U.S. v. Duke Energy Corporation

278 F.Supp.2d 619

UNITED STATES of America, Plaintiff and Counter-Defendant, and Environmental Defense; North Carolina Sierra Club; and North Carolina Public Interest Research Group Citizen Lobby/Education Fund, Intervenor-Plaintiffs, v. DUKE ENERGY CORPORATION, Defendant and Counter-Claimant.

No. CIV. 1:00CV01262.

United States District Court, M.D. North Carolina.

August 26, 2003.

COPYRIGHT MATERIAL OMITTED

Katherine E. Konschnik, Sonja Petersen, Jason Dunn, John C. Cruden, Deborah Behles, James R. Macayeal, U.S. Department of Justice, Washington, DC, for plaintiff.

James Blanding Holman, IV, Chapel Hill, NC, Jeffrey M. Gleason, Charlottesville, VA, for intervenor-plaintiff.

Albert Diaz, Nash E. Long, III, Hunton & Williams, Garry Stephen Rice, Charlotte NC, Mark B. Bierbower, Henry V. Nickel, William F. Brownell, Makram Jaber, Hunton & Williams, Washington, DC, for defendant.

John J. Buckley, Jr., Robert M. Cary, Bradley J. Bondi, Williams & Connolly, Washington, DC, Jonathan Arthur Berkelhammer, Smith Moore, L.L.P., Greensboro, NC, for movant.

Peter G. Pappas, Robert Harper Heckman, Adams, Kleemeier, Hagan, Hannah & Fouts, Greensboro, NC, T. Thomas Cottingham, III, Wood W. Lay, Hunton & Williams, Charlotte, NC, Daniel W. Fouts, Adams, Kleemeier, Hagan, Hannah & Fouts, Greensboro, NC, for counter-claimant/defendant.

Gill P. Beck, Office of U.S. Attorney, Greensboro, NC, Daniel C. Beckhard, Lois J. Schiffer, Robert A. Kaplan, U.S. Department of Justice, Washington, DC, Alan Dion, U.S. Environmental Protection Agency, Office of Regional Counsel, Atlanta, GA, for counter-defendant/plaintiff.

MEMORANDUM OPINION

BULLOCK, District Judge.

On December 22, 2000, the Attorney General of the United States acting at the request of the Administrator of the United States Environmental Protection Agency ("EPA") filed this action against Defendant Duke Energy Corporation ("Duke Energy"). The EPA alleges that Duke Energy made modifications to and operated eight coal-fired electrical generating plants in North Carolina and South Carolina in violation of the Clean Air Act (the "CAA" or "Act"), 42 U.S.C. § 7401 et seq., specifically the Prevention of Significant Deterioration ("PSD") provisions of the Act, 42 U.S.C. §§ 7470-92, and for violations of State Implementation Plans approved under the Act for the States of North Carolina and South Carolina. On May 8, 2001, the following groups, Environmental Defense, North Carolina Sierra Club, and North Carolina Public Interest Research Group Citizen Lobby/Education Fund (hereinafter collectively referred to as "Intervenor-Plaintiffs") moved to intervene as plaintiffs. On September 6, 2001, the court granted these groups' motion to intervene, United States v. Duke Energy Corp., 171 F.Supp.2d 560 (M.D.N.C.2001), and on the same date the Intervenor-Plaintiffs filed a complaint against Duke Energy alleging similar violations as those in the original complaint.

After a lengthy discovery period, which produced approximately 4.6 million pages of documents, extensive discovery disputes, and numerous pretrial motions, the parties now move for summary judgment. The EPA, Intervenor-Plaintiffs, and Duke Energy have submitted lengthy briefs, accompanied by thousands of pages of exhibits, and the motions for summary judgment are ripe for resolution. For the reasons that follow, the court will deny Duke Energy's motion for summary judgment, grant in part and deny in part the EPA's motion for partial summary judgment in which Intervenor-Plaintiffs join, deny Intervenor-Plaintiffs' motion for partial summary judgment on Duke Energy's "fair notice" defense, and deny Duke Energy's motion for partial judgment on the pleadings.

FACTS¹

Duke Energy is an international energy company headquartered in Charlotte North Carolina, and has provided electricity to North Carolina and South Carolina since the early 1900s. Duke Energy's system of electrical generating facilities includes nuclear, hydroelectric, gas-fired combustion turbine, and coal-fired generating plants. Duke Energy currently operates thirty coal-fired electric generating units at eight plants located throughout North Carolina and South Carolina. It is these coal-fired units which are the subject of this litigation.

