John G. Roberts, Jr.: We'll hear argument first today in 06-340, National Association of Home Builders versus Defenders of Wildlife, and 06-549, Environmental Protection Agency versus Defenders of Wildlife. Mr. Kneedler.
Edwin S. Kneedler: Mr. Chief Justice, and may it please the Court: Section 402(b) of the Clean Water Act provides that the Environmental Protection Agency shall approve an application by a State to administer its own NPDES program unless EPA finds that the state's program does not satisfy nine criteria that are addressed to whether the State has the legal authority under State law to carry forward with the program. There's no dispute in this case that Arizona's program satisfies those criteria. The Ninth Circuit nonetheless set aside EPA's approval of Arizona's program. The Ninth Circuit held that EPA could not approve Arizona's application unless it first insured that there would be in place under Arizona's administration protections equivalent to those that would be applicable under Section 7 of the Endangered Species Act when EPA itself issues permits. That holding is inconsistent not only with Section 402(b)'s mandatory directive, it's also inconsistent with Section 7 of the ESA itself.
Anthony M. Kennedy: Do we take the case and... I'll ask the same question to your colleagues from the other side... on the assumption that if the nine... the factors in the statutes are met, that EPA has no discretion to withhold the transfer?
Edwin S. Kneedler: Yes. That is our position, and that I think is clear from Section 402(b). It says that the administrator shall approve unless he finds that the state legal authority criteria are not satisfied. I should also point out that that's reinforced by 33 U.S.C. 1251(b), which expresses a strong preference for State protection of waters and in particular states that it's the policy of Congress that the states administer the NPDES program.
John Paul Stevens: How long has that been the government's... the EPA position? How long has that been the EPA's interpretation of the statute?
Edwin S. Kneedler: Well, until 1993 when the vast majority... by the time... by that time the vast majority of transfers or approvals had already taken place. There had never been consultation, at least that we're aware of under Section 7 of the Endangered Species Act. EPA did consult with the wildlife agencies on six programs but after the Fifth Circuit... from then until... until this one, but after the Fifth Circuit's decision in the American Forestry case, EPA never tried to impose any obligations on a State under Section 7 of the Endangered Species Act. What it did is, EPA and the Fish and Wildlife Service worked out between themselves certain arrangements by which EPA would look at endangered species considerations, but it never conditioned the approval of a State program after the Louisiana program struck down in the American Forestry decision in 1998, on the states having in place certain protections. And in fact, I think EPA would not characterize what it did even in the Louisiana programs as the sort of condition that the Fifth Circuit understood.
John Paul Stevens: Has that always been the EPA's position? Because there's an allegation in one of the briefs that you changed your position in this Court, to change the position you took even in the lower courts at issue. Is that--
Edwin S. Kneedler: Well, I'm... there may be two different things that, referring to it. Section 7 imposes an obligation on Federal agencies in their own actions not to jeopardize... or to ensure that their actions are not likely to jeopardize a species. Ancillary to that, there is an obligation on Federal agencies to consult with the fish and wildlife agencies. As to the consultation obligation, as I mentioned, EPA has engaged in consultation from 1993 until--
John Paul Stevens: --But your position was they didn't have to?
Edwin S. Kneedler: --Our position now is that it did not have to, but... and more fundamentally our position is that because the transfer or the approval of the State application is mandatory if these nine legal authority criteria are satisfied, EPA could not withhold approval of--
John G. Roberts, Jr.: So your position is the consultation is a waste of time?
Edwin S. Kneedler: --Basically, yes. If in the end EPA could not disapprove the State's application, and since consultation is ancillary to the substantive obligation not to jeopardize--
Ruth Bader Ginsburg: Isn't there a difference between denying the application because the Endangered Species Act hasn't been attended to adequately, and saying you meet the nine criteria, you're going to get your application. But then, so it's not just automatic that the thing becomes the State's domain rather than the Federal. But isn't there something rather detailed called a memorandum of agreement that's worked out, and couldn't the Endangered Species Act concerns be accommodated that way instead of saying one statute is out the window, even though EPA in a number of states has made an accommodation. Why couldn't the Endangered Species Act concerns be reflected in that memorandum of agreement?
Edwin S. Kneedler: --The memorandum, the memorandum of agreement, is called for under EPA's regulations as really a procedural mechanism for the EPA and the State agency to work out the practicalities of the State's administering the program. They typically address such things as how the State agency will furnish EPA draft permits and that sort of thing, time limitations for EPA to look at, who to contact at the State agency. It's essentially procedural in order to facilitate EPA's continuing oversight role. It's not a vehicle for EPA to impose substantive obligations coming from other statutes.
David H. Souter: No, but the point is why can't it be?
Edwin S. Kneedler: Because we think that would been consistent with Section 402(b), which requires, which requires the EPA to approve the transfer. Now, if a State agency chooses to cooperate with Fish and Wildlife Service or NOAA in the Department of Commerce with respect to species under its jurisdiction, that is all fine. And I should point out--
David H. Souter: Doesn't the ESA require something more than voluntary cooperation? I mean, you quite rightly emphasize the mandatory nature of the approval under the Clean Water Act. But the Endangered Species Act mandate seems equally unconditional.
Edwin S. Kneedler: --It's unconditional with respect in our view to actions that are within the agency's discretion or consequences that the agency will cause. But more fundamentally in response to your question, Section 7 imposes obligations only on Federal agencies, not on State agencies. Like 402(b), it is a federalism-sensitive--
David H. Souter: I realize that that's your point. But doesn't that sort of beg the question? Because it's not that anyone is suggesting here, I think, that under the Endangered Species Act the Federal Government can keep control or that the Federal Government can in effect provide guarantees of what may happen in response to some future development proposal. What I think they're arguing is that when, when, when the agency gives the approval, it should require that there be some kind of procedure in place on the part of the State so that when problems arise the States will probably respond to them with the same values in mind that the feds would. And the question is why cannot the Endangered Species Act be enforced in that way, to require, in effect, an advanced mechanism before, in effect, the whole business is turned over to the States?
Edwin S. Kneedler: --Well, as to the latter, we don't believe that EPA can condition the transfer. But let me point out that in 2001--
David H. Souter: I know you say you don't think they can do it. But the problem is we've got two statutes each of which is mandatory. And your response seems to be, well, we'll give full effect to one and we will ignore the other. And I don't see how that is a tie breaker. And why do you not have an obligation to do what you can with respect to the Endangered Species Act?
Edwin S. Kneedler: --First of all, with respect to the Endangered Species Act, the memorandum of agreement that was entered into in 2001 between EPA and the two Federal wildlife services does furnish a way in which after the transfer EPA can take into account endangered species considerations within the scope of its--
David H. Souter: At which point EPA doesn't have any authority left under the Clean Water Act.
Edwin S. Kneedler: --No, that's not correct. Under Section 402(d) EPA has the authority to object to a State permit. And if the... but to do so on, based on a determination that the State permit would not satisfy the guidelines and requirements of the Clean Water Act. So if--
David H. Souter: That begs the question because the concern is the enforcement of the Endangered Species Act.
Edwin S. Kneedler: --With respect to water quality issues that might affect an endangered species, EPA takes the position... and I think it's correct... that EPA can object to a State permit where that permit would not comply with State water quality standards that are necessary to protect the endangered species.
David H. Souter: Why don't they get that in the memorandum of agreement up front?
Edwin S. Kneedler: EPA doesn't need the State's agreement to object to a State permit. That is authority--
David H. Souter: Maybe it doesn't, but isn't it the case that if it's in the agreement up front the odds are better that the State will address it, as opposed to the State ignoring the problem, requiring EPA then to take affirmative action to object?
Edwin S. Kneedler: --And I wanted to get to the further mechanisms that are in place under EPA regulations and the memorandum of agreement.
David H. Souter: No, but would you answer my question first? Isn't it likely that the States are going to respond or deal with the problem if they have an obligation in the memorandum of agreement right up front? I suppose. But let me, let me, let me explain what is in place. EPA's regulations require that a State furnish its draft permits to the public, but also specifically to the Federal wildlife agencies. That gives Fish and Wildlife Service an opportunity to comment about endangered species concerns that may be raised by the draft permit. The regulations also require the State agency to take into account the comments that are submitted by anyone, including the Fish and Wildlife Service and NOAA. Those provisions built in allow the Federal agencies to bring their concerns to the State agency, and I think there is every reason to believe that the State agencies will-- --Is there an obligation on the part of the State agency to take reasonable action in response to them, or can the State agency simply sit there, listen with a tin ear and then do whatever it wants to?
