USA v. DUKE ENERGY CORP.
Filing
462
MEMORANDUM OPINION AND ORDER signed by CHIEF JUDGE WILLIAM L. OSTEEN, JR., on 11/6/2013, that Duke's Motions in Limine (Docs. 421 , 422 , 423 , 424 ) are GRANTED IN PART with regards to Plaintiff's GADS expert witness testimony a nd with respect to Dr. Sahu's testimony as to an "actual-to-potential" test. The motions in limine are DENIED with regards to Plaintiff's PROMOD expert witness testimony. FURTHER, that Duke's Motion for Summary Judgment (Doc. 432 ) is DENIED. Plaintiff's Motion for Summary Judgment (Doc. 434 ) remains under advisement and will be addressed in a forthcoming opinion. (Lloyd, Donna)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
UNITED STATES OF AMERICA,
Plaintiff,
ENVIRONMENTAL DEFENSE,
NORTH CAROLINA SIERRA CLUB,
and NORTH CAROLINA PUBLIC
INTEREST RESEARCH GROUP,
Plaintiff-Intervenors,
v.
DUKE ENERGY CORPORATION,
Defendant.
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1:00CV1262
MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Presently pending and ripe for ruling are Defendant‟s
Motions in Limine (Docs. 421, 422, 423, 424); Defendant‟s Motion
for Summary Judgment (Doc. 432); and Plaintiff‟s Motion for
Summary Judgment (Doc. 434).
For the reasons set forth in this
Memorandum Opinion and Order, Defendant‟s Motions in Limine
(Docs. 421, 422, 423, 424) will be granted in part and denied in
part.
Relatedly, Defendant‟s Motion for Summary Judgment (Doc.
432) will be denied.
Plaintiff‟s Motion for Summary Judgment
(Doc. 434) remains under advisement and will be addressed by a
separate opinion and order to be issued subsequently.
I.
BACKGROUND
This case is a civil action brought against Duke Energy
(“Duke”) by the United States “pursuant to Sections 113(b) and
167 of the Clean Air Act [“CAA”], 42 U.S.C. § 7413(b)(2) and
7477, for injunctive relief and the assessment of civil
penalties for violations of the Prevention of Significant
Deterioration (“PSD”) provisions of the Act, 42 U.S.C. §§ 74707492.” (Complaint (Doc. 1) ¶ 1.)
In this suit, the Government
claims that Duke made modifications to its “coal-fired
electrical generating plants” without obtaining permits, in
violation of the PSD provisions of the CAA.
United States v.
Duke Energy Corp. (“Duke IV”), No. 1:00CV1262, 2010 WL 3023517,
at *1 (M.D.N.C. July 28, 2010); see id. at *5 (“The Court
follows . . . the holding and supporting rationale of Duke III,
which makes clear that the plain language of the regulations
requires a utility to obtain a pre-construction permit when
proposed changes „would increase the actual annual emission of a
pollutant above the actual average for the two prior years.‟”)
(quoting Envtl. Def. v. Duke Energy Corp. (“Duke III”), 549 U.S.
561, 570 (2007)).
Only thirteen of Duke‟s units, all of which
were located in North Carolina, kept in Extended Cold Shutdown
(“ECS”), and subject to Duke‟s Plant Modernization Program
(“PMP”), are still at issue in this suit.
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The parties agree that this case is governed by the 1980
PSD regulations1, 40 C.F.R. § 51.24(b) (1981)2, as adopted by
North Carolina and incorporated into North Carolina‟s State
Implementation Plan (“SIP”). (Pl.‟s Consol. Opp‟n to Duke
Energy‟s Mots. in Limine (“Pl.‟s Opp‟n Br.”) (Doc. 436) at 30
1
In light of the Supreme Court‟s decision in Duke III, this
court has opted to examine the PSD regulations regarding major
modifications separately from those regarding new source
regulations. The parties both cite case law and EPA
determinations that evaluate whether a shutdown was temporary or
permanent under CAA‟s reactivation policy and therefore whether
the source is a new source for PSD purposes. See Cmtys. for a
Better Env‟t v. Cenco Ref. Co., 179 F. Supp. 2d 1128, 1143-44
(C.D. Cal. 2001) (concluding that a unit that was modified after
“six years of non-operation” should be compared to a “zero
baseline” and explaining that “for a long-dormant facility (at
least those shutdown for two years or more), the emissions
baseline for determining whether it has undergone an emissions
increase subject to NSR will be zero”); EPA Mem., Applicability
of PSD to Watertown Power Plant, South Dakota (Nov. 19, 1991),
http://www.epa.gov/ttn/nsr/gen/memo-h.html (finding that,
although a plant had been in deactivated status for nine years
and its operating permits had expired, the utility had overcome
the presumption that a shutdown was permanent in this “unique
situation” when the plant‟s owners had also maintained the plant
to ensure it would be ready for reactivation and had stated in
various reports that they intended to reactivate it); EPA,
Interpretation of Offset Policy (Sept. 15, 1977), at 1-2,
http://www.epa.gov/NSR/ttnnsr01/naas1/sun23_6.html (explaining
that a plant that had been shut down for one year because of
economic problems and would be reopened after a change in
ownership was not a new source and, since a “change in ownership
of a source does not constitute a modification,” it was also not
a modified source).
2
These PSD regulations setting forth the minimum
requirements for EPA-approved state PSD programs were later
renumbered at 40 C.F.R. § 51.166. See 51 Fed. Reg. 40661
(Nov. 7, 1986).
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n.25 (citing Jan. 31, 2003 Duke Summary Judgment Brief (Doc. 129
at 30))3; see 15A N.C. Admin. Code 2D.0531.
Under these
regulations, PSD review is limited to “major” modifications “any physical change in or change in the method of operation of
a major statutory source that would result in a significant net
emissions increase of any pollutant subject to regulation under
the [CAA].” Duke IV, 2010 WL 3023517, at *2 (citing 40 C.F.R.
§ 51.166(b)(2)(i)).
According to the Duke IV opinion, “to
trigger [the] PSD permitting requirement, there must be (1) a
„physical change‟ and (2) a „significant net emissions
increase.‟” Duke IV, 2010 WL 3023517, at *2 (citing Duke III,
549 U.S. at 578).
Because it is necessary for a utility such as
Duke “to make a pre-project projection of what actual emissions
will be before construction begins,” an “actual-to-projectedactual test will be used to determine whether Duke Energy should
have sought a pre-project permit for any of the projects at
issue.”
Id. at *18.
“[T]he regulations do not require the
company to be prescient, rather they require a utility to
undertake a reasonable estimate of what post-project emissions
would be.”
Id. at *6.
3
All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
- 4 -
In its motions in limine, Duke moves to exclude the
testimony of the Government‟s expert witnesses4 based on Federal
Rules of Evidence 402 (Relevance), 702 (Expert Witnesses), and
Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).
Additionally, Duke moves for summary judgment or, in the
alternative, for partial summary judgment on the six PMP units
where either the GADS or PROMOD methodologies at issue projected
no significant net emissions increase. (Doc. 432.)
The
Government also moves for summary judgment. (Doc. 434.)
Recognizing that the issue is whether Duke reasonably
should have projected a significant increase in emissions caused
by its PMP, this court reviews the undisputed facts in this
case.
The undisputed historical facts are generally set forth
in the original summary judgment opinion, United States v. Duke
Energy Corp. (“Duke I”), 278 F. Supp. 2d 619 (M.D.N.C. 2003),
and those facts are incorporated by reference here.
25.5
Id. at 622-
The one exception to the incorporation is that, as noted
earlier, only thirteen of the original plants are still at issue
in this case.
4
These experts are Ranajit Sahu, Robert Koppe, Bruce
Biewald, and Philip Hayet. (See Docs. 421, 422, 423, 424.)
5
The opinion in Duke IV vacated Section IV, part of Section
III.A, and the burden of proof holding from Duke I. The facts
were not affected by the subsequent rulings.
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In addition to the general overview and undisputed facts
set forth in that opinion, the following additional facts are
relevant to this opinion.
Duke‟s Chairman of the Board and Chief Executive Officer,
William S. Lee, testified before the North Carolina Utilities
Commission6 on July 15, 1985, regarding twelve of Duke‟s
6
Lee also testified before the South Carolina Public Service
Commission in Columbia, South Carolina, on July 30, 1985,
regarding a rate increase that Duke was seeking. (Pl.‟s Br. in
Supp. of Mot. for Summ. J. (“Pl.‟s Br.”), Ex. 10 (Doc. 435-11) at
5.) During his testimony, Lee described the plants in ECS:
Finally, the Company is undertaking a program to
rehabilitate certain of our older fossil units,
representing approximately 997 mw of capacity. These
units are no longer reliable because of their age and
because their use as peaking units in the past few
years has stressed the units, which originally were
designed for base load use. The old coal-fired units
generally will require repair or replacement of
turbine rotors, precipitators and feedwater heaters,
reinsulation of generator rotors, rewinding of
generator stators, retubing of condensers, and many
other unit specific refurbishments to make them
reliable. We have been operating these units on a
“patch and run” basis . . . . Historically, units of
this age and condition would be retired and scrapped.
We are attempting to rehabilitate the units, however,
because we believe that it will be substantially
cheaper to rehabilitate them than to build new units
as future additions to capacity.
(Id. at 18-19.) On July 31, 1985, Lee testified that “[i]n the
case of nine of [the plants], they simply can not be operated.
In the case of three of them, from time to time they might be
operated in an emergency. But they can not be called upon by
the dispatcher whenever he needs capacity.” (Pl.‟s Br., Ex. 16
(Doc. 435-17) at 21.)
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units7 that had been placed in ECS.
When questioned about
whether the 997 megawatts of power from the extended cold
shutdown plants were actually available, although the
reliability of the plants was suspect, Lee responded,
No, sir. On those 12 units – those 12 units are not
available for the dispatcher to use, and nine of them
he can‟t even touch. Three of them he could call on
in an emergency, but nine of them simply cannot be
run. It isn‟t a matter of reliability that caused us
to remove them. It‟s the fact that they‟re broke and
they‟ve got to be fixed.
(Pl.‟s Br., Ex. 15 (Doc. 435-16) at 12; see also id., Ex. 16
(Doc. 435-17) at 23 (explaining that the twelve ECS units “had
to come out or they were going to fly apart.
There were some
serious problems with the turbines and with the generators. I
don‟t want to wreck the units; therefore, they are out of
service until they can be restored.”); id. at 27 (explaining
that some plants‟ cracked rotor forgings could eventually burst
and throw pieces of rotor up to half a mile).)
7
He also
Lee identified twelve units in ECS: Allen 1 and 2, Buck 3
through 5, Cliffside 1 through 4, Dan River 1 and 2, and
Riverbend 6. (Pl.‟s Br., Ex. 14 (Doc. 435-15) at 48.) Here,
the thirteen units at issue are: Allen 1 and 2, Buck 3 through
5, Cliffside 1 through 4, Dan River 3, and Riverbend 4, 6, and
7. (Pl.‟s Br. (Doc. 435) at 11.) Dan River 3 and Riverbend 4
and 7 are not addressed in Lee‟s testimony.
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explained, however, that it would take about three years to know
what Duke was going to do with all twelve of the units.8
(Id.)
On July 16, 1985, Lee continued his testimony, and in
general, he described the units in ECS as deteriorating and
requiring “major rehabilitation” to make them “available to last
into the next century for service.”
(Pl‟s Br., Ex. 14 (Doc.
435-15) at 48-49; see id. at 54-55 (“It became clear that this
group of twelve units would not last until an expected
retirement date, but rather had to be taken out of service and
rehabilitated in a major way [“total rehabilitation”] . . . .”).)
He then outlined the state of each unit in particular.
According to Lee, Allen 1 was not available and could not
be made available for service.
a precipitator replaced.
He explained, “Allen 1 must have
Two of the turbine rotors must be
repaired or replaced. . . . The feed water heaters need to be
replaced.
