USA v. DUKE ENERGY CORP.
Filing
468
MEMORANDUM OPINION AND ORDER signed by CHIEF JUDGE WILLIAM L. OSTEEN, JR., on 3/17/2014, that for the foregoing reasons, this court hereby GRANTS IN PART and DENIES IN PART Plaintiff's motion for summary judgment (Doc. 434 ). The motion is GRANTED to the extent that there is no genuine dispute that the restart of Duke's units resulted in a significant net emissions increase. The motion is DENIED to the extent that there are genuine disputes as to the question of whether Duke made a physical or operational change to its units, and whether such a change caused the subsequent significant net emissions increase. (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
Currently pending and ripe for ruling is Plaintiff’s Motion
for Summary Judgment on All Remaining Claims (the “Plant
Modernization Program” Claims). (Doc. 434.) For the reasons set
out below, this court will grant the motion in part and deny it
in part.
I.
STANDARD OF REVIEW
Summary judgment should be granted if, even taking all the
evidence in the light most favorable to the non-moving party,
Zanodnick v. Int’l Bus. Machs. Corp., 135 F.3d 911, 913 (4th
Cir. 1997), “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.” Fed. R. Civ. P. 56(a). Material facts are
those that “might affect the outcome of the suit under the
governing law . . . .”
Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). A “genuine dispute” exists “if the
evidence is such that a reasonable jury could return a verdict
for the nonmoving party.” Id.
II.
PROCEDURAL POSTURE1
This case, now in its fourteenth year of litigation, 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. (Complaint (“Compl.”)
(Doc. 1) ¶ 1.) Plaintiff seeks injunctive relief and the
assessment of civil penalties for violations of the Prevention
of Significant Deterioration (“PSD”) provisions of the CAA, 42
U.S.C. §§ 7470-7492. (Id.)
Plaintiff’s complaint alleges that
Duke violated the PSD provisions with regard to a number of
1
Aside from the facts listed below, this court also adopts
the factual background set out in its November 6, 2013
Memorandum Opinion and Order addressing Defendant’s motions in
limine and motion for summary judgment. (“Nov. 6 Mem. Op.” (Doc.
462) at 2-11.)
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coal-fired power plants by placing the plants2 in Extended Cold
Shutdown (“ECS”), making modifications to those plants pursuant
to Duke’s Plant Modernization Program (“PMP”), and then
restarting the plants without obtaining the permits required by
the CAA. (Id. at 1-2.)
Thirteen plants remain at issue in the
case.
III. STATUTORY SCHEME
Plaintiff argues that the changes Duke made pursuant to its
PMP are modifications requiring permits under the PSD
provisions.
Resolution of this argument requires this court to
first elaborate on the relevant statutes and regulations.
A.
The PSD Provisions of the CAA
In 1977, Congress amended the CAA to add the PSD
provisions, which were designed to keep relatively unpolluted
areas from deteriorating to the minimum levels permitted by the
National Ambient Air Quality Standards. 42 U.S.C. § 7475.
The
provisions require operators of statutorily-defined sources of
air pollution to obtain a permit from the EPA before they either
construct or modify a polluting facility. 42 U.S.C. § 7475(a).
Plaintiff does not allege that Duke constructed any new plants
2
Technically, Plaintiff’s complaint concerns individual
power-generating “units,” which may or may not comprise separate
power “plants” – i.e., some units are actually part of the same
plant. This order uses the terms interchangeably.
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in violation of this statute.
Rather, Plaintiff alleges that
Duke unlawfully modified its preexisting plants without
receiving the necessary permits. (Compl. (Doc. 1) ¶ 1.)
B.
”Modification”
The PSD provisions of the CAA define “modification” as “any
physical change in, or change in the method of operation of, a
stationary source which increases the amount of any air
pollutant emitted by such source or which results in the
emission of any air pollutant not previously emitted.”
42
U.S.C. § 7411(a)(4). The 1980 regulations limited PSD review to
“major” modifications, defined as “any physical change in or
change in the method of operation of a major stationary source
that would result in a significant net emissions increase of any
pollutant subject to regulation under the [CAA].”
40 C.F.R.
§ 51.166(b)(2)(i). Thus, a party is only required to obtain a
permit if both elements are present: (1) a physical or
operational change, and (2) a resulting significant net
emissions increase.
In its motion, Plaintiff has asked the court to grant
summary judgment on both issues.
The resolution of each issue
requires this court to determine a multitude of sub-issues, each
addressed in detail below.
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IV.
PHYSICAL OR OPERATIONAL CHANGE
Plaintiff argues that Duke made both physical and
operational changes via the PMP and therefore “modified” its
plants under either definition. (Pl.’s Br. in Supp. of Mot. for
Summ. J. (“Pl.’s Br.”) (Doc. 435) at 13.)3
This court will
address both theories in turn.
A.
Physical Change
1.
In General
The regulations do not provide an affirmative definition of
“physical change,” so courts have applied a broad, common sense
definition. See, e.g., Wisconsin Elec. Power Co. v. Reilly
(“WEPCo”), 893 F.2d 901, 908 (7th Cir. 1990) (“‘[A]ny physical
change’ means precisely that.”) (internal citations omitted).
