USA v. Cinergy Corp.

• Decision Date: 12 October 2010
• Docket Number: No. 09-3344,09-3350,09-3351.,09-3344
• Parties: UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant, and State of New York, et al., Plaintiffs-Intervenors-Appellees/Cross-Appellants, v. CINERGY CORPORATION, et al., Defendants-Appellants/Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

623 F.3d 455

UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant,andState of New York, et al., Plaintiffs-Intervenors-Appellees/Cross-Appellants,

v.CINERGY CORPORATION, et al., Defendants-Appellants/Cross-Appellees.

Nos. 09-3344, 09-3350, 09-3351.

United States Court of Appeals,Seventh Circuit.

Argued Sept. 20, 2010.

Decided Oct. 12, 2010.

Jason A. Dunn (argued), Attorney, Department of Justice, Environment & Natural Resources Division, Washington, DC, for United States of America.

Mark D. Hopson, Attorney, Sidley Austin, Washington, DC, for Defendants-Appellees in Nos. 09-3344, 09-3350, 09-3351.

Scott N. Koschwitz, Office of the Attorney General, Hartford, CT, Jon Martin, Hughes Justice Complex, Trenton, NJ, Michael J. Myers, New York State Department of Law, Environmental Protection Bureau, Albany, NY, for Intervenors-Appellants in No. 09-3350.

Peter D. Keisler (argued), Sidley Austin, Washington, DC, for Defendants-Appellants in No. 09-3351.

Keith Guthrie, Elizabethtown, IN, Scott N. Koschwitz, Office of the Attorney General, Hartford, CT, Jon Martin, Hughes Justice Complex, Trenton, NJ, Michael J. Myers, New York State Department of Law, Environmental Protection Bureau, Albany, NJ, for Intervenor-Appellees in No. 09-3351.

Before EASTERBROOK, Chief Judge, and POSNER and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

More than a decade ago the Environmental Protection Agency brought this suit against affiliated owners (we'll pretend they're a single entity, Cinergy) of a number of coal-fired electric power plants in the Midwest. The suit claims that Cinergy violated section 165(a) of the Clean Air Act, 42 U.S.C. § 7475(a), by modifying a number of the plants without first obtaining from the agency a permit that the agency contends was required by a regulation because the modifications were “major” and would produce increases in emissions of nitrogen oxide and sulfur dioxide. 40 C.F.R. § 52.21(a)(2)(iii). No matter, Cinergy argued; the regulation does not require a permit for modifications unless they will increase the hourly rate at which a plant can emit pollutants, even if they will increase the plant's annual emissions by enabling the plant to be operated for more hours during the year. The district judge rejected Cinergy's interpretation. Without the required permit, Cinergy was liable for increased pollution caused by the modifications, and faced the prospect of an injunction that would require it to shut down the plants, plus civil penalties of $25,000 for each day that it had violated the permit requirement. 42 U.S.C. § 7413(a), (b), (d)(1); United States v. AM General Corp., 34 F.3d 472, 473-75 (7th Cir.1994).

Cinergy took an interlocutory appeal under 28 U.S.C. § 1292(b) from the judge's ruling on the hourly-capacity versus actual-emissions interpretation of the regulation. We affirmed the district court, agreeing that the regulation required application of the actual-emissions standard. United States v. Cinergy Corp., 458 F.3d 705 (7th Cir.2006). One point in our opinion is worth repeating because it bears on an issue in the present appeals. Cinergy's hourly-capacity interpretation would if adopted give a company that had a choice between making a physical modification that would increase the hourly emissions rate and one that would enable an increase in the number of hours of operation an incentive to make the latter modification even if that would produce a higher annual level of emissions. For that modification would elude the permit requirement and thus shelter the company from liability for the increased emissions. It would also distort the choice between rebuilding an old plant and replacing it with a new one. The Clean Air Act treats old plants more leniently than new ones because it is expensive to retrofit a plant with pollution-control equipment. Wisconsin Elec. Power Co. v. Reilly, 893 F.2d 901, 909 (7th Cir.1990). But there is an expectation that old plants will wear out and be replaced by new ones that will thus be subject to the more stringent pollution controls that the Act imposes on new plants. A spur to replacing an old plant is that aging produces more frequent breakdowns and so reduces a plant's hours of operation and hence its output unless the owner invests in continuous, and cumulatively costly, replacement of worn-out parts to keep the plant going. Cinergy's interpretation would if adopted have given the company an artificial incentive instead to renovate its old plants, and by so doing increase their hours of operation, rather than to replace the plants even if replacing them would cost less. For by renovating them rather than replacing them, the company could increase their output without having to invest in measures for preventing the enhanced output from generating increased pollution.