The generator rotor requires reinsulation of the
copper, and the boiler has to be modified and upgraded in
several areas.”
(Id. at 49.)
Like Allen 1, Allen 2 required
8
See also Pl.‟s Br., Ex. 16 (Doc. 435-17) at 20-21
(explaining that the twelve units were “deteriorating in their
reliability . . . such that with a number of them it became
dangerous to continue the operation, and it was clear they would
not last till their normal retirement date. They were removed
from service. Now we are going into those units and examing
[sic] them in great detail. And that is the study of their
rehabilitation.”).
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replacement of the precipitator and feed water heaters,
reinsulation of the generator rotor, and modification and
upgrade of the boiler.
Allen 2 also needed a complete rewinding
of the stator (requiring “new copper coils, insulation, and the
works”), and was “not available for service at all.”
(Id.)
Buck 3‟s stator required rewinding, and the boiler required
major replacements. In addition, it had a “condemned generator
rotor,” which meant that it was “too dangerous to operate under
any circumstances” and was therefore also not available for
service.
(Id. at 49-50.)
Buck 4, which was also “not available
for service at all,” required rewinding of the stator,
reinsulation of the generator rotor, replacement of major
portions of the boiler superheater water walls and the drum
circulation system, and replacement of condenser tubes. (Id.)
Buck 5 had indications of cracking in the generator rotor
forging and the rotor itself, requiring both to be replaced.
(Id.)
Additionally, according to Lee, “[m]ajor portions of the
boiler‟s water walls, tubes, and the reheater tubes have got to
be replaced.”
(Id.)
Buck 5 “could be made available for
limited duty for emergencies only.”
(Id. at 51.)
Cliffside 1 required retubing of the condenser, replacement
of the feed water heaters, rewinding of the generator stator,
and was “not available for service at all.” (Id.) Cliffside 2
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had the same problems as Cliffside 1, but also required a
rewinding of the generator rotor. (Id.) Consequently, it, too,
was “not available for service at all.”
(Id.)
Cliffside 3
needed rewinding of the generator stator, reinsulation of the
rotor, and replacement of the feed water heaters and the cracked
high-pressure turbine shell. (Id. at 51-52.)
“not available for service at all.”
Cliffside 3 was
Cliffside 4 required many
of the same repairs and was also not available for service at
all. (Id. at 52.)
Finally, Riverbend 6 required replacement of low-pressure
feed water heaters and “major portions of the water wall tubes
in the boiler,” rewinding of the generator rotor and the stator,
and repair or replacement of the cracked turbine. (Id. at 53.)
The plant was “available for service under extreme emergency
conditions for only a few times, or we‟ll lose it altogether.”
(Id.)
On September 3, 1986, Lee again testified before the North
Carolina Utilities Commission in regards to Duke‟s application
seeking authority to increase its rates and charges for
electrical service.
(Pl.‟s Br., Ex. 12 (Doc. 435-13) at 7.)
Lee addressed ECS and PMP, explaining that “[r]ather than retire
the units, we adopted the ECS program to rehabilitate them and
extend their lives.”
(Id. at 15 (describing how the units in
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ECS “could no longer provide reliable service as a result of
their age and condition”).)
Lee explained, “The obvious benefit
of PMP is that we add capacity at very reasonable cost.”
at 17.)
(Id.
On April 12, 1991, Lee testified before the North
Carolina Utilities Commission that Duke was continuing the PMP,
describing it as “a program for our older coal fired units which
was begun in 1985 to allow those units to operate well beyond
their expected retirement at the end of their initial design
life.”
(Pl.‟s Br., Ex. 13 (Doc. 435-14) at 4, 8.)
Additional undisputed facts will be addressed as necessary
throughout this opinion.
II.
A.
STANDARDS OF REVIEW
Motions in Limine and Expert Testimony
Federal law governs the admissibility of expert testimony.
See Bryte ex rel. Bryte v. Am. Household, Inc., 429 F.3d 469,
476 (4th Cir. 2005).
Federal Rule of Evidence 702 provides:
A witness who is qualified as an expert by
knowledge, skill, experience, training, or education
may testify in the form of an opinion or otherwise if:
(a) the expert‟s scientific, technical, or other
specialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in
issue;
(b) the testimony is based on sufficient facts or
data;
(c) the testimony is the product of reliable
principles and methods; and
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(d) the expert has reliably applied the
principles and methods to the facts of the case.
An expert‟s testimony is admissible under Rule 702 if it “rests
on a reliable foundation and is relevant.”
Westberry v.
Gislaved Gummi AB, 178 F.3d 257, 260-61 (4th Cir. 1999) (quoting
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999) (internal
quotation marks omitted)); see Westberry, 178 F.3d at 260 (“The
first prong of this inquiry [under FRE 702] necessitates an
examination of whether the reasoning or methodology underlying
the expert‟s proffered opinion is reliable - that is, whether it
is supported by adequate validation to render it trustworthy.
The second prong of the inquiry requires an analysis of whether
the opinion is relevant to the facts at issue.” (citations
omitted)).
This court, which serves a gate-keeping function, remains
conscious of “two guiding, and sometimes competing, principles:”
On the one hand, the court should be mindful that Rule
702 was intended to liberalize the introduction of
relevant expert evidence. And, the court need not
determine that the expert testimony a litigant seeks
to offer into evidence is irrefutable or certainly
correct. As with all other admissible evidence,
expert testimony is subject to being tested by
“[v]igorous cross-examination, presentation of
contrary evidence, and careful instruction on the
burden of proof.” On the other hand, the court must
recognize that due to the difficulty of evaluating
their testimony, expert witnesses have the potential
to “be both powerful and quite misleading.” And,
given the potential persuasiveness of expert
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testimony, proffered evidence that has a greater
potential to mislead than to enlighten should be
excluded.
Id. at 261 (citations omitted).
B.
Summary Judgment
In this suit, Duke has also moved for summary judgment,
which is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.”
56(a).
Fed. R. Civ. P.
Material facts are those that “might affect the outcome
of the suit under the governing law.”
Lobby, Inc., 477 U.S. 242, 248 (1986).
Anderson v. Liberty
This court must view all
of the evidence “in the light most favorable to the party
opposing the motion.”
Zahodnick v. Int‟l Bus. Machs. Corp., 135
F.3d 911, 913 (4th Cir. 1997).
At issue is whether Duke should
have sought a pre-project permit for any of the projects in this
suit.
“[T]o trigger [the] PSD permitting requirement, there
must be (1) a „physical change‟ and (2) a „significant net
emissions increase.”
Duke IV, 2010 WL 3023517, at *2.
Because summary judgment must be determined based on
consideration of “admissible evidence” (see Rule 56), this court
will first determine Duke‟s motions in limine and then address
its summary judgment motion.
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III. MOTIONS IN LIMINE
Duke has raised objections to four separate expert
witnesses designated by the Government.
423, 424.)
(See Docs. 421, 422,
The Government‟s experts employ two separate
methodologies in support of the Government‟s case: the GADS
methodology and the PROMOD methodology. (See Duke Energy‟s Br.
in Supp. of Mot. in Limine (“Duke‟s Br.”) (Doc. 425).)
The
testimony of the four expert witnesses and the corresponding
objections are directed to those two methodologies. For the
reasons that follow, this court finds that Duke‟s objection to
the expert testimony regarding the GADS methodology should be
sustained, as the parties agree that the GADS methodology and
resulting testimony are irrelevant.
This court further finds
that Duke‟s objection to the expert testimony regarding the
PROMOD methodology should be sustained in part and overruled in
part as explained below.
A.
GADS Methodology
The “GADS methodology” takes “pre-project availability data
gathered from the Generating Availability Data System („GADS‟)
database and post-project utilization assumptions provided by
[the Government‟s expert, Robert] Koppe.”
425) at 26.)
(Duke‟s Br. (Doc.
According to Duke,
[GADS] first assumes that the like-kind component
replacement projects in this case increase the
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availability of the entire unit by allowing the unit
to “recover” outage time and “derates” previously lost
due to the now-replaced component. It then assumes
that such an increase in the availability of a unit
results in a proportionate increase in generation from
that unit, thereby yielding greater emissions. [The
Government‟s expert Dr. Ranajit] Sahu‟s calculations
attempt to quantify the precise increase in emissions
that he asserts should have been predicted from the
alleged increase in availability.
(Id. at 27.)
Duke argues that the GADS methodology is inapplicable to
the thirteen units still at issue in this case, all of which
were PMP units being kept in ECS.
The Government agrees with
Duke that GADS is inapplicable to these thirteen units9 and
asserts that “Duke‟s arguments about the reliability of the
„GADS methodology‟ are a distraction, because that methodology
is not at issue in this case.”10
22.)
(Pl.‟s Opp‟n Br. (Doc. 436) at
According to the Government, “this Court need not wade
into any of these disputes over the GADS methodology, because as
9
While acknowledging that the GADS methodology is
irrelevant in this case, the Government does assert that GADS is
a valid and tested methodology, validated by the Electric Power
Research Institute, an independent research arm of the utility
industry, and previously employed by Duke. (Pl.‟s Opp‟n Br.
(Doc. 436) at 36-37.)
10
“Indeed, Duke was advised eight years ago that Plaintiffs
were not relying on the availability-based GADS methodology for
PMP claims.” (Pl.‟s Opp‟n Br. (Doc. 436) at 35.)
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explained above it is not at issue for any of the PMP claims.”
(Id. at 38.)
Since both parties agree that GADS does not apply to the
thirteen plants at issue,11 this court grants Duke‟s motion to
exclude testimony regarding GADS, at least for purposes of this
summary judgment determination.
B.
PROMOD Methodology
The second methodology at issue, PROMOD, is a computerized
system dispatch model used by Duke to “forecast near-term fuel
needs and long-term future additions to capacity.”
Br. (Doc. 425) at 28.)
(See Duke‟s
PROMOD uses algorithms to “convert a
11
Additionally, in its consolidated reply in support of its
motions in limine and summary judgment motion, Duke also asserts
that the GADS testimony is relevant for impeachment purposes,
including showing that the PMP units were not inoperable prior
to ECS and that a non-zero baseline is appropriate for measuring
increases in emissions. (Duke Energy‟s Consol. Reply in Supp.
of Mot. in Limine & Mot. for Summ. J. (“Duke‟s Reply”) (Doc.
440) at 12-13 (“[T]he fact that these experts defended both
Plaintiffs‟ GADS and PROMOD methodologies as reliable for the
PMP projects - even though those methodologies generate wildly
inconsistent results - calls into question the validity of both
approaches and underscores the need for rigorous validation
testing that Sahu and Koppe failed to undertake.”).) But see
Pl.‟s Mem. in Opp‟n to Duke Energy‟s Mot. for Summ. J. (“Pl.‟s
Mem. in Opp‟n”) (Doc. 437) at 6 n.1 (“[The fact] that an
inapplicable analysis based on GADS data would provide different
results than Duke‟s PROMOD predictions is hardly surprising,
given the differences between the two types of data and the
facts of the Plant Modernization Program” because GADS is used
to “predict availability improvements from discrete component
replacements” and is, by definition, “relevant to outages at
operating plants,” which the PMP units were not.).
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„large volume of input data assumptions‟ into projected future
„outputs‟ including the „capacity factor‟ of the various units.”
(Id. at 29.)
Two of the Government‟s experts, Mr. Biewald and
Mr. Hayet, used PROMOD fuel budget modeling runs, allegedly from
around the time of the modifications at issue, and gave Dr.
Sahu, another Government expert, the “projected capacity factors
from those runs for the units at issue.”
(Id.)
Dr. Sahu then
took the “capacity factor outputs from the modeling runs and
converted them into (retrospective) projections of future
generation by the unit.”
(Id.)
Using these projections, Dr.
Sahu claims to have “projected what emissions would occur after
the [PMP] projects.”
(Id. at 29-30.)
