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United States of America v. Eme Homer City Generation L.P.

October 12, 2011


The opinion of the court was delivered by: McVerry, J.



Pending before the Court are the following motions to dismiss: EME HOMER CITY GENERATION L.P.'S MOTION TO DISMISS (Doc. No. 85); DEFENDANTS HOMER CITY OWNER-LESSORS' MOTION TO DISMISS (Doc. No. 87); NEW YORK STATE ELECTRIC & GAS CORPORATION'S MOTION TO DISMISS (Doc. No. 88); and PENNSYLVANIA ELECTRIC COMPANY'S MOTION TO DISMISS (Doc. No. 91), each with a brief in support. Plaintiff United States of America and three intervenor Plaintiffs, Commonwealth of Pennsylvania Department of Environmental Protection ("PADEP"), State of New York and State of New Jersey (collectively the "Intervenors"), filed briefs in opposition. All Defendants filed reply briefs. The issues have been fully briefed and are ripe for disposition.

Factual Background

This case involves alleged violations of the federal Clean Air Act, 42 U.S.C. § 7470 et seq., at the Homer City coal-fired power plant in Indiana County, Pennsylvania (the "Plant"). Although the legal issues raised in this case are complex, the facts pled in the three separate Complaints filed by the United States and the Intervenor state Plaintiffs are relatively straightforward.

Defendant New York State Electric and Gas Corporation ("NYSEC") was an owner of the Plant from January 1968 until June 1998. Defendant Pennsylvania Electric Company ("PENELEC") was an owner of the Plant from January 1968 until March 1999 and also operated the Plant during this same timeframe.*fn1 Defendant EME Homer City Generation, L.P. ("EME") owned the Plant from March 1999 until December 7, 2001 and has operated the Plant from March 1999 through the present. In 2001, EME and the eight Homer City Owner-Lessor Limited Liability Companies (the "OLs") completed a sale-leaseback transaction, by which the OLs acquired ownership of the Plant. For clarity and convenience, NYSEC and PENELEC will be referred to as the "Former Owners" and EME and the OLs will be referred to as the "Current Owners."

The Plant has three coal-fired generating units. Units 1 and 2 began operating in 1969, prior to the enactment of the provisions of the Clean Air Act at issue, and neither unit has been retrofitted with a wet flue gas desulfurization scrubber to control SO2 emissions which adversely impact human health and the environment, including asthma and acid rain. In 2009, Units 1 and 2 emitted approximately 96,000 tons of SO2, amongst the highest in the nation. *fn2 All three boiler units are currently equipped with electro-static precipitators for particulate control and selective catalytic reduction for control of nitrogen oxides ("NOx").

In August 1991, the Former Owners commenced a multi-million dollar project to replace the economizer on Unit 2, which included modification of the backpass gas ductwork and installation of new reheat temperature control dampers and internal boiler supports and related work. In March 1994, the Former Owners commenced a similar project to replace the economizer on Unit 1. In 1995 and 1996, the Former Owners replaced the vertical reheater pendants on Units 1 and 2.*fn3 The Former Owners did not apply for or obtain a permit under the Prevention of Significant Deterioration ("PSD") program of the Clean Air Act before performing any of these projects.

On August 3, 1995, PENELEC submitted an application for an operating permit for the Plant pursuant to the requirements of Title V of the Clean Air Act. On January 30, 2004, PADEP issued a final Title V permit for the Plant. The effective date of the permit was December 1, 2004. United States Complaint ¶ 61. The Intervenors allege that PADEP issued several operating permits for the emission sources at the Plant, the most recent of which is Title V permit No. 32-00055, issued on January 2004, with an amendment effective on December 1, 2004. PADEP/New York Complaint ¶ 23; New Jersey Complaint ¶ 22. The actual Title V permit was not attached to the Complaints or otherwise provided to the Court. It is unclear whether concerns regarding the projects at issue were raised during the ten year period when the Title V permit application was under review by regulators.

