The opinion of the court was delivered by: David E. Peebles U.S. Magistrate Judge
I. FINDINGS OF FACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Corporate Histories.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. NYSEG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. AGECO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. FirstEnergy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. Facts Related to Veil-Piercing Analysis. . . . . . . . . . . . . . . . 18
1. 1906-1922. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2. 1922-1940. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3. 1940-1942. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
C. Environmental Concerns Associated with MGP Operations Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
D. Summary of NYSEG'S MGP Investigations and Remedial Responses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
E. NYSEG's Responses at the Sixteen Sites in Dispute. . . . . . 69
1. Corning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
a. Ownership and Operation.. . . . . . . . . . . . . . . . . 69
b. Investigation and Remediation . . . . . . . . . . . . 70
2. Cortland-Homer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
a. Ownership and Operation.. . . . . . . . . . . . . . . . . 71
b. Investigation and Remediation. . . . . . . . . . . . . . 77
3. Dansville. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
a. Ownership and Operation.. . . . . . . . . . . . . . . . . 84
b. Investigation and Remediation. . . . . . . . . . . . . . 85
4. Elmira-Madison Avenue.. . . . . . . . . . . . . . . . . . . . . . . 88
a. Ownership and Operation.. . . . . . . . . . . . . . . . . 88
b. Investigation and Remediation. . . . . . . . . . . . . . 93
5. Geneva-Border City. . . . . . . . . . . . . . . . . . . . . . . . . . . 96
a. Ownership and Operation.. . . . . . . . . . . . . . . . . 96
b. Investigation and Remediation. . . . . . . . . . . . . . 97
6. Goshen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
a. Ownership and Operation.. . . . . . . . . . . . . . . . 101
b. Investigation and Remediation. . . . . . . . . . . . . 102
7. Granville. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
a. Ownership and Operation.. . . . . . . . . . . . . . . . 103
b. Investigation and Remediation. . . . . . . . . . . . . 105
8. Ithaca - Court Street. . . . . . . . . . . . . . . . . . . . . . . . . 106
a. Ownership and Operation.. . . . . . . . . . . . . . . . 106
b. Investigation and Remediation. . . . . . . . . . . . .108
9. Ithaca - First Street. . . . . . . . . . . . . . . . . . . . . . . . . . 114
a. Ownership and Operation . . . . . . . . . . . . . . . . 114
b. Investigation and Remedial. . . . . . . . . . . . . . . 115
10. Mechanicville - Central Avenue. . . . . . . . . . . . . . . . . 117
a. Ownership and Operation.. . . . . . . . . . . . . . . . 117
b. Investigation and Remediation. . . . . . . . . . . . . 119
11. Newark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
a. Ownership and Operation.. . . . . . . . . . . . . . . . 125
b. Investigation and Remediation. . . . . . . . . . . . . 126
12. Norwich. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
a. Ownership and Operation.. . . . . . . . . . . . . . . . 127
b. Investigation and Remediation. . . . . . . . . . . . . 128
13. Oneonta.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
a. Ownership and Operation.. . . . . . . . . . . . . . . . 133
b. Investigation and Remediation. . . . . . . . . . . . . 135
14. Owego. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
a. Ownership and Operation.. . . . . . . . . . . . . . . . 140
b. Investigation and Remediation. . . . . . . . . . . . . 142
15. Penn Yan-Water Street. . . . . . . . . . . . . . . . . . . . . . . 147
a. Ownership and Operation.. . . . . . . . . . . . . . . . 147
b. Investigation and Remediation. . . . . . . . . . . . .149
16. Plattsburgh-Saranac Street. . . . . . . . . . . . . . . . . . . .150
a. Ownership and Operation.. . . . . . . . . . . . . . . . 151
b. Investigation and Remediation.. . . . . . . . . . . . . . . . . 154
F. Cost Recovery and Allocation.. . . . . . . . . . . . . . . . . . . . . . 162
II. PROCEDURAL HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
III. DISCUSSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
A. CERCLA Liability Generally. . . . . . . . . . . . . . . . . . . .. . . . 167
B. Summary of NYSEG Claims and FirstEnergy Defenses. . . 176
C. Analysis of FirstEnergy's Liability Under CERCLA .. . . . . . 179
1. Direct Owner Liability . . . . . . . . . . . . . . . . . . . . . . . . 180
2. Direct Operator Liability. . . . . . . . . . . . . . . . . . . . . . . 181
3. Indirect Liability as an Owner and/or Operator.. . . . . 188
a. Pre-1922.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
b. 1922-1940. . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
c. 1940-1942. . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
D. Affirmative Defenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
1. Bankruptcy Discharge. . . . . . . . . . . . . . . . . . . . . . . . 210
2. 1945 Covenant Not to Sue. . . . . . . . . . . . . . . . . . . . 211
3. Statute of Limitations. . . . . . . . . . . . . . . . . . . . . . . . . 213
a. Plattsburgh. . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
b. Owego. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
c. Ithaca-Court Street. . . . . . . . . . . . . . . . . . . . . . 233
d. Norwich. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
E. Analysis of I.D. Booth's CERCLA Liability.. . . . . . . . . . . . . 239
F. Compensable Response Costs. . . . . . . . . . . . . . . . . . . . . 254
1. Certainty of Damages. . . . . . . . . . . . . . . . . . . . . . . . 255
2. NCP Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
3. Necessity of Cost.. . . . . . . . . . . . . . . . . . . . . . . . . . . 262
4. Offset for Recovery From Collateral Sources. . . . . . 269
a. Insurance Recovery. . . . . . . . . . . . . . . . . . . . . 271
b. Rate Recovery. . . . . . . . . . . . . . . . . . . . . . . . . 276
G. Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
1. Allocation Generally.. . . . . . . . . . . . . . . . . . . . . . . . . 279
2. Allocation as Between NYSEG and FirstEnergy. . . . 283
3. Allocation as Between FirstEnergy and I.D. Booth.. . 286
IV. CONCLUSIONS OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
V. SUMMARY AND ORDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Plaintiff New York State Electric & Gas Corporation ("NYSEG") commenced this action in April of 2003 seeking to recover from defendant FirstEnergy Corporation ("FirstEnergy") expenses incurred to remediate twenty-four hazardous waste sites throughout Upstate New York formerly associated with manufactured gas plant ("MGP") operations of NYSEG and its predecessor utility companies. The MGP operations conducted at those locations were typical of those carried out by many public utilities during the 1800s and the first half of the twentieth century to produce gas, manufactured principally through processes employing coal as raw material, for commercial and residential usage. By their nature, MGP facilities generated significant quantities of byproducts, including coal tar and oils, containing what have come to be regarded as hazardous substances. Those byproducts were typically stored on-site and often released into the soil and groundwater at and near the MGP sites, on occasion migrating off-site and into nearby waterways.
NYSEG's complaint, as amended in October 2004, at one time asserted a combination of federal and state law causes of action including, inter alia, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42 U.S.C. § 9601 et seq. Its claims, however, have been materially reshaped as a result of the ongoing refinement of CERCLA jurisprudence. Given the rapid and robust development of environmental caselaw, coupled with rejection by the court of plaintiff's contribution cause of action under § 113(f) of CERCLA, and dismissal of plaintiff's New York Navigation Law and common law indemnification counts, on stipulation of the parties, all that now remains is NYSEG's cost recovery claim against FirstEnergy under § 107(a) of CERCLA, together with FirstEnergy's contribution counterclaim and a third-party claim for contribution against I.D. Booth, Inc. ("I.D. Booth"), the current owner of portions of two of the sites in issue, both of which are asserted under § 113(f).
The action was tried to the court beginning on December 6, 2010.*fn1
For a variety of reasons, by the time of trial the number of former MGP sites implicated were winnowed from twenty-four to seventeen and, with the dismissal at trial of claims related to one site, now stands at sixteen.
NYSEG claims to have paid more than $94 million through the end of 2009 to address contamination at the sixteen remaining MGP sites in issue, with the expectation that the expenditure of upwards of an additional $144 million will be required in order to complete the cleanup process. Those remedial efforts have been conducted in large part pursuant to an administrative order issued in 1994 by the New York State Department of Environmental Conservation ("DEC"), on consent, addressing remediation efforts at several former MGP sites including all but one of those now in issue.
