The opinion of the court was delivered by: Signed: Emmet G. Sullivan United States District Court Judge
Plaintiff Sierra Club brought this action alleging that the Department of Agriculture's Rural Utilities Service ("RUS") and certain officials in the Department of Agriculture (collectively, "the federal defendants") violated the National Environmental Policy Act of 1969 ("NEPA") by failing to produce an environmental impact statement in connection with its involvement in the expansion of Sunflower Electric Power Corporation's ("Sunflower") coal-fired generating plant in Holcomb, Kansas. Sunflower intervened as a defendant.
On March 29, 2011, the Court granted plaintiff's motion for summary judgment, concluding that the federal defendants had violated NEPA. NEPA requires federal agencies to include an environmental impact statement ("EIS") "in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment[.]" 42 U.S.C. § 4332(C). "If any significant environmental impacts might result from the proposed agency action then an EIS must be prepared before the [agency] action is taken." Sierra Club v. Van Antwerp, 661 F.3d 1147, 1153 (D.C. Cir. 2011) (internal quotations omitted). The Court found that the financial assistance given to Sunflower by RUS in the form of debt forgiveness and consent to a lien subordination, as well as RUS's approvals relating to the expansion of the power plant, amounted to a "major federal action" within the meaning of NEPA such that an EIS was required. Mem. Op. at 26, Mar. 29, 2011.
The Court ordered the parties to submit supplemental briefing on the appropriate remedy. That issue is now before the Court. Upon consideration of the supplemental briefs, the responses and replies thereto, the applicable law, the entire record, and for the reasons set forth below, the Court will grant declaratory and limited injunctive relief and remand to the agency for any necessary further proceedings.
The factual background of this case is set forth in detail in the Court's March 29, 2011 Memorandum Opinion. Briefly stated, the Rural Electrification Administration (the predecessor agency to RUS) approved a loan and loan guarantees to Sunflower's predecessor in 1980 after an EIS was completed.*fn1 The loan and loan guarantees, totaling approximately $543 million, were provided for the construction of a coal-fired generating station ("Holcomb Unit 1") to be located near Holcomb, Kansas. Administrative Record ("AR") 03866. However, soon after the construction of Holcomb Unit 1, the company became unable to meet its debt repayment obligations to RUS and other creditors. AR 04546. Accordingly, in 1987, the parties entered into new agreements. Under the terms of these new agreements, Sunflower's predecessor issued three new classes of promissory notes, AR 00149.*fn2 Furthermore, in order to secure the notes, Sunflower granted a lien to RUS and its other secured creditors on substantially all of its assets. AR 00276.
After the 1987 restructuring, the company was again unable to make payments on all of the promissory notes. Of particular concern, because the interest was capitalized on one class of notes, the principal owed to RUS on these notes had increased from the $98.3 million owed in 1987 to $413.9 million in 2002. Because the company was at risk of defaulting, Sunflower and its creditors elected to negotiate another restructuring. AR 00004-11. The 2002 corporate and debt restructuring (the "2002 Restructuring") divided the assets owned by Sunflower's predecessor between two new corporations, Sunflower Electric Power Corporation (the party to this action, "Sunflower") and the Holcomb Common Facilities ("HCF"). Significantly, Sunflower purchased the predecessor company's assets by issuing an entirely new set of notes to the holders of the old promissory notes. AR 00173-175. Although HCF did not issue new promissory notes, in exchange for the assets it received, RUS and the other creditors received a security interest in HCF and an assignment of annual rent payments from the use of certain related facilities. AR 00190. The 2002 Restructuring also affected the lien held by RUS. The agency agreed that it will, in the future, release portions of its lien, if and when a second generating plant ("Holcomb Unit 2") is developed. In exchange, Sunflower agreed to grant to RUS a security interest in the rent paid for the use of the relevant facilities.
In connection with the 2002 Restructuring, Sunflower also agreed to obtain approval from RUS before undertaking a variety of activities or entering certain types of contracts. Of particular significance to the issue presently before the Court, Sunflower agreed: (i) that it would not "enter into any agreement or other arrangements . . . for the development of Holcomb Unit 2 without the prior written approval of RUS," and "[a]ny RUS approval will be on such terms and conditions as RUS, in its sole discretion, may require at such time" (AR 04391); and (ii) that it would not "enter into any agreement or arrangement . . . for Holcomb Site Development . . . or for other use of the Holcomb Unit 1 site, the fair market value of which would exceed $1 million annually[,] without the prior written approval of RUS," and "[a]ny RUS approval will be on such terms and conditions as RUS, in its sole discretion, may require at such time" (AR 04391).*fn3
Since the 2002 Restructuring, Sunflower has sought approval from RUS on a number of occasions in accordance with the conditions outlined above. Most relevant to this action, on several occasions Sunflower sought approvals relating to the development of new generating plants at the Holcomb site. In October of 2005, RUS granted conditional approval of Sunflower's execution of a Memorandum of Agreement with Tri-State Generation and Transmission Association, Inc. ("Tri-State") regarding the proposed development of two new generating units at the Holcomb site. AR 04574. Subsequently, in September of 2006, RUS granted conditional approval for Sunflower to enter into a Purchase Option and Development Agreement with Tri-State, as well as various other related agreements, again for the proposed development of two new generating units at the Holcomb site. AR 04610-4611. In addition to the development of Holcomb Unit 2, the agreements provided for the potential construction of a "Holcomb Unit 3" and a "Holcomb Unit 4."
