Club v. United States Dep't of Agriculture

• Decision Date: 29 March 2011
• Docket Number: Civ. Action No. 07–01860(EGS).
• Citation: 777 F.Supp.2d 44
• Court: U.S. District Court — District of Columbia
• Parties: SIERRA CLUB, Plaintiff,v.UNITED STATES DEPARTMENT OF AGRICULTURE, Rural Utilities Service, et al., Defendants,andSunflower Electric Power Corporation, Defendant–Intervenor.

777 F.Supp.2d 44

SIERRA CLUB, Plaintiff,

v.UNITED STATES DEPARTMENT OF AGRICULTURE, Rural Utilities Service, et al., Defendants,andSunflower Electric Power Corporation, Defendant–Intervenor.

Civ. Action No. 07–01860(EGS).

United States District Court, District of Columbia.

March 29, 2011.

David S. Baron, Earthjustice, Washington, DC, Amanda W. Goodin, Jan Hasselman, Earthjustice Legal Defense Fund, Seattle, WA, for Plaintiff.Alison D. Garner, Julie S. Thrower, U.S. Department of Justice, Washington, DC, for Defendants.Sharon M. Mattox, Vinson & Elkins, L.L.P., Houston, TX, for Defendant–Intervenor.

MEMORANDUM OPINION

EMMET G. SULLIVAN, District Judge.

Plaintiff Sierra Club filed this action on October 16, 2007, alleging that the Department of Agriculture's Rural Utilities Service and certain officials in the Department of Agriculture (collectively, “the federal defendants”) violated the National Environmental Policy Act of 1969 by failing to produce an environmental impact statement in connection with its involvement in the expansion of Sunflower Electric Power Corporation's (“Sunflower”) coal-fired generating plant in Holcomb, Kansas. Sunflower has intervened as a defendant. Pending before the Court are Sunflower's motion to dismiss the complaint as moot, plaintiff's motion for summary judgment (consolidated with its motion for a preliminary injunction pursuant to Federal Rule of Civil Procedure 65(a)(2)), the federal defendants' cross-motion for summary judgment, and Sunflower's cross-motion for summary judgment.

Upon consideration of the motions, the responses and replies thereto, the applicable law, the entire record, and for the reasons set forth below, Sunflower's motion to dismiss the complaint as moot is DENIED, plaintiff's motion for summary judgment is GRANTED, the federal defendants' cross-motion for summary judgment is DENIED, and Sunflower's cross-motion for summary judgment is DENIED.

I. BACKGROUND

Briefly stated, plaintiff maintains that the Rural Utilities Service (“RUS”) should have performed an environmental impact statement (“EIS”) in conjunction with RUS's involvement in the project to expand a power plant facility. As is discussed in more detail below, the National Environmental Policy Act (“NEPA”) requires federal agencies to include an EIS “in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment[.]” 42 U.S.C. § 4332.

The Rural Electrification Act of 1936 gives the Secretary of Agriculture authority, which has been delegated to RUS, to “make loans in the several States and Territories of the United States for rural electrification and for the purpose of furnishing and improving electric and telephone service in rural areas, ... and for the purpose of assisting electric borrowers to implement demand side management, energy efficiency and conservation programs, and on-grid and off-grid renewable energy systems.” 7 U.S.C. § 902(a). The Rural Electrification Act further authorizes RUS to make loans for rural electrification to corporations organized “for the purpose of financing the construction and operation of generating plants, electric transmission and distribution lines or systems for the furnishing and improving of electric service to persons in rural areas[.]” 7 U.S.C. § 904(a). (RUS's predecessor was the Rural Electrification Administration (“REA”).)

According to plaintiff, RUS's involvement in the expansion of the Holcomb power plant in connection with certain loans and loan guarantees to Sunflower, amounted to a “major federal action” within the meaning of NEPA such that an EIS was required. In particular, plaintiff argues that RUS's approvals relating to the expansion of the power plant, as well as the financial assistance provided by RUS, in the form of debt forgiveness and consent to a lien subordination, qualified RUS's involvement as a major federal action.

A. 1980 Approval of Loan and Loan Guarantee

In 1980, after preparing an EIS, the REA approved a loan and loan guarantees to Sunflower Electric Cooperative, Inc. (“Old Sunflower”) The loan and loan guarantees, totaling approximately $543 million, were provided to Old Sunflower for the construction of a coal-fired generating station (“Holcomb Unit 1”) to be located near Holcomb, Kansas. Administrative Record (“AR”) 03866.

