Opinion ID: 501652
Heading Depth: 1
Heading Rank: 3

Heading: stack grandfathering issues

Text: 88 The agency has in several cases grandfathered stacks and in one instance rejected an industry request for grandfathering treatment. NRDC attacks several elements of the grandfathering as too generous; several firms (including one heavy buyer of electricity) attack the rejection of their claim. The decisions at issue are as follows: 89 1. EPA limited its demonstration requirement for within-formula stack height increases to sources seeking credit after October 11, 1983 [the date of our decision in Sierra Club ]. 40 C.F.R. Sec. 51.1(kk)(2). (The preamble makes clear that the date refers to the time owners raised the stack, not the time they sought credit. 50 Fed.Reg. 27,899/2.) 90 2. EPA affords credit up to 2.5H, free of any demonstration requirements (including such as might be imposed by state or local air pollution authorities), for any stack in existence on January 12, 1979, the date when EPA first proposed the more sophisticated formula, H + 1.5L. Pursuant to our remand in Sierra Club, this is limited to cases where the owner or operator produces evidence of having relied on the 2.5H formula in establishing its emission limitation. 40 C.F.R. Secs. 51.1(ii)(2)(i). EPA also affords credit up to H + 1.5L for any stack in existence on January 12, 1979, regardless of reliance. Id. at Sec. 51.1(ii)(2)(ii). 91 3. For purposes of the grandfathering explicitly afforded by Sec. 123, for stacks in existence before December 31, 1970, EPA in the 1982 regulations defined in existence in terms of the start of continuous construction or entering into certain types of contracts. 40 C.F.R. Sec. 51.1(gg). We upheld this in Sierra Club, 719 F.2d at 464-66. NRDC claims that EPA should have revised this definition in the light of later discoveries about the number of plants advantaged by the grandfathering. 92 4. EPA has refused to provide any grandfathering for plants that prior to the Final Rule conducted demonstrations to justify above-formula stacks, even though the demonstrations conformed entirely to the then-applicable rules. J.A. 64-65. 93 Some general principles are applicable to all these issues. First, none of them is governed by the rule adopted in Georgetown University Hospital v. Bowen, 821 F.2d 750, 756-58, 760 (D.C.Cir.1987), generally invalidating retroactive rules. The rules there at issue would have limited reimbursements for past transactions. All that is at stake here are restrictions on plants' future emissions. Retroactivity is involved here simply because enforcement of the demonstration requirement might impinge unfairly on source owners that made investments or other commitments in reasonable reliance on prior understandings. 94 Second, our decision in Sierra Club observed that some of the considerations governing an agency's duty to apply a rule retroactively were 95 (1) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (2) the extent to which the party against whom the new rule is applied relied on the formed [sic] rule, (3) the degree of the burden which a retroactive order imposes on a party, and (4) the statutory interest in applying a new rule despite the reliance of a party on the old standard. 96 719 F.2d at 467 (quoting Retail, Wholesale & Department Store Union v. NLRB, 466 F.2d 380, 390 (D.C.Cir.1972)). Clearly the issue entails a balancing of the interest in prompt and complete fulfillment of statutory goals against the inequity of enforcing a new rule against persons that justifiably made investment decisions in reliance on a past rule or practice. Cf. Retail, Wholesale & Department Store Union v. NLRB, 466 F.2d at 390; Associated Gas Distributors v. FERC, 824 F.2d 981, 1040 (D.C.Cir.1987). 97 We now turn to the specific complaints. 98
99 At the outset, EPA invites us to discard NRDC's objection by means of an argument that to us is quite obscure: that the Sierra Club court did not insist on a retroactive demonstration requirement, or indeed on any demonstration requirement at all. EPA Brief at 34. The premise seems to be that because EPA's adoption of a demonstration requirement was voluntary, it need not explain its decision not to impose the requirement on pre-1983 increases. The argument does not add up. First, EPA's adoption of a demonstration requirement for increases could be viewed as wholly voluntary only if EPA had set out thoroughly to validate its H + 1.5L formula. This it did not really purport to do, although its preamble contains some favorable--and hotly disputed--observations on the subject. 