In addition, on July 26, 2007, RUS also provided Sunflower with a separate letter, referred to by the parties as the "Additional Consideration Letter." AR 08218-8216. The terms of the Additional Consideration Letter modified the earlier arrangement from 2002 whereby RUS and the other creditors had received a security interest in HCF and an assignment of annual rent payments for the use of certain facilities. Under the new terms, for each additional power plant being considered for the Holcomb site, RUS received an entirely new set of promissory notes.*fn4 These notes are interest bearing, but payment is due only if and when the respective generating unit is placed into commercial operation. Furthermore, each of these 2007 promissory notes, totaling $91 million, will be cancelled on December 31, 2021 if the respective generating unit has not been placed into commercial operation.
The principal question before the Court in its March 29, 2011
Memorandum Opinion was whether NEPA applied to the actions taken by
RUS in connection with the Holcomb Expansion Project.*fn5
Because NEPA requires that an EIS be prepared in connection
with any "recommendation or report on proposals for legislation and
other major Federal actions significantly affecting the quality of the
human environment," 42 U.S.C. § 4332(C), the Court had to determine
whether a "major federal action" had taken place.
For the reasons detailed in the Court's Memorandum Opinion, the Court concluded that RUS's involvement in the Holcomb Expansion Project constituted a major federal action, both in connection with the 2002 Restructuring and in connection with the approvals granted in 2007. In short, the Court held that, because RUS gave necessary approvals for the Holcomb Expansion Project and because RUS provided financial assistance to the project, the Holcomb Expansion Project was subject to "Federal control and responsibility," 40 C.F.R. § 1508.18, and therefore RUS's involvement amounted to a major federal action within the meaning of NEPA. Accordingly, by failing to prepare an EIS, the agency violated NEPA.
The sole remaining issue before the Court is the appropriate remedy. At the outset, the Court notes that the plaintiff and the federal defendants are largely in agreement regarding the appropriate remedy. Specifically, both maintain that declaratory relief and prospective injunctive relief would be sufficient to remedy the NEPA violation. Their agreement is premised on the assumption that the approvals awarded by RUS in 2007 are no longer valid because Sunflower has significantly altered the configuration of the proposed expansion of the Holcomb site.
According to plaintiff and the federal defendants, at the time of the 2007 approvals, the plans for the Holcomb Expansion Project called for three coal-fired electric generating units, each with a generating capacity of approximately 600-750 megawatts. Since then, however, Sunflower has revised the configuration and now has plans to construct only a single generating unit with a capacity of 875 megawatts. Accordingly, plaintiff and the federal defendants argue that -- in light of the contractual arrangements between Sunflower and RUS that obligate Sunflower to seek approval from RUS for plans and agreements relating to the Holcomb expansion -- Sunflower is obligated to seek new approvals in light of these drastic changes. The federal defendants, for example, assert that "[d]ue to the material changes in the development of the Holcomb Expansion Project . . . RUS has concluded that its approvals and implementing documents require Sunflower to seek new approvals from RUS for the drastic changes to the Holcomb Expansion Project from the proposal RUS previously reviewed and approved in 2007." Fed. Defs.' Supp. Br. at 8. Similarly, Sierra Club asserts that "RUS has an affirmative role going forward because RUS will have to grant additional consents and approvals before the Expansion can lawfully proceed." Pl.'s Supp. Br. at 6. Accordingly, rather than asking the Court to vacate the 2002 restructuring or the 2007 approvals given by RUS in connection with the Holcomb Expansion Project, the plaintiff and the federal defendants ask that the Court simply order RUS to prepare an EIS on the Holcomb Expansion Project.*fn6
Sunflower, on the other hand, asserts that the 2007 approvals that it obtained from RUS are still valid, and it need not seek additional approvals before proceeding with the construction of an additional power plant. In particular, Sunflower argues that the relevant agreements "clearly provide for the possibility that anywhere from zero to three new [generating] units could be constructed at Holcomb, and that new generating units could be smaller or larger than 700 MW." Sunflower's Supp. Br. at 7. According to Sunflower, "nothing has occurred to invalidate the 2007 RUS Approvals." Sunflower's Supp. Br. at 9. Sunflower takes the position that "[t]he only appropriate relief in this case is ...