Here, it is clear that the PMP meets that general definition,
since the program required the replacement and alteration of
several physical components within the plants, which “result[ed]
in an altered plant.” See id.
However, the regulations do carve out a few exceptions from
the broad definition, one of which is any change fairly
characterized as “[r]outine maintenance, repair, and
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.
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replacement” (“RMRR”). 40 C.F.R. § 51.166(b)(2)(iii)(a) (1987).
Changes in this category do not trigger the PSD permitting
requirement. Duke argues that there is a genuine issue of
material fact that its PMP changes fall under the RMRR
exception. (See Duke’s Resp. in Opp’n to Pl.’s Mot. for Summ. J.
(“Duke’s Resp.”) (Doc. 438) at 25-29.)
Plaintiff argues
otherwise. (See Pl.’s Br. (Doc. 435) at 18-23.)
2.
RMRR
Although this court must construe all evidence in the light
most favorable to Duke for purposes of this summary judgment
motion, Duke bears the burden of proof on the RMRR issue. United
States v. Duke Energy Corp. (“Duke IV”), No. 1:00CV1262, 2010 WL
3023517, at *8 (M.D.N.C. July 28, 2010) (“Since Duke Energy
seeks to benefit from the RMRR exception, Duke Energy carries
the burden to show that the physical changes that took place at
its plants were indeed routine maintenance, replacement, or
repair.”).
Ultimately, the question of whether the changes were
“routine” within the meaning of the RMRR exception is a question
of law for the court. See United States v. Cinergy Corp., 495 F.
Supp. 2d 909, 931-32 (S.D. Ind. 2007). The conclusions of the
parties’ experts are not dispositive, but the expert reports and
other affidavits are relevant to this court’s determination of
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whether a trial is necessary to determine the particulars of the
PMP alterations.
The multi-factor WEPCo test guides this court’s analysis.
See Duke IV, 2010 WL 3023517, at *3-4, 7 (confirming that the
WEPCo analysis is appropriate and “entitled to deference”).
WEPCo directs courts to measure a modification’s (1) nature and
extent, (2) purpose, (3) frequency, and (4) cost. WEPCo, 893
F.2d at 910-11; see also United States v. Duke Energy Corp.
(“Duke I”), 278 F. Supp. 2d 619, 638 (M.D.N.C. 2003).
The
parties previously disputed whether the point of reference for
applying the WEPCo factors should be the particular unit at
issue, or all the units in the industry as a whole. See Duke IV,
2010 WL 3023517, at *3. Duke IV forged a compromise between the
parties’ contentions, finding that the court should “evaluate[]
[the WEPCo factors] with reference to the industry” but also
“make a fact intensive, ‘common sense’ evaluation.” Id. at *7.
The court elaborated:
This means that the Court will not forego any
consideration of what occurs at individual units and
look solely at industry practice to determine whether
a project is RMRR. Instead, “the Court will consider
all of the WEPCO factors, including frequency, taking
into consideration the work conducted at the
particular [Duke Energy] unit, the work conducted by
others in the industry, and the work conducted at
other individual units within the industry.”
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Id. (quoting United States v. E. Ky. Power Coop., Inc., 498 F.
Supp. 2d 976, 993-94 (E.D. Ky. 2007); see also Cinergy Corp.,
495 F. Supp. 2d at 930-31. This court adopts Duke IV’s statement
of the proper application of the WEPCo test.
a.
Context of the WEPCo Factors
The Wisconsin Electric Power Company (“WEPCo”) realized in
1983 that the performance of several of its aging power plants –
which had been constructed between 1935 and 1950 – was
declining.
WEPCo, 893 F.2d at 905. WEPCo concluded “that
extensive renovation of the five units . . . is needed if
operation of the plant is to be continued.” Id. (internal
citation and quotation marks omitted). Nearly all of the plants
had either “serious cracking” in their steam drums or “[a]ir
heater deterioration” preventing them from operating at full
capacity. The utility even had to shut one unit down because of
the risk of “catastrophic failure.” Id. at 905-06.
To deal with these problems, WEPCo developed a “life
extension” program designed “to allow the . . . units to operate
beyond their currently planned retirement dates . . . [and to]
render the plant[s] capable of generating at [their] designed
capacity until year 2010.” Id. at 906 (internal citation and
quotation marks omitted). Aside from replacement of the
aforementioned steam drums and air heaters, the rehabilitation
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program included “repair and replacement of the turbinegenerators, boilers, mechanical and electrical auxiliaries and
the common plant support facilities.”
Id.
WEPCo repaired each
of the five units over four years, “taking [them] successively
out of service for nine-month periods.” Id. at 908.
b.
Application of the WEPCo Factors to the Current
Case
Having thoroughly examined the record and the parties’
briefing in light of Duke IV’s directive to “make a fact
intensive, ‘common sense’ evaluation” of the PMP, Duke IV, 2010
WL 3023517, at *7, this court finds that sufficient factual
disputes exist to deny Plaintiff’s motion for summary judgment
on the question of physical change. Therefore, that issue will
be decided at trial for each of the PMP units.
