U.S. v. East Kentucky Power Co-Op., Inc.

498 F.Supp.2d 976

UNITED STATES of America Plaintiff v. EAST KENTUCKY POWER COOPERATIVE, INC. Defendant

No. Civ.A. 04-34-KSF.

United States District Court, E.D. Kentucky, Central Division.

March 29, 2007.

Andrew Louis Sparks, Frances E. Catron-Malone, U.S. Attorney's Office, Lexington, KY, James A. Lofton, Katherine E. Konschnik, Richard M. Gladstein, Environmental & Natural Resources Division-Enforcement Environmental Enforcement Section, Jason A. Dunn, Phillip A. Brooks, U.S. Department of Justice-Environment & Natural Resources, Washington, DC, for Plaintiff.

Andrea Bear Field, Henry V. Nickel, Makram B. Jaber, Mark B. Bierbower, Hunton & Williams LLP, Washington, DC, Angela L. Jenkins, John M. Holloway, III, Hunton & Williams, Richmond, VA, Brent A. Rosser, Nash E. Long, III, T. Thomas Cottingham, III, Hunton & Williams, Charlotte, NC, Dale W. Henley, Roger R. Cowden, East Kentucky Power Cooperative Inc., Winchester, KY, Keith Moorman, Susan J. Pope, Frost Brown Todd LLC, Lexington, KY, for Defendant.

OPINION & ORDER

FORESTER, Senior District Judge.

This matter is before the Court on the plaintiffs first motion for summary judgment [DE # 61] regarding the applicable legal test for the routine maintenance, repair, and replacement exclusion. In this motion, the parties ask the Court to determine whether the "routine maintenance, repair, and replacement" exclusions found in the Clean Air Act should be applied to activities that are considered "routine at the unit" or "routine in the industry."¹

I. REGULATORY BACKGROUND AND FRAMEWORK

The plaintiff United States (referred to herein as the Environmental Protection Agency or "EPA") brought this enforcement action against defendant East Kentucky Power Cooperative, Inc. ("EKPC"), in relation to work done on EKPC's Spurlock plant in Mason County, Kentucky, and its Dale plant in Clark County, Kentucky. The EPA maintains that EKPC made multi-million dollar capital improvements to these coal-fired power plants without first obtaining appropriate permits, in violation of the Clean Air Act ("CAA" or the "Act"), 42 U.S.C. §§ 7401 et seq.

The CAA is a very complex statute with an extensive regulatory scheme and a complicated history, as well as the obligatory plethora of acronyms. This case involves two separate programs of the CAA: the New Source Performance Standards ("NSPS") program, 42 U.S.C. § 7411, and the New Source Review ("NSR") program, which contains the Prevention of Significant Deterioration ("PSD") provisions, 42 U.S.C. §§ 7470-92.

The CAA Amendments of 1970, two purposes of which are to "protect and enhance the quality of the Nation's air resources," and "to encourage and assist the development and operation of regional air pollution prevention and control programs[,]" 42 U.S.C. § 7401(b)(1), (4), established a comprehensive federal program of air pollution oversight. To this end, Congress directed the EPA to devise National Ambient Air Quality Standards ("NAAQS"), which would establish the maximum permissible concentrations of certain air pollutants allowable in different regions of the country.² The CAA directed each state to develop State Implementation Plans ("SIPs") to meet these NAAQS by imposing regulatory requirements on individual sources.

To ensure the NAAQS were maintained, Congress required the EPA to promulgate New Source Performance Standards ("NSPS") to regulate the emissions of and minimize the environmental impact from "new sources," defined by the CAA as "any stationary source, the construction or modification of which is commenced after the publication of regulations (or, if earlier, proposed regulations) pre scribing a standard of performance under this section which will be applicable to such source." 42 U.S.C. § 7411(a)(2) (emphasis supplied). The NSPS also applied to "modifications" of existing facilities that created new or increased pollution; Congress defined a "modification" broadly 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." Id. § 7411(a)(4).³ Thus, Congress imposed the NSPS immediately on any new source, but allowed an existing source to wait to install updated pollution control technology until it underwent a modification, as defined in the Act.

