COMMONWEALTH OF KENTUCKY FRANKLIN CIRCUIT COURT CIVIL ACTION NO. 06-CI-640 DIVISION II ***************************************

COMMONWEALTH OF KENTUCKY FRANKLIN CIRCUIT COURT CIVIL ACTION NO. 06-CI-640 DIVISION II SIERRA CLUB, VALLEY WATCH, INC., LESLIE BARRAS, HILARY LAMBERT, and ROGER BRUCKER PETITIONERS v. CABINET S RESPONSE BRIEF ENVIRONMENTAL AND PUBLIC PROTECTION CABINET RESPONDENT And THOROUGHBRED GENERATING CO., LLC INTERVENING-RESPONDENT *************************************** ENVIRONMENTAL AND PUBLIC PROTECTION CABINET Robin B. Thomerson Richard W. Bertelson, III Randall S. Royer Environmental Protection legal Division Fifth Floor, Capital Plaza Tower Frankfort, Kentucky 40601 Ph: (502) 564-5576 Fax: (502) 564-6131 COUNSEL FOR THE CABINET

TABLE OF CONTENTS TABLE OF AUTHORITIES... ii INTRODUCTION...1 BACKGROUND...1 STANDARD OF REVIEW...3 ARGUMENTS I. The Final Order of the Secretary meets the standard of review...7 A. The Order of the Secretary is well-considered and is not arbitrary...7 B. The Secretary applied the correct rule of law to the factual findings...8 II. The Final Order of the Secretary should be upheld as it relates to Best Available Control Technology...9 A. Overview...9 B. The Secretary was correct in upholding the permit BACT limitations for Sulfur Dioxide (SO 2 )...13 C. The Secretary was correct in upholding the permit BACT limitations for Nitrogen Oxides (NOx)...16 III. The Final Order of the Secretary should be upheld as it relates to the soils, vegetation and visibility analysis...18 A. The Secretary properly followed Kentucky Regulations regarding cumulative ambient concentrations...18 B. The Secretary was correct in finding Petitioners failed to show there was vegetation of significant commercial or recreational value...22 IV. The Final Order of the Secretary should be upheld as it relates to the National Ambient Air Quality Standards Analysis...24 V. The Secretary was correct in her determination regarding public participation...29 CONCLUSION...30 i

TABLE OF AUTHORITIES Cases Alaska Dept. of Environmental Conservation v. E.P.A., 540 U.S. 461, 1003 (2004)... 12 American Beauty Homes Corp. v. Louisville and Jefferson County Planning and Zoning Commission, Ky., 379 S.W.2d 450, 456 (1964)... 3 Appalachian Power Co. v. E.P.A., 249 F.3d 1032, 1037-38, 1052, 1054-55 (D.C. Cir. 2001)... 20, 21 Aubrey v. Office of the Attorney General, Ky.App, 994 S.W.2d 516, 518 (1999)... 4, 5 Bourbon County Board of Adjustment v. Currans, Ky.App, 873 S.W.2d 836, 838(1994)... 6 Bowling v. Natural Resources and Environmental Protection Cabinet, Ky.App, 891 S.W.2d 406, 409, 410... 4, 7 Brown Hotel Company v. Edwards, Ky., 365 S.W.2d 299, 302 (1963)... 4 Cardinal Bus Lines v. Consolidated Coach Corp., Ky., 72 S.W.2d 7, 11 (1934)... 27 Coleman v. Commonwealth, Ky.App., 2003 WL 1406070 at 5... 6 Commonwealth, Department of Education v. Commonwealth, Ky.App, 798 S.W.2d 464, 467 (1990)... 4 Delta Air Lines, Inc. v. Com., Revenue Cabinet, 689 S.W.2d 14, 20 (1985)... 5 H & S Hardware v. Cecil, Ky.App, 655 S.W.2d 38, 40 (1983)... 4 Hagan v. Farris, Ky., 807 S.W.2d 488, 490 (1991)... 5 Hall v. U.S. E.P.A., 33 Fed.Appx. 297, 299, 2002 WL 506104 (9th Cir)... 11 ii

Her Majesty The Queen in Right of Province of Ontario v. City of Detroit, 874 F.2d 332, 336 (6th Cir. 1989)... 11 International Harvester Co. v. Ruckelshaus, 478 F.2d 615, 629 (D.C. Cir. 1973)... 13 Kentucky Board of Nursing v. Elaine Ward, Ky.App., 890 S.W.2d 641, 642 (1995)... 3 McManus v. Kentucky Retirement Systems, Ky.App, 124 S.W.3d 454, 458 (2004)... 5, 6, 8 Molette v. Kentucky Personnel Board and Kentucky Transportation Cabinet, Ky.App, 997 S.W.2d 492, 496-497 (1999)... 9 Montana Power Co. v. U.S. E.P.A., 98 S.Ct. 40 (1977)... 12 Morgan v. Natural Resources and Environmental Protection Cabinet, Ky.App, 6 S.W.3d 833, 842 (1999)... 5 N. Plains Res. Council v. E.P.A., 645 F.2d 1349, 1351 (9th Cir. 1981)... 11 Natural Resources Defense Council v. E.P.A., 655 F.2d 318, 328 (D.C. Cir. 1981)... 13 Natural Resources Defense Council, Inc. v. Thomas, 838 F.2d 1224, 1236 (D.C. Cir. 1988)... 11 Perry v. Williamson, Ky., 824 S.W.2d 869, 874-75 (1992)... 26 Sierra Club v. Environmental Protection Agency, 540 F.2d 1114, 1123 (D.C. Cir. 1976)... 12 Taylor v. Coblin, Ky., 461 S.W.2d 78, 80 (1970)...4 Trimble Fiscal Court v. Snyder, Ky.App, 866 S.W.2d 24, 126 (1993)... 6 Statutes 42 U.S.C. 7401-7671q... 9 42 U.S.C. 7479(3)... 11 iii