Edwin S. Kneedler: Those regulations do not because they are procedural. Then what happens if the State agency does not respond to the concerns raised or does not remedy the concerns raised by Fish and Wildlife Service or NOAA, EPA is notified and EPA can then try to work it out with the State agency, or, failing that, EPA can object to the State permit if it does not satisfy the Clean Water Act standards. And again with respect to water quality, those standards are set at a level that is necessary to protect endangered species. So as far as water quality impacts are concerned, EPA retains complete control under its ability to object to the permit.
David H. Souter: You are in effect saying that the, that the, that the enforcement of water quality standards is, in effect, the indirect answer to the problem that the other side raises? That's the way-- it's done?
Edwin S. Kneedler: It is. EPA--
Antonin Scalia: Except to the extent that a project may be endangering a species, not by reason of change in water quality but, for example, by destroying habitat, constructing a dam or that sort of thing.
Edwin S. Kneedler: --Upland habitat, if it's water habitat, water quality standards. EPA has to approve State water quality standards. It consults with Fish and Wildlife Service and NOAA in doing so to make sure endangered species would be protected by the water quality standards. And then each individual State permit is measured against those water quality standards to make sure they comply. So therefore, with respect to water quality, Fish and Wildlife Service agreed that the mechanisms I have just described would take care of any Endangered Species Act concerns.
Ruth Bader Ginsburg: Are you referring to, in what you just described about the cooperation among the Federal agencies, to what has been called in their brief, it's referred to as a coordination agreement?
Edwin S. Kneedler: Yes, the 2001, February 22, 2001, agreement between EPA and--
Ruth Bader Ginsburg: And that agreement, I take it from what you just said, is in full force? EPA hasn't retreated from that agreement and it will continue to--
Edwin S. Kneedler: --That is correct. And some of the things I described were embodied in EPA regulations aside from the agreement, including an agreement that State agencies furnish draft permits to Fish and Wildlife Service and take into account comments that are received in return. Justice Scalia is correct that, that the impacts that would not be covered by this would be non-water quality-related impacts on upland habitat. But in our view that simply reflects the nature of the Clean Water Act and under 402(b) it is a Clean Water Act. It deals with water quality, and we do not believe that EPA is authorized to withhold the approval or condition the approval of a transfer of permitting authority to a State on the basis of what the State will do with respect to upland, upland habitat.
David H. Souter: Which is the... the later act is the Endangered Species Act?
Edwin S. Kneedler: Essentially, the Endangered Species... there was a subsequent amendment to 402(b), but for these purposes... but--
David H. Souter: Why doesn't that control?
Edwin S. Kneedler: --Because it is... we do not think it repeals... it's essentially a repeal by implication question.
David H. Souter: No, but you can just as well say that if it does not control then there is an exception by implication, the exception being based on the prior act. Neither of them is particularly satisfactory, but neither answer gives you a reason to ignore the problem.
Edwin S. Kneedler: Beyond that, Section 7 of the ESA is a generally applicable statute, whereas Section 402(b) speaks specifically and comprehensively to the question of Federal approval of State programs. We also think this would be a particularly unlikely candidate for an exception to that because EPA's approval of the State program does not result in any immediate on-the-ground consequences. That would only happen... or in-the-water consequences. That would only happen if after the transfer the State agency actually issued, issued a permit. So what we're talking about is--
David H. Souter: Well, but by that very reasoning you could say that if assurance are required that the Endangered Species Act is going to be honored, that does not in and of itself prevent any development program. Each, in effect, is a kind of mechanism for dealing with something that may happen in the future.
Edwin S. Kneedler: --Well, if I could go back to the point I was making earlier, that we think that the central thrust of the court of appeals' opinion and Respondent's position here is that EPA could not transfer the authority unless it and the State together replicated the sort of protections that were in place when EPA itself administered the Endangered Species Act. And as I said, that's inconsistent not only with 402(b), but with Congress's federalism-sensitive judgment, to impose the sort of substantive and procedural administrative requirements in Section 7 of the ESA only on Federal agencies, not on State agencies. And let me also stress that this does not mean that the rest of the ESA is inapplicable once a permitting program of the State is approved. The central provision of the ESA, the prohibition against taking endangered species act and other provisions against trading in them and importing, exporting, all those remain applicable. Those are the generally applicable provisions that prohibit the taking of endangered species.
Stephen G. Breyer: I understand very well your argument that if the EPA is going to transfer this, they transfer it to Arizona and the first thing they say is, we look at Arizona's laws and they protect everything. And now we look at our own authority and if they get... start mucking around with this, we can refuse the permit. And besides that, we have a memorandum of understanding and the memorandum of understanding or whatever it is, agreement or something, is going to be they're going to pay as much attention as we are. So they'll pay attention to this, too, and if they don't we have an enforcement mechanism. So no problem; we are not putting any species in jeopardy. We satisfy the standard. I've got that part of the argument. I think I paraphrased it pretty well. The part I don't get is then you say, anyway, we don't have to do any of this because it says "shall transfer", therefore, it's not discretionary, it's mandatory. That part I don't get because there are nine standards there and it seems to me to say that is rather like saying, well, the ICC used to say you shall let the railroad build a spur, provided it's in the public interest, convenience, and necessity. I mean, are you suddenly saying every statute that uses the word ESA?
Edwin S. Kneedler: Well, I think it would require a statute by statute evaluation.
Stephen G. Breyer: All right, fine.
Edwin S. Kneedler: But we think this one is particularly clear.
Stephen G. Breyer: Now, my problem with saying it's clear is that they have nine criteria. One of the criteria is you look to five other statutes, which they have their own criteria and one of those criteria is you have to be certain that the State will assure the protection and propagation of a balanced population of shellfish, fish, and wildlife. And by the time you get through those nine criteria, I don't think you'd have to be too imaginative a lawyer to figure out ways that they involve everything the ESA involves. So if there ever was an act prefaced by the word ESA would apply, you would think it would this be this one, which has to do with water, environmental protection, nine criteria, many vague, and they use words like "wildlife", "shellfish", et cetera.
Edwin S. Kneedler: Several, several responses to that. Those cross-references... first of all, 402(b) looks only to whether the State has the legal report under State it law. Among other things, it requires a certification or determination by the attorney general of the State to establish that the State actually has the authority to administer. And the references to, cross-references to fish and wildlife that come from incorporating other provisions have to do with the setting of the standards or setting... under section 302, which EPA has never invoked, setting certain supplementary effluent standards to protect fish and wildlife. Those are the standards. EPA does not evaluate the state's water quality standards in deciding whether the State has the legal authority under 402(b) to administer the program.
Samuel A. Alito, Jr.: Of the states to whom a transfer has been made how many have agreed to comply with this provision of the Endangered Species Act?
Edwin S. Kneedler: I'm not sure. I don't think--
Samuel A. Alito, Jr.: In the memorandum of agreement with the states to whom transfers have been made, in some of them, is there not language in which the State has agreed that we'll consult with Fish and Wildlife--
Edwin S. Kneedler: --There was, there was in the Louisiana memorandum of agreement that was involved in the Fifth Circuit's American Forestry decision, and it was that provision that the Fifth Circuit held was unlawful on two grounds. That, that memorandum of agreement basically said we're trying to do something analogous to Section 7 of the ESA when the State is administering the program; and the Fifth Circuit said that went beyond EPA's authority by conditioning the approval on the State putting in place a compensation arrangement.
Ruth Bader Ginsburg: --You mentioned a whole string of states, I think, Texas, Florida, Maine were mentioned as states that... in connection with the transfer of the permitting authority had conditions that made the Endangered Species Act applicable.
Edwin S. Kneedler: That's not correct, Justice... Justice Ginsburg. What, after the Fifth Circuit's decision, EPA never tried to impose on a State an obligation to go forward in the same way that EPA, or even in a similar way that EPA would under Section 7 of the Endangered Species Act.
Ruth Bader Ginsburg: So what was done in Texas, Florida and Maine?
Edwin S. Kneedler: They all provided what I've described to Justice Souter, that... that the pre-existing ESA, EPA regulations require that draft permits be furnished to the, to Fish and Wildlife and to NOAA, and that they take into account the comments by Fish and Wildlife and NOAA. That doesn't come from the memorandum of agreement or... or... or EPA's memorandum of agreement with the states. That's something that comes from the regulations. Everything else--
Ruth Bader Ginsburg: So that, would that apply in this case? Would that apply to Arizona?