Plaintiff is adamant that Duke’s PMP sufficiently resembles
WEPCo’s life extension project to warrant a grant of summary
judgment. Plaintiff argues that the “magnitude” of the PMP as
well as the “downtime required to implement [it]” demands the
conclusion that the alterations were not routine. (Pl.’s Br.
(Doc. 435) at 19.) Plaintiff supports this position with a
comprehensive list of the alterations Duke is alleged to have
made to each unit. (See Pl.’s Supplemental Mem. in Supp. of Mot.
for Summ. J. (“Pl.’s Suppl. Mem.”) (Doc. 454) at 5-22.) These
alterations include, for example, repairs and upgrades to unit
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boilers, repair or replacement of turbine rotors, reinsulation
of generator rotors, replacement of unit control systems, and
replacement of feedwater heaters. (See, e.g., id. at 8-10
(describing the changes made at Allen Units 1 and 2).)
Plaintiff also argues that the similarities in length
(“years” for most Duke units; nine months each for WEPCo’s),
purpose (“life extension for old plants as a substitute for
building new ones”), and frequency (“once-in-a-lifetime
comprehensive renovations”) between Duke’s PMP and WEPCo’s life
extension project call for summary judgment in Plaintiff’s
favor. (Pl.’s Br. (Doc. 435) at 19-21.)
Finally, Plaintiff
argues that the “$17 to . . . $30 million per unit” cost was
“equal to or more than the original cost of constructing the
units[,]” (id. at 21), and notes that Duke “treated [the PMP]
for accounting purposes the same as building a new plant.” (Id.
at 21-22 (citing Sept. 9, 1988 Memo from Don R. Clay (EPA) to
David A. Kee (EPA), Ex. 26 (Doc. 435-27) at 7)). See also
Cinergy Corp., 495 F. Supp. 2d at 922 (noting that the manner in
which a utility treats project expenses for tax purposes is
relevant to the RMRR determination); United States v. Ohio
Edison Co., 276 F. Supp. 2d 829, 834 (S.D. Ohio 2003)(same)).
Duke, however, disputes Plaintiff’s characterization of the
PMP and the conclusions drawn from it. Duke argues that not all
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of the changes made to its units while they were in PMP are
covered by the PMP umbrella, because “the repairs and
replacements at each unit were separate projects with separate
justifications.” (Duke’s Supplemental Br. (“Duke’s Suppl. Br.”)
(Doc. 453) at 18-19.)
As this court understands Duke’s
argument, Plaintiff’s allegedly improper aggregation of the work
results in exaggerated estimates of the PMP’s scope, duration,
and cost. (See generally id. at 19-26.)
For example, Plaintiff’s description of Duke’s work at
Allen Unit 1 reads as follows:
Duke spent five months, from January to May 1985,
on an “upgrade and reliability study” at the Allen
plant. As with the studies at all the plants, an
extensive team was appointed to determine the
refurbishments, upgrades, and design changes necessary
for life extension. Afterwards, Duke told the NCUC
that to return to service, Allen 1’s “boiler has to be
modified and upgraded in several areas” and that it
needed new feedwater heaters, repair or replacement of
turbine rotors, and reinsulation of a generator rotor.
Duke budgeted $21,670,000 for a major renovation,
including new feedwater heaters (requiring 178
installation days), turbine repairs (56 days),
generator reinsulation (180 days), a new unit control
system (180 days), and over 20 other items. By 1989,
the work had expanded to include another $3,673,000
for boiler repairs.
Duke ultimately replaced both sections of the
unit’s massive reheater (comprising 370 tubes in
assemblies more than 20 feet tall), the unit’s four
43-foot tall burner corner panels, and other portions
of the boiler, including 6,400 feet of bottom ash
hopper tubes. Duke also replaced the unit’s
inefficient control system, which was unable to meet
modern requirements, the ignition system, and five
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feedwater heaters (each over 30 feet long). The Allen
1 outage lasted over six years, until August 1990. The
final cost of the 1990 Allen 1 PMP was $23,619,349 or
$143 per kilowatt. The original cost in 1957 to build
the 165 MW unit was $18 million.
(Pl.’s Suppl. Mem. (Doc. 454) at 8-9 (footnote omitted)
(internal citations omitted).)
Duke’s expert, on the other hand, separates the work done
at Allen Unit 1 into two parts: boiler and reheater repair, and
other “maintenance, repair and/or replacement activities”
related to non-boiler items, each with its own invoice.
(See
Duke’s Resp., Ex. 63, Expert Report of William H. Tuppeny, Jr.
(“Tuppeny Report”) (Doc. 438-4) at 20-21.) In addition, whereas
Plaintiff simply notes that “[t]he Allen 1 outage lasted over
[the] six years” the plant was in ECS, from 1984 to 1990 (Pl.’s
Suppl. Mem. (Doc. 454) at 9), Duke’s expert does not indicate
that work began on the unit until after a 1987 report outlining
the full scope of the problems with the boiler reheater.
(Tuppeny Report (Doc. 438-4) at 20.)