KRS 224.10-100... 7 KRS 224.10-440(1)... 6 KRS Chapter 13A... 9, 19, 20, 30 Regulations 40 C.F.R. 51.166(q)(2)(iii)... 30 40 C.F.R. 60.45(D)(a)... 3 40 C.F.R. Parts 60, 61, 63... 10 401 KAR 100:010... 6, 14, 16 401 KAR 100:010 13(9)... 8, 23, 25 401 KAR 100:010 3(1)(b)... 9 401 KAR 51:001 1(25)... 10 401 KAR 51:017... 9, 17, 25, 30 401 KAR 51:017 1(8)... 10, 11, 15 401 KAR 51:017 10... 24, 25 401 KAR 51:017 14(1)... 18, 24 401 KAR 52:020 12... 14 401 KAR 52:100 5(10)... 29 401 KAR Chapters 57, 59, 60, 63... 10 70 Fed. Reg. 28,606 (May 18, 2005)...3 Administrative Decisions In re: Hadson Power 14 - Buena Vista, 4 E.A.D. 258, 272, (E.A.B. 1992)... 30 Other Authorities 32 Envtl. L. Rep. 20,570... 11 iv

INTRODUCTION This case is before the Court upon Petitioners challenge to the Final Order of the Secretary of the Environmental and Public Protection Cabinet (hereinafter Cabinet ) issued on April 11, 2006, in the administrative case of Sierra Club et al. v. Environmental and Public Protection Cabinet and Thoroughbred Generating Company, LLC File No. DAQ-26003-037 and DAQ-26048-037. Cabinet s Appendix ( Cab. App. ), Tab 1. Petitioners initial Complaint included nine (9) counts. However, in their Opening Brief, Petitioners addressed only Counts 1 ( Failure to Comply With [best available control technology] BACT Requirements ), 2 ( Failure to Protect Air Quality Standards ), 4 ( Failure to Assess Impacts to Soils, Vegetation and Visibility ), and 8 ( Failure to Provide Public Notice [regarding Class I increment consumption] ). Petitioners voluntarily dismissed all other counts, citing the constraints of judicial review. Petitioners Brief, p. 14, fn. 10. The Cabinet herein files its Response to Petitioners Opening Brief. Based on the voluntary dismissal in their Opening Brief, the Cabinet s Response Brief addresses only those issues Petitioners did not dismiss. BACKGROUND The Title V/Prevention of Significant Deterioration ( PSD ) permit, which is the subject of this case, was issued by the Cabinet s Division for Air Quality ( DAQ ) on October 11, 2002. 1 The Petitioners filed their initial Petition for Administrative Hearing on November 11, 1 There are four (4) revisions of the original October 11, 2002 permit. The original permit was subject to a minor revision, which was issued on December 6, 2002 (Revision #1). During the formal administrative hearing the evidence demonstrated that the permit contained some minor typographical errors, that portions of the permit language were not sufficiently clear, and that the permit did not specify that the particulate matter ( PM ) limit included both condensable and filterable particulate. On July 8, 2004, Thoroughbred filed an administrative amendment to correct those issues, and the permit was revised in accordance with that administrative amendment on February 17, 2005 (Revision #2). The permit was further revised on April 14, 2006, in order to incorporate the changes required by the Secretary in her Final Order (Revision #3). Finally, the Cabinet voluntarily revised the permit on May 10, 2006, in response to the Petitioners request to correct a typographical error which had resulted in the inadvertent omission of the lead emission limitation contained in previous versions of the permit (Revision #4). 1

2002. Following ten months of discovery, the formal administrative hearing took place over seventy-three (73) days, beginning on November 3, 2003, and concluding with the parties final arguments on June 24, 2004. On April 12, 2004, the Hearing Officer issued an Order granting Respondent Thoroughbred s Motion for Directed Recommendation on three of Petitioners counts relating to protection of air quality standards, protection of visibility impacts on Mammoth Cave National Park and coordination with federal agencies. Cab. App., Tab 2. Following the formal hearing, the parties filed post-hearing briefs, concluding with the Petitioners filing of a 722-page Reply Brief on December 20, 2004. 2 Following deliberation, the Hearing Officer issued her Report and Recommended Order on August 9, 2005, recommending that the Secretary remand the permit to reconsider the ecological risk from certain toxic emissions from the facility; the impact to soils, vegetation, and visibility; the BACT determinations for sulfur dioxide ( SO 2 ) and nitrogen oxides ( NO x ); the enforceability of certain permit provisions; and to correct (or further research) certain errors and omissions in the permit. On April 11, 2006, the Cabinet Secretary issued her Final Secretary s Order, rejecting the Hearing Officer s findings and conclusions regarding ecological risk assessment, Cab. App., Tab 1 at pp. 18-21; soils, vegetation, and visibility, Id. at pp. 21-27; BACT for sulfur dioxide (SO 2 ); Id. at pp. 37-39; enforceability, Id. at pp. 39-47; and errors and omissions, Id. at pp. 47-48. However, the Secretary did agree with the Hearing Officer s recommendation that the Cabinet s nitrogen oxides (NOx) BACT determination was in error, and ordered the permit be revised to lower the nitrogen oxides (NOx) limit from 0.08 lbs/mmbtu to 0.07 lbs/mmbtu. Id. at pp. 4-5 2 Petitioners initial Post-Hearing Brief was only 121 pages in length (including an 8-page appendix). The Cabinet filed a 179-page Response Brief. Respondent Thoroughbred s Brief was 281 pages. In their 722-page Reply Brief, Petitioners substantially re-argued large portions of their case including arguments not previously made. This left the Respondents without a fair opportunity to respond to those new arguments. 2