In addition to the issues normally associated with a typical environmental cost recovery action, NYSEG's claims present complex threshold questions regarding the interplay between a number of related corporations, revolving around events dating back to the early twentieth century. Resolution of the CERCLA claims now presented turns, in the first instance, on an exceedingly labyrinthine set of facts surrounding the corporate history of NYSEG and its predecessor utility companies as well as the relationship of NYSEG and its affiliates with their former parent company, the Associated Gas & Electric Company ("AGECO") -- a predecessor of defendant FirstEnergy. NYSEG contends that AGECO, although in title a mere holding company, in reality ran the MGP facilities falling under its umbrella and is therefore directly liable under CERCLA as an operator of the sites involved at the time of the hazardous releases in issue. Alternatively, NYSEG argues that the facts justify piercing its corporate veil, and those of its related utility operating companies, in order to find derivative liability on the part of AGECO, the parent corporation, for the environmental liabilities at issue, based upon AGECO's overwhelming domination of those subsidiaries.
Although thousands of documents were received into evidence at trial, comprising an estimated 90,000 pages, evidence related to the intricate corporate histories associated with ownership of the various sites in question as well as the relationship between NYSEG and its predecessor utilities on the one hand and FirstEnergy's predecessor, AGECO, on the other is somewhat scant. Having considered the available evidence, I conclude that there is a basis upon which to pierce the corporate veil of NYSEG and its sister utility operating companies during the period between 1922 and 1940, though not prior to or after that time period, and accordingly to attribute their environmental liabilities to AGECO, and that FirstEnergy therefore bears responsibility for hazardous waste releases occurring during that time interval as an owner and operator of the facilities in issue. I will therefore allocate the response costs incurred by NYSEG based upon that finding. I also conclude that while NYSEG is entitled to reimbursement from FirstEnergy of a proportionate share of the vast majority of the expenses now claimed, recovery of the costs associated with two of the sites in issue is precluded, based upon the governing statute of limitations. Finally, I find that FirstEnergy is entitled to contribution from I.D. Booth with regard to one of the sites involved based upon its status as an owner of the site. The following decision incorporates within it my findings of fact and legal conclusions regarding the matter.
1. Ithaca Gas Light Company, which as will be seen is one of NYSEG's predecessor utility companies, was incorporated in 1852.
2. On January 15, 1916, Ithaca Gas Light Company and Ithaca Electric Light & Power Company merged, with Ithaca Gas Light Company remaining as the surviving company.
3. Ithaca Gas Light Company changed its name to Ithaca Gas & Electric Corporation on January 15, 1916.
4. The Homer & Cortland Gas Light Company, Norwich Gas & Electric Company and Oneonta Light & Power Corporation were merged into Ithaca Gas & Electric Corporation on June 1, 1918, with Ithaca Gas & Electric Corporation remaining as the surviving corporation.
5. On July 3, 1918, Ithaca Gas & Electric Company adopted the name New York State Gas & Electric Corporation.
6. New York State Gas & Electric Corporation later changed its name to the New York State Electric Corporation on March 8, 1928.
7. On August 22, 1929, New York State Electric Corporation assumed its present corporate name of New York State Electric & Gas Corporation.
8. NYSEG acquired Eastern New York Electric & Gas Company, Inc. on December 31, 1928. Through that merger NYSEG acquired ownership of the Granville, Mechanicville and Plattsburgh MGP sites.
9. On March 14, 1932, NYSEG acquired the property of Federal-New York Company, Inc. through a foreclosure sale. Among the properties acquired by virtue of that transaction was the Goshen MGP Site.
10. NYSEG acquired the properties of Empire Gas & Electric Company including the Newark and Geneva-Border City MGP facilities, two of the sites now in issue, by merger on December 31, 1936.
11. On December 31, 1936, NYSEG also acquired the properties of New York Central Electric Corporation, including the Corning, Dansville, and Penn Yan--Water Street MGP Sites.
12. The Elmira Light, Heat and Power Corporation was merged into NYSEG on December 29, 1936.*fn2 Through this merger, NYSEG acquired ownership of the Elmira-Madison Avenue MGP Site.
13. On March 19, 1906, the Associated Gas & Electric Company ("AGECO") was incorporated in New York by the owners of the Ithaca Gas Light Company as a public utility holding company for the group of operating companies controlled by those owners, in order to bring them under common control and management.
14. A holding company is defined as one whose assets consist primarily of stock in one or more other companies. A public utility holding company is simply a holding company whose portfolio consists primarily of stock in utilities.
15. The existence of holding companies dates back at least as far as in or about 1879 when a law was passed in New Jersey permitting a corporation to invest in the stock of another corporation.*fn4
16. Prior to the holding company era, the MGP industry was principally configured as consisting of small individual operating companies serving limited geographic areas and engaged in fierce competition that was not beneficial to consumers or gas companies. These factors caused many small gas companies to fail during those early years.
17. Holding companies were initially formed in the public utility arena to foster investment by providing better access to financial markets and systems, and to allow for economies of scale in the production of gas.
18. The original shareholders of AGECO were William
T. Morris, Ebenezer M. Treman, and Thos. W. Summers, all of Ithaca, New York.
19. Among the powers listed in AGECO's certificate of incorporation, according to a Federal Trade Commission communication to the United States Senate, were the following:
To manufacture, purchase or otherwise acquire, hold, own, mortgage, lease, assign, and transfer, invest, trade, deal in and deal with, goods, wares, and merchandise and property of every class and description, including all kinds of engines, boilers, dynamos, generators, gas apparatus, including holders, case and wrought iron pipe, pumps, meters and all kinds of machinery and any and all kinds of implements and articles of manufacture, and any and all kinds of mechanical apparatus;
To carry on a general contracting business, to do electrical work of every kind and description, including the business of electrical and mechanical engineers, and the dealers either as principal or agents in electrical machinery, appliances and supplies of any nature or kind whatsoever, to do the work of erecting gas apparatus of every description and kind, including the business of gas and mechanical engineers and dealers either as principal or agent in gas machinery, appliances and supplies of every nature and kind whatsoever; To construct, erect, build, equip and repair public works and conveniences of all kinds, including railways, trainways, tunnels, subways, reservoirs, water, gas, electric light and power, telephonic, telegraphic, and water supply works, and all other works or conveniences; to purchase or otherwise acquire any contracts or concessions for or in relation to the construction, building, erection, improvement or repair of public works or conveniences, and to execute, carry out, dispose of our [sic] transfer or turn to account the same, to carry on the business of builders, contractors, engineers, importers, exporters, and to provide, buy, sell and deal in property of all kinds; . . .
20. The stock of various companies controlled by the incorporators was transferred into AGECO following formation of that holding company.
21. In May of 1907, William T. Morris conveyed to AGECO the common stock of fourteen public utilities, including Penn Yan Gas Light Company, Homer & Cortland Gas Light Company, Newark (N.Y.) Gas Light & Fuel Company, Owego Gas Light Company, Ithaca Gas Light Company, Ithaca Electric Light and Power Company, and Norwich Gas & Electric Company.
22. W.S. Barstow & Co. acquired a controlling interest in AGECO in or about October of 1909.
23. W.S. Barstow & Co. sold its shares in AGECO to Montgomery, Clothier & Tyler (later Montgomery & Co.), a Philadelphia banking group, in 1912.
24. From 1912 up until March of 1922, AGECO was controlled by Montgomery, Clothier & Tyler, and J.G. White & Co., Inc., with a majority of the original shares of control stock in the company being held by J.G. White & Co., Inc. by the end of that period.
25. In March of 1922, control of AGECO passed from J.G. White & Co., Inc. and Montgomery & Co. to Associated Utilities Corporation, a company controlled by Howard C. Hopson and various of his associates, including John I. Mange.
26. Control of AGECO was transferred from
Associated Utilities Corporation to Associated Securities Corporation in early 1923.