For many years, environmental regulators took no action to challenge the 1991, 1994, 1995 or 1996 projects as improper. On June 12, 2008, the United States Environmental Protection Agency ("EPA") issued a Notice and Finding of Violation ("NOV") to the Current Owners. On May 6, 2010 and November 1, 2010, the EPA issued subsequent NOVs to all of the named Defendants. Plaintiffs allege that Defendants undertook the 1991, 1994, 1995 and 1996 projects without having obtained the requisite PSD permits. In addition, Plaintiffs allege that because the projects should have triggered a requirement to install the Best Available Control Technology ("BACT") to control emissions of sulfur dioxide ("SO2") and/or particulate matter, Defendants failed to submit a complete application for a Title V operating permit, and thus failed to obtain a proper or valid Title V operating permit.

The United States initiated this action on January 6, 2011, with the filing of a four-count civil complaint against all of the named Defendants. Counts 1 and 3 allege violations by all Defendants of the PSD provisions of the Clean Air Act, 42 U.S.C. §§ 7470-7492, and the federally-approved Pennsylvania State Implementation Plan ("SIP"), for the projects at Units 1 and 2, respectively. Counts 2 and 4 allege violations by all Defendants of the Title V provisions of the Clean Air Act, 42 U.S.C. §§ 7661-7661(f), and the Pennsylvania Title V program, for the subsequent operation of Units 1 and 2, respectively. The United States seeks injunctive relief and the assessment of civil penalties since March 15, 2004.

On January 13, 2011, PADEP and New York intervened in the action and filed a five-count Complaint which provides more factual details, asserts similar violations of the PSD and Title V provisions of the federal Clean Air Act, asserts corresponding violations of the Pennsylvania Air Pollution Control Act ("APCA"), 35 P.S. § 4001, et seq., and its implementing regulations, and adds a common law public nuisance claim. Additionally, New Jersey filed a separate three-count Intervenor Complaint which asserts essentially the same federal Clean Air Act claims set forth by the United States. The Intervenors assert standing under the Clean Air Act citizen suit provision, 42 U.S.C. § 7604(a)(1), and seek injunctive relief and civil penalties relating back to the dates of the original projects.

Standard of Review

A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) challenges the legal sufficiency of a complaint. The Court must accept as true all well-pleaded facts and allegations, and must draw all reasonable inferences therefrom in favor of the plaintiff. However, as the Supreme Court made clear in Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555 (2007), the "factual allegations must be enough to raise a right to relief above the speculative level." Id. The Supreme Court has subsequently broadened the scope of this requirement, stating that only a complaint that states a plausibleclaim for relief survives a motion to dismiss." Ashcroft v. Iqbal, -- U.S. --, 129 S. Ct. 1937, 1950 (2009) (emphasis added). A district court must conduct a two-part analysis when presented with a motion to dismiss for failure to state a claim. First, the Court must separate the factual and legal elements of the claim. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). Although the Court "must accept all of the complaint's well-pleaded facts as true, [it] may disregard any legal conclusions." Id. at 210-211. Second, the Court "must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.' In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to 'show' such an entitlement with its facts." Id. at 211 (citing Iqbal, 129 S. Ct. at 1949). The determination of "plausibility" will be "'a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'" Id. at 211 (quoting Iqbal, 129 S. Ct. at 1950).

Legislative Overview

This case primarily involves statutory interpretation of the Clean Air Act. In Alston v. Countrywide Financial Corp., 585 F.3d 753 (3d Cir. 2009), the Court of Appeals for the Third Circuit described the task as follows:

The role of the courts in interpreting a statute is to give effect to Congress's intent.... Because it is presumed that Congress expresses its intent through the ordinary meaning of its language, every exercise of statutory interpretation begins with an examination of the plain language of the statute. When the statute's language is plain, the sole function of the courts-at least where the disposition required by the test is not absurd-is to enforce it according to its terms.

Id. at 759 (citations omitted). Accordingly, the Court begins with an examination of the applicable statutory framework.

