Environmental Defense v. Duke Energy: Take 1
This argument analysis was written by Paul Gutermann, an attorney at Akin Gump. It is the first of two entries that we will bring you today about yesterday’s argument in this case.
The oral argument in Environmental Defense v. Duke Energy meandered between the jurisdictional and the substantive issues, with none of the Justices showing much respect for the jurisdictional arguments raised by the Petitioners or, surprisingly, for the legal reasoning of either the 4th Circuit opinion by Judge Motz or the 7th Circuit opinion by Judge Posner. The likely outcome on the substantive issues, by contrast, is more uncertain.
The jurisdictional issue raised in this case related to Section 307(b) of the Clean Air Act, which provides that challenges to EPA regulations having nationwide effect may be pursued only in the D.C. Circuit and must be raised within ninety days of promulgation. The 4th Circuit opinion held that the new source review (NSR) emissions increase regulations were invalid because the Clean Air Act required that the same standard apply in measuring emissions increases for the new source performance standards (NSPS) and NSR. The 7th Circuit, in a related case not yet before the Supreme Court, suggested that the 4th Circuit had exceeded its authority in violation of Section 307(b). Taking up the cudgel, Petitioners argued that the Duke case should be reversed and remanded on these jurisdictional grounds.
The substantive issue before the Court involved application of the NSR regulations to construction projects at coal-fired power plants. The Clean Air Act requires “new” construction at major stationary sources to emit at levels less than the NSPS limits and to undergo NSR, a preconstruction permitting program. Existing facilities are not subject to either NSPS or NSR unless they are “modified” within the meaning of the statute. Under the Clean Air Act, a source is modified if, inter alia, it undergoes a physical change that causes an emissions increase. The term “modification” is defined for NSR purposes by cross-reference to the NSPS definition. According to the 4th Circuit, the EPA was therefore required to apply identical definitions in the regulations and, accordingly, the same tests for emissions increases. There is no dispute that the emissions increase test for NSPS purposes is measured by increases in kg/hour; i.e., an “hourly rate” test. Petitioners argue that the emissions increase test for NSR purposes is tons per year of actual emissions; i.e., an “annual rate” test. Duke argued that the test for NSR purposes is both an increase in hourly rate and an increase in annual rate.
Sean Donahue, representing Environmental Defense and arguing first for Petitioners, tried to focus on the substantive issue, but was continually dragged back to arguing jurisdiction. Donohue based his argument on the premise that the NSR regulations were “clear on their face,” a claim Chief Justice Roberts termed “audacious.” While seemingly mundane, the issue of whether the regulations are ambiguous has paramount importance for both the substantive and jurisdictional arguments. Echoing EPA’s arguments throughout its so-called utility enforcement initiative, Donahue argued that, since 1980, the NSR regulations measured NSR emissions increase by reference to tons per year of pollutant.
Justice Scalia immediately pounced on Petitioners’ claim that the regulations were not ambiguous, forcing Donahue to concede that in 1981 the Director of the Stationary Source Compliance Division, Edward Reich, had issued applicability determinations consistent with the theory of emissions increase pressed by Duke. Donahue backtracked and argued that the Reich determinations contradicted Duke’s theory, but the damage had already been done. As Justice Alito noted, if the EPA official responsible for enforcing the program could interpret the regulations differently from EPA’s current approach, the regulations must be ambiguous.
Proceeding upon the position that regulations are ambiguous, several Justices, led by Justice Scalia, expressed concern over companies like Duke being “whipsawed.” Justice Scalia posited Duke may have proceeded upon assurances by an agency (here, the 1981 Reich decisions) that regulations mean one thing and then, after the jurisdictional window for seeking preenforcement review in the D.C. Circuit had passed, changing the interpretation and being told that any challenges to the statutory validity of the new interpretation is time-barred. Such a result is even more perverse here because, for complex reasons, industry’s challenges to the 1980 regulations had been stayed. Duke argued that when those petitions for review were revived in 2004, the D.C. Circuit ruled that issues regarding the standard for measuring emissions increases was not ripe.
Thomas Hungar, of the Solicitor General’s office, argued for the United States and picked up on the concern over “whipsawing” of parties like Duke. While Hungar repeatedly tried to argue that Duke had had notice of EPA’s interpretation far earlier than 2000, when the enforcement action commenced and that Duke had actually litigated the issue in the D.C. Circuit, but seemed to make little headway with the Court. As characterized by Justice Kennedy, if the Court were to hold that the 4th Circuit exceeded its jurisdiction, “courts [would] have to take as binding a legal proposition that they think is dead wrong . . . .”