27. Associated Securities Corporation was formed on November 17, 1922 as a Delaware Corporation by interests representing Hopson and Mange, for the purpose of holding the common stock of AGECO.
28. Mange and Hopson held the common stock of Associated Securities Corporation until June 1924 when they transferred that stock to Associated Gas & Electric Properties, formed in 1924 under the name of Associated Gas & Electric Company, and also controlled by Hopson and Mange. In 1926 that entity underwent a formal name change to Associated Gas & Electric Properties.
29. In addition to Penn Yan Gas Company, Homer-Cortland Gas Light Company, Newark (N.Y.) Gas Light & Fuel Company, Owego Gas Light Company, Ithaca Gas Light Company, Ithaca Electric Light and Power Company, and Norwich Gas & Electric Company, at various relevant times AGECO controlled other utility operating and holding companies associated with certain of the MGP sites now at issue.
30. One of those companies was Eastern New York Electric & Gas Company, Inc., which as will be seen owned the Granville, Mechanicville, and Plattsburgh MGP sites at various times.*fn5
31. Sometime in 1929 AGECO acquired Rochester Central Power Corporation, a holding company that owned and controlled Empire Gas & Electric Company, Elmira Water Light & Railroad Company, and New York Central Electric Corporation.*fn6 *fn7 Of those, New York Central Electric Corporation owned the Corning, Dansville, Owego, Newark, and Penn Yan Sites; Empire Gas & Electric Company owned the Geneva-Border City MGP Site; and Elmira Water Light & Railroad Company owned the Elmira-Madison Avenue Site.
32. At some time prior to December 31, 1929, AGECO acquired ownership and control of Federal-New York Company, Inc. At the time, Federal-New York Company, Inc. owned the Goshen MGP facility.
33. On January 10, 1940, AGECO and its top holding company subsidiary, Associated Gas & Electric Corporation ("AGECORP"), filed for bankruptcy protection under Chapter X of the Bankruptcy Code.
34. At the time of filing, AGECO had seven direct subsidiaries; four of those, like AGECO, were registered holding companies, including General Gas & Electric Corp., Associated Electric Co., NY PA NJ Utilities Company, and Northeastern Water Companies, Inc. The remaining three direct non-holding company subsidiaries of AGECO were Associated Utility Corporation, The United Coach Company, and The Associated Corporation.
35. Following the filing of bankruptcy, Walter H. Pollak, was appointed as trustee of AGECO, and Dennis J. Driscoll and Willard L. Thorp were appointed as trustees for AGECORP.
36. In June of 1943, the trustees of AGECO and AGECORP submitted a plan of reorganization for both debtors to the Securities and Exchange Commission ("SEC") for consideration by that body. The plan was approved by order issued by the Commission on April 14, 1944, with certain minor amendments and subject to various specified terms and conditions.
37. Based upon that approval, the plan of reorganization submitted on behalf of AGECO and AGECORP was confirmed by United States District Judge Vincent L. Leibell on August 9, 1945, and on January 10, 1946 was ordered to be consummated by the court. The AGECO and AGECORP bankruptcy trustees were subsequently discharged by order issued on August 12, 1946.
38. In accordance with the plan of reorganization, AGECO merged into AGECORP on January 10, 1946, and immediately changed its name to General Public Utilities Corporation ("GPU"), which later became GPU, Inc.
39. A Certificate of Consolidation and Agreement of Merger setting forth the terms of the merger was publicly filed on January 12, 1946. That certificate stated, inter alia, that
[t]he consolidated corporation is one of the constituent corporations, namely AGECO, and not a new corporation. The existence of AGECO shall continue for all purposes whatsoever after the consolidation and merger with and into itself of AGECORP, and the separate existence of AGECORP shall cease.
40. Following the completion of the AGECO
bankruptcy process, GPU conducted its business from AGECO's corporate headquarters at 61 Broadway, New York, New York.
41. In a December 1945 Annual Report to shareholders, GPU represented itself to be a public utility holding company registered with the SEC and the successor in interest to AGECO and AGECORP.
42. By the time Judge Leibell ordered the reorganization plan implemented, the bankruptcy trustees had disposed of nearly all of the AGECO and AGECORP assets in order to comply with the Public Utilities Holding Company Act of 1935 ("PUHCA"), retaining only certain New York, New Jersey, and Pennsylvania subsidiary operating companies, including NYSEG.
43. As a result of the plan of reorganization the remaining assets of AGECO, consisting of the stock in various operating utility companies, was held by NY PA NJ Utilities Company. That corporation, in turn, was owned by GPU. Both of those were holding companies were registered under the PUHCA.
44. In December of 1946, the SEC approved of the dissolution of NY PA NJ Utilities Company and the acquisition by GPU of all assets of that corporation, subject to its liabilities, if any. Among the assets acquired by GPU in connection with that transaction was the common stock of NYSEG.
45. In order to resolve certain potential financial claims of NYSEG against AGECO, in 1945 NYSEG and the bankruptcy trustees entered into the following covenant:
Resolved, that in accordance with the request of NY PA NJ Utilities Company dated May 9, 1945, this Company shall take no action with respect to the filing of any claim or claims against the Estate of [AGECO] or the Estate of [AGECORP]. . . provided, however, that in consideration therefor NY PA NJ Utilities Company shall release this Corporation and its officers and directors from any liability arising from the omission of this Corporation to file such claim or claims and also from any liability for having made or approved allegedly excessive payments through various service corporations or funds prior to 1939; and provided, further that the Trustees of the above-mentioned Estates shall execute and deliver to this Corporation and appropriate covenant not to sue on account of any alleged failure to pay its pro rata share of any alleged Federal tax liability for the years 1927 to 1933, inclusive; . . .
46. The minutes of a June 26, 1945 meeting of the NYSEG Board of Directors, at which the covenant was approved, provides the following clarifying language regarding its intent:
The Chairman stated that a letter had been received under date of May 9, 1945 from Mr. E.W. Morehouse, Vice President of NY PA NJ Utilities Company in connection with the settlement of certain claims and counterclaims between [NYSEG] and the Trustees of [AGECO] and [AGECORP] which he reviewed together with previous reports made to this Board on the possibility of such claims in connection with Case No. 9587 of the Public Service Commission of the State of New York.
47. FirstEnergy is a corporation organized under the laws of the State of Ohio, with its principal place of business located in Akron, Ohio.
48. In 2001, GPU merged into defendant FirstEnergy.
B. Facts Related to Veil-Piercing Analysis
49. Between 1906 and 1922, corporate formalities were observed with regard to Ithaca Gas Light Company and its successor corporations. During that period annual shareholder and board of directors meetings were regularly conducted, and minutes of those meetings were maintained.
50. During the late 1800s and early 1900s utility companies began contracting with service companies to carry out certain of their corporate functions. Such service companies, which in the case of Ithaca Gas Light Company included W.S. Barstow & Co. and J.G. White & Company, Inc., offered specialized expertise to the utility operating companies, permitting them to achieve economies of scale and affording them the ability to provide services on a streamlined and centralized basis. Through the use of service agreements, public utilities were able to lower prices and expand service areas.
51. Prior to April 1, 1912, W.S. Barstow & Co. operated as the general manager of Ithaca Gas Light Company pursuant to a series of such service agreements.
52. The minutes of an Ithaca Gas Light Company board of directors meeting held on January 11, 1911 clarify the role of W.S. Barstow & Co. as general manager of the company, authorizing Barstow "to make all purchases of materials and supplies and to contract for the same, to negotiate sales of whatever nature, and . . . [perform] all powers not expressly herewith delegated to them, which as General Managers it would be their natural function to exercise . . . "
53. On November 26, 1912, Ithaca Gas Light Company entered into a contract with J.G. White & Co., Inc., under which White was appointed to replace W.S. Barstow & Co. as operating manager for the company.
54. J.G. White Management Corp. was formed in December of 1912 and on the same date purchased the assets of J.G. White & Co. Inc. AGECO acquired control of J.G. White Management Corp. sometime prior to May 1, 1928.
