Two Trial Courts Conclude the MDEQ Lacks Authority to Deny Air Permits to Power Plants on the Basis of Need Alone

7/1/2011 Steven C. Kohl, Sarah C. Lindsey
Source: Michigan Environmental Law Journal
This article was written for and appeared in the Summer 2011 edition of the Michigan Environmental Law Journal.
 
INTRODUCTION

During 2010, the Michigan Department of Environmental Quality (“MDEQ”)1 denied permit to install (“PTI”) applications for electric generation facilities to two applicants – the City of Holland’s Board of Public Works (“HBPW”) and Wolverine Power Supply Cooperative, Inc. – based on MDEQ’s determination that the applicants did not “need” the proposed facilities. HBPW submitted a PTI application in January 2007, and the MDEQ issued a draft permit in November 2008. Wolverine submitted a PTI application in September 2007, and the MDEQ issued a draft permit in September 2008. In February 2009, the Governor released an Executive Directive that ordered the MDEQ to determine whether “feasible and prudent alternatives” existed to any proposed coal-fired electric generation facilities. The MDEQ enlisted the assistance of the Michigan Public Service Commission (“MPSC”) to evaluate the purported need for each of the facilities. After the MPSC concluded that neither entity needed the proposed facility, the MDEQ denied each application, stating that neither entity demonstrated a need for the facility.

Each applicant appealed the permit denial, claiming that the MDEQ did not have authority under Michigan’s Natural Resources and Environmental Protection Act (“NREPA”) or the Clean Air Act to deny permits based solely on the MDEQ’s determination of the applicant’s purported lack of need for the facility. In each case, the court agreed and remanded the permit decision to the agency.
 
BACKGROUND

HBPW and Wolverine submit applications for PTIs

A coal-fired power plant qualifies as a “major stationary source” of air pollutants subject to the permit requirements of the Prevention of Significant Deterioration (“PSD”) provisions of Title I of the federal Clean Air Act, 42 U.S.C. § 7470, et seq., and its implementing regulations, and Part 55 of NREPA, MCL 324.5501 et seq., and its implementing regulations. Before beginning construction of a major source, an applicant must obtain a PTI. Accordingly, both HBPW and Wolverine submitted applications for PTIs to the MDEQ.

HBPW submitted PTI Application No. 25-07 on January 15, 2007, to install a 78-megawatt coal-fired electric generating plant.2 The MDEQ issued a draft permit on November 26, 2008, and opened the public comment period.3

Wolverine submitted PTI Application No. 317-07 on September 26, 2007, to install a 600-megawatt solid fuel-fired steam electric generation facility to be called the WCEV, in Rogers City, Michigan.4 The MDEQ issued a draft permit in September 2008, providing notice for public comment.5

The Governor directs the MDEQ to consider need for any new coal-fired power plants

On February 3, 2009, then Governor Jennifer Granholm delivered the State of the State address, in which she called for a reduction in Michigan’s reliance on fossil fuels by 45 percent by the year 2020.6 In connection with this goal, Governor Granholm explained:
 
Achieving these ambitious goals will also lessen the need for a slew of new coal power plants in Michigan. That’s why I have directed the Department of Environmental Quality to evaluate, in consultation with our Public Service Commission, both the need for additional electricity generation and all feasible and prudent alternatives before approving new coal-fired power plants in Michigan.7
 
On the same day, the Governor issued Executive Directive (“ED”) No. 2009-2, entitled “Consideration of Feasible and Prudent Alternatives in the Processing of Air Permit Applications from Coal-Fired Power Plants.” ED 2009-2 claimed that “coal-fired electricity generating plants annually emit thousands of tons of air emissions, including, but not limited to, greenhouse gases, that threaten the air, water and other natural resources of Michigan and the health, safety, and general welfare of Michigan residents.”8 The Directive claimed authority under the Clean Air Act to “consider alternatives to proposed sources of air emissions when determining whether or not to grant an air permit to that source.”9 Accordingly, ED 2009-2 required:
 
Before issuing a permit to install under Part 55 of the Natural Resources and Environmental Protection Act, 1994 PA 451, MCL 324.5501 to 324.5542, for the construction of a new coal-fired electricity generating plant, the Department of Environmental Quality shall determine whether there is a feasible and prudent alternative consistent with the reasonable requirements of the public health, safety, and welfare that would better protect the air, water, and other natural resources of this state from pollution than the proposed coal-fired electricity generating plant.10 
 
The Directive further stated that before making the above determination, the MDEQ must “first determine whether a reasonable electricity generation need exists in this state” that would be served by the proposed plant.11 If the MDEQ determined that need existed, then the MDEQ was to consider alternative methods for meeting the electricity need, including use of alternative technologies that reduce or sequester emissions, reducing electricity demand through energy efficiency, and generating or purchasing electricity through existing resources.12

Finally, the Directive stated that if a feasible and prudent alternative existed, the MDEQ “shall not issue a permit to install.”13 The Governor directed the MPSC to provide technical assistance to the MDEQ in making the determinations required by the Directive.14 ED 2009-2 was to be effective immediately.

