Eighth Circuit upholds EPA win in Ameren Missouri but rejects Labadie relief

On August 20, 2021, the U.S. Court of Appeals for the Eighth Circuit handed the U.S. Department of Justice (DOJ) and the U.S. Environmental Protection Agency (EPA) a major win in United States v. Ameren Missouri, No. 19-3220, upholding EPA’s right to seek injunctive relief for “wholly past” violations and rejecting Ameren’s state implementation plan (SIP) “modification,” burden-shifting, and jurisdictional claims. The Eighth Circuit did agree with Ameren, however, that the Eastern District of Missouri’s decision imposing remedial relief on the Labadie Power Plant, which was not accused of a violation, exceeded the district court’s authority under Section 113 of the Clean Air Act and remanded the case for further proceedings.

ANALYSIS

The Ameren Missouri case arose out of two projects at Ameren Missouri’s Rush Island Power Plant. Ameren had suffered from outages and derates due to plugging in air preheaters at Rush Island Units #1 and #2. Ameren commissioned a multimillion-dollar overhaul that replaced the preheaters and some other components. EPA alleged that these projects constituted “major modifications” under the PSD program. Ameren argued that the projects were not modifications under the Missouri SIP and hence could not be “major modifications,” were routine maintenance, repair and replacement, did not exceed the thresholds under the PSD “actual to projected actual” test, and that EPA did not properly exclude “demand growth” in determining that the project exceeded the significant emission rates.

District Court Proceedings

The Eastern District of Missouri bifurcated the Ameren Missouri case into two phases: a liability phase and a relief phase although there were significant intermediate proceedings as well (discussed in NSR Law Blog). In the first phase, the district court found that Ameren had violated the PSD requirements by making a “major modification” because it knew or should have known that the preheater changes would result in “significant” net emissions increases. In reaching this decision, the court rejected Ameren’s contention that no modification had occurred, that the project was “routine maintenance, repair and replacement,” and that the emissions increases were excused under the “demand growth exclusion.” For a fuller discussion of the liability phase, see NSR Law Blog, U.S. District Court in Missouri holds that Ameren Missouri Violated PSD Program, (Mar. 26, 2017). These conclusions were reaffirmed when the court rejected Ameren’s summary judgment actions seeking dismissal of EPA’s complaint. See NSR Law Blog, EPA wins “relief” skirmish in Ameren Missouri case (June 21, 2019).

In the second phase, the Eastern District of Missouri assessed the relief that was appropriate, after the United States stipulated that it was not seeking penalties. The court issued injunctive relief ordering Ameren to apply for a PSD permit with wet flue gas desulfurization, to achieve an SO2 limit “no less stringent that 0.05 lb SO2/mmBtu on a 30-day rolling average, and—controversially—to install dry sorbent injection on the Labadie Power Plant, which is operated by Ameren Missouri in the same general vicinity and to continue using the dry sorbent injection until emissions reductions from Labadie equaled the excess the court calculated from Rush Island. For a fuller discussion of the relief phase, see NSR Law Blog in Court Orders Ameren to Install Controls at Two Plants, Oct. 7, 2019. Ameren appealed.

Court of Appeals Proceedings

In the court of appeals, Ameren made five major arguments.

Plain language of Missouri SIP permits required only for increases in potential emissions. Ameren’s first argument was that the Missouri SIP only requires a permit for construction or modification and the definition of “modification” requires “an increase in potential emissions” of an air pollutant, citing 10 CSR 6.020(2)(M)(10). The court of appeals disagreed, noting first that the Missouri SIP contains two definitions of “modification” including one for “title I modification” that applies to any modification that requires a permit under 10 CSR 10-6.060(7) or (8). The court of appeals further noted that 10 CSR 10-6.060(8) adopts “all of the subsections of 40 CFR 52.21” except as specifically enumerated, which includes a definition of “major modification” from 40 CFR 52.21(b)(2)(i). The court of appeals also noted that the accompanying preamble stated that the PSD SIP provision “supersedes any conflicting provisions in the Missouri rule.” 71 Fed. Reg. at 36486. The court noted that the Supreme Court had rejected a similar argument in Duke Energy, 549 U.S. at 565, when it ruled that the PSD definitions did not need to conform to the NSPS definition due to differences in context. The court of appeals also found Ameren’s invocation of United States v. Cinergy, 623 F.3d 455 (7th Cir. 2010), unpersuasive, noting that the Indiana SIP at issue did not state that PSD provisions superseded other SIP provisions. Accordingly, the court of appeals found no error based on Ameren’s first argument.

There was no “major modification” under the PSD rules. Ameren’s second argument was that even if the federal regulations at 52.21 applied, the district court applied the wrong standard. Specifically, Ameren contended that the district court shifted the burden of causation to Ameren, instead of the United States, and applied a “new interpretation” of the federal regulations without prior notice.

First, Ameren argued that the absence of “demand growth” (which may be excluded from the emissions increase under 52.21) is part of EPA/DOJ’s burden while EPA/DOJ argued that it was Ameren’s burden because Ameren was the party seeking to benefit from an exemption. The court of appeals sided with the EPA/DOJ, holding that “it is the source’s burden to provide the applicability of the demand-growth exclusion.”

