Barg Coffin Lewis & Trapp, LLP Articles

This article first appeared in the June 2001 issue of Matthew Bender's CALIFORNIA ENVIRONMENTAL LAW REPORTER. The article is reprinted here with the publisher's permission.

June 2001

Clean Air Act Section 110(f) and the California Energy Crisis of Summer 2001

By Brian S. Haughton and Brett S. Henrikson¹

Introduction

Spring of 2001 brought new language - the language of a pervasive and enduring energy crisis - into common parlance across California. "Rolling blackouts," until recently a theoretical threat, became everyday experience. "What's your outage block?" replaced "what's your sign?" and the "Independent System Operator" or "ISO," once a semi-anonymous bureaucratic backwater, became the rock and roll star of governmental agencies. By now, a person would have to have been in a constant blackout not to know that "one megawatt" translates to "enough to power a thousand homes," and a "stage three alert" means available electricity reserves have dropped below 1.5 percent of demand.

While throngs of news reporters deluged the ISO's Folsom headquarters for daily updates, politicians scurried about Sacramento in search of solutions and scapegoats (not necessarily in that order). Temperatures, natural gas prices and electricity rates soared, and seasonal precipitation levels - which correlate to hydroelectric-power-generating capacity - plummeted. One energy utility filed for bankruptcy, and another teetered on the brink.

All of this was only a prelude to summer, the traditional season of highest energy demand in California, with millions of people living in areas where air conditioning is often more of a necessity than a luxury when school's out. Although power plants were being planned and built at a rate unseen in decades, not enough of them would come on line in time to avert a deepening energy crisis through June, July, August and September. The first new plants were not scheduled to go into service until July 1, and they would still leave the state 3,368 megawatts shy of Governor Davis' goal for that date.² The additional 1,971 megawatts projected by September 1 would reduce that shortfall to 1,397 megawatts, i.e. (all together now), enough to power nearly 1.4 million homes.³

Still more power is projected to come on line thereafter. Whether or not these projections are reliable is not the subject of this article. Instead, this article focuses on the summer crisis. Many existing power plants have excess capacity that could alleviate it. They are prohibited from using that capacity by limitations imposed under the federal Clean Air Act. 42 U.S.C. §§ 7401 et seq. ("CAA" §§ 101 et seq.). However, the Clean Air Act has a little-publicized provision authorizing suspension of those limitations for a period of up to four months during a "regional energy emergency." CAA § 110(f), 42 U.S.C. §7410(f). The purpose of this article is to explain section 110(f) and how it could be invoked - but not to debate whether it should be invoked - during the summer of 2001.

Background on the Energy Crisis of Summer 2001

Many cite the deregulation of California's electrical power industry as a key factor causing the crisis. Deregulation started with a December 1995 California Public Utilities Commission ("PUC") decision requiring utilities to apply to the Federal Energy Regulatory Commission ("FERC") to establish the ISO and transfer control of the transmission grid to it. The PUC decision also called for the establishment of a "Power Exchange" ("PX") to create an unregulated market for wholesale electricity. Finally, the PUC required the utilities to divest themselves of at least 50 percent - with incentives to divest more - of their fossil-fueled power generation assets.⁴

In August 1996, the California Legislature passed AB 1890 (Brulte) without a dissenting vote, and then-Governor Wilson signed the bill into law on September 23, 1996.⁵ The new law ratified the PUC plan and authorized non-discriminatory access to the ISO-controlled grid by the expected new wave of unregulated electricity generator/wholesalers.⁶ Freeing up the wholesale market while leaving retail prices subject to the slower - and sometimes politicized - process of rate regulation by the PUC seemed like a good idea at the time because the market was expected to increase supply and decrease prices.⁷

Those expectations have not yet come to fruition. Prior to deregulation, wholesale prices fell below 1 cent per kilowatt hour.⁸ By 1999 the average price had risen to 3.5 cents; in 2000 the average was 30 cents, with peak prices reaching $1.50, and on May 9, 2001, the spot price hit $2.00.⁹ Many factors contributed to the price spiral, not least of which were natural gas prices, which shot up 20-fold over the 1999-2000 time period.¹⁰ Natural gas, the fuel for many of California's electricity generation facilities, was deregulated during the first Bush administration in 1992.¹¹