Then, Dr. Sahu compared
the baseline of how much the units were emitting before they
were restarted12 (generally zero because the PMP units had been
in ESC) with his prediction of emissions after the units were
restarted.
(Id. at 30.)
Duke argues that the portion of Dr. Sahu‟s testimony that
was based on the “actual-to-potential” test should be excluded
12
For the thirteen units at issue in this case, Dr. Sahu
“calculated a baseline of two years prior to the restart of the
units following the PMP work.” (Duke‟s Br. (Doc. 425) at 30.)
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as irrelevant because Duke IV rejected that test.13
See Duke IV,
2010 WL 3023517, at *5 (“[T]he plain language of the regulations
requires a utility to obtain a pre-construction permit when
proposed changes „would increase the actual annual emission of a
pollutant above the actual average for the two prior years.‟
Thus, a comparison must be made between pre-project levels of
actual emissions and post-project levels of actual
emissions14.”).
This court agrees that testimony based on the
actual-to-potential test should be excluded, as Duke IV held
that the issue to be determined is “actual-to-projected-actual”
test.
See Duke IV, 2010 WL 3023517, at *5.
Additionally, Duke claims that PROMOD is neither “helpful”
under Rule 702 nor “relevant” under Rule 402 (Duke‟s Br. (Doc.
425) at 49), and specifically argues that the Government‟s
expert testimony regarding PROMOD should be excluded because:
(1) the methodology “completely fails to address the essential
13
“Accordingly, Sahu‟s testimony regarding the „actual-topotential test‟ is legally irrelevant, must be excluded under
Rule 402 of the Federal Rules of Evidence, and is thus [] not
otherwise addressed in this motion.” (Duke‟s Br. (Doc. 425) at
26.)
14
“According to Duke III, „[a]ctual emissions‟ are measured
„in a manner that looks to the number of hours the unit is or
probably will be actually running.‟ If an increase in hours of
operation is caused or enabled by a physical change, the
increased hours must be included in the pre-project calculus.”
Duke IV, 2010 WL 3023517, at *5 (quoting Duke III, at 577-78).
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element of causation, part of the government‟s burden of proof,”
and (2) the Government‟s experts apply PROMOD “in a manner
inconsistent with related requirements regarding the „before‟
and „after‟ period to be used to determine whether there has
been an emissions increase.”15
(Id.)
The question of the “before” and “after” period requires
resolution of the appropriate baseline regulation determination,
a significant issue in this case.
1.
Causation
Duke argues that the Government‟s expert testimony
regarding PROMOD is “irrelevant because [PROMOD] does not
address the necessary element of causation.”
(Duke‟s Br. (Doc.
425) at 51; see id. at 14 n.5 (“The government has conceded
through its expert that this causation requirement exists in
15
Duke argues that the Government‟s expert testimony
regarding PROMOD uses the wrong baseline period (see infra Part
III.B.2). Duke and the Government also contest whether Dr. Sahu
used more recent projected emissions (the two years immediately
after the projects) or more distant projected emissions (almost
ten years after the projects) as the basis for his opinion.
According to Duke, Dr. Sahu based his opinion that the projects
could be expected to cause a significant emissions increase on
the more distant projection. (Duke‟s Br. (Doc. 425) at 30 and
n.23.) According to the Government, however, Dr. Sahu used the
more recent projection in developing his opinion. The
Government identifies a “dispute of fact as to use of long-term
predictions of generation to calculate post-project emissions.
However, Duke concedes that even using short-term predictions,
there was an emissions increase if the Court applies EPA‟s
interpretation of the baseline regulations.” (Pl.‟s Mem. in
Opp‟n (Doc. 437) at 10 n.2.)
- 19 -
both the 1980 rules and the 1992 WEPCo rules.” (citing [Duke‟s
Br. (Doc. 425) Ex. 25 (Doc. 427)] Dep. of Ranajit Sahu at 286:920)); Expert Report of Frank C. Graves (“Graves Rep.”) (Doc.
428-10) at 5 (asserting that Government expert Dr. Sahu‟s
analysis “shows no causality whatsoever”).)
“NSR will not apply
unless EPA finds that there is a causal link between the
proposed change and any post-change increase in emissions.”
57 Fed. Reg. at 32,314, 32,326 (July 21, 1992)(explaining that
increased operations resulting from “system-wide demand growth,
which would have occurred and affected the unit‟s operations
even in the absence of the physical or operational change,”
should be excluded from calculations of future actual
emissions).
According to the Duke IV opinion, “[i]f an increase
in hours of operation is caused or enabled by a physical change,
the increased hours must be included in the pre-project
calculus.”
577-78).
Duke IV, 2010 WL 3023517, at *5 (citing Duke III at
According to Duke, “[a]ll the PROMOD proves is the
unremarkable proposition that Duke expected to run the units
more in the long-term future because it expected ongoing
increases in system-wide demand for electricity.”
(Doc. 425) at 51.)
- 20 -
(Duke‟s Br.
The Government claims that causation is established by
Duke‟s own documents and testimony16 as well as the testimony of
the Government‟s expert Mr. Koppe.17
(See Pl.‟s Opp‟n Br. (Doc.
436) at 25 (“Mr. Koppe will testify that „all‟ of the
electricity that Duke expected to generate from the plants was
directly „attributable to the PMP‟ and „could not have been
accomplished without it.‟”).)18
The Government argues that the
units were inoperable prior to being put in ECS (see Pl.‟s Br.
(Doc. 435) at 7, 8 (repeatedly referring to these thirteen PMP
units as “mothballed”)), and that causation can therefore be
deduced from any production and emissions after the PMP
modifications.
(See Pl.‟s Opp‟n Br. (Doc. 436) at 24 (arguing
that “all post-project operations at [Duke‟s] renovated plants
16
See Pl.‟s Opp‟n Br. (Doc. 436) at 25 n.20; Pl.‟s Mem.
(Doc. 435) at 12-15.
17
The Government argues that the opinions of Mr. Biewald
and Mr. Hayet, who testified about PROMOD, should not be
excluded simply because, in addition to testifying about Duke‟s
use of and predictions using PROMOD, they “did not also offer
opinions on whether the generation predicted by Duke‟s
„forecasts‟ was causally linked to the modernizations.” (Pl.‟s
Opp‟n Br. (Doc. 436) at 23.)
18
Dr. Koppe specifically concluded, inter alia, that
“[p]rior to each activity, it should have been expected that the
replacements would increase the amount of electricity produced.
. . . The replacements were expected to eliminate the problems
that caused outages, thereby increasing the availability of the
unit.” (Expert Report of Robert H. Koppe (“Koppe Rep.”) (Doc.
436-2) at 17.)
- 21 -
resulted from the Plant Modernization Program”); see also Koppe
Rep. (Doc. 436-2) at 59 (“Duke considered the purpose of the PMP
to be to extend the lives of units that would otherwise have to
be retired, by performing major modifications on boiler,
turbine, control, and other systems.”); Cf. id. at 60 (“Capacity
factors for the PMP units in the early 1980s were very low
because the units were shut down most of the time, because they
were not needed (i.e. they were in reserve shutdown).”).)
Duke, however, responds that the plants at issue were
operable prior to being placed in ECS.19
“[The Government‟s
position that the plants were inoperable] is contrary to the
indisputable data showing that the PMP units were in fact
operating at the time they were placed into ECS.” (Duke‟s Reply
(Doc. 440) at 13.)
According to Duke, “the units, in fact, were
not „broken down‟ or „inoperable for years.‟
To the
contrary . . . these units were capable of generating and, in
fact, did generate substantial power before they were
temporarily shut down.”
(Id. at 8; see also Graves Rep. (Doc.
19
Duke circulated dehumidified air throughout the plants to
keep them in working order and kept at least one plant in the
system dispatch service at all times. (Duke‟s Br. (Doc. 425) at
21 n.13 (“Duke wanted to keep at least one unit operational at
all times.”).) Additionally, Duke argues that the GADS data
actually shows that the plants were “capable of substantial
generation at the time they were placed into ECS.” (Duke‟s
Reply (Doc. 440) at 10.)
- 22 -
428-10) at 14 (“The plants chosen for ECS . . . . were still
operationally viable, but their economics had become unfavorable
relative to the newer plants.”).)
If the units were operable,
the Government will have much greater difficultly demonstrating
how much, if any, of an emissions increase was caused by the
PMP.
(See Duke‟s Reply (Doc. 440) at 16 (“Plaintiffs make no
attempt to demonstrate which portion of the emissions projected
through PROMOD is attributable to the projects at issue rather
than, for example, increased demand.
Rather, Plaintiffs place
the entire weight of their causation argument on the factual
assertion that „all post-project operations at [Duke‟s]
renovated plants resulted from‟ the PMP projects.”); Graves Rep.
(Doc. 428-10) at 19 (asserting that “any projected increases in
emissions are attributable to independent factors only, and not
to repairs”).)
Thus, while both parties‟ arguments depend upon a disputed
issue of fact as to the operability or inoperability of the
plants prior to the PMP (see Duke‟s Reply (Doc. 440) at 17
(“Plaintiffs‟ liability argument is entirely dependent on a
factual showing that the units at issue were completely
inoperable absent the PMP projects.”) and Pl.‟s Mem. in Opp‟n
(Doc. 437) at 8 (“At the very least this evidence establishes a
material dispute of fact that is fatal to Duke‟s summary
- 23 -
judgment motion.”)), that dispute goes to the weight of the
evidence, not to its admissibility.
While there is a difference
of opinion between the parties as to operability or
inoperability, the Government has tendered evidence from various
sources as to its proof of causation, and for that reason,
Duke‟s objection as to the admissibility of the PROMOD expert
testimony on the basis of causation is not persuasive at this
juncture of the proceedings.
The Government makes an additional argument that causation
can also be established by judicial estoppel, and Duke is
therefore estopped from challenging causation at all.
Br. (Doc. 435) at 34.)
(Pl.‟s
Judicial estoppel requires that: (1) the
party against whom estoppel is sought “must be seeking to adopt
a position that is inconsistent with a stance [factual rather
than legal] taken in prior litigation”; (2) “the prior
inconsistent position must have been accepted by the court”; and
(3) the party sought to be estopped must have “intentionally
misled [i.e., not by inadvertance or mistake] the court to gain
unfair advantage.”
Cir. 1996).
Lowery v. Stovall, 92 F.3d 219, 224 (4th
“Judicial estoppel precludes a party from adopting
a position that is inconsistent with a stance taken in prior
litigation.
The purpose of the doctrine is to prevent a party
- 24 -
from playing fast and loose with the courts, and to protect the
essential integrity of the judicial process.”
Id. at 223.
The Government cites State ex rel. Utilities Comm‟n v.
Eddleman, 320 N.C. 344, 357, 358 S.E.2d 339, 349 (1987), in
which the North Carolina Supreme Court found that substantial
evidence supported the North Carolina Utilities Commission‟s
findings that twelve of Duke‟s units, which had been placed in
ECS, could not “provide reliable service until major repairs can
be performed which will take a number of years.”
The court
relied on the testimony of William S. Lee, Duke‟s chairman, that
“rehabilitation of these units would require repair or
replacement of turbine rotors, precipitators and feed water
heaters, reinsulation of generator rotors, rewinding of
generator stators and retubing of condensers, among other
things.”20
Id. at 358, 358 S.E.2d at 349.
Ironically, in
contrast to its arguments in this suit, the Government argued in
Eddleman that “a proper measure of the company‟s capacity
reserves should have assumed operational ability on the part of
20
There, Duke had argued that these twelve units had been
placed in ECS because they could no longer provide “reliable
service.” Eddleman, 320 N.C. at 356, 358 S.E.2d at 348. Mr.
Lee testified that, over a three-year period, Duke would examine
whether or not these units could be rehabilitated and, even if
they could be rehabilitated, none of them could be brought back
into service for at least several years. Id.
- 25 -
those units.”21
Id. at 356, 358 S.E.2d 348.