Moreover, Duke’s expert
states that the boiler repairs “were consolidated . . . to allow
the implementation of these various tasks to take place over an
extended time period[, which] permitted Duke to utilize their
in-house engineering, project management, and maintenance
resources in an optimum fashion . . . .” (Id.; see also Duke’s
Supplemental Reply Br. (“Duke’s Suppl. Reply”) (Doc. 456) at 12
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(“ECS allowed Duke’s maintenance crews to work on the PMP units
in ‘off-peak’ times, when they were not needed to work elsewhere
on operating units within the system. This ‘levelized’ approach
to the schedule meant that the work might go on for months in
PMP, whereas Duke would normally have done it during a turbine
outage in only two to three weeks.”(internal citations
omitted)).) In other words, Duke argues that the prior placement
of the units into ECS resulted in an artificially lengthy PMP
duration, because Duke’s crews were not facing a deadline to
return the units to active service. (See Duke’s Suppl. Reply
(Doc 456) at 12 (noting that “the outage length was a function
of system demand, not a function of the work performed”).) Duke
makes the same argument with respect to the scope of the work
performed, noting that Duke used the ECS period “to work on
components that had failed (corrective maintenance) as well as
components that were expected to fail in the future (predictive
maintenance).” (Id. at 13 (citing Deposition of Willis Joseph,
Ex. 142 (Doc. 456-4) at 182-84).)
Plaintiff and Duke engage in the same sort of disagreements
for each of the PMP units at issue.
Taking the evidence in the
light most favorable to Duke, this court finds that Duke has
indeed shown that there are genuine disputes as to the nature,
extent, purpose, frequency, and cost of the work done at each
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unit. For this reason, the court will deny Plaintiff’s motion
for summary judgment on the issue of physical change.
B.
Operational Change
Plaintiff argues that “each PMP unit underwent an
operational ‘change’ when it was renovated and moved from a
lengthy non-operational status to one in which it became fully
operational.” (Pl.’s Br. (Doc. 435) at 8-9.) Duke retorts (1)
that Plaintiff waived this argument by not giving any notice to
Duke that an operational change was the basis for the suit, and
(2) that the operational change argument fails on its merits
regardless of whether it was timely raised. (Duke’s Resp. (Doc.
438) at 32-35.)
1.
Plaintiff Provided Adequate Notice
The success of Duke’s “notice” argument depends on whether
Plaintiff initiated this litigation with a Notice of Violation
(“NOV”) that included “operational change” as a basis for the
lawsuit. The CAA prohibits the EPA from bringing a civil
enforcement action against any entity without first providing
notification that the entity has violated some part of the CAA.
See 42 U.S.C. § 7413(a)(1). While Duke is correct that the EPA
can base its lawsuit “only on the basis of the specific
violation alleged in the NOV[,]” United States v. AM General
Corp., 808 F. Supp. 1353, 1362 (N.D. Ind. 1992), aff’d, 34 F.3d
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472 (7th Cir. 1994)4, courts “generally view the sufficiency of a
NOV liberally.”
Id.; see United States v. BP Exploration & Oil
Co., 167 F. Supp. 2d 1045, 1050-51 (N.D. Ind. 2001) (“Indeed,
the CAA does not even specify the form which the notice must
take. Rather than formal written notice, actual notice of
violations is sufficient.”(citation omitted)); United States v.
Chevron U.S.A., Inc., 380 F. Supp. 2d 1104, 1110 (N.D. Cal.
2005) (“[T]he notice requirement is not intended to be construed
in a way that would make EPA enforcement more difficult.”).
Here, the EPA’s NOV states that “Duke has embarked on a
program of modifications intended to extend the useful life
and/or regain lost generating capacity at their coal-fired power
plants” and asserts that “Duke has modified and operated the
coal-fired power plants identified below without obtaining [the
required] permits . . . .” (Duke’s Resp., Ex. 84, Notice of
Violation (Doc. 438-25) at 3 (emphasis added).)
While the NOV
primarily emphasizes “physical modifications” (id.), the CAA
defines “modification” as either a physical or operational
4
See also United States v. Pan Am. Grain Mfg Co., 29 F.
Supp. 2d 53 (D.P.R. 1998) (dismissing claims regarding two
facilities not identified by the NOV); United States v.
Louisiana-Pacific Corp., 682 F. Supp. 1122, 1128 (D. Col. 1987)
(“[T]o allow the EPA to notify the alleged offender of one
violation, and then bring a civil action on the basis [of]
another violation . . . would completely frustrate the notice
requirement created by Congress.”).
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change, as discussed above. Construing the NOV liberally, this
court finds that the use of the term “modification” provided
adequate notice to Duke that the alleged violations could be
based on either physical or operational changes.
2.
Merits
Demonstrating that the operational change argument was
timely raised is only one of Plaintiff’s obligations. To meet
its summary judgment burden, Plaintiff must also show that there
is no genuine dispute that Duke’s shutdown and subsequent
restart of its plants constituted an operational change per the
PSD regulations.
Plaintiff argues that both “the plain language of the
regulations and long-standing EPA guidance” support its
conclusion that restarting a “long-idled power plant” is an
operational change that triggers PSD permitting requirements.
(Pl.’s Br. (Doc. 435) at 24-25.) This court is unconvinced that
such a broad conclusion can be drawn from past EPA
determinations, particularly the ones Plaintiff cites in its
motion; regardless, this court finds that the current factual
record is insufficient for the court to decide this point at the
summary judgment stage.
