U.S. v. State of New York & Cinergy Corp

Oct 12: In the U.S. Court of Appeals, Seventh Circuit, Case No. 09-3344. More than a decade ago the Environmental Protection Agency brought this suit against affiliated owners (i.e. Cinergy et al) 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, 40 C.F.R. § 52.21(a)(2)(iii), because the modifications were "major" and would produce increases in emissions of nitrogen oxide and sulfur dioxide.

 

    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.

 

    Cinergy took an interlocutory appeal under from the judge's ruling on the hourly capacity versus actual-emissions interpretation of the regulation. The Appeals Court affirmed that district court decision, agreeing that the regulation required application of the actual emissions standard. United States v. Cinergy Corp., 458 F.3d 705 (7th Cir. 2006). However, the Appeals Court says that one point in that opinion is worth repeating because it bears on an issue in the present appeals.

 

    The Appeals Court indicates, "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 the plants 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."

 

    The current case follows a jury trial where the verdict was mixed requiring fourteen modification projects at three plants which 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 sulfur dioxide and nitrogen oxide and therefore Cinergy should have sought a permit.

 

    However, on appeal, the Appeals Court ruled, "Without expert testimony to support an estimate of actual emissions caused by the modifications, the government cannot prevail with respect to the charge of nitrogen oxide pollution; for the government doesn't contest Cinergy's claim that if the testimony of the government's experts should have been excluded, Cinergy is entitled to judgment. Earlier we said that the government cannot prevail with respect to the plant's emissions of sulfur dioxide. Therefore the judgment must be reversed with instructions to enter judgment for Cinergy. The parties have made other arguments, but they are either too feeble to merit discussion. . . The cross-appeal is therefore dismissed, while the judgment in the government's favor is, as we said, reversed."

 

    Access the complete opinion (click here).