Nor has supply increased as expected. The first new major power plant in California since deregulation will not go on line until July 1, 2001.¹² The projected flood of competitors has not yet materialized. At the same time, demand has increased. Just as deregulation was implemented, California's economy was rebounding from a recession, driving an increase in peak power demand equivalent to two major power plants per year.¹³ Increased demand caused existing plants - some of which are quite old - to be driven hard, leading to maintenance shutdowns and output constraints caused by limits imposed under the Clean Air Act.¹⁴ Supply was also constricted because some of the 20 percent of California's power that is imported across state lines was siphoned off to serve rising demand in rapid-growth areas such as Phoenix and Las Vegas.¹⁵ Finally, supply tightened because the utilities - barred by retail price regulation from passing along skyrocketing wholesale costs - were racking up shockingly large debts, and generators began to balk at extending further credit.¹⁶

These forces combined to compromise system reliability. The ISO declared the first-ever stage three alert on December 7, 2000,¹⁷ and the rolling blackouts started on January 17, 2001,¹⁸ leading Governor Davis to issue a proclamation of a state-wide energy emergency later that day.

Appeals were made to the Governor to relax air pollution limits to ameliorate the crisis.¹⁹ He agreed, and issued Executive Orders D-24-01 (on February 8) and D-28-01 (on March 7), directing local air pollution control and air quality management districts to modify air quality permits to eliminate limits on the number of hours power generation facilities can operate. This addressed generators' concerns about state enforcement. However, many of the subject permits and their hours limits were promulgated under Title V of the federal Clean Air Act, leaving generators vulnerable to federal enforcement as well.

On February 8, the Governor wrote to President Bush, requesting "assistance to expedite permitting by all appropriate federal agencies during this emergency," and identifying the U.S. Environmental Protection Agency ("USEPA") among the agencies in question. However, Governor Davis conspicuously (and, later correspondence revealed, intentionally) omitted to ask the President to invoke section 110(f) of the Clean Air Act, which was designed to provide short-term relief from federal requirements during regional energy crises. Meanwhile, the clock ticked on toward summer, when California's energy demand was projected to increase to 45,000 megawatts, as compared with 32,000 megawatts during the winter.²⁰

Before delving into the details of section 110(f), we will briefly summarize background elements of the Clean Air Act.

Background Elements of the Clean Air Act

The Clean Air Act allocates the "primary responsibility" for air pollution control to state and local governments. CAA § 101(a)(3); 42 U.S.C. § 7401(a)(3). State and local authorities carry out this responsibility in accordance with the State Implementation Plan (SIP). A SIP must be adopted by each state and must be approved by the EPA Administrator after notice and public comment. Once approved, the elements of each state's SIP are identified in Title 40 of the Code of Federal Regulations, Part 52 and are federally enforceable.²¹ CAA § 113; 42 U.S.C. § 7413.

To be approved, a SIP must designate the pollution control strategies and measures that the state will use to implement, maintain, and enforce national ambient air quality standards. See, CAA § 110; 42 U.S.C. § 7410. The required scope of SIPs is broad and includes establishing and enforcing emissions limitations, monitoring and reporting air quality, permitting of new and modified sources, and monitoring emissions from individual sources. CAA § 110(a)(2); 42 U.S.C. § 7410(a)(2).

In California, the legislature has delegated primary responsibility for regulation of stationary sources to local air pollution control and air quality management districts ("Districts"). See H&S Code §§ 39001, 39002, 40000. These Districts establish the air pollution rules and regulations that comprise the California SIP. District rules may be more stringent than required by the federal Clean Air Act.

One of the Districts' responsibilities relevant to the energy crisis is the permitting of major stationary sources that generate electric power. Title V of the 1990 Clean Air Act Amendments established an extensive permitting system that encompassed a broad range of previously unregulated sources. Each permit contains emissions limitations for particular pollutants in accordance with federal, state and District air quality requirements. See, BAAQMD Rule 2-6-409. Permits may also specify the types of fuel that a source may utilize and limit the number of hours that a source may operate. See, BAAQMD Rules 9-11 and 9-9-302. Violations of all permit conditions - including those based on federal, state and District requirements - are enforceable by the District. Permit conditions derived from federal requirements, including the SIP, are also enforceable by the federal government and, absent state or federal governmental enforcement, by private parties under the Clean Air Act's citizen suit provision. CAA §§ 113, 304, 502; 42 U.S.C. §§ 7413, 7604, 7661a.

