The Sierra Club is engaged in an aggressive campaign to stop the construction of new coal plants. See www.sierraclub.org/coal. As part of its campaign, the Sierra Club has challenged approvals granted by the Rural Utilities Service (RUS) related to new coal plants involving electric cooperatives. Even though RUS is not currently funding the construction of new coal plants, the Sierra Club claims that RUS approvals are invalid unless a full environmental review is conducted. This Legal Alert reports on two cases involving the Sierra Club’s challenges to RUS approvals.  

Background  

It has been reported that “[e]very time a new coal-fired power plant is proposed anywhere in the United States, a lawyer from the Sierra Club or an allied environmental group is assigned to stop it, by any bureaucratic or legal means necessary.” Judy Pasternak, “Coal at Heart of Climate Battle,” Los Angeles Times, April 14, 2008. The Sierra Club’s Chief Climate Counsel has been quoted as saying that the goal is “to clog up the system.” Id. The Sierra Club recently turned its attention to the regulatory process involving electric cooperatives. In a letter to then U.S. Secretary of Agriculture Edward T. Schafer and then RUS Administrator James M. Andrew, dated August 26, 2008, the Sierra Club alleged that RUS is “in violation of federal law by approving investments in a number of new coal-fired power plants across the nation absent any review under” the National Environmental Policy Act (NEPA). The letter identified ten projects by name “that rely upon either recent or pending USDA approvals to proceed, all lacking any environmental review whatsoever under NEPA.”  

The Sunflower Case. One of the projects being challenged by the Sierra Club is Sunflower Electric Power Corporation’s expansion of its coal-fired Holcomb plant in Kansas. Even though the expansion will be financed with private funds, the Sierra Club sued RUS based on certain RUS consents and approvals related to the expansion. These included RUS’s 2007 consent to agreements by which RUS subordinated its security interest in the plant and RUS’s approval of a 2002 debt restructuring that was intended to facilitate the Holcomb expansion. In its complaint filed with the federal district court, District of Columbia, the Sierra Club asked the court to rescind these approvals. Sierra Club v. USDA, Docket No. 1:07-cv-01860-EGS (D.D.C. filed Oct. 16, 2007) (“Sunflower”).  

RUS’s position is that such approvals do not require environmental review under NEPA. This interpretation is set forth in 7 C.F.R. § 1794.3, promulgated by RUS, which excludes from NEPA review “approvals provided by RUS pursuant to loan contracts and security instruments, including approvals of lien accommodations.” Based on this regulation, and the argument that such approvals are matters of agency discretion not reviewable by the courts, RUS filed a motion to dismiss the Sierra Club’s complaint. The court denied RUS’s motion to dismiss, without prejudice, in order to permit the Sierra Club to amend its complaint and give RUS time to submit the administrative record.  

In March 2009, Sunflower filed a motion to dismiss based on mootness. Sunflower argued that the Sierra Club’s claim was moot when filed because the RUS approvals had all been granted and there was no further federal action at issue. Sunflower argued that mootness applied because it was “undisputed that both the challenged RUS approvals and the object of the approvals, the commercial transactions, have been completed.” (Mem. in Supp. of Mot. to Dismiss, at 8, 18.) Sunflower also argued that the matter was moot because RUS did not have any authority to impose environmental mitigation measures on the project.  

In its response, the Sierra Club argued that a NEPA case is moot only when environmental harm has already occurred and cannot be either “undone” or mitigated. The Sierra Club also argued that recent changes in the expansion plans for the Holcomb project have “restarted the clock,” thereby requiring future RUS action. The Sierra Club argued that such ongoing RUS involvement would provide “ample opportunities to craft relief that prevents the project from moving forward until RUS’s NEPA duties are satisfied.” (Sierra Club’s Mem. in Opp. to Sunflower’s Mot. to Dismiss, at 24.) Sunflower’s motion remains pending.

On July 31, 2009, the Sierra Club filed a motion for preliminary injunction against both RUS and Sunflower. The Sierra Club states that the motion is being brought because Sunflower is “once again moving forward with the Holcomb Expansion,” following the issuance of a clean air permit in May by the state of Kansas. Pl.’s M. for Preliminary Injunction at 1 (“Motion”). The Sierra Club seeks an injunction against RUS “from consenting to or approving any other actions by Sunflower related to the Holcomb Expansion project.” Id. at 39. The Sierra Club also asks the court to enjoin Sunflower “from taking any action that would require RUS approval.” Id. The Sierra Club explains that this “would not preclude Sunflower from taking reasonable steps to pursue the project, such as discussing the Holcomb expansion with third parties . . . [but would] preclude Sunflower from entering into contractual commitments that bind it to any course of action or create potential liabilities if the project does not proceed.” Id.