55. At an Ithaca Gas Light Company board of directors meeting held on May 24, 1912, John I. Mange was appointed as a vice-president of the company, to act under the direction of J.G. White & Co. Minutes of that board meeting reflect the view of the company's president that "it was deemed to the best interest of the Company to employ a man as Vice-President who had broad operating experience, if the most effective results were to be obtained from the management of the plant." Prior to his appointment as vice-president, Mange had no direct involvement with Ithaca Gas Light Company as either an officer or a director.
56. A new five year agreement with J.G. White Management Corporation, under which White was to act as operating manager for the utility for a period of five years, beginning on October 1, 1913, was approved by the Ithaca Gas Light Company board of directors on December 31, 1913.
57. On October 16, 1918, the Board of Directors of New York State Gas & Electric Corporation approved of a new five year agreement J.G. White Management Corp., under which representatives of White were to act as "Operating Managers of the Company" for a period of five years beginning on July 1, 1918.
58. On May 1, 1928, J.G. White Management Corp. purchased from the Utility Management Corp. contracts for management of various operating companies within the AGECO system.
59. The service contracts with W.S. Barstow & Co., and later with J.G. White & Co., covered management of Ithaca Gas Light Company's Cortland-Homer, Ithaca-Court Street, and Norwich MGP facilities, and by 1916 also encompassed the Oneonta MGP location.
60. There was no evidence presented at trial of any fraud, wrongdoing, or abuse associated with the employment of service companies by NYSEG and its predecessor utilities prior to 1922.
61. There is no evidence in the record of any agreement between Ithaca Gas Light Company or its successor utility companies with AGECO, prior to 1922, under which AGECO agreed to oversee or manage the company's operation.
62. There was no evidence presented at trial to show that between 1906 and 1922 Ithaca Gas Light Company and its successors, including New York State Gas & Electric Corporation, were inadequately capitalized.
63. From time to time between 1906 and 1922 money was loaned by AGECO to Ithaca Gas Light Company or its affiliate operating companies, which in turn executed promissory notes to AGECO. Those loans included $125,000 advanced to Homer & Cortland Gas Light Company to be used for the purchase of stock of the Cayuga Power Corporation, reflected by a promissory note and secured by a pledge of Cayuga Power Corporation stock.
64. On occasion between 1906 and 1922 AGECO also appears to have guaranteed loans made to Ithaca Gas Light Company, Ithaca Gas & Electric Corporation and New York State Gas & Electric Corporation. As one example, on December 2, 1920 the board of directors of the New York State Gas & Electric Corporation authorized officers of the company to borrow a total of $30,000 from two separate lending institutions and to execute notes in favor of those institutions or to endorse the name of New York State Gas & Electric Corporation on promissory notes of AGECO given to those lending institutions for the amounts borrowed.
65. Between 1906 and 1922, there was some overlap in directors and officers of Ithaca Gas Light Company or it successor companies and AGECO. There is also evidence of overlap during that same time period in officers and directors and other personnel between Ithaca Gas Light Company, AGECO, W.S. Barstow & Co. and/or J.G. White & Co., Inc.
66. During the later years leading up to 1922, H.B. Brown, C.A. Dougherty, C.A. Greenidge, John I. Mange and T.W. Moffat served as directors of Ithaca Gas & Electric Corporation and later its successor, New York State Gas & Electric Corporation. During the earlier years, including in 1910, the directors of Ithaca Gas Light Company and its successors included E.M. Treman, J.B. Taylor, T.W. Summers, O. Clement Swenson, and William S. Barstow.
67. Between 1906 and 1922, annual meetings of Ithaca Gas Light Company and its affiliated operating companies were held at various places, including at offices of W.S. Barstow & Co. and/or J.G. White & Co., Inc., during the times when those companies controlled AGECO, the parent company. There is no evidence, however, that AGECO used the offices of Ithaca Gas Light Company for meetings or other purposes.
68. The evidence adduced at trial was equivocal concerning whether or not AGECO and Ithaca Gas Light Company were treated as independent profit centers during the period between 1906 and 1922. The outsourcing of operations by the parent company through the use of service contracts suggests that the individual operating companies were not so regarded. Each of those companies, however, had its own customers.
69. There was no evidence presented at trial to establish that between 1906 and 1922 Ithaca Gas Light Company corporate funds were diverted for personal purposes.
70. Between 1922 and 1940, the AGECO system was dominated and controlled by Hopson and, to a lesser degree, Mange.
71. Hopson had no involvement with AGECO prior to
72. By April 1923, Hopson and Mange had acquired all of AGECO's shares of voting stock, and exercised control over the boards of AGECO and its subsidiaries by holding their respective directors' undated signed resignations.
73. Between 1922 and 1940, AGECO and its affiliate companies, sometimes collectively referred to as the "AGECO Empire," were controlled by Hopson through a maze of corporate structures and trusts.
74. As of November 30, 1939, the AGECO Empire consisted of approximately seventy public utility companies, forty-two water companies, fifteen transportation companies, two ice companies, and twenty-six miscellaneous companies. Among those public utilities held in the AGECO family was NYSEG.
75. During the years of their control over utilities within the AGECO system Mange, who was connected with J.G. White Management Corp., was primarily involved in matters related to management of the operations of the various utility companies' properties while financing, accounting, legal. and similar matters fell principally under the control of Hopson.
76. It is estimated that between 1929 and 1938, through use of service companies, Hopson siphoned approximately $20 million principally from AGECO system operating companies, at least $7 million of which was unjustified profit. During the period between 1934 and 1938, Hopson operated eighteen service companies, and he and his family received at least $3.6 million in revenue through this source.
77. Between 1922 and 1940, AGECO held itself out as operating all of the properties within its system and having a single operating and ownership structure, and did not respect the corporate separateness of it and its various subsidiaries during that time period.
78. Much of the focus at trial was upon the relationship between AGECO and NYSEG, and a not inconsiderable body of evidence was adduced bearing upon that relationship and the abuses worked by AGECO upon NYSEG during the period between 1922 and 1940.
79. During the course of the AGECO bankruptcy the court recounted the following history of AGECO and its dominance by Hopson and Mange:
Ageco was incorporated in New York on March 19, 1906. It was a comparatively small public utility holding company with gross consolidated assets in 1922 of $7,000,000. Between March 14, 1922 and April 1923 Howard C. Hopson and John I. Mange acquired all of Ageco's outstanding shares of voting stock. Hopson and Mange held and exercised voting control of Ageco until January 10, 1940. Mange was the operating executive. Hopson controlled the financial and accounting policies of Ageco and its subsidiaries throughout. He controlled their Boards of Directors and held their undated signed resignations. Hopson's employees kept the minute books; some of the minutes were spurious. They also kept the books of account (irregularly maintained). Entries were changed and reinstated as Hopson directed; one item was changed 13 times. Alleged contracts for stock subscriptions of Ageco in subsidiaries, disappeared and reappeared as the occasion required. There were no corporate resolutions authorizing the transfer of the bulk of Ageco assets to AUICorp. The officers of Ageco and Agecorp were selected by Hopson and were paid through checks of Hopson 'service companies' which furnished the corporations in the Associated System with 'auditing, corporate, security, transfer, tax consultant and other services.' For these services Hopson's personally-owned service companies were paid large sums by the companies in the Associated System, giving him and his family a profit in excess of $6,500,000 in the period of 1922 to 1938.
80. In 1935, Congress enacted the PUHCA in response to abuses worked by public utilities through manipulation of corporate structures, resulting in burden to the ratepayers particularly during the Great Depression. See S. Union Co. v. Missouri Pub. Serv. Comm'n, 138 F. Supp. 2d 1201, 1204 (W.D. Mo. 2001).
81. The PUHCA, which resulted from a
Congressionally-mandated investigation by the FTC into the concentration of power and "well publicized abuses committed by public utility holding companies", restricted utility holding companies to each operating a single regional utility system. Yankee Gas Servs., 616 F. Supp. at 239.
82. One of the concerns that prompted Congress to enact the PUHCA was the practice among utility companies of pyramiding, a phenomenon that did not appear to have a legitimate business purpose for the upstream subsidiaries.