16 100 In any event, the agency found, in light of this court's reading of Sec. 123 in Sierra Club, that a demonstration requirement was suitable. That being so, exemption of a large class of increased stacks is an important decision subject to attack as possibly arbitrary and capricious. It would fail that test if it is inconsistent with the retroactivity analysis set forth in Sierra Club. 101 Invoking the first factor identified by Sierra Club, NRDC argues that here there simply is no well established practice. A fluctuating rather than well-established practice presumably counts against grandfathering, as it undermines the actor's claim that its reliance was legitimate. In fact, the record indicates considerable waffling by EPA. There appear to have been new policy moves in 1973, 1976, 1979, 1980, and 1981 and 1982. In its 1973 Guidelines, it actively encouraged sources with short stacks to increase to GEP formula height. 38 Fed.Reg. at 25,701/2 (1973) (The increase of stack height up to a height consistent with good engineering practice is acceptable without qualification.... For fairly level terrain, good engineering practice is normally taken to be a stack height 2 1/2 times the height of the facility or nearby structure.). In 1976 it responded to the circuit courts' disparaging treatment of its 1973 effort with considerable severity: putting aside stack increases started before the Fifth Circuit's NRDC decision, the 1976 guidelines gave credit only for increases by sources that applied BACT (best available control technology). 41 Fed.Reg. at 7451/2-3 (1976). In 1979, after Congress's adoption of Sec. 123, the agency proposed regulations considerably less stringent, allowing sources that raised existing stacks automatic credit up to H + 1.5L, with the proviso that the EPA or a state or local control agency could order the source to justify use of the formula height by demonstrating, through fluid modeling, the existence of an air quality problem, attributable to downwash. 44 Fed.Reg. at 2614/1 (Jan. 12, 1979). In a 1980 policy change, sparked by a heightened concern that use of its GEP formula for stack height increases [was] increasing pollutant loadings and acid rain, the agency tightened again, announcing its intention to require fluid modeling demonstrations for all future stack height increases. 45 Fed.Reg. 42,282/1 (June 24, 1980). Eleven months later, the EPA drew back, leaving in place the scheme adopted in its 1979 proposed rules. 46 Fed.Reg. 28,650 (May 28, 1981). The agency's 1982 Final Regulations moved further in the direction of leniency, granting automatic credit up to formula height for sources raising existing stacks, with no provision for support through demonstrations. 47 Fed.Reg. 5868/3 (1982). Of course it was this rule that the Sierra Club court remanded for reconsideration. 719 F.2d at 458-59. 102 Clearly the legitimacy of increasing stack height in reliance on regulatory policy has varied radically from period to period. The equities for a firm increasing its stack in the 1976-79 era are slight compared to ones that increased under the 1973, 1979 or 1981 policies. Besides, the policies represent a scatter rather than a clear line, reducing the equities for reliance even on the moments of lax policy. Finally, equitable claims have some tendency to degrade over time; a 15-year 1973 contract for the purchase of high-sulphur coal may have loomed large in 1976 but hardly amounts to anything in 1987. 103 EPA's defense of its grandfathering decision failed to focus on any of these difficulties. See 50 Fed.Reg. at 27,899/3-900/1. Indeed, EPA's policy imposed no requirement of reliance at all, even though it was precisely that omission that persuaded this court to remand the grandfathering issue raised in Sierra Club. 719 F.2d at 468. 104 Against the seemingly weak claims for grandfathering is the possible frustration of the statutory goal. This looks significant. The vulnerability of the formula persuaded EPA to require demonstrations. These demonstrations are impaired by the circularity problem that EPA has recognized. Yet EPA's grandfathering rule allows most of the affected sources to escape even this modest check. 105 Administrative problems may partly explain EPA's generous grandfathering. An immediate run of demonstrations for all sources that have increased stack height since 1970 would evidently tax the capacity of the facilities for running such demonstrations. EPA Brief at 18. But this alone appears a weak justification, as EPA has the alternative of adopting a formula clearly valid enough to dispense with demonstrations altogether. 106 Thus we find it necessary to remand. We do not say there is no room for grandfathering on these facts, but the case for it seems unusually weak. Any grandfathering chosen should fit, to a reasonable degree, the variations in regulatory history and degrees of reliance. We recognize, of course, that administrative necessity or de minimis principles will prevent a perfect fit; EPA could not be expected to match the six layers of regulatory policy with a six-layer grandfathering scheme. But fidelity to the congressional purpose requires a far more careful effort to address the problem than the agency has yet made. 107