Turning to the substantive issue, the Justices seemed to signal more of a split in views. Both sides conceded that, given the statutory language, EPA had sufficient discretion to measure emissions increases by hourly rate or annual rate. Petitioners argued that EPA had the discretion to have one test for NSPS and a different one for NSR. Duke argued, alternatively, that whichever test was adopted, it had to be the same for both, or that EPA had to be more explicit if it were to adopt different tests.
Justice Scalia peppered Hungar with a line of questioning to the effect that, if the statutory definition is the same, the regulatory definition must be also, or the statutory language stating that the definition of the term be the same was “meaningless.” Justice Breyer then drew attention to the heart of Duke’s argument, namely that the EPA regulations exclude from the definition of physical change – an element of a “modification” – increases in the hours of operation or production rate. Continuing with the logic, Justice Breyer asked whether a physical change that does nothing to increase the capacity of an emitting unit, but allows it to run more hours, would be excluded from the definition by its terms.
Hungar answered with EPA’s stock answer – that an emitting unit may respond to increase in demand by operating more hours without triggering NSR, so long as there is no physical change. Hungar responded that, once there is a physical change, the “hours of operation exclusion has no relevance.” Running out of time, Hungar turned the argument over to Duke.
Carter Philips, arguing for Duke, immediately arguing that no one understood the regulations to mean what EPA now says they mean until EPA commenced the enforcement actions in 1999. Justice Ginsburg then asked, if that was the case, why anyone sought applicability determinations from EPA. This question led to a long discussion of two prior court of appeals decisions arising from EPA applicability determinations, WEPCO from the 7th Circuit and Puerto Rico Cement from the 1st Circuit, written by then Circuit Judge Breyer.
Taking the lead in questioning, Justice Breyer indicated his view that Puerto Rico Cement was an indication that, as early as 1987, EPA’s interpretation was the same as it was asserting now. Philips strove to distinguish the issues in the two cases from that raised by Duke, but it remains to be seen how effectively he did so. Noting further that the NSR program 681301.0001 intended to prevent a source from increasing emissions by operating more hours, Justice Breyer postulated in contrast to the questioning by Justice Scalia, that “you can use the same word, you can apply the same word in different places differently, depending on what your basic object is in the different place.”
The argument then turned to the question of whether Duke had abandoned the rationale adopted by the 4th Circuit. Phillips emphatically argued that Duke had not abandoned that argument, but noted that it had alternative grounds to support that result. Philips argued that Duke was relying both upon a general principle that when Congress defines a term identically, it should be defined identically in the regulations and that in this instance, there was significant ancillary support for the proposition that the congress intended for the term to be defined identically.
Finally, Justice Scalia referenced an EPA regulation applicable only when there is no applicable state implementation plan, Section 52.01(b), that makes reference to “emissions rate” (emphasis added). Justice Scalia seemed to read that term as referring to hourly rate, while Donahue on rebuttal indicated his view that the term could also refer to annual rate.
The substantive issues presented are not going to go away regardless of how the Court rules on jurisdiction. The 7th Circuit decision is back in the District Court for the Southern District of Indiana and the 11th Circuit is gearing up for briefing in a related case arising in that Circuit.
For an in-depth look at the Fourth Circuit’s analysis, what’s wrong with EPA’s subsequent rulemaking response, and a novel proposal for regulatory NSR revisions, please see my upcoming Ecology Law Quarterly article on SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=877544
Comment by BrianHPotts — November 2, 2006 @ 3:19 pm
To decide for yourself whether Mr. Phillips was correct in arguing that no one understood the regulations to mean what EPA now says they mean until EPA commenced the enforcement actions in 1999, I encourage you to visit http://www.nrdc.org/media/#1102a and the two hyperlinks at the bottom of this release. The first link (http://www.nrdc.org/media/docs/061102.pdf) contrasts the stark contradictions between Mr. Phillip’s opening statements to the Court, on one hand, and on the other hand statements by Duke Energy officials and a Duke attorney at Hunton & Williams whose name appears on the Supreme Court brief.
For example, since this commentary highlights Duke Energy’s central reliance on 40 C.F.R. section 52.01(d) (not 52.01(b)) to try to import the NSPS hourly test into the PSD regulations, it’s illuminating to read what this Hunton & Williams attorney wrote in a 1988 memo: “In adding the more specific ‘major modification’ definition to section 52.21, EPA made clear that it, and not the general definition in 40 C.F.R. section 52.01(d), applies to the PSD program.” See http://www.nrdc.org/media/docs/061102a.pdf (p.3,n.77). This probably explains why Duke Energy did not even see to raise this argument in the district court or 4th Circuit — recall that this is one of the arguments Judge Posner called “makeweight” — but it does not explain Mr. Phillips’ argument to the Justices.