The Attorney General declares ED 2009-2 unenforceable

Attorney General Michael Cox issued Opinion No. 7224 on February 20, 2009, in response to a request by State Representatives Kevin Elsenheimer and Kenneth Horn to evaluate the enforceability and the legal effect that should be afforded to ED 2009-2.15 The Attorney General (“AG”) began the analysis by explaining that an executive directive is not mentioned explicitly by the Michigan Constitution, but rather is used by governors to exercise their supervisory authority in the form of internal policy statements.16 Further, because the constitution provides for separation of powers, prohibiting one branch from exercising powers of another branch except where expressly provided in the constitution, and the constitution does not vest legislative power in the Governor through executive directives, executive directives may not amend substantive law.17

With this backdrop, the AG examined whether the Governor could direct the MDEQ to determine whether there are “feasible and prudent alternatives” to constructing coal-fired power plants, and if so, deny the permit. The AG determined that the MDEQ did not have authority under Part 55 of NREPA to determine whether there were “feasible and prudent alternatives” to a power plant or to deny a permit if the MDEQ determines such alternatives exist. Similarly, the AG stated that the MDEQ lacked such authority under the other statutory authorities cited in the Executive Directive, including Part 17 of NREPA18 (the Michigan Environmental Protection Act), Section 165(a)(2) of the Clean Air Act,19 and the MDEQ’s Part 18 Rules, and in particular Rule 1817(2). The AG concluded that the directions to the MDEQ to consider alternatives and deny a permit if those alternatives exist, contained in ED 2009-2(A) and (D), constituted an “attempt to amend substantive law contrary to the separation of powers doctrine of Const 1983, art 3, § 2, and are unenforceable.”20

The AG then addressed the directives contained in ED 2009-2(B) and (C), requiring the MDEQ to engage in a “need and alternative methods” analysis. He stated that this analysis “can only logically be read as part of a cohesive whole that operates in conjunction with the ‘feasible and prudent alternatives analysis’ required in the directive,”21 and concluded that for the same reasons already stated, the “need and alternative methods” analysis was an unconstitutional attempt to amend substantive law contrary to the separation of powers doctrine and was unenforceable.22

The MDEQ requests “needs” analyses from HBPW and Wolverine and denies the permits.

After the Governor issued ED 2009-2, the MDEQ requested that HBPW and Wolverine submit analyses of alternatives to the construction of the proposed facilities. Wolverine submitted an Electric Generation Alternatives Analysis, under protest, on June 8, 2009. The MDEQ entered into a Memorandum of Understanding with the MPSC to provide assistance in evaluating the electric generation need and to assess the alternatives. On September 8, 2009, the MPSC expressed the opinion, inter alia, that “Wolverine failed to demonstrate the need for the proposed facility as the sole source to meet their projected capacity. In particular, long-term purchase power options were not fully explored as part of their analysis.”23

HBPW submitted an Electric Resource Plan on March 30, 2010, also under protest. On July 7, 2010, the MPSC similarly opined that HBPW did not need the proposed facility. Specifically, the MPSC stated: “HBPW failed to adequately demonstrate the need for the proposed facility as the sole source to meet its projected capacity requirements. Given Michigan’s recent economic recession and uncertainty concerning the time frame for economic recovery, HBPW’s forecasted annual demand growth rate of approximately 2.1% appears overly optimistic.”24

The MDEQ denied Wolverine’s permit application on May 21, 2010. In the letter, the MDEQ stated:
 
In assessing Wolverine’s submittal, the findings of the MPSC, and the response provided by Wolverine, the DNRE is persuaded by the MPSC report. Wolverine has not adequately demonstrated its inability to secure long-term power supply purchase arrangements to meet its member needs. Wolverine has not demonstrated a need for the proposed facility.25 
 
In the letter denying HBPW’s permit application, dated August 20, 2010, the MDEQ similarly stated that it was persuaded by the MPSC report that HBPW had failed to demonstrate a need for the new facility.26

In both denial letters, the MDEQ cited Section 165(a)(2) of the Clean Air Act, which provides that no permit shall be issued unless, inter alia, “a public hearing has been held with opportunity for interested persons including representatives of the Administrator to appear and submit written or oral presentations on the air quality impact of such source, alternatives thereto, control technology requirements, and other appropriate considerations.”27 
 
COURT CASES
 
HBPW and Wolverine file lawsuits to challenge the MDEQ’s actions.