108 The regulations provide credit for heights up to formula levels for sources originally built or subsequently raised before January 12, 1979. 40 C.F.R. Secs. 51.1(ii)(2)(i) and (ii). As now written, the rule shelters such sources not only from the requirement of demonstrations initiated by state or local authorities, 40 C.F.R. Sec. 51.1(kk)(3), but also from the demonstration requirements for stack increases. For purpose of our present discussion, we assume that on remand EPA will look to our analysis in part III.A in deciding to what extent (if any) it will shelter older within-formula increases from the new demonstration requirements. Accordingly we limit our consideration here to the 1979 grandfathering provision only insofar as it shelters stacks from state-initiated demonstration requirements and only insofar as it applies to credit for stacks at or within their original heights. The rules have this effect for (1) credit up to 2.5H for pre-1979 stacks of sources whose owners relied on the 2.5H formula and (2) credit up to H + 1.5L for all pre-1979 stacks regardless of reliance. 109 At the outset, and applicable to both types of grandfathering, is the question whether freedom from the necessity for supplying demonstrations, at the behest of government authorities, is of any great importance to the realization of the goals of the Clean Air Act. We cannot detect much importance. As a practical matter, it seems likely that virtually all such requirements would originate with a state, or with a local entity acting with the authority of the state. But 42 U.S.C. Sec. 7410 leaves states completely free to establish more stringent pollution controls than EPA. See Indiana & Michigan Electric Co. v. EPA, 509 F.2d 839, 844 (7th Cir.1975); Appalachian Power Co. v. EPA, 477 F.2d 495, 498 (4th Cir.1973). Thus no EPA rules on demonstrations could bar a state from insisting on the most onerous demonstration imaginable. The failure to provide for such a demonstration for pre-1979 sources seeking credit within the formulae thus has little practical effect; the statutory interest in retroactive application is modest. On the other hand, the agency must supply some reason for treating pre-1979 sources more leniently than later ones. We now turn to that problem in the 2.5H and H + 1.5L contexts. 110 1. Credit up to 2.5H for pre-1979 sources showing reliance. In Sierra Club, we made clear that the agency was to either justify its faith in the accuracy of the formula or provide a mechanism through which local authorities could force sources within their jurisdiction to prove their need for formula height stacks. As noted in part III.A above, the agency failed to properly validate its formula. It chose instead to promulgate a state-initiated demonstration provision, 40 C.F.R. Sec. 51.1(kk)(3), subject to the grandfathering here at issue. 111 We have no difficulty upholding this limited shelter. We found in Sierra Club that calculation of GEP through use of the 2.5H formula was, until 1979, an established practice and that protection of sources relying on such a practice in their original construction would not maintain a situation that Congress sought to end. 719 F.2d at 468. Moreover, the states' alternative route to control, noted above, further dilutes the interests supporting retroactivity. 112 NRDC first contends that EPA's failure to advance a full substantiation of even the H + 1.5L formula utterly prevents it from allowing automatic credit for stacks originally constructed in reliance on the 2.5H formula. But the environmental petitioners in Sierra Club did not attack the formula at all and attacked the want of demonstrations only for stack height increases and instances where local authorities were concerned that the formula might overpredict GEP. Thus, once the state option to be more severe is recognized, Sierra Club left EPA quite free so far as concerns within-formula original-construction stacks. The sole constraint was that, in grandfathering the difference (for original-construction stacks) between the height yielded by the 2.5H formula and that yielded by the newer H + 1.5L, EPA must afford the benefit only to firms actually relying on the 2.5H figure. 719 F.2d at 468. The agency responded to that aspect of the remand by explicitly conditioning grandfather treatment under the new regulations on such a showing of reliance. 40 C.F.R. Sec. 51.1(ii)(2)(i). 