United States v. Duke Energy Corp.

• Decision Date: 17 March 2014
• Docket Number: No. 1:00CV1262.,1:00CV1262.
• Parties: 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.
• Court: U.S. District Court — Middle District of North Carolina

5 F.Supp.3d 771

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.

No. 1:00CV1262.

United States District Court,

M.D. North Carolina.

Signed March 17, 2014.

James A. Lofton, U.S. Department of Justice, Ben Franklin Station, James R. Macayeal, Jason Dunn, John C. Cruden, U.S. Department of Justice, Environmental Enforcement Sect., Washington, DC, Joan Brodish Binkley, Lynne P. Klauer, Office of U.S. Attorney, Greensboro, NC, for Plaintiff.

James Blanding Holman, IV, Charleston, SC, Jeffrey M. Gleason, Southern Environmental Law Ctr., Charlottesville, VA, for Plaintiff–Intervenors.

Daniel W. Fouts, Nexsen Pruet Adams Kleemeier, PLLC, Charnanda T. Reid, Jim W. Phillips, Jr., Brooks Pierce McLendon Humphrey & Leonard, LLP, Greensboro, NC, F. William Brownell, Henry V. Nickel, Makram B. Jaber, Mark B. Bierbower, Hunton & Williams LLP, Frank R. Volpe, Mark D. Hopson, Samuel B. Boxerman, Sidley Austin Brown & Wood, LLP, Washington, DC, Garry Stephen Rice, Duke Energy Corporation, Nash E. Long, III, T. Thomas Cottingham, III, Winston & Strawn LLP, Charlotte, NC, for Defendant.

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, Zahodnick 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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (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 coal-fired power plants by placing the plants ² 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 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.

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 Change1. 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 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 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.”

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]...