83. Pyramiding involves ownership of an operating company with a large series of holding companies conceptually positioned above the operating company, financed through the earnings from the operating company at the lowest level. In a pyramid structure, dividends paid by the operating company flow upward to satisfy debts and obligations of the holding companies at the higher levels. Typically, in a pyramid structure each of the holding companies finances itself with debt and has as assets equity in the companies below.
84. Between 1922 and 1940, the AGECO Empire epitomized the typical public utility pyramid ownership structure. The following depicts the corporate holding company structure above NYSEG during that period:
THE AGECO/NYSEG PYRAMID STRUCTURE
Associated Gas & Electric Properties (MA)
Associated Securities Corporation (DE)
Associated Gas & Electric (NY)
Associated Gas & Electric (DE) Rochester Central Power (DE) Rochester Central Power (NY) Mohawk Valley Company (NY) Mohawk Valley Company (DE) New York Electric Company (DE)
Both Associated Gas & Electric Properties and Associated Securities Corporation were holding companies within the AGECO Empire.
85. The PUHCA placed holding companies under the supervision of the SEC, requiring that they register with that agency. Registration under the PUHCA resulted in heightened scrutiny and regulation of the company's investments in both utility and non-utility company stock. See S. Union Co., 138 F. Supp. 2d at 1204. After unsuccessfully challenging the Act, AGECO eventually registered in 1938 with the SEC as a utility holding company.
86. During the period from 1922 until 1940 the holding companies within the AGECO system and their subsidiary operating companies were not generally regarded as independent profit centers. Instead, the entire pyramidal structure was treated as a single entity.
87. At the time of their bankruptcy filing AGECO and AGECORP were registered public utility holding companies under the PUHCA.
88. During the pendency of the AGECO bankruptcy a special master was appointed to conduct a hearing and report on the fairness of a proposed compromise of litigation pending in connection with that proceeding. The transcript of the hearing extended over 12,000 pages, memorializing testimony taken over 133 sessions ending by the middle of September 1942. During the course of the hearing approximately 700 exhibits were received in evidence.
89. According to the district court's summarization, in his report of that investigation the special master found that "[t]he various wholly-owned subholding companies, on whose books the stocks purchased by Ageco were entered as owned by the subholding companies, were only 'corporate pockets' of Ageco." The court went on to note that "[t]he purchased properties were really owned by Ageco and had been acquired with Ageco funds or by the issuance of Ageco debentures and other securities."
90. In the years during which AGECO and its affiliates were controlled by Hopson and Mange, those companies came under scrutiny of several agencies, including the Federal Power Commission ("FPC"), the Federal Trade Commission ("FTC"), the SEC, and the New York Public Service Commission ("PSC").*fn8
91. During the period between 1922 and 1940, the corporate separateness and distinctions between AGECO and its held operating utility companies were blurred, if not non-existent.
92. On June 14, 1932, the PSC issued a report entitled"Associated Gas and Electric System Practices." That report contained the following relevant observations:
a. All levels of operating utility employees, including meter readers, office clerks, and other front-line employees, devoted working time to selling securities in AGECO.
b. The local utility offices, trucks, equipment, and consumer utility bills all bore the title "Associated Gas and Electric System." The local utility office was listed under "Associated Gas and Electric System" in the phonebook. At least some of the local utilities used "Associated Gas and Electric System" letterhead.
c. A publicly distributed pamphlet, known as the "Harris-Forbes" booklet, emphasized the idea of a unified, centrally controlled "Associated Gas and Electric System."
d. On September 25, 1929, Empire
Gas & Electric Company requested consent to transfer its franchises to NYSEG. When the Commission's accountants examined Empire's books and accounts at Empire's Geneva office, the Commission was told that any contracts would have to be obtained from the New York
93. The PSC report was critical of the use of service contracts and other means by which holding companies were able to divert funds from operating companies, noting the following:
Twenty-five years ago, the holding company was in an embryonic stage and was used principally for the purpose of centralizing control. In recent years, particularly during the last decade, the holding company idea has been utilized to siphon funds from operating utilities into holding companies or their subsidiaries and affiliates which are not subject to public regulation; and in certain instances, funds have been diverted even from the holding companies to the pockets of individuals.
The PSC report did not point to any abusive practices in place prior to 1922.
94. The 1932 PSC Report noted that large payments were made to various service companies from the operating utility companies, including Utility Management Corporation (formerly J.G. White Management Corp.), W.S. Barstow & Co. , The Utilities Purchasing and Supply Company, and Public Utilities Appliance Corporation. The PSC report characterized the AGECO system service contracts as reflecting "the influence and control of the system over the operations of the controlled utilities." The Commission went on to note that the terms of those contracts would seem to cover almost every phase of utility operation, leaving no vestige of independent authority or control in the hands of the operating utilities. Under the provisions of these contracts, the service corporations manage, dominate, and practically operate the utilities. The contracts cover every activity of the local corporation and all its property. No distinguishable workable identity remains. The operating utilities become even less than agencies or instrumentalities of holding companies or the system. They exist only in name and live only in the bookkeeping records of the system.
95. One investigation conducted by the PSC resulted in the issuance of an exhaustive opinion by PSC Commissioner Brewster ("Brewster Report") on December 30, 1940 recounting the abuses of AGECO and its affiliates including in "siphoning of funds from the treasuries of the operating companies to the pockets of those individuals and corporations engaged in milking the operating companies through the device of servicing and management contracts."
96. That investigation, which focused on the period between 1934 and 1938, was commissioned [a]s to the methods of accounting, the books, records, accounts and other documents of the New York State Electric & Gas Corporation; that an investigation should be instituted as to the methods, practices, regulations and property employed by said corporation in the transaction of its business and as to whether said corporation is failing or omitting or about to fail or omit anything required of it by law or by order of the Commission, or is doing anything or about to do anything or permitting anything or about to permit anything to be done contrary to or in violation of law or of any order of the Commission; that an investigation should be instituted to determine the persons, corporations, partnerships or trusts who are affiliated interests of said corporation; and the extent and propriety of the transactions had by said corporation with such affiliated interests, and as to whether the contracts or transactions had by such corporation with affiliated interests are in the public interest.
The Brewster Report did not specifically focus upon the operation of MGP facilities.
97. According to the Brewster Report, the Utility Management Corporation charged operating companies in the AGECO system, including NYSEG, a management fee equivalent to 2.5% of the gross revenues of the operating companies. In 1939, however, there were no management employees from the Utility Management Corporation located on any property owned by the operating companies.
98. The Brewster Report identified, among other things, abuses related to defraying personal expenses of Howard C. Hopson as well as Howard C. Hopson & Company, which were charged to operating companies within the AGECO System.
99. According to the Brewster Report, more than $1.3 million was siphoned from NYSEG by AGECO and its control group annually.
100. On September 27, 1940, the FPC issued a report of an investigation of the AGECO system. While the focus of the report was on six Pennsylvania utilities it is relevant to the issues now before the court, since from a managerial or governance perspective AGECO's relationship with and handling of those Pennsylvania utilities was typical of what has been described as its "cookie cutter approach" management style with respect to its various utilities throughout the United States.
101. In its report of that investigation the FPC wrote the following: "[o]ur investigation has developed an extraordinary picture of the exploitation of an essential public service for which the holding-company device served as a cloak. Almost every possibility for plunder was exploited."
102. Among the abuses uncovered by the FPC was the diversion of millions of dollars from the operating companies through the use of service companies formed by Hopson and his associates, in the process going to great lengths to shield their identities and true ownership, with the service companies charging exorbitant amounts and realizing unjustified profits from the operating companies for performing various services.
103. The report of the FPC investigation concluded as
While the record of this proceeding presents perhaps an extreme example of the evils of the holding-company system in the public-utility field, it was no isolated instance. The unjust burdening of operating utilities with improper or unnecessary charges to their expense and property accounts, the concealment of real ownership and control, the efforts by one means or another to confuse and obstruct investigation and regulation, and, generally, the manipulation and exploitation of operating properties for the selfish interests of the holding companies and their owners, have all been inherent tendencies of the holding company method of organization as it has grown up in the inadequately controlled public-utility industry especially during the past two decades.