113 NRDC's second objection relates to the exact terms of the reliance requirement. The grandfathering is available where the source owner establishes its reliance on the formula in establishing an emission limitation, 40 C.F.R. Sec. 51.1(ii)(2)(ii), meaning, all agree, that the agency looks to the source's emission rate rather than its actual stack height. See also 50 Fed.Reg. 27,901/2. Thus, if a source built a stack taller than 2.5H, but set its emission limits assuming 2.5H credit, the agency will concede that a convincing demonstration has been made that the source properly relied on the formula. Id. at 27,901/3. Conversely, if such source based its emission limits on some other stack height credit, such as 2.8H, 3.5H or some other number, the agency would infer that it had not relied on the formula. Id. 114 Here NRDC's objection flows from its reading of our decision in Sierra Club. It believes that case to preclude grandfather treatment for sources with stacks taller than 2.5H, relying heavily on the following paragraph, especially its last sentence: 115 We hold that the statute does not prevent EPA from allowing its past rule to be applied to stacks built before its new formula was proposed, but that the agency has erred in allowing sources that did not rely on the old formula to use it. Congress was moved to enact section 123 by evidence that during the 1970's many sources had built tall stacks far above the heights dictated by sound engineering practice. To allow such sources to claim credit for heights up to the 2.5 Rule would be a windfall for them, unjustifiable under either the statute or the equitable considerations that govern retroactivity. 116 719 F.2d at 467. 117 The paragraph taken as a whole simply states that allowing sources with above-formula height stacks to claim 2.5H credit without a demonstration of reliance on the 2.5H formula would be unlawful. That it does not require EPA to deny credit for the dispersion effects of the part of a tall stack fitting within the 2.5H formula is reinforced by the court's discussion of the burden of retroactivity. The court observed that such a burden might take the form of expensive retrofitting of control equipment or renegotiation of coal contracts. Id. at 468. As these consequences derive from the need to change emission limitations, and not from the height of the stack itself, it is clear that the court believed that a source could demonstrate the requisite reliance by demonstrating that it had set its emission limits by reference to the 2.5H formula. As the statute does not regulate actual stack height (and in fact specifically forbids the Administrator from doing so, Sec. 123(c), 42 U.S.C. Sec. 7423(c)), but rather regulates stack height credit, it would be perverse to make grandfathering depend on actual stack height rather than upon emission limitation decisions driven by expectations of allowable credit. 118 2. Credit up to H + 1.5L for pre-1979 sources not showing reliance. As noted above, the states' complete freedom to impose demonstration requirements appears to sap this particular grandfathering of any great significance. Nonetheless, in drawing a distinction between pre-1979 and later stacks, the agency must supply some reason. In this context we cannot identify one. 119 Before EPA introduced the H + 1.5L formula in its 1979 proposal, the 2.5H formula was the only formula sanctioned by the agency. Thus, not only does the agency not impose a reliance requirement in this context, but we cannot understand how a pre-1979 source could have relied on H + 1.5L. Even when the statutory interest in applying a rule retroactively is slight, an agency must articulate some equitable rationale for grandfathering. Although we cannot say that there is none, we cannot uphold the decision in the absence of any explanation. 120
121 In Sierra Club petitioners contended that EPA's definition of stack in existence on December 31, 1970, as used in Sec. 123(a), impermissibly extended protection to stacks merely under construction. The court accepted EPA's view. 719 F.2d at 464-65. At the time, the record before the court indicated that only four to eight plants would be affected by the dispute, and the court mentioned this fact. Id. at 465. NRDC now contends that the broader definition will encompass 32-to-98 utility sources, NRDC Brief at 74, and challenges EPA's refusal to reconsider the issue in light of this reassessment of its probable impact. 