## Facts

- Potomac Electric Power Company (PEPCO) planned Chalk Point Unit 4, a fossil-fuel fired electric-generating unit in Maryland.
- EPA promulgated New Source Performance Standards (NSPS) for fossil-fuel fired steam generating units on August 17, 1971, applicable to “new sources.”
- Under EPA regulations, NSPS applicability turned on whether construction had “commenced” before promulgation, defined to require either (i) a binding contractual obligation to construct or (ii) on-site construction that is continuous and of reasonable length.
- PEPCO engaged in negotiations beginning in 1970 with major contractors and suppliers regarding engineering and major components, including the boiler.
- In 1977, PEPCO requested an EPA applicability ruling on whether Unit 4 was subject to the 1971 NSPS.
- EPA preliminarily concluded Unit 4 was subject to NSPS and sought additional information, indicating the determinative question was whether a pre-August 17, 1971 contractual obligation existed for the Unit 4 boiler.
- After reviewing PEPCO’s submissions, the EPA regional administrator issued a final determination that PEPCO had not commenced construction of the Unit 4 boiler before August 17, 1971, and therefore Unit 4 was subject to NSPS.

## Issues

1. Whether EPA’s interpretation of its “commenced construction” regulation for NSPS applicability was plainly erroneous or inconsistent with the regulation.
2. Whether EPA’s application of that interpretation to PEPCO’s Unit 4 project was arbitrary, capricious, or an abuse of discretion.

## Decision

- The Fourth Circuit affirmed EPA’s final determination.
- The court held EPA’s interpretation of its own “commenced construction” regulation was not plainly erroneous and was entitled to deference.
- The court held the regional administrator’s fact-bound determination—no binding pre-promulgation contractual obligation and no qualifying continuous on-site construction—was supported by the record and was not arbitrary or capricious.

## Legal Principles

- An agency’s interpretation of its own regulations controls unless plainly erroneous or inconsistent with the regulation.
- Under NSPS applicability rules, “commenced construction” requires more than planning or negotiations; it requires either a binding contractual obligation to construct or continuous on-site construction of reasonable duration.
- Under arbitrary-and-capricious review, a court upholds an agency determination supported by the record and not based on improper factors, disregard of relevant evidence, or unexplained departures from established agency practice.
- NSPS “commenced construction” criteria may be applied strictly to prevent avoidance of technology-forcing standards through nominal or sporadic pre-promulgation activity.

## Conclusion

The court upheld EPA’s determination that Chalk Point Unit 4 was a “new source” subject to NSPS because PEPCO had not shown a binding pre-August 17, 1971 commitment to construct the boiler or continuous qualifying construction, and EPA’s interpretation and application of its regulations were reasonable and lawful under deferential review standards.


Potomac Elec. Power Co. v. EPA, 650 F.2d 509 (4th Cir. 1981)