Regardless, “not
reliably operable” is not fully synonymous with “inoperable,”
and the Eddleman opinion does not clarify whether Duke‟s
statements regarding either the rehabilitation of the units in
ECS or the units‟ inability to provide “reliable service”
directly contradict its arguments in this case.
As a result,
this court is not able to conclude that Duke has or is
attempting to intentionally mislead the court, and is unable to
find on these facts that Duke is estopped from challenging
causation.
Since the Government has presented sufficient evidence of
causation to require overruling Duke‟s objection to expert
testimony on PROMOD, the question of causation will remain an
issue of fact for determination at trial.
2.
PROMOD Methodology and Resulting Baseline
Duke‟s second basis for objection to the PROMOD expert
witness testimony is that the “experts apply the methodology in
a manner that conflicts with EPA‟s own rules and the approved
North Carolina SIP. [That is], they begin with a baseline of
21
In Eddleman, the Government argued that the Commission
erred by failing to include the production capacity of the
twelve units in ECS, at least half of which, according to the
Government, had availability ratings of 100 percent. Eddleman,
320 N.C. at 356, 358 S.E.2d at 348. The Government claimed that
Duke placed these twelve units in ECS simply to avoid excesscapacity problems. Id.
- 26 -
non-operations (i.e., a baseline of zero emissions).”
(Duke‟s
Br. (Doc. 425) at 54.)
As found by the Duke IV opinion, this court will use an
“actual-to-projected-actual test . . . to determine whether Duke
Energy should have sought a pre-project permit for any of the
projects at issue.”
p. 18.
Duke IV, 2010 WL 3023517, at *5; see supra
Under that test, the calculation of actual emissions is
the starting point, or baseline, for the final “actual-toprojected-actual” determination.
The applicable PSD Regulations
explain how to determine actual emissions, stating,
In general, actual emissions as of a particular date
shall equal the average rate, in tons per year, at
which the unit actually emitted the pollutant during a
two-year period which precedes the particular date and
which is representative of normal source operation.
The reviewing authority may allow the use of a
different time period upon a determination that it is
more representative of normal source operation.
40 C.F.R. § 51.24(b)(21)(ii) (1981); see also 45 Fed. Reg.
52,676, 52,699 (Aug. 7, 1980).
North Carolina‟s SIP, effective
June 18, 1976, adopted the regulation without change.
See 15A
N.C. Admin. Code 2D.0530 (“For the purposes of this Regulation
the definitions contained in 40 C.F.R. 51.166(b) and 40 C.F.R.
- 27 -
51.301 shall apply.”), approved at 47 Fed. Reg. 7836 (Feb. 23,
1982).22
The parties dispute, however, whether this two-year
baseline period should be the two years prior to the restart
following ECS and PMP or the two years prior to ECS. Under the
Government‟s PROMOD methodology, the baseline is zero emissions
because the plants were in ECS and not in operation. Duke offers
three related objections to EPA‟s use of the zero-emissions
baseline: (1) North Carolina determined that the correct
baseline period was the two years of plant operation prior to
any ECS shutdown, thus precluding the EPA‟s use of a zero
emissions baseline (Duke‟s Br. (Doc. 425) at 54); (2) North
Carolina law (and NC DENR‟s approval) controls, while federal
law (and EPA‟s interpretation) does not (Duke‟s Resp. in Opp‟n
to Pl.‟s Mot. for Summ. J. (“Duke‟s Resp.”) (Doc. 438) at 2021); and (3) even if EPA‟s interpretation controls, it is
neither long-standing nor consistent and is therefore not
22
This court will address the issue raised by the parties
of whether the SIP is state or federal law and whose
interpretation controls hereafter. While not controlling, it is
notable that as to 40 C.F.R. § 51.24(b), North Carolina adopted
those definitions without modification, change, or further
explanation. See generally 15A N.C. Admin. Code 2D.0530. Thus,
in interpreting the applicable regulations, the only formal
regulatory interpretation is that contained in the original
explanation of the rule by EPA and subsequent cases and EPA
interpretations.
- 28 -
entitled to any deference by this court (Duke‟s Reply (Doc. 440)
at 26). This opinion will address each objection in turn.
a.
North Carolina’s Interpretation and Determination
The parties contest whether North Carolina issued an
interpretation, or made a determination, of the appropriate
baseline.
According to Duke, North Carolina made a
determination that the applicable baseline period was two years
before the relevant units were put into ECS.
Duke argues,
The federally approved SIP in North Carolina expressly
gave the State permit reviewing authority the power to
determine what two-year period before a project is
representative of “normal source operations.” For
these 13 units, in temporary shutdown before the
projects, NC DENR effectively did just that. In 1983,
NC DENR decided that NSR would not apply when Duke
restarted those units. In so doing, NC DENR
necessarily determined that operation of Duke‟s units
before they were temporarily shut down was the correct
baseline period representative of normal source
operations.
(Duke‟s Br. (Doc. 425) at 54.)
In support of its argument, Duke
points to several letters exchanged between Duke and Robert F.
Helms, the Director of the North Carolina Division of
Environmental Management of the Department of National Resources
- 29 -
and Community Development, later renamed the North Carolina
Department of Environmental and National Resources (“NC DENR”).23
On August 17, 1983, Ronald V. Shearin, writing on behalf of
Duke, requested NC DENR‟s “concurrence with our interpretation
of State regulatory requirements which might be applicable to
Duke Power‟s placement of designated coal-fired units in an
extended cold shutdown status.”
(See Duke‟s Br., Ex. 3 (Doc.
425-4) at 2 (expressing particular concern about the future
application of NSPS and PSD).)
In this letter, Mr. Shearin
explained that Duke planned to put a “series of older units in
an extended cold shutdown status.”
He explained,
Based on information currently available, it appears
that these units will not be needed until
approximately 1991, when they will be brought back
on-line with minimal expenditures. While in an
extended cold shutdown mode, the units will be
properly maintained to permit bringing them on-line as
quickly as possible when needed.
(Id. (anticipating that Duke would need four to six weeks to
bring a unit back into service).)
Mr. Shearin also explained
that “[d]uring the period of temporary cold shutdown,” Duke
intended to keep all permits up to date and circulate
23
This court uses the abbreviation “NC DENR” for both the
North Carolina Department of Environment and Natural Resources
and the Department of Natural Resources and Community
Development.
- 30 -
dehumidified air through the units to prevent corrosion.
(Id.
at 2-3.)
In response to Mr. Shearin‟s letter, Mr. Helms wrote back
“concur[ring]” with Duke‟s assessment, explaining that
“[p]lacing units constructed prior to August 17, 1971, in an
extended cold shutdown status does not affect the exempt status
from 15 NCAC 2D.0524 New Source Performance Standards.”
Br., Ex. 5 (Doc. 425-6) at 2.)
(Duke‟s
He also explained, “[t]he units
do not have to meet the Prevention of Significant Deterioration
(PSD) requirements of 15 NCAC 2D.0530 if the existing permits
remain active and the units are not used for any emissions
credits or to project compliance with ambient standards.”
(Id.)
The Government attacks Duke‟s “new assertion that North
Carolina sub silentio determined that a non-zero baseline was
appropriate” (Pl.‟s Opp‟n Br. (Doc. 436) at 26), pointing out
that Duke‟s letter “did not even hint at the possibility of the
Plant Modernization Program.”
(Id. at 13.)
According to the
Government, Duke neither sought permission to renovate its
plants, which Duke‟s letter alleged would be brought online with
“minimal expenditures,” nor sought permission for a non-zero
baseline to apply to the renovations at issue.
(Id. at 26.)
For PSD permitting requirements to apply, there must be a
physical change or change in the method of operation of the
- 31 -
unit.
Duke mentions no physical change in its 1983 letter to NC
DENR (Duke‟s Br., Ex. 3 (Doc. 425-4) at 3) as was subsequently
described in Mr. Lee‟s 1985 testimony (see supra pp. 6-11), and
therefore NC DENR was left without the opportunity to evaluate
fully Duke‟s ECS plans.
This court agrees with the Government and finds that the
letters exchanged between Duke and NC DENR cannot substantiate
NC DENR‟s alleged approval of a non-zero baseline, because Duke
failed to describe the PMP or any expenditures other than those
characterized as “minimal.”24
Relatedly, Duke asserts that the deposition testimony of
Mr. John Evans, an Engineer III in the Department of Environment
and Natural Resources, shows that North Carolina would have used
a non-zero baseline.
(Duke‟s Br. (Doc. 425) at 57-58; see also
Pl.‟s Opp‟n Br., Ex. 65 (Doc. 436-23) at 7.)
24
The term “minimal” is somewhat vague, and does not fully
describe whether the expenditures were routine maintenance or
new construction. However, given Mr. Lee‟s testimony, there
does not appear to be a dispute that the PMP was something more
than “minimal” expenditures, especially in light of the
requested rate increase.
- 32 -
Mr. Evans, who headed up the “NSR, PSD section for the
Division of Air Quality”25 (Pl.‟s Opp‟n Br., Ex. 65 (Doc. 436-23)
at 8), explained that he was unfamiliar with Duke‟s extended
cold shutdown and plant modernization programs. (Id. at 14.)
At
his deposition, however, he read the letters exchanged between
Mr. Helms and Mr. Shearin and explained that, “if the intent was
to not shut the unit down permanently,” then the “starting point
[baseline] would be the two years prior to the shutdown.”26
at 10-13.)
(Id.
When asked by the Government, “If you were presented
with the situation where you determined there was a modification
that had occurred during a relatively long period of shutdown,
25
As an Engineer III, Mr. Evans “coordinate[d] all the PSD
applications that are in house. I don‟t have direct supervisory
responsibility for the engineers who work on the PSD permits,
but I direct them, give them guidance, review their work, act in
a sense as an – in a supervisory capacity but not direct
supervision.” (Pl.‟s Opp‟n Br., Ex. 65 (Doc. 436-23) at 9.)
Mr. Evans explained that he had “occasion to focus on
calculating emission increases for PSD purposes” including
revising the work of the engineer working on “at least one or
two PSD applications [from Duke] for combustion turbine projects
at Duke Energy facilities.” (Id. at 9-10.) These PSD
applications were for new rather than existing sources. (Id. at
14.)
26
See id. at 17-18 (“I could tell you how North Carolina
will [calculate baseline emissions when there has been a
modification]. I don‟t know how EPA does it, but in North
Carolina we start with the few years prior to the modification,
or the shutdown, as a starting point. If that‟s not
representative of new source operation, this facility can make a
demonstration with that and we agree, we will allow some other
period.”).
- 33 -
say near the end of the shutdown, would you research that issue
with folks in your office to determine how best to calculate
emissions?”, Mr. Evans replied,
I probably wouldn‟t. I mean, again, not my bailiwick.
Again we would just go back to the two years. Again,
this is [an] assumption that it is not a new – there
was no intent to permanently shut the unit down. If
we start from there, even if they make a modification
at the end of that period, we would still go back to
the period against our two years prior to the
shutdown, however long the shutdown is.
(Id. at 19-20.)
Mr. Evans clarified that he would look to EPA
guidance on how to calculate emissions to the extent North
Carolina‟s rules did not cover a particular area or were
ambiguous.
(Id. at 21.)
According to the Government, however, the “hearsay” and
“post hoc” testimony of Mr. Evans should be given “no weight.”27
(Pl.‟s Opp‟n Br. (Doc. 436) at 27 n.21 (citing United States v.
Hoechst Celanese Corp., 128 F.3d 216, 223 n.5 (4th Cir. 1997)
(explaining that “we give no weight to the 1995 affidavit of a
former EPA employee . . . which was prepared and submitted . . .
27
In an effort to diminish the weight of his opinion, the
Government points out Mr. Evans held a “basic coordinating
position” with no staff reporting to him. (Pl.‟s Opp‟n Br. (Doc.