The Sierra Club acknowledges that to prevail on its motion, it must demonstrate a substantial likelihood of prevailing on the merits of its claim that RUS’s approvals related to the Holcomb Expansion require an environmental impact statement (EIS). In making this argument, the Sierra Club does not assert that all RUS lien accommodations require an EIS. Rather, the Sierra Club argues the particular facts of RUS’s involvement with Sunflower and the Holcomb Expansion project, including RUS’s write-off of hundreds of millions of dollars in loans as part of the 2002 restructuring, RUS’s significant interest as a stakeholder in the expansion project, RUS’s entitlement to millions of dollars in rental income each year from the common facilities, and the subordination of RUS’s lien position to other project participants for the purpose of carrying out the expansion project.

The Sierra Club argues that 7 C.F.R. § 1794.3, the RUS regulation that exempts lien accommodations from NEPA review,1 applies only to “routine, ministerial approvals under loan contracts,” and that a lien accommodation is distinguishable from a lien subordination. In addition, the Sierra Club contends that while the exemption in § 1794.3 “may make sense for truly ministerial approvals . . . the exemption should not be read to include actions taken in support of a major new construction project,” such as the 2002 restructuring. Id. at 29-30.

In arguing that the balance of harms supports granting an injunction, the Sierra Club argues that the new coal-fired plant will pose risks to human health and the environment, RUS will not suffer any harm from being preliminarily enjoined from issuing further approvals, and any harm to Sunflower would be financial only and would be counterbalanced by the harm to the environment and human health. Id. at 37.

Opposition briefs are due August 31, and the Sierra Club’s reply brief is due September 14, 2009.

The ETEC Case. In September 2008, East Texas Electric Cooperative, Inc. (ETEC) brought a preemptive suit against the Sierra Club and RUS, alleging that RUS had failed to process certain requests by ETEC for lien accommodations and other approvals with respect to the Plum Point Energy Station and John W. Turk, Jr. Power Plant. RUS had previously determined that these two projects were excluded from NEPA review based on ETEC’s minority interest in each plant. However, RUS had not then processed ETEC’s lien accommodation requests. ETEC asserted that RUS’s failure to process these routine requests was in response to the Sierra Club’s “wide-ranging assault on the construction of coal-fired generation facilities.” (Compl. ¶ 6.) In support of this contention, ETEC referred to both the August 2008 letter to Schafer and Andrew, noted above, and the Sunflower suit. ETEC asked for declaratory and injunctive relief requiring RUS to process these requests. East Texas Electric Cooperative, Inc. v. Sierra Club, Docket No. 2:08-cv-00364-TJW (E.D. Tex. filed Sept. 25, 2008).

The Sierra Club opposed ETEC’s suit, arguing that the underlying issue was being litigated in the Sunflower case. The Sierra Club stated that “[i]f ETEC wants to litigate the NEPA obligations of RUS, it should appear in the D.C. District Court case rather than try to obtain a back-door declaratory relief order in this, a non-NEPA case.” (Sierra Club’s Mot. to Strike, filed Nov. 24, 2008.) The Sierra Club also argued that it was named as a defendant only in order to chill its exercise of First Amendment rights.

On April 24, 2009, RUS filed a motion to dismiss for lack of jurisdiction, arguing, as it did in Sunflower, that RUS’s discretionary decisions on loan applications are not judicially reviewable. RUS also noted that ETEC’s lien accommodation request for the Turk plant had been approved in February 2009, and the Plum Point request was pending. In its response to this motion, ETEC emphasized that it was not contesting any decision by RUS, but rather RUS’s refusal to make loan decisions.

On May 28, 2009, ETEC filed a motion for leave to file an amended complaint, seeking to add a declaratory judgment claim. First, ETEC sought a broad ruling that 7 C.F.R. § 1794.3, discussed above, is lawful. Second, ETEC asked the court to validate RUS’s determination that, due to its minority interest, ETEC’s loan applications for the two projects were excluded from NEPA review.

RUS opposed ETEC’s motion to amend on the ground that ETEC’s new claim did not satisfy the constitutional “case or controversy” requirement. RUS asserted that RUS itself was not challenging the validity of its own regulations or its decision to exclude ETEC’s loan applications and approval requests from NEPA review. Thus, RUS argued, “there is no dispute for the Court to decide.” (Gov’t. Defs.’ Opp. to Pl’s. Mot. for Leave to Amend, at 10.)

On June 29, 2009, ETEC filed a short motion asking the court to dismiss its case. Alluding to changes in the credit markets and commercial lending practices, ETEC asserted that pursuing the lawsuit was no longer in its members’ best interests. RUS agreed to the dismissal, but the Sierra Club has asked that dismissal be conditioned on ETEC’s payment of the Sierra Club’s attorneys’ fees and costs. On July 30, the court issued a short order granting ETEC’s motion and denying the Sierra Club’s request for attorneys’ fees. The court stated that the case was still in its early stages and that the Sierra Club had not spent considerable time and effort defending the case.