U.S. District Court in Missouri holds that Ameren Missouri Violated PSD Program

On January 23, 2017, in United States v. Ameren Missouri, Judge Rodney Sippel of the U.S. District Court for the Eastern District of Missouri held that Ameren Missouri (Ameren) had violated the Clean Air Act’s New Source Review (NSR) provisions in undertaking repair, replacement and redesign of the economizer, lower slopes and air preheaters at the Rush Island Unit 1 in 2007 and the economizer, reheater, and air preheaters at Rush Unit 2 in 2010. Rush Island Units 1 and 2 are baseload units. In reaching its conclusion, the court rejected Ameren’s argument that the replacements constituted “routine maintenance, repair and replacement,” were excused by the “demand growth exclusion,” and that the changes were not significant.

ANALYSIS

Ameren’s Rush Island plant has two units, Rush Island 1 and Rush Island 2, built in 1976 and 1977. The units are uncontrolled for sulfur dioxide. As a result, the plant emits about 18,000 tons a year of sulfur dioxide. To comply with the Acid Rain program, Ameren switched the Rush Island plant to Powder River Basin coal, which had a lower heating value and higher moisture content.

On the facts, the court found that lower heating value and higher moisture content led to boiler tube leaks, slagging, fouling, and plugging, which adversely affected the economizers, reheaters, lower slopes and preheaters, causing temporary and permanent derates and forced outages. Pluggage in the staggered design economizers was a particular issue. Ameren used high pressure washes, soot blowing and dynamite to address these issues, but ultimately elected to replace and redesign the affected units to reduce fouling and pluggage potential. After the preheaters were replaced at Unit 1, differential pressure fell from an average of 14 inches of water to between 4-6 inches of water. Unit 2 was similar.

The court also found that to alleviate the operational problems Ameren contracted to replace economizer, reheater and lower slope panels at Rush Island Unit 1 for a cost of $23.1 million and at Rush Island Unit 2 for a cost of $25.0 million. Ameren also authorized an additional $6.9 and $7.5 million to redesign and replace the air preheaters at Unit 1 and Unit 2 respectively. The redesign work changed the economizers from staggered to in-line; increased tube spacing in the lower slopes, and changed the preheaters from a 456 basket three-zone design to a 48 basket two-zone design. The redesigns were expected to increase peak summer production by 30 MW and balance of the year by 20 MW.

In applying the PSD regulations, the court held that the government met its burden if “Ameren should have expected [the upgrades] to result in a significant (i.e., more than 40 tons-per-year) SO2 increase; or (2) a 40 tons-per-year SO2 increase related to the boiler upgrades actually occurred.”

The court started with Ameren’s defenses. The court rejected Ameren’s “demand growth exclusion” defense, based on expert testimony that “if the utilization factor is decreasing, any emissions increases during that time period cannot be the result of increased demand.” Because Ameren’s utilization factor fell, the court held that Ameren had not demonstrated actual demand growth. The court also found that Ameren had failed to demonstrate that any increase at the Units was “unrelated” to the project, as required by EPA guidance.

The court also rejected Ameren’s “routine maintenance, repair and replacement” defense, relying on EPA’s four-factor test (nature and extent of the change, purpose of the change, frequency of the change, and cost). The court summarized its holding on this issue: “Based on the evidence presented at trial, I conclude that the projects cannot be considered routine maintenance under the law. The Rush Island boiler refurbishments at issue were the most expensive boiler projects ever performed on an Ameren boiler. They involved the redesign and replacement of major boiler components that were intended to improve the performance of the units and enable them to burn coal they were not originally intended to burn. They were the first such replacements in the history of each unit, are rarely done at any unit in the industry, and the combination of boiler replacements has rarely, if ever, been done in the industry.”

Turning to the substantive PSD test for whether the emissions exceeded the PSD “significant” thresholds, the court adopted the Koppe-Sahu approach, holding: “The Koppe-Sahu results, Dr. Hausman’s analyses, and the actual post-project data all establish that there is a significant net SO2 increase of more than 40 tons that was caused by the projects. Based on the known facts that the Rush Island units are low-cost, baseload units, common sense compels the same conclusion: improving availability or capacity at baseload units like Rush Island will result in additional operations and pollution. Ameren’s model confirms that relationship, as Dr. Hausman showed and Ameren’s chief modeler confirmed in his testimony. Other courts have recognized this relationship. Ameren should have expected a significant net emissions increase and should have obtained a permit before beginning work.”

The court also criticized Ameren’s failure to conduct “pre-project” PSD applicability analyses for Unit 1, reliance on potential to emit analyses for Unit 2, and rejected Ameren’s arguments as “post-hoc” rationalizations.

COMMENTARY

The Ameren case is significant because it represents another victory for the government in challenging significant projects at coal-fired electric utility generating units. It is also significant in adopting the Koppe-Sahu approach to calculating emissions increases and accepting the argument that if “availability” is expected to increase by more than the percent necessary to exceed 40 tons/year (for sulfur dioxide, at least), then a violation of the PSD program occurs. The decision is also significant in its discussion of the “demand growth exclusion” and its strong reliance on the “unrelated” prong to set aside Ameren’s calculations. The discussion of the routine maintenance, repair and replacement issue basically follows the prior decision in Ohio Edison.

Ameren's Rush Island project was large and its handling of the PSD-required analyses prior to commencing the project was, in the eyes of the court, poor. As a result, the court showed little sympathy for Ameren’s arguments. The moral of this story is: facilities must conduct their PSD analysis at the time of project inception and must document the factual and legal bases for their conclusions. Failure to do so will place the facility at risk.

The Ameren decision is likely to be appealed.