Court Opinion

ID: 2664408
Source: CourtListenerOpinion
Date Created: 2014-04-04 03:56:38.110758+00
Date Added: 2024-06-11T13:04:39.237771
License: Public Domain

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

SIERRA CLUB,
Plaintiff,
v. Civ. Action No. 07-O1860(EGS)
UNITED STATES DEPARTMENT OF
AGRICULTURE, RURAL UTILITIES
SERVICE, et al
Defendants,

and

SUNFLOWER ELECTRIC POWER
CORPORATION,

Defendant-Intervenor.

`/\./`/\@\/`/»»\/\/\J\/\_/\/\./ \/\/`_,`/`./\/\/

MEMORANDUM OPINION

Plaintiff Sierra Club filed this action on October l6, 2007,
alleging that the Department of Agriculture’s Rural Utilities
Service and certain officials in the Department of Agriculture
(collectively, “the federal defendants”) violated the National
Environmental Policy Act of 1969 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 has intervened as a defendant. Pending before the
Court are Sunflower's motion to dismiss the complaint as moot,

plaintiff’s motion for summary judgment (consolidated with its

motion for a preliminary injunction pursuant to Federal Rule of
Civil Procedure 65(a)(2)), the federal defendants’ cross-motion
for summary judgment, and Sunflower's cross-motion for summary
judgment.

Upon consideration of the motions, the responses and replies
thereto, the applicable law, the entire record, and for the
reasons set forth below, Sunflower's motion to dismiss the
complaint as moot is DENIED, plaintiff’s motion for summary
judgment is GRANTED, the federal defendants’ cross-motion for
summary judgment is DENIED, and Sunflower’s cross-motion for
summary judgment is DENIED.

I. BACKGROUND

Briefly stated, plaintiff maintains that the Rural Utilities
Service (“RUS”) should have performed an environmental impact
statement (“EIS”) in conjunction with RUS's involvement in the
project to expand a power plant facility. As is discussed in
more detail below, the National Environmental Policy Act (“NEPA”)
requires federal agencies to include an 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.

The Rural Electrification Act of 1936 gives the Secretary of
Agriculture authority, which has been delegated to RUS, to “make

loans in the several States and Territories of the United States

for rural electrification and for the purpose of furnishing and
improving electric and telephone service in rural areas,

and for the purpose of assisting electric borrowers to implement
demand side management, energy efficiency and conservation
programs, and on-grid and off-grid renewable energy systems.”

7 U.S.C. § 902(a). The Rural Electrification Act further
authorizes RUS to make loans for rural electrification to
corporations organized “for the purpose of financing the
construction and operation of generating plants, electric
transmission and distribution lines or systems for the furnishing
and improving of electric service to persons in rural areas[.]”
7 U.S.C. § 904(a). (RUS’s predecessor was the Rural
Electrification Administration (“REA”).)

According to plaintiff, RUS’s involvement in the expansion
of the Holcomb power plant in connection with certain loans and
loan guarantees to Sunflower, amounted to'a “major federal
action” within the meaning of NEPA such that an EIS was required.
In particular, plaintiff argues that RUS's approvals relating to
the expansion of the power plant, as well as the financial
assistance provided by RUS, in the form of debt forgiveness and
consent to a lien subordination, qualified RUS's involvement as a

major federal action.

A. 1980 Approval of Loan and Loan Guarantee

In 1980, after preparing an EIS, the REA approved a loan and
loan guarantees to Sunflower Electric Cooperative, Inc. (“Old
Sunflower"). The loan and loan guarantees, totaling
approximately $543 million, were provided to Old Sunflower for
the construction of a coal-fired generating station (“Holcomb
Unit l”) to be located near Holcomb, Kansas. Administrative
Record (“AR”) O3866.

B. 1987 Restructuring and Issuance of Promissory Notes

Soon after the construction of Holcomb Unit 1, Old Sunflower
became unable to meet its debt repayment obligations to REA and
other creditors. AR O4546. Accordingly, in 1987 Old Sunflower
entered into an agreement, the 1987 Debt Restructure Override
Agreement and Amended and Restated Credit Agreement (the “1987
DRA”), with REA and its other creditors to restructure its debt.
AR 03871-3975. Under the 1987 DRA, Old Sunflower issued three
classes of promissory notes, referred to as the A Notes, B Notes,
and C Notes, AR O0149. REA’s share of the principal balance on
the A Notes was $294.5 million; on the B Notes it was $98.3
million; on the C Notes it was $61.4 million. Fed. Defs.’
Statement of Facts Supp. Cross-Mot. Summ. J. (“Fed. Defs.'
Statement of Facts”) ll 5-7. The A Notes required regularly
scheduled payments, but payment on the B Notes was required only

when Old Sunflower had excess cash, as defined by the 1987 DRA.

AR 0O168-169. Each year, any unpaid interest on the B Notes was
capitalized and added to the outstanding principal balance. As
for the C Notes, payments were to begin only after the B Notes
were fully repaid, and any remaining balance on the C Notes would
expire in December 20l9. AR OO169. Furthermore, in order to
secure the notes it issued under the 1987 DRA, Sunflower granted
a lien to REA and its other secured creditors on substantially
all of its assets. AR OO276.

C. The 2002 Corporate and Debt Restructuring

After the 1987 restructuring, Old Sunflower was able to
remain current on the A Notes, but it made no payments on the B
Notes or C Notes. Because the interest was capitalized on the B
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 Old Sunflower was at risk of defaulting, Old Sunflower
and its creditors elected to negotiate another restructuring. AR
OOOO4-11.

The 2002 corporate and debt restructuring (the “2002
Restructuring”) divided Old Sunflower’s assets between two new
corporations, Sunflower Electric Power Corporation (“New
Sunflower” or “Sunflower”) and the Holcomb Common Facilities
(“HCF”). New Sunflower, the defendant-intervenor in this action,

purchased Old Sunflower’s assets with certain exceptions. AR

OO2l6-247.1 In particular, New Sunflower did ngt purchase a
segment of land on the Holcomb site that the parties recognized
could be used by a potential additional generating facility
(“Holcomb Unit 2”). In addition to this land footprint that
could be used by a second generating unit, New Sunflower also did
not purchase certain “Common Facilities” such as coal handling
and storage facilities, a solid waste landfill, and a sewage
treatment plant, The Common Facilities support the operation of
Holcomb Unit l, but they could also support the operation of
additional generating units. These leftover assets not purchased
by New Sunflower, namely the land footprint for a potential
Holcomb Unit 2 and the Common Facilities, were acquired by HCF.
HCF is a wholly owned subsidiary of Old Sunflower.

Significantly for purposes of the instant action, New
Sunflower purchased Old Sunflower’s assets by issuing an entirely
new set of notes to the holders of the old A, B and C Notes
discussed above. AR OOl73-l75. The new classes of notes issued
to RUS can be categorized as the new A Notes, the new B notes,
the Residual Value Notes, and the Holcomb 3 Notes. New
Sunflower’s payments on the new A Notes, identical in amount to
the old A Notes, were credited against Old Sunflower’s A Notes.

AR OOl73. The new A Notes have since been paid in full.

1 New Sunflower was initially named SEP Corporation.

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with respect to the remaining classes of new notes,

including new B Notes, the Residual Value Notes, as well as the
Holcomb 3 Notes, any payments made by Sunflower are all credited
against Old Sunflower’s debt under the old B Notes. AR OOl74.
However, the monetary value of the old B Notes issued pursuant to
the 1987 DRA was substantially different than the value of these
new notes, The new B Notes are non-interest bearing notes with a
fixed payment schedule, issued in the total amount of $88.4
million. (However, for every payment that Sunflower makes on
time on the new B Notes, the principal balance is reduced such
that if Sunflower makes all its payments in a timely fashion, it
will only pay a total of $44.2 million. AR OOl74.) On the
Residual Value Notes, New Sunflower is not required to make any
regularly scheduled payments. Instead, the Residual Value Notes
are redeemable in December 2016 for the greater of either $125
million or 43% of the fair market value of Holcomb Unit l. AR
O0l75. Finally, the Holcomb 3 Notes issued by Sunflower are
interest-bearing notes, but they are payable only if and when
Sunflower builds or becomes the operator of a third generating
plant at the Holcomb Site. AR OOl75. RUS’s share of the Holcomb
3 Notes was $l.8 million. If a third plant is not built or
operated by Sunflower by December 202l, the Holcomb 3 notes are
cancelled. AR 0Ol75.

