Policyholder Pulse
In what was likely a shock to coal-fired electric utilities, the U.S. Court of Appeals for the District of Columbia Circuit held on June 28, 2024, that proposed decisions by the U.S. Environmental Protection Agency in January 2022—prohibiting coal-fired power plants from closing coal ash impoundments where coal ash is in contact with groundwater—were a “straightforward application” of a previously promulgated agency rule. In Electric Energy, Inc. v. Environmental Protection Agency, the appeals court validated EPA’s actions as a proper exercise of authority. This ruling ends (at least for now) a regulatory odyssey that began in 2015.
It is beyond the scope of this article to address arguments that may be raised by EPA or coal ash impoundment owners or operators on rehearing in the D.C. Circuit, in the U.S. Supreme Court, or in other courts overseeing coal ash cleanup under the CCR Rule.
Below, we recap the history that led to the Electric Energy ruling and its potential impact on insurance recovery for utilities with pre-1986 occurrence-based insurance coverage and/or applicable pollution legal liability insurance.
EPA Regulation of Coal Ash
As we’ve noted in prior posts, coal-fired power plants were used throughout the United States and generated large volumes (hundreds of millions of tons) of coal combustion residuals (“CCRs” or “coal ash”). Coal ash originally was exempted from federal regulation and was legally disposed of for decades under states’ laws in unlined earthen impoundments. Recently, it has been alleged that there is potential for trace amounts of metals to leach from coal ash, find their way to groundwater, and migrate offsite. This has resulted in stringent new federal regulations.
In 2015, pursuant to its authority under the Resource Conservation and Recovery Act (RCRA), EPA promulgated regulations governing the disposal of CCRs and establishing procedures for the permanent closure of certain coal ash units (landfills and impoundments) (the “2015 Rule”). The 2015 Rule was a fulfillment of RCRA’s mandate to EPA that it “promulgate regulations containing criteria for determining which facilities shall be classified as sanitary landfills and which shall be classified as open dumps,” given the key threshold condition under RCRA that “a facility may be classified as a sanitary landfill and not an open dump only if there is no reasonable probability of adverse effect on health or the environment from disposal of solid waste at such facility.” Any CCR Unit classified as an “open dump” must be “closed” pursuant to RCRA in accordance with standards established by the 2015 Rule.
To close a CCR impoundment under the 2015 Rule, owners must implement “either” of the following two procedures: (1) cap in place or (2) excavate. If closure is to be accomplished through capping, several additional requirements must be met. First, prior to installing a “final cover system” for the impoundment, the owner must eliminate all “free liquids” from the impoundment. Second, after installing the cap, owners must ensure that it will “control, minimize or eliminate, to the maximum extent feasible, post-closure infiltration of ‘liquids’” into CCRs disposed in the impoundment.
Unlined CCR Impoundments Must Close, Potentially with Time Extensions
After its promulgation, the 2015 Rule was challenged culminating in the 2018 decision of the U.S. Court of Appeals for the District of Columbia Circuit. In USWAG v. EPA, the court vacated the portion of the 2015 Rule that allowed for the continued operation of unlined impoundments, because the court found that such units could not satisfy RCRA’s requirement of “no reasonable probability of adverse effects.” On August 28, 2020, EPA promulgated changes to the 2015 Rule, including a requirement to close all unlined CCR impoundments no later than April 11, 2021. At the same time, EPA provided an “alternative” closure exemption, permitting additional time to initiate closure if owners could prove either of the following site-specific conditions exist:
- Development of alternative CCR disposal capacity is technically infeasible, or
- Permanent cessation of a coal-fired(s) unit will occur by a date certain.
In addition to proving one of those conditions, an owner’s request for extension of time also would have to prove that the “facility is in compliance with all other requirements” of the 2015 Rule. In response to EPA’s amendment, various owners of unlined CCR impoundments petitioned EPA for extensions of the closure deadline.
EPA’s January 2022 Actions
In January 2022, EPA issued a press release that (1) announced proposed denials of extensions requested by three plant owners and (2) stated the denials were based in part on “EPA’s consistently held position that surface impoundments or landfills cannot be closed with coal ash in contact with groundwater.” (the “January 2022 Actions”).
The Electric Energy Decision
In response to EPA’s proposed denials of requested time extensions, CCR impoundment owners brought suit alleging that EPA’s decision to require all owners of impoundments to eliminate contact between groundwater and CCRs amounted to an amendment of existing rules without satisfaction of the notice-and-comment procedures of the Administrative Procedure Act. Owners argued, among other things, that EPA’s action eliminated one of the previously available closure options—i.e., the option to close impoundments with CCR still in place.
Under RCRA, the U.S. Court of Appeals for the District of Columbia Circuit has original and exclusive jurisdiction over petitions for review regarding the promulgation of any regulation by EPA. Accordingly, if the owners were correct that EPA’s January 2022 Actions constituted new regulations, then the D.C. Circuit had jurisdiction to review the January 2022 Actions.
But in Electric Energy, the D.C. Circuit found otherwise, holding that EPA’s January 2022 Actions did not amend the 2015 Rule. The Court reasoned that the 2015 Rule already required owners closing CCR impoundments by capping to eliminate “free liquids” prior to installing a final cover on the impoundment. The owners argued that the term “free liquids” was never intended to include “groundwater,” but the D.C. Circuit disagreed, holding that separate definitions for “free liquids” and “groundwater” in the 2015 Rule did not foreclose a finding that groundwater was a “free liquid” (i.e., “liquids that readily separate from the solid portion of a waste under ambient temperature and pressure”).
The D.C. Circuit also rejected the owners’ argument that EPA expanded the scope of the 2015 Rule when it applied the Rule to impoundments that had stopped receiving CCR prior to the promulgation of the Rule. The court found that “the plain text of the 2015 Rule” clearly applied to “inactive service impoundments” that still contained CCR and groundwater as of the date of the Rule’s implementation.
Thus, the D.C. Circuit found that none of EPA’s January 2022 Actions amended the 2015 Rule; instead, EPA’s prohibition on closure of CCR impoundments with CCR in contact with groundwater merely applied the existing 2015 Rule. The D.C. Circuit concluded that, because the January 2022 Actions did not amount to an amendment of the CCR Rule, it had no jurisdiction over the petitions under the RCRA and dismissed the action.
Potential Ramifications of Electric Energy
While there may be additional legal battles over the proper application of the 2015 CCR Rule and the applicability of the Electric Energy decision, it appears that owners and operators of unlined CCR impoundments, at least for now, could be required to take steps to actively address situations where impoundments contain coal ash in contact with groundwater. This will impact, among others, CCR impoundments constructed in groundwater and impoundments where the groundwater has risen into the impoundment.
Utilities and other owners of older CCR impoundments with rights to unreleased pre-1985 occurrence-based insurance coverage have an asset to help defray these remediation costs. Such coverage may be found in general, umbrella and excess liability policies issued before 1986. Other utilities have successfully availed themselves of this asset through litigation or in negotiations with their historic insurers. Pollution legal liability policies, if available, also may provide coverage. Experienced insurance recovery lawyers can assist owners facing this important exposure.
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