Section 110(f) of the Clean Air Act

In the event of a national or regional energy emergency, section 110(f) authorizes relief from any portion of the applicable SIP, but only after discretionary approvals have been obtained from both the state's Governor and the President. CAA § 110(f); 42 U.S.C. § 7410(f).

The statute prescribes several conditions that must be met before a temporary suspension of the relevant portions of the SIP may be granted. First, the power generator must apply to the Governor for the suspension. Second, the Governor must provide notice and opportunity for a public hearing before making a decision. Third, the Governor must then find that (A) there exists "a temporary energy emergency involving high levels of unemployment or loss of necessary energy supplies for residential dwellings" and (B) such unemployment or loss can be alleviated by the suspension.²²

Fourth, upon making these findings, the Governor must petition the President to determine that (1) an emergency exists, (2) the emergency may necessitate a temporary suspension of part of a SIP and (3) other responses to the emergency may be inadequate. Fifth, the President - and only the President (the decision is expressly non-delegable) - must make these determinations. Finally, once the President has acted, the Governor must issue the temporary suspension.

The suspension takes effect immediately upon issuance and may remain in effect for a maximum of four months. Only one temporary emergency suspension may be issued for any source "on the basis of the same set of circumstances or on the basis of the same emergency." CAA § 110(f)(2); 42 U.S.C. § 7410(f)(2).

The EPA Administrator may disapprove and terminate a suspension at any time if she disagrees with the Governor's requisite findings. Section 307(a) grants EPA subpoena powers over witnesses and documents for purposes of determining whether or not an energy emergency exists.

During a suspension issued under section 110(f), covered power plants are exempt from noncompliance penalties where the plant's failure to comply is due solely to the conditions by reason of which the suspension was authorized. CAA § 120 (a)(2)(B)(v); 42 U.S.C. § 7420(a)(2)(B)(v). This exemption applies as long as the Administrator does not disapprove the suspension. 40 CFR § 66.31(a)(5).

Only one suspension - in Florida, from March through June in 1979 - has been issued pursuant to section 110(f).²³ Hence, it is not surprising that there is no case law interpreting the statute. Therefore, we turn instead to the legislative history and EPA guidance for further explanation of section 110(f).

Legislative History of Section 110(f)

Section 110(f) was added by the 1977 Clean Air Act Amendments as a result of the energy emergency during the winter of 1977. Pub. L. 95-95 § 107 (Aug. 7,1977). Crippling cold weather combined with a natural gas shortage to wreak havoc: "The severe winter of 1977 caused harsh energy and employment repercussions. In some regions of the country, certain types of fuel were over-consumed and supplies were depleted. As a result, some industries were forced to contract work hours or stop production entirely for a period of time." H.Rep. 95-294.²⁴

The original House bill envisioned a quick process for obtaining SIP suspensions. The bill would have authorized the Governor to suspend the SIP immediately after holding a public hearing and making requisite findings. The President was not to be involved in the Process. See, H.R. 6161 (passed by the House on May 26, 1977). The requisite findings were that the "emergency involves actual or potential high levels of unemployment or loss of energy supplies for residential dwellings." H.R. 6161. Committee reports indicated that the public hearing was to be informal, that a causal connection was required between the economic or energy conditions and the need for a SIP suspension, and that suspensions would be granted "judiciously" and only in cases of "substantial hardship." H. Rep. 95-294.

The Senate, apparently leery of the House's proposed broad grant of power to the Governors, imposed amendments requiring the Governor to petition the President and conditioning relief on the President's finding of an emergency. H. Conf. Rep. 95-564. The joint conference committee also added the provision granting the Administrator authority to disapprove the suspension. Ibid.