Unlike New Sunflower, HCF (the other new entity formed in

conjunction with the 2002 Restructuring) did not issue new
promissory notes. Instead, for the purchase of the Holcomb Unit
2 land footprint and the Common Facilities, RUS and the other
creditors received a security interest in HCF and an assignment
of annual rent payments from the use of the Holcomb Unit 2 site
and Common Facilities. AR O0l90.
The 2002 Restructuring also affected the lien held by RUS on
Old Sunflower’s assets. As mentioned above, prior to the 2002
Restructuring, RUS held a first priority lien on the Holcomb
site. RUS has not yet released this lien. However, pursuant to
the 2002 Restructuring, RUS agreed that it will, in the future,
release the portion of its lien covering the Holcomb Unit 2 site
and the Common Facilities, if and when the Holcomb Unit 2
generating plant is developed. In exchange, Sunflower agreed to
grant to RUS a security interest in the rent paid for the use of
the Common Facilities and the Holcomb Unit 2 site.2
Old Sunflower, RUS, and other creditors executed an

Agreement and Consent to Sunflower Restructuring on September 30,
2002. AR 002l6-247. ln connection with the 2002 Restructuring,
in particular as outlined in the amended loan contract and
mortgage agreement, Sunflower also agreed to obtain approval from

RUS before undertaking a variety of activities or entering

2 As discussed below, this final aspect of the agreement

was later modified.

certain types of contracts, Among others, 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); (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 $l 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 0439l); (iii) that
it will not “[c]onstruct, make, lease, purchase or otherwise
acquire any extensions or additions to its system or enter into
any contract therefore” without the prior written approval of RUS
(AR 04389); (iv) that it will not “[p]urchase, lease or otherwise
acquire any parcel or parcels of land or enter into any contract
therefore” without the prior written approval of RUS (AR 04389);
(v) that it will not enter into any contracts or arrangements
regarding power purchase or sale arrangements, power supply and
delivery arrangements, power marketing contracts, system
management and maintenance contracts, or any contracts relating
to financial products such as options, futures or hedges without

the prior written approval of RUS (AR O4389-04390); (vi) that it

would not “charge, assign, pledge, mortgage or otherwise encumber
any of its property” without prior written approval from RUS (AR
04459); and (vii) Sunflower agreed to limitations on mergers,
sale of its business or assets, leases and transfers of its
capital assets in the absence of prior approval from RUS (AR
04467-O4468).

D. The 2007 Agreements

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 Unit 2 site.
As noted above, the 2002 Debt Restructuring agreements required
Sunflower to seek approval from RUS before “enter[ing] into any
agreement or other arrangements . . . for the development of
Holcomb Unit 2 without the prior written approval of RUS.” AR
O4391.3

ln October of 2005, RUS granted conditional approval of
Sunflower’s execution of a Memorandum of Agreement (“MOA”) 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

3 The parties have referred to the plans involving the
development of additional generating units at the Holcomb site as
the “Holcomb Expansion Project,” and the Court will do the same.

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of 2006, RUS granted conditional approval for Sunflower to enter
into a Purchase Option and Development Agreement (“PODA”) 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 04610-46ll.

As a condition of its approval of all of these agreements,
RUS initially demanded that Sunflower deposit all funds it
received pursuant to the agreements into an escrow account until
“RUS and Sunflower have reached a definitive agreement on the
amount of additional consideration due to RUS for Holcomb Site
Development.” AR 04574; AR 004610. Because Sunflower objected
to the use of an escrow account in its dealings with Tri-State,
further negotiations between RUS and Sunflower took place in
early 2007. Ultimately, RUS agreed that the funds could be
placed in a “Development Account” rather than an escrow account.
Accordingly, in a July 26, 2007 letter, RUS approved Sunflower’s
execution of an updated PODA with Tri-State and several related
agreements. AR 07444. ln 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, also on July 26, 2007, RUS also provided
Sunflower with a separate letter, referred to by the parties as
the “Additional Consideration Letter.” AR 082l8-8216. As

mentioned above, in connection with the 2002 Restructuring, RUS

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and the other creditors had received a security interest in HCF
and an assignment of annual rent payments for the use of the
Holcomb Unit 2 site and Common Facilities. However, the terms of
the Additional Consideration Letter modified this arrangement.
Instead, for each additional power plant being considered for the
Holcomb site, RUS received yet another set of promissory notes,
With respect to Holcomb Unit 2, Sunflower issued promissory notes
(the “2007 Holcomb 2 Notes”) in the amount of $52 million; with
respect to the 2007 Holcomb 3 Notes, the amount was $23 million;
and with respect to the 2007 Holcomb 4 Notes, the amount was $16
million. AR 08228, 08239, 08244. 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 $9l
million, will be cancelled on December 3l, 2021 if the respective
generating unit has not been placed into commercial operation.
II. Mbotness

As a threshold matter, the Court must consider Sunflower’s
motion to dismiss the complaint pursuant to Fed. R. Civ. P.
l2(b)(1), on the ground that the Court lacks subject-matter

jurisdiction because plaintiff's Amended Complaint is moot.4 As

4 In addition to its assertion that the case is moot on
constitutional grounds, Sunflower argues that the case should be
dismissed on the grounds of prudential mootness. Prudential
mootness allows the court to exercise its discretion and dismiss
a case that, although not actually moot, “is so attenuated that

12

discussed in more detail below, the Court concludes that, because
Sunflower has failed to demonstrate that no effective relief is
available, the case is not moot,
A. Legal Framework
The purpose of the mootness doctrine is to “ensure[] that

federal courts only decide ongoing cases and controversies.”

Cody v. Cox, 509 F.3d 606, 608 (D.C. Cir. 2007) (citing Clarke v.
United States, 915 F.2d 699, 700-701 (D.C. Cir. 1990). “A case
is moot when ‘the challenged conduct ceases such that there is no
reasonable expectation that the wrong will be repeated’ in
circumstances where ‘it becomes impossible for the court to grant
any effectual relief whatever to the prevailing party.'” United
States v. Philip Morris USA, Inc., 566 F.3d 1095, 1135 (D.C. Cir.
2009) (quoting City of Erie v. Pap's A.M;, 529 U.S. 277, 287
(2000); see also Lemon v. Geren, 514 F.3d 13l2, 1315 (D.C. Cir.
2008) (“A case becomes moot when ‘intervening events make it
impossible to grant the prevailing party effective relief.'”)
(quoting Burlington N. R.R. Co. v. Surface Transp. Bd., 75 F.3d
685, 688 (D.C. Cir. 1996)). “The burden of demonstrating

mootness is a heavy one.” Daingerfield Island Protective Soc’y

considerations of prudence and comity for coordinate branches of
government counsel the court to stay its hand, and to withhold
relief it has the power to grant.” Chamber of Commerce v. Dep’t
of Energy, 627 F.2d 289, 291 (D.C. Cir. 1980). In the instant
case, the Court concludes that it would be inappropriate to
exercise its discretion in this manner.

13

v. Lujan, 920 F.2d 32, 35 (D.C. Cir. 1990) (quoting Cnty. of Los
Angeles v. Davis, 440 U.S. 625, 631 (l979)). “[E]ven the
availability of a partial remedy is sufficient to prevent a case
from being moot.” Byrd v. EPA, 174 F.3d 239, 244 (D.C. Cir.
1999) (quoting Calderon v. Moore, 518 U.S. 149, 150 (1996)); see
also FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1034 (D.C.
Cir. 2008).

Sunflower argues that plaintiff's claims are
constitutionally moot for two reasons. First, Sunflower argues
that the transactions and approvals at issue, namely the 2002
Restructuring and the 2007 approvals, have been completed and are
therefore no longer subject to judicial review. Second,
Sunflower argues that no effective relief is available to
plaintiff to address RUS’s completed approvals. Each of these
arguments is addressed below in turn.

B. Judicial Review of Completed Transactions and Approva1s

Sunflower first argues that, because the transactions and
approvals at issue in this case have already been completed by
RUS, plaintiff's claims are no longer subject to judicial review

and are therefore moot.5 This analysis misstates the applicable

5 Sunflower goes so far as to assert that plaintiff may not
have ever had an opportunity to challenge RUS's actions in
connection with the 2002 Debt Restructuring. According to
Sunflower, “[b]ecause the RUS approval and the closing of the
transactions occurred on the same day, under the analytical
framework applied when the focus is on the object of the federal
agency action, there was a short or non-existent window between

14

standard. ln fact, contrary to Sunflower’s assertion, this
Circuit has held that effective relief is available to
plaintiffs, under certain circumstances, when NEPA has been
violated even if the transaction at issue has been completed.

For example, in Lemon, the court concluded that the case was not
moot despite the fact that the land transfer at issue had already
been completed because “[i]f unraveling the transfer is necessary
after the district court decides the merits, it will be within
the court's power to do so.” 514 F.3d at 1316;6 see also
Muckleshoot Indian Tribe v. Forest Serv., 177 F.3d 800, 815 (9th
Cir. 1999) (rejecting mootness argument despite completion of
property transfer because “[c]onveyance of a property to another

does not moot a case”).7

the point in time when a challenge to the 2002 restructuring
became ripe and the point in time when the challenge became
moot.” Sunflower Mot. to Dismiss at 15.

6 While the holding in Lemon rested at least in part on the
court's conclusion that all the parties to the transaction were
before the court, 514 F.3d at 1316, this Court notes that RUS and
Sunflower were the only two parties to at least some of the
transactions and approvals at issue in the instant action, Thus,
if anything, this may affect the scope of the remedy available to
the plaintiff, but it does not indicate that relief is
unavailable.