436) at 27.) As Duke explains, however, Mr. Evans did oversee
“NSR, PSD section for the Division of Air Quality.” (Id., Ex. 65
(Doc. 436-23) at 8.)
- 34 -
for this litigation.
Like similar affidavits from individual
legislators, it is entitled to no weight as to the meaning of
legislation enacted, or in this case a regulation promulgated,
eleven years earlier”)).)
Although Mr. Evans, unlike the
declarant in Hoechst Celanese, was not simply testifying about
the meaning of legislation many years after its enactment, his
speculation about what baseline North Carolina would have used
for a plant that had been shut down for an extended period of
time and had been modified during that time still proves
problematic.
Mr. Evans repeatedly referenced what North
Carolina “would” do in certain situations.
Opp‟n Br., Ex. 65 (Doc. 436-23).)
(See generally Pl.‟s
He could not recall ever
having dealt with a plant that was shut down for twenty or
thirty years or with a plant that had been modified during a
relatively long shutdown.
(Id. at 19-21.)
Because of the
speculative nature of Mr. Evans‟ testimony, the change in
circumstances between Duke‟s original representation of “minimal
expenditures” and the actual PMP, and absence of further
clarification from North Carolina‟s SIP or NC DENR‟s 1983 letter
to Duke, this court is not persuaded that NC DENR actually
determined the appropriate baseline period for the thirteen
- 35 -
units subject to the PMP, or that North Carolina issued a formal
determination which might otherwise control in this case.
b.
Whose Interpretation Controls?
Assuming arguendo that NC DENR did render some type of
interpretation or permitting action, the Government and Duke
contest whether EPA‟s or North Carolina‟s interpretation of
North Carolina‟s SIP should control.
Duke argues that North
Carolina‟s interpretation of its own SIP should control (Duke‟s
Resp. (Doc. 438) at 14), while the Government argues that this
court should defer to EPA‟s interpretation (Pl.‟s Reply to Resp.
to Mot. For Summ. J. (“Pl.‟s Reply”) (Doc. 439) at 9).
As
discussed above, Duke argues that North Carolina would use a
baseline period of two years prior to a unit‟s entry into ECS,
while the Government contends that the proper baseline is two
years before modifications were made - in the case of the
- 36 -
thirteen units at issue, a zero baseline.28
28
Duke argues that the Government “stipulated away their
„zero baseline‟ position in order to appeal this Court‟s ruling
in Duke I.” (Duke‟s Reply (Doc. 440) at 14.) According to the
parties‟ stipulations:
1.
Plaintiff and Plaintiff-Intervenors stipulate
that their contention that each of the projects at issue
in this case resulted in a significant net emissions
increase within the meaning of the relevant PSD
regulations is based solely on their contention that the
projects would have been projected to result in an
increased utilization of the units at issue.
2.
Plaintiff and Plaintiff-Intervenors stipulate
that they do not contend that the projects at issue in
this case caused an increase in the maximum hourly rate
of emissions at any of Duke Energy‟s units.
(Stipulations (Doc. 311) at 1-2.); see Duke IV, 2010 WL 3023517,
at *8 (“As part of the parties‟ joint stipulations, the EPA and
Intervenor-Plaintiffs stipulated that none of the Duke Energy
projects at issue increased the unit‟s maximum hourly rate of
emissions.”).
The Government argues, however, that Duke “asks the Court
to divine the effect of a stipulation concerning the operation
of an inapplicable legal test that was rejected and reversed by
the Supreme Court.” (Pl.‟s Reply (Doc. 439) at 12.) “Duke‟s
argument fails to acknowledge that any supposed link between PSD
and the separate maximum hourly rate test was severed by Duke
III, which held that the maximum hourly test „simply cannot be
squared‟ with the PSD rules.” (Id. at 13 (quoting Duke III, 549
U.S. at 578).) Additionally, the Government points out that the
stipulations explicitly preserve Plaintiffs‟ argument that Duke
expected each project to “result in an increased utilization of
the units at issue.” (Id.)
This court finds that there is a difference in emissions
analysis, particularly in light of the “actual-to-projectedactual” test, depending upon an hourly measure as opposed to an
annual measure. Because of the difference, this court does not
find the stipulation conclusive. Nevertheless, EPA‟s
stipulation, in light of its various reasonable interpretations,
points to the difficulty in dealing with regulations that are
not a model of clarity.
- 37 -
In support of their arguments, both parties cite the
Supreme Court‟s decision in Alaska Dep‟t of Envtl. Conservation
v. Envtl. Prot. Agency, 540 U.S. 461 (2004).
In Alaska, the
Court determined that EPA could “act to block construction of a
new major pollutant emitting facility permitted by ADEC
[Alaska‟s Department of Environmental Conservation, the
“permitting authority”] when EPA finds ADEC‟s BACT29 [Best
Available Control Technology] determination unreasonable in
light of the guides 7479(3) prescribes[.]”
Id. at 469.30
Like North Carolina‟s SIP, Alaska‟s SIP had been approved
by EPA.
Id. at 470.
The language of Alaska‟s SIP tracked the
requirement and definition of the BACT in the CAA.
Id. at 473.
ADEC “employed EPA‟s recommended top-down methodology” to
determine the BACT but then endorsed a method that was not the
BACT.
Id. at 475-76.
EPA found, and the Supreme Court agreed,
29
Under the CAA‟s PSD program, “no major air pollutant
emitting facility may be constructed unless the facility is
equipped with „the best available control technology‟ (BACT).”
Id. at 468.
30
The Court explained, “[i]n keeping with the broad
oversight role §§ 113(a)(5) and 167 vest in EPA, the Agency
maintains, it may review permits to ensure that a State‟s BACT
determination is reasonably moored to the Act‟s provisions. We
hold, as elaborated below, that the Agency has rationally
construed the Act‟s text and that EPA‟s construction warrants
our respect and approbation.” Id. at 485.
- 38 -
that ADEC had acted unreasonably.31
Id. at 485 (explaining that
EPA had interpreted the CAA “rationally” and that its
“construction warrants our respect and approbation”).
In response, ADEC argued that, “[b]ecause the Act places
responsibility for determining BACT with „the permitting
authority,‟ . . . CAA excludes federal Agency surveillance
reaching the substance of the BACT decision.”
Id. at 488.
Although the Supreme Court acknowledged that Congress had
“entrusted state permitting authorities with initial
responsibility to make BACT determinations „case by case,‟” it
observed,
31
Despite finding that an emission control technology known
as selective catalytic reduction (SCR) was the BACT according to
EPA‟s top-down methodology, ADEC endorsed an alternative
technology proffered by the corporation at issue. Id. at 47677. After being confronted by EPA, who explained that once “it
is determined that an emission unit is subject to BACT, the PSD
program does not allow the imposition of a limit that is less
stringent than BACT,” ADEC again endorsed the alternative
technology, this time contradicting its earlier assessment that
SCR was the BACT. Id. at 478. EPA found that ADEC‟s conclusion
was “not supported by the record and [was] clearly erroneous,”
and its decision was “both arbitrary and erroneous.” Id. at
479, 480; see id. at 484 (noting that 42 U.S.C. § 7413(a)(5),
“[i]n notably capacious terms,” “armed” EPA with authority to
issue orders stopping plant construction when a state was not
acting in compliance with the CAA).
- 39 -
Under ADEC‟s interpretation, EPA properly
inquires whether a BACT determination appears in a PSD
permit, but not whether that BACT determination “was
made on reasonable grounds properly supported on the
record.” Congress, however, vested EPA with explicit
and sweeping authority to enforce CAA “requirements”
relating to the construction and modification of
sources under the PSD program, including BACT. We
fail to see why Congress, having expressly endorsed an
expansive surveillance role for EPA in two independent
CAA provisions, would then implicitly preclude the
Agency from verifying substantive compliance with the
BACT provisions and, instead, limit EPA‟s
superintendence to the insubstantial question whether
the state permitting authority had uttered the key
words “BACT.”
Id. at 489-90 (citations omitted).
The Supreme Court, however,
also emphasized the “limited role” of EPA, which had
acknowledged the need to give appropriate deference to and not
to second guess state decisions.
“Only when a state agency‟s
BACT determination is „not based on a reasoned analysis,‟ [as in
Alaska] may EPA step in to ensure that the statutory
requirements are honored.” See id. at 490-91 (“EPA‟s limited but
vital role in enforcing BACT is consistent with a scheme that
„places primary responsibilities and authority with the States,
backed by the Federal Government.‟”).
According to Duke, Alaska stands for the proposition that
EPA may not override North Carolina‟s “reasonable designation”
when it acts “within the range of permissible judgments” and
- 40 -
“makes clear that Plaintiffs‟ attempt to „second guess‟ NC DENR
is too late.”32
(Duke‟s Reply (Doc. 440) at 24.)
According to the Government, Alaska “does not address the
question of deference due an agency‟s regulatory
interpretation.”33
(Pl.‟s Reply (Doc. 439) at 10.)
It argues
that Alaska “has been cited for the proposition that, were a
state and EPA to disagree about a SIP, EPA‟s interpretation
32
See Alaska, 540 U.S. at 495 (explaining that Alaska
involved “preconstruction orders issued by EPA, not
postconstruction federal Agency directives” and “EPA itself
regards it as „imperative‟ to act on a timely basis, recognizing
that courts are „less likely to require new sources to accept
more stringent permit conditions the farther planning and
construction have progressed‟”) (citations omitted); (Duke‟s
Reply (Doc. 440) at 24 (“Here, the first PMP project was
completed nearly a decade before the Plaintiffs brought this
case, and all of the projects had been completed years before
Plaintiffs acted.”).)
33
In Alaska, the Supreme Court observed that EPA‟s
interpretation, presented in guidance memoranda, did not qualify
for Chevron deference but did warrant respect. See id. at
487-88 (explaining that “[c]ogent „administrative
interpretations . . . not [the] products of formal
rulemaking . . . nevertheless warrant respect”) (quoting
Washington State Dep‟t of Soc. & Health Servs. v. Guardianship
Estate of Keffeler, 537 U.S. 371, 385 (2003)) and Christensen v.
Harris Cnty., 529 U.S. 576, 587 (2000) (“Interpretations such as
those in . . . policy statements, agency manuals, and
enforcement guidelines, all of which lack the force of law - do
not warrant Chevron-style deference.”).
- 41 -
would „prevail.‟” (Id. (citing United States v. Ala. Power Co.,
372 F. Supp. 2d 1283, 1291-92 (N.D. Ala. 2005))
In support of its argument that North Carolina‟s
interpretation of its SIP is controlling, Duke also cites Train
v. Natural Resources Defense Council, Inc., 421 U.S. 60 (1975),
which states,
The Agency [EPA] is plainly charged by the Act
with the responsibility for setting the national
ambient air standards. Just as plainly, however, it
is relegated by the Act to a secondary role in the
process of determining and enforcing the specific,
source-by-source emission limitations which are
necessary if the national standards it has set are to
be met. . . . The Act gives the Agency no authority to
question the wisdom of the State‟s choices of emission
limitations if they are part of a plan which satisfies
the standards of § 110(a)(2), and the Agency may
devise and promulgate a specific plan of its own only
if a State fails to submit an implementation plan
which satisfies those standards.
Id. at 79.
This statement is dicta, and the Supreme Court‟s
holding actually upheld EPA‟s interpretation of § 110(a)(3). Id.
at 98. Furthermore, while this statement indicates that EPA
should approve a state‟s SIP that complies with the CAA, it does
not state that EPA must also defer to the state‟s interpretation
- 42 -
of that SIP.34
North Carolina‟s SIP, 15A N.C. Admin. Code
2D.0531, on the question of PSD regulations, incorporates the
federal regulations without any significant modification or
further explanation.
Duke also cites United States v. Interlake, Inc., 432 F.
Supp. 985 (N.D. Ill. 1977), Florida Power & Light Co. v. Costle,
650 F.2d 579 (5th Cir. 1981), United States v. General Dynamics
Corp., 755 F. Supp. 720, 722 (N.D. Tex. 1991),35 United States v.
