Court Adheres to Broad Meaning of “Operator” in NSR Enforcement

On August 25, 2025, the Eastern District of Michigan held, in United States v. EES Coke Battery, LLC (E.D. Mich. Case No. 22-11191), that the United States had shown enough to establish the liability of EES Coke Battery, LLC (“EES”) for making a major modification of its Zug Island facility without an NNSR permit. An interesting aspect of the decision is the court’s holding that EES’s more distant (but not immediate) corporate parents in the DTE Energy Co. family may also be “operators” of the EES facility and hence liable for the NNSR violation. In reaching this conclusion, the court found the government had demonstrated a “significant net emissions increase,” that the demand growth exclusion did not apply, and that specific agreements between the corporate parents might render them operators under the Clean Air Act.

BACKGROUND

EES operates a coke battery on Zug Island in River Rouge in Michigan. The facility was built in the 1990s as part of an integrated iron and steel facility but the coke ovens were later sold to EES and the steel making plant was sold to U.S. Steel.  Initially, the coke battery was fired with a mixture of blast furnace gas (BFG) and coke oven gas (COG) as “underfire” for the battery. COG from the coking process can be used as (1) underfire gas, (2) sent to other facilities, primarily U.S. Steel as fuel for their operations, or (3) burned in a flare.  EES sought a temporary permit is 2013 to remove a major NSR heat input limit on COG use for underfiring.  The temporary permit, granted in 2013, allowed EES to substitute more COG for BFG to reduce structural damage at the coke ovens.  Michigan granted a permanent permit in 2014 based on an EES demonstration that no significant increase would occur. In 2016, U.S. Steel curtailed its use of COG, leaving more COG in EES’s system than it could use. EES diverted some or all of the excess COG into the underfire system consistent with the 2013 and 2014 permits.

EES is a subsidiary of DTE Coke Holdings LLC. DTE Coke Holdings is a subsidiary of DTE Energy Services. In 2008 Energy Services entered into a management services agreement with EES in which Energy Services would provide services, which “shall include … to the extent relevant to the Facility, the ownership, construction and operation of the facility.” (court italicization).  Energy Services is a subsidiary of DTE Energy Resources. Energy Resources and Energy Services entered into a management services agreement that authorized Energy Resources to provide “general management” services to Energy Services “to perform any obligations” that Energy Services may have had.  The agreement also authorized Energy Resources to do “all things” “necessary” under the contract in the name of Energy Services.

In 2020, the EPA issued a Notice of Violation to EES alleging that the 2014 permit’s elimination of the underfire limits caused an NNSR major modification for SO2, and because SO2 is a precursor for PM2.5, also for PM2.5. Sierra Club intervened in support of the EPA.  After discovery, the government added the DTE entities as defendants and EES and the government filed cross motions for summary judgment, Sierra Club filed a motion for summary judgment on similar grounds and seeking injunctive relief, and the DTE entities filed motions for summary judgment that they were neither owners nor operators.

Additional background on the “operator” claims is found in NSR Law Blog’s NSR Operator Liability post about an earlier hearing in the EES case.

 ANALYSIS

NNSR major modification issue. 

The government’s case is simple: EES had a limit; EES removed the limit away without an NNSR permit; and emissions of SO2 thereafter increased by more than 40 tons at the formerly limited unit so an NNSR major modification occurred. EES countered that it had a permit; that if emissions from the entire source (which EES defined as both it and the U.S. Steel operations) were considered, there was no increase; and that the government’s case was beyond the statute of limitations.

Single source.  The court first took up the “single source” issue and found that although Michigan’s environmental agency, Environment, Great Lakes and Energy (EGLE) had found “single source” in the past, it was unclear whether that determination related to NSR.  Even assuming that they were, the court ruled that the first prong of the NSR test measures “significance based on the pollutants emitted by the emission units affected by the modification, not the stationary source as a whole” (itals in original). The court held that the “plain language” of the statute makes other development irrelevant. The court held that any other emissions increases/decreases are accounted in step 2. The court then found that SO2 emissions after the 2014 permit issuance had increased in 2018 and beyond by more than 40 tons over baseline actual emissions and that an NNSR major modification occurred.

EES’ second defense was that the 2014 permit allowed COG to be combusted at either the coke battery or the flare. The court dismissed this argument as speculation about “where the COG might have gone absent the 2014 permit.”  In a footnote, the court added that the 2014 permit application said COG would be used exclusively. The court also ruled that “other causes” of the increase in COG firing were irrelevant as long as the permit change allowed it.

Demand growth exclusion.  EES next argued that the emissions increase was excluded under the demand growth exclusion. The court rejected this argument, saying that because EES couldn’t have used the COG before the 2014 permit, the increase in use was a result of the project and therefore failed the “unrelated to the project” prong of the demand growth exclusion.

Finally, the court held that there was a significant net emissions increase because there were no emissions decreases elsewhere in the “source.”

Reasonable Possibility Reporting

The court then granted the government’s motion to hold EES liable for violating the reasonable possibility reporting requirements when EES failed to report starting in 2018 that its emissions had exceeded its projections. EES’ argument was that the reasonable possibility regulations were not in effect when the change was first authorized in 2013 and that EGLE did not include them in the 2014 permit. The court held that the reasonable reporting regulations were in effect in 2014 when the final permit was issued, that EGLE’s failure to include them did not preclude EPA enforcement, and hence EES was liable for failure to report.