7 As is evident in the cases cited by Sunflower itself,
completion is a potentially relevant factor in the mootness
analysis when it relates, not merely to the agency's action, but
rather to the actual project at issue, For example, in Fund for
Animals, Inc. v. Bureau of Land Management, 460 F.3d 13 (D.C.
Cir. 2006), plaintiff's case challenging the federal agency's
plan relating to gathers of wild horses and burros was held to be
moot because the gathers had already occurred and could not be

15

C. Awailability of Effective Relief

Second, Sunflower argues that effective relief is not
available to plaintiff, (i) because NEPA is a procedural statute
with no ability to provide retroactive relief, and (ii) because
RUS has no authority to impose ongoing environmental mitigation
measures on Sunflower in a manner that would offer prospective
relief to plaintiff.

Sunflower’s argument that NEPA is a procedural statute with
no ability to provide retroactive relief, has been contradicted
by this Circuit. See, e.g., Lemon, 514 F.3d at l315. Sunflower
is correct that NEPA guarantees a process, rather than a
particular result. See, e.g,, DOT v. Public Citizen, 541 U.S.
752, 756-757 (2004) (“NEPA itself does not mandate particular
results . . . . Rather, NEPA imposes only procedural requirements
on federal agencies with a particular focus on requiring agencies
to undertake analyses of the environmental impact of their
proposals and actions.”) (internal quotation marks omitted).

Such a conclusion does not, however, preclude the availability of

undone; therefore, “it was impossible for the court to grant any
effectual relief whatever.” Id. at 22; see also Feldman v.
Bomar, 518 F.3d 637, 643 (9th Cir. 2008) (holding that a
challenged action relating to the killing of feral pigs was moot
because, by the time the court heard the case, the pigs had
already been killed and plaintiffs had already “suffered whatever
harm could conceivably result from the challenged agency
action.”) The instant case, however, differs substantially from
these two cases in an obvious way. Here, as far as the Court has
been made aware, the Holcomb Expansion Project has not yet
resulted in the construction of an actual power plant.

16

retroactive relief when the federal agency has failed to provide
that process in accordance with NEPA.8 This Circuit has, for
example, enjoined a construction project when the approval
process associated with that construction process failed to
comply with NEPA. ln Reality Income Trust v. Eckerd, 564 F.2d
447 (D.C. Cir. l977), the court held that:

Ordinarily when an action is being undertaken in

violation of NEPA, there is a presumption that

injunctive relief should be granted against

continuation of the action until the agency brings

itself into compliance. The fact that the present

project is currently under construction by no means

insulates it from the equity power of a court: The

substantial additional costs which would be caused by

court-ordered delay may well be justified by the
compelling public interest in the enforcement of NEPA.

Id. at 456 (internal quotation marks omitted).
Sunflower’s remaining argument is that RUS lacks the
authority to impose ongoing environmental mitigation measures on

Sunflower and, therefore, there can be no effective relief for

3 Sunflower cites the Supreme Court decision in Tennessee
Valley Auth. v. Hill, 437 U.S. l53, 174 n.18 (l978), for the
proposition that NEPA is not “intended . . . to afford
retroactive relief.” Sunflower Mot. to Dismiss at 12. However,
this reading of Hill is erroneous. The decision in Hill
addressed the scope of a particular provision of the Endangered
Species Act, and the footnote cited by Sunflower merely states
that “the dissent’s position logically means that an agency would
be obligated to comply with § 7 [of the Endangered Species Act]
only when a project is in the planning stage. But if Congress had
meant to so limit the [Endangered Species] Act, it surely would
have used words to that effect, as it did in the National
Environmental Policy Act, 42 U.S.C. §§ 4332 (2)(A),(C).” Hill,
437 U.S. at 174 n.18.

17

plaintiff.9 ln particular, Sunflower argues that RUS has “no
statutory or regulatory authority to modify its past approvals in
an environmentally mitigating manner” and, furthermore, that
“none of the contracts between RUS and Sunflower provide RUS
ongoing environmental mitigation authority over Sunflower.”
Sunflower Mot. to Dismiss at 21, 22.

Sunflower is correct that the ability of a court to grant
effective relief in the context of a NEPA action involving a non-
federal party can depend on whether the agency has maintained
authority to impose mitigation measures. Karst Envtl. Educ. &
Prot., Inc. v, EPA, 475 F.3d 1291, 1298-1299 (D.C. Cir. 2007)
(plaintiff’s claims against one of the federal agency defendants
were moot because the plaintiff failed to allege that the federal
agency had authority to impose mitigation measures upon the [non-
federal party). Here, however, plaintiff has sufficiently
alleged that RUS has maintained authority over Sunflower, The
authority of a federal agency to impose mitigation measures need
not be a statutory authority; a contractual agreement may also

create the authority. See Karst, 475 F.3d at 1298 (“if (the

9 Sunflower also claims that the approvals granted by RUS
were “ministerial approvals,” and therefore RUS lacked the
ability, even at the time the approvals were issued, to impose
environmental conditions. Sunflower Mot. to Dismiss at 23.
However, this argument essentially asserts that NEPA is wholly
inapplicable to these approvals, an issue more appropriately
addressed as part of the merits determination. (Sunflower has
also made this argument in their cross-motion for summary
judgment, and the Court therefore addresses this argument below.)

18

federal agency] actually has authority - whether by statute,
regulation, contract, or otherwise - to impose mitigation
measures upon [the non-federal party], [plaintiff's] claim might
well remain justiciable.”) (citing Vieux Carre Prop. Owners,
Residents, & Assocs. v; Brown, 948 F.2d 1436, 1446 (5th Cir.
1991).

The Amended Complaint cites to the terms of the loan
contract signed as part of the 2002 Debt Restructuring which
require, in part, that Sunflower seek approval from RUS before it
“enter{s] into any agreement or other arrangements . . . for the
development of Holcomb Unit 2 without the prior written approval
of RUS.” AR 04391. Plaintiff has also alleged that “the parties
contemplate that RUS will provide lien releases and/or
subordinations, and authorizations for releases of funds from the
Holcomb Development Account in the future. Further, Sunflower is
to operate all of the new coal-fired electric generating units,
and RUS’s extensive control over Sunflower’s business will remain
in place at least until such time as all loans to the United
States are repaid.” Am. Compl. 1 137. Therefore, the Court
finds plaintiff has also adequately alleged that RUS maintains
the same level of authority over Sunflower as existed in 2007
when it granted the approvals challenged by plaintiff.

The Court concludes that, while fashioning a remedy may be

difficult under the complicated circumstances that exist in the

19

instant action, the practical difficulties identified by
Sunflower both with respect to prospective and retroactive relief
“are more appropriately considered when weighing the equities of
any particular remedy.” Tinoqui-Chalola Council v. Dep’t of
Energy, 232 F.3d l300, 1305 (9th Cir. 2000). Accordingly,
Sunflower’s motion to dismiss the action as moot is hereby
DENIED,
III. P1aintiff’s Claims Under NEPA

A. Legal Standards

i. Administrative Procedure Act

Under the Administrative Procedure Act (“APA”), a reviewing
court may set aside agency actions, findings or conclusions that
are “arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.” 5 U.S.C. § 706(2)(A). Courts thus
typically review an agency action to determine whether the agency
has “relied upon factors which Congress has not intended it to
consider, entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so implausible
that it could not be ascribed to a difference in view or the
product of agency expertise.” Motor Vehicle Mfrs. Ass’n v. State
Farm Mut. Auto. Ins., 463 U.S. 29, 42 (l983). However, a federal
agency's determination that NEPA is wholly inapplicable to its

actions, as defendants argue in the instant case, is “‘not

20

entitled to the deference that courts must accord to an agency's
interpretation of its governing statute' and is instead ‘a
question of law, subject to de novo review.'" Mineral Policy Ctr.
v. Norton, 292 F. Supp. 2d 30, 54-55 (D.D.C. 2003) (quoting
Citizens Against Rails-to-Trails v. Surface Transp. Bd., 267 F.3d
1144, 1150-51 (D.C. Cir. 2001)).
ii. National Environmental Policy Act

In enacting NEPA, Congress “recogniz[ed] the profound impact
of man’s activity on the interre1ations of all components of the
natural environment, particularly the profound influences of
population growth, high-density urbanization, industrial
expansion, resource exploitation, and new and expanding
technological advances[.]” 42 U.S.C. § 433l. The goals of NEPA
reflect “the continuing policy of the Federa1 Government, in
cooperation with State and local governments, and other concerned
public and private organizations, to use all practicable means
and measures, including financial and technical assistance, in a
manner calculated to foster and promote the general welfare, to
create and maintain conditions under which man and nature can
exist in productive harmony, and fulfill the social, economic,
and other requirements of present and future generations of
Americans.” Id. “Two fundamental principles underlie NEPA's
requirements: federal agencies have the responsibility to

consider the environmental effects of major actions significantly

21

affecting [the] environment, and the public has the right to
review that consideration.” Found. on Econ. Trends v. Heckler,
756 F.2d 143, 147 (D.C. Cir. 1985) (citing Balt. Gas & Elec. Co.
v. Natural Res. Def. Council, Inc., 462 U.S. 87 (l983).