Riverside Labs., Inc., 678 F. Supp. 1352, 1356 (N.D. Ill. 1988),
34
See Steve Novick & Bill Westerfield, Whose SIP Is It
Anyway? State-Federal Conflict in Clean Air Act Enforcement, 18
Wm. & Mary Envtl. L. & Pol‟y Rev. 245 (1994),
http://scholarship.law.wm.edu/wmelpr/vol18/iss2/2 (“The [Train]
decision states that EPA should approve a SIP that meets the
NAAQS, not that once EPA has approved a SIP, the state can
interpret the SIP any way it so chooses. Indeed, the Train
decision itself is an example of deference to an EPA
interpretation of the Clean Air Act. Just two years after
Train, however, parties were quoting its dicta in support of the
proposition that the United States should not be permitted to
enforce a SIP until the state has construed it.”).
35
In Gen. Dynamics Corp., the district court explained,
The dispositive issue as to plaintiff‟s claims in
this action is the effect of the agreed board order of
January 1986. The parties agree that defendant has
complied with the order. The dispute arises because
plaintiff contends that the order is a departure from
the requirements of the Texas SIP. Defendant claims
that the order is within the Texas SIP and that TACB‟s
[Texas Air Control Board‟s] interpretation of the
Texas SIP must be given deference by the EPA.
755 F. Supp. at 722.
- 43 -
United States v. DTE Energy Co., Civil Action No. 10-13101, 2011
WL 3706585 (E.D. Mich. Aug. 23, 2011), all in support of its
argument that courts should defer to a state‟s interpretation of
its own SIP.
The Government, on the other hand, cites a series of cases
supporting its argument that this court should defer to EPA‟s
interpretation of North Carolina‟s SIP, including Am. Cyanamid
Co. v. U.S. Envtl. Prot. Agency, 810 F.2d 493 (5th Cir. 1987),
United States v. Ford Motor Co., 736 F. Supp. 1539 (W.D. Mo.
1990), United States v. S. Ind. Gas & Elec. Co., No. IP99-1692CM/F, 2002 WL 1760699 (S.D. Ind. July 26, 2002), Safe Air for
Everyone v. U.S. Envtl. Prot. Agency, 488 F.3d 1088, 1097 (9th
Cir. 2007).
Both sides make persuasive arguments using these
cases.
The Fourth Circuit has not directly addressed whether a
state‟s interpretation or EPA‟s interpretation of a SIP
controls.
Although not indicative of the court‟s view on this
issue, the Fourth Circuit has previously referred to an EPAapproved SIP as “federal law.”
In Mirant Potomac River, LLC v.
U.S. Envtl. Prot. Agency, 577 F.3d 223, 227 (4th Cir. 2009), the
Fourth Circuit explained that “states have the primary
responsibility for assuring that air quality within their
borders meets the NAAQS.”
Id.
The court also explained,
- 44 -
however, that once a state‟s SIP has been approved by EPA “the
SIP becomes a binding federal regulation.”
Id. (citing 42
U.S.C. § 7410 & 7413 & Union Elec. Co. v. U.S. Envtl. Prot.
Agency, 515 F.2d 206, 211 (8th Cir. 1975) (“Upon approval or
promulgation of a state implementation plan, the requirements
thereof have the force and effect of federal law and may be
enforced by the Administrator in federal courts.”)); see also
W. Va. Chamber of Commerce v. Browner, No. 98-1013, 1998 WL
827315, at *2 (4th Cir. 1998) (unpublished) (“If the EPA
determines that a SIP complies with the Clean Air Act, the EPA
must approve it and the state regulations become enforceable as
federal law.”); Allegheny Energy Supply Co., LLC v. Spitzer,
Civil Action No. 1:05CV04, 2010 WL 3220355, at *5 (N.D. W. Va.
Aug. 12, 2010) (explaining that the plaintiffs sought “to
enforce compliance with federal law”) (citing Her Majesty The
Queen In Right of the Province of Ontario v. The City of
Detroit, 874 F.2d 332, 335 (6th Cir. 1989) (“If a state
implementation plan (“SIP”) is approved by the EPA, its
requirements become federal law and are fully enforceable in
federal court.”)).
In North Carolina ex rel. Cooper v.
Tennessee Valley Authority, 615 F.3d 291, 299 (4th Cir. 2010),
the Fourth Circuit explained,
While states are responsible for promulgating SIPs,
they must do so consistently with extensive EPA
- 45 -
regulations governing preparation, adoption by the
state, and submission to the EPA, 40 C.F.R. § 51, and
all SIPs must be submitted to the EPA for approval
before they become final. Once a SIP is approved,
however, “its requirements become federal law and are
fully enforceable in federal court.”
Id. (citations omitted).
Although these brief characterizations
of EPA-approved SIPs as “federal law” do not bind the Fourth
Circuit to accept EPA‟s interpretation, they contrast with other
courts‟ characterization of EPA-adopted SIPs as “state law” for
purposes of determining the controlling interpretation. Compare,
e.g., Riverside Labs., 678 F. Supp. at 1357 (“Because claims
based on the scope and application of the SIP are essentially
ones of state law, the USEPA's right to enforce the SIP in
federal court depends upon the Illinois courts' interpretation
of the regulation.” (citations and internal quotation marks
omitted)) with United States v. Congoleum Corp., 635 F. Supp.
174, 177 (E.D. Pa. 1986)(“When the EPA approves the state plan,
however, the plan is absorbed into federal law. . . .
Consequently, SIP, after it is adopted by the EPA, is federal
law.”).
Based on the case law and history of the CAA amendments,
this court finds that EPA‟s interpretation of SIP regulations
controls when it conflicts with NC DENR‟s interpretation,
particularly when, as here, the state SIP adopts the relevant
- 46 -
federal regulation without additional explanation, modification,
or change.
At any rate, as explained above, this court is not
persuaded that NC DENR actually made a relevant36 determination
of the proper baseline for the thirteen plants at issue. See
supra Part III.B.2.a.
Nevertheless, to the extent that NC DENR
has made a “determination” relevant to this dispute, the EPA‟s
interpretation controls.
c.
Deference to EPA’s Interpretation
In light of the finding that the evidence of North
Carolina‟s purported interpretation is not persuasive and that
the EPA‟s interpretation is controlling, this court must address
Duke‟s final contention that EPA‟s determination of a zero
baseline is not entitled to deference. (See Duke‟s Resp. (Doc.
438) at 20-21.)
Once again, the relevant regulations are:
(b)(21)(i) “Actual emissions” means the actual
rate of emissions of a pollutant from an emissions
unit, as determined in accordance with paragraphs
(b)(21)(ii)-(iv) of this section.
(b)(21)(ii) In general, actual emissions as of a
particular date shall equal the average rate, in tons
36
To the extent NC DENR did make some type of determination
based upon Duke‟s initial representation that the plants would
return online with “minimal expenditures,” any such
determination is not controlling in light of the actual work
subsequently performed under the PMP. See supra Part III.B.2.a.
- 47 -
per year, at which the unit actually emitted the
pollutant during a two-year period which precedes the
particular date and which is representative of normal
source operation. The reviewing authority may allow
the use of a different time period upon a
determination that it is more representative of normal
source operation.
40 C.F.R. § 51.24 (1981).
The parties dispute the consistency and longevity of EPA‟s
interpretation of the baseline calculations. According to the
Government, “the rules in this case are EPA-approved regulations
that are part of federal air pollution control law, and EPA‟s
interpretation of those rules [and therefore its use of a zero
baseline] is entitled to the normal degree of „controlling‟
deference.”
(Pl.‟s Reply (Doc. 439) at 10 n.4.)
Duke retorts:
“In sum, EPA is asking the Court to defer to an EPA policy that
was announced well after the relevant SIP and the relevant
projects, that was inconsistent with EPA‟s pre-existing views,
and that was subsequently abandoned.
This cannot be „the
agency‟s fair and considered judgment on the matter in
question.‟” (Duke‟s Reply (Doc. 440) at 26 (quoting Auer v.
Robbins, 519 U.S. 452, 462 (1997).)
To resolve the issue, this
court will first discuss the appropriate standard for awarding
deference to EPA‟s interpretation, then conduct a review of the
- 48 -
relevant regulations, case law, and EPA determinations prior to
this case.
i.
Chevron/Auer Deference
In Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984), the Supreme Court explained
the role of the courts when reviewing an agency‟s interpretation
of a statute.
When a court reviews an agency‟s construction of
the statute which it administers, it is confronted
with two questions. First, always, is the question
whether Congress has directly spoken to the precise
question at issue. If the intent of Congress is
clear, that is the end of the matter; for the court,
as well as the agency, must give effect to the
unambiguously expressed intent of Congress. If,
however, the court determines Congress has not
directly addressed the precise question at issue, the
court does not simply impose its own construction on
the statute, as would be necessary in the absence of
an administrative interpretation. Rather, if the
statute is silent or ambiguous with respect to the
specific issue, the question for the court is whether
the agency‟s answer is based on a permissible
construction of the statute.
Id. at 842-43 (footnotes omitted); see Sierra Club v.
Administrator, U.S. Envtl. Prot. Agency, 496 F.3d 1182, 1186
(11th Cir. 2007) (applying Chevron deference to EPA‟s
- 49 -
interpretation of SIP).37
Furthermore, the Supreme Court in
Udall v. Tallman, 380 U.S. 1, 16 (1965) held that “[w]hen the
construction of an administrative regulation rather than a
statute is in issue, deference is even more clearly in order.”
The Court continued,
Since this involves an interpretation of an
administrative regulation a court must necessarily
look to the administrative construction of the
regulation if the meaning of the words used is in
doubt. . . . [T]he ultimate criterion is the
administrative interpretation, which becomes of
controlling weight unless it is plainly erroneous or
inconsistent with the regulation.
Id. at 16-17 (quoting, in part, Bowles v. Seminole Rock & Sand
Co., 325 U.S. 410, 413-14 (1945)).
Additionally, the Supreme
Court has explained, “[t]hese principles of deference have
37
The Eleventh Circuit explained,
The fact that the Georgia Rule is a state regulation
is not an obstacle to according Chevron deference in
this case because the Georgia Rule is part of a state
implementation plan (“SIP”) made pursuant to the CAA,
and therefore “ha[s] the force and effect of federal
law and may be enforced by the [EPA] in federal
courts.” Indeed, since the Georgia Rule tracks the
language of the CAA so closely, the CAA provides the
EPA with the authority to object to state decisions to
grant permits, and there is no indication here that
the Georgia EPD interprets its own Statewide
Compliance Rule differently than the EPA, it is
altogether appropriate to grant Chevron deference to
the EPA‟s amended order.
496 F.3d at 1186 (citations omitted).
- 50 -
particular force . . . [when] [t]he subject under regulation is
technical and complex.”
Aluminum Co. of Am. v. Cent. Lincoln
Peoples‟ Util. Dist., 467 U.S. 380, 390 (1984).
Here, North
Carolina‟s SIP incorporated by reference EPA‟s federal
regulations, see 15A N.C. Admin. Code 2D.0530, which are
technical and complex in nature.
In Auer v. Robbins, 519 U.S. 452 (1997),38 the Supreme Court
elaborated on the deference due to an agency‟s interpretation of
a regulation.39
The Court observed,
Petitioners complain that the Secretary‟s
interpretation comes to us in the form of a legal
brief; but that does not, in the circumstances of this
38
Duke claims that Auer deference does not apply because
EPA‟s zero-baseline is a result of its post hoc rationalization,
is self-serving, and is issued contemporaneously with EPA‟s
enforcement initiative. (Duke‟s Resp. (Doc. 438) at 20.) If this
court disagrees, however, Duke “preserves the argument that Auer
was incorrectly decided and that Courts should not defer to an
agency‟s informal, after-the-fact interpretation of a
regulation.” (Id. at 20-21 and n.10.)
