean Air Act ("CAA"). This is just the most recent turn of litigation activity involving the project. Avenal's PSD permit has long been the subject of review and legal challenges. Among other claims raised to the Ninth Circuit, the Petitioners argue that the PSD permit impermissibly fails to address the recently adopted PSD requirements for greenhouse gas emissions.

Project proponents originally filed the PSD permit application with EPA Region IX in February 2008. Unlike in most parts of the country, EPA still issues PSD permits for major new sources proposed for construction in San Joaquin Valley. EPA deemed Avenal's application complete in March 2008 but had not yet issued a decision on the application in 2010. In the meantime, EPA adopted new short-term national standards for nitrogen dioxide and sulfur dioxide, as well as new rules requiring PSD review for greenhouse gases. When EPA suggested that the pending application needed to be revised to address the new requirements, Avenal brought suit against EPA for violating section 165(c) of the CAA, which requires EPA to grant or deny specified permits (including PSD permits) no later than one year after the filing of a "complete" PSD application.

On May 26, 2011, the United States District Court for the District of Columbia ruled in favor of Avenal, holding that once EPA deems an application for a PSD permit complete, the Administrator must issue a final decision within the one-year statutory period. The court ordered that EPA issue a final and unappealable permit by August 27, 2011. While few projects have facts that allow them to directly benefit from the Avenal decision, the case sends a clear warning to permitting authorities that delay in acting on complete PSD permit applications, and may encourage foot dragging by agencies to determine applications complete. A typical agency reaction upon receiving a PSD application is to ask for more information and defer a completeness determination. That pattern will likely continue in order to prevent the one-year clock from ticking.

On May 27, 2011, EPA issued Avenal's PSD permit, grandfathering the project from new requirements adopted after the initial PSD permit application was filed in March 2008. EPA "determined that it is not appropriate or equitable under the circumstances present here to require this permit applicant to meet certain recently promulgated requirements that have taken effect while EPA has been in the process of reviewing this application. EPA believes it is authorized to issue a PSD permit to this applicant without requiring a demonstration that the source will not cause or contribute to a violation of the nitrogen dioxide (NO2) or sulfur dioxide (SO2) NAAQS for the one-hour averaging time or a showing that this source will meet the BACT requirement for greenhouse gases." In response to that conclusion, the Petitioners challenged Avenal's PSD permit before EPA's Environmental Appeals Board ("EAB") in June 2011. On August 18, 2011, the EAB formally denied review of the PSD permit, and EPA issued the final permit on August 26, 2011.

The ongoing litigation involving Avenal's PSD permit could impact how EPA and local air permitting authorities handle existing and future PSD permit applications, at a point in time when the number of PSD permit applications are increasing. It will be very interesting to see whether the Ninth Circuit decides that it has jurisdiction to hear this most recent appeal of the Avenal project permit. If the Ninth Circuit were to issue an opinion at odds with the D.C. District Court decision, a lively dispute could arise that could further shake the outdated structure of the PSD program.

If you have any questions about the issues raised in this alert, please contact a key contributor.

Key Contributors

Melissa A. Foster
Krista K. McIntyre
Thomas R. Wood
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