NEPA requires federal agencies to prepare an environmental
impact statement (“ElS") under certain circumstances, ln
particular, NEPA mandates that:

[A]ll agencies of the Federal Government shall

include in every recommendation or report on proposals

for legislation and other major Federal actions

significantly affecting the quality of the human

environment, a detailed statement by the responsible
official on (i) the environmental impact of the

proposed action, (ii) any adverse environmental effects

which cannot be avoided should the proposal be

implemented, (iii) alternatives to the proposed action,

(iv) the relationship between local short-term uses of

man’s environment and the maintenance and enhancement

of long-term productivity, and (v) any irreversible and

irretrievable commitments of resources which would be

involved in the proposed action should it be

implemented,

42 U.S.C. § 4332.

Although the REA prepared an E1S before approving the
original loan and loan guarantees to Old Sunflower in l980, it is
the defendants’ position that NEPA does not apply to the agency's
subsequent involvement in Sunflower. Accordingly, no EIS was
prepared in connection with any of RUS’ actions related to the
Holcomb Expansion Project. Plaintiff claims that the federal

defendants violated NEPA by failing to do so.

ln response to plaintiff's assertion that NEPA applies,

22

Sunflower and the federal defendants have made several arguments.
First, Sunflower argues that there has never been a “proposal”
within the meaning of § 4332 and, therefore, the statute does not
apply. Second, the defendants argue that RUS has not taken a
“major federal action” within the meaning of § 4332 and the
accompanying regulations. Third, Sunflower argues that RUS was
contractually prohibited from imposing environmental standards as
a condition of its approvals. Fourth, Sunflower argues that RUS
lacked the requisite discretion to impose environmental
conditions. Finally, the defendants argue that RUS regulation 7
C.F.R. § l794.3 exempts its actions related to the Holcomb
Expansion Project from NEPA.

For the reasons discussed below, the Court agrees with the
plaintiff that NEPA does apply to RUS’s actions in connection
with both the 2002 Restructuring, as well as the approvals
granted in 2007.

B. Whether a “Proposal” Occurred Sufficient to Trigger
NEPA Requirements

ln its cross-motion for summary judgment, Sunflower first
argues that no ElS was necessary in connection with the Holcomb
Expansion Project because NEPA requires an ElS only when an
agency has made “proposals for legislation and other major
Federal actions significantly affecting the quality of the human
environment[.]” 42 U.S.C. § 4332. According to Sunflower, no

“proposal” was ever made.

23

 

The Council on Environmental Quality (“CEQ”), established by
NEPA and charged with “formulat[ing] and recommend[ing] national
policies to promote the improvement of the quality of the
environment,” 42 U.S.C. § 4342, has promulgated a regulation
explaining the “proposal” requirement in § 4332. lt states:

‘Proposal’ exists at that stage in the development of

an action when an agency subject to the Act has a goal

and is actively preparing to make a decision on one or

more alternative means of accomplishing that goal and

the effects can be meaningfully evaluated. Preparation

of an environmental impact statement on a proposal

should be timed . . . so that the final statement may

be completed in time for the statement to be included

in any recommendation or report on the proposal. A

proposal may exist in fact as well as by agency

declaration that one exists.
40 C.F.R § l508.23.

Sunflower, relying heavily on the Supreme Court’s decision
in Kleppe v. Sierra Club, 427 U.S. 390 (l976), asserts that
“[f]or the ‘proposal’ element to be satisfied, a ‘coherent plan’
must exist, and it must be ‘specific.’” Sunflower Opp’n Summ. J.
at 5-6 (citing Kleppe, 427 U.S. at 401 n.12). According to
Sunflower, no specific plans yet exist with respect to the
Holcomb Expansion Project, such as the exact number and size of
potential new generating units, and an EIS is therefore not yet
required.

The Court does not find Sunflower’s reliance on Kleppe

persuasive. In Kleppe plaintiffs sought a “comprehensive

environmental impact statement under [NEPA] on the entire

24

[Northern Great P1ains Region]” in connection with various coal-
related operations. Kleppe, 427 U.S. at 395. However, the
Kleppe court concluded that “there is no evidence in the record
of an action or a proposal for an action of regional scope,” Id.
at 400 (emphasis added). Instead, all of the proposals were “for
actions of either local or national scope.” Id. at 399.
Although the court in Kleppe concluded that no proposal for a
regional plan existed, the court nonetheless stated that for
“both an individual coal-related action and the new national
coal-leasing program, an agency deals with specific action of
known dimensions. With appropriate allowances for the
inexactness of all predictive ventures, the agency can analyze
the environmental consequences and describe alternatives as
envisioned by [NEPA].” Id. at 402 n.14.

ln contrast to Kleppe, there is a sufficiently defined
proposal in the instant case, As plaintiff points out, the major
federal action taken by RUS is not the Holcomb Expansion Project
itself; rather, the major federal action at issue is the agency's
decision to maintain federal control over, provide assistance to,
and grant approvals for an otherwise non-federal project. These
actions have not only been sufficiently defined, they have
already been executed. Furthermore, to the extent that more
than one option for the Holcomb Expansion Project existed, this

does not excuse RUS from complying with NEPA. On the contrary,

25

CEQ regulations instruct the federal agency to “integrate the
NEPA process with other planning at the earliest possible time to
insure that planning and decisions reflect environmental values,
to avoid delays later in the process, and to head off potential
conflicts.” 40 C.F.R. § 1501.2. By doing so, an agency is able
to “[s]tudy, develop, and describe appropriate alternatives to
recommended courses of action in any proposal which involves
unresolved conflicts concerning alternative uses of available
resources[.]” 40 C.F.R. §1501.2(c)(emphasis added).
Accordingly, this Court concludes that a “proposal” within
the meaning of 42 U.S.C. § 4332 and CEQ regulation 40 C.F.R
§ 1508.23 did exist with respect to the agency's involvement in
the Holcomb Expansion Project,
C. Whether a Major Federal Action Took Place
One of the main disputes between the parties is whether
RUS's involvement in the Holcomb Expansion Project has risen to
the level of a “major federal action.” As explained above, NEPA
requires that an ElS 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. The Court concludes 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

26

2007,

“major federal action.”

provides,

40 C.

itself a non-federal action,

for the reasons discussed in more detail below.

i. Regulatory Framework

The CEQ has issued regulations further defining the term

ln particular, 40 C.F.R. § 1508.18

in relevant part, that:
‘Major Federal action’ includes actions with effects
that may be major and which are potentially subject to
Federal control and responsibility Actions
include the circumstance where the responsible
officials fail to act and that failure to act is
reviewable by courts or administrative tribunals under
the Administrative Procedure Act or other applicable
law as agency action,

(a) Actions include new and continuing activities,
including projects and programs entirely or partly
financed, assisted, conducted, regulated, or approved
by federal agencies; new or revised agency rules,
regulations, plans, policies, or procedures; and
legislative proposals.

(b) Federal actions tend to fall within one of the
following categories:

(4) Approval of specific projects, such as
construction or management activities located
in a defined geographic area. Projects
include actions approved by permit or other
regulatory decision as well as federal and
federally assisted activities.

F.R. § 1508.18.
Plaintiff, conceding that the Holcomb Expansion Project is

has sought to demonstrate that RUS's

actions fall within the scope of § 1508.l8 on two primary

grounds.

First, plaintiff argues that RUS's actions with respect

27

to Sunflower amounted to approvals of the Holcomb Expansion
Project such that the project was “potentially subject to Federal
control and responsibility” within the meaning of § l508.18.
Second, plaintiff argues that RUS provided sufficient financial
and other assistance to the Holcomb Expansion Project to make its
involvement a major federal action under NEPA. As discussed
below, the Court concludes plaintiff has demonstrated that RUS's
involvement in the Holcomb Expansion Project amounted to major
federal action under either analysis.
ii. Federal Approva1s
As noted above, CEQ regulation § 1508.l8 provides that

actions by a federal agency “with effects that may be major and
which are potentially subject to Federal control and
responsibility” are major federal actions such that the
requirements of NEPA apply. 40 C.F.R. § l508.18. Furthermore,
“[a]ctions include new and continuing activities, including
projects and programs . . . approved by federal agencies.” 40
C.F.R. § 1508.l8(a). ln addition, § 1508.18(b)(4) states in its
non-exhaustive list of major federal actions that actions include
“[a]pproval of specific projects,” such as “actions approved by
permit or other regulatory decision as well as federal and
federally assisted activities.” 40 C.F.R. § 1508.18(b)(4).
Although defendants concede that a federal agency's involvement

in a non-federal project may in some instances constitute a major

28

federal action, they argue that “affirmative conduct taken or
approval given by a federal agency alone is not enough to turn a
non-federal project into a major federal action.” Fed. Defs.'
Opp'n Summ. J. at 8.

