Appeals court lets past and current Homer City owners off the air hook

In a victory for coal-fired power, the U.S. Third Circuit Court of Appeals on Aug. 21 affirmed a lower court decision and threw out claims made about the Homer City coal plant in Pennsylvania filed by the U.S. Environmental Protection Agency and states around Pennsylvania.

“The owners of a coal-fired power plant failed both to obtain a preconstruction permit and to install certain pollution-control technology before making changes to the plant,” said the Aug. 21 ruling from a three-judge appeals court panel. “The Environmental Protection Agency and several states say the owners were required to do so. But the EPA did not cry foul until more than a decade after the changes, well after the owners had sold the plant. Now the EPA wants to force the former owners to obtain the missing preconstruction permit and to install the missing pollution controls on a plant they no longer own or operate. And they seek damages and an injunction against the current owners who neither owned nor operated the plant when it was allegedly modified illegally. The relief now sought would require us to distort plain statutory text to shore up what the EPA views as an incomplete remedial scheme. That we cannot do, and so we will affirm the District Court’s dismissal of their claims.”

Homer City is a coal-fired power plant in central Pennsylvania that was at one point in part owned by Pennsylvania Electric (Penelec), but was sold some years ago to an affiliate of Edison Mission Energy. Edison Mission Energy, a unit of Edison International (NYSE: EIX), immediately sold the plant to General Electric and then leased it back. But Edison Mission Energy gave up those leases last year due to financial problems, in part brought on by the need to install expensive new emissions controls for the plant, leaving the ownership and now the management of the plant with GE.

At issue in the lawsuit is that in 1991, 1994, 1995 and 1996, Penelec and another then co-owner, New York State Electric & Gas (NYSEG), allegedly made various changes to the plant’s boilers that increased net emissions of SO2 and particulate matter. Those changes were allegedly “major modifications” triggering the prevention of significant deterioration (PSD) permitting requirements and requiring the use of best available control technology (BACT). But at the time, Penelec and NYSEG believed their changes were “routine maintenance” exempted from the PSD program.

In 1995, Penelec and NYSEG applied for an operating permit as required by Title V of the Clean Air Act. Because they never received a PSD pre-modification permit containing BACT-based emissions limits for the plant their Title V operating permit application did not include any PSD-based requirements or BACT-based emissions limits.

While Penelec and NYSEG waited for Pennsylvania regulators and the EPA to issue its Title V operating permit, the EPA “rolled out” a new enforcement initiative against a number of coal-fired utilities that eventually “ensnared” the Homer City plant’s operations, the court noted.

In 2008, the EPA notified the current and former Homer City owners of their alleged violations before eventually suing them in the U.S. District Court for the Western District of Pennsylvania in January 2011. The states of New York, New Jersey, and the Pennsylvania Department of Environmental Protection filed motions to intervene as plaintiffs, which the District Court granted. These states largely alleged the same violations as the EPA.

Two courts have now said past and current owners are not liable

The former and current Homer City owners moved to dismiss the complaint under Federal Rule of Civil Procedure12(b)(6) for failure to state a claim. The District Court granted that motion in its entirety and dismissed the EPA’s claims in October 2011.

“In a nutshell, the District Court held that the five-year statute of limitations had expired on the civil-penalty PSD claims against the Current Owners because the PSD program imposes only prerequisites to construction and modification, not ongoing conditions of operation,” said the Aug. 21 appeals court ruling. “And because the Current Owners were not the ones to modify the Plant, they could not be liable for violating the PSD requirements and thus injunctive relief was also unavailable against them. The District Court also declined to enjoin the Former Owners because they no longer owned or operated the Plant and thus posed no risk of violating the PSD program in the future.”

The appeals court added: “As to the Title V operating permit claims, the Current Owners could not be liable because Title V does not transform the PSD requirements into operating duties and does not permit a collateral attack on a facially valid permit. Likewise, the Former Owners could not be held liable because all that Title V prohibits is operating a source out of compliance with the operating permit. The Former Owners never owned or operated the Plant after the Title V permit was issued.”

The EPA and the states appealed that lower court decision, which the appeals court panel decided to uphold.

“In an age when coal-burning power plants mingle with electric cars and when our scientific understanding of the planet grows at the same exponential rate that our natural resources deteriorate, protecting the environment is an almost-fearsome responsibility,” said the appeals court panel in a final conclusion that strays a bit into philosophy. “But when Congress’s statutory directives are at issue, that responsibility must yield to our duty to follow our coordinate branch’s commands. Those commands could not be plainer here. We will affirm the District Court’s order dismissing the EPA’s and States’ claims.”

FirstEnergy (NYSE: FE), the parent of Penelec (also known as PN) said about this case in its Aug. 6 Form 10-Q report: “In January 2011, the U.S. DOJ filed a complaint against PN in the U.S. District Court for the Western District of Pennsylvania seeking injunctive relief against PN based on alleged ‘modifications’ at the coal-fired Homer City generating plant during 1991 to 1994 without pre-construction NSR permitting in violation of the CAA’s PSD and Title V permitting programs. The complaint was also filed against the former co-owner, NYSEG, and various current owners of Homer City, including EME Homer City Generation L.P. and affiliated companies, including Edison International. In addition, the Commonwealth of Pennsylvania and the states of New Jersey and New York intervened and filed separate complaints regarding Homer City seeking injunctive relief and civil penalties. In October 2011, the Court dismissed all of the claims with prejudice of the U.S. DOJ and the Commonwealth of Pennsylvania and the states of New Jersey and New York against all of the defendants, including PN. In December 2011, the U.S., the Commonwealth of Pennsylvania and the states of New Jersey and New York all filed notices appealing to the Third Circuit Court of Appeals which held oral argument on May 15, 2013. PN believes the claims are without merit and intends to vigorously defend itself against the allegations made in these complaints. The parties dispute the scope of NYSEG’s and PN’s indemnity obligation to and from Edison International. PN is unable to predict the outcome of this matter or estimate the loss or possible range of loss.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.