Here, perhaps, there was a somewhat unusual concentration of mind and efforts almost exclusively devoted to manipulation and selfish exploitation. It was legerdemain at its worse. The ingenuity of Hopson and his associates were [sic] indeed worthy of a better cause. They were apparently single-heartedly determined upon extracting currently every dollar they could wring from the operating utilities regardless of the effect upon consumers and investors. The fact that they were unjustly and improperly impairing the efficient and economical operation of such utilities and laying unlawful burdens upon the rate payers seemed not to concern them at all.
The record and report submitted by the trial examiner detailing the iniquitous practices and the different schemes by which the respondents here were victimized furnished impressive evidence of the vision, foresight, and fidelity to the public interest of those responsible for that great reform measure, the Public Utility Act of 1935, under which much has been achieved toward the onward march of those modern freebooters who saw in the rapid development of public utility service in the United States only a new and unusual opportunity for speculation and exploitation.
It should be noted, however, that the passage of this Act requiring the service companies to operate at cost, led Hopson and his associates to attempt to retain unjustified profits by padding service company costs. Such inflation of costs must be zealously guarded against and it is hoped that this investigation may aid public regulatory bodies to this end. Further legislation may be necessary effectively to close the door to such practices.
104. The FPC investigation was followed by a separate investigation conducted by the SEC, leading to the issuance of a report on August 4, 1942 summarizing the agency's findings and ordering the de- listing of AGECO securities from the Los Angeles Stock Exchange and the New York Curb Exchange on the ground that its application for registration and annual reports contained false statements and did not accurately represent the nature of intermediate control of operating companies through parent companies.
105. In the report of its investigation, the SEC noted that with the filing of the AGECO and AGECORP bankruptcy petitions "[i]nvestors, both present and prospective, are now warned by the pendency of the reorganization proceedings that the financial statements and other information on file with the [the SEC] may not be accepted indiscriminately as the guides to the registrant's financial and the prospects for its reorganization."
106. Hopson resigned from his position as a director of AGECO on August 30, 1935 and as treasurer of that company on December 30, 1935.*fn9 Despite those resignations, Hopson continued to exert considerable influence over the AGECO Empire.
107. During the period between 1922 and 1940, there was considerable overlap of officers and directors within the AGECO system, including among both holding companies were operating companies. The following charts illustrate this overlap:
Holding Company (AGECO, Mohawk Valley, and NY Electric) and NYSEG Overlaps of Officers and Directors
AGECO Mohawk Valley NY Electric NYSEG Koch T T T T O'Keefe T T T Dougherty T T T T Mange T T T T Weinberger T T T T Hopson T T T T Magee T T Daly T T T T Gober T T Hill T T T T Wetherell T T Starch T T McKenna T T T Edmunds T T AGECO and Operating Company Overlaps of Officers and Directors
AGECO NYSEG Federal- Empire Elmira NY Owego
108. During the period between 1922 and 1940, board meetings for NYSEG and the various other AGECO operating companies were generally held in New York City at or near AGECO's offices at 61 Broadway, New York, New York.
109. That address, 61 Broadway, New York, New York, is also the location of offices maintained during all or a portion of the period from 1922 to 1940 by Hopson's accounting and financial organization, which rendered financing, accounting, legal, and auditing services to AGECO and its various subsidiary companies.
110. Hopson was elected as a director of New York State Gas & Electric Corporation on August 19, 1927.
111. During all or most of the years from 1922 until 1940, Mange served as president of AGECO, and a director of NYSEG.
112. Hopson resigned from the NYSEG Board of Directors on May 14, 1934. There is no indication, however, of any material change in the relationship between AGECO and NYSEG as a consequence of his resignation.
113. Somewhat less is known from the record concerning AGECO's interaction with various of its other subsidiaries, including New York Central Electric Corporation, Empire Gas & Electric Company, Eastern New York Electric & Gas Company, Inc., and Federal-New York Company, Inc., than has been revealed regarding its relationship with NYSEG.
114. At trial, NYSEG's expert, Professor Jonathan Macey, opined that AGECO treated those operating companies in the same manner as others within the Associated System.
115. In his decision, PSC Commissioner Brewster, concluded that the same fraudulent activities and policies that AGECO had imposed on NYSEG were also inflicted on those other operating companies.
116. During all or portions of the period between 1922 and 1940, NYSEG, as well as affiliated companies Federal-New York Company, Inc. (beginning on or prior to December 31, 1929), Empire Gas & Electric Company (from May 1, 1929), Elmira Water, Light & Railroad Company, New York Central Electric Corporation (from May 1, 1929), New York Central Electric Corporation (from May 1, 1929), Eastern New York Electric & Gas Company, Inc. (from on or prior to December 31, 1926), and Owego Gas Corporation (from May 1, 1929), were all dominated by AGECO in such a way as to make them mere instrumentalities of AGECO, and AGECO exploited its control of those subsidiaries to commit a wrong, namely the operation of their MGP facilities and the resulting release of hazardous substances, causing those subsidiaries to suffer an unjust loss or injury as a result.
117. During the period between 1922 and 1940, NYSEG and the other holding and operating companies within the AGECO system retained little business discretion. Many of the management functions of NYSEG and the other operating utilities during that time period were outsourced through the use of service company contracts.
118. On January 8, 1926, for example, NYSEG entered into a five year agreement under which AGECO was retained "as general operating and financial manager of [NYSEG's] properties, with authority to supervise and direct the management and operation and financial policies of such properties . . .".
119. The service contracts through which NYSEG's operations were outsourced during the period of 1922 to 1940 lack any indicia of being arms length agreements since it does not appear that there was anyone negotiating those agreements on behalf of NYSEG and the other subsidiary operating companies within the AGECO Empire.
120. None of the service agreements entered into by NYSEG and its sister operating companies specifically referenced tar handling services at MGP sites, or addressed environmental activities at the facilities.
121. Between 1922 and 1942, NYSEG was adequately capitalized.
122. NYSEG was profitable in every year between 1906 and 1942. NYSEG's net income grew from $171,000 in 1921 to $2.99 million in 1931.
123. In every year during the Great Depression in the 1930s, with the exception of 1935, NYSEG earned net income of more than $1.5 million.
124. There is no evidence that NYSEG experienced financial distress at any point between 1906 and 1945, nor was evidence presented at trial to show that NYSEG was unable to pay its debts at any time during that period or was on the verge of receivership.
125. NYSEG's revenues grew from $58,000 in 1906 to $28.585 million in 1942. During the same time period NYSEG's operating profit margin generally ranged from 30% to 50%.
126. Between 1906 and 1942, NYSEG observed all corporate formalities, including 1) holding regular meetings of its board of directors; 2) maintaining minutes of board meetings; 3) holding annual shareholder meetings; 4) issuing annual reports; 5) making routine filings with the PSC.
127. Between 1906 and 1942, NYSEG was able to raise capital at rates similar to overall industry yields. Between 1910 and 1941, NYSEG successfully completed ten separate bond issues, at rates comparable to industry averages for the electric utility industry.
128. During that same period, according to Professor Frank C. Torchio, one of FirstEnergy's experts, NYSEG was viewed in the credit markets to be in a similar risk category as the average utility and was able to borrow money at comparable rates.
129. During the period from 1922 until 1940, NYSEG had its own employees. In 1935, the company had over 2,000 employees, and its workforce grew to 2,500 by 1939. Among those employees during that time period was a plant superintendent at each of the NYSEG MGP facilities.
3. 1940-1942 130. During the course of reorganization following the filing of bankruptcy, AGECO and AGECORP were operated under the control of the bankruptcy trustees.
131. There was no evidence presented at trial to suggest that the past domination, fraud, and abuses worked by AGECO toward NYSEG continued into the bankruptcy period beyond the point when AGECO began operating under the control of the bankruptcy trustees.*fn10
C. Environmental Concerns Associated with MGP Operations Generally
132. Manufactured gas plants began operating in the United States by the mid-nineteenth century, and for the most part had ceased producing gas by the 1940s, when natural gas became more readily available through the development of supply and transmission systems. Gas produced in MGP facilities was provided to residential and commercial customers for use in heating, cooking and lighting.