This Circuit has addressed this issue in Fbundation on
Economic Trends v. Heckler, 756 F.2d 143, in which the court
affirmed a preliminary injunction enjoining the National
Institutes of Health, a federal agency, from approving an
experiment that would release genetica1ly engineered organisms
into the open environment until an appropriate environmental
assessment was complete. Id. Federal regulations require that
any entity seeking to deliberately release such organisms obtain
approval from the NlH before doing so. Id. at 149. The court
concluded that the approval granted by the agency amounted to a
major federal action such that NEPA applied. Id.; see also
Citizens Alert Regarding Env’t v. EPA, 259 F. Supp. 2d 9, 20
(D.D.C. 2003) (“[A] project may be deemed a major federal action
even where federal money has not actually been provided. This
happens most often in circumstances where federal entities have
sufficient authority over the local project so as to control or

influence its outcome.”)”

w 0ther Circuits have reached the same conclusion. See,
e.g., Md. Conservation Council, Inc. v. Gilchrist, 808 F.2d lO39,
1042 (4th Cir. 1986) (“A non-federal project is considered a
‘federal action’ if it cannot ‘begin or continue without prior
approval of a federal agency.’”) (quoting Biderman v. Mbrton, 497

29

Furthermore, an otherwise non-federal project can be
“potentially subject to Federal control and responsibility”
within the meaning of 40 C.F.R. § l508.18 as a result of
contractual terms agreed upon between the federal agency and the
non-federal parties involved in the project. For example, in
Morris Cnty. Trust for Historic Pres. v. Pierce, 714 F.2d 271
(3rd Cir. 1983), the court concluded that the terms of the
contract between a federal agency, the Department of Housing and
Urban Development (“HUD”) and the non-federal party “provided HUD
with sufficient authority over the [project] to constitute major
federal action.” Id. at 278.

Turning now to the instant case, it is apparent that,
throughout the long history of RUS's involvement in Sunflower,
the federal agency retained substantial control over the Holcomb
site, particularly as it related to the potential development of
additional power plants, such as the Holcomb Expansion Project,
As described in detail above, Sunflower’s debt to RUS was
restructured twice, first in 1987 and then again in 2002. ln
each instance, RUS conditioned its approval of the restructuring
on its continued control over Sunflower.

Crucially, one of the ways in which RUS elected to maintain

F.2d 1141, 1147 (2d Cir. 1974)); NAACP v. Med. Ctr., Inc., 584
F.2d 619, 633 (3d Cir. 1978) (“[W]hen a federal agency gives a
legally necessary discretionary approval enabling another
significantly to impact on the environment, the agency may be
required to file an ElS.”).

30

control over Sunflower was to require Sunflower, by the terms of
the 2002 Restructuring, to agree 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.” AR
04391. Furthermore, Sunflower agreed that “[a]ny RUS approval
will be on such terms and conditions as RUS, in its sole
discretion, may require at such time.” AR 04391 (emphasis
added). By this agreement, and in a myriad of other ways
described above, RUS ensured that Sunflower would be unable to
proceed with the development of a second power plant without the
approval of RUS.” The approvals granted by RUS to Sunflower in
2007 reflect the intention of the parties, made explicit during

the 2002 Debt Restructuring, that RUS would maintain the ability

“ In addition to the relevant contractual provisions,
plaintiff identifies a series of RUS regulations which, according
to plaintiff, “dictate that RUS approval for Sunflower’s actions
was required.” Pl.’s Mem. Supp. Summ. J. at lO. The regulations
cited include 7 C.F.R. § 1717.l202(b), as well as 7 C.F.R.

§ l7l7.608, 7 C.F.R. § l7l7.6l6, 7 C.F.R. § l717,657, 7 C.F.R.

§ l717.853, 7 C.F.R. § 1717 subpart M, and 7 C.F.R. § 1717
subpart R. Section l717.1202(b), for example, is a provision in
the subpart of RUS regulations dealing with the policies and
standards of RUS with respect to the settlement of debts. lt
states that “modifications regarding the debt owed by a borrower
may be granted under the authority of the Administrator only by
means of the explicit written approval of the Administrator in
each case.” 7 C.F.R. § l717.1202(b). However, while

§ l7l7.l202(b) and the other cited regulations perhaps prevent
Sunflower from proceeding with the plans for the Holcomb
Expansion Project in the manner the company desired without RUS
approval, plaintiff has not persuaded this Court that the
provisions generally prevent a borrower from undertaking this
type of project without RUS approval.

31

to influence the Holcomb Expansion Project. Simply put,
Sunflower, without the prior approval of RUS, would not have been
able to enter into the agreements with Tri-State relating to the
Holcomb Expansion Project.

The federal defendants do concede that if “approval of a
substantial portion of the project is required,” a non-federal
project becomes a major federal action, Fed. Defs.' Opp'n Summ.
J. at 10. However, they argue that a major federal action only
exists if the federal agency has “control over the entire non-
federal project[.]” Fed. Defs.' Opp'n Summ. J. at 8 (emphasis
added). Defendants’ argument relies largely on cases in which
the involvement of the federal agency was limited to a discrete
segment of a larger project. In those cases, the courts
generally find that, while the federal agency might be expected
to prepare an ElS with respect to the small segment in which they
are involved, the federal agency was not required to prepare and

ElS with respect to the entire project.” The instant case,

m This is commonly seen in the cases involving the
construction of a highway, a rail line or a power line. ln these
instances, courts have repeatedly held that, while the federal
agency might be expected to consider environmental impacts with
respect to the small segment in which it was involved, the agency
was not required to consider the environmental impact of the
entire project if it had no involvement in the remaining portions
of the project. See, e.g., Coal. for Underground Expansion v.
Mineta, 333 F.3d 193, 198 (D.C. Cir. 2003) (holding that although
“other parts of the [rail transit] system are federally funded,
[this] does not make the discrete Clayton-Shrewsbury Extension
federally funded.”); Weiss v. Kempthorne, 580 F. Supp. 2d l84,
189 (D.D.C. 2008) (concluding that the consent by the National

32

however, does not involve a federal agency that gave an approval
for a small, segmented portion of a larger project. The Holcomb
Expansion Project, in its entirety, required approvals from RUS
to proceed. Defendants’ reliance on case law involving this type
of segmented construction projects is thus unpersuasive.

Defendants also argue that the control maintained by RUS is
irrelevant because the control reflected RUS's financial
concerns, rather than environmental concerns, According to
defendants, the restructuring agreements reflected “RUS’s primary
concern . . . [to] mak[e] sure that Sunflower does not enter any
financial relationships that would jeopardize its further and
continued ability to repay RUS. . . . Under these loan documents,
RUS has retained the authority to approve certain financial
arrangements that Sunflower enters with regard to further
development of the Holcomb Expansion Project in order to ensure
repayment of its loans and loan guarantees.” Fed. Defs.' Opp'n
Summ. J. at 21. Even assuming that RUS's primary objective in
2002 and afterward has been to maximize federal debt recovery,
the fact remains that in 2002 RUS elected to retain authority
over the Holcomb Expansion Project and later, in 2007, gave

necessary approvals which allowed the project to proceed. As

Park Service to lease 22 acres of a public park as part of a 500
acre development project did not make the entire, otherwise non-
federal, development a major federal action).

33

such, RUS's actions became major federal actions within the
meaning of NEPA.

iii. Federal Assistance

Actions which are “approved by federal agencies” are only
one type of major federal action. CEQ regulations also define
“major federal action” to include non-federal projects “entirely
or partly financed . . . by federal agencies.” 40 C.F.R.
§ l508.l8(a). Accordingly, “federal funding is a significant
indication that a project constitutes a major federal action[.]”
Sw. Williamson Cnty. Cmty Ass’n v. Slater, 243 F.3d 270, 279 (6th

Cir. 200l); see also Citizens Alert, 259 F. Supp. 2d at 19.“

“ Regarding the lien subordination at issue in the instant
case, the Court notes that federal assistance need not come in
the form of monetary assistance to qualify as a major federal
action. For example, in fund for Animals v. Clark, 27 F. Supp.
2d 8, 13 (D.D.C. l998), the court concluded that the federal
agency was “so intimately involved in the discussion and planning
of the [bison] hunt, the federal defendants cannot now claim to
have no responsibility under NEPA with respect to the hunt or the
supplemental feeding programs.” Id.; see also Fund For Animals v.
Mainella, 283 F. Supp. 2d 418, 432 (D. Mass. 2003) (“The
administrative record reveals that [the federal agency] makes a
substantial contribution of personnel and equipment to the

management of the Seashore's hunting program, . . . Accordingly,
there is sufficient federal participation to make [the program] a
‘major Federal action.’”). ln Scottsdale Mall v. Indiana, 549
F.2d 484 (7th Cir. l977), the state defendants even attempted to
avoid compliance with NEPA by returning federal funds and
withdrawing a state highway project from a federal aid highway
program, Id. at 485. The Seventh Circuit nonetheless held that
NEPA applied. Id. at 489 (“0ur review of the record indicates
federal participation in the programming, location, design,
preliminary engineering, and right of way acquisition stages [of
the highway by-pass project]. Hence, we have no difficulty
concluding on the basis of the record before us that the entire
by-pass project is a ‘major federal action’ within the meaning of

34

Furthermore, if the level of federal involvement in the non-
federal project amounts to the creation of a joint venture or
partnership between the federal agency and a non-federal entity,
federal courts have considered the arrangement to be a major
federal action such that even the non-federal entity may be
enjoined from violating NEPA. See, e.g., Fund for Animals v.
Lujan, 962 F.2d 139l, 1397 (9th Cir. l992) (“[A] nonfederal actor
that enters into a partnership or joint venture whereby the
federal government provides goods, services, or financing may be
enjoined from violating NEPA.”); Landmark West! v. USPS, 840 F.
Supp. 994, 1000 (S.D.N.Y. 1993); Dalsis v. Hills, 424 F. Supp.
784 (W.D.N.Y. 1976).

