Opinion ID: 413378
Heading Depth: 3
Heading Rank: 2

Heading: Inflation Rate v. Return on Equity

Text: 165 EPA's model assumes that in the long run the inflation rate will not exceed the rate of return on equity. EPA admits that in the short run inflation may outstrip investment returns, making compliance expenditures rather costly to a company, but argues that the appropriate time frame to consider is the long run. See 45 Fed.Reg. 50,134-35 (1980). Petitioners argue, nonetheless, that the model should be adjusted to allow a source owner to demonstrate that the use of an inflation rate higher than the rate of return is appropriate to its circumstances. In affirming EPA's decision to operate in light of the long run assumption as neither arbitrary nor capricious, we note that the situation industry envisions is more likely to occur when the period of noncompliance is short and when the resulting penalty adjustments will occur relatively quickly.