EPA Guidance on Section 110(f)

EPA has issued three guidance memoranda on section 110(f).²⁵

The first memorandum, dated March 6, 1979, provides an active role to be played by EPA's Regional Offices and underscores the vigilance with which EPA will seek to limit the scope and duration of SIP suspensions. Then-EPA Administrator Douglas Costle delegated his disapproval authority to the Regional Administrators. Administrator Costle also directed the Regional Offices to participate in the public hearings in order to ensure that public health impacts of alternative mitigation measures are considered and that the scope of the suspension be as narrow in time and area as possible.

EPA's guidance documents also provide considerable detail regarding EPA's oversight of the Governor's fact-finding process and make clear that any SIP suspension will be disapproved if that process is found wanting. Findings must be made with respect to each source to be covered by the suspension, and, though recognizing the public will likely receive less than a week's notice prior to a hearing, EPA requires extensive pre-hearing data-gathering to support the findings.²⁶ The public hearing should cover:

the nature and extent of the energy emergency
current and projected unemployment impacts associated with the energy emergency;
current and protected loss of necessary energy supplies for residential use associated with the energy emergency;
alternative strategies for reducing the adverse impacts of the energy emergency and the consequences of these strategies on unemployment and on residential energy supply;
the amount of energy savings expected to result from temporary suspension of portions of the SIP;
to the extent possible, pollutant emission levels both before and after the proposed temporary suspension of portions of the SIP; and
to the extent possible, preliminary assessment of the air quality and health effect impacts of the proposed temporary suspension of portions of the SIP.

If the Governor does petition the President after the public hearing, EPA will recommend to the President that any emergency declaration be conditioned on the Governor mandating conservation measures by the covered sources and affected area. If such conservation measures alone would be adequate, EPA will conclude that an emergency declaration would be inappropriate. EPA will also recommend to the President that "emergency declarations be as precise as possible, especially as to the area affected, to allow both an adequate response to true emergencies and an adequate opportunity to reevaluate the situation as events develop."

If a suspension is granted, the Regional Offices are required to monitor the affected sources and the underlying conditions giving rise the emergency, with an eye to disapproving the suspension with respect to sources that no longer qualify for relief. Regional Offices must also closely monitor air quality and initiate emergency enforcement actions - notwithstanding the SIP suspension - if an imminent and substantial endangerment to public health or welfare arises. CAA § 303; 42 U.S.C. § 7603.

Finally, EPA has clarified that, although section 110(f) speaks to the suspension of SIP provisions, such suspensions must be read to also suspend those portions of Title V permits that incorporate the suspended SIP provisions:

The EPA does not believe it is reasonable for the Title V permit program to restrict the operation of [the § 110(f) and § 112(i)(4) ] emergency waiver provisions. For example, where the President has made a finding under section 110(f) that it is necessary to suspend a part of a SIP because of a national emergency, requiring all the permits that implement the suspended SIP provisions to go through a time consuming reopening procedure would defeat the urgency of the President's finding. Therefore, the EPA will interpret such provisions to allow a waiver not only of the applicable requirement under the Act, but also as it appears in any permit implementing the requirement. Obviously, the waiver of the requirement as it appears in the permit will be coextensive with the waiver of the underlying applicable requirement in the Act, and will only be effective after the underlying requirement has been waived according to the procedural requirements of the Act.²⁷

Conclusion

Section 110(f) affords a means to alleviate the energy crisis of the summer of 2001. Few would dispute the existence of the requisite regional energy emergency and the resulting "loss of necessary energy supplies for residential dwellings" which "can be … partially alleviated by" a SIP suspension. CAA § 110(f)(2); 42 U.S.C. § 7410(f)(2). Nor does it appear controversial that the "temporary suspension … may be necessary" to address California's energy crisis and "other means of responding to the energy emergency may be inadequate." CAA § 110(f)(1); 42 U.S.C. § 7410(f)(1).

On the other hand, whether the impacts on the environment are worth the extra kilowatts this summer is debatable, although views may change as the rolling blackouts mount. And though some may be shocked - shocked - that politics might be involved, the politics of the 2004 presidential election may have as much as anything to do with whether section 110(f) is invoked to smooth this bump in the deregulation road.

