Opinion ID: 3180012
Heading Depth: 3
Heading Rank: 2

Heading: Arizona’s substantive claims

Text: Turning to the substance of the Final Rule: EPA found that the SIP’s “overall approach” was “generally reasonable and consistent” with the Haze Regulations and the Guidelines.13 77 Fed. Reg. at 42,840. But it concluded that the State’s BART determinations were deficient in three particular respects. First, Arizona’s control cost calculations 12 As Arizona argues, in “some circumstances” BART controls may not be “necessary to make reasonable progress.” But that is so when states elect to implement an “emissions trading program or other alternative measure,” that result in “greater reasonable progress” than BART. Id. § 51.308(e)(2) (emphasis added). Here, the State did not submit an alternative measure under § 51.308(e)(2), choosing instead to conduct a source-specific BART analysis. 13 Petitioners do not challenge the Haze Regulations or the Guidelines, only their implementation in the Final Rule here at issue. ARIZONA EX REL. DARWIN V. USEPA 25 were not performed in accordance with the Guidelines and were otherwise unreasonable. See id. at 42,841; 77 Fed. Reg. at 72,516–18, 72,566. Second, Arizona did not properly evaluate the visibility improvements to all Class I areas. See 77 Fed. Reg. at 42,841–42; 77 Fed. Reg. at 72,519, 72,566. And third, Arizona inadequately explained its consideration of the BART factors. See 77 Fed. Reg. at 42,841, 42,846; 77 Fed. Reg. at 72,517, 72,566. Because of these deficiencies, EPA partially disapproved Arizona’s BART determinations, including those pertaining to Coronado’s NOX emission controls. Arizona and SRP contend that each of EPA’s conclusions is legally flawed and unsupported by the record. Consequently, they contend, the agency’s partial disapproval of the SIP was arbitrary and capricious. We disagree. EPA’s conclusions concerning the State’s BART analysis and determinations were well explicated, carefully grounded in the administrative record, and analytically reasonable, and so properly support its disapproval of Arizona’s NOX BART determinations for Coronado.
As one of the BART factors, states must consider the “costs of compliance.” 42 U.S.C. § 7491(g)(2); 40 C.F.R. § 51.308(e)(1)(ii)(A). “States have flexibility in how they calculate costs.” Haze Regulations, 70 Fed. Reg. at 39,127. A state’s cost calculations are critical to determining a BART control’s “cost effectiveness,” where “‘effectiveness’ is measured in terms of tons of pollutant emissions removed, and ‘cost’ is measured in terms of annualized control costs.” Id. at 39,167. 26 ARIZONA EX REL. DARWIN V. USEPA After identifying control alternatives and achievable emissions performance levels, states are directed to “develop estimates of capital and annual costs.” Id. at 39,166. “The basis for equipment cost estimates also should be documented, either with data supplied by an equipment vendor . . . or by a referenced source (such as the [Office of Air Quality Planning and Standards] Control Cost Manual . . . ).” Id. The Guidelines instruct that the Cost Manual “addresses most control technologies in sufficient detail for a BART analysis,” and that “cost estimates should be based on the [Cost Manual] where possible” to “maintain and improve consistency.” Id. States are allowed by the Guidelines to include “additional information” — such as “any information supplied by vendors that affects your assumptions regarding purchased equipment costs, equipment life, [or] replacement of major components” — in their cost calculations, but require them to provide documentation for any “element of the calculation that differs from the . . . Cost Manual.” Id. n.15. Finally, the Guidelines indicate that “[t]he cost analysis should also take into account any site-specific design or other conditions . . . that affect the cost of a particular BART” option. Guidelines at 39,166. In its proposed rule, EPA found “certain aspects” of Arizona’s cost calculations “inconsistent” with the Guidelines and Cost Manual and “disagree[d] with the manner in which [Arizona] interpreted the cost-related information included in its [] SIP.” 77 Fed. Reg. at 42,841. With regard to Coronado, specifically, EPA noted in its proposed rule that SRP “provided summaries of total control costs, such as total annual operating and maintenance costs and total annualized capital cost, but did not provide cost information at a level of ARIZONA EX REL. DARWIN V. USEPA 27 detail that included line item costs.” Id. at 42,850. This omission meant that SRP did not provide Arizona “with control cost calculations at a level of detail that allowed for a comprehensive review.” Id. at 42,851. As a result, EPA explained, it “[did] not believe that [Arizona] was able to evaluate whether SRP’s control costs were reasonable.” Id. Arizona’s BART analysis was therefore inadequate because it “did not properly consider the costs of compliance for each control option.” Id. We conclude that EPA’s disapproval of the cost analysis underlying Arizona’s BART determination for Coronado on that basis was not “arbitrary, capricious, [or] an abuse of discretion.” 5 U.S.C. § 706(2)(A). Arizona simply relied on the cost data provided by SRP, despite the fact that the data failed to include sufficient detail for the State meaningfully to analyze the reasonableness of the costs of various control alternatives. States are required by statute to consider “costs of compliance” in making BART determinations. 42 U.S.C. § 7491(g)(2). When they are not presented with enough data to do so, EPA may reasonably conclude that their analysis is 28 ARIZONA EX REL. DARWIN V. USEPA inadequate.14 EPA’s decision to do so was not arbitrary or capricious.