As with the term “physical change,” the regulations define
the term “operational change” in the negative, listing only a
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number of exceptions that do not trigger the permitting
requirement. One such exception is the “mere increase in the
hours” exception, which states that “a mere increase in the
hours of operation, standing alone, is not a ‘physical change or
change in the method of operation.’”
Envtl. Def. v. Duke Energy
Corp. (“Duke III”), 549 U.S. 561, 579 (2007) (citing 40 C.F.R.
§ 51.166(b)(2)(iii)).5
The purpose of this exception is to
protect utilities from “undue disruption by allowing routine
increases in production during the normal course of business in
order to respond to market conditions.” (See Pl.’s Br., Ex. 35,
In re Monroe Elec. Generating Plant (“Monroe Electric”),
5
In support of its argument that the exception applies,
Duke invokes the “applicability determination issued by the NC
DENR [North Carolina Department of Energy and Natural
Resources], which confirmed that temporary shutdown and restart
of the units would not trigger PSD.” (Duke’s Resp. (Doc. 438) at
34 (citing Duke’s Aug. 17, 1983 Letter from Ronald V. Shearin,
Duke’s Assistant General Counsel, to Robert F. Helms, Director
of NC DENR, Ex. 3 (Doc. 425-4) and NC DENR’s Sept. 15, 1983
Letter to Ronald V. Shearin, Duke’s Assistant General Counsel,
Ex. 5 (Doc. 425-6)).) However, this court has already concluded
that Duke’s letters to NC DENR failed to appropriately describe
the scope of the work Duke planned to perform on the offline
units under the PMP. (See Nov. 6 Mem. Op. (Doc. 462) at 31.)
Duke’s failure to notify NC DENR of the PMP is fatal to its
argument that NC DENR made a controlling determination regarding
the impact of the regulations on Duke’s obligation to obtain a
permit. (See id.) And, even “[a]ssuming arguendo that NC DENR
did render some type of interpretation[,]” (id. at 36), “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
federal regulation without additional explanation, modification,
or change.” (Id. at 46-47.)
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Petition No. 6-99-2 (June 11, 1999) (Doc. 435-36) at 13.) The
exception does not mean, however, “that increases in operating
hours . . . must be ignored even if caused or enabled by an
independent ‘physical change . . . or change in the method of
operation.’” Duke III, 549 U.S. at 579 (citing 40 C.F.R.
§ 51.166(b)(2)(iii)); see also Cinergy Corp., 458 F.3d at 708
(“[M]erely running the plant closer to its maximum capacity is
not a major modification because it does not involve either a
physical change or a change in the method of operation.
If,
however, a physical change enables the plant to increase its
output, then, according to the EPA’s interpretation, the
exclusion for merely operating the plant for longer hours is
inapplicable.”); cf. Sept. 9, 1988 Memo from Don R. Clay (EPA)
to David A. Kee (EPA), Ex. 26 (Doc. 435-27) at 8 (“[T]he
exclusion for increases in hours of operation or production rate
does not take the project beyond the reach of PSD coverage if
those increases do not stand alone but rather are associated
with non-excluded physical or operational changes.”).
In other words, an increase in hours that would otherwise
fall within the exception might be construed as a change in the
method of operation if it is enabled by or otherwise connected
to a physical change. This court has already determined that a
trial is necessary to determine the scope of the physical
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improvements and maintenance performed at each PMP unit. See
supra Part IV.A.
For the same reasons, this court will deny
Plaintiff’s motion for summary judgment on the question of
whether the units’ shutdown and subsequent restart constituted
an operational change.
The two agency determinations Plaintiff cites in support of
its position – Cyprus Casa Grande and In re Monroe Electric – do
not require a contrary ruling, although certain aspects of the
determinations support Plaintiff’s position. In Cyprus Casa
Grande, for instance, the EPA determined that a power company
could not apply the “increase in hours” exclusion to a unit that
had been in “non-operating condition” with “no environmental
impact” and “zero emissions for ten years.” (Pl.’s Br., Ex. 32,
Casa Grande Determination (“Casa Grande”) (Doc. 435-33) at 8.)
In the abstract, this characterization might fit several of
Duke’s units. However, the Casa Grande determination also
emphasized several specific factors not present in Duke’s case:
Unlike the utility in Casa Grande, for instance, Duke preserved
all operating permits for each plant for the duration of the ECS
and PMP and maintained the PMP units in the state’s emissions
inventory. (See id. at 7-8; Ex. 19, Aug. 17, 1983 Letter from
Ronald V. Shearin, Duke’s Assistant General Counsel, to
Robert F. Helms, Director of NC DENR (Doc. 435-20) at 2-3.) The
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Casa Grande determination is unclear as to the relative weight a
court should assign to each of these facts.
Monroe Electric, in which the EPA determined that the
restart of a power plant after eleven years of Extended Reserve
Shutdown (“ERS”) constituted an operational change, is similarly
unpersuasive at this stage of the proceedings. In deciding that
the “increase in hours” exception did not apply, the EPA
emphasized that the plant was leaving its previous “nonoperational” and “unmanned” condition to become “fully
operational.” (Pl.’s Br., Ex. 35, Monroe Electric (Doc. 435-36)
at 22.) The EPA also concluded that “the decision to operate
after eleven years of shutdown, while certainly motivated by
changes in the marketplace, [was] not the kind of quick decision
to respond to quick market fluctuations that EPA intended [the
‘increase in hours’ exception to cover].” (Id. at 23.)