Edwin S. Kneedler: --Yes. And, and the biological, the memorandum of agreement in this case applies to all State-administered programs including those that were approved by EPA before 1993. This is a nationwide memorandum of agreement. And the basis--
John Paul Stevens: Mr. Kneedler, may I ask a question about the memorandum of agreement? That's kind of a new concept that I have a little difficulty following. Is there... is that, is one of the nine conditions of approval that the State enter into a memorandum of agreement?
Edwin S. Kneedler: --No, it is... no it is not. The memorandum of--
John Paul Stevens: Is there not a regulation that issues, that requires the states--
Edwin S. Kneedler: --Yes. There, there's--
John Paul Stevens: --What's the statutory authority for the regulation?
Edwin S. Kneedler: --33 U.S.C. 1314(i) allows... provides... excuse me... for EPA to establish guidelines, basic guidelines, minimum standards for State programs and... part of that--
John Paul Stevens: What if... what if the State just refused to enter into a memorandum of agreement? Would that, could that be a ground for refusing to transfer decision?
Edwin S. Kneedler: --If, if the, if its refusal was based on an objection to things that are within the, within the legitimate scope of a memorandum of agreement. I think that--
John Paul Stevens: Just says don't want... it just says we don't want to enter into a memorandum of agreement, period.
Edwin S. Kneedler: --Yeah. I... I think... I don't think EPA has ever confronted that. But I think it probably, it probably could be denied, but the regulations do not... as I recall... specifically condition the approval of the program on the memorandum of agreement.
John Paul Stevens: --that require the making of a memorandum of agreement.
Edwin S. Kneedler: Yes. I would, I would hesitate to say that EPA could not... could not insist on that, but it's important again to come back to the--
John Paul Stevens: But how can that be consistent with your shall argument?
Edwin S. Kneedler: --Because there's a separate authority for the, for the, for EPA to issue guidelines for minimum, minimum standards for State programs, but those have to do with... with communications with EPA and sort of running a program. And it's not a vehicle as I said before for EPA to impose new substantive requirements outside the Clean Water Act on the State. And that's why if... that's why if EPA insisted that a State enter into a memorandum of understanding that basically said we will, we will act like EPA does under Section 7 of the Endangered Species Act under the administration of the program, I think the, I think the State agency would be entitled to decline to enter into that agreement. And again that's essentially what the Fifth Circuit held in the American Forestry case, and to what extent we agree with the American Forestry decision. If I may, I'd like to reserve the balance of my time.
John G. Roberts, Jr.: Thank you, Mr. Kneedler. Mr. Glitzenstein?
Eric R. Glitzenstein: Mr. Chief Justice, and may it please the Court. I particularly start off with the memorandum of agreement that was just being discussed, and to, I think, at least try to clarify an answer, I think, to Justice Ginsburg's question about compliance with that memorandum of agreement. If you look at page 260 of the NAHB appendix that was filed along with the petition, one of the elements of that memorandum of agreement is that there would be compliance with Section 7 of the Endangered Species Act when there were transfer decisions being made by the EPA. And--
Antonin Scalia: Where is this? Would you--
Eric R. Glitzenstein: --This is page 260.
Antonin Scalia: --Of--
Eric R. Glitzenstein: Of the NAHB appendix, which is... there are two volumes of that appendix, Justice Scalia. Volume one was pages 1 to 317, which is the white cover volume, and I can quote from the paragraph that I was referring to. And it's the first full paragraph and it reads--
Antonin Scalia: --270 you say?
Eric R. Glitzenstein: --260, I'm sorry.
Antonin Scalia: 260.
Eric R. Glitzenstein: 260, around.
Antonin Scalia: I got it.
Eric R. Glitzenstein: And it's the first full paragraph and it says: "EPA's current practice is to consult with the Services where EPA determines that approval of a State's or a Tribe's application to administer the NPDES program may affect federally listed species. " And they actually complied with that memorandum of agreement in this case when they consulted in response to the Arizona application. Now, this memorandum of agreement which Mr. Kneedler just represented to the Court is continuing to be complied with, specifically provides the mechanisms by which the Clean Water Act and the Endangered Species Act will be reconciled and will be harmonized. This language was adopted after notice and comment proceedings. It is reflected not only in the application and the final decision made in this case, where once again the EPA said point blank, we are required to comply with Section 7 of the Endangered Species Act; but essentially the same understanding of the Agency's legal duties and how they would be reconciled was set forth in all these past consultation decisions that are described in the decisions below and our brief.
Antonin Scalia: Can that be read just to apply to any, any State permits that... that violate Clean Water requirements? As opposed to upland habitat which... which might be affected?
Eric R. Glitzenstein: There's certainly there's nothing in the memorandum of agreement that says that. But can I just add a critical point on that, Justice Scalia? The Government's position now is that it doesn't matter. Their new position in response to Justice Stevens's question about the change in position, before the Government came to this Court, they never previously suggested what they're now saying, which is that Section 7(A)(2) consultation obligations and the no-jeopardy prohibition don't apply at all to these transfer decisions. So this distinction between aquatic species and upland species, which may be an interesting one to explore, we would submit on remand, is not the current reflection of their position. Their position now is we could have something causing the extinction of aquatic species as a result of a pollution impact but we are under no obligation to even take a look at that under the seemingly mandatory requirement of Section 7.
Antonin Scalia: Well, how do you feel--
John G. Roberts, Jr.: That's not quite right. They would look at that in the context of reviewing the permits that are issued by the State agencies.
Eric R. Glitzenstein: Your Honor, and I think that's where we seem to have a little bit of a disconnect. The assumption that Mr. Kneedler seems to be making is the end of the consultation process that Section 7 requires, not the beginning of it. The purpose of the consultation process is to avoid conflicts with other statutory obligations, note to create them, and indeed as that memorandum of agreement language suggests, the consultation process has been used precisely--
John G. Roberts, Jr.: No, what he's suggesting is there isn't going to be any impact on any endangered species until a particular permit is issued by the State agency, and that those permits are submitted to the Fish and Wildlife Service for their review.
Eric R. Glitzenstein: --That's correct, Your Honor. But to go back to the suggestion that I think Justice Souter made, what the agencies have done in the past, and this is a situation where we don't have to speculate about whether the agencies can comply with those statutes. They have done it. They've worked these problems out. And what they have done when they've consulted, if you go back and look at the underlying consultation documents, they've spelled out exactly what Your Honor just suggested should be the approach. They've said, all right, when we issue these permits under Section 402... under 402(b) and do we exercise our oversight responsibilities under 402(d), here are the species we are going to pay special attention to. For example, in the Maine delegation, one of the principal species of concern was the Atlantic salmon, which they were concerned about because of impacts from the aquaculture industry. What they did in the biological opinion prepared as a consequence of that consultation was not say, we're not going to let this transfer go through. They said we have this oversight ability. We're going to work out with the Fish and Wildlife Service the mechanism by when those permits come to our attention, as they must under section 402(d), we will discuss the circumstances and criteria for objecting to those, we will go to the State under the following circumstances, and say we think this permit is going to cause the jeopardy of the species--
John G. Roberts, Jr.: What does that have to do with the... I'm sorry.
Antonin Scalia: --I thought that those are in place. As I understood Mr. Kneedler to say that that's exactly what they, what they continue to do.
Eric R. Glitzenstein: --Your Honor, and again--
Antonin Scalia: But that has nothing to do, as the Chief was about to say before I interrupted him, that has nothing to do with, with whether they have to issue the NPDES authorization.
Eric R. Glitzenstein: --And I guess the point I'm trying to make, Your Honor, is that the Court's fundamental obligation when it has two statutes that have shall provisions, is to see if there's a way they can be reconciled and worked out. And What I'm saying is that the consultation process has been and should be precisely the process where those kinds of issues will be reconciled and that's exactly how this process is working. So for the Government to come in and say let's not use the process that 7(a)(2) calls for, in order to try to avoid the problems, is to really put the cart before the horse in the most, I think, obvious way imaginable.
Antonin Scalia: Could I get back to the memorandum of agreement that you've called our attention to on page 260? I read that paragraph, and I don't see anything in it that imposes any obligation whatever on the State. It is just a description of what... what EPA is, is going to do.
Eric R. Glitzenstein: Right.
Antonin Scalia: The same kind of consultation with Fish and Wildlife that, that Mr. Kneedler described to us.
Eric R. Glitzenstein: I think, Your Honor, and I think that's critical. I think we're making some assumptions here that, at least on our side, we're not making. We're not assuming that the outcome of the consultation process has to be to impose new conditions on the State. One of the outcomes of the prior consultation process with Maine, with Texas, for example, was to spell out how the Service and EPA would address their post-transfer concerns.
Antonin Scalia: But this is talking about consultation when the permit is... the permit application is issued. Not consultation at the, at the stage of approving the State plan.