and 34-35. She also ordered that the permit be revised to include a lower limit on mercury emissions, in accordance with the federal Clean Air Mercury Rule (70 Fed. Reg. 28,606 (May 18, 2005), codified at 40 C.F.R. 60.45Da), which became effective on May 18, 2005, several months after the formal administrative hearing. Id. at pp. 3-4 and 35-36. The permit was revised on April 14, 2006, and Petitioners appealed to this Court on May 10, 2006. STANDARD OF REVIEW A judicial review of agency action is primarily concerned with the question of whether the agency action is arbitrary. Within this context, a court is to determine 1) whether the agency acted within its statutory powers, 2) whether the party affected by the administrative action was entitled to due process and 3) whether the action taken by the administrative is supported by substantial evidence. American Beauty Homes Corp. v. Louisville and Jefferson County Planning and Zoning Commission, Ky., 379 S.W.2d 450, 456 (1964). Since the 1964 American Beauty decision, Kentucky courts have expounded on the standard set therein. The Kentucky Court of Appeals has spoken directly to the role of a circuit court in review of agency decisions: The position of the circuit court in administrative matters is one of review, not of reinterpretation.... The appellate (circuit) court is not free to consider new or additional evidence, or substitute its judgment as to the credibility of the witnesses and/or the weight of the evidence concerning questions of fact. Thus, if administrative findings of fact are based upon substantial evidence, then those findings are binding upon the appellate court. The only question remaining for the appellate court to address is whether or not the agency applied the correct rule of law to the facts so found. If the ruling of the administrative agency is based on an incorrect view of the law, the reviewing court may substitute its judgment for that of the agency. Kentucky Board of Nursing v. Elaine Ward, Ky.App., 890 S.W.2d 641, 642 (1995) (citations omitted). 3

Kentucky courts have defined substantial evidence as that which when taken alone or in light of all the evidence, has sufficient probative value to induce conviction in the mind of a reasonable person. Bowling v. Natural Resources and Environmental Protection Cabinet, Ky.App, 891 S.W.2d 406, 409 (citations omitted). Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion; it is something less than the weight of the evidence, and the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency s finding from being supported by substantial evidence. Id. at 410. If there is any substantial evidence to support the action of the administrative agency, it cannot be found to be arbitrary and will be sustained. Taylor v. Coblin, Ky., 461 S.W.2d 78, 80 (1970). Further, great deference is given to administrative agencies. Where the legislature has designated an administrative agency to carry out a legislative policy by the exercise of discretionary judgment in a specialized field, the courts do not have the authority to review the agency actions de novo. Aubrey v. Office of the Attorney General, Ky.App, 994 S.W.2d 516, 518 (1999). An agency is granted great latitude in evaluating the credibility of evidence and witnesses. Id. If an agency decision is supported by substantial evidence, the reviewing court must then determine whether the agency applied the correct rule of law to its factual findings. Commonwealth, Department of Education v. Commonwealth, Ky.App, 798 S.W.2d 464, 467 (1990), citing H & S Hardware v. Cecil, Ky.App, 655 S.W.2d 38, 40 (1983). If the court finds the correct rule of law was applied to facts supported by substantial evidence, the final order of the agency must be affirmed. Id., citing Brown Hotel Company v. Edwards, Ky., 365 S.W.2d 299, 302 (1963); Bowling at 410. While the court is authorized to review issues of law on a de novo basis, Aubrey at 518, great deference is given to an agency s interpretation of its own 4

regulations and the statutes underlying them. Delta Air Lines, Inc. v. Com., Revenue Cabinet, 689 S.W.2d 14, 20 (1985). See also Hagan v. Farris, Ky., 807 S.W.2d 488, 490 (1991). Agencies are entitled to great deference in interpreting their own statutes and regulations, at least where those interpretations do not contravene the law. Morgan v. Natural Resources and Environmental Protection Cabinet, Ky.App, 6 S.W.3d 833, 842 (1999). Finally, Kentucky courts have held that when an administrative fact-finder rules against the party with the burden of proof, then on appeal that party must show that there was compelling evidence in the record that requires a ruling in its favor: Determination of the burden of proof also impacts the standard of review on appeal of an agency decision. When the decision of the fact-finder is in favor of the party with the burden of proof or persuasion, the issue on appeal is whether the agency s decision is supported by substantial evidence Where the fact-finder s decision is to deny relief to the party with the burden of proof or persuasion, the issue on appeal is whether the evidence in that party s favor is so compelling that no reasonable person could have failed to be persuaded by it. McManus v. Kentucky Retirement Systems, Ky.App, 124 S.W.3d 454, 458 (2004), (emphasis added). The Court of Appeals has also stated: Not infrequently, contestants appear at the judicial level arguing that the administrative decision is not supported by substantial evidence when the board has offered no relief in the first instance. In other words, the board has ruled that the one having the burden of proof usually the applicant has failed. In such cases, attention should be directed to the administrative record in search of compelling evidence demonstrating that the denial of the relief sought was arbitrary. The argument should be that the record compels relief. The argument that there is no substantial evidence to support nonrelief is an anomaly. The question before the circuit court should have been whether the record compelled a finding in [applicant s] favor, not whether the board s decision was supported by substantial evidence. 5