Again, however, the EPA referenced several other
circumstances not present in Duke’s case.
For instance,
although the utility “maintained relevant environmental permits
for the Monroe plant[,]” (id. at 6), the restart also required
the utility to purchase or update several permits, something
Duke is not alleged to have done. (Id. at 23.) Additionally, the
EPA specifically noted that the State of Louisiana – where the
units were located – had “treated the plant as having no
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environmental impact” in its emissions inventory. (Id. at 24.)
Relatedly, Louisiana had recently reported to the national Ozone
Transport Assessment Group (“OTAG”) that it would have no impact
on the relevant ozone emissions levels – a conclusion on which
OTAG relied in determining whether Louisiana should update its
environmental regulations.
(Id. at 24-25.)
Had the Monroe
plants been included in the survey, Louisiana would have had to
report a different level of ozone emissions and OTAG’s
conclusion may have been different. (Id. at 24.) Because a
restart would therefore have “disturb[ed] a prior assessment of
a source’s environmental impact” at both the state and national
level, the court confirmed its finding of operational change.
(Id.)
This court realizes that it will have to determine the
controlling law regarding operational change before trial, and
that this determination will require thorough analysis of the
Casa Grande and Monroe Electric decisions, as well as others.
However, a brief survey of these two determinations makes it
clear that, however this court frames the legal standard, the
proper application of the law will depend on nuanced findings of
fact which this court cannot make on the current record.
Therefore, this court reaffirms that Plaintiff’s motion for
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summary judgment will be denied as to the question of
operational change, and the issue will be decided at trial.
V.
SIGNIFICANT NET EMISSIONS INCREASE
The second prong of the regulatory definition of
“modification” is a “significant net emissions increase”
resulting from the physical or operational change. 40 C.F.R.
§ 51.166(b)(2)(i).
The regulations define “net emissions
increase” as:
[T]he amount by which the sum of the following exceeds
zero:
(a) Any increase in actual emissions from a
particular physical change or change in the method of
operation at a stationary source; and
(b) Any other increases and decreases in actual
emissions at the source that are contemporaneous with
the particular change and are otherwise creditable.
40 C.F.R. § 51.166(b)(3)(i); see also Duke III, 549 U.S. at 569;
Duke IV, 2010 WL 3023517, at *4.
A net emissions increase is “significant” if it “equal[s]
or exceed[s]” the stated regulatory emissions rates for the
pollutant at issue. 40 C.F.R. § 51.166(b)(23)(i).
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A.
Determining a Significant Net Emissions Increase
As previously explained in this court’s earlier Memorandum
Opinion, this court must use an “actual-to-projected-actual”
test to determine what Duke should have known regarding its
plants’ emissions.6
(Nov. 6, 2013 Mem. Op. (Doc. 462) at 27.)
The first step in this test is to calculate the plants’ pre-PMP
“actual emissions” to establish the baseline with which to
compare projected post-PMP emissions.
The regulations define
“actual emissions” as:
[T]he average rate, in tons per year, at which
the unit actually emitted the pollutant during a twoyear 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.
6
The PSD regulations “require[] a utility to obtain a preconstruction permit when proposed changes ‘would increase the
actual annual emission of a pollutant above the actual average
for the two prior years.’” Duke IV, 2010 WL 3023517, at *5
(citing Duke III, 549 U.S. at 570). Utilities cannot generally
employ a “wait-and-see” approach; instead, they are required “to
make a pre-project projection of what actual emissions will be
before construction begins.” Id. (emphasis added) (citing United
States v. Ohio Edison Co., 276 F. Supp. 2d 829, 865 (S.D. Ohio
2003)). Therefore, the question is not whether Duke’s plants
actually had increased emissions after restart, but whether Duke
should have expected its plants to have increased emissions
after restart. If so, Duke should have sought a pre-project
permit before implementing the PMP and restarting its plants.
(See Nov. 6, 2013 Mem. Op. (Doc. 462) at 27 (citing Duke IV,
2010 WL 3023517, at *5).)
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40 C.F.R. 51.166(b)(21)(ii).
In this case, Plaintiff has repeatedly argued that the PSD
regulations “require that the emissions baseline for longshutdown sources of pollution . . . be based on actual emissions
in the two years prior to being restarted – zero.” (Pl.’s Br.
(Doc. 435) at 26-27.) Essentially, Plaintiff argues, ECS status
transforms “normal source operation” into “non-operation” for
emissions baseline purposes. (See id. at 31.) Duke disagrees
with this interpretation, arguing that the correct two-year
period is the two years prior to any unit shutdown. (See Duke’s
Br. in Supp. of Mot. in Limine (Doc. 425) at 54; Duke’s Resp.
(Doc. 438) at 20-21; Duke’s Consolidated Reply in Supp. of Mot.
for Summ. J. (Doc. 440) at 26.)