Eric R. Glitzenstein: With all deference, Your Honor, it says: "The current practice to consult with the Services where EPA determines that approval of a State's or Tribe's application to administer the program. " "And I think there is concession by the other side that that in fact was a reflection of what the practice was. " "They were consulting on the actual transfer of the programs, and the reason they were doing that, Chief Justice Roberts, was to do exactly what Your Honor is suggesting, that is to work out a mechanism beforehand, so that when the State permits are being issued, the agencies would know how to address their concerns. "
John G. Roberts, Jr.: But the point... the point is that it's the issuance of a permit under the program, whether administered by the Federal Government or the State government that has the potential for jeopardizing endangered species. It is not the administration of the program. And EPA has in place the procedures to allow them to review the particular permits, which what is what might jeopardize an endangered species. And they don't need to leverage their limited authority, their non-discretionary authority to approve a transfer, to have that authority to review the actual act that might jeopardize an endangered species.
Eric R. Glitzenstein: That's true, Your Honor, but again I think what the Court may be doing is assuming that this consultation process is somewhat more draconian than it frequently turns out to be. If the only outcome of the consultation process under Section 7(a)(2) is for the Fish and Wildlife Service to reach some understanding with EPA, it says when these permits are issued by the states, here are the circumstances under which you're going to lodge objections, because we're the expert agency on species. And I think this record shows what we're talking about.
Anthony M. Kennedy: Are you... are you saying that the consultation does beyond the nine factors that are listed in the statute?
Eric R. Glitzenstein: No, Your Honor. I think what we're saying is that consultation goes to the separate obligation under 7(a)(2) of the Endangered Species Act to address the impacts on a listed species. And if I could--
Anthony M. Kennedy: But isn't that beyond the nine factors?
Eric R. Glitzenstein: --I don't think... I think what it is is an effort, as there's been discussion here, to reconcile two obligations, both of which Congress felt were important. And that's exactly what the agency has done in other circumstances.
Anthony M. Kennedy: I... I understand that. But when they sit down and they have the consultation, is it proper for the EPA to say now, we're consulting with you, but only with respect to the nine factors, as to permits that are issued by the states afterwards, but then that's something else.
Eric R. Glitzenstein: Well, and Your Honor, just on that point, I found the Government's reply brief a little bit odd, because I think consistent with the questioning from Justice Breyer, it acknowledges for the first time that these factors do encompass some consideration of wildlife impacts. But putting that to one side, I think it's very important to compare what they're arguing now with how they dealt with other cross-cutting legal obligations. If you look, for example, at how they dealt with the Indian trust responsibility... I'm only bringing this up by way of analogy, because I think the government's position is, oh, we're trying to elevate the Endangered Species Act to some exalted status, and in fact all we're saying on this administrative record is that's the same status that they accorded to other cross-cutting legal obligations.
Anthony M. Kennedy: But what is your position as to the propriety of the EPA's saying what I've said in my hypothetical instance? If they... they say we're going to consult with you but we want to make it clear we're only talking about the nine factors.
Eric R. Glitzenstein: I think that my argument is that the Endangered Species Act on its face says that it prohibits jeopardy or the result of habitat destruction, critical habitat destruction, for any agency action that is authorized, funded or carried out. Our view is that they should first look to the Clean Water Act criteria and factors. We think--
Anthony M. Kennedy: Well, I think you are at issue with the government on that point.
Eric R. Glitzenstein: --We are, Your Honor. What I will say to you, with all respect, Justice Kennedy, and the reason I bring up their other legal obligations, and I think it also reinforces the value of a remand in this case, so some of the issues raised by the government's new position would be flushed out in the administrative process. If you look at joint appendix, page 203, when Native American tribes wrote to the agency and said we are concerned about the impact of this transfer on Native American historic properties and cultural and religious attributes, the EPA did not write back and say well, we're sorry, Native American tribes, that doesn't fall within the nine criteria.
John G. Roberts, Jr.: So what is... is there any limitation? Let's say that EPA says we're all set to approve this transfer, except OSHA sent us a letter and they don't like the occupational safety rules you have at the State environmental agency; so until you change those rules, or enter a memorandum of agreement that you're going to change those rules, we're not going to approve the transfer.
Eric R. Glitzenstein: I think the line, Your Honor, is whether you've got another crosscutting obligation--
John G. Roberts, Jr.: Yeah, like the OSHA act. It says, you know, the states should do this, and they're not doing it. So EPA can leverage their approval into any area of law?
Eric R. Glitzenstein: --Again, Your Honor, I think the first problem is, with that question is that, I don't mean to be evasive, but I think the problem is you're assuming the outcome of the analysis, which is that they'll have to impose some new condition on the State. With the Native American tribes, they didn't do that. They didn't impose any condition on the State. They said we'll have an agreement with the Native American tribes that when we exercise our oversight authority, we will look at the impact upon--
John G. Roberts, Jr.: But sometimes states say no. So if they say no, presumably they're going to have to impose the obligation as a condition of approval.
Eric R. Glitzenstein: --Yeah. And what I will say, Your Honor, is we think that in the past they have been able to work these problems out. But if they can't, I think it's important to recognize that Congress created a mechanism precisely for the very rare situation where there is--
Stephen G. Breyer: That isn't the... what I'm trying to figure out with Justice Kennedy's questions and your answers is, is there really an issue here? And I'm beginning to see maybe there is an issue when you said what are they talking about. Can you... it's a cactus. They're kidnapping cactus, as apparently happens. And if in fact this cactus, if the thing is transferred to the State, that cactus is going to disappear. Now that isn't fish. It isn't wildlife. It isn't water. It's a cactus. So can you take that into account? Is that theoretical? I think they're trying to raise this question of, suppose you know the IRS, that if you mail a refund check at the time, the person who gets it is going to use the $500 to destroy the last salamander in the world. Okay? Now there we are, endangered species. Does the Act apply to the IRS? I would have thought the answer's no.
Eric R. Glitzenstein: --The answer is no, Your Honor.
Stephen G. Breyer: And then I would have thought the same reasoning is true here, but what the Act tells you to do is read your existing authority, but read it in light of informed by the endangered species objectives language, et cetera. And now I wonder if with that approach, is it possible that even the cactus could fall within the nine criteria? You're not going to depart from them but you're going to read them generously in light of the objective of the Endangered Species Act, which is itself an environmental objective. Now how does that work? Can you do that? You're an imaginative lawyer. Can you do it?
Eric R. Glitzenstein: Well, I think you can.
Stephen G. Breyer: All right. The answer is you can. Then are you satisfied with this result in this Court? One, it can be read that way. They're not going to agree with that. It can be read that way, and therefore, it applies. The ESA, the Endangered-- Two, that means they consult. But three, the result of the consultation here which has been done means there's no real objection to the transfer, because it's virtually inconceivable given the weapon that the EPA has, withdrawing permits, given a memorandum of agreement, given the possibility of supervision, given the fact that the wildlife service will object, writing them a letter or a phone call immediately, given all that stuff, there's simply no reason to believe that Arizona will fail to protect endangered species.
Eric R. Glitzenstein: I think that's a good summary of what has happened with these consultations, and on the cactus--
Stephen G. Breyer: So what's your view of an opinion that roughly wrote what I just said?
Eric R. Glitzenstein: --Well, I think the concern I would have is that I think it goes beyond what's necessary here because we're not dealing, everybody agrees, with some purely ministerial situation like that one. I think the other critical factor here, Your Honor, that we haven't talked about, is the funding of this program. And it's very interesting when the government points out, if I can just get across to the Court I think a critical citation, because the government says funding is not before us. And the reason they say that is because it didn't need to be before us when they took the position that authorization of the program was sufficient to trigger their consultation duties. And in a footnote in their reply brief, they say pay no attention to funding, which is of course a discretionary activity, because that's completely separate from the decision to authorize. If you look at 40 C.F.R. Section 123.23(3), and I apologize... this is a response to their reply brief point so there's not any appendix before the Court... but it specifically provides that funding opportunities are part and parcel of the decision to authorize the program.
Antonin Scalia: I don't know what you're talking about. Funding of what?
Eric R. Glitzenstein: Funding of the NPDES program carried out by Arizona that had to be approved in order to allow--
Antonin Scalia: How does the government fund it?
Eric R. Glitzenstein: --They have to... there's a... Section 106 of the Clean Water Act provides the EPA with an opportunity, and it's certainly not mandatory, to provide funding to a State. And this is 40 percent Federal... we're not talking about de minimis funding. So it's one thing for the State to say well, it should get the program. It's another thing to say funding. And just to be clear about this, this is an argument we're making to reinforce the propriety of remand in this case.