Bourbon County Board of Adjustment v. Currans, Ky.App, 873 S.W.2d 836, 838(1994), (emphasis added). Further, [i]f the evidence presented is not so compelling, then the decision is not arbitrary. Trimble Fiscal Court v. Snyder, Ky.App, 866 S.W.2d 124, 126 (1993)(citations omitted). KRS 224.10-440(1) specifies the procedural steps for an administrative hearing before the Cabinet. A hearing officer conducts the hearing and makes a report and recommended order to the secretary that contain a finding of fact and conclusion of law. The parties are allowed to file exceptions to the recommended report and order. The secretary shall consider the report, exceptions, and recommended order and decide the case. The decision shall be served by mail upon all parties and shall be a final order of the cabinet. Id. In administrative cases before the cabinet, the fact-finder and decision-maker is the secretary, as the adjudicatory power lies squarely with the secretary, not with the hearing officer. The secretary may adopt in whole or part, or may reject in whole or part, the hearing officer s report. 3 In the underlying administrative action, Petitioners carried the burden of proof. 401 KAR 100:010. The Final Order of the Secretary found against the Petitioners on the claims in this appeal, with the exception of the BACT emissions limitation for nitrogen oxides (NOx). Petitioners cannot show there was evidence below in their favor so compelling that no reasonable person could have failed to be persuaded by it. McManus at 458. 3 The Kentucky Court of Appeals, in an unreported decision, has confirmed that the secretary is the decision maker in cabinet administrative actions where the statutory provisions concerning secretary review of the hearing officer s recommendations are similar to KRS 224.10-440(1). Though not controlling, the reasoning of the court is noteworthy. Coleman v. Commonwealth, Ky.App., 2003 WL 1406070 at 5. 6

ARGUMENT I. The Final Order of the Secretary meets the standard of review. A. The Order of the Secretary is well-considered and is not arbitrary In the case at bar, the legislature has designated the Cabinet as the agency charged with the responsibility of implementing, at the state level, the applicable provisions of the Clean Air Act, including the issuance of permits. KRS 224.10-100. This is a highly specialized, technical and complex field, which requires the exercise of discretionary judgment based on professional knowledge and experience. The issuance of the Secretary s Order constitutes the culmination of agency action regarding issuance of an air quality permit to construct and operate a pulverized coal-fired electric generating facility. As discussed above, the Cabinet is the agency tasked with the issuance of air quality permits. Further, when issuance of a permit is challenged, the appeals process requires the Secretary to evaluate the evidence and testimony and issue a final order. Clearly, the Final Order issued in this case was within the authority of the agency and, as is more fully discussed below, was issued according to the agency s interpretation of its own regulations and their underlying statutes and was consistent with those statutes and regulations. Thus, the decision of the Secretary is entitled to deference and the first prong of the test established in American Beauty is satisfied. As Petitioners have stated the third prong of the test, due process, is not at issue here, Petitioners Brief, p. 17, only the issue of the evidence in the record remains. The Final Order of the Secretary and the record upon which it is based clearly contain such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Bowling at 409. The fact that Petitioners have a differing view and would draw a different and inconsistent conclusion from their review of the record does not render the decision lacking in substantial evidence. Id. at 410. As stated by the Secretary in her Final Order, the 7

administrative record in this action consisted of a 12,000-page hearing transcript, 50,000 pages of discovery documents, 600 exhibits, over 1,000 pages of post-hearing briefs, and a 370-page hearing officer s report. Cab. App., Tab 1 at p. 2. A reading of the Final Order shows the depth of record review and consideration given by the Secretary in making her findings. The Final Order shows that the Secretary considered and reviewed the record extensively as it contains numerous references to the record including, but not limited to, the Hearing Officer s Report, specific joint exhibits, specific testimony, qualifications of witnesses, the Amended Petition for Hearing, applicable state and federal regulations, the permit Statement of Basis, exceptions filed by the parties to the Hearing Officer s Report and even discovery responses. The Secretary considered the arguments of the parties as well as the underlying evidence for those arguments. For every issue decided, the Final Order references the evidence supporting the decision and the record further supports the decisions in the Final Order. Given the complexity of the issues involved and the volumes of material available for review, the Final Order reflects the Secretary s commitment to issuance of a decision well founded in fact and consistent with applicable law. Clearly, the Final Order is based on substantial evidence. Likewise, the record does not contain evidence so compelling that no reasonable person could have failed to be persuaded by it. McManus at 458. B. The Secretary applied the correct rule of law to the factual findings. The Secretary correctly stated the regulatory provisions by which she was to evaluate the record for making her findings: Pursuant to 401 KAR 100:010 13(9), Petitioners have the burden of going forward to establish a prima facie case and the ultimate burden of persuasion as to the requested relief. To succeed in their claims, Petitioners must show that DAQ erred, based on a preponderance of evidence appearing in the record as a whole. If the Petitioners fail to make that showing, they have failed to meet 8

their burden, and it is not necessary for the permitting agency or defendants to disprove each and every allegation or theory propounded by the petitioners. See Mollette v. Kentucky Personnel Board and Kentucky Transportation Cabinet, Ky.App, 997 S.W.2d 496-497 (1999). Moreover, 401 KAR 100:010 3(1)(b) provides that the Cabinet s experience, technical competence, and specialized knowledge may be utilized by the hearing officer (and by implication, the Secretary) in the evaluation of the evidence during the de novo hearing process. Simply stated, Petitioners must show that DAQ s permit determinations were in error. They must prove by credible evidence that they are right and that DAQ was wrong. Cab. App., Tab 1 at p. 8. The Secretary correctly applied the regulatory requirement to her evaluation of the record for a determination of whether petitioners had met the standard of proof imposed by 401 KAR 100:010. Further, as shown below, the Secretary applied the correct regulatory and statutory provisions governing issuance of air quality permits to her factual findings. 4 Thus, the Final Order of the Secretary is valid and should be upheld. II. The Final Order of the Secretary should be upheld as it relates to Best Available Control Technology. A. Overview Best available control technology ( BACT ) is defined in regulation at 401 KAR 51:017 and was correctly identified and applied by the Secretary. Final Order, beginning p. 28. In its entirety Kentucky's BACT definition states: (8) "Best available control technology" means an emissions limitation (including a visible emission standard) based on the maximum degree of reduction for each pollutant subject to regulation under 42 USC 7401 to 7671q (Clean Air Act), which would be emitted from a proposed major stationary source or major modification which the cabinet, on a case-by-case basis, 4 Petitioners challenge references decisions rendered by the U.S. E.P.A. s Environmental Appeals Board ( EAB ). EPA, and therefore the EAB, can utilize internal policy guidance documents in their decision-making process and can impose the requirements of those policy documents. States with unauthorized programs are also required to follow EPA guidance. Kentucky, however, as a state authorized to implement its own air quality program is not required to follow EPA guidance and, in fact, is prohibited from regulating by guidance. KRS Chapter 13A.130. See Cab. App., Tab 3 at pp. 136-38. 9