39
The Supreme Court explained,
Because Congress has not “directly spoken to the
precise question at issue,” we must sustain the
Secretary‟s approach so long as it is “based on a
permissible construction of the statute.” While
respondents‟ objections would perhaps support a
different application of the . . . test . . . , we
cannot conclude that they compel it. . . . [and the
Secretary‟s view] simply cannot be said to be
unreasonable.
Auer, 519 U.S. at 457-58 (citing Chevron, 467 U.S. at 842-43).
- 51 -
case, make it unworthy of deference. The Secretary‟s
position is in no sense a “post hoc rationalizatio[n]”
advanced by an agency seeking to defend past agency
action against attack. There is simply no reason to
suspect that the interpretation does not reflect the
agency‟s fair and considered judgment on the matter in
question.
Auer, 519 U.S. at 462 (citing Bowen v. Georgetown Univ. Hosp.,
488 U.S. 204, 212 (1988)).
More recently, in Christopher v. Smithkline Beecham Corp.,
567 U.S. ____, ____, 132 S. Ct. 2156, 2159 (2012),40 the Supreme
Court explained that, although the Court‟s decision in Auer
“ordinarily calls for deference to an agency‟s interpretation of
its own ambiguous regulation, even when that interpretation is
advanced in a legal brief, this general rule does not apply in
all cases.”
Auer deference does not apply “when there is reason
to suspect that the agency‟s interpretation „does not reflect
the agency‟s fair and considered judgment on the matter in
question[,]” for example, if the interpretation appears to be a
“post hoc rationalization” or nothing more than a “convenient
40
In Christopher, the Supreme Court addressed “whether
pharmaceutical detailers are outside salesmen as the DOL
[Department of Labor] has defined that term in its regulations.”
Id. at 2165. DOL first announced its interpretation that
pharmaceutical detailers were not outside salesmen in 2009 and,
although its conclusion remained the same, its rationale for
that conclusion changed over time. The parties, who agreed that
the regulations at issue were valid and entitled to Chevron
deference, disagreed “sharply about whether the DOL‟s
interpretation of the regulations is owed deference under Auer
v. Robbins.” Id.
- 52 -
litigating position,” or if it conflicts with a prior
interpretation.
Id. at 2166 (citations omitted); see Duke I,
278 F. Supp. 2d at 630 n.8 (finding that two recent decisions
cited by EPA did not “evidence a long-standing interpretation”
when they were potentially self-serving and were issued
following EPA‟s “decision in 1999 to initiate a number of
enforcement proceedings”).
In Christopher, the Supreme Court
withheld Auer deference, explaining that one of the “strong
reasons” for doing so was the petitioners‟ efforts to “invoke
the DOL‟s interpretation of ambiguous regulations to impose
potentially massive liability on respondent for conduct that
occurred well before the interpretation was announced.”
2167.
Id. at
As discussed below, EPA‟s zero baseline determination
does not appear to be a “post hoc rationalization” adopted to
aid EPA in its current litigation efforts, and will be given
deference.
ii.
Early Regulation Interpretation and
Application
A Federal Register entry from 1980 explains EPA‟s initial
interpretation of the regulation.
The comments note that the
“[actual emissions] rate as of a particular date equals the
average rate in tons per year at which the unit actually emitted
the pollutant during a two-year period which precedes the
particular date and is representative of normal source
- 53 -
operation.”
45 Fed. Reg. 52,676, 52,699 (Aug. 7, 1980).
The
comments go on to state:
The two-year period of concern should generally
be the two years preceding the date as of which
increment consumption is being calculated, provided
that the two-year period is representative of normal
source operation. The reviewing authority has
discretion to use another two-year period, if the
authority determines that some other period of time is
more typical of normal source operation than the two
years immediately preceding the date of concern.
45 Fed. Reg. 52,676, 52,718 (Aug. 7, 1980) (emphasis added).
In 1987, three years after Duke‟s units began entering ECS,
EPA issued its Casa Grande Determination.
(Pl.‟s Br., Ex. 32,
Casa Grande Determination (“Casa Grande”) (Doc. 435-33).)
In
Casa Grande, the only published determination as to the relevant
regulations at that time, the Director of the Air Management
Division explained that the reactivation of that plant (Casa
Grande) would be treated as a major new source, and, “even if
the reactivated [] plant would not be subject to PSD as a new
source, the start-up would also constitute a major modification
for PSD purposes.”
(Id. at 2.)
He explained how to calculate
the increase in actual emissions by
[C]omparing actual emissions as of a “particular date”
– i.e., immediately prior to the physical or
operational change in question – with the emissions
from the source after the change is made. The
regulations provide that actual emissions shall be the
rate at which the source actually emitted the
pollutant during the two-year period immediately
preceding the particular date (the date of the
- 54 -
change), unless EPA determines that a different twoyear period is more representative of normal source
operation.
(Id. at 9) (emphasis added).
According to Director Howekamp,
“emissions during the two-year period preceding start-up of the
[plant at issue] are zero.
I believe that this period is
representative of normal source operations, since emissions have
been zero during each of the last ten years while the plant has
been shut down.”
(Id.)
He further explained that, “given this
operational history, I do not believe that emissions during the
one year in which the [] plant was functioning [prior to the
shutdown] is more representative of normal operations.”41
(Id.)
The regulation itself, the comments in the Federal
Register, and the Casa Grande interpretation all suggest that
the EPA‟s original interpretation of the regulation was as
follows: (1) the calculation of any increase in actual
emissions, determined as of a particular date, is made by
comparing actual emissions with the emissions during the
two-year period immediately prior to the physical or operational
change in question, unless (2) EPA, as the reviewing authority,
exercises its discretion and determines that a different two41
Here, although Duke‟s thirteen units had been functioning
for far longer than one year prior to being placed in ECS, they
also had been shut down for three to ten years, during which
they had emissions rates of zero. See supra pp. 6-11.
- 55 -
year period is more representative of normal source operation.
(See Casa Grande (Doc. 435-33) at 9; 45 Fed. Reg. 52,676, 52,718
(Aug. 7, 1980).42
iii. WEPCo and Later Interpretations
Three years after EPA‟s Casa Grande Determination, and six
years after Duke‟s units began entering ECS, the Seventh Circuit
examined EPA‟s decision regarding Wisconsin Electric Power
Company‟s (“WEPCo”) “five coal-fired steam generating units,”
whose performance had declined due to “age-related
deterioration.”
Wisconsin Elect. Power Co. v. Reilly, 893 F.2d
901, 905 (7th Cir. 1990). WEPCo had determined that “extensive
renovation of the five units and the plant common facilities
[was] needed if operation of the plant [was] to be continued43,”
42
Casa Grande did not address all circumstances under which
a different two-year period might be more representative of
normal source operation or what factors would guide its
discretion. Nevertheless, this court does not find any
authority which substantially alters this interpretation of
these two applicable principles in later opinions. Instead, the
later opinions merely clarify the circumstances in which the EPA
properly exercised its discretion to use a two-year period other
than the two years immediately preceding startup. See Part
III.B.2.c.iii.
43
“[D]eterioration
at full capacity, while
required a reduction in
Wisconsin Electric, 893
prevented units 1 and 4 from operating
the potential for steam drum blowout
pressure (and output) in units 2 and 3.”
F.2d at 906.
- 56 -
id. at 905, and had shut down one of the units completely, id.
at 906.
In determining the emissions baseline, the EPA relied upon
data from several years prior to the two years immediately
preceding the shutdown. Id. at 916.
The Seventh Circuit noted
that the EPA had “first examined [the immediately-preceding twoyears] as the . . . baseline period,” but “[b]ecause [the EPA]
determined that the discovery of cracks in the rear steam drums
led to a more recent „source curtailment‟ [which was not
representative of normal source operation, it] relied upon the
data from earlier years . . . .”
Id.
The EPA WEPCo Remand Determination (Pl.‟s Mot. to Vacate,
Ex. 21, June 8, 1990 Letter from William G. Rosenberg (EPA) to
John Boston (WEPCo) (Doc. 341-23) at 6-7), cited by Duke (Duke‟s
Br. (Doc. 425) at 59) confirms the court‟s summary:
The Agency historically has followed a presumption
that the most recent 2 years should be used, but has
allowed another period where the source demonstrates
that recent operations are abnormal. The WEPCo
baseline period is an example of this. In this
instance, plant utilization was disrupted by physical
problems that led to nonroutine physical changes to
remedy those problems. Consequently, EPA determined
that a period prior to the onset of such problems was
representative of normal operations, and as required
by its regulations, used this period to establish the
baseline. . . . It should be emphasized that, in the
WEPCo case, the parties and the court agreed that
1983-84 (prior to discovery of steam drum cracks)
should be the baseline years . . . .
- 57 -
(WEPCo Remand Determination (Doc. 341-23) at 6-7 (emphasis
added) (citations omitted).)
Therefore, this court finds that the WEPCo opinion and EPA
Remand Determination are consistent with Casa Grande, and that
the EPA‟s decision to use a different two-year baseline in each
case is explainable on the facts.
Unlike in Casa Grande, where
the plant‟s 10-year shutdown was not attributed to any
disruption by physical complications, the WEPCo plant‟s
“utilization was disrupted by physical problems” that
detrimentally affected its output. (Id. at 7.) Importantly, it
appears that the WEPCo plant was never intended to be taken
completely offline; instead the plan was to “tak[e] the [four
operating] units44 successively out of service for nine-month
periods” while WEPCo made the necessary repairs, throughout
44
WEPCo, 893 F.2d at 905-06 (“The possibility of
catastrophic failure (steam drum blowout) in unit 5 was so great
that WEPCO shut down the unit completely.”); see also (Pl.‟s
Br., Ex. 26, Sept. 9, 1988 Memo from Don R. Clay (EPA) to
David A. Kee (WEPCo) (Doc. 435-27) at 9) (“Theoretically, WEPCO
could minimize the needed restrictions on its potential to emit
following the renovations if it could show that some period
other than the most recent two years is „more representative of
normal source operation.‟ (Obviously, such a showing would be
most important with respect to unit 5, because it has been shut
down and had zero emissions since 1985).”). (citations omitted).
- 58 -
which time the plant would continue to operate at (presumably)
lower capacity.
See WEPCo, 893 F.2d at 908; see also (Pl.‟s
Reply (Doc. 439) at 11 n.6 (“While one of the five units at
issue in WEPCo was temporarily shut down, EPA‟s baseline
determination . . . was based on the operation of the entire
five-unit plant in aggregate, including four units that were
operating.”).) Considering these facts, it appears that, far
from signaling a departure from EPA‟s earlier interpretation of
the regulations, the WEPCo determination is merely an example of
the EPA exercising its discretion to use of a different baseline
period more representative of “normal” operations.
The WEPCo determination is also consistent with subsequent
EPA interpretations, which confirm that the purpose of the
baseline determination should be to find a baseline
characteristic of “normal” operations, and that the two-year
period immediately preceding the changes is the default period
for that purpose.
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For instance, a 1992 EPA memo regarding modifications at
Cyprus Northshore Mining Corporation45 also addressed the
reviewing authority‟s ability to “allow use of a different
[baseline] time period upon a determination that it is more
representative of normal source operation.”46 (Pl.‟s Br., Ex. 44
(“Cyprus Memo”) (Doc. 435-45) at 4).
The memo appears to take a
slightly more restrictive view of when the EPA can choose an
alternate baseline (Cyprus Memo (Doc. 435-45) at 8 (“In general,
EPA has indicated that this provision [allowing an alternate
45
Cyprus Northshore Mining Corporation wanted to modify
its existing source and to offset increased emissions resulting
from that modification by taking credit for the shutdown (ten
years before, in 1982) of several furnaces that would be
replaced as part of the modification. Since those furnaces had
been shut down for approximately ten years, EPA used a zero
baseline and explicitly rejected a baseline reflective of the
furnaces‟ actual emissions from 1981 to 1982 or from July 1975
to June 1977. (Pl.‟s Br., Ex. 44, Aug. 11, 1992 Memo to David
Kee from John Calcagni, EPA (Doc. 435-45) at 2.)