Federal funding provided solely for the purpose of
conducting an ElS or other type of preliminary appraisal, prior
to other involvement in the project, is generally considered
insufficient to constitute a major federal action. In Macht v.
Skinner, 916 F.2d 13 (D.C. Cir. 1990), for example, the D.C.
Circuit declined to apply NEPA to a non-federal project for the
construction of a light rail system, in part, because, although
the relevant federal agency granted the state $2.5 million, the
funding was for the purpose of performing an EIS for possible
extensions to the light rail system. The court stated that

because “the Light Rail Project does not yet involve major

42 U.S.C. § 4332(C) and that an ElS is required[.]”).

35

federal action, we do not decide whether NEPA may require an
environmental analysis if [the federal agency] ultimately decides
to fund construction of the extensions. . . . If such an
eventuality occurs, appellants may renew their claim that an ElS
is required prior to the disbursement of federal funds or
question the scope of the ElS[.]” Id. at 17; see also Citizens
Alert, 259 F. Supp. 2d at 17 (“[B]ecause ‘federal financial
assistance to the planning process in no way implies a commitment
by the federal agency to . . . undertake, fund, or approve any
action that directly affects the human environment,’ such funding
does not render an otherwise state or local project sufficiently
federal to make NEPA applicable.”) (quoting Atlanta Coal. Transp.
Crisis v. Atlanta Reg’l Comm’n, 599 F.2d l333, 1347 (5th Cir.
1979)).“

In situations in which a project is only partially funded by
the federal agency, federal courts have in some instances looked
to the proportion of federal funding to non-federal funding to
determine whether there is a major federal action. lf the amount

of federal funding is insignificant or only provided with respect

“ ln Ka Makani, 295 F.3d 955, the Ninth Circuit came to a
similar conclusion as the court in Macht. Addressing the
question of whether federal funding for the development of a
water resource system constituted a major federal action, the
court concluded that NEPA did not apply, in part, because the
federal funding was “clearly designated for use in the
preparation of an ElS, and at most, other preliminary activities
that would have no real impact on the physical environment[.]"
Ka Makani, 295 F.3d at 962.

36

to a small segment of the project, the involvement of the federal
agency may not constitute a “major federal action.” See, e.g.,
Rattlesnake Coal. v. EPA, 509 F.3d 1095, 1101 (9th Cir. 2007)
(“While significant federal funding can turn what would otherwise
be a state or local project into a major federal action,
consideration must be given to a great disparity in the
expenditures forecast for the local and federal portions of the
entire program.”) (internal quotation marks omitted); Ka Makani,
295 F.3d at 960 (same); Sancho v. Dep’t of Energy, 578 F. Supp.
2d 1258, 1267 (D. Haw. 2008) (holding that the contribution by a
federal agency of $531 million toward a project did not
constitute a major federal action because the funding represented
less than 10% of the $5.84 billion project cost); but cf. Sierra
Club v. Fish & Wildlife Serv., 235 F. Supp. 2d 1109 (D. Or. 2002)
(“Given the overwhelming percentage of federal dollars involved,
and the fact that the amount itself, regardless of the percentage
it represents, is more than $3 million, the federal funding
contribution alone is probably sufficient to ‘federalize' the
project.”).

Finally, “where the federal government has not made a ‘firm
commitment' to fund the project, the non-federal actor’s mere
anticipation of that money does not convert an otherwise local
project into a federal one.” Citizens Alert, 259 F. Supp. 2d at

24 (citing Macht, 916 F.2d at 17); see also Los Ranchos de

37

Albuquerque v. Barnhart, 906 F.2d l477, 1481 (10th Cir. 1990)
(“[B]ecause [the non-federal parties] are only eligible for
federal assistance, that eligibility in itself is not sufficient
to establish a major federal action requiring the [federal
agency] to comply with the requirements of NEPA.”).

1n the instant case, plaintiff argues that RUS gave
sufficient financial assistance to Sunflower to qualify as a
major federal action. ln particular, plaintiff asserts that RUS
gave substantial financial assistance to Sunflower in connection
with the 2002 Restructuring, during which RUS “effectively wrote
off hundreds of millions of dollars in Sunflower’s loans so that
the project could proceed.” Pl.’s Mem. Supp. Summ. J. at 19-20.
Defendants, on the other hand, assert that “not a single cent of
Old Sunflower’s debt was written off as a result of the
restructuring.” Sunflower’s Opp'n Summ. J. at 18.

The Court agrees with the plaintiff that, while defendants
may be correct that Old Sunflower’s debts were not explicitly
written off, the consequence of the restructuring was to leave
Old Sunflower with no assets or ability to pay its own debts off.
As discussed in detail above, under the terms of the 1987 DRA,
Old Sunflower issued three classes of promissory notes, the A
Notes, B Notes, and C Notes. REA's share of the principal
balance on the A Notes was $294.5 million; on the B Notes it was

$98.3 million; on the C Notes it was $61.4 million. With respect

38

to the B Notes in particular, Old Sunflower was at risk of
defaulting by 2002. With the capitalized interest, the principal
owed to RUS on these notes had risen to $413.9 million. When New
Sunflower purchased most of Old Sunflower’s assets during the
2002 Debt Restructuring, it issued new promissory notes to RUS.
While it may be true that RUS has a chance of recovering more
money as a result of the 2002 Restructuring than it would have if
it had not approved the restructuring and Old Sunflower had
defaulted, the new set of promissory notes nonetheless amounted
to substantially less debt for New Sunflower than Old Sunflower
had been burdened with.” As a consequence, RUS effectively
provided financing to Sunflower for the Holcomb Expansion
Project.

The federal defendants themselves seem to concede that RUS
will, in the future, write some portion of Sunflower’s debt off;
they merely deny that the amount is known. See, e.g., Fed.
Defs.' Opp'n Summ. J. at 24 (“RUS has not written any of [Old]
Sunflower’s debt off to date. The exact and final amount of the
RUS loss will not be known until as late as 2021, when all the
notes have matured.”).

Defendants’ arguments that any financial assistance provided

to Sunflower was not substantial enough to be considered a major

” See discussion, supra, of the new B Notes, the Residual
Value Notes, and the Holcomb 3 Notes issued in connection with
the 2002 Debt Restructuring.

39

 

 

Redacted

federal action are unpersuasive. Neither party offers a
definitive estimate of how much Sunflower’s debt was reduced
overall, but a comparison of the notes issued under the 1987 DRA
and those issued under the 2002 Debt Restructuring convinces this
Court that it is indeed substantial. Furthermore, the Court
notes that the administrative record reflects, and the parties

agree, that Sunflower realized a tax benefit as a result of the

2002 Debt Restructuring in the amount of  AR
1-

Defendants assert that, even assuming Sunflower obtained
financial assistance from RUS in connection with the 2002
Restructuring, such assistance was unrelated to the Holcomb
Expansion Project specifically. However, the record reflects
otherwise. Crucially, the agency provided this assistance to
Sunflower in conjunction with the 2002 Restructuring - the
direct, intended consequence of which was to divide Old
Sunflower’s assets such that Holcomb Unit 1 and most other assets
were acquired by New Sunflower (the entity now burdened with the
debt to RUS), whereas the land and common facilities necessary
for the Holcomb Expansion Project were acquired by a separate
entity, namely HCF. Additiona1ly, RUS agreed to release its lien
on the Holcomb Unit 2 site. RUS's actions reflect the agency's
intention to make the Holcomb Expansion Project possible through

the assistance provided in 2002.