taking into account energy, environmental, and economic impacts and other costs, determines is achievable for that source or modification through application of production processes or available methods, systems, and techniques, including fuel cleaning or treatment or innovative fuel combustion techniques for control of that pollutant. Application of best available control technology shall not result in emissions of a pollutant which would exceed the emissions allowed by an applicable standard under Title 401 KAR Chapters 57, 59, 60, and 63, or 40 CFR Parts 60, 61, and 63. If the cabinet determines that technological or economic limitations on the application of measurement methodology to a particular emissions unit would make the imposition of an emissions standard infeasible, a design, equipment, work practice, or operational standard, or combination of design, equipment, work practice, or operational standard, may be prescribed instead to satisfy the requirement for the application of best available control technology. That standard shall, to the degree possible, establish the emissions reduction achievable by implementation of the design, equipment, work practice or operation, and shall provide for compliance by means which achieve equivalent results. 401 KAR 51:017 1(8), 5 (emphasis added). Reduced to the essential meaning for this case, BACT means "... an emissions limitation: based on the maximum degree of reduction for each regulated pollutant... which would be emitted... which the cabinet, on a case-by-case basis, taking into account energy, environmental, and economic impacts and other costs, determines is achievable for that source... through application of production processes or available methods, systems, and techniques, including fuel cleaning or treatment or innovative fuel combustion techniques for control of that pollutant... The Secretary correctly applied this definition to technologies that were commercially available to the facility. Cab. App., Tab 1 at pp. 4-5. Petitioners are incorrect in their general argument that in ignoring those currently achievable rates in favor of those achieved in the past, the Secretary betrayed the fundamentally forward-looking, technology-forcing purpose of the 5 The definition of BACT has been relocated to 401 KAR 51:001 Section 1(25) (effective 7-14-04). It has been reorganized and slightly modified, but is essentially the same. The words "for that source" were changed to "for the source." A copy of the regulations in effect at the time of this permit issuance are found at Cab. App., Tab 4. 10

law. Petitioners Brief, p. 18. Included in the record before the Secretary on this issue was the Cabinet s post-hearing brief arguments that the law is the first and foremost hurdle to the Petitioners' argument. The definition of BACT is not simply what is "achievable," as asserted by the Petitioners, but what is "achievable for that source." Those three conspicuous words are at the very heart of the BACT 6 definition, yet Petitioners continue in this forum, as they did in the administrative forum, in their refusal to acknowledge the full language of the regulation. The Secretary had before her the Cabinet s post-hearing brief which provided a detailed analysis of achievable for that source. Cab. App., Tab 17 at pp. 72-76. BACT is not an absolute nor is it an inflexible concept. BACT does not mean the most sophisticated technology that can be found, without regard for other values such as "energy, environmental, and economic impacts." See 42 U.S.C. 7479(3). In other words, BACT is not some ideal, invariable standard of excellence; it is something to be decided by the issuing authority on a case-by-case basis. See N. Plains Res. Council v. E.P.A., 645 F.2d 1349, 1351 (9th Cir. 1981). Hall v. U.S. E.P.A., 33 Fed.Appx. 297, 299, 2002 WL 506104 (9th Cir), 32 Envtl. L. Rep. 20,570. BACT is limited by technological feasibility, and energy, environmental and economic impacts. 42 U.S.C. 7479(3). The choice of technology is for the applicant; thus each project will be unique. While the overall goal of BACT is "to go the same or lower with each new permit" each source is unique and the final emission limit may or may not be lower than other permits. Cab. App., Tab 5 at pp. 18-23. The uniqueness of each source is recognized in the BACT definition which contains "for that source" language as well as the term "case-by-case." 401 KAR 51:017 1(8). Cab. App., Tab 4 at pp. 442-43. As the record shows, this facility is 6 BACT is what is required for attainment areas, as in the case bar, while lowest achievable emission rate (LAER) is required for non-attainment areas. Natural Resources Defense Council, Inc. v. Thomas, 838 F.2d 1224, 1236 (D.C. Cir. 1988); Her Majesty The Queen in Right of Province of Ontario v. City of Detroit, 874 F.2d 332, 336 (6th Cir. 1989). See also, Final Response to Comments, p. 8. 11

