Oral arguments are due to start on Nov. 27 in a federal appeals court over a U.S. Environmental Protection Agency and U.S. Department of Justice lawsuit accusing Detroit Edison of making illegal upgrades at five coal-fired power plants.
In July 2009, Detroit Edison parent DTE Energy (NYSE: DTE) received a Notice of Violation/Finding of Violation (NOV/FOV) from the EPA alleging, among other things, that five Detroit Edison power plants violated New Source Performance standards, Prevention of Significant Deterioration requirements, and operating permit requirements under the Clean Air Act, DTE reported in its Oct. 24 Form 10-Q quarterly filing with the SEC. An additional NOV/FOV was received in June 2010 related to a recent project and outage at Unit 2 of the coal-fired Monroe plant.
In August 2010, the Department of Justice, at the request of the EPA, brought a civil suit in the U.S. District Court for the Eastern District of Michigan against DTE Energy and Detroit Edison, related to the June 2010 NOV/FOV and the outage work performed at Unit 2 of Monroe, but not relating to the July 2009 NOV/FOV.
Among other relief, the EPA asked the court to require Detroit Edison to install and operate the best available control technology at Unit 2 of Monroe. Further, the EPA requested the court to issue a preliminary injunction to require Detroit Edison to: begin the process of obtaining the necessary permits for the Monroe Unit 2 modification: and offset the pollution from Monroe Unit 2 through emissions reductions from Detroit Edison’s fleet of coal-fired plants until the new control equipment is operating.
In August 2011, the U.S. District Court judge granted DTE Energy’s motion for summary judgment, dismissing the case. In October 2011, the government appealed to the U.S. Court of Appeals for the Sixth Circuit.
“Oral arguments at the Court of Appeals are scheduled for November 27, 2012 and a decision is not expected until 2013,” said the DTE Form 10-Q. “DTE Energy and Detroit Edison believe that the plants identified by the EPA, including Unit 2 of the Monroe Power Plant, have complied with all applicable federal environmental regulations. Depending upon the outcome of discussions with the EPA regarding the NOV/FOV and the result of the appeals process, the Company could also be required to install additional pollution control equipment at some or all of the power plants in question, implement early retirement of facilities where control equipment is not economical, engage in supplemental environmental programs, and/or pay fines. The Company cannot predict the financial impact or outcome of this matter, or the timing of its resolution.”
In a June 18 reply brief filed by EPA at the appeal court, the agency said in part: “The facts here illustrate the stakes: The night before beginning a $65 million overhaul at Monroe Unit #2, Detroit Edison sent state regulators an analysis predicting pollution increases 100 times larger than required for [New Source Review] applicability. The company claimed to be exempt from NSR for certain purely legal reasons unrelated to the issues on appeal. Now it says that – even though it told regulators the project would increase emissions, and no matter how unreasonable its analysis of the legal issues was – only post-project pollution data can trigger the permitting and pollution control requirements of NSR. Meanwhile, the company puts off installing pollution controls that would sharply decrease emissions and save nearly 100 lives per year by reducing air pollution downwind of the plant.”
The utility bases its case on what EPA calls minor changes in a 2002 rulemaking. “Detroit Edison is wrong,” EPA wrote. “Nothing in the record suggests that EPA intended such a revolution. To the contrary, EPA specifically stated that, for electric utilities like Detroit Edison, the 2002 rules made only ‘minor changes.’ Once the Court looks beyond the three sentences from the rules that Detroit Edison repeatedly cites, the regulations make clear that enforceable, pre-construction review remains a central element of NSR. Projects that trigger NSR must obtain permits and install pollution controls (among other requirements) before beginning construction. That is how NSR worked for two decades before the 2002 Rules, and how EPA intended it to work afterwards.”
Industry groups file on the side of Detroit Edison
The American Fuel & Petrochemical Manufacturers, American Petroleum Institute and Utility Air Regulatory Group said in a May 8 “amici” brief supporting Detroit Edison that one of the key issues presented in this case relates to whether certain types of activities constitute “major modifications” under the 2002 NSR Reform Rules.
“A major modification triggers an expensive and complex permitting process which can take several years to complete before the work can even begin and serves to deter some companies from undertaking these projects,” the industry groups said. “This case thus deals with an issue of national importance and Amici have a substantial interest in its proper resolution and ensuring that the 2002 NSR Reform Rules are given their intended meaning without having EPA erode through its enforcement policies the improvements accomplished by the rule.”
The government’s NSR action against Detroit Edison is the first such action governed by NSR Reform Rules that EPA adopted in 2002, the utility noted in its May 1 brief. These reforms addressed perhaps the most complicated and frustrating aspect of NSR, which is the lack of clear guidance specifying how power plant operators should determine whether a maintenance project would cause a significant increase in emissions and how that preconstruction determination would be judged after the fact, Detroit Edison noted.
“The new rules fix these problems,” the utility added. “They clarify and codify how emissions should be projected before a project and how that projection will be judged after the project. Of central relevance here, the new rules state in the clearest possible terms that a project is a major modification for a regulated pollutant ‘if it causes both … [a] significant emissions increase [and] [a] significant net emissions increase.’ Conversely, a project ‘is not a major modification if it does not cause a significant emissions increase.’ Preconstruction projections—either the projections showing no increase due to the project actually performed by the operator before construction or post-hoc projections purporting to show such an increase cobbled together by a platoon of Government-retained experts in litigation—do not determine whether a major modification has occurred.”
Emissions at Monroe Unit 2 have not increased after the spring 2010 projects cited by EPA, Detroit Edison wrote. “Those projects therefore are not major modifications, and Detroit Edison cannot be held liable for constructing them without a permit. Detroit Edison moved for summary judgment on this basis, and the District Court properly granted Detroit Edison’s motion. On appeal, the Government asks this Court to turn the rules upside down. Under the Government’s view, an operator should be held liable under NSR for projects that, according to its counsel and litigation-retained ‘experts,’ should have been expected before construction to increase emissions, even though no such emissions increase was expected by the operator to occur and no such increase actually has occurred. This view cannot be squared with the plain language of the rules or the sound policy that supports them.”
Detroit Edison said that in some ways, the EPA claims are a moot point. “Over the years, Detroit Edison has substantially decreased its emissions, including emissions of SO2 and NOx, and is currently decreasing them at an accelerated pace. At the Monroe plant in particular, Detroit Edison has reduced annual SO2 emissions by about 69% since the early 1990s and annual NOx emissions by about 79% since the mid-1990s. More recently, Detroit Edison embarked on a $2 billion program to install advanced SO2 and NOx controls at the Monroe power plant. In 2005-2006, Detroit Edison installed second generation low-NOx burners on Monroe Units 1-4 (first generation low-NOx burners were installed in the mid-1990s). After several years of construction, it started operating Selective Catalytic Reduction (SCR) systems on Monroe Units 1 and 4 in 2003, and on Unit 3 in 2007; and Flue Gas Desulfurization (FGD) systems on Units 3 and 4 in 2009. These are the types of control equipment the Government is asking be installed at Monroe Unit 2 in this lawsuit. But construction work has already started on these control devices at Monroe Unit 2, and those devices are expected to be brought on-line in 2014, as Detroit Edison told EPA in June 2010. When Detroit Edison’s $2 billion pollution control plan is done, all four Monroe units will have low-NOx burners, SCR and FGD, creating one of the cleanest and most efficient coal-fired power plants in the country.”