Given the enormous cost of retrofitting an existing aging power plant with new pollution-control devices and given the broad Congressional definition of modification as "any physical change," the EPA provided exemptions from the NSPS "modification rule" for certain activities undertaken at existing sources. Thus, under the NSPS program, EPA regulations provide that

[t]he following shall not, by themselves, be considered modifications under this part:

(1) Maintenance, repair, and replacement which the Administrator determines to be routine for a source category. ...

(2) An increase in production rate of an existing facility, if that increase can be accomplished without a capital expenditure on that facility.

(3) An increase in the hours of operation.

. . . . .

40 C.F.R. § 60.14(e)(1)-(3) (emphasis supplied).

As part of the 1977 CAA Amendments, Congress established the New Source Review ("NSR") permitting program, which consisted of provisions for the protection of areas with relatively clean air ("attainment areas" that had attained NAAQS) and also areas that did not meet NAAQS ("non-attainment areas"). In order to prevent relatively unpolluted attainment areas from upping emissions to the maximum levels permitted by the NAAQS, operators of regulated sources in attainment areas are required to limit emissions to a "baseline rate" and obtain a permit before constructing or modifying facilities. This is known as the Prevention of Significant Deterioration ("PSD") program.⁴ 42 U.S.C. §§ 7470-92. Significantly, the PSD program, when it applies, requires new and modified sources to install the "best available control technology" ("BACT") and to perform comprehensive air quality analyses and monitoring.

In enacting the PSD program, Congress expressly incorporated the pre-existing NSPS definition of modification into the NSR definition of construction or modification. 42 U.S.C. § 7479(2)(C) (PSD program). In its PSD regulations, the EPA defined a "major modification" 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 Act." 40 C.F.R. § 51.166(b)(2)(i); id. § 51.21(b)(2)(i).

As with the NSPS, the PSD regulations also excluded "routine maintenance" from its requirements However, unlike the NSPS, under the PSD program the regulation simply stated that a modification did not include "routine maintenance, repair and replacement." 40 C.F.R. § 51.166 (b)(2)(iii)(a); id. § 52.21(b)(2)(iii)(a). The EPA did not, at this time, change or further clarify the meaning of the exclusion.

In the present motion, the parties ask the Court to rule on the meaning of the "routine maintenance, repair, and replacement" ("RMRR") exclusion as it relates to the alleged PSD program violations in Counts 4 and 7 and the alleged NSPS violations in Counts 5 and 8. The parties' disagreement can be summed up as follows. The EPA argues that "routine" should be defined relative to a particular unit. In other words, it argues, the RMRR exclusion should be applied in a limited manner and requires a case-by-case determination of whether the activity is routinely performed at an individual unit, and takes into consideration factors such as the nature and extent, purpose, frequency, and cost of the activity. EKPC argues for a more broad interpretation: that "routine" should be defined relative to an industrial category. In other words, the ultimate purpose of the inquiry is to determine whether the activity is routine in the industry, considering the same factors.

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This case involves changes that EKPC made to three coal-fired electric generating stations at the Spurlock Plant located in Mason County, Kentucky (Spurlock Unit 2), and the Dale plant located in Clark County, Kentucky (Dale Unit 3 and Dale Unit 4). According to EKPC, each unit, which uses a "closed-loop" process, consists of four major components: a boiler a turbine, a generator, and a precipitator. The boiler converts water to steam, which passes through the turbines and reverts to water, to return again to the boiler to repeat the cycle. The steam passing through the rows of blades in the turbines provides energy to turn the shaft. The generator converts this mechanical energy into electricity.

Rather than retiring aging facilities and replacing them with new facilities, utility companies began conducting "refurbish" work or "life extension projects," which typically involve the repair or replacement of the boiler and turbine components at least once during the operation of a unit in order to maintain the availability and safety of the equipment for at least 55 to 65 years. This type of work may also increase the overall capacity of the units. A main question in this case is whether the life extension projects conducted by EKPC fall under the NSPS and PSD program requirements or whether they are excluded under the RMRR exclusion.

According to the EPA, the EKPC began a project in 1992 to supply the Inland Container Corporation ("Inland") with additional steam to drive its industrial processes. In connection with the Inland project, EKPC made $20 million worth of physical changes to allow for additional steam production, including "uprating" or increasing the capacity rating of the boiler at the Spurlock Unit 2. The EPA contends that the new capacity was significantly higher than the capacity at which EKPC had represented the unit would be operated when EKPC...