designed to burn local high-sulfur western Kentucky coal and has integral design characteristics to accommodate the design while protecting the environment. Cab. App., Tab 6 at pp. 14-15 (response to comment labeled BACT incomplete ). Where the technology choice is made by the source, BACT approval is a policy matter "left to the discretion and developed expertise of the agency." Sierra Club v. Environmental Protection Agency, 540 F.2d 1114, 1123 (D.C. Cir. 1976) (reversed on other grounds, Montana Power Co. v. U.S. E.P.A., 98 S.Ct. 40 (1977)). Although EPA can object to and thus override a state permitting authority's BACT determination, Alaska Dept. of Environmental Conservation v. E.P.A., 540 U.S. 461, 1003 (2004), EPA did not object to the permit as issued. Additionally, the Secretary had before her testimony regarding technology that is available. Petitioners take the approach that if a technology exists then it must be available. Such is not the case. Testimony given by the Cabinet s expert, Tom Adams 7 provided a discussion of the various aspects of the definition of BACT. Cab. App., Tab 7 at pp. 54-68. The concept of "available" under PSD is a common-sense approach; in other words, the question is whether a given technology can be purchased off the shelf. Id. at pp. 62-63. As to what is meant by an "achievable" emissions limit, it "has to be in the basis of what a normal operating plant will experience, at least of the input side of things." Cab. App., Tab 5 at p. 17, ln. 16-18. "Achievable has to be real-world circumstances." Id. at p. 18, ln. 5-6. Also, it means what is "achievable for that source." Id. ln. 7-11. In other words, what is achievable for the PC boilers at this facility. 7 As stated by the Secretary, Mr. Adams is a chemical engineer with a master s of science in engineering with specialization in biomedical engineering. He is an environmental engineer consultant for DAQ and a Kentucky registered engineer who has reviewed over 200 air permits. Cab. App., Tab 1 at pp. 32-33. 12

Thus, the Secretary s determination of what is achievable and available for a source is substantiated in the record and the Cabinet is entitled to deference in the interpretation of its regulation. Petitioners offer case law which they argue supports their own interpretation of what is achievable or available technology for BACT purposes. Contrary to Petitioners assertions, the case law does not require the Cabinet to base BACT determinations solely on current possibilities. Petitioners Brief, p. 20. As stated by the D.C. Circuit Court of Appeals, the agency can make projections as to what can be achieved in the future, but these projections are subject to the restraints of reasonableness and does not open the door to crystal ball inquiry. Natural Resources Defense Council v. E.P.A., 655 F.2d 318, 328 (D.C. Cir. 1981) quoting International Harvester Co. v. Ruckelshaus, 478 F.2d 615, 629 (D.C. Cir. 1973). As stated above, the Cabinet is the agency with the discretion to make this determination. The Secretary was thus within her discretion and her decisions regarding the availability of technology was supported by evidence in the record. No evidence in the record compels a different result because Petitioners could not show that the technologies they presented were appropriate for this source. B. The Secretary was correct in upholding the permit BACT limitations for Sulfur Dioxide (SO 2 ) Petitioners argue that the Secretary failed to consider: 1) control technologies that could achieve 99% sulfur dioxide (SO 2 ) emissions reductions and 2) cleaner fuels to achieve reduced sulfur dioxide (SO 2 ) emissions. Petitioners Brief, pp. 21 28. Petitioners are incorrect in their assertions and mischaracterize the findings of the Secretary s Final Order. First, contrary to Petitioners arguments, the Secretary provided a well-reasoned basis for her determination that the BACT limits for sulfur dioxide (SO 2 ) in the permit for this facility were appropriate. Contrary to Petitioners statements, the Secretary did not base her 13

determination on a single (unlawful) rationale for her decision: [t]he evidence establishes that there was not a single coal-fired permit in the country that required 99% [sulfur dioxide] removal Petitioners Brief, p. 24. The Secretary evaluated the evidence presented by Petitioners to find that there was insufficient evidence presented by Petitioners that technology effective for a 99% removal efficiency was commercially available at the time the permit was issued. Cab. App., Tab 1 at p. 38. The Secretary relied not only on the absence of evidence from Petitioners but also upon affirmative evidence provided by an engineer for National Park Service that the emission limits contained in the permit constitute BACT for this facility. Id. The Secretary applied 401 KAR 100:010, the correct rule of law, to the Petitioners burden of proof to find that [t]he threshold of showing an act contrary to fact of law by the agency was not achieved by Petitioners. Id. Additionally, the Secretary considered the underlying permit requirement that the facility perform an optimization study to revise the sulfur dioxide (SO 2 ) limit with a target emission rate that is lower than that currently in the permit. Id. at pp. 38-39. Further, the Secretary noted the permit renewal process mandated by 401 KAR 52:020 12, Cab. App., Tab 4 at p. 468, finding that the first permit renewal after the optimization study would be conditioned on an analysis of the optimization study to determine if the facility would be required to meet the 99% reduction requirement sought by Petitioners. 8 Cab. App., Tab 1 at p. 39. The Final Order of the Secretary regarding the use of other technologies for the reduction of sulfur dioxide (SO 2 ) is therefore based on substantial evidence and applies the correct rule of law in the application of both the standard established by 401 KAR 100:010 and the definition of BACT contained in 401 KAR 51:017 1(8), Cab. App., Tab 4 at pp. 442-43. There is no compelling evidence to the contrary. 8 Thus, the Secretary appropriately acknowledges what was available and achievable technology at the time of permit issuance and allows for the improvement of technology that may occur in the future. 14