In 1970, in response to dissatisfaction with existing air pollution programs, Congress enacted amendments to the Clean Air Act which significantly increased the federal oversight role. The statute was intended "to guarantee the prompt attainment and maintenance of specified air quality standards." Alaska Dep't of Envtl. Conservation v. EPA, 540 U.S. 461, 469 (2004). Plaintiffs contend that the decision in this case should uphold the fundamental purpose of the Clean Air Act to reduce air pollution. The statute required the EPA to promulgate national ambient air quality standards (NAAQS) for pollutants, including SO2, which may reasonably endanger public health or welfare. 42 U.S.C. §§ 7408, 7409. Each state was required to submit for EPA approval a State Implementation Plan (a "SIP") to implement, maintain and enforce NAAQS. 42 U.S.C. § 7410.*fn4 In addition, the EPA was required to develop "technology-based performance standards" designed to limit emissions from major sources of pollution. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 846 (1984); 42 U.S.C. § 7411(b).

As with most legislation, the Clean Air Act amendments reflected a congressional compromise. As explained in Chevron, 467 U.S. at 847: "the legislative struggle was basically between interests seeking strict schemes to reduce pollution rapidly to eliminate its social costs and interests advancing the economic concern that strict schemes would retard industrial development with attendant social costs." As one legislative compromise, the Clean Air Act has less stringent regulations regarding existing power plants as compared to newly constructed sources of electricity. In other words, existing plants were "grandfathered" in recognition of the expense of retrofitting pollution-control equipment. Compare 42 U.S.C. §§ 7411(d) and (f). As explained in Wisconsin Elec. Power Co. v. Reilly, 893 F.2d 901, 909 (7th Cir. 1990):

Consistent with its balanced approach, Congress chose not to subject existing plants to the requirements of NSPS and PSD. Members of the House recognized that "[b]uilding control technology into new plants at time of construction will plainly be less costly then [sic] requiring retrofit when pollution control ceilings are reached." H.R.Rep. No. 294, 95th Cong., 1st Sess. 185, reprinted in 1977 U.S.Code Cong. & Admin.News at 1264. But Congress did not permanently exempt existing plants from these requirements; section 7411(a)(2) provides that existing plants that have been modified are subject to the Clean Air Act programs at issue here.

Accord United States v. Cynergy Corp., 458 F.3d 705, 709 (6th Cir. 2006) (Clean Air Act treats old plants more leniently than new ones but there is an expectation that old plants will wear out and be replaced by new ones which are subject to more stringent pollution controls). Utility companies are not entitled to evade the Clean Air Act requirements by keeping the grandfathered power plants in operation indefinitely. Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir. 1979) ("The statutory scheme intends to 'grandfather' existing industries; but the provisions concerning modifications indicate that this is not to constitute a perpetual immunity from all standards under the PSD program.") Accordingly, the PSD permit requirements apply to both newly-constructed facilities and those that have had a "major modification" that would result in a "significant net emissions increase." Environmental Defense v. Duke Energy Corp., 549 U.S. 561, 568-69 (2007); 42 U.S.C. § 7411(a)(2). This case involves projects at "grandfathered" units of the Homer City Plant which Plaintiffs allege should have triggered the more rigorous Clean Air Act emissions standards.

PSD Program

Congress amended the Clean Air Act again in 1977 to add the "Prevention of Significant Deterioration" (PSD) program, which was intended to ensure that air quality in areas which were already "clean" (i.e., in compliance with NAAQS) would not degrade. Alaska Dep't, 540 U.S. at 470-71. The statutory authority for the PSD program is in Part C of Subchapter I of the Clean Air Act, 42 U.S.C. §§ 7470-7479. Initially, the PSD program applied only to construction of new sources of pollution. However, in November 1977, Congress passed a technical amendment which made the PSD program applicable to projects of modifications to grandfathered plants.

Safe Drinking Water Amendments of 1977, Pub. L. No. 95-190, 91 Stat. 1393, 1402 (1977) ("The term ['construction'] when used in connection with any source or facility, includes the modification (as defined in [42 U.S.C. § 7411(a)(4)]) of any source or facility"). See United States v. Duke Energy Corp., 411 F.3d 539, 548 (4th Cir. 2005), rev'd on other grounds, 549 U.S. 561 (2007); Alabama Power, 636 F.2d at 401 n. 49. The implications of this "technical amendment" were not fully appreciated at the time.