B. 1987 Restructuring and Issuance of Promissory Notes

Soon after the construction of Holcomb Unit 1, Old Sunflower became unable to meet its debt repayment obligations to REA and other creditors. AR 04546. Accordingly, in 1987 Old Sunflower entered into an agreement, the 1987 Debt Restructure Override Agreement and Amended and Restated Credit Agreement (the “1987 DRA”), with REA and its other creditors to restructure its debt. AR 03871–3975. Under the 1987 DRA, Old Sunflower issued three classes of promissory notes, referred to as the A Notes, B Notes, and C Notes. AR 00149. REA's share of the principal balance on the A Notes was $294.5 million; on the B Notes it was $98.3 million; on the C Notes it was $61.4 million. Fed. Defs.' Statement of Facts Supp. Cross–Mot. Summ. J. (“Fed. Defs.' Statement of Facts”) ¶¶ 5–7. The A Notes required regularly scheduled payments, but payment on the B Notes was required only when Old Sunflower had excess cash, as defined by the 1987 DRA. AR 00168–169. Each year, any unpaid interest on the B Notes was capitalized and added to the outstanding principal balance. As for the C Notes, payments were to begin only after the B Notes were fully repaid, and any remaining balance on the C Notes would expire in December 2019. AR 00169. Furthermore, in order to secure the notes it issued under the 1987 DRA, Sunflower granted a lien to REA and its other secured creditors on substantially all of its assets. AR 00276.

C. The 2002 Corporate and Debt Restructuring

After the 1987 restructuring, Old Sunflower was able to remain current on the A Notes, but it made no payments on the B Notes or C Notes. Because the interest was capitalized on the B Notes, the principal owed to RUS on these notes had increased from the $98.3 million owed in 1987 to $413.9 million in 2002. Because Old Sunflower was at risk of defaulting, Old Sunflower and its creditors elected to negotiate another restructuring. AR 00004–11.

The 2002 corporate and debt restructuring (the “2002 Restructuring”) divided Old Sunflower's assets between two new corporations, Sunflower Electric Power Corporation (“New Sunflower” or “Sunflower”) and the Holcomb Common Facilities (“HCF”). New Sunflower, the defendant-intervenor in this action, purchased Old Sunflower's assets with certain exceptions. AR 00216–247.¹ In particular, New Sunflower did not purchase a segment of land on the Holcomb site that the parties recognized could be used by a potential additional generating facility (“Holcomb Unit 2”). In addition to this land footprint that could be used by a second generating unit, New Sunflower also did not purchase certain “Common Facilities” such as coal handling and storage facilities, a solid waste landfill, and a sewage treatment plant. The Common Facilities support the operation of Holcomb Unit 1, but they could also support the operation of additional generating units. These leftover assets not purchased by New Sunflower, namely the land footprint for a potential Holcomb Unit 2 and the Common Facilities, were acquired by HCF. HCF is a wholly owned subsidiary of Old Sunflower.

Significantly for purposes of the instant action, New Sunflower purchased Old Sunflower's assets by issuing an entirely new set of notes to the holders of the old A, B and C Notes discussed above. AR 00173–175. The new classes of notes issued to RUS can be categorized as the new A Notes, the new B notes, the Residual Value Notes, and the Holcomb 3 Notes. New Sunflower's payments on the new A Notes, identical in amount to the old A Notes, were credited against Old Sunflower's A Notes. AR 00173. The new A Notes have since been paid in full.

With respect to the remaining classes of new notes, including new B Notes, the Residual Value Notes, as well as the Holcomb 3 Notes, any payments made by Sunflower are all credited against Old Sunflower's debt under the old B Notes. AR 00174. However, the monetary value of the old B Notes issued pursuant to the 1987 DRA was substantially different than the value of these new notes. The new B Notes are non-interest bearing notes with a fixed payment schedule, issued in the total amount of $88.4 million. (However, for every payment that Sunflower makes on time on the new B Notes, the principal balance is reduced such that if Sunflower makes all its payments in a timely fashion, it will only pay a total of $44.2 million. AR 00174.) On the Residual Value Notes, New Sunflower is not required to make any regularly scheduled payments. Instead, the Residual Value Notes are redeemable in December 2016 for the greater of either $125 million or 43% of the fair market value of Holcomb Unit 1. AR 00175. Finally, the Holcomb 3 Notes issued by Sunflower are interest-bearing notes, but they are payable only if and when Sunflower builds or becomes the operator of a third generating plant at the Holcomb Site. AR 00175. RUS's share of the Holcomb 3 Notes was $1.8 million. If a third plant is not built or operated by Sunflower by December 2021, the Holcomb 3 notes are cancelled. AR 00175.

Unlike New Sunflower, HCF (the other new entity formed in conjunction with the 2002 Restructuring) did not issue new promissory notes. Instead, for the purchase of the Holcomb Unit 2 land footprint and the Common Facilities, RUS and the other creditors received a security interest in HCF and an assignment of annual rent payments from the use of the Holcomb Unit 2 site and Common Facilities. AR 00190.

The 2002 Restructuring also affected the lien held by RUS on Old Sunflower's assets. As mentioned above, prior to the 2002 Restructuring,...