That Petitioners would have evaluated the evidence differently does not create compelling evidence that the outcome should have been in their favor. Second, the Secretary correctly upheld the sulfur dioxide (SO 2 ) BACT determination without consideration of lower sulfur coals as a means of reducing sulfur dioxide (SO 2 ) emissions. As stated above, the record contains evidence that BACT for a pollutant is to be analyzed on a case-by-case basis. Cab. App., Tab 8 at p. 189. Indeed, BACT is specific to each source. Cab. App., Tab 9 at p. 108, ln. 10-12. That is precisely why it is done case-by-case. Sources have individualized design and operational characteristics and BACT is determined "on a case-by-case basis," including considerations for fuel type and multi-pollutant considerations. Id. Tab 8 at pp. 189-194. Basing her statement on the Hearing Officer s Report, the Secretary found that this facility would be built on a tract of 2,700 acres of formerly mined lands, and would burn high sulfur bituminous coal from a new nearby underground mine. It is referred to as a mine-mouth facility because the coal will come from the nearby mine. Cab. App., Tab 1 at p. 6. As stated above, the design of a facility and the technology used is determined by the facility. The Cabinet lacks the authority to require, through a BACT determination, a facility to redesign its plant. In this case, designing the plant to burn low sulfur coal would be a fundamental redesigning of the plant, which DAQ is not authorized to do. Cab. App., Tab 6 at p. 15; Cab. App., Tab 8 at pp. 199-201. Petitioners provided no evidence to refute the fact that changing the fuel type would require a redesign of the facility. Petitioners have consistently ignored the concept that BACT is source specific and that consideration of the fuel type to be used is appropriate and within the discretion of the agency. DAQ exercised its discretion and professional judgment in determining that BACT for this type of facility did not require consideration of cleaner fuel but also based the sulfur dioxide 15

(SO 2 ) BACT limit on the worst case coal that would be used at the facility. Cab. App., Tab 1 at p. 33. This fact, combined with the Cabinet s inability to require a source to redefine its design and the failure of Petitioners to provide any evidence to counter the Cabinet s position justifies the Secretary s position that Petitioners brought insufficient evidence to carry their burden under 401 KAR 100:010. Again, the Secretary s findings are supported by substantial evidence and she applied those facts to the appropriate law by considering both the standard of 401 KAR 100:010 and the standards for determination of source specific BACT. There is no evidence to refute that use of different coal would require a redesign of the facility; therefore, there is no compelling evidence in the record that the Petitioners should have prevailed. C. The Secretary was correct in upholding the permit BACT limitations for Nitrogen Oxides (NOx). While Petitioners are in agreement with the Secretary s finding that the nitrogen oxides (NOx) emissions limits established in the permit do not constitute BACT, Petitioners complain that the Secretary should have remanded the permit rather than establish a BACT limit. Petitioners Brief, p. 28. As with the determinations made regarding sulfur dioxide (SO 2 ) and cleaner fuels, the Secretary s Final Order is based on substantial evidence and is appropriate. Again, Petitioners urge that BACT should represent the future potential of what this facility could achieve, id., rather than what can be achieved by the facility at the time of permit issuance. Again, BACT is not some ideal, invariable standard of excellence; it is something to be decided by the issuing authority on a case-by-case basis. N. Plains Res. Council at 1351. The Secretary clearly laid out the evidence and testimony she reviewed in determining the appropriate BACT emissions limit for nitrogen oxides (NOx): The following information as contained in the record establishes that the NO x emission control levels of 0.08 lb/mmbtu and 56% removal rates are not the best available control technology for TGS 16

and that in fact a level of 0.07 lb/mmbtu is the BACT level for this facility: Petitioners Exhibit 73, a chart which lists facilities for which ALSTOM (TGS s pollution control contractor) has provided SCR systems. The document lists eleven domestic coal-fired boilers with start up dates listed as 2000 to 2002 reporting NO x removal rates of 80% to 90%. Petitioners Demonstrative Exhibit 153-6, comparing NO x reduction efficiency of TGC with 29 coal-fired boilers that range from 70% to over 90% reduction efficiency. Petitioners Exhibit 137-357, the EPA Emissions for Coal- Fired Boilers for the third quarter of 2001 discloses that the H.L. Spurlock facility in Kentucky and the Herbert A. Wagner facility in Maryland were achieving 0.07 lb/mmbtu NO x emissions. NPS environmental engineer Don Shepherd stated, with reference to Table 2 of his deposition (Petitioners Ex. #160), that [t]he NO x limit could be lower, down to 0.07 lbs/mmbtu, based on a number of power plants which are achieving, or proposed, or permitted at rates lower than TGS. (Hearing Officer s Report at 140). Cab. App., Tab 1 at pp. 35. The exhibits and testimony of the National Park Service Engineer provide the substantial evidence necessary to support the decision and those were applied correctly to the law as set forth in 401 KAR 51:017. Further, the record contains testimony regarding DAQ s process when researching for a BACT review: In doing research for purposes of doing a BACT review, permit limits for other sources are the most reliable external pieces of information. Next in reliability of information are permit applications, and then CEM data. Last in reliability is vendor information, which are "more design specs than guarantees. Cab. App., Tab 17 at p. 89 (internal citations omitted, citing testimony of Tom Adams which can be found at Cab. App., Tab 7 at pp. 69-70 and 74-75). It is certainly appropriate for the Cabinet to apply a reliable element of certainty to BACT determinations in order to assure that the limits found in a permit are achievable. To require a possibility without assurance of achievability would not further the goals of protecting air quality. 17

The Secretary s finding is the culmination of the Cabinet s decision-making process. The ideal that Petitioners espouse is not required and a remand is not necessary. Contrary to Petitioners assertions, the Secretary had all the information available to her that was necessary for making the BACT determination for nitrogen oxides (NOx). She was within the agency s discretion in so making the determination and her determination was based on substantial evidence as provided in the record and described in the Final Order. Petitioners produce no compelling evidence to the contrary. In fact, Petitioners expert testified that the permit limit established by the Secretary was the BACT limit, given what was achievable based on current permit limits for other sources. Cab. App., Tab 16, at p. 204. There is no compelling evidence from Petitioners to show the permit should be remanded. Thus, the determination must be upheld. III. The Final Order of the Secretary should be upheld as it relates to the soils, vegetation and visibility analysis. A. The Secretary properly followed Kentucky Regulations regarding cumulative ambient concentrations. The law regarding the soils, vegetation and visibility analysis for a PSD permit is clear and straightforward. 401 KAR 51:017 14(1), Cab. App., Tab 4 at p. 448, reads, in its entirety: The owner or operator shall provide an analysis of the impairment to visibility, soils and vegetation that would occur as a result of the source or modification and general commercial, residential, industrial and other growth associated with the source or modification. The owner or operator is not required to provide an analysis of the impact on vegetation having no significant commercial or recreational value. (Emphasis added). The analysis required by this regulation is commonly referred to as an Additional Impacts Analysis ( AIA ). As is clear from the language of the regulation itself, the analysis is limited to the impairment that would occur as a result of the source. Petitioners 18

