March 8, 2016. The civil penalty for groundwater violations around Duke Energy’s Sutton Plant in New Hanover County has taken several unprecedented twists and turns. This post looks at the $25 million civil penalty for groundwater contamination at the Sutton Plant that became a $7 million civil penalty for groundwater violations at all 14 coal ash sites in the state and then a $7 million civil penalty just for the Sutton violations.
Groundwater Enforcement 101. The Department of Environmental Quality (DEQ) can order remediation of groundwater contamination and assess civil penalties for violation of the state’s health-based groundwater standards. Some contaminants (like arsenic) occur naturally; if natural “background” levels of the contaminant exceed the state standard, the background level becomes the standard. State rules allow for some exceedence of groundwater standards within the footprint of a waste disposal facility, but set a “compliance boundary” around the facility where the standards must be met. Coal ash ponds permitted before 1983 must meet groundwater standards within 500 feet of the ash pond; those permitted later have a 250-foot compliance boundary.
To assess a civil penalty for coal ash contamination, DEQ must show: 1. Contaminants in the groundwater exceed the state standard (which may require determining background levels if the contaminant occurs naturally); 2. Exceedences occur at or beyond the compliance boundary; and 3. Coal ash caused or contributed to the contamination. State law caps the maximum penalty for a single groundwater violation at $25,000. In setting the specific penalty amount within the cap, DEQ considers a number of penalty factors including the extent of environmental harm; whether the violation was intentional; and any compliance costs the violator may have avoided. Since DEQ can assess daily penalties for continuing violations, the total civil penalty may exceed $25,000 if a violation continues over a period of time.
Now a Little Coal Ash History. The state originally permitted coal ash ponds as wastewater treatment systems. The ponds receive, treat and discharge process wastewater and sometimes stormwater. A coal ash pond functions like the settling basins used in other wastewater treatment systems; the coal ash settles out of the wastewater slurry, reducing pollutants in the top layer of pond water. The utility then discharges wastewater from the top of the pond to a river, stream or lake under a Clean Water Act Permit — the National Pollutant Discharge Elimination System (or “NPDES”) permit. NPDES permits protect surface water from pollution; since groundwater was never the focus, the permits historically required very limited groundwater monitoring around coal ash ponds.
In response to pressure for national coal ash disposal standards, companies operating coal-fired power plants began a program of voluntary groundwater monitoring in 2006 and provided results to the state. (As a voluntary program, the power companies alone decided what contaminants to monitor for and where to put monitoring wells.) By 2009, state water quality officials had become so concerned about the utilities’ groundwater data that the Division of Water Quality (DWQ) moved to put stronger groundwater monitoring conditions on NPDES permits for coal ash ponds as the permits came up for renewal. The new permit conditions made monitoring for specific contaminants mandatory and required DWQ approval of the monitoring plan so monitoring wells would be appropriately placed to identify violations at the compliance boundary.
As DWQ began adding monitoring conditions to permits, the senior manager in DWQ’s groundwater protection program issued a memo explaining how the program would take enforcement actions based on the new groundwater monitoring data. The memo applied to any facility that had operated for a long period of time before being required to do groundwater monitoring. It implicitly recognizes that imposing groundwater monitoring conditions after many years of facility operation may result in immediate detection of groundwater exceedences — giving the operator little opportunity to prevent a violation. The memo did not completely foreclose the possibility of a civil penalty for groundwater violations at these facilities, but indicated that DWQ may not issue a Notice of Violation (the first step to a penalty) as long as the operator responded to state requests for assessment and clean up of any contamination.
The Sutton Plant Civil Penalty. The Sutton Plant’s wastewater system, consisting of two coal ash ponds built in 1971 and 1984, has had an NPDES permit since 1977. For most of the system’s history, the permit only required monitoring for a limited number of groundwater quality parameters — groundwater level, pH, Arsenic, Iron, Total Dissolved Solids, Chlorides and Selenium. When DWQ renewed the Sutton Plant’s NPDES permit in 2011, the new permit required monitoring of additional contaminants (including boron, thallium, and manganese) under a state-approved monitoring plan designed to detect exceedences at the compliance boundary. In March 2015, DEQ assessed a record $25 million civil penalty for groundwater violations around the Sutton Plant. The civil penalty covered a number of different groundwater standard violations over varying periods of time. The earliest violations identified in the assessment document dated back to 2009 (for boron) and 2010 (for thallium). Most of the violations (for iron, arsenic, selenium, manganese and total dissolved solids) dated from 2012 or 2013. To reach the $25 million assessment, DEQ assessed either $1,000 or $5,000 per day (from initial detection to the assessment date) for each contaminant that exceeded state groundwater standards.
A Big — and Short-Lived — Settlement. Duke Energy appealed the penalty and several months later DEQ agreed to a settlement reducing the civil penalty to $7 million. The most notable thing about the September 2015 settlement agreement was not the penalty reduction, but the fact that the settlement would have resolved all groundwater violations (known or discovered in the future) around all 14 Duke Energy coal ash impoundment sites in the state. Southern Environmental Law Center (SELC), on behalf of several environmental organizations, challenged the settlement agreement in court. SELC’s appeal did not contest the penalty reduction for the Sutton violations, but argued Administrative Law Judge Phil Berger, Jr. had no authority to approve a settlement agreement affecting issues beyond the Sutton civil penalty. SELC particularly complained that the settlement agreement affected other coal ash enforcement cases without notice to the parties in those cases — including organizations represented by SELC. Those enforcement cases dealt with specific actions required of Duke Energy to address groundwater contamination around coal ash ponds at multiple sites.