Duke Energy's coal-fired generating units were placed in service between 1940 and 1975. These units have net rated generating capacities from 38 MW (for some of the oldest units) to 1120 MW (for the newest units). Each unit of a coal-fired generating plant consists of three primary components: the boiler, the steam turbine, and the electric generator.

The boiler on these units is a large, building-like structure ranging from six to twenty stories tall and contains thousands of steel tubes in which water is heated to superheated steam with temperatures in excess of 900 F. While the specific design of each boiler at issue may differ slightly, in general the boiler consists of collections of tube assemblies, including the economizer tubes, where water is initially heated; the furnace waterwall tubes, where water evaporates to steam; the superheater tubes, where the temperature of the steam is raised just before the steam exits the boiler and reaches the turbine; and the reheater tubes, where steam from the turbine is reheated and returned to the turbine. The furnace waterwall tubes form the walls of the boiler and provide an envelope for coal combustion while also absorbing heat.

A coal-fired unit operates by converting the chemical energy contained in coal into electricity. Pulverized coal is fed into the boiler and combusted. "Flue gas" is created with temperatures of up to 3000 F when the ground coal is ignited in the boiler's furnace. The flue gas, which contains sulfur dioxide, ash particles or particulate matter, and nitrogen oxides, passes around the tubes and tube assemblies. This combustion process heats water that flows continuously through the tubes and tube assemblies making up the walls, roof, and floor of the boiler. The water in the tubes is thus converted to high pressure steam, which then flows through additional panels or assemblies of tubes to become superheated. The superheated steam enters the turbines where the pressure of the steam against a series of blades turns the turbine shaft. The turbine shaft turns the shaft of a generator, which transforms the mechanical energy into electric energy. After passing through the turbine, the steam is converted to water in condensers and pumped through feedwater heaters back to the economizer where it begins the entire steam cycle process again. Once the flue gas used to heat the water passes through the boiler, it passes through pollution control devices, if any, and exists through a stack into the atmosphere.

The EPA alleges that Duke Energy modified and subsequently operated its seven coal-fired generating plants in North Carolina and its one coal-fired generating plant in South Carolina in violation of the PSD provisions of the CAA. The EPA's allegations stem from twenty-nine projects Duke Energy engaged in between 1988 and 2000.² (Compl. at ¶¶ 31-292.) A detailed description of the work performed at each plant and unit would be lengthy and ultimately unnecessary.³ However, the majority of the projects consisted of replacement and/or redesign of one or more of four sets of boiler tube assemblies— economizers, portions of waterwalls, superheaters, and reheaters. (Id.)

In 1984, Duke Energy placed several of the units at issue, including Buck 4, into "Extended Cold Storage" ("ECS").⁴ During the period of ECS, dehumidified air was circulated through the water, steam, air, and gas passages in order to protect the units. The reason behind Duke Energy's decision to place its units in ECS is disputed. Duke Energy contends that it placed these units into ECS because it increased its system generating capacity by adding additional generating plants, which in turn led to less use of its coal-fired units.⁵ Duke Energy also asserts that when it placed these units into ECS, it made definitive plans for preserving and conditioning these units while in ECS so that they could be returned to service when demand dictated. (Knudsen Decl ¶ 5 (Duke Energy Ex. 59); Kinsey Decl. ¶ 6 (Duke Energy Ex. 69).) The EPA, however, contends that Duke Energy removed these units from service due to their advanced age and condition. William S. Lee, Chairman of the Board and CEO of Duke Energy, testified before the South Carolina state public utility regulators in 1985 that the units placed into ECS were "no longer reliable because of their age and because their use as peaking units in the past few years ha[d] stressed the units, which originally were designed for base load use.... Historically, units of this age and condition would be retired and scrapped." (Lee Test. at 90 (EPA Ex. 13).) Lee further explained that Duke Energy had plans to rehabilitate the units, but if it continued to operate the units in their current condition they would "simply fall apart, or damage themselves in a very serious way." (Lee Test. at 41 (EPA Ex. 15).)

Shortly after placing its units into ECS, Duke Energy developed a "Plant Modernization Program" ("PMP"). Based on information gathered during inspection of the units, Duke Energy developed plans to address a variety of maintenance, repair, and replacement needs. According to Duke Energy, the purpose for PMP was "[t]o conduct maintenance and upgrade to selected fossil generating units so that they operate safely, reliably and cost effectively for an additional 20 years." (Plant Modernization Project Review (Apr. 24, 1989) at 2 (EPA Ex. 23).) According to Duke Energy's "PMP Strategy Statement," the "extended operating life of the rehabilitated units is a cost-effective alternative to the addition of new capacity." (Mem. from Parker to Owen, et al. (Feb. 13, 1986) (EPA Ex. 25).)

Any work performed at the units not placed into ECS was undertaken during...