133. NYSEG and its predecessor and other affiliated utility companies sold manufactured gas to their respective customers from approximately 1851 until around 1960 when the last NYSEG plant, located in Plattsburgh, New York, was closed.
134. Because of the large volumes of water required to operate MGP facilities, most were located near bodies of water.
135. Two primary technologies were used to manufacture gas at the MGP sites: coal carbonization and a carbureted water gas process. The original method, coal carbonization, entailed heating coal in enclosed retorts or beehive ovens, resulting in volatile constituents being driven off as a gas, collected, cooled, and purified for conveyance by pipe networks into surrounding areas for use. In the 1870s the carbureted water gas process was introduced, and by 1900 had become the predominate method of MGP production. That process, which had several variations, typically began by heating coke or coal in the presence of steam, creating a flammable gas mixture of methane and carbon monoxide. Petroleum products were then sprayed into the hot gas mixture, creating more methane and increasing the heating and lighting capacity of the gas.
136. While these two processes differed in how gas was produced, both created similar by-products when the gas cooled, including primarily coal tar and, in the case of carbureted water gas plants, oil.
137. Some of the coal tar generated at MGP facilities was recovered for reuse or sale. Coal tar, however, also typically leaked from tar-handling equipment throughout the operation of MGPs, including from underground bases of tar-handling equipment and from pipes. Inadvertent spills of coal tar were also common.
138. Coal tar generated from MGP operations typically contained various chemical constituents, among them being polycyclic aromatic hydrocarbons ("PAHs"), which do not readily dissolve in water and therefore rarely migrate beyond the tar itself, and a family of volatile organic compounds ("VOCs") including Benzene, Toluene, Ethylbenzine, and Xylene ("BTEX").
139. Although earlier recognized as a nuisance associated with former MGP facilities and nearby waterways, as of 1991 coal tar was not yet officially listed as a hazardous waste under New York law. However, coal tar produced from MGP processes and its constituents are now regarded as hazardous substances for purposes of federal and state environmental laws.
140. Once released, coal tar will tend to migrate in the subsurface at a site. Coal tar is heavier than water. Accordingly, if a sufficient amount of tar is released, it will travel through the water table until it reaches a confining layer serving to impede its downward movement. Elements of coal tar can leach into groundwater, causing groundwater contamination. Even immobile tar may present concerns as a potential source of groundwater contamination where groundwater contacts the tar and dissolves coal tar constituents.
141. Coal tar is the primary contaminant of concern ("COC") at the sites in issue in this case. As a result of tar leaks and spills, as well as consequent tar migration, residual coal tar typically exists at former MGP sites in three distinct potential forms. First, coal tar may be found in a semi-solidified mass remaining around MGP structures. Second, it may be present as a viscous substance that has flowed some distance away from MGP structures, including into adjacent surface water bodies. Finally, it may exist in a dissolved phase where the tar has released some of its constituents.
142. In addition to coal tar, the gas purification process associated with MGP facilities was also known to produce a solid waste material referred to as "purifier waste" or "box waste" generally consisting of wood chips, iron filings and clumps of solidified tar.
143. The New York State DEC serves as the lead agency authorized to manage the cleanup of MGP facilities in New York State.
144. The DEC did not have a formal policy or program for remediation of former MGP sites in place until 1992 or 1993. Prior to that time, however, the DEC became involved occasionally in discrete issues at an MGP sites, such as where pollutants at a portion of an MGP site were releasing into a body of water. At various points in the 1980s, it was uncertain whether the DEC had jurisdiction over coal tar-contaminated sites.
145. The state's policies concerning remediation of former MGP sites are laid out in a document which, while undated, appears to have been relatively recently generated based upon analysis of its contents, entitled "New York State's Approach to the Remediation of Former Manufactured Gas Plant Sites."
146. The DEC reports that 235 MGP-related sites have been located in New York State, with an estimate that in the past as many as 300 were operated within the state. Of these, 202 have been identified as involving a current New York State utility as the responsible party.
147. Out of the 202 former MGP sites identified, cleanup had been completed, or a no further action determination had been made, at only twenty-one locations as of the time of publication of the DEC's MGP remediation approach pamphlet. Those cleanups were all relatively recent; no MGP site in New York State was fully remediated prior to 1990.
148. Over time since the 1980s the technologies associated with treatment and disposal of coal tar impacted soils have improved and the costs associated with various available options for addressing MGP waste have decreased. By way of example, it is estimated that the present cost of on-site thermal desorption of such contaminated soils is $60 per ton, as compared with an estimated per ton cost in 1988 of land burial in CECOS, a certified hazardous waste landfill, of $150.
D. Summary of NYSEG'S MGP Investigations and Remedial Responses
149. Currently at issue in this case are sixteen former MGP facilities currently or previously owned and operated by NYSEG or its predecessor utility companies.*fn11
150. All or most of the sixteen sites in issue were first listed by the DEC in 1986 as Class "2a" sites in the Registry of Inactive Hazardous Waste Disposal Sites in New York. Class 2a is a temporary classification assigned to a site that has inadequate and/or insufficient data for inclusion in any of the other DEC classifications. Several of the sites have since been re-categorized as falling within Class "2", signifying that they present a "significant threat to the public health or environment -- action required."
151. With the exception of Corning, NYSEG has incurred substantial costs in responding to the release of hazardous substances, including coal tar, at the sixteen sites at issue.*fn12
152. In the 1980s, NYSEG performed investigations at all of the MGP sites in this litigation, with the exception of the Newark and Corning Sites. NYSEG's early investigation efforts at its former MGP facilities are summarized in a document prepared in August of 1989 by NYSEG employees T.M. O'Meara and Sheila Snyder. That report contains a ten year projection of those investigative efforts and the anticipated resulting expense, describes NYSEG's "proposed investigative/remedial approach", and notes that as of the writing of that report "Plattsburgh is the only site that has undergone an extensive remediation program."
153. When Sheila Snyder, a NYSEG employee who testified concerning the company's efforts to evaluate remedial and disposal options for MGPs in the late 1980s, searched for examples of other MGPs that had been remediated she found only one, located in Minnesota; while some work had been completed at that facility as of the time of her study, however, it had not then been fully remediated.
154. In November of 1983, NYSEG employee J.B. Marean proposed conducting an investigative program over a five year period beginning in January 1984 and ending in December of 1988 with respect to seventeen NYSEG MGP sites, and estimated that any necessary remedial work at any given site could be fully performed within two years following completion of the investigative study. By contrast, it is now estimated that at the current pace it will have taken NYSEG forty years to remediate all sixteen sites from the time those efforts were initiated.
155. NYSEG's early investigations of its former MGP sites were divided into a series of specific tasks, and were calculated to determine whether any of the sites posed a problem that needed to be addressed.
156. The memorandum prepared in August of 1989 by T.M. O'Meara and Sheila Snyder described the various tasks to be undertaken in connection with NYSEG's early investigations of former MGP sites. Task 1 was limited to identifying the location of any on-site coal gas plant structures such as gas holders and tar sumps, and to identify processing activities and waste disposal practices at each of the sites. This task was accomplished primarily through review of historical documents and interviews of former employees. Tasks 2 and 3 followed, consisting of a sampling program including "a geophysical survey, a soil gas survey, test pitting, soil borings, and monitoring well installations." In conjunction with those testings and surveys, soils, stream sediments, ground and surface water, and air samples were chemically analyzed in an effort to ascertain the vertical and horizontal extent of any contamination. Task 4 consisted of analysis of the collected data and assessment of public health and environmental risks presented by the site. Task 5 entailed the preparation of a remediation plan for the site, with Task 6 being the submission of the remedial plan to the DEC for approval and, ultimately, including in a consent order. The August 1989 memorandum also describes a seventh task, that being implementation of an agreed-upon remedial plan.