On August 9, 2010, Wolverine filed a Petition for Review and Complaint for Declaratory Judgment (“Petition”) in Missaukee County Circuit Court challenging the MDEQ’s denial of the permit. Count I of the Petition alleged that the MDEQ’s denial of the permit was contrary to law because, inter alia, it was not authorized by Part 55 or the implementing regulations, was not supported by the record and was arbitrary and capricious. In Count II, Wolverine sought a declaration that ED 2009-2 was unconstitutional under the separation of powers doctrine and in violation of the Administrative Procedures Act. Natural Resources Defense Council (“NRDC”) and Sierra Club were permitted to intervene as defendants in the action.

Before the MDEQ denied the permit, on August 12, 2010, HBPW filed a Complaint for a Writ of Mandamus, Declaratory and Injunctive Relief in Ottawa County Circuit Court. Count I of the Complaint sought a writ of mandamus, compelling the MDEQ to issue the permit or render a decision on the permit by no later than August 20, 2010, in accordance with the criteria applicable as of the date the MDEQ should have acted. Counts II and III sought a declaratory judgment and injunctive relief, also asking the court to require the MDEQ to issue the permit or render a decision without delay. Finally, Count IV was an appeal pursuant to MCL 324.5505(8), claiming that the MDEQ’s failure to act on the permit application within the time frame required by regulation constituted a constructive denial. NRDC and Sierra Club sought to intervene in the action as defendants, but their motion was denied.

Both courts reject the MDEQ’s legal authority to deny permits on the basis of need.

HBPW


The Ottawa County Circuit Court issued a written opinion on December 15, 2010, in which the court concluded that the MDEQ “violated the constitution and exceeded its statutory authority by basing its denial of [HBPW’s] application for a permit to install on electric generating need rather than upon whether the application met the air quality requirements of NREPA Part 55.”28 The court also concluded that while MDEQ did not improperly delegate authority to the MPSC, the MDEQ nonetheless acted outside its statutory authority in relying on the MPSC report.29

In addition, the court determined that MDEQ’s reliance on standards outside its statutory authority was arbitrary, and the policy change that led to the denial of the permit was made “suddenly, and apparently on the whim of the executive, and was therefore capricious.”30 In this regard, the court held that ED 2009-2, “by undertaking to establish substantive requirements and procedures for a permit to install under Part 55 of NREPA, is unconstitutional, and violates the APA.”31

Because the “regulatory environment” had changed since the denial of the PTI application – including new National Ambient Air Quality Standards for SO2 and a new requirement that PTI applications address greenhouse gas emissions – the court remanded the permit application to the MDEQ and granted HBPW’s request for a writ of mandamus. The court ordered the MDEQ to evaluate and decide, within 60 days of the date of the order, the permit application consistent with the standards that were in effect on the date the MDEQ issued its denial.32

Finally, the court denied proposed intervenors NRDC’s and Sierra Club’s motion for reconsideration of the denial of their motion to intervene. The court’s original ruling had been based on its finding that the proposed intervenors’ interests were adequately represented, because there was no evidence that the health and social interests of their members differed in any significant way from those of the general public, and because they offered no pleading as required by MCR 2.209(C).33 The court concluded that no palpable error had been committed that would require a different result and denied the motion for reconsideration.34

Wolverine

The Missaukee County Circuit Court first addressed the MDEQ’s contention in its brief that the basis for its denial of the permit application was broader than an evaluation of Wolverine’s need for the facility.35 The court stated that the MDEQ’s denial was fully stated in the May 21, 2010 denial letter, which “establishes that the basis for the denial was a lack of support for the need for the WCEV.”36 The court concluded that the MDEQ made no evaluation of air quality standards, the use of increments, or the competing economic needs for those increments to protect air quality.37 In concluding that the MDEQ lacked authority to deny the permit on the basis of need alone, the court reasoned:
 