Much else in these materials is very revealing, but one last thing is worth mentioning since the argument touched on applicability determinations and fair notice and what’s a company to do? Following the 1988 WEPCO applicability determination, the “Edison Electric Institute Plant Life Extension Task Force” provided recommendations to its members companies. Their top recommendation is quite revealing: that “litigation not be pursued on a generic basis, because an adverse decision would be binding on all litigants and would eliminate the ability of utilities to reach flexible agreements with their respective EPA regions.”
Comment by JohnWalke — November 3, 2006 @ 12:25 pm
Despite Mr. Gutermann’s claim, the argument transcript plainly shows that Mr. Donahue did not “concede that . . . Reich, had issued applicability determinations consistent with the theory of emissions increase pressed by Duke.” In responding to two separate points by Justice Scalia, Mr. Donahue agreed that Duke had relied heavily on two Reich determinations. The next words from his mouth, however, directly countered the notion that those determinations were consistent with Duke’s theories. The exchange reflected neither concession nor backtracking.
It is also simply wrong to suggest that Mr. Donahue “conceded that, given the statutory language, EPA had sufficient discretion to measure emissions increases by hourly rate or annual rate.” He conceded no such thing, and Environmental Defense’s opening and reply briefs say precisely the opposite: because the statutory PSD program uses annual pollution thresholds throughout title I of the Clean Air Act, EPA may not measure emissions increases for PSD purposes using hourly rates instead of annual rates. (Petr. Br. 15-16, 40; Reply Br. 18).
Finally, it is important to correct several important mischaracterizations by Mr. Phillips. In an exchange with Justice Breyer, Mr. Phillips attempted to distinguish the Puerto Rican Cement decision by suggesting that the units at issue in the case would have increased hourly emissions rates, thereby triggering the NSPS modification test anyway. To the contrary, then-Judge Breyer’s opinion makes clear that EPA and the court viewed the matter as a kiln modification project in which post-change emissions rates were lower than before the modification. 889 F.2d at 293. So, EPA did not find the project to have triggered NSPS.
Mr. Phillips also mischaracterized the Seventh’s Circuit WEPCO decision in attempting to distinguish the case in an exchange with Justice Ginsburg. Mr. Phillips claimed that “WEPCO was a situation where every one of the changes was a modification within the meaning of NSPS.” This is false. Of the 5 units at issue in the WEPCO case, EPA and the court found that two of the units did not involve NSPS modifications: “The agency concluded that because there would be no increase in production or emissions, NSPS would not apply to [units 2 and 3] following the renovation project.” 893 F.2d at 913. EPA did find that all 5 units involved PSD modifications. The Seventh Circuit’s decision continues to stand for the proposition that the NSPS and PSD programs measure emissions increases in a “fundamentally distinct manner” — hourly rates under NSPS versus actual annual emissions under PSD. Id. at 913.
Comment by Keri Powell — November 7, 2006 @ 5:35 pm
Keri Powell claims that my staement that Mr. Donohue agreed that Director Reich had issued applicability determinations consistent with Duke’s theory is contradicted by the transcript. she tries to sugest that Justice Scalia’s question had two parts — whether the applicability determinations preceded the promulgation of EPA’s regualtions and whether the Reich determinations were consistent with Duke’s theory. The passage to which I referred is below.
JUSTICE SCALIA: It is a little of an exaggeration, though, to say that EPA has since the issuance of the regulations always interpreted them the way that you prefer. In fact, the director of the PSD program gave two opinions in which he took precisely the interpretation that opposing counsel took.
MR. DONAHUE: Yes, Justice Scalia. Respondent has relied heavily on two early applicability determinations.
Now Ms Powell is correct that Mr. Donohue argued that Reich and Duke were inconsistent (as I noted expressly in the original post), but he did so only after his concession, in response to the Scalia question that raised the temporal issue.
Ms. Powell’s second complaint is a result of imprecision on my part. In stating that both sides conceded that EPA had discretion to measure emissions increases by either hourly rate or annual emissions, I was referrring to Duke and EPA, not necessarily the environmental petitioners.
-Paul Gutermann
Comment by pgutermann — November 30, 2006 @ 7:09 pm