Collateral Attack on 2014 Permit

EES argued that EPA’s penalty action is a collateral attack on the 2014 permit. The court disagreed, holding that EGLE’s grant of the permit and removal of the underfire limit and EES’ use of that freedom to increase COG gas burning resulting in an emissions increase of 40 tons or more showed that an NNSR permit was required. The court noted that the NNSR regulations allow enforcement if actual emissions show an NNSR violation.

Statute of Limitations

EES argued that EPA’s action was brought beyond the statute of limitations.  The court reiterated its earlier finding that National Parks Conservation Ass’n v. TVA 480 F.3d 410 (6^th Cir. 2007), controls and that failure to install and operate BACT constitutes an ongoing violation in the Sixth Circuit.

DTE Entities Motion for Summary Judgment on “Operator” Status

After finding EES liable for an NNSR violation, the court turned to whether the corporate parents – the various DTE entities – were liable. It held, citing United States v. Anthony Dell’Aquilla Enters., 150 F.3d 329 (3d Cir. 1998), that the Clean Air Act imposes “strict liability on owners and operators who violate its provisions.” It cited the Act’s definition of “owner or operator” as any person who “operates … or supervises” a stationary source.  The court then invoked the U.S. Supreme Court decision in Bestfoods that a corporate owner cannot be liable for “control” unless the corporate veil can be pierced but that corporate owners can be liable if they exercise “control” of the facility relating to “pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.” The court noted that the Sixth Circuit has adopted the Bestfoods test and requires “affirmative action” and has cautioned that finding operatorship is a “fact-intensive” process.

For Energy Services, the court found that its management services agreement with EES stating Energy Services responsibility for “maintain[ing] and monitor[ing] compliance with all Permits” and duty to monitor the “environmental health and safety” of the facility demonstrated that Energy Services had “broad control” over the facility including the EES coke facility’s emissions. It then cited evidence that an Energy Services employee served as EES’ Director of Operations controlling coke production and hence emissions. Energy Services argued that its employee was acting for EES. The court rejected this argument, holding agreements are not a “shield” and that Bestfoods “looks beyond corporate formalities and evaluates the actual control possessed and exerted by the parent company.”  The court held that a triable issue of fact existed as to Energy Services.

The court reached a similar conclusion for Energy Resources, which had a master services agreement with Energy Services allowing Energy Resources to “act for” Energy Services. The court ruled that Energy Resources had the “same” level of control as Energy Services. The court also pointed to the involvement of an Energy Resources employee as EES’ Environmental Supervisor and hence Energy Resources exercised control over pollution activities. The court thus held a triable issue of fact exists as to Energy Resources.

Finally, the court reached a similar position for DTE Energy itself, holding that its Vice President of Environmental Management’s involvement in “coordinating and approving testing to verify the accuracy of the facility’s emission monitoring system” was sufficient involvement in pollution activities to create a triable issue of fact as to whether DTE Energy was controlling the facility.

Sierra Club Motion for Summary Judgment

Sierra Club had been allowed limited intervention in support of the government. Sierra Club sought summary judgment on (1) the government’s claims; (2) its standing to seek relief for EES’s violations; and (3) equitable relief requiring BACT and LAER for SO2 and PM2.5 and an order requiring mediation on the scope of the remedy. The court made short shrift of these, ruling on (1) that Sierra Club’s claim was the same as the government’s motion, the parties had been ordered to confer and avoid “duplicative” claims, which this was, and therefore the motion was denied. On (2) the court held that an intervenor does not need to demonstrate standing and therefore declined to rule. On (3), the court held that the government had requested trial on relief and granting Sierra Club’s motion might interfere with the government’s case. The court denied Sierra Club’s motion.

Next Steps

The case will now proceed to hearing on penalties and injunctive relief for the violations that the court has found. In addition, although the court denied the DTE entities’ motions for summary judgment, the opinion does not establish their liability. Instead, trial will need to be held to determine whether the conduct identified by the court meets the Bestfoods test for establishing operator liability.

COMMENTARY

United States v. EES Coke Battery, LLC advances our understanding of NSR in the following ways:

• The applicability test will be applied according to its terms and the courts have limited patience with regulatory nuance not found in the text;

• At least in the Sixth Circuit, any increase in emissions after a physical change or change in the method of operation that exceeds a significant emission rate without a major NSR permit is a violation of major NSR regardless of whether a minor NSR permit was obtained; and

• Operator liability may be broadly construed with little concern for traditional corporate formalities.

These observations are limited by the unusual fact pattern of this case:

• The government’s case depends wholly upon EES’s decision to burn excess COG in the underfire system rather than the flare. One can question the government’s implicit decision that flaring, albeit permitted, is environmentally preferable, an aspect the court may wish to consider during the penalty phase.

• The court’s interpretation of Bestfoods pushes that opinion substantially because the Supreme Court has cautioned that individuals who wear both subsidiary and parent hats are presumed to be acting for the subsidiary, an aspect of the Bestfoods opinion to which the court gave little apparent consideration. While that might be appropriate on summary judgment, it arguably is not at trial.

Finally, a reminder that the Sixth Circuit’s National Parks Conservation Ass’n decision that NSR violations are ongoing and hence the statute of limitations is basically inapplicable is a minority rule, having been rejected by several other circuits. 

For practitioners, the EES Coke Battery case demonstrates the importance of determining the correct permit, documenting the record that the selected alternative is appropriate under the applicable major NSR program, and counseling facility owners/operators to operate the facility consistent with the permitting rationale into the future.