As part of its BART analysis, a state must analyze “the degree of improvement in visibility which may reasonably be anticipated to result from the use” of alternative control technologies. 40 C.F.R. § 51.308(e)(1)(ii)(A). EPA found no problems with the “technical adequacy of [Arizona’s visibility] modeling.” 77 Fed. Reg. at 72,519. Rather, EPA found Arizona’s interpretation of the visibility modeling for all three plants “problematic.” Id. The problems, EPA contends, resulted in Arizona understating the visibility benefits associated with installing SCR at Coronado. We conclude that EPA’s assessment of Arizona’s visibility analysis considered the appropriate factors rationally, and so defer to its conclusions. See Motor Vehicle Mfrs., 463 U.S. at 43. 14 EPA also disapproved the cost analysis for failing to use the “overnight method” required by the Cost Manual. The “overnight” method “treats the costs of a project as if the project were completed ‘overnight,’ with no construction period and no interest accrual.” 77 Fed. Reg. at 72,530. “Since assets under construction do not provide service to current customers,” utilities for ratemaking purposes use an alternative, “levelized” methodology, to “capitalize[] the interest and return on equity that would accrue over the construction period and adds them to the rate base when construction is completed and the assets are used.” Id. Because EPA had a sufficient alternative basis for disapproving the Coronado cost analysis, we do not here decide whether it could require Arizona to employ the overnight method. We discuss EPA’s use of the overnight method in its FIP infra, at 39–40. ARIZONA EX REL. DARWIN V. USEPA 29 For Coronado, Arizona used a “visibility index” averaging the visibility benefits at the closest nine Class I areas, but did not evaluate such benefits separately at the most impacted Class I area, the Gila Wilderness Area. 77 Fed. Reg. at 72,519; see also 77 Fed. Reg. at 42,850–51. EPA’s regulations “do not prescribe a particular approach to calculating or considering visibility benefits across multiple Class I areas,” 77 Fed. Reg. at 42,841; states have the “flexibility to assess visibility improvements due to BART controls by one or more methods,” Guidelines at 39,170. The indexing approach therefore “could be acceptable in itself as part of assessing multiple area impacts and improvements.” 77 Fed. Reg. 72,519. But, EPA concluded, “without any consideration of particular area improvements, the averaging process causes especially large benefits at some individual areas to be diluted or lost, effectively discounting some of the more important effects of the controls.” Id. (emphasis added). Moreover, regardless of the methodology used, EPA maintains, Arizona’s visibility analysis in its SIP was unreasonable because it used “two contrasting, yet equally incomplete, approaches to assessing visibility improvements.” Arizona used a visibility index average to analyze visibility benefits at Coronado, but its analyses for Apache and Cholla considered visibility improvements “only at the single Class I area with the greatest modeled impact from a facility,” rather than at all impacted Class I areas. 77 Fed. Reg. at 72,519. That is, the cumulative averaging approach taken by Arizona in its analysis for Coronado “is counter to [Arizona’s] emphasis elsewhere in the SIP on the importance of considering the visibility improvement at the single area having the largest impact from a given facility.” Id. The upshot is the appearance that the State selectively 30 ARIZONA EX REL. DARWIN V. USEPA chose for each plant a methodology that minimized the visibility improvement achieved by the more stringent emission controls at each location. Arizona made no attempt in its SIP, nor in its briefing in this appeal, to counter this appearance by explaining why it chose differing approaches to visibility analysis for different facilities. SRP may be correct that “[t]he Guidelines allow states to use either or both approaches.” But, as described above, a state must include in its SIP “an explanation of the CAA factors that led [the State] to choose that option over other control levels.” Guidelines at 39,170–71 (emphasis added). Adopting inconsistent — indeed, contradictory — approaches without providing any explanation for that decision frustrated EPA’s ability to “review the substantive content of the BART determination.” N. Dakota, 730 F.3d at 761. Arizona also contends that the outcome of its BART determinations would not have changed even if it had adopted the approach to visibility analysis EPA prescribed. The visibility improvements resulting from installing SCR, the State maintains, would in any event be “imperceptible” to the human eye. EPA expressly, and reasonably, rejected this argument when it promulgated the Haze Regulations and Guidelines in 2005: Even though the visibility improvement from an individual source may not be perceptible, it should still be considered in setting BART because the contribution to haze may be significant relative to other source ARIZONA EX REL. DARWIN V. USEPA 31 contributions in the Class I area. Thus, we disagree that the degree of improvement should be contingent upon perceptibility. Failing to consider less-than-perceptible contributions to visibility impairment would ignore the CAA’s intent to have BART requirements apply to sources that contribute to, as well as cause, such impairment. 70 Fed. Reg. at 39,129. In sum, EPA rationally determined that Arizona’s BART visibility analysis for Coronado was unsupported by explanation and inconsistent with the CAA and its regulations. We defer to its conclusions.