122 Although the Sierra Club court indisputably mentioned the limited number of plants thought to be affected, its acceptance of EPA's interpretation rested on the view that it was necessary to make the clause equitable, which was undoubtedly Congress's purpose, 719 F.2d at 465, not on the number of plants affected. We recognize that under the balancing test by which retroactivity is evaluated, frustration of the statutory purpose is a key element militating against non-retroactive application. The new discoveries of affected plants up the ante. But the in existence definition did not represent a de novo retroactivity decision by EPA, merely an implementation of Congress's decision. NRDC points us to nothing in the prior rulemaking suggesting that the number of plants affected influenced EPA's choice of the broader definition. Compare 46 Fed.Reg. at 49,816/1 (Oct. 7, 1981) (expressing decision to broaden definition without a word as to the number of plants). Accordingly, we are not confronted with a case where a significant factual predicate of a prior decision has been removed, which may sometimes trigger a duty to revisit the issue. See WWHT, Inc. v. FCC, 656 F.2d 807, 819 (D.C.Cir.1981); Geller v. FCC, 610 F.2d 973, 980 n. 59 (D.C.Cir.1979). EPA's adherence to its prior position is lawful. We would be reluctant in any event to start undermining a six-year-old provision governing the scope of Congress's 10-year-old choice to protect decisions actually made more than 17 years ago. 123
124 Industry petitioners urged the agency to exempt from its new demonstration requirements sources that had already made demonstrations supporting above-formula stacks but employing prior more lenient tests. Response to Comments 333-34, J.A. 65-66. The agency refused, explaining that [t]he fluid modeling demonstration has no significance apart from showing whether the source qualified for credit under the stack height guidelines then in effect. Id. at 334, J.A. 66 (emphasis added). Three power companies (Ohio Power, Monongahela Power and Potomac Edison), and an aluminum manufacturer that is a major buyer from Ohio Power, challenge this rejection. These petitioners challenge the validity of the final regulations in NRDC v. Thomas, No. 85-1488, and challenge the agency's denial of their petition for reconsideration of these regulations in Ohio Power v. Thomas, Nos. 86-1331, 86-1362. 125 A preliminary issue raised by petitioners is whether this court or the Fourth Circuit properly has jurisdiction over their claims. Sec. 307(b)(1) of the Act provides for review here of nationally applicable regulations. 42 U.S.C. Sec. 7607(b)(1). It then states that a petition for review of final action which is locally or regionally applicable may be filed only in the United States Court of Appeals for the appropriate circuit. Id. 126 Conceivably one might characterize the present grandfathering issue as regional, as its impact evidently falls only on sources in limited geographic areas. Whatever the distribution of affected plants, however, we think the clearly nationwide scope of the regulation is controlling. The section calls for review in local courts of appeals for regulations that are locally or regionally applicable. If the jurisdictional provision turns on the de facto scope of the regulation, choice of the correct forum might raise complex factual and line-drawing problems. Such a complication of the jurisdictional test would waste time and serve little purpose. See Sharp v. Weinberger, 798 F.2d 1521, 1524 (D.C.Cir.1986) (Scalia, J.). We believe the clause governing nationally applicable regulations provides jurisdiction over both the direct challenge to the regulations and the petition for reconsideration. 127 A second preliminary issue is whether the regulations, which say nothing explicit on the subject, actually invalidate the prior approvals. We believe they do. First, nothing in the regulations expresses any affirmative intent to grandfather such sources. The statute precludes emission credit for stack height beyond GEP. The regulations in turn state the rules for determination of GEP. The fact that a source's stack has been found to comply with a former definition of GEP clearly does not suggest that the stack qualifies under the current, more stringent standard. Moreover, the agency has in many places expressly stated its provision of grandfather treatment, discussed in prior parts of this section of this opinion. It has included none in its articulation of criteria for above-formula demonstrations. Finally, EPA in the preamble to the Final Regulations explicitly denied any intention to exempt post-1970 sources from the above-formula demonstration provisions, 50 Fed.Reg. 27,899/1, and in its response to industry comments explicitly denied any intention to grandfather previously approved plants, J.A. 334. Thus, we conclude that the agency has in fact made a final decision not to exempt these sources. 