Antonin Scalia: Well, you... you have other... let's assume that I disagree with you on whether they could withhold approval of the NPDES transfer. Even so, I think you... the point you're making now is that apart from that approval, there were other discretionary actions taken here, one of which is this funding; and another one of which, I believe, is whether... never mind the MOAs, but... I have it written down here, one of the other ones. Oh, whether existing permits would be transferred to State authority or not. And that is apparently discretionary and can be... what do we do about that?
Eric R. Glitzenstein: Well, we suggest, Your Honor... and I think this goes back to Justice Stevens's question about the change in position. I think we're in an odd position in this Court quite frankly because we have an administrative record where the administrator conceded a duty to comply with Section 7 of the Endangered Species Act. We have a new position here saying they don't. And we think funding and the other example you came up with is a good reason why a common sense result in this case is to say we have a change in position, there are new issues brought to the fore. As a consequence of that--
John Paul Stevens: May I ask this question about changing position? Have you agreed and conceded that the nine statutory criteria are satisfied?
Eric R. Glitzenstein: --We have--
John Paul Stevens: You shift back and forth on that point.
Eric R. Glitzenstein: --Your Honor, let me be clear about that. We never conceded that. What happened--
John Paul Stevens: What is your view now? Are they or are they not?
Eric R. Glitzenstein: --I think that there are actually arguments that, especially with regard to the wildlife related parts of the criteria, that are not satisfied. Let me... let me try to explain why we didn't feel it necessary to argue that in the court of appeals.
Stephen G. Breyer: Before you say why you didn't argue it, it's exactly that point I sort of expected you might agree when I though maybe you have hooks to hang the NSA, the Endangered Species Act on. But it was the other half, which I think is what Justice Stevens is saying now. I read through this record, not completely but pretty well, and I couldn't find a single thing that would suggest that Arizona presents any risk to you. And so, what is the risk to an endangered species that you're actually worried about there? And you rather... I didn't think you'd like to agree with that, but I want to press you to find out what actually is the problem.
Eric R. Glitzenstein: If I can give Your Honor some citations to the record, I think it will help answer that. On page 54 of the joint appendix, the Fish and Wildlife Service biologists, the expert agency employees, said that there would be significant effects to survival and recovery of listed species through a destruction, degradation and fragmentation of habitats. They specifically pinpointed the flycatcher, the southwestern willow flycatcher is a species that could be devastated. That's at page--
Stephen G. Breyer: And how would that happen? How would it happen that they would get rid of the flycatcher in Arizona, considering the fact that they have laws themselves that protect endangered species, and that's a bird, and a bird is wildlife; and so if they decide they want to kill all their flycatchers, which I would doubt, you could intervene at EPA and stop them. So how is that actually a problem?
Eric R. Glitzenstein: --Your Honor, the concern that they had was that the mechanism that had been used to protect these wildlife species, and particularly plant species, which I want to get to in a moment, because I think actually the concern is even greater with plants, was that the consultation on federally issued permits had in effect been used, and this was not conjectural, they had been used to safeguard considerable habitat for these species. And if I could turn actually to the water level, which is I think actually our best example, and--
Antonin Scalia: I mean, that's not enough. Why wouldn't... what would lead you to believe that it wouldn't... that the same would not happen when the State issued the permits? I mean, you have to show some reason why we don't trust Arizona to do what the Federal government's doing.
Eric R. Glitzenstein: --Your Honor, it is not a question of trusting them. I think part of the outcome of the consultation--
Antonin Scalia: Well then, you have to establish jeopardy. You have to establish jeopardy. And the mere fact that you're giving it to a State which Congress has been willing to trust with implementing this law is not enough to show that there's jeopardy. Prima facie, we would expect Arizona to do the right thing.
David H. Souter: Just as a technical matter, don't they have to show there's no jeopardy?
Eric R. Glitzenstein: --Yes, Your Honor. The burden is on the Agency in the consultation process. And it's at, as TVA versus Hill makes clear, the benefit of the doubt is accorded to the species. But, could I try to answer that question?
John G. Roberts, Jr.: Yes.
Eric R. Glitzenstein: We're not saying we don't trust the State. And In fact, one of the outcomes of one these prior consultation processes has been where it's appropriate, the service works had an agreement with the State where it says here are our concerns where the expert Federal agency, we listed these species, you didn't. Part of it's expertise, not trust. And in fact, if the State comes back and says we understand, we'll deal with that problem, that is one aspect of a consultation process that the government is now saying we should never have to go through. On the plants however, Your Honor, there is a very serious concern. In this respect the service biologists said we have protected these plants' habitats through the Section 7 mechanism. The State of Arizona acknowledges that it has no law or regulation which forbids the destruction of federally listed plant species. Section 9 of the Endangered Species Act, which Mr. Kneedler brought up and said it was the most important provision, and I would beg to differ. I think Sweet Home, both the majority and dissenting opinions agree that Section 7... and Hill... that Section 7 is the most important provision. But plant species are not protected generally by Section 9 of the Endangered Species Act, the take provision, except when they're on Federal lands. So we have a situation where the service biologists were saying, and this is how I read the record, and if I can give a couple more citations, page 128 and 139 of the joint appendix. On one plant species, joint appendix page 436. On the water on both, they were essentially predicting jeopardy, unless additional protections could be worked out in this process.
John G. Roberts, Jr.: Jeopardy from the issuance of a prospective future issuance of a permit by Arizona if they get the delegated authority. And that issuance of the permit would be subject to objection and review by EPA and the Fish and Wildlife Service.
Eric R. Glitzenstein: With regard to the plant, Your Honor, EPA's position to date has been that they do not have the authority to protect that plant species under their Clean Water Act authorities. Now we may disagree with that, but that is the position they've taken so far.
John G. Roberts, Jr.: The position that EPA has taken.
Eric R. Glitzenstein: That's correct, Your Honor.
John G. Roberts, Jr.: Under their authority.
Eric R. Glitzenstein: Under their Clean Water Act authority, which is what informs their oversight activities.
John G. Roberts, Jr.: So how does it matter whether they have it or if it's transferred to Arizona?
Eric R. Glitzenstein: Because again, what the consultation process is designed to accomplish, either through the funding, discretionary decision that was made, other mechanisms that can come into play, the idea behind the consultation on the transfer... and I think this is critical to our position... is to say if we're not going to be able to protect the species through the State issuance of the permits and the other authorities we have, what understanding can we come to, consistent with our--
Antonin Scalia: I don't understand--
Eric R. Glitzenstein: --other obligations to protect the plant species.
Antonin Scalia: --I don't understand that answer. The Chief Justice is asking, if EPA cannot do it itself, how is it creating any jeopardy in transferring the authority to somebody else who can't do it?
Eric R. Glitzenstein: Your Honor, what the--
Antonin Scalia: I mean, if you assume that EPA can't protect these plant species under its legislation, what harm is there in transferring the authority to somebody else who can't protect it?
Eric R. Glitzenstein: --Well, I should just first say that we disagree with the premise of that question. In terms of EPA's position, we happen to think that EPA can protect those kind of plant species, and I think that's one of the additional bases s for a remand. But I think the more important answer to Your Honor's question is that the Fish and Wildlife Service biologist said in this administrative record that the loss of those protections was an indirect effect of the transfer, that because we have used these protections when we've issued Federal permits to prevent species like these plant species from going extinction... and this was not speculative--
Anthony M. Kennedy: If the EPA can protect the plants when the permit is under its own jurisdiction, why can't it use that same basis for objecting when it's under the State's jurisdiction?
Eric R. Glitzenstein: --Your Honor, that's an awfully good question. And in fact we believe that should have been one of the outcomes of the consultations. On the transfer. If one of the results of the transfer... and I think this was... I think what's happening is that the government has basically assumed the answer to the consultation before we've gotten to that point. They've assumed--
Samuel A. Alito, Jr.: What's the difference between Arizona's situation and all the other States that can issue permits? Are they under legal obligation to consult?
Eric R. Glitzenstein: --I believe that--
Samuel A. Alito, Jr.: And where is--
Eric R. Glitzenstein: --It's not the State's obligation to consult, Your Honor. Just to be clear, Section 67 imposes no obligation on the State. We completely agree with that. It imposes an obligation on a Federal agency.
Samuel A. Alito, Jr.: --You say it imposes an obligation on EPA to require the States to consult.
