The DTE Energy Saga: Part 2 – Sixth Circuit, First Round

The United States v. DTE Energy Co. case is one of the longest-running enforcement cases involving the post-NSR Reform PSD program. It has been litigated in district court, appealed to the Sixth Circuit, remanded, re-decided, and then re-appealed. This installment looks at the first appeal to the Sixth Circuit, United States v. DTE Energy Co., 711 F.3d 643 (6th Cir. 2013) (DTE II).

BACKGROUND

As outlined in “DTE Energy Saga: Part 1”, DTE owns and operates the Monroe power plant in Michigan, consisting of four coal-fired units. In 2010, DTE shut down the units for maintenance and submitted a “pre-project notification” letter to the Michigan Department of Environmental Quality (MDEQ) asserting that the project was exempt from PSD review because the annual post-project emissions increase was “unrelated to the project.” MDEQ took no action. DTE completed the project and EPA filed an enforcement action. The U.S. District Court heard argument and concluded that EPA was bound by the pre-notification letter, which it had not alleged was inadequate, and had to wait for an actual violation. EPA appealed to the Sixth Circuit.

ANALYSIS

The Majority Opinion. The majority opinion, by Judge Rogers, began with a lengthy review of the history of the PSD program and EPA’s efforts to craft a review program for projected actual emissions and demand growth claims that met the objections of the D.C. Circuit in New York v. EPA, 413, F.3d 3 (D.C. Cir. 2005). The result, according to the majority was a system where the operator is required to make accurate projections, but

if operators had to defend every projection to the agency’s satisfaction, companies would hesitate to make any changes, … on the other hand, if EPA were barred from challenging preconstruction projections that fail to follow the regulations, New Source Review would cease to be a preconstruction review program. … However, this scheme does not contemplate approval of the projection prior to construction.

711 F.3d at 649. Critically, the majority opinion stated:

The operator has to make projections according to the requirements for such projections contained in the regulations. If the operator does not do so, and proceeds to construction, it is subject to an enforcement proceeding. The district court in this case appears to have ruled, to the contrary, that no such proceeding is permitted until there is post-construction data. That is not correct.

Id. Ultimately, the majority held:

A preconstruction projection is subject to an enforcement action by EPA to ensure that the projection is made pursuant to the requirements of the regulations. The district court having ruled to the contrary, we must reverse and remand. But we make no determination as to whether defendants have complied with those projection regulations.

So, the majority, having characterized the question before it as “whether EPA can challenge [a] projection before there is post-construction data to prove or disprove it,” summed up its conclusion as “while the regulations allow operators to undertake projects without having EPA second-guess their projections, EPA is not categorically prevented from challenging even blatant violations of its regulations until long after modifications are made.” The majority reversed and remanded.

The Dissent. Chief Judge Batchelder dissented and wrote separately. She expressed discomfort with the majority opinion’s reliance upon counsel’s concessions at oral argument in reaching its decisions. But, she noted, if the court were to rely on counsel’s representations, the most significant was a statement by DTE counsel that it had “submitted to MDEQ a postconstruction annual emissions report … and that report shows no increase in annual emissions” from the project and in fact, showed a decrease. Judge Batchelder believed that this fact showed the case was moot and asked a prescient question: “what exactly does the majority anticipate the district court will do with this on remand? Allow the USEPA to challenge preconstruction projections that actual event have already proven correct?”

Finally, Judge Batchelder stated that the majority opinion was logically flawed. She noted that the majority stated that the PSD regulation “does not contemplate [USEPA] approval of the projection prior to construction,” and “if the agency can second-guess the making of the projections, then a project-and-report scheme would be transformed into a prior approval scheme” which the majority, in Judge Batchelder’s opinion, had correctly rejected. But she found the majority’s granting EPA the authority to challenge “scientific or technical preconstruction projections” problematic, stating “Let us be very clear, if the USEPA can challenge the operator’s scientific preconstruction projections in court—to obtain a preliminary injunction pending a court decision as to whether the operator or USEPA has calculated the projections correctly—that is the exact same thing as requiring prior approval.” Accordingly, Judge Batchelder would have held the case moot or affirmed the district court decision.

COMMENTARY

The Sixth Circuit’s decision upheld EPA’s right to undertake PSD enforcement based on differing views of the preconstruction impacts of a project, but stated that EPA could not “second guess” the projections that were used. The dissent complained that this decision was “logically flawed” and questioned what the district court would review now that actual emissions showed no emissions increase had occurred. The majority returned no reply to this observation, but it would become a critical element in the subsequent proceedings.

The important feature of the DTE II decision is its upholding of EPA’s right to bring an enforcement case despite a preconstruction projection showing no significant emissions increase and hence holding that the 2002 NSR Reform Rule did not fundamentally alter EPA’s PSD enforcement rights.