According to EPA, the regulation‟s netting reductions
cannot occur outside of the contemporaneous period, defined by
EPA as the period between the “date 5 years before construction
on the particular change commences; and [] the date that the
increase from the particular change occurs.” (Id. at 7.)
46
The Government argues that, even if an alternative
baseline were permitted, “the rules require the source to first
seek a formal determination for an alternate baseline prior to
making a change.” (Pl.‟s Br. (Doc. 435) at 27.) Duke, however,
argues that “the applicable regulation did not require Duke to
formally request NC DENR make a baseline „determination.‟ The
regulation merely says that the state reviewing authority can
„determin[e]‟ a different baseline. Nothing in the regulation
requires a utility to „apply‟ for a determination, nor does the
regulation say anything about what form the determination must
take.” (Duke‟s Reply (Doc. 440) at 20 n.13.)
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baseline] is to apply to catastrophic occurrences such as
strikes and major industrial accidents.”)), but doesn‟t
otherwise alter the previous interpretation of the regulation.
See id. (“[T]he Administrator‟s power to use a different
baseline period is limited to those circumstances where the
source demonstrates that some time period other than the 2 years
that precede the change is more representative of normal source
operation. . . . For example, in the WEPCo applicability
determination, EPA found the fourth and fifth years prior to the
proposed renovation project more representative, since the
utility‟s capacity was greatly reduced after that period due to
a cracked steam drum and other severe physical problems.”)47
47
Cf. 57 Fed. Reg. 32,314, 32,324 (July 21, 1992)
(referring to “EPA‟s proposed presumption that sources may use,
as the baseline, emissions from any 2 consecutive years within
the 5 years prior to the proposed change without regard to
normal source operations”).
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With regards to the Cyprus plant, Director Calcagni
cautioned that “EPA has declined to consider a stop in
operations, in and of itself, to constitute grounds to change
the baseline years.” (Id. at 9.) He went on to explain, however,
that:
EPA cannot approve either a 1981-1982 baseline or the
earlier period put forth by Cyprus. Cyprus has not
demonstrated that catastrophic occurrences or other
extraordinary circumstances disrupted the West Plant
for the entire period between the proposed change and
the years Cyprus claims are representative of “normal
source operations.” Indeed, it is admitted that in
the last 10 years the source has been idle due to
general economic conditions, and the zero baseline
appropriately reflects source utilization under these
longstanding market conditions. On the other hand,
the very fact that Cyprus seeks to throw out the most
recent 13 years suggests that the years Cyprus puts
forward are not representative of normal operations in
any realistic sense. For these reasons, the baseline
for the West Plant furnaces should be zero.
Id.
Duke‟s last PMP units, those at issue in this case, exited
ECS and went online in 1994.
Five years later, in 1999, an EPA
Administrator discussed the proper baseline for long dormant
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sources.48
See Pl.‟s Br., Ex. 35, In re Monroe Elec. Generating
Plant, Petition No. 6-99-2 (June 11, 1999) (Doc. 435-36) at 9
(explaining that the “shutdown and subsequent reactivation of a
long-dormant facility may trigger PSD review by qualifying as a
major modification”).
According to the Administrator, although
EPA has discretion to set an alternate baseline period, “EPA . .
. has applied its discretion narrowly in assigning
representative periods other than the two years immediately
preceding the physical or operational change.”
(Id. at 15.)
“On more than one occasion, EPA has made clear that in
48
Duke argues that “EPA‟s purported interpretation of the
baseline rule in 1999 is clearly irrelevant to the construction
of the 1980 rules incorporated into the SIP and approved by EPA
in 1982.” (Duke‟s Reply (Doc. 440) at 25-26. But see Pl.‟s
Reply (Doc. 439) at 11-12 (“Monroe Electric was decided more
than a year before the filing of this case, and applied the same
interpretation in prior guidance such as Casa Grande.”).) Duke
also argues that the policy in the Monroe determination
regarding the appropriate approach to defining baseline
emissions had a “short shelf life,” which was abandoned in 2002.
(Duke‟s Reply (Doc. 440) at 25-26.) In response, the Government
argues,
Duke is wrong to assert that EPA‟s interpretation
was abandoned in 2002. The new ten-year baseline to
which Duke refers changed the presumptive baseline
for non-utilities. By contrast, EPA discussed the
application of alternate baselines to inoperable
power plants in the preamble to the 1992 WEPCo Rule.
EPA rejected requests to change the rules to allow
shut down plants to use a baseline from a period of
prior operation.
(Pl.‟s Reply (Doc. 439) at 12.)
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calculating the net emissions increase for reactivation of longdormant sources potentially subject to PSD, the source is
considered to have zero emissions as its baseline.”
16.)
(Id. at
In Monroe, EPA found a zero emissions baseline to be
“representative of normal source operations at the Monroe plant,
which has had no emissions for the last eleven years.”49
(Id. at
26.)
In United States v. Westvaco Corp., Civil Action No. MJG00–2602, 2010 WL 4068745 (D. Md. Sept. 1, 2010), a Maryland
district court also discussed the proper baseline period under
the 1980 PSD regulations. See id. at *2 (“As stated in the
Regulations, „The two-year period of concern should generally be
49
In Monroe, Louisiana Power & Light (“LP&L”) had placed
three units in extended reserve shutdown (“ERS”) “because of the
addition of new electric generating capacity in the area.” (Id.
at 5-6; see id. at 5 n.5 (“Extended reserve shutdown is a
program implemented . . . to save money by placing units in
inactive status and reducing operating staff, maintenance costs,
and deferring the cost of repairing units” and “[t]he record
further reflects that the [shutdown] units were not in regular
operation for several years prior to placing the units in
extended reserve shutdown.”).) LP&L prepared the plant for ERS,
including using dehumidification equipment to prevent corrosion,
and, during ERS, LP&L “conducted some inspection and maintenance
activities” and “maintained relevant environmental permits.”
(Id. at 6.) The projected cost to restart the units was
approximately $5.3 million. (Id. at 21.)
The EPA Administrator explicitly explained that “[b]ecause
restart of the plant more clearly triggers PSD as a major
modification involving a change in the method of operation, EPA
does not need to make a final conclusion regarding [the
company‟s] regulatory status under the Reactivation Policy at
this time.” (Id. at 20.)
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the two years preceding the date as of which increment
consumption is being calculated, provided that the two-year
period is representative of normal source operation.‟” (citing
45 Fed. Reg. 52,676, 52,718 (Aug. 7, 1980))).
Westvaco did not
challenge the EPA‟s interpretation of the regulation, but argued
that the two years immediately prior to its 1981 expansion
project did not represent normal source operations, because in
1975 the plant had become subject to a regulatory emissions cap
that forced it to “burn a different fuel,” “operate the boilers
differently,” and “shift power production from one piece of
equipment to another piece of equipment.”
Id. at *2. The court
disagreed:
Certainly, it is appropriate to use a pre-change
baseline period earlier than the two years immediately
prior to a change when some circumstance temporarily
reduces the rate of emissions. Such circumstances
would include, for example, a strike, major industrial
accident, or other catastrophic occurrence that
reduced capacity or, perhaps, some catastrophe that
required a plant temporarily to increase production of
a needed product to an extraordinary degree.
Id. at *3 (emphasis added)(footnote omitted).
The court
observed that, even with the emissions cap In place, the
Westvaco plant did not suffer a “substantial change” in “overall
production” and continued to operate relatively normally, unlike
the power plant at issue in WEPCo.
Id. at *2 (“In essence, the
method of post-cap operation became normal source operations
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that continued for some six years until the commencement of the
[expansion program] and would have continued for the indefinite
future.”). The court further found that, in the absence of some
“catastrophe” which actually disrupted the Westvaco plant, it
was “far more sound for the Court to find[] that . . . „normal
source operations‟ for the [Westvaco plant] was . . . the mode
of operations conducted [in the two-year period immediately
prior to the proposed modifications].”
Id. at *3.
This review of relevant cases and proceedings, beginning
with the regulation itself and continuing from Casa Grande to
the present, confirm that EPA has consistently used a baseline
period of two years prior to a change when calculating emissions
increases.
Specifically, EPA has reliably interpreted the
regulations to provide that (1) the calculation of any increase
in actual emissions (determined as of a particular date) is made
by comparing actual emissions with the emissions during the twoyear period immediately prior to the physical or operational
change in question, unless (2) EPA determines that a different
two-year period is more representative of normal source
operation. However, (3) the EPA has generally exercised its
discretion to use another two-year period only in circumstances
of “nonroutine physical changes” or “some catastrophe” that
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drastically altered the unit‟s operations.
See, e.g., Cyprus
Memo (Doc. 435-45) at 8; Westvaco, 2010 WL 4068745, at *3.
iv.
Conclusion
Based on the foregoing discussion, this court concludes
that EPA‟s interpretation of the regulations “reflect[s] the
agency‟s fair and considered judgment on the matter . . . .”
Christopher, 132 S. Ct. at 2166.
The interpretation has been
consistent from Casa Grande to the present, and does not appear
to be a “post hoc rationalization” or a “convenient litigating
position” adopted just for this case.
Id.
Despite Duke‟s
arguments to the contrary (see supra note 38), EPA‟s
interpretation should receive Auer deference in this case.50
With respect to the motions in limine, this court therefore
finds that PROMOD expert witness testimony should not be
excluded and that both EPA‟s designation and the Government
experts‟ use of a zero baseline is appropriate based on the
facts submitted at this stage of the proceedings.
Duke‟s
motions in limine will be denied to the extent they relate to
the PROMOD expert witness testimony.
50
However, as noted in footnote 38, Duke has objected and
properly preserved its argument that Auer was incorrectly
decided. This court, having found Auer applicable, is bound to
apply that holding.
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IV.
DUKE’S MOTION FOR SUMMARY JUDGMENT
Duke has moved for summary judgment (Doc. 432).
That
motion is dependent upon this court‟s ruling on the motions in
limine (Docs. 421, 422, 423, 424) which deal with expert
testimony and methodologies used to calculate increased
admissions.
As Duke explains:
The government proffers two methodologies in an
attempt to satisfy its burden under the “actual-toprojected-actual test.” Those methodologies are
inadmissible, for the reasons stated in the in limine
motion accompanying this motion . . . The government
has put forward no other evidence to demonstrate that
the PMP projects at issue reasonably should have been
expected to cause a significant net emissions increase
from the projects at issue.
(Duke‟s Br. (Doc. 433) at 5.)
Thus, this court finds, in light of its rulings on the
motions in limine, that Duke‟s motion for summary judgment
should be denied.
Duke also argues, in the alternative, that because “the
GADS methodology projects no significant emissions increase for
six PMP projects” (id. at 12), summary judgment should be
granted as to those six PMP projects.
This court disagrees and
finds that the GADS-based projections do not require summary
judgment on behalf of Duke in light of the findings set forth in
this opinion.
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Duke‟s Motion for Summary Judgment (Doc. 432) will be
denied.
V.
CONCLUSION
For the reasons set forth herein, IT IS ORDERED that Duke‟s
Motions in Limine (Docs. 421, 422, 423, 424) are GRANTED IN PART
with regards to Plaintiff‟s GADS expert witness testimony and
with respect to Dr. Sahu‟s testimony as to an “actual-topotential” test.
The motions in limine are DENIED with regards
to Plaintiff‟s PROMOD expert witness testimony.
IT IS FURTHER ORDERED that Duke‟s Motion for Summary
Judgment (Doc. 432) is DENIED.
Plaintiff‟s Motion for Summary
Judgment (Doc. 434) remains under advisement and will be
addressed in a forthcoming opinion.
This the 6th day of November, 2013.
________________________________________
United States District Judge
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