40

Federa1 defendants repeatedly cite to National Organization
for Reform of Marijuana Laws v. Drug Enforcement Administration,
545 F. Supp. 981 (D.D.C. 1982), in support of their argument on
this point. However, the Court finds this comparison flawed. ln
Marijuana Laws, although the Drug Enforcement Agency (“DEA”)
provided financial and other support to the state of Florida for
marijuana law enforcement generally, the specific project at
issue the Marijuana Laws case was the plan to eradicate marijuana
plants through an herbicidal spraying program, Id. With respect
to the spraying program in particular, the court concluded that
“federal funding, federal control, and federal ‘go-ahead’ actions
are lacking.” Id. at 984.“ ln contrast to Marijuana Laws, RUS
provided significant federal assistance to enable the Holcomb
Expansion Project.

ln addition to the financial benefits granted to Sunflower

through the debt restructuring, RUS provided additional

w Similarly, defendants’ reliance on Citizens Alert, 259 F.
Supp. 2d 9, is misplaced. The construction of the pipeline at
issue in Citizens Alert was largely funded under an indirect EPA
program whereby the EPA granted sums of money to states, who in
turn “disperse[d] this money for projects of their [the states’]
choosing[.]” Id. at 13-14. ln contrast to RUS's decision to
provide direct assistance to Sunflower, the EPA regulations at
issue in Citizen Alert explicitly delegated the environmental
review process to the state. Id. at 14 n.2. lt is also
significant that the court in Citizens Alert noted that the EPA
was considering directly funding a small portion of the project.
The court stated that it assumed for the purposes of the dispute
before it, that “if EPA actually provides the $l.7 million
appropriated by Congress . . . that funding decision would itself
be a ‘major federal action.’” Id. at 16.

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assistance to Sunflower when it committed to releasing its lien
on the Holcomb Unit 2 site and the Common Facilities, if and when
the Holcomb Unit 2 generating plant is developed. Defendants
argue that the release relates only to “a very small portion of
the total Holcomb site.” Fed. Defs.' Opp'n Summ. J. at 25.
However, the portions of the Holcomb site containing the Holcomb
Unit 2 site and the Common Facilities contain all the necessary
properties for the development of the Holcomb Expansion Project.
At issue in this action is the assistance provided by RUS in
support of the Holcomb Expansion Project, not the entire Holcomb
site.

According1y, the Court finds that the involvement of RUS
in Sunflower amounted to a project “entirely or partly financed”
by a federal agency. 40 C.F.R. § l508.l8(a). Contrary to
defendants’ arguments, RUS did not merely provide assistance to
some discrete aspect of the Holcomb Expansion Project, nor was
its contribution insignificant. Accordingly, its actions were
subject to the requirements of NEPA.

ln sum, the Court concludes that, both 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. § l508.l8, and therefore RUS's

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involvement amounted to a major federal action within the meaning
Of NEPA.

D. Whether RUS was Contractually Prevented from Exercising
Contro1 Over the Holcomb Expansion Project

Sunflower makes the additional argument that, although some
provisions of the loan contracts between Sunflower and RUS
require Sunflower to seek approval from RUS before engaging in
certain activities, an attempt by RUS to impose environmental
standards as a condition of its approval would have been a breach
of the agreements between the parties, Citing Centex Corporation
v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005), Sunflower
argues that, as a matter of federal common law governing the
interpretation of contracts to which the United States is a
party, each party is under an obligation “not to act so as to
destroy the reasonable expectations of the other party.”
Sunflower Opp'n Summ. J. 13-14 (quoting Centex, 395 F.3d at
1304).

According to Sunflower, “RUS was created by Congress to
serve as a lender, not a regulator,” and it “was with RUS's
statutorily defined role as a lender, and only a lender, in mind
that Sunflower agreed to the terms of the contracts.” Sunflower
Opp'n Summ. J. at 14. Therefore, Sunflower “could not reasonably
have expected that RUS could review or impose conditions on the
design details of any new generating units,” and “nothing in the
contract provisions . . . gives RUS the authority to alter plans

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or withhold its approval or consent for a particular project for
environmental reasons.” Sunflower Opp'n Summ. J. at 15, l7. ln
light of Sunflower’s expectations at the time the contracts were
signed, Sunflower now argues that “RUS would have been acting in
bad faith and in an objectively unreasonable manner had it
attempted to impose environmental standards as a condition of its
consents.” Sunflower Opp'n Summ. J. at 16.

The Court disagrees with Sunflower’s position. First, the
terms of the 2002 Restructuring explicitly gave RUS broad
authority to place conditions on any approvals it granted in
connection with the Holcomb Expansion Project. AR 04391.
Sunflower has not pointed to any restriction, explicit or
otherwise, in the agreements between RUS and Sunflower that would
bar RUS from considering the environmental impacts of the Holcomb
Expansion Project or conditioning its approval on a reduction of
the environmental impact of the Holcomb Expansion Project.
Furthermore, while it is undeniable that the focus of the Rural
Electrification Act of 1936, 7 U.S.C. §§ 901-818, was indeed to
give the Secretary of Agriculture the authority to make loans for
rural electrification projects, Congress no less clearly intended
the provisions of NEPA to apply to all federal agencies. 42
U.S.C. § 4332. The agency may not contractually or otherwise

avoid those statutorily defined obligations.

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E. Whether RUS Had the Requisite Discretion

In support of their assertion that NEPA does not apply to
RUS's involvement in the Holcomb Expansion Project, defendants
also argue that they lack the discretion to review the
environmental impacts of the Holcomb Expansion Project. ln the
words of the federal defendants:

RUS has no discretion to meaningfully consider the

alleged impacts from the Holcomb Expansion Project on

global warming from carbon dioxide emissions, or on air

quality from the emissions of other air pollutants.

This is delegated to the Environmental Protection

Agency and the State of Kansas. . . . RUS's authority

over its borrowers is solely as a lender interested in

repayment of a borrower’s debt to the Government in the

agreed-upon time.
Fed. Defs.' Opp'n Summ. J. at 30.

This argument is wholly unpersuasive. NEPA not only
explicitly gives all federal agencies the authority to consider
environmental impacts, it compels them to do so. See 42 U.S.C.
§4332; Fbund. on Econ. Trends, 756 F.2d at l47; Clark, 27
F. Supp. 2d at 12 (“NEPA requires that all federal agencies
prepare a detailed statement with respect to any major federal
action significantly affecting the quality of the human
environment.”).

NEPA plainly applies to all federal agencies, irrespective
of their primary functions. The defendants themselves concede

that, not only did RUS conduct an E1S before granting Old

Sunflower the loan in 1980, but also that “RUS’s actual approval

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of a new loan . . . would be subject to NEPA.” Fed. Defs.' Reply
at 6. Nor does defendants’ argument that the State of Kansas and
the EPA also have regulatory authority over the Holcomb Expansion
Project persuade the Court that RUS may ignore its
responsibilities under NEPA.
Defendants’ reliance on the Supreme Court’s decision in DOT

v. Public Citizen, 541 U.S. 752 (2004), is similarly
unpersuasive. ln Public Citizen, a federal agency within the
Department of Transportation proposed rules relating to safety
regulations of Mexican motor carriers operating within the United
States. Public Citizen, 541 U.S. 752, The regulations were
promulgated in accordance with an executive order lifting the
moratorium on Mexican motor carriers pursuant to the North
American Free Trade Agreement (“NAFTA”). The federal agency
prepared an environmental assessment (“EA”), a more limited
document than the EIS, in which it evaluated a variety of
environmental impacts in different scenarios. However, the EA
did not evaluate the environmental effects that would result from
the actual increase in cross-border operations of Mexican motor
carriers; instead it focused on other effects, such as an
increase in the number of roadside inspections. Plaintiffs
challenged this omission, arguing that the agency violated NEPA
by failing to consider the environmental impact of the increase

in Mexican motor carriers in the EA. The Supreme Court ruled in

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favor of the federal agency, concluding that the federal agency
properly omitted this issue from consideration because the
federal agency “has no ability to countermand the President's
lifting of the moratorium or otherwise categorically to exclude
Mexican motor carriers from operating within the United States,”
and holding that “it would not . . . satisfy NEPA's ‘rule of
reason' to require an agency to prepare a full E1S due to the
environmental impact of an action it could not refuse to
perform.” Id. at 766, 769.

In contrast to Public Citizen, defendants in the instant
action can point to no authority, executive or otherwise, that
prohibits RUS from imposing conditions on Sunflower related to
any identified environmental impacts of the Holcomb Expansion
Project, nor have they cited any authority preventing RUS from
modifying its course of action based on those environmental
impacts, 0n the contrary, NEPA and the accompanying regulations
explicitly grant RUS the requisite discretion, There is no
material difference between the discretion RUS had in 1980, when
it granted Old Sunflower the initial loan after preparing an EIS,
and the discretion the agency has in connection with its more
recent involvement in Sunflower.

Sunflower’s argument, in particular, that RUS lacks
discretion ignores a fundamental feature of prior case law on

this subject, namely that an agency's role must be considered

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“merely ministerial” to avoid the application of NEPA. As this
Circuit has explained, “[i]f . . . the agency does not have
sufficient discretion to affect the outcome of its actions, and
its role is merely ministerial, the information that NEPA
provides can have no effect on the agency's actions, and
therefore NEPA is inapplicable.” Citizens Against Rails-to-
Trails, 267 F.3d at 1151; see also Sugarloaf Citizens Ass'n v.
FERC, 959 F.2d 508, 513 (4th Cir. l992) (addressing the role of a
federal agency in granting certifications to certain types of
power production facilities, and holding that the federal agency
“does not have discretion to deny certification to any facility
which meets the enumerated criteria and that its certification of
this project was therefore merely a ministerial act.”).