128 Petitioners make two distinct challenges to the agency's decision. First, they argue that the failure to honor the stack height credit they received pursuant to valid notice and comment proceedings violates the doctrine of repose. Ohio Power Company Brief at 20-26. The cases cited for the doctrine all involve agencies' attempts to revoke, in adjudicatory proceedings, previously issued licenses, exemptions, or rights-of-way. See, e.g., Hirschey v. FERC, 701 F.2d 215 (D.C.Cir.1983); Greater Boston Television Corporation v. FCC, 463 F.2d 268 (D.C.Cir.), cert. denied, 406 U.S. 950, 92 S.Ct. 2042, 32 L.Ed.2d 338 (1971); Chapman v. El Paso Natural Gas Co., 204 F.2d 46, 52-54 (D.C.Cir.1953). In Greater Boston, the court described the doctrine as binding an agency to respect the governance of a final administrative decision for the particular matter there determined. Greater Boston, 463 F.2d at 291. The doctrine is not an absolute even where clearly applicable. Id. (the finality interests embodied in the doctrine of repose are dominant but not absolute). 129 Clearly one can make a linguistic argument, as the EPA does, that the matters determined in the earlier demonstrations were only the applicants' entitlements to above-formula credit under the rules then prevailing. This is so, but one could construct similarly narrow definitions of the first decision in each of the above cases. More to the point, it seems that in the context of adjudicatory revocations of adjudicatory grants, special scrutiny is needed to protect legitimate reliance interests from unjustifiable agency shifts in direction. 130 Here, a new set of duly promulgated rules has substituted more stringent criteria for those prevailing when petitioners made their demonstrations. The risk of capricious agency action is far less severe, as the shift from one set of regulations to another was applicable to a broad range of parties. Cf. Bi-Metallic Investment Co. v. State Board of Equalization, 239 U.S. 441, 36 S.Ct. 141, 60 L.Ed. 372 (1915); Upjohn Co. v. FDA, 811 F.2d 1583 (D.C.Cir.1987); American Airlines, Inc. v. CAB, 359 F.2d 624 (D.C.Cir.), cert. denied, 385 U.S. 843, 87 S.Ct. 73, 17 L.Ed.2d 75 (1966). Accordingly, we think the EPA's authority to apply the new criteria to petitioners is not governed by the relatively restrictive bounds of the doctrine of repose, but by the looser ones already employed in the earlier retroactivity analyses of this section. 131 Petitioners' second claim is in fact based on the retroactivity criteria set forth in Sierra Club and applied in this section of this opinion. They object that the agency failed to spell out any application of those criteria, rendering its decision arbitrary and capricious. Monangahela Power Company Brief at 15-16. The agency's spare disposition of the subject seems to us to fall, barely, on the tolerably terse side of the line, as distinct from the intolerably mute. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). First, it stressed the importance of the statutory goal. In the preamble to the Final Regulations, it rested its decision to apply the new demonstration requirements to all post-1970 sources on its view that Congress in Sec. 123 did affirmatively 'intend to alter'  industry reliance upon above-formula height stacks. 50 Fed.Reg. 27,899/1. 132 On the other side of the retroactivity balance fall the sources' reliance interests. Sources that underwent previous above-formula stack height demonstrations obviously relied on previous EPA guidance in doing so, and the new absolute test, coupled with the NSPS presumption as to emissions, indisputably represents a significant departure from the past requirements. (But EPA noted that regulatory pronouncements since 1970 had consistently placed a higher burden on credits for above-formula stacks. Id.) If the new regulations forced the petitioners to renegotiate longterm coal contracts or rendered obsolete major investments in emission control equipment, petitioners might in some circumstances have a strong equitable argument for grandfathering. (Ohio Power makes claims of such commitments; Monangahela, which has not constructed its proposed stack, relies solely on the funds expended in the earlier demonstration itself.) But as the NSPS presumption can be rebutted by a showing of infeasibility, each source owner will have an opportunity to identify these costs and secure such relief as their size may justify. 50 Fed.Reg. 27,898/2. Thus, the petitioners have not demonstrated that retroactive application of the new demonstration requirement will force them to shoulder a heavy burden. 133 In fact, the only sunk cost that is directly wasted by the new regulations is the cost of the demonstrations themselves. In the case of one facility that cost was $500,000, in the other $200,000. These figures are hardly negligible, but we should think it a rare case where the costs of securing data could alone entitle a party to grandfathering. We think the agency did not here abuse its discretion.