157. As NYSEG embarked upon the contemplated investigations of the various MGP sites it forwarded courtesy copies of the task reports to the DEC, although those reports were neither mandated nor controlled by the agency.*fn13
158. With two exceptions, none of the early work at NYSEG's former MGP sites proceeded past Task 4, in light of a determination by the company's consultants that no further action was required beyond worker protection, monitoring, and placing limitations on groundwater extraction. NYSEG's consultants did recommend further action at Owego and Mechanicville and steps were taken in the early 1990s to address those sites, under consent orders with the DEC.
159. In March of 1994, NYSEG acquiesced in the issuance of a Consent Order (No. DO-0002-9309) (the "1994 Consent Order") by the DEC. The 1994 Consent Order addressed the investigation and cleanup of coal tar and associated contaminated hazardous substances at all of the MGP sites at issue in this action, with the exception of the Corning location.*fn14
160. At the time the 1994 Consent Order was signed both NYSEG and the DEC anticipated that between two and three MGP remediation projects would be conducted by NYSEG during each year.
161. Pursuant to the 1994 Consent Order, NYSEG is required to commence a sequence of studies and reports in order to investigate and remediate the sites covered, under the DEC's direction. Based upon an initial submittal by NYSEG, the DEC must then determine whether to require more data in order to characterize the nature and extent of hazardous substances at a given site, and to ascertain whether such substances constitute a significant threat to public health or the environment, necessitating remediation. In the event of unavailability of such information, the 1994 Consent Order requires NYSEG to create a Preliminary Site Assessment ("PSA"), which must "provide all appropriate assessments and evaluations" set forth in CERCLA, the National Contingency Plan ("NCP"), and EPA/DEC guidance documents. The task reports prepared by NYSEG during its early investigations satisfied the PSA requirement for any site for which they were available.
162. All of the investigations performed by NYSEG pursuant to the 1994 Consent Order were mandated by the DEC.
163. Under the Consent Order, if the DEC determines that a significant threat exists, NYSEG must next create a Remedial Investigation ("RI")/Feasibility Study ("FS") Work Plan, incorporating all appropriate elements of an RI/FS, as set forth in CERCLA, the NCP, and EPA/DEC guidance on regarding the preparation of an RI and an FS.*fn15
164. The 1994 Consent Order permits NYSEG to conduct Interim Remedial Measures ("IRMs") at the covered sites, if approved by the DEC. The order provides that any IRM must be performed pursuant to a DEC-approved IRM Work Plan, which must include a health and safety plan, a contingency plan, and, if required by the DEC, a citizen participation plan. While the 1994 Consent Order does not reference compliance with the NCP with respect to IRMs, the regulations under which the consent order was issued do require both NCP compliance and cost effectiveness. See 6 N.Y.C.R.R. § 375-2.8. After an IRM Work Plan is approved, the project is performed subject to DEC oversight.
165. NYSEG has conducted IRMs under the 1994 Consent Order at eight of the sites in issue.*fn16 These IRMs are summarized below and discussed in greater detail in the portion of this decision addressing the specifics of NYSEG's environmental responses in connection with the individual sites:
a. Cortland-Homer: 2002 utility reconstruction project
b. Elmira-Madison Avenue: 2003 removal of gasholders
c. Geneva-Border City: 1999 paving project; 2004 tar well excavation
d. Ithaca-Court Street: 2000 excavation and removal of coal tar impacted soil
e. Ithaca-First Street: 1998 soil stockpile removal f. Mechanicville: 1999-2000 removal of gas relief holder foundation and piping
g. Norwich: Three-phase IRM conducted from 1993 to 1997, with the first two phases related to a demonstration project excavation. The third phase carried out in 1997, included excavation of a former relief holder, tar well, and associated pipe, and also installation of an air sparging/soil vapor extraction system
h. Plattsburgh-Saranac Street: 2002 removal of tarholders, pipelines and purifier wastes. 166. Several of those IRMs involved removals of MGP structures, including gas holders containing source materials such as tar. The DEC has an express policy of preferring the performance of source removals as IRMs. The document describing the agency's approach to remediating MGP sites notes the following:
MGP sites typically contain buried structures or other areas of highly concentrated wastes which are good candidates for interim remedial measures. The Department MGP Program often conducts removals of gas holder foundations, tar wells, and/or other MGP-related structures as an initial step while more detailed evaluations are underway elsewhere on the site. Where possible, IRMs are intended to achieve final remedial criteria to minimize the need to revisit an area during the final site remedy. Thus, the IRMs seek to remove not only the contents of buried structures, but also the structures themselves and any contaminated soils immediately surrounding and beneath the structure.
This is consistent with the DEC's policy approach concerning former MGP facilities since at least 1997.
167. Whether or not an IRM has been implemented at a site, NYSEG is required to prepare an RI/FS Work Plan for each site chosen by the DEC for remediation. Following approval of the RI/FS Work Plan, NYSEG is then required to prepare an RI Report. Among other requirements, the report must "provide all appropriate assessments and evaluations" set forth in CERCLA, the NCP, and EPA/DEC guidance documents.
168. After the DEC approves an RI for a site, NYSEG must then prepare and submit an FS. Unless the DEC specifies otherwise, the FS must be performed in a manner consistent with CERCLA, the NCP, and relevant guidance documents.
169. Once an FS is approved, the 1994 Consent Order requires NYSEG to cooperate with the DEC in soliciting public comment regarding the RI/FS and a Proposed Remedial Action Plan ("PRAP"), in accordance with CERCLA, the NCP, and relevant guidance documents.
170. Following the close of the public comment period, the DEC next selects the final remedial alternative for the site for inclusion into a Record of Decision ("ROD"), which becomes an enforceable part of the Consent Order.
171. Following the issuance of the ROD, NYSEG must next create a Remedial Design Work Plan, in accordance with the ROD. Once that plan is approved by the DEC, the remedy must be implemented as approved by the agency.
172. The DEC typically stations one or more representatives on-site throughout remedial construction. Based upon post construction submissions, the DEC concludes whether remedial construction has been conducted in accordance with the Remedial Design.
173. In addition to providing specific approvals, under the 1994 Consent Order the DEC also retains general oversight power over the remediation process under a section which provides that
[i]f the Department concludes that any element of the Remedial Program fails to achieve its objective or otherwise fails to protect human health or the environment, [NYSEG] shall take whatever action the Department determines necessary to achieve those objectives or to ensure that the Remedial Program otherwise protects human health or the environment.
NYSEG's only recourse if it does not agree with the DEC's decision-making at a site is to request a hearing before a DEC administrative law judge, at which NYSEG would bear the of burden of proving that the DEC's position is unjustified.
174. Each month NYSEG has provided progress reports to the DEC regarding its efforts at the sites covered, as required under the Consent Order. Those reports typically update monthly activity at the various sites, and also list major past events.
175. One limitation faced by NYSEG in remediating the MGP sites in dispute, particularly in the earlier years, was the availability of relatively few disposal locations that would accept contaminated coal tar waste.
176. Studies of various means of disposal of contaminated MGP waste were conducted by NYSEG in the 1980s. One such study was reported in a memorandum dated August 22, 1988 from Sheila Snyder to J.B. Marean. Among the options considered in that and other studies was the burning of coal tar contaminated soil.
177. Between 1994 and 1998, NYSEG had the ability to co-burn coal tar contaminated soil at two of its coal burning power plants, including Hickling Station, located in Corning, New York, and Jennison Station, located in Bainbridge, New York. Co-burning involves mixing coal tar impacted soils with coal for burning, with the percentage of MGP wastes not exceeding 25% of the total volume. The process also requires the introduction of activated carbon into the mix, stockpiling of MGP waste, testing of the waste for toxicity, and then blending the waste with coal.
178. NYSEG's study of co-burning at Hickling and Jennison ultimately led to the submission of a proposal to the DEC on December 5, 1989, requesting permission to co-burn contaminated soils at the Jennison plant.
179. In March of 1994, the DEC issued NYSEG permits for the co-burning of coal tar contaminated soil at both the Hickling and Jennison facilities.
180. Co-burning was utilized in or about 1994 or 1995 to treat approximately 13,155 tons of contaminated soil ...