RUS's role in the Holcomb Expansion Project has not been
“merely ministerial.” The complex new arrangements negotiated in
2002 and then in 2007 evidence a significant amount of authority
and discretion entrusted to this agency. As noted above,
Sunflower agreed in 2002 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 0439l
(emphasis added). The federal defendants themselves acknowledge

that RUS has the authority to decide “whether to finance, what to

48

finance, and the terms and conditions of a loan[.]” Fed. Defs.'
Opp'n Summ. J. at 3l." This discretion gives the agency
sufficient leverage to take the environmental impacts of its
actions into account when making decisions.

F. Whether RUS Regu1ations at 7 C.F.R. Pt. 1794 Exempt the
Holcomb Expansion Project From NEPA Review

Finally, defendants argue that RUS's actions are exempt from
NEPA pursuant to environmental policy and procedure regulations
implemented by RUS. These regulations, set forth in 7 C.F.R.
Part l794, “contain[] the policies and procedures of [RUS] for
implementing the requirements of [NEPA].” 17 C.F.R. § 1794.l.
They are “intended to help RUS officials make decisions that are
based on an understanding of environmental consequences, and take
actions that protect, restore, and enhance the environment.” 7
C.F.R. § l794.l(b). Defendants point specifically to 7 C.F.R.
§ l794.3 which states:

The provisions of [7 C.F.R. Part l794] apply to actions

by RUS including the approval of financial assistance

pursuant to the Electric, Telecommunications, and Water

and Waste Programs, the disposal of property held by

RUS pursuant to such programs, and the issuance of new

or revised rules, regulations, and bulletins.

Approvals provided by RUS pursuant to loan contracts

and security instruments, including approvals of lien
accommodations, are not actions for the purposes of

" The Court notes that the federal defendants have stated
that they “do not entirely agree with Sunflower’s
characterization of the consents and approvals as ‘ministerial.'
Although some of the consents were ministerial, others are
not[.]” Fed. Defs.' Resp. to Sunflower’s Mot. Dismiss at 7 n.4.

49

this part and the provisions of this part shall not
apply to the exercise of such approvals.

7 C.F.R. § l794.3 (emphasis added). Defendants argue that RUS’
approvals amounted to no more than “[a]pprovals provided by RUS
pursuant to loan contracts” and, accordingly, are exempt from
NEPA under § 1794.3.

As a threshold matter, the Court must determine whether
defendants’ interpretation of § l794.3 is entitled to deference.
Although ordinarily “an agency's construction of its own
regulations is entitled to substantial deference,” Martin v.
Occupational Safety and Health Review Commission, 499 U.S. 144,
150 (1991), an agency's “litigating positions are not entitled to
deference when they are merely appellate counsel's post hoc
rationalizations for agency action, advanced for the first time
in the reviewing court.” Id. at 156; see also Bowen v.
Georgetown Univ. Hosp., 488 U.S. 204, 212 (l998)(“[W]e have
declined to give deference to an agency counsel's interpretation
of a statute where the agency itself has articulated no position
on the question, on the ground that ‘Congress has delegated to
the administrative official and not to appellate counsel the
responsibility for elaborating and enforcing statutory
commands.’”) (quoting Inv. Co. Inst. v. Camp, 401 U.S. 6l7, 628

(1971)).

50

An agency's litigation position is nevertheless given
deference in certain limited circumstances, as stated in Auer v.
Robbins, 519 U.S. 452 (1997). As this Circuit has explained:

There are at least three preconditions for applying

this so~called Auer deference. First, the language of

the regulation in question must be ambiguous, lest a

substantively new rule be promulgated under the guise

of interpretation. Second, there must be ‘no reason to

suspect that the interpretation does not reflect the

agency's fair and considered judgment on the matter in
question.' Finally, the agency's reading of its

regulation must be fairly supported by the text of the

regulation itself, so as to ensure that adequate notice

of that interpretation is contained within the rule

itse1f.

Drake v. FHA, 291 F.3d 59, 68 (D.C. Cir. 2002) (citing Auer, 519
U.S. at 461-462).

In the instant case, the Court concludes that the
defendants’ position with respect to § l794.3 is not entitled to
substantial deference. First, at least with respect to RUS's
commitment to release the lien on the Holcomb 2 site and the
Common Facilities, § l794.3 is ambiguous in light of conflicting
language in another RUS regulation, namely 7 C.F.R. § 1717.850.
Section l717.850 states that “[u]nder certain circumstances, such
as when the project does not qualify for a categorical exclusion,
the environmental requirements of 7 CFR part 1794 may apply to
applications for lien accommodations, subordinations, and
releases.” Id. (emphasis added). Second, defendants point to no
evidence in the record that the agency itself evaluated whether

NEPA applied to its actions during the 2002 Restructuring or the

51

subsequent approvals in 2007. Finally, for the reasons that
follow, the Court cannot conclude that the agency's reading of
the regulation is “fairly supported by the text of the regulation
itself.” Drake, 291 F.3d at 68. Specifically, the Court does
not find the agency's actions can be fairly stated to amount to
mere “approva1s provided by RUS pursuant to loan contracts.” 7
C.F.R. § l794.3.

With respect to the 2002 Restructuring, the federal
defendants argue that the approvals provided by RUS were granted
pursuant to the 1987 DRA. ln support of their argument, the
federal defendants point to text in the 2002 agreements that
identifies provisions in the 1987 DRA requiring Sunflower to seek
written approval from RUS before it undertook specified actions,
See Fed. Defs.' Reply at 5-6 (citing AR 222, AR 3952).

However, Sunflower did more than simply request approval
from RUS pursuant to these old loan contracts, and RUS did more
than simply grant the approval. Instead, entirely new agreements
were drafted, entirely new and different obligations were
created, including new promissory notes, and entirely new parties
were subject to those obligations. With respect to the RUS's
release of the lien on the Holcomb 2 site, RUS also did not
approve the lien subordination as an approval pursuant the then~
existing 1987 DRA. Instead, the lien subordination was part of

the new arrangements created in 2002.

52

 

Although it is perhaps a closer call with respect to the
approvals granted in 2007, ultimately the Court concludes that
here too, the agency did not simply grant approvals pursuant to
pre-existing loan contracts. Once again, new promissory notes
were issued and entirely new agreements between RUS and Sunflower
were created, such as the Additional Consideration Letter.

The Court also finds that, even assuming RUS's actions were
consistent with its own regulation § 1794.3, such an
interpretation would be invalid as applied in the instant case
because it would conflict with NEPA and the implementing
regulations promulgated by the CEQ. The agency is not entitled
to substantial deference with respect to the interpretation of
the CEQ regulations, including § 1508.18 defining “major federal
action.” See, e.g., Grand Canyon Trust v. FAA, 209 F.3d 339, 342
(6th Cir. 2002) (“Although federal agencies have discretion to
decide whether a proposed action is significant enough to warrant
preparation of an E1S, the court owes no deference to the
[Federal Aviation Administration’s] interpretation of NEPA or the
CEQ regulations because NEPA is addressed to all federal agencies
and Congress did not entrust administration of NEPA to the
[Federal Aviation Administration] alone.”)(internal quotation
marks omitted); see also (Citizens Against Rails-to~Trails, 267
F.2d at 1150 (“Because NEPA’s mandate is addressed to all federal

agencies, the [Surface Transportation Board’s] determination that

53

NEPA is inapplicable . . . is not entitled to the deference that
courts must accord to an agency's interpretation of its governing
statute.”); Mcrris Cnty., 714 F.2d at 276 (“CEQ guidelines are
entitled to substantial deference in interpreting the meaning of
NEPA provisions, even when CEQ regulations are in conflict with
an interpretation of NEPA adopted by one of the Federal
agencies.”) (citing Andrus v. Sierra Club, 442 U.S. 347,
358(1979)).

Accordingly, under NEPA and the relevant CEQ regulations,
RUS's actions taken with respect to Sunflower and the Holcomb
Expansion Project are properly considered major federal actions
and are therefore subject to the requirements of NEPA, in
particular 42 U.S.C. § 4332.

IV. CONCLUSION

For the foregoing reasons, Sunflower’s motion to dismiss the
complaint as moot is DENIED, plaintiff's motion for summary
judgment is GRANTED, federal defendants’ cross-motion for summary
judgment is DENIED, and Sunflower’s cross-motion for summary
judgment is DENIED. Furthermore, defendants’ request for an

additional opportunity to brief the issues relating to the

appropriate remedy is hereby GRANTED. An appropriate Order
accompanies this Memorandum Opinion.
SIGNED: Emmet G. Su11ivan

United States District Court Judge
March 29, 2011

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