argument regarding the AIA in this instance, is that the facility used an EPA methodology that required the impacts from the source be added to emissions from all relevant sources of air pollution in the area and then compared to screening levels contained in the EPA methodology. Petitioners Brief, p. 31. This was Petitioners argument in the administrative proceeding below and was thoroughly analyzed by the Secretary. The Final Order sets forth the factual basis that led to the use of the screening values to be utilized in the analysis. Cab. App., Tab 1 at p. 23. The Final Order acknowledges that the EPA Screening Guidance stated that air pollution impacts are to be added to background levels to get a total ambient concentration before comparing that concentration to the screening levels provided in the guidance document. Id. However, the Secretary correctly evaluated and applied the state regulation rather than the guidance document. As stated above and as found by the Secretary, Kentucky is required under KRS Chapter 13A to implement its regulations and not operate by guidance or policy. See Cab. App., Tab 1 at pp. 23-24. The Secretary found that [a]lthough the Cabinet does enforce environmental standards by the specific application of cumulative measures in several regulations, it does not do so in the regulation under consideration. Id., p. 24. The Secretary was correct in her analysis. The regulation does not require the owner or operator to analyze the "cumulative" emissions from the source or modification and other sources. It says only the source or modification, and says nothing about adding those emissions to the emissions of other sources. New words or requirements cannot simply be added to or read into a regulation without going through the formal regulation promulgation process under KRS Chapter 13A. Neither can the Cabinet simply ignore exemptions in its regulations, such as vegetation having no significant 19

commercial or recreational value, simply because the Petitioners would prefer the regulation to be written more to their liking. Petitioners have provided no case law or argument to refute the Secretary s proper finding that TGC and the Cabinet are ultimately bound by the specific terms of the regulation, not the requirements of the EPA Screening Guidance document that happened to be used in the instant case. Petitioners contention that it is not Kentucky s regulation that required Peabody to analyze more than the Thoroughbred Plant s pollution, but rather the EPA Screening Guidance which Peabody chose as its analytic tool, Petitioners Brief, p. 32., is clearly erroneous as a matter of state law. Petitioners argue that [t]he Cabinet did not, and could not offer any non-arbitrary reason to accept Peabody s internally inconsistent assessment of the Thoroughbred Station s impacts. Petitioners Brief, p. 32 (citing Appalachian Power Co. v. E.P.A., 249 F.3d 1032, 1054-55 (D.C. Cir. 2001). However, the facts of the Appalachian Power case are distinguishable from this case. Appalachian Power involved a challenge by a number of sources and states affected by EPA s cap and trade program for nitrogen oxides (NOx). Appalachian Power at 1037-38. Certain states and non-state entities challenged EPA s use of the integrated planning model (IPM) in calculating the amount of nitrogen oxides (NOx) allowed for each of the states subject to the nitrogen oxides (NOx) SIP call, because, they asserted, EPA s use of the IPM resulted in incorrect estimates of electrical generation growth. Id. at 1052. Some petitioners objected to EPA's use of growth rates for 2001-2010 to estimate facility utilization growth for 1996-2007, because, according to those petitioners, the model yielded growth rate estimates for 2007 that were significantly lower than the growth rates already observed through 1998. The D.C. Circuit Court found that: 20

The budgets were constructed using growth rates for 1996-2007 that were consistent with the growth rates in IPM for 2001-2010, which may be higher or lower than the growth rates for the years 1996-2001. EPA's analysis of the costs of complying with these budgets, however, was conducted using IPM, which incorporates internally consistent growth assumptions-i.e., the growth for 1996 through 2001 is based on IPM assumptions for 1996 through 2001, and the growth for 2001 through 2010 is based on IPM assumptions for 2001 through 2010. April 1999 RTC at 112-13. Id. at 1054. Noting that the EPA admitted that two sets of growth rates were used, and that EPA offered no cogent explanation for this difference, the D.C. Circuit Court stated that the EPA has undoubted power to use predictive models but only so long as it explain[s] the assumptions and methodology used in preparing the model and provide[s] a complete analytic defense should the model be challenged. Id. In the present case, the facility s decision not to do a cumulative analysis of the impacts to soils, vegetation, and visibility was adequately explained and was reasonably approved by the Cabinet. 9 The Secretary correctly found that the state regulation specifically states that the analysis is for the impairment to visibility, soils and vegetation that would occur as a result of the source or modification, not the source or modification and all other sources in the area. Petitioners are incorrect in their assertion that EPA guidance should be followed when it is contrary to a state regulation. Thus, the Secretary s Order should stand. B. The Secretary was correct in finding Petitioners failed to show there was vegetation of significant commercial or recreational value. The Secretary considered evidence before her presented by the Cabinet and Respondent Thoroughbred that there would be minimal impacts to vegetation given the area where the facility will be located: 9 EPA initially commented on the use of only source impacts in the AIA. That comment was addressed by the facility, see Cab. App., Tab 10 at pp. 12-13, and no further comment was received. As stated above, EPA filed no object to the permit. 21