Endnotes

Mr. Haughton (bsh@bcltlaw.com) is a partner and Mr. Henrikson (bh2@bcltlaw.com)is an associate at the San Francisco law firm of Barg Coffin Lewis & Trapp, LLP (www.bcltlaw.com).
San Francisco Chronicle, May 9, 2001, pp. 1, 11.
Ibid.
“California’s Energy Story, A Chronology, 1976-2001,” produced by the Governor’s Office of Communications (Drew Mendelson, principal researcher and editor), with assistance from the Governor’s Office of Planning and Research, The California Public Utilities Commission and The California Energy Commission, April 12, 2001 (“California’s Energy Story”), p. 6.
Ibid.
Ibid.
“California Power Grid Is on Verge of Collapse,” Washington Post, December 8, 2000 (“Power Grid on Verge”).
“California’s Energy Story,” supra, n. 4, at pp. 4-5.
Id., at p. 7; “Power Rescue Plan Rests on Many ‘Ifs,’” Los Angeles Times, May 11, 2001.
“California’s Energy Story,” supra, n. 4, at p. 20.
Id., at p. 5.
“How State’s Consumers Lost With Electricity Deregulation,” Los Angeles Times, December 9, 2000 (“Consumers Lost”).
Ibid.
“Power Grid on Verge,” supra, n. 7.
“Consumers Lost,” supra, n. 12.
One of the utilities, Pacific Gas & Electric (“PG&E”), filed a Chapter 11 bankruptcy petition on April 6, 2001, claiming $9 billion in un-reimbursed wholesale energy costs. “Questions, Answers on Bankruptcy,” Los Angeles Times, April 7, 2001; http://www.pge.com/006_news/006a_news_rel/010406.shtml; http://www.pge.com/006_news/current_issues/reorganization/for_californians.shtml.
“Power Grid on Verge,” supra, n. 7.
“Blackouts Stem From Broad Mix of Reasons,” Los Angeles Times, January 19, 2001.
“Power Grid on Verge,” supra, n. 7.
Remarks of Governor Davis at a February 28, 2001 meeting in New York City with Wall Street analysts.
The California SIP is identified at Subpart F. 40 C.F.R. Part 52, Subpart F.
It is unclear from section 110(f) whether the Governor makes these findings before of after the President declares an emergency. The March 6, 1979 EPA guidance memorandum discussed below suggests the Governor should make the findings prior to petitioning the President.
See, EPA’s June 19, 1979 guidance memorandum, available at <http://es.epa.gov/oeca/ore/aed/comp/bcomp.html>.
“The harshest winter in decades held more than half of the United States in a choking grip last week, and brought with it a new and grave danger: a natural-gas crisis every bit as serious as the 1973 Arab oil embargo. More than a score of states suddenly faced severe shortages of the country's most pervasive single source of energy. The results were immediate and punishing. Each day, more factories, businesses and schools were forced to close because they could not run their equipment or heat their buildings. Each day, more and more workers were laid off, and millions of Americans worried that the gas to heat their homes might be cut off. In office barely a week, Jimmy Carter was confronted by the first major challenge of his new Administration.
“The combination of the chilling temperatures and the shortage of natural gas - which provides energy for half of the nation's homes and 40 per cent of its industries - was devastating. Every school in Pennsylvania was closed, and 400,000 workers were laid off in Ohio alone [in addition to the 340,000 in Pennsylvania, 275,000 in New Jersey, and 100,000 in New York]. Nationwide, more than 2 million were already out of work, and the total mounted every day. Throughout the eastern half of the country, thousands of factories were cut back to ‘plant protection’ gas levels (only enough fuel to prevent pipes from freezing) and had to shut down. Eight states - Pennsylvania, Ohio, Indiana Minnesota, Tennessee, Florida, New York and New Jersey - proclaimed states of emergency.” “Now, the Gas Crisis,” Newsweek, Feb. 7, 1977, at p. 14.
The EPA guidance memoranda are dated March 6, 1979, June 19, 1979, and January 10, 1980, and available at <http://es.epa.gov/oeca/ore/aed/comp/bcomp.html>.
The June 19, 1979 guidance memorandum sets forth a detailed list of information that the State and affected sources are expected to provide. Much of this information relates to shortages of conforming fuels.
Notice of Proposed Regulation, 56 Fed. Reg. 21712 (May 10, 1991).

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These materials are provided for information purposes only and are not intended as and cannot be considered legal advice. Before taking action based upon this information, you should consult your legal counsel.

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