In this case, Plaintiffs allege that Defendants violated 42 U.S.C. § 7475(a), which is entitled "Preconstruction Requirements" and provides as follows:

(a) Major emitting facilities on which construction is commenced

No major emitting facility on which construction is commenced after August 7, 1977, may be constructed in any area to which this part applies unless-(1) a permit has been issued for such proposed facility in accordance with this part setting forth emission limitations for such facility which conform to the requirements of this part;

(2) the proposed permit has been subject to a review in accordance with this section, the required analysis has been conducted in accordance with regulations promulgated by the Administrator, and a public hearing has been held with opportunity for interested persons including representatives of the Administrator to appear and submit written or oral presentations on the air quality impact of such source, alternatives thereto, control technology requirements, and other appropriate considerations;

(3) the owner or operator of such facility demonstrates, as required pursuant to section 7410(j) of this title, that emissions from construction or operation of such facility will not cause, or contribute to, air pollution in excess of any (A) maximum allowable increase or maximum allowable concentration for any pollutant in any area to which this part applies more than one time per year, (B) national ambient air quality standard in any air quality control region, or (C) any other applicable emission standard or standard of performance under this chapter;

(4) the proposed facility is subject to the best available control technology for each pollutant subject to regulation under this chapter emitted from, or which results from, such facility;

(5) the provisions of subsection (d) of this section with respect to protection of class I areas have been complied with for such facility;

(6) there has been an analysis of any air quality impacts projected for the area as a result of growth associated with such facility;

(7) the person who owns or operates, or proposes to own or operate, a major emitting facility for which a permit is required under this part agrees to conduct such monitoring as may be necessary to determine the effect which emissions from any such facility may have, or is having, on air quality in any area which may be affected by emissions from such source; and

(8) in the case of a source which proposes to construct in a class III area, emissions from which would cause or contribute to exceeding the maximum allowable increments applicable in a class II area and where no standard under section 7411 of this title has been promulgated subsequent to August 7, 1977, for such source category, the Administrator has approved the determination of best available technology as set forth in the permit.

42 U.S.C. § 7475(a) (emphasis added).

According to the plain meaning of the language of the statute, § 7475(a) provides that

"No major emitting facility . . . may be constructed" unless each of the statutory conditions are met. One of the preconditions to construction is the installation of Best Available Control Technology ("BACT"). § (a)(4). BACT is not a particular type of technology. Rather, it is defined in the Act as an "emission limitation based on the maximum degree of reduction of each pollutant subject to regulation ... which the permitting authority, on a case-by-case basis, taking into account energy, environmental, and economic impacts and other costs, determines is achievable" for the facility in question. 42 U.S.C. § 7479(3). As provided in §§ 7475(a)(1) and (a)(8), the Clean Air Act determination of emissions limitations and BACT for the facility are to be "set forth" in the PSD permit.

The PSD requirements are forward-looking and framed in terms of that which utilities must do before commencing construction. Accordingly, an operator's duty is "not prescience, but merely a reasonable estimate of the amount of additional emissions that the change will cause." Cynergy, 458 F.3d at 709; United States v. Ohio Edison Co., 276 F. Supp.2d 829, 863 (S.D. Ohio 2003) (operator must perform pre-construction estimate of whether change will result in significant net emissions increase). Thus, in this case the Former Owners were required to have made a reasonable estimate, in advance, of whether the 1991, 1994, 1995 and 1996 projects constituted major modifications which would result in a significant increase of SO2 emissions. The regulations provide guidance but there are no clear, bright-line rules. In Cynergy, 458 F.3d at 709, the Court recognized that "it may be a very difficult estimate to make." In United States

v. Ohio Edison Co., 276 F. Supp.2d 829, 832 (S.D. Ohio 2003), the Court lamented "an abysmal breakdown in the administrative process" in which various administrations have failed to address the fundamental issue of "at what point plants ...

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