After we decided the interlocutory appeal, the case resumed in the district court and went to trial before a jury-although a case of such complexity, rife with technical issues, is not an ideal one for a jury to decide. The jury's verdict was mixed. Fourteen modification projects at three plants were at issue; the jury found liability with respect to four of the projects, all at Cinergy's plant in Wabash, Indiana, and all undertaken between 1989 and 1992. These modifications, the jury found, had been likely to increase the plant's annual emissions of sulphur dioxide and nitrogen oxide and therefore Cinergy should have sought a permit. (Actually the jury's finding is limited to three of the generating units at the Wabash plant, but for simplicity we'll treat the plant as the unit of analysis.)

Cinergy argues that so far as sulphur dioxide is concerned, no permit was required because the modifications did not increase the plants' hourly-rate capacity to produce electricity and therefore, as a byproduct, sulphur dioxide. It points out that under Indiana's plan for implementing the Clean Air Act that was in effect when the plants were modified and that the EPA had approved, hourly capacity rather than annual emissions determined whether a permit was required for a modification. Air Pollution Control Board of the State of Indiana, Codification of Air Pollution Control Board Regulations, 325 Ind. Admin. Code §§ 1.1-1, 2.1 (1980); U.S. Environmental Protection Agency, Approval and Promulgation of Implementation Plans: Indiana State, 47 Fed.Reg. 6621-01 (Feb. 16, 1982). It is true that even before the EPA approved the plan, Indiana amended it to conform the definition of “modification” to the actual-emissions standard that later we upheld in our first (2006) opinion. 325 Ind. Admin. Code 2-3-1( l ), ( o ) (1981). But it did not submit an amended plan, with the critical change, to the EPA for many years. When it finally did, see 326 Ind. Admin. Code 2-3-1 (1994), the EPA promptly approved it.

Approval and Promulgation of a New Source Review Implementation Plan; Indiana, 59 Fed.Reg. 51,108-01 (Oct. 7, 1994). The modifications at issue in the first appeal postdated that approval. The present appeals, however, concern modifications made several years earlier and therefore governed by the state plan that the EPA had approved in 1982.

Section 43 of that plan defined “modification,” so far as bears on this case, as “an addition to an existing facility or any physical change, or change in the method of operation of any facility which increases the potential ... emissions ... of any pollutant that could be emitted from the facility.” 325 Ind. Admin. Code § 1.1-1, p. 5 (1980). Cinergy contends that “increases the potential ... emissions ... that could be emitted from the facility” means increases the hourly rate at which the plant can, by generating more electricity, emit more pollution: a measure of capacity. That is the natural interpretation, the key words being “could be.” To read them as modifying “pollutant” (“any pollutant which could be emitted from the facility”) would not make sense because reference to increased emissions presupposes that the plant already emits the pollutant in question.

And whether Cinergy's interpretation is correct or not, the EPA does not argue that section 43 can be read to define a modification as a change that increases only annual emissions. Rather, it argues that read as Cinergy reads it section 43 is unlawful because the statute and implementing regulation (as we said in our first opinion) define modification in terms of increasing actual emissions rather than hourly capacity. The agency adds that, bowing to the D.C. Circuit's decision in Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C.Cir.1979), it had made clear, even before section 43 was adopted and approved by it as part of its approval of Indiana's plan, that the statute and regulation required use of the actual-emissions standard. Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed.Reg. 52676, 52700 (Aug. 7, 1980). And it had noted that Indiana had agreed (in the 1981 amendment to its plan, noted above) to update its definitions to conform to the EPA's new interpretation and that the EPA had said it would “rulemake on these revised [state] regulations ... upon their submittal.” Approval and Promulgation of Implementation Plans: Indiana, 46 Fed.Reg. 54,941-01, 59,942 (Nov. 5, 1981). So, says the EPA, Cinergy was “on notice” that section 43 did not mean what it...