Opinion ID: 796659
Heading Depth: 3
Heading Rank: 3

Heading: Site-Specific Compliance Alternatives

Text: 82 As noted earlier, the Phase II Rule includes two site-specific compliance alternatives or variances from the generally applicable requirements. The cost-cost alternative authorizes a site-specific determination that data specific to [a] facility demonstrate that the costs of compliance under . . . this section would be significantly greater than the costs considered by the Administrator . . . in establishing the applicable performance standards, 40 C.F.R. § 125.94(a)(5)(i), while the cost-benefit alternative authorizes a site-specific determination that data specific to [a] facility demonstrate that the costs of compliance under ... this section would be significantly greater than the benefits of complying with the applicable performance standards. Id. § 125.94(a)(5)(ii). If a facility makes either showing, the permitting authority must make a site-specific determination of the best technology available and impose site-specific alternative requirements that are as close as practicable to the applicable performance standards. Id. § 125.94(a)(5)(i), (ii). 83 Petitioners challenge the cost-cost compliance alternative because, inter alia, they claim as a threshold matter that the Agency failed to comply with the APA's notice and comment requirements by disclosing cost data for specific facilities that would be used in determining whether a facility qualifies for the cost-cost compliance alternative only at the time the final Rule was issued. Petitioners also challenge the cost-benefit compliance alternative on two substantive grounds. They contend that this alternative (1) impermissibly allows compliance with the statute to be based on cost-benefit analysis and (2) is analogous to a water-quality standard, which the Act permits only for thermal pollution. CWA § 316(a), 33 U.S.C. § 1326(a). We address each of these arguments in turn. 22
84 As already noted, a variance may be available to a facility pursuant to 40 C.F.R. § 125.94(a)(5)(i) if the facility's compliance costs would be significantly greater than the costs considered by the Agency in establishing the applicable performance standards. This variance requires a calculation of compliance costs based on the suite of BTA technologies that the EPA has identified and promulgated in the final Rule. 69 Fed.Reg. at 41,644-46. We remand this provision because (1) the EPA did not give interested parties the requisite notice and opportunity to challenge the variance by failing to identify cost data for actual, named facilities, as opposed to model facilities, until after the notice and comment period had ended, Sprint Corp., 315 F.3d at 371, and (2) the variance is expressly premised on the validity of the BTA determination, 23 which itself has been remanded for further explanation, see, e.g., Solite Corp. v. U.S. EPA, 952 F.2d 473, 494-95 (D.C.Cir.1991) (remanding rule where the underlying grounds for its promulgation had been remanded to the EPA for procedural defects); cf. Chenery, 318 U.S. at 87-88, 63 S.Ct. 454 (a rule may only be upheld on the grounds that the agency proffers). 85 In the Rule's proposal, the EPA indicated that it had estimated compliance costs for 539 model plants based on factors such as fuel source, mode of electricity generation, existing intake technologies, waterbody type, geographic location, and intake flow. 67 Fed.Reg. at 17,144. An accompanying technical development document set forth the Agency's cost calculation methodology for these model plants and listed the compliance cost estimates for each of the 539 model plants. The proposal indicated that a facility must determine which model plant [it] most closely resembles in order to identify the costs considered by the Agency in establishing the national performance standards. See id. The EPA subsequently published in the Federal Register a so-called Notice of Data Availability (NODA) in which it explained that it had changed its methodology for estimating the model plants' compliance costs. Proposed Regulations to Establish Requirements for Cooling Water Intake Structures at Phase II Existing Facilities; Notice of Data Availability; Proposed Rule, 68 Fed.Reg. 13,522, 13,527 (Mar. 19, 2003). Accompanying documents explained in greater detail the costing methodology and cost data underlying the revised approach. The revised proposal, however, did not depart from the model plant approach. The final Rule, by contrast, assigned cost estimates to specific, named facilities rather than model facilities. 69 Fed.Reg. at 41,670-82. The Agency explained in the preamble to the final Rule that the EPA will adjust facility-specific costs pursuant to a multiple-step calculation formula to arrive at a final estimated cost the EPA considers a comparison for purposes of the cost-cost variance. Id. at 41,644-47. 86 The EPA acknowledges that it did not disclose in the proposal or the NODA specific facility names in connection with cost data and explains that it failed to do so because it needed to protect certain confidential business information (CBI) and had not developed during the proposal stage a means to protect that information while still providing cost data to the public. We accept the EPA's argument that masking the facility names did not prevent interested parties from commenting on the methodology and general cost data underlying the EPA's approach because the NODA explained the costing methodology and because the general cost data, while not identified by the Agency as relating to actual, specific facilities, was made available to interested parties. Nat'l Wildlife Fed., 286 F.3d at 564-65 (holding that the EPA cannot be faulted for lack of notice in not releasing CBI data). We are persuaded, however, that the release of information and request for comments on the EPA's new approach to developing compliance cost modules via the NODA did not afford adequate notice of the costs associated with specific facilities promulgated in the final Rule. 87 We have previously stated that [n]otice is said not only to improve the quality of rulemaking through exposure of a proposed rule to comment, but also to provide fairness to interested parties and to enhance judicial review by the development of a record through the commentary process. Nat'l Black Media Coalition v. FCC, 791 F.2d 1016, 1022 (2d Cir.1986). 88 While a final rule need not be an exact replica of the rule proposed in the Notice, the final rule must be a `logical outgrowth' of the rule proposed. Id. The test that has been set forth is whether the agency's notice would fairly apprise interested persons of the subjects and issues of the rulemaking. Id. (citation and internal quotation marks omitted). 24 Agencies accordingly are not permitted to use the rulemaking process to pull a surprise switcheroo. Envtl. Integrity Project, 425 F.3d at 996. 89 Here, only the final Rule identified facilities by name in estimating compliance costs. Interested parties therefore could not comment on the basis for particular facilities' cost figures that the EPA established. This is problematic because the availability of a variance turns on the relationship between the costs estimated in the Rule and those that a specific facility establishes in a permit proceeding. The EPA focuses on the notice it gave of its intended methodology for calculating the costs the Agency considered, but ignores the overriding importance of the cost estimates for a particular facility in determining whether a site-specific cost-cost variance is appropriate. Thus, the EPA should have afforded notice and an opportunity to challenge the cost estimates for specific facilities and not simply an opportunity to comment on the EPA's methodology and general cost data. 25 We remand this variance for inadequate notice and because of our remand of the BTA determination.