Although it is clear that Section 165(a)(2) of the Clean Air Act and the Michigan Administrative Code [Rule] 336.2817(2)(e) require the permitting authority to consider public comments and to evaluate alternatives to the major source proposed in the permit application, neither the federal [nor] state requirements or regulations authorize denial based on need alone. They, however, require that there be an evaluation of the need and the alternatives to the need in light of the goals of the Clean Air Act as enacted through NREPA Part 55. The legislative enactment clearly gives a broad authorization to implement the requirements of the PSD provisions of the Clean Air Act. However, those requirements do not supersede the specific legislative limitations contained in NREPA regarding proper denial of a PTI.38 
 
Accordingly, the court concluded that the MDEQ exceeded its statutory authority when it denied the PTI on the basis of need.39 The MDEQ’s action was not authorized by law because it was in violation of the statute and in excess of the statutory authority or jurisdiction of the agency.40 The court remanded and ordered the MDEQ to make a permit decision within 60 days of the date of the opinion consistent with the opinion, NREPA and the Clean Air Act.41
 
CONCLUSION

In what may be the first court challenges in the country to address this issue, two Michigan trial courts held that the Clean Air Act does not allow a permitting agency to deny an air permit on the basis of “need” alone. The court in Wolverine further explained that the reference to consideration of “alternatives thereto” in Section 165(a)(2) of the Clean Air Act did not allow consideration of a no-build alternative without reference to air quality considerations or the competing economic need for increments to protect air quality. Thus, under these decisions, any consideration of alternatives to a facility must be made “in light of the goals of the Clean Air Act.”42 

Endnotes:

1 During portion of the relevant period discussed in this article, MDEQ was the Michigan Department of Natural Resources and Environment. For ease of reference, it will be referred to as MDEQ throughout this article.

2 City of Holland v. MDNRE, No. 10-022031-AA, slip op. at 6 (Ottawa Co. Cir. Ct. Dec. 15, 2010) (“Holland opinion”).

3 Id.

4 Wolverine Power Supply Coop., Inc. v. MDNRE, No. 10-7686-CE, slip op. at 2 (Missaukee Co. Cir. Ct. Jan. 28, 2011) (“Wolverine opinion”).

5 Id.

6 Governor Jennifer Granholm, State of the State Address, Feb. 3, 2009, at 6, available at http://www.michigan.gov/documents/gov/SOS2009_265915_7.pdf.

7 Id. at 7.

8 ED 2009-2 at 1.

9 Id.

10 Id. at ¶ A.

11 Id. at ¶ B.

12 Id. at ¶ C.

13 Id. at ¶ D.

14 Id. at ¶ E.

15 Michigan Attorney General Opinion No. 7224, at 1 (Feb. 20, 2009) (“OAG No. 7224”), available at http://www.ag.state.mi.us/opinion/datafiles/2000s/op10301.htm.

16 Id. at 3.

17 Id.

18 MCL 324.1701-324.1706.

19 42 U.S.C. § 7475(a)(2).

20 OAG No. 7224, at 6.

21 Id. at 6.

22 Id. at 6-7.

23 MPSC Staff Report to MDEQ, “Wolverine Power Supply Cooperative Electric Generation Alternatives Analysis For Proposed Permit to Install (PTI) No. 317-07 For Circulating Fluidized Bed Coal Boilers at Rogers City, Michigan,” Docket No. U-16000, at p. 3 (Sept. 8, 2009).

24 MPSC Staff Report to MDEQ, “Holland Board of Public Works Electric Generation Alternatives Analysis For Proposed Permit to Install (PTI) No. 25-07 For Circulating Fluidized Bed Coal Boiler in Holland, Michigan,” Docket No. U-16077, at p. 6 (July 7, 2010).

25 Wolverine Opinion at 3.

26 Holland Opinion at 7.

27 42 U.S.C. § 7475(a).

28 Id.

29 Id. In a footnote, the court noted that the MPSC had no jurisdiction over HBPW. Id. at 7 n.3.

30 Id.

31 Id. at 8.

32 Id.

33 Id. at 9.

34 Id. MDEQ and proposed intervenors filed separate appeals of the court’s order. MDEQ’s appeal was docketed as Michigan Court of Appeals Case No. 301921, and was dismissed pursuant to the parties’ stipulation on February 16, 2011. NRDC’s and Sierra Club’s appeal was docketed as Case No. 302031 and remains pending as of the date of this article.

35 Wolverine Opinion at 7.

36 Id. at 8.

37 Id.

38 Id. at 9.

39 Id.

40 Id. The court made no determination regarding whether the action was made upon unlawful procedure resulting in material prejudice or was arbitrary and capricious. Id.

41 Id.

42 Wolverine Opinion at 9.

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