Eric R. Glitzenstein: We don't disagree with that either, Your Honor. We believe that there are mechanisms that have been used in past consultations, especially after the Louisiana decision that came down, which involve the State not at all, which involve only the Fish and Wildlife Service and the EPA recognizing how they would exercise their--
Samuel A. Alito, Jr.: I still don't understand the difference between what you think is going to happen in Arizona and what is happening in all the other States that issue permits.
Eric R. Glitzenstein: --Your Honor, we're not saying that... particularly with regard to Texas, Florida, Oklahoma, Louisiana and other States that have gone through the consultation process, we're not saying that anything different should happen. We're saying go through a full consultation process, agree on mechanisms that can protect these species.
Samuel A. Alito, Jr.: No, in the issuance of a permit in any of these States, pick any State you like, what is the difference between what you envision would happen in Arizona, if Arizona can issue permits, and what's happening in these other States?
Eric R. Glitzenstein: Again, with regard to consultation with Arizona, all we're asking for and all we've ever asked for in this case, and this was what the service biologist said, was use the consultation process to agree on measures that can be put in place post-transfer that will prevent the species from going extinct. That's what happened--
David H. Souter: May I ask you to follow up on that? A few minutes... I guess your time is getting short and I'd like to get away from some of the specifics and back to the general. A minute ago, Justice Breyer in effect offered you an opinion and he spelled it out and he said, if I put that in writing is that what you want? You said, well, it's really more than we need. Would you please at this point summarize as succinctly as you can what you need to win this case?
Eric R. Glitzenstein: --Well, the narrowest thing we need is simply a decision that the government changed its position and the case should be remanded.
David H. Souter: No, tell me substantively, what do you want? What substantively do you want at the end of this case?
Eric R. Glitzenstein: Your Honor, what we would like is a ruling that says that 7(a)(2) imposes obligations on Federal agencies just like the Clean Water Act does, that the agency should make a good faith... and this is the words of Congress... "a good faith effort to use the consultation process provided by 7(a)(2) to devise mechanisms to protect species. "
David H. Souter: And how will they put those mechanisms in legal form?
Eric R. Glitzenstein: They would put those mechanisms in legal form either through memorandum of agreement, which is what's been used in the past, separate agreements between EPA and the Fish and Wildlife Service--
Antonin Scalia: By coercing, by coercing the States to sign those agreements on pain of not getting NPDES authority?
Eric R. Glitzenstein: --No, Your Honor. In fact--
Antonin Scalia: What do they do then? They just whistle and this comes forth? States don't sign stuff just, just for the sake of it.
Eric R. Glitzenstein: --Your Honor, I think part of this, these agreements, wouldn't have to be signed by the State at all.
David H. Souter: Justice Scalia's got a fair point. What if the States say, we don't want a memorandum of agreement? What does the Federal Government do at that point? Doesn't the Federal Government at that point say, okay, we're not going to issue the transfer under Clean Water because we have an independent obligation under Endangered Species and there's got to be both or there will be neither? Isn't that the Federal Government's position?
Eric R. Glitzenstein: At the end of the day I think it is. And there is an endangered species committee. Once again--
Antonin Scalia: It's your position, not the Federal Government's position. It's your position of what the Federal Government's position ought to be, right?
Eric R. Glitzenstein: --What I was trying to suggest was... I think if in the end of the day you look at all of these opportunities to protect species and you say there's nothing we can do about it and the State refuses to cooperate, you have what's called jeopardy or destruction of critical habitat, and Congress said that the mechanism for working out the conflict with another law is the endangered species committee, which we have not talked about very much. That was Congress's answer. But what I was trying to suggest was, long before you get to that point and without imposing a single obligation on the State, simply using the authority under 402(d) of the Clean Water Act, which provides for this oversight opportunity, the service and the EPA can come to their own understanding as to how EPA will in fact carry out its post-transfer review of these. And we think that is, that is an acceptable answer to the question.
John G. Roberts, Jr.: Thank you, counsel.
Eric R. Glitzenstein: Thank you.
John G. Roberts, Jr.: Mr. Kneedler, you have four minutes remaining.
Edwin S. Kneedler: Mr. Chief Justice: First, with respect, stepping back and looking at the legal theory, we think that this case is really on all fours with the Public Citizen case. In fact, the court of appeals recognized that the operative regulation here, the definition of "indirect effect", meaning something caused by the agency, is just like the one in Public Citizen. In Public Citizen this Court held that where an agency has a mandatory duty and does not have the ability to control subsequent events, that the agency cannot be regarded as the legal cause of whatever effects happen. That is exactly the case here. Section 402(b) mandates that EPA approve the State's application. EPA therefore, EPA's decision therefore is not the legal cause of any effects that might happen with respect to endangered species. I should point out that in this Court's decision in Sweet Home this Court in footnotes 9 and 13 read the other principal provision of the ESA, the take provision, to incorporation a proximate cause limitation. We think it follows that the jeopardize prohibition in Section 7 also incorporates a proximate cause or here legal cause restriction.
Antonin Scalia: Mr. Kneedler, I hate to eat up any of your rebuttal time, but would you state briefly what... how you would treat these other matters that were resolved by the agency and that were not mandatory, its decision to transfer prior certificate authority to the States, for example, and the other instance raised by opposing counsel? What if I agree with you on whether you can deny the NPDES permit, but I'm concerned about these other actions by the agency that were discretionary?
Edwin S. Kneedler: There has been no challenge to that, so I'm not in a position to give a definitive answer. But I believe to the extent it would be discretionary that Section 7 may well kick in.
Antonin Scalia: Should we remand?
Edwin S. Kneedler: No, because there was no challenge to that. There was no challenge to that aspect of it. This was a challenge to the transfer of authority, not ancillary matters addressed under the agreement. Also, footnote 18 of the court of appeals opinion makes clear that Respondents did not challenge anything to do with funding, which is an entirely separate administrative determination that there's a regulatory set of criteria for how funding gets distributed, it is not dependent on whether the State has NPDES authority. Section 106 of the Clean Water Act has a separate funding mechanism for Clean Water Act authority generally. So funding is simply not, it's simply not in the case.
John Paul Stevens: And it's in your discretion... your distinction to the snail darter case is that the decision to built the dam is discretionary, not mandatory?
Edwin S. Kneedler: Yes, and in fact this Court's decision in Hill can't be understood in any other day because the Court went out of its way to say that, while Congress committee reports indicated, for the appropriations bills, indicated an expectation that the dam would be built, the Court emphasized the fact that there was no mandate in the appropriations statute itself. That would have been--
Antonin Scalia: Do you mean the executive can ignore earmarks?
Edwin S. Kneedler: --Yes. That part of the Court's decision would have been unnecessary.
Stephen G. Breyer: What's a mandatory decision? No, what's a discretionary decision? I mean, in the sense you're using it. I've never heard of an agency that could just give out money to whoever they want, like you or me. There are always criteria. Write a "shall"; there are always criteria.
Edwin S. Kneedler: But there are few statutes like this, that say the agency shall unless certain things happen.
Stephen G. Breyer: You mean is it the word "unless", because here we have nine and they're broad. Probably with funding we have 32. Maybe with some others we have 14. But I can't get my mind around--
Edwin S. Kneedler: There may be particular applications of the standard, but that did not deter this Court in Public Citizen, where the Court applied the same principle and said where the agency has a mandatory duty and no discretion it is not the legal cause. That's the general principle. If there are other cases where that general principle has to be applied, there will be time enough for that consideration to arise. Another important aspect of Hill is this Court quoted Representative Dingell, the sponsor of it, saying that agencies are to take actions within their power, which suggest that... and we think it's clear through the history, as we recite in our brief at pages 27 and 28, from the text of the Act and from the evolution of Section 7, it was always understood to apply to situations where the agencies had the existing authority to take action, not to require them to countermand statutory directives the way the Department of Transportation could not countermand statutory directives in Public Citizen. Thank you.
John G. Roberts, Jr.: Thank you, counsel. The case is submitted.


Earl Warren: Number 45, Federal Power Commission, Petitioner, versus Transcontinental Gas Pipe Line Corporation, et al. and number 46, National Coal Association, et al., Petitioner, versus Transcontinental Gas Pipe Line Corporation et al. Mr. Solicitor General.