90 If a facility requests that it be permitted to demonstrate compliance with the Phase II Rule through the site-specific cost-benefit provision of 40 C.F.R. § 125.94(a)(5)(ii), the facility must submit with its application a Comprehensive Cost Evaluation Study, Benefits Valuation Study, and Site Specific Technology Plan. 40 C.F.R. § 125.95(b)(6). As part of the Benefits Valuation Study, the facility must indicate the monetized value of commercial, recreational, and ecological benefits of compliance with the generally applicable national performance standards as well as a qualitative assessment of any so-called non-use benefits that cannot be monetized. 40 C.F.R. § 125.95(b)(6)(ii)(A), (E). Ultimately, the facility must demonstrate that its compliance costs are significantly greater than the benefits of compliance. The petitioners contend that this alternative impermissibly focuses on cost-benefit considerations, contrary to Congress's directive, and is analogous to the kind of water-quality-based standard we found to be inconsistent with the statute in Riverkeeper I. 358 F.3d at 190. For both reasons, we are persuaded that the EPA exceeded its authority in permitting site-specific cost-benefit variances. In light of this conclusion, we do not reach the industry petitioners' claim that the provision impermissibly requires consideration of qualitative non-use benefits in the cost-benefit analysis. 91 As we discussed previously in analyzing the EPA's determination of BTA, cost-benefit analysis is not consistent with the requirement of § 316(b) that cooling water intake structures reflect the best technology available for minimizing adverse environmental impact. Indeed, the statutory language requires that the EPA's selection of BTA be driven by technology, not cost. The Agency is therefore precluded from undertaking such cost-benefit analysis because the BTA standard represents Congress's conclusion that the costs imposed on industry in adopting the best cooling water intake structure technology available (i.e., the best-performing technology that can be reasonably borne by the industry) are worth the benefits in reducing adverse environmental impacts. Cf. Am. Textile Mfrs. Inst., 452 U.S. at 509, 101 S.Ct. 2478 (noting that where Congress has defined the basic relationship between costs and benefits, a regulatory standard that strikes a different balance is inconsistent with the statute). Just as the Agency cannot determine BTA on the basis of cost-benefit analysis, it cannot authorize site-specific determinations of BTA based on cost-benefit analysis. 92 The cost-benefit variance also impermissibly authorizes the EPA to consider the degraded quality of waterways in selecting a site-specific BTA. We stated in Riverkeeper I that in enacting the CWA, Congress rejected regulation by reference to water quality standards. 358 F.3d at 189-90. Before 1972, Congress regulated point sources based on their effect on the surrounding water and allowed sources to discharge pollutants provided the discharge did not cause water quality to dip below an acceptable level. Id. at 189. Congress changed its approach in 1972, in part because a plaintiff attempting to prove a violation of the law faced a nearly impossible burden of showing that a particular polluter had caused the water quality to dip below the regulatory standards. Id. at 189-90. The Act now regulates discharges from point sources rather than water quality. We thus concluded in Riverkeeper I that water-quality standards cannot be considered under section 316(b). Id. at 190. Of course, water quality in the context of the Act is generally understood to refer to pollutant concentration. As we noted in Riverkeeper I, however, for purposes of section 316(b), which regulates water intake rather than the discharge of pollutants, water quality is measured by wildlife levels. Id. at 189. This analysis in Riverkeeper I is, thus, equally applicable here. 27 93 The challenged provision of the Phase II Rule apparently would permit a facility to argue that, based on water quality (i.e., the level of aquatic wildlife in a particular body of water), the cost of complying with the national performance standards is not justified. The Agency explained in the preamble to the Rule that in a waterbody that is already degraded, very few aquatic organisms may be subject to impingement or entrainment, and the costs of retrofitting an existing cooling water intake structure may be significantly greater than the benefits of doing so. 69 Fed.Reg. at 41,604. This kind of water-quality-based regulation is not authorized by the CWA because it would exempt facilities from meeting the mandated performance standards simply because wildlife levels in the waterbody were already low, and as we held in Riverkeeper I, the CWA does not permit the EPA to consider water quality in making BTA determinations. Finally, we note that to the extent that facilities on highly degraded waterbodies with relatively low wildlife levels face high compliance costs to achieve the national performance standards, those facilities may qualify for the cost-cost variance if such variance is retained on remand. 94 Because the EPA exceeded its authority under section 316(b) by permitting (1) cost-benefit analysis and (2) assessment of the quality of the receiving water (i.e., the receiving water's wildlife levels) in determining whether a variance is warranted, we do not need to defer to the Agency's construction of the statute. We therefore remand this aspect of the Rule.