## Facts

- The Clean Air Act Amendments of 1977 created a Prevention of Significant Deterioration (PSD) preconstruction permitting program for areas meeting (or cleaner than) national ambient air quality standards.
- PSD requires certain new or modified major stationary sources to obtain a permit, apply Best Available Control Technology (BACT), and show the project will not cause or contribute to violations of air-quality standards or statutory “increment” limits.
- EPA issued final PSD regulations on June 19, 1978. The rules addressed, among other things, what counts as a “source,” when changes at an existing plant trigger PSD as a “modification,” how to treat “fugitive emissions” (emissions not captured by a stack), and whether any categories could be excused from PSD through exemptions.
- EPA’s rules defined “source” to reach a “combination” of buildings, structures, facilities, or installations, and also used a plantwide approach in certain contexts to evaluate changes at existing plants.
- EPA also attempted to excuse some sources from parts of PSD review and treated fugitive emissions differently for different PSD requirements.
- Electric utilities and other industry groups, along with state and other petitioners, filed petitions for review challenging multiple provisions of the PSD rules; environmental groups (including the Sierra Club) intervened, generally supporting stricter implementation.
- The D.C. Circuit consolidated the petitions and reviewed the legality of the challenged provisions under the Clean Air Act and administrative-law limits on agency rulemaking.

## Issues

1. Whether EPA could define “source” for PSD to mean a “combination” of buildings, structures, facilities, or installations, rather than using the statutory definition tied to a “building, structure, facility, or installation.”
2. Whether, even if “source” is limited by statute, EPA may define “facility” broadly enough that a single “facility” can be an entire plant for certain PSD determinations.
3. Whether EPA could use a plantwide approach for changes at existing plants (allowing internal offsets) so that PSD does not apply when there is no net increase in the source’s potential to emit a pollutant.
4. Whether EPA had authority to create broad categorical exemptions from PSD permitting and review requirements, and if any limited “de minimis” authority exists.
5. Whether EPA could require consideration of fugitive emissions in PSD, yet excuse fugitive-emissions sources from required demonstrations that air-quality standards or PSD increments will not be exceeded, and how fugitive emissions should be counted toward “major” source thresholds.

## Decision

- The court granted the petitions in part and denied them in part, vacating some PSD provisions, upholding others, and remanding several issues to EPA for further rulemaking.
- The court held that the Clean Air Act’s definition in § 111(a)(3) controls the meaning of “source,” so EPA could not expand “source” to mean a “combination” of buildings, structures, facilities, or installations. That portion of the rule was set aside.
- The court also explained that, although “source” could not be rewritten to mean a “combination,” EPA retained room to define “facility” in a way that can treat an entire plant as a single facility in appropriate contexts.
- For modifications at existing plants, the court approved a plantwide “bubble” approach (plantwide netting), concluding EPA could not bar changes where increases from some units are offset by contemporaneous decreases from other units so that there is no net increase in the source’s potential to emit a pollutant.
- The court rejected EPA’s attempt to create sweeping categorical exemptions from PSD requirements without clear statutory authority, while recognizing a narrow “de minimis” power to excuse truly trivial applications where regulation would yield negligible benefit compared to administrative burden. Any such exclusions had to be tightly justified and limited.
- On fugitive emissions, the court upheld EPA’s decision to bring fugitive-emissions sources within PSD, but set aside EPA’s excusal of those sources from core PSD demonstrations (including the showing that standards and increments will not be exceeded). The court remanded for EPA to address, through further rulemaking, how fugitive emissions should be counted in determining whether a facility qualifies as “major.”

## Legal Principles

- When Congress supplies a statutory definition (here, “stationary source” in Clean Air Act § 111(a)(3)), EPA must use that definition and may not expand it through regulation beyond the statutory terms.
- Even when a statutory term limits EPA (such as “source”), EPA may still exercise delegated discretion over related regulatory terms (such as “facility”), so long as the regulatory choice stays within the statute.
- For PSD applicability to changes at existing plants, EPA may allow plantwide netting: PSD may be avoided when a project does not increase the source’s potential to emit a pollutant on a net basis because contemporaneous decreases offset increases.
- Agencies generally may not create broad categorical exemptions from permitting programs established by Congress unless the statute authorizes such exemptions; at most, a narrow “de minimis” exception may be available for genuinely trivial cases and must be carefully supported.
- EPA may regulate fugitive emissions under PSD, but cannot excuse covered sources from the statute’s required air-quality and increment demonstrations; EPA must use reasoned rulemaking to determine how fugitive emissions count toward major-source thresholds.

## Conclusion

Alabama Power Co. v. Costle is a mixed decision that both sustained and curtailed EPA’s 1978 PSD rules: the D.C. Circuit invalidated EPA’s overbroad “source” definition and its sweeping exemption efforts, approved plantwide netting for modifications with no net emissions increase, upheld bringing fugitive emissions within PSD, and remanded key details—especially how fugitive emissions affect major-source status—for further EPA rulemaking.


Alabama Power Co. v. Costle, 636 F.2d 323 (1979)