J. Lee Rankin: Mr. Chief Justice and may it please the Court. This case involves the Natural Gas Act. It is a question of a certificate to transport gas under Section 7 of that Act. The particular part of the application that's involved here is what is known as the transportation of X-20 gas, which is somewhat unusual and I'll try to describe it. Under the tariff, proposed tariff, the X-20 was gas that Consolidated Edison Company, New York, bought directly from the producers in Texas at $19.25 for 1000 cubic feet to have transported by the Transcontinental Gas Pipe Line Corporation to New York City with the restriction on the use of the gas that it could only be used as fuel for boilers. The record is clear that the purpose of the restriction was for the producers to avoid any regulation of the price of their gas. The examiner in considering it -- well there's a further factor that is of importance, and that is that Transco, Transcontinental Pipe Line Company, agreed that for a period of 60 days at the election of Consolidated Edison, they would furnish their own gas that could be used for resale in the New York City area, to Consolidated Edison in the portion of the pipeline that had otherwise been provided under this X-20, for the transportation of this gas, Consolidated Edison that Consolidated Edison bought directly.
Potter Stewart: I don't quite understand that. They do that for 60 days?
J. Lee Rankin: Well, whatever Consolidated Edison elected to do so.
Potter Stewart: Would that be presumably for a peak period?
J. Lee Rankin: That's right. That is what is called the peaking gas.
Potter Stewart: I see.
William J. Brennan, Jr.: Well then what happens, Mr. Solicitor, what happens to the X-20 gas?
J. Lee Rankin: Well, during --
William J. Brennan, Jr.: It's not been delivered?
J. Lee Rankin: That isn't delivered. It's what they --
William J. Brennan, Jr.: Is or is not?
J. Lee Rankin: Is not.
William J. Brennan, Jr.: Is not.
J. Lee Rankin: It's, what they call, a drawback and it's though the pipeline is there with that space available for Consolidated Edison to use and instead of using the X-20, they put into a Transco gas that can be resold.
William J. Brennan, Jr.: But that -- is there a condition against the use of that Transco gas for fuel or boilers?
J. Lee Rankin: No. It -- it can be resold. It could be used for boilers too.
William J. Brennan, Jr.: Oh, I see.
J. Lee Rankin: But the purpose of it, the purpose of the provision is to be able to resell -- sell it, to take care of the peak loads during that period that Consolidated Edison would have.
William J. Brennan, Jr.: The Transco would sell it or Edison?
J. Lee Rankin: Consolidated Edison would sell it in the New York market. Transco would merely carry the gas but it would be gas that Transco purchased itself and would be subject to resale, as distinguished from the restriction on the Consolidated Edison purchased gas which could not be resold in the New York market but had to be used according to the terms of purchase for a boiler fuel.
William J. Brennan, Jr.: Now this Transco gas, I gather, the price of that is regulable?
J. Lee Rankin: It is regulable, yes. And there was a general tariff covering that. But the tariff that they -- that Consolidated Edison purchased that gas under was one in -- that was interruptible. That is they had a right, Transco had a right to take the regular gas of what's called CD under the tariff and interrupt the Consolidated Edison being able to have that gas in order that they'd be able to put it in storage during a part of the year.
William J. Brennan, Jr.: Does that mean this is significant for the spending of gas, significant for the use in the United States?
J. Lee Rankin: Well it is because of the peaking provision to understand, because that was one of the reasons, the justifications, by Consolidated Edison and Transco for having this arrangement. Now as a matter of fact, it does seem important as to whether or not, air pollution was truly an important part of the consideration in this matter. And I think that as I develop, that you'll see that the air pollution was an explanation or a justification that they gave for wanting this particular tariff approved by this transportation certificate. But as a matter of fact, it did not loom nearly as important as the opportunity to be able to buy the gas direct without interference.
Felix Frankfurter: Does the volume of X-20 gas as against the 60-day gas, is that a relevant factor in your -- in the problem?
J. Lee Rankin: It becomes --
Felix Frankfurter: I mean it depends how much is --
J. Lee Rankin: It becomes --
Felix Frankfurter: -- the relative -- the relativity volume?
J. Lee Rankin: It becomes relevant in regard to how they might use it for air pollution that they really meant, that air pollution was important in this consideration. Now this particular volume we're talking about that they contracted for, was 50,000 Mcf. of gas per day that they could -- they bought in Texas under this price of $19.25, to be used for boiler fuel. There, they had a provision that they could get during the peaking period for the 60 days at their election up to 50,000, the same amount, from Transco of resalable gas. Their testimony was that they were going to use only 25,000 because they were going to use 25,000 of the X-20 gas that they bought themselves in the boilers, in two boilers at water side, in order to take care of the air pollution and the rest, they would proceed to use for resale for their peaking purposes.
Felix Frankfurter: What if -- I probably don't understand this. But if they were going to use a fraction, in a sizable fraction, of the peaking supply in relation to air pollution, then that is just so much more in order to deal with it or to avoid air pollution. Then they add that on to the main claim that they make, that they bought the 50,000 Mcf. for that purpose. Am I wrong about that?
J. Lee Rankin: Well, it's clear in the record that they didn't intend to use this peaking gas from Transco for air pollution.
Felix Frankfurter: Well I thought you just said they use 20 – they were going to use 20,000?
J. Lee Rankin: 25,000, but that was still the same gas that they had purchased directly from the producers at $19.25 and that they had to use for boilers. Now what they used over the 25,000 was going to be gas that they could resell, and they wanted to have the benefit of that. And it was a beneficial transaction to them because that would help them at least to the extent of 25,000 Mcf. to take care of the greater demands of their consumers in the New York market for gas that could be burned by the consumers. That is gas for resale.
Felix Frankfurter: So that they had themselves against resale potentially by the 60-day provision. Is that right?
J. Lee Rankin: That's right. And that was --
Tom C. Clark: Same gas, same type of gas?
J. Lee Rankin: Well --
Tom C. Clark: Peak gas is the only gas?
J. Lee Rankin: It's all the same burnable, but there was no restriction on the resale as to the $19.25 gas, the X-20 gas. And the gas they would get from Transco could be resold.
Felix Frankfurter: But there -- I understand and I'd like to know too Justice Clark's question. Was the quality of gas, forget the price, was the quality of gas the same?
J. Lee Rankin: Apparently. There's no dispute in the record that there was any difference. It's --
Tom C. Clark: There is a technical proposition that they could resell because they own the peaking gas, they could resell it. It had nothing to do with the quality of the gas though?
J. Lee Rankin: That's right. Now the record is also clear although it is not involved in this particular case, but it has important bearing upon the decision of the Federal Power Commission that the program was within two years to increase this X-20 gas that they would buy directly and then have a restricted use of it to a 120,000 Mcf. That is from 50 -- 70,000 Mcf. more within a two year period. But -- and it was inferred at first that they would use this to take care of some more of the air pollution problem. But the testimony was that when they got the whole 120,000 Mcf. of the X-20 gas, they would still, during certain periods of the year, use only 25,000 for air pollution purposes.
William J. Brennan, Jr.: Mr. solicitor, I am about a little confused and much confused. But I don't quite understand this. I thought you said to us that they take 25,000 of this X-20 gas, is that it?
J. Lee Rankin: Yes, Mr. Justice.
William J. Brennan, Jr.: And is that the maximum that they've been using for boiler fuel?
J. Lee Rankin: No.
William J. Brennan, Jr.: In other words that whole 50,000 that they get, which is conditioned for use only as boiler fuel, they are in fact, using as boiler fuel? None of that can be resold, isn't it?
J. Lee Rankin: No, it cannot. But there would be -- during the peaking period, they wouldn't take the whole 50,000. During part of the year except the peaking period, they would take the 50,000 --
William J. Brennan, Jr.: Right.
J. Lee Rankin: And -- and use it for boiler fuel. They were using large amounts of boiler fuel other than for air pollution at other stations. And this particular station involved here, well there are two of them on the east river, one at 40th and the east river near the United Nations building, which would need 50,000 to take care of eight boilers that were bad. Two of those were the only ones that there was a -- there wasn't even a violation of the ordinance, but they were worst and they would -- they were the real problem and they take 25,000 Mcf. to take care of. The others were probably, it's a business reason for getting the others also to take care of gas according to the record or to have them burn the gas in the boilers, because the record is clear that the 71 and 72 boilers are the ones that are making the fly ash difficulty that is bothersome to the city.
John M. Harlan II: Mr. General, now suppose in this air pollution issues were not in case at all and these people have said, "We want this gas for boiler purposes and not resale for these keepers in coal." Would your case be any different?
J. Lee Rankin: Well, I don't think it is. I do think there is a problem --
John M. Harlan II: I didn't take your point and as I was confused as to with all the talk and the brief was and that you're spending time on knowledge for what bearing really on this basic issue, the air pollution issue on that.