EPA’s Guidelines require states to support their BART determinations with “documentation for all required analyses,” including explanations of their BART five-factor analysis. 40 C.F.R. § 51.308(e)(1). Further, the Guidelines indicate that states “should provide a justification for adopting the technology . . . select[ed] as the ‘best’ level of control, including an explanation of the [Act’s] factors that led [the State] to choose that option over other control levels.” Guidelines at 39,170–71 (emphasis added). A state need not perform this analysis if a source already has, or has committed to installing, the most stringent controls available. Id. at 39,165. Otherwise, as EPA explained in proposing the Rule here at issue, “[s]tates are free to determine the weight and significance assigned to each factor, but must consider all five factors and provide a reasoned explanation for adopting [BART].” 77 Fed. Reg. at 42,838 (emphasis added). 32 ARIZONA EX REL. DARWIN V. USEPA In the Final Rule, EPA concluded that, although Arizona “presented information relevant to each of the BART factors” and “expressly stated” that it had considered those factors, it did not “provide[] an explanation regarding how this information was used to develop its BART determinations.” 77 Fed. Reg. at 72,517; see also id. at 72,566 (“[Arizona] has not demonstrated that it actually took into consideration the BART factors in making its determinations[.] . . . [I]t gave no explanation or rationale for how it reached a determination based on that information.”). More specifically, EPA found that Arizona did not discuss how the results of the visibility index were weighed against the other BART factors for Coronado. Id. at 72,518; 77 Fed. Reg. at 42,851. Further, EPA noted that while the SIP includes cost data, it “provides no explanation regarding how, or even if, th[e] cost information was used in arriving at its NOX BART determinations.” 77 Fed. Reg. at 72,517. Indeed, “[i]n the case of . . . Coronado, the . . . SIP does not analyze th[e] cost information in even a qualitative manner.” Id. A review of Arizona’s BART Technical Support Document supports EPA’s analyses with regard to Coronado. Arizona’s ultimate determination was that, “[a]fter reviewing the BART analysis provided by the company, and based upon the information above . . . BART control at [Coronado] for NOX is . . . Low NOX burners with OFA” with an emission rate of 0.32 lbs/mmBtu. Before announcing that decision, Arizona provided several charts of data concerning the various controls’ cost-effectiveness and visibility impacts. But, having done so, it provided no reasoning or rationale to justify its ultimate BART selection. There was simply no attempt made to explain why the State chose one control technology over another, or how it evaluated the various BART factors (i.e., cost-effectiveness, visibility ARIZONA EX REL. DARWIN V. USEPA 33 improvement, energy and non-air quality environmental impacts, existing pollution control technology in use, and the remaining useful life of the source), either individually or in combination. Indeed, Arizona does not meaningfully contest EPA’s adverse characterization of its BART analysis. Rather, it contends that “no great explanation is required to understand the State’s decision not to spend hundreds of millions of dollars of its citizens’ money for an imperceptible improvement in visibility.” Yet, under the Act and its implementing regulations, states are required in SIPs to explain the choice of BART, taking into account not only cost and visibility improvement, but also the three other BART factors. See 40 C.F.R. § 51.308(e)(1)(ii)(A); Guidelines at 39,170–71. We recently invalidated a FIP in part because EPA’s conclusory cost-benefit analysis “fail[ed] to reveal to a reader how EPA determined that the cost of controls were not justified.” NPCA, 788 F.3d at 1145. The same failure here, albeit by a state in its SIP, fares no better. Although the Act affords states significant discretion in determining the appropriate levels of BART controls, EPA must review whether a state’s determinations comply with the statute and its rules. See N. Dakota, 730 F.3d at 761; Oklahoma, 723 F.3d at 1209. Just as we could not in NPCA review EPA’s cost/benefit analysis absent any coherent agency analysis, EPA reasonably determined that it could not meaningfully review Arizona’s parallel determination, because the State did not provide an adequate explanation of its underlying analysis, if any. Cf. 40 C.F.R. § 51.308(e)(1)(ii)(A); Guidelines at 39,170–71. 34 ARIZONA EX REL. DARWIN V. USEPA In sum, EPA’s conclusion that Arizona did not adequately explain its NOX BART determinations provides reasonable support for its partial disapproval of Arizona’s SIP. We therefore defer to EPA’s determination.
EPA reasonably concluded that Arizona’s cost and visibility impact analyses for Coronado suffered from significant analytical defects and that the SIP did not provide a reasoned explanation of the bases for the ultimate BART determination for Coronado. Although Section 169A affords the states substantial authority to determine BART controls, the combination of these defects provided EPA reasonable grounds upon which to disapprove the Arizona’s BART determinations as to NOX emissions limits at Coronado. Its partial disapproval of the SIP in this respect was not arbitrary or capricious.