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June 9, 2009 |
Cinergy — Remedy Decision for Clean Air Rule Violations On Friday, May 29, 2009, Southern District of Indiana District Court Judge Larry J. McKinney filed his Memorandum Opinion and Order ruling in the remedy phase of the NSR enforcement case against Cinergy Corp., PSI Energy, Inc., and the Cincinnati Gas & Electric Company ("Cinergy"). This decision, following a bench trial, addresses equitable remedies for Cinergy's violations of the New Source Review ("NSR") provisions of the Clean Air Act ("CAA"), as determined by a jury on May 22, 2008, and imposes equitable remedies and penalties for Cinergy's violation of the Ohio State Implementation Plan ("SIP") particulate matter ("PM") emissions limitations, as determined by the court's order on plaintiffs' earlier summary judgment motion. In late 2007, the court, in ruling on a summary judgment motion, held that Cinergy's Beckjord, Ohio plant's PM emissions had violated the terms of a 1998 Administrative Order and the provisions of the Ohio SIP. The parties later went to trial on plaintiffs' claims that Cinergy violated NSR permitting provisions on 14 occasions by failing to obtain permits for alleged "modifications" made to its coal-fired units at several power plants in Indiana and Ohio. In May 2008, the jury returned a verdict finding for Cinergy on 10 of the 14 counts, but finding NSR violations for four projects involving units 2, 3 and 5 in Wabash River, Indiana. The jury determined that those projects were not routine and that a reasonable power plant owner or operator at the plant would have expected those projects to result in increases in sulfur dioxide (SO2) and nitrogen oxide (NOX) emissions above the thresholds at which NSR permits are required. On December 18, 2008, Judge McKinney ordered a retrial of the 10 counts where the jury had ruled in favor of Cinergy. That order was based on alleged improprieties related to Cinergy's payment of one of its witnesses. The liability retrial was conducted before a jury in the Spring of 2009 and, on May 19, 2009, the jury returned a verdict finding that Cinergy failed to obtain requisite NSR permits for only two of the 10 projects (claims related to some of those projects were withdrawn prior to retrial). The remedy trial and decision addressed here apply only to the claims on which plaintiffs prevailed at the original liability trial. A second remedy trial for the additional two violations is expected in the future. The court previously held in an earlier stage of the proceedings that the statute of limitations barred plaintiffs' claims for civil penalties for violations of the CAA's preconstruction permit regulations because such violations are complete when the construction projects are completed. The court held it would permit equitable relief, however, because equitable relief was "merely compensation for the injury caused by Cinergy's violation of the CAA and was not a penalty." The court determined that equitable remedies were appropriate in this case based on the irreparable injury in the form of environmental harm caused by the non-permitted "excess emissions," which the court defined as the amount of actual emissions that exceed emissions that would have been allowed had proper permitting been obtained. At the time of the projects, the power plant was located in an area in nonattainment with SO2 National Ambient Air Quality Standards (NAAQS) and in attainment with the NOX NAAQS. The court held that the lowest achievable emissions rate ("LAER") would have been required for SO2 and, at the time of the projects, would have consisted of a wet flue gas desulfurization ("FGD") with a 95 percent removal efficiency. The court rejected Cinergy's argument that it would have applied for a synthetic minor permit limit for SO2 emissions to avoid triggering NSR. The court held that the best available control technology ("BACT") would have been required for NOX and, at the time of the projects, would have consisted of a low-NOX burner. To compensate for the irreparable injury claimed by plaintiffs, the plaintiffs sought the immediate shutdown of Wabash units 2, 3 and 5; the imposition of BACT on Wabash units 4 and 6 (which did not trigger NSR); and surrender of SO2 allowances over the next 20 years for the total SO2 excess emissions. Cinergy agreed that retiring units 2, 3 and 5 would be an appropriate remedy, but sought to retire the units in 2012 and proposed to operate the units until that time at a level roughly equal to the pre-project emissions levels. The court agreed that the "balance of harms weighs heavily in favor of a relatively immediate shutdown of Cinergy's Wabash River units 2, 3 and 5." The court concluded, however, that requiring pollution controls at other units at the plant and requiring forfeiture of Cinergy's SO2 allowances for all of the excess emissions since the time of the projects was inappropriate. Among other reasons, the court found that such remedies would be punitive in nature and, therefore, barred by the statute of limitations. As the court explained, requiring controls on units 4 and 6 would be "a penalty without sufficient nexus to the violation to be considered mitigation." With respect to the timing of the shutdown of units 2, 3 and 5, Cinergy presented evidence from Midwest ISO ("MISO") that immediate shutdown of units 2, 3 and 5 could cause a significant problem in service of electrical demand. Cinergy did not, however, ask MISO to perform a detailed engineering analysis of different transmission and capacity scenarios if the units 2, 3 and 5 were to be immediately shut down. Out of concern for the needs of consumers, the court grudgingly gave Cinergy until September 2009 to shut down the units. Cinergy may operate the units until that time at the pre-project emissions levels, unless Cinergy receives permission from the court to exceed those levels. In addition, the court required Cinergy to permanently surrender SO2 allowances equal to the SO2 emissions from the date of the liability trial verdict in 2008 through the shutdown of the units. This surrender is far less than that requested by the plaintiffs (surrender of all excess emissions since the time of the projects), but that distinction does not appear to explain why the court's remedy is a permissible equitable remedy, while the remedy requested by plaintiffs was a barred punitive remedy. The court does not squarely address the issue. Notably, because Cinergy agreed to shut down the units, the court did not address what controls would have been required if Cinergy continued to operate the unit: BACT and LAER as of the time of the projects, or BACT and LAER as they exist today? As a remedy for the PM emission violations at the Beckjord plant, plaintiffs sought injunctive relief requiring the installation of PM continuous emissions monitors ("PM CEMS") as a compliance measurement tool, with a 30-day averaging time. Plaintiffs additionally sought the statutory maximum penalties for each day Cinergy Corp. was found to have violated the Administrative Order and the statutory maximum for each day that Cincinnati Gas & Electric was in violation of the Ohio SIP. The court ordered that Cinergy install a PM CEMS and to pay the maximum statutory penalty of $27,500 per day for each violation of the Ohio SIP. The court refused to penalize Cinergy Corp. separately for the violations of its Administrative Order because Cinergy Corp. was jointly liable with Cincinnati Gas & Electric for its violations of the Ohio SIP, and because the emissions constituting violations of the Administrative Order also constituted violations of the Ohio SIP. For questions regarding this Environmental Update, please contact any of the attorneys in Schiff Hardin's Environmental Group. RECENT ENVIRONMENTAL PUBLICATIONS
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