J. Lee Rankin: Well, I don't think that in the base -- in regard to the basic issue that air pollution is anything except something too confusing, because I don't think there's any validity to the point. On the other hand, I did feel that I had to deal with it because there is an act to the Congress that says that the United States has appropriated $5,000,000 to cooperate with the states, that the states have a primary obligation about air pollution and whatever research could be developed, in that regard, the United States would cooperate and then the President of the United States issued the Executive Order in which he directed that people in the United States Government cooperate with the states and cities to see that whatever could be done about our own industry that is governmental industries, did not contribute to air pollution. So I thought there was a duty to try to show to the Court that air pollution was not a real problem in this case.
Felix Frankfurter: There's a difference between validity to the point and relevance to the point.
J. Lee Rankin: Yes. I view that Mr. Justice. But I think that the basic issue in this case is whether or not this end use, that is the difference between the use of gas for boiler fuel which is considered as an inferior use was so determined by the Federal Trade Commission Report in 1936 which this Court has said, and it's recited in the 1938 Natural Gas Act, was the reason for the Natural Gas Act to be passed. And on the -- on the considerations of conservation, the superior use as compared with the inferior use, and whether that can be considered by the Commission in regard to determining whether certificates should be issued, is the basic issue in this case. Now the Commission did determine that it would not issue a certificate in this case, and this is a Section 7 application, I want to make it clear. It's not a rate case application. It's a certificate for transportation in which Section 7 comes into play. And the Commission held that in this kind of a situation, there were four basic reasons why in the public convenience and necessity under that condition as provided in Section 7, this -- at this certificate could not be required by the public interest -- by the public convenience and necessity. Because, first, they felt it would breakdown the practice over a period of some 20 years of the purchase of gas and resale by the transmission companies and would be damaging to that established price. Secondly, they felt that it would inflate prices in competition to have these various large users go into the marketplace and bid against the pipelines to require gas and resell it in this manner. And it would drive the prices up. Third, they said that the small consumers wouldn't have the buying power to engage in any such practices as this and they would be forced to have -- to acquire their purchases through the transmission companies of the pipelines in the same way and would be adversely affected by the fact that prices and the pipeline gas would be driven up, but they couldn't compete by going out and trying to get the gas at the lesser price.
Potter Stewart: So it is kind of a trial, are you --
J. Lee Rankin: That's right.
Potter Stewart: The second --
J. Lee Rankin: Yes. They further took the position, this was an inferior use that the pollution issue was not a valid one under the showing made, and that it was therefore, not justified under their prior holdings and positions that boiler use is an inferior use unless there's special justifications, there should not be -- that use should not be certificated.
Earl Warren: General, I don't know whether it's pertinent or not, but is there any differential in this case as between the boiler gas and the gas that's for resale? That is so far as the price paid for it. I don't know -- I don't know whether it's relevant or --
J. Lee Rankin: There -- there was. The price that they paid in the field was higher, $19.25.
Earl Warren: Yes.
J. Lee Rankin: And the gas for -- that CD gas, the Transco sold generally for resale, was based on accumulation of a number of prices that they put together over the years of the -- substantially below that. The Commission was trying to hold gas in this particular area where Consolidated Edison went in and bought and paid $19.25. They were trying to hold it below 18 cents. Consolidated Edison, in order to get this large chunk of gas under these terms that would not be regulated, went in and bid $19.25 and got it. And that had the effect of lifting prices in that area. The -- the testimony from Transco on the other hand, was that they couldn't -- they did not dare try to buy this gas at -- in competition with Consolidated Edison and I think the inference is fair, probably lower than even $19.25, because it would escalate other prices they had on gas. But there's no question to what they paid substantially, above the general market that the pipelines had been paying for this gas, but the producer said, “We don't want any regulation as a part of it.” And they gave them that part of the agreement so they wouldn't get regulated and agreed to use it for this limited purpose. Now, it's also clear this doesn't help Transco at all on getting its load factor railings like this type of gas sometimes does where there's a direct purchase and its run through the pipeline. It doesn't help on that kind of a thing. It does give them more money, because they get paid a fair price and there's no controversy about that for transporting the gas. But the Court of Appeals reversed the Commission and held that it had no right because of what it said the legislative history was, to consider the conservation factors that is the end use of the gas in any way, that if could -- couldn't consider whatever was done about buying the gas. It couldn't consider whatever was done about the use of the gas. The only thing it had a right to do was consider whether or not the gas could be transported, and it said that in regard to that, it was to examine the conventional, as it described it, factors. Now, it's the position of the Federal Power Commission that when the Court of Appeals so held, it disregarded the true legislative history of this Act. In the first place, the 1938 Act was passed as you will recall, with a provision that the Commission would have jurisdiction of certificate cases in regard to transportation only where there was another gas line -- transmission line in the area and it would not have in other cases. Now, it was found in 1942 that that was -- in the experience up to 1942, but that was not an adequate solution for the problems in the industry. And there was a considerable -- there were recommendations that the conservation factors of having a number of lines come in to a particular area could not be adequately dealt with. There were also the factors of the other fuel interests and the transportation interest of other fuels, were not permitted to intervene under the 1938 Act and present a showing as to the fact that coal or the transportation of coal could adequately take care of the fuel needs of a particular proposal of a certificate or application. And therefore, that factor could not be properly taken into account by the Commission the Commission had so taken that position in some of its holdings. And so that Congress, with expressed reference to conservation, had amended the Act so as to make it possible for the Commission to go into any application for extension or new transmission lines wherever there was application, wherever there was an attempt to do that. And also, to allow the intervention of other fuel interests and transportation interests to show that other fuels could be used to greater advantage and conserve the gas. Now, the Court of Appeals relied upon the 1944 statement of the Federal Power Commission in regard to conservation in which it had said in a report to Congress that it didn't have the comprehensive right to control conservation and disregarded the footnote to that statement, which was clearly set out to the effect that they didn't have the right to control the direct sales to industry or to suspend the rates on indirect sales to industry through the pipeline. And it made it explicit that it was the comprehensive control of these other things that it needed. And in 1944, the same year, the Federal Power Commission in reporting on a resolution by the Senate, which suggested a complete examination or investigation by the Federal Power Commission into conservation of gas and other fuels. In reporting on that, the Federal Power Commission expressly told the Senate Committee that it had the power to regulate and it considered the end use under in certificate cases, and that it needed this comprehensive power to consider -- to be able to protect conservation in regard to direct sales to industry and suspension of rates on indirect sales.
Tom C. Clark: That it direct sales where there'd be no certificate acquired.
J. Lee Rankin: That's right, Mr. Justice. And indirect sales where they can't suspend it, even though there is a certificate and they go under Section 5 for a regulation. So that, the Commission was explicit about this, then time after time, they have taken a similar position and they have reported the various cases they've taken, the fact that they asserted the right to consider the end use of the product in regard to inferior and superior uses of gas and made a claim that they considered boiler fuel as the Federal Trade Commission had said, an inferior use. Now, the practices of the Commission were that they did allow certificates for boiler fuel in various situations and those are set out in detail in the brief. But there had to be a special justification for the use, this inferior use, or they would not allow it and some of the special justification was in a Transco case. Transco, in its earlier applications, made justification showing that they needed the right to sell for industrial purposes in order to bring the rates down to their resales to other consumers, because of the lack of volume during their valley periods or their low periods in regard to resalable gas. And therefore, they justified on that basis, but even then, the Commission said to the time after time, you should get busy and establish some storage, so you don't have to sell all this gas for this inferior purpose. But you can put it in storage during your valley periods and then sell it out during the peak periods, sold to the consumers for the highest use, and therefore, conserve the gas. And they pressured Transco time after time on that and finally in this application for the first time, Transco has come forward with what was called the Leidy Storage Project. Now, this proposal is damaging to that project amongst other things, because it doesn't conceive that this particular gas that they will get during the 60-day peaking period or during the other period that they use this part of the pipeline which is the valley period, will go into the Leidy reservoir, but it'll be used for the special advantage of Consolidated Edison under this X-20 tariff. But the Commission had insisted constantly as one example of their position that Transco get more into the storage business for the conservation of gas and it finally come around to that point. Now, they'd also allowed it for the atomic energy plant at Oak Ridge. They've allowed it for other installations where they needed to raise the amount of their volume, so as to reduce the price of the gas generally to the consumer. They had allowed it for special industrial purposes, where it was shown that the gas, itself, would form chemical compound or help in that regard with the -- in the manufacture and so had a contribution other than just the use for the purpose of producing steam, which is a low value use as far as the amount of return from the Btus in it, and each of those situations we have analyzed at some length. Now in regard to the legislative history, there's also expressed specific examples where the congressmen had come forward with the proposal to prohibit the Commission from considering end use, four different times and the Congress had not yet allowed it.
Earl Warren: We'll recess now.