Second, Ameren argued that the government had adopted and persuaded the district court to require Ameren show that there was “demand growth for a specific unit’s generation.” The court of appeals held that because the district court had stated the test as whether “the unit could have achieved the necessary level of utilization during the baseline period” and “the increase is not related to the physical or operational change(s) made to the unit,” it had not committed error in applying the demand growth test.

The district court erred by using a “reasonable plant operator” standard in lieu of the regulations. Ameren’s third argument was that the district court had allowed the government, through the guise of a “reasonable plant operator” standard, to substitute the opinions of its experts for Ameren’s analysis. The court of appeals found that the district courts’ holding that “no special standard of care evidence is required” was reasonable because the district court was entitled to “consider all relevant information” including Ameren’s own statements, in determining whether Ameren should have predicted that the project would cause a significant net emissions increase. Accordingly, the court of appeals declined to reverse.

Inappropriate consideration of non-disclosed expert reports. Ameren’s fourth argument was that the district court had relied upon undisclosed government expert opinions. The district court had admitted this information over Ameren’s objection on the basis that the post-project emissions were included in the experts’ reports and working papers and that the evidence was “cumulative” because the government also showed that Ameren should have expected the increases. The court of appeals found no error because the district court said it would have reached the same conclusion even without the challenged testimony.

Inappropriate scope of injunctive relief. Ameren’s fifth argument on the PSD front was that the district court lacked Article III and statutory jurisdiction to issue injunctive relief based on “operation” of Rush Island, arguing that the district court used the operation of the Rush Island facility without the allegedly required PSD permits as the basis for the harm it sought to redress rather than any harm from the construction of the modifications. Ameren also argued that the Clean Air Act does not authorize injunctions for wholly past violations. The court of appeals started with the last argument, noting that Section 113(a) of the Clean Air Act states that “whenever…the [government] finds that any person has violated…” showed that the government can seek injunctive relief for wholly past violations. It dismissed Ameren’s reliance on United States v. EME Homer City Generation, L.P.¸727 F.3d 274 (3d Cir. 2013), on the basis that it applied to former owners and operators, not current ones. Accordingly, the Eighth Circuit held that the Clean Air Act could give rise to injunctive relief for wholly past violations.

On the final issue of whether the injunctive relief was within the statute, however, the court held that the scope of relief is limited to the violations proven by the government. Based on this, the Eighth Circuit held that

The plain language of § 7413(b) and caselaw make clear that the injunctive relief a district court may award must redress a violation of the CAA. Because Ameren committed no violation of the CAA at its Labadie plant, the district court lacked authority to authorize injunctive relief as to it.

Slip op. at 33. Based on this analysis, the Eighth Circuit reversed the Labadie portion of the injunction and remanded for further proceedings.

Title V violation. Finally, Ameren challenged the district court’s jurisdiction over the title V claims, arguing that jurisdiction over such claims “is reviewable exclusively by the court of appeals” quoting EME Homer City. The Eighth Circuit rejected this contention, finding that Ameren had violated an express Title V permit condition which prohibited it from performing unpermitted major modifications. Accordingly, the court found that there was jurisdiction.

COMMENTARY

The Ameren Missouri case is important. It is one of a few permitting cases litigated to conclusion and upheld EPA’s narrow view of “routine maintenance, repair and replacement,” a narrow view of the “demand growth exclusion” and the Koppe-Sahu theory that at least for baseload units, any increase in utilization will result in a corresponding emissions increase that may be actionable under PSD if a permit was not obtained. The case continues a general line where the courts look independently at whether an owner/operator’s actions require a permit rather than simply accepting the owner/operator’s claims. It upholds broad governmental authority to enforce the PSD program and places the burden of defending any exemptions on the source claiming that exemption. Ameren Missouri thus reinforces much of what was already known about the PSD program.

In fairness to Ameren, it is not clear that the court of appeals understood the nuance Ameren urged in application of the “demand growth exclusion.” Ameren’s argument, as NSR Law Blog understands it, is that it is only required to show that the unit had capacity and that there was market demand for that capacity and not that the demand was tied to that specific unit in contrast to the district court’s opinion, which stated that the mere existence of demand on the Ameren system did not fulfill the requirement but the demand had to be tied to the specific unit. The court of appeals’ rationale, that the invocation of “unit” in both parts of the demand growth test supports the district court’s decision, does not directly respond to Ameren’s argument. NSR Law Blog is inclined to believe that Ameren got this point correct—the only requirement in the second prong is that the ability to handle the increase resulting from demand growth is not related to the project. There is nothing tying the increase to the unit in EPA’s discussion of the concept and the examples given are closer to Ameren’s reading than the district court’s reading. In fairness to the courts, they had also found that the second prong was not met because the subsequent increase in emissions was related to the changes made at the unit—but for the changes made, the plant could not have increased its generation and emissions. Under this fact scenario, the court’s conclusion is likely correct.

The most interesting aspect of the Ameren Missouri case is the Eighth Circuit’s rejection of injunctive relief against the Labadie plant when only violations at Rush Island were proven. It appears that the Eighth Circuit determined that Section 113(b)’s language that the court “shall have jurisdiction to restrain such violation” means that the relief must be related to the violation—and hence restricted to the Rush Island plant—rather than to the “person” who violated—which would have opened up any Ameren facility to potential injunctive relief. This aspect of the decision will come as a relief to owners/operators with multiple sources.

Stay tuned for further developments.

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