This court has previously discussed the propriety of
Plaintiff’s zero-baseline argument in the context of Plaintiff’s
proposed PROMOD expert testimony, which uses a baseline of zero
emissions.
(See generally Nov. 6 Mem. Op. (Doc. 462).)
That
discussion resulted in three conclusions: first, that NC DENR
did not make a formal determination that Duke’s interpretation
of the regulations is correct (id. at 35-36); second, that even
if NC DENR had made a formal determination, Plaintiff’s
conflicting interpretation would control (id. at 46-47); and
third, that Plaintiff’s interpretation was entitled to deference
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(id. at 67). Now, this court must resolve a fourth issue:
Whether a baseline of zero emissions, as the starting point for
the “actual-to-potential-actual” test, applies as a matter of
law as to each plant. This court finds that it does.
B.
Baseline Emissions were Zero for Each PMP Unit
As described in this court’s previous Memorandum Opinion,
the case history demonstrates that Plaintiff has exercised its
discretion to use a two-year period other than the two years
immediately prior to restart only in limited circumstances.
(Nov. 6, 2013 Mem. Op. (Doc. 462) at 66-67.)
Those
circumstances 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.”7
United States v. Westvaco Corp., Civil Action No. MJG-
00-2602, 2010 WL 4068745, at *3 (D. Md. Sept. 1, 2010)
(unpublished); see also Pl.’s Br., Ex. 44, Casa Grande (Doc.
435-45) at 9 (“In general, EPA has indicated that [the]
7
In WEPCo, for example, the EPA used a different two-year
period to measure actual emissions because “the discovery of
cracks in the rear steam drums led to a more recent ‘source
curtailment[.]’” WEPCo, 893 F.2d at 916. To the extent WEPCo
supports a more general rule that Plaintiff should look to a
different two-year period when non-routine maintenance is at
issue, Duke’s insistence that the PMP falls under the RMRR
exception undercuts the applicability of such a rule in this
case.
- 25 -
provision [allowing an alternate baseline] is to apply to
catastrophic occurrences such as strikes and major industrial
accidents.”).
Although Duke argues for application of a
different two-year period, no such period has been announced by
EPA, NC DENR, or indeed any court with the opportunity to review
these thirteen units.
For those units out of service for approximately ten years
– that is, Buck Unit 3, Buck Unit 4, Cliffside Unit 1, and
Cliffside Unit 2 – this court finds Casa Grande to be the
controlling determination. The Casa Grande units were out of
service for approximately ten years, and the EPA Air Management
Director David P. Howekamp concluded in his determination “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.” (Pl.’s Br., Ex. 32, Casa Grande
(Doc. 435-33) at 9; see also Ex. 35, Monroe Electric (Doc. 43536) at 26 (holding that a zero emissions baseline was
“representative of normal source operations at the Monroe plant,
which has had no emissions for the last eleven years”).)
Applying Casa Grande, this court finds a baseline of zero
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emissions as a matter of law for Buck Unit 3, Buck Unit 4,
Cliffside Unit 1, and Cliffside Unit 2.8
On the other end of the spectrum are Riverbend Unit 4 and
Dan Unit 3, each of which was placed in ECS for approximately
three years. In the middle are Allen Units 1 and 2, Buck Unit 5,
Cliffside Units 3 and 4, and Riverbend Units 6 and 7, each of
which was shut down for somewhere between five and seven years.
This court finds no reason why the presumption of using the twoyear period immediately prior to restart should not apply to
these units as a matter of law. WEPCo, in which the EPA used an
alternate two-year period to calculate actual emissions for
units repaired as part of a four-year program, potentially
suggests a different conclusion; however, each of the WEPCo
units was only out of service for nine months at a time, WEPCO,
893 F.2d at 908, and the court emphasized the fact that the
deterioration had prevented each unit from operating at full
capacity for a number of years.
Id. at 905-06.
8
Here, Duke has
It should be noted that the Casa Grande determination also
considered the fact that the units at issue had only been
operating for one year prior to the ten-year shutdown. (Pl.’s
Br., Ex. 32, Casa Grande (Doc. 435-33) at 9.) Admittedly, the
Duke units’ 40-plus-year operational history is much longer,
which makes Casa Grande less applicable than it otherwise could
be. Nevertheless, the ratio of non-operational history to
operational history was not the primary rationale for Casa
Grande’s conclusion, and this court does not find Duke’s
situation sufficiently distinguishable to warrant the use of a
different two-year baseline.
- 27 -
never suggested that it placed its units in ECS because of
mechanical problems; on the contrary, Duke argues that it
“placed the units in ECS for lack of demand, not because they
were ‘inoperable.’” (See Duke’s Resp. (Doc. 438) at 24; Pl.’s
Br., Ex. 19, Aug. 17, 1983 Letter from Ronald V. Shearin, Duke’s
Assistant General Counsel, to Robert F. Helms, Director of NC
DENR (Doc. 435-20) at 2 (explaining that Duke decided to place
its units in ECS because “recent load growth [was] less than
previously anticipated” and Duke would therefore “not need for
several years some of our older coal-fired units . . . .”).)