Key provisions in the September 2015 DEQ-Duke Energy settlement agreement
♦ Duke Energy agreed to pay a civil penalty of $7 million and accelerate groundwater remediation at the Sutton, Asheville, Belews Creek and H.F. Lee plants. The settlement agreement did not set a timeline for the accelerated remediation.
♦ DEQ agreed to dismiss groundwater enforcement cases already pending in superior court related to the Sutton Plant and the Asheville Steam Station. See the SELC appeal of the settlement agreement for more on the relationship between the settlement agreement and pending enforcement cases.
♦ DEQ agreed not to issue Notices of Violation, notices requiring assessment or remediation, civil penalty assessments or to take any other enforcement actions against Duke Energy based on groundwater conditions “at any of the Duke Energy Sites” as long as Duke Energy complied with requirements of the Coal Ash Management Act related to groundwater assessment, remediation and closure of the coal ash basins. Under the agreement, the “Duke Energy Sites” included all 14 coal ash sites across the state.
♦ DEQ agreed not to change groundwater monitoring conditions in existing or future NPDES permits for the coal ash ponds unless required by court order; a federal or state law; a rule; or in response to an immediate threat to public health. Under the agreement, an “immediate threat to public health” had to involve something more than violation of a health-based groundwater standard. In effect, the settlement prevented DEQ from using its permitting authority to requiring monitoring for additional contaminants.
♦ DEQ agreed not to use groundwater monitoring data collected under either the NPDES permit conditions or under provisions in the Coal Ash Management Act for any purpose other than classification and closure of the coal ash ponds. In other words, DEQ agreed not to use groundwater monitoring data for enforcement purposes.
Reversing Direction. In February, Superior Court Judge Paul Ridgeway held a hearing on SELC’s objections to the Sutton settlement agreement. Persuaded that the settlement agreement affected the other enforcement cases already before him, Judge Ridgeway indicated an intent to take jurisdiction over the settlement agreement unless Judge Berger narrowed the scope of his order in the Sutton civil penalty case. Charlotte Business Journal has reported that Judge Berger later issued a revised order at the request of DEQ and Duke Energy. According to the article, the settlement agreement between Duke Energy and DEQ did not change, but the order approving the settlement has been expressly limited to the Sutton civil penalty case. (I have not been able to find the revised order on either the Office of Administrative Hearings or DEQ website.) As a result, the $7 million civil penalty now covers only groundwater violations at the Sutton Plant.
Signs and Portents? DEQ made several unusual decisions in assessing and then settling the Sutton civil penalty case:
The original $25 million civil penalty for the Sutton groundwater violations broke from past enforcement practices. State programs rarely impose daily penalties for newly discovered groundwater violations. Daily penalties are usually reserved for willful, intentional violations and for violators who fail to quickly address contamination once it has been detected. DEQ didn’t cite either of those aggravating factors in assessing the original $25 million Sutton penalty. To reach the $25 million total, DEQ assessed a penalty of either $1,000 or $5,000 a day (depending on the contaminant) from the date of detection to the date of assessment. (The contamination persists today and will until coal ash on the site has been removed, which everyone understands will require more time.) The question is whether DEQ’s very aggressive penalty for the Sutton violations indicates a change in enforcement policy that may affect other groundwater cases.
There doesn’t seem to be any precedent for DEQ agreeing –as it did in the original Sutton settlement — to limit its own permitting and enforcement authority to settle a civil penalty case. State agencies often settle civil penalty cases for a lower penalty amount. In the Sutton settlement, DEQ also agreed not to change groundwater monitoring conditions on Duke Energy’s NPDES permits except in very narrow circumstances. Most of those circumstances required some outside force — federal law, a court order — to compel the change. In effect, DEQ gave up the ability to use its permitting authority to require monitoring for additional contaminants. The department also agreed not to issue Notices of Regulatory Requirements (orders for assessment and remediation of contamination) or take new enforcement actions against Duke Energy based on coal ash contamination at the 14 sites in N.C. The settlement agreement was conditioned on Duke Energy complying with provisions in the Coal Ash Management Act on groundwater assessment and corrective action, but those requirements assume application of state groundwater regulations. It isn’t clear why DEQ would agree to give up use of normal groundwater enforcement tools like the Notice of Regulatory Requirements. Limits on DEQ use of groundwater data for enforcement purposes could have affected the state’s ability to address groundwater problems discovered later.
What Does it Mean? Assuming Judge Berger’s revised order has set much of the Sutton settlement agreement aside, the Sutton case is mostly interesting as an insight into DEQ’s enforcement decision-making. It is hard to identify a consistent principle that would explain both DEQ’s very aggressive use of civil penalty power in the first instance and DEQ’s willingness to give up significant permitting and enforcement authority to settle the case. The question is whether the Sutton decisions were peculiar to it or have broader implications.