Because WEPCo is inapposite to this case on the question of
the proper two-year baseline period, and because there is no
other reason to deviate from the default rule that the two years
immediately preceding restart should be used, this court finds
that a zero-emissions baseline applies to each of Duke’s units.
C.
Because of the Zero-Emissions Baseline, a Significant Net
Emissions Increase can be Inferred
Having determined that a zero-emissions baseline applies as
a matter of law to each of Duke’s plants, the next step in the
analysis is to determine whether Duke should have anticipated
that restart would result in a significant net emissions
increase. As discussed supra, a “net emissions increase” is
defined as “any increase in actual emissions from a physical
change or a change in the method of operation at a stationary
- 28 -
source.” 40 C.F.R. § 51.166(b)(3)(i)(a). Since this court has
established that each unit had a zero-emissions baseline as a
matter of law, any post-restart emissions constituted a net
emissions increase.
The next question, therefore, is whether
those emissions were “significant” within the meaning of the
regulations.
The PSD regulations define “significant” as an increase in
the “rate of emissions that would equal or exceed” a number of
given rates for various pollutants. 40 C.F.R. § 51.166(b)(23)(i).
The two pollutants at issue here are sulfur dioxide and nitrogen
oxides, which are both capped at 40 tons per year. Id.; see also
Pl.’s Br. (Doc. 435) at 25 (“There is no question that each PMP
unit’s actual post-change emissions of sulfur dioxide and
nitrogen oxides far exceeded 40 tons per year . . . .”).
Duke, for its part, does not dispute Plaintiff’s contention
that there has been a significant net emissions increase.
Indeed, Duke’s own expert finds projected sulfur dioxide and
nitrogen oxide emissions far in excess of 40 tons per year for
each of the PMP units. (See Pl.’s Br., Ex. 3, Expert Report of
Frank C. Graves (“Graves Rep.”) (Doc. 435-4) at 10-41 (reporting
summaries of projected emissions for each unit).) Duke’s
response to Plaintiff’s summary judgment motion focuses
exclusively on the propriety of Plaintiff’s zero-emissions
- 29 -
baseline argument and does not contradict Mr. Graves’ findings.
(See generally Duke’s Resp. (Doc. 438).) Based on this evidence
and applying the zero-emissions baseline, this court finds that
there is no dispute that Duke’s units emitted pollutants in
excess of the PSD thresholds upon restart.
Therefore, summary
judgment in favor of Plaintiff is appropriate on this point.
D.
Plaintiff has not met its Burden to show Causation
The final element Plaintiff must prove is a causal
connection between the physical or operational change and the
significant net emissions increase. (See, e.g., Pl.’s Br., Ex.
35, Monroe Electric (Doc. 435-36) at 14-15 (“Once restart is
found to . . . involve either a physical change or a change in
the method of operation, the [court] must determine if the
change results in a significant net emissions increase of a
pollutant subject to regulation under the Act.”) (citing 40
C.F.R. § 51.166(b)(2)(i)). This court has already considered the
question of causation in the context of Duke’s motion in limine
to exclude Plaintiff’s PROMOD testimony, (see Nov. 6, 2013 Mem.
Op. (Doc. 462) at 19-26), and determined that “both parties’
arguments depend upon a disputed issue of fact as to the
operability or inoperability of the plants prior to the
PMP . .
. .”
(Id. at 23.)
This factual dispute directly
impacts the court’s analysis with respect to the causation
- 30 -
question here: e.g., “If the units were operable, the Government
will have much greater difficulty demonstrating how much, if
any, of an emissions increase was caused by the PMP.” (Id. at
23.) If the units were inoperable, on the other hand, Plaintiff
may be able to show causation via simple logical inference.
At minimum, this court finds that Duke has submitted enough
evidence to create a genuine dispute as to whether its plants
were operable prior to being placed in ECS. (See Duke’s Br. in
Supp. of Mot. in Limine, Ex. 27, Expert Report of Frank C.
Graves (Doc. 428-10) at 14 (“The plants chosen for ECS . . . .
were still operationally viable, but their economics had become
unfavorable relative to the newer plants.”); id. at 19
(asserting that any projected increases in emissions are
attributable to independent factors only, and not to repairs);
see also Duke’s Suppl. Br. (Doc. 453) at 17 (“Not only did the
PMP units in fact generate substantial power before ECS, the had
substantial ‘headroom’ – i.e., prior to ECS they were available
much more than they were called upon to generate.” (internal
citations omitted)).)
Because there is a genuine dispute over
the plants’ operability and, therefore, a dispute as to the
portion of the units’ post-PMP emissions attributable to the
PMP, this court will deny Plaintiff’s motion for summary
judgment as to causation.
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VI.
CONCLUSION
For the foregoing reasons, this court hereby GRANTS IN PART
and DENIES IN PART Plaintiff’s motion for summary judgment (Doc.
434). The motion is GRANTED to the extent that there is no
genuine dispute that the restart of Duke’s units resulted in a
significant net emissions increase.
The motion is DENIED to the
extent that there are genuine disputes as to the question of
whether Duke made a physical or operational change to its units,
and whether such a change caused the subsequent significant net
emissions increase.
This the 17th day of March, 2014.
_______________________________________
United States District Judge
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