Public Citizen, Inc. v. United States Environmental Protection Agency

United States Court of Appeals

Fifth Circuit

F I L E D

August 15, 2003

IN THE UNITED STATES COURT OF APPEALS

Charles R. Fulbruge III

FOR THE FIFTH CIRCUIT Clerk

No. 02-60069

PUBLIC CITIZEN, INC.; SIERRA CLUB; GALVESTON-HOUSTON ASSOCIATION

FOR SMOG PREVENTION; HILTON KELLY,

Petitioners,

versus

UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; RICHARD E. GREENE,

ADMINISTRATOR UNITED STATES ENVIRONMENTAL PROTECTION AGENCY,

REGION 6; CHRISTINE T. WHITMAN, ADMINISTRATOR, UNITED STATES

ENVIRONMENTAL PROTECTION AGENCY,

Respondents.

Petitions for Review of an Order of the

Environmental Protection Agency

Before GARWOOD, SMITH, and BARKSDALE, Circuit Judges.

RHESA H. BARKSDALE, Circuit Judge:

Primarily at issue is whether, pursuant to Title V of the

Clean Air Act, 42 U.S.C. §§ 7661-7661f, the Environmental

Protection Agency (EPA) had authority to grant full approval to

Texas’ operating permit program, notwithstanding program

deficiencies; and if so, whether it nonetheless was required by

that Act to issue notices of deficiency for the claimed

shortcomings. The petitions for review are DENIED.

I.

A.

The Clean Air Act (CAA), 42 U.S.C. §§ 7401-7671q, enacted in

1970 and extensively amended in 1977 and 1990, is a complex

regulatory regime intended “to protect and enhance the quality of

the Nation’s air resources so as to promote the public health and

welfare and the productive capacity of its population”. 42 U.S.C.

§ 7401(b)(1). “Primary responsibility” for enforcement of the CAA

is vested in state and local governments; but, the CAA also

provides for “Federal financial assistance and leadership ... for

the development of cooperative Federal, State, regional, and local

programs to prevent and control air pollution”. 42 U.S.C. §

7401(a)(3), (4). States satisfy their responsibility by developing

state implementation plans that specify emissions limitations and

other measures to attain and maintain national ambient air quality

standards. 42 U.S.C. § 7410(a)(2)(A)-(M).

In 1990, Congress enacted Title V for the CAA. Title V

requires major stationary sources of air pollution, such as

factories, to receive operating permits incorporating CAA

requirements and establishes a procedure for federal authorization

of state-run Title V permit programs. See 42 U.S.C. §§ 7661-7661f.

Title V permits do not impose additional requirements on sources

but, to facilitate compliance, consolidate all applicable

requirements in a single document. See 42 U.S.C. § 7661a(a); see

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also Virginia v. Browner, 80 F.3d 869, 873 (4th Cir. 1996) (Title

V permit “is a source-specific bible for [CAA] compliance”), cert.

denied, 519 U.S. 1090 (1997).

Congress directed the EPA to promulgate regulations

establishing the minimum elements for a Title V operating permit

program. Those minimum elements were to include certain

requirements identified in the CAA. See 42 U.S.C. § 7661a(b)

(articulating ten minimum elements for state programs).

The CAA required each State to develop, and submit to the EPA

for approval, an operating permit program that met the requirements

of the Act and its regulations (Part 70 — pursuant to the

regulations implemented for the CAA). 42 U.S.C. § 7661a(d)(1).

Section 502(d)(1) of the CAA, 42 U.S.C. § 7661a(d)(1), authorized

the EPA to grant full approval to permit programs “to the extent”

that the program met the CAA’s requirements.

In the event a State was not eligible for full approval, but

“substantially” met the minimum requirements, the CAA authorized

the EPA to grant “interim approval”. 42 U.S.C. § 7661a(g). On

granting interim approval, the EPA had to identify deficiencies to

be addressed before the program could receive full approval; the

State was then required to revise and resubmit the program. Id.

Interim approval could only last for two years and could not be

renewed. Id.

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Congress established firm deadlines for these processes. See

42 U.S.C. § 7661a. Pursuant to the statutory schedule: by

November 1993, States were to submit proposed permit programs; by

November 1994, the EPA had to either grant full or interim

approval, or deny approval; by November 1995, the EPA was to take

over state permit programs that did not meet federal requirements

and had not been granted interim approval; and by November 1996,

the EPA was to take over state permit programs that had been

granted interim approval but did not qualify for full approval. In

other words, compliant programs were to be operating no later than

November 1996, six years after Title V became law. See 46 U.S.C.

§ 7661a(b), (d)(1), (d)(3), and (g).

If a program was not fully approved before the deadline, or if

interim approval expired without the EPA’s having granted full

approval, the CAA mandated stiff sanctions, including exposure to

financial penalties (e.g., loss of highway funds). See 42 U.S.C.

§ 7661a(d)(2)(B) (incorporating 42 U.S.C. 7509(b)). Moreover, the

EPA would be required to implement a federal Title V permitting

program in that State, pursuant to EPA regulations. See 42 U.S.C.

§ 7661a(d)(3).

After the EPA approved a State’s Title V permit program, the

EPA was to maintain an oversight role. The CAA provides that,

whenever the EPA makes a determination that a State is not

adequately administering and enforcing its permit program in

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accordance with Title V, it shall provide a notice of deficiency

(NOD) to the State. 42 U.S.C. § 7661a(i)(1). If the State does

not correct the deficiency within 18 months, it faces sanctions

and, eventually, EPA takeover of its program. 42 U.S.C. §

7661a(i)(2), (4).

B.

The EPA issued regulations providing minimum requirements for

state permit programs and, pursuant to those rules, began reviewing

and authorizing state permit programs. It issued numerous interim

approvals. Despite the statutory language that interim approval

was to last only two years and could not be renewed, the EPA also

extended those approvals for an additional ten months as the

November 1996 deadline approached. See Operating Permits Program

Interim Approval Extensions, 61 Fed. Reg. 56368 (31 Oct. 1996). It

subsequently extended interim approval three times. See Extension

of Operating Permits Program Interim Approvals, 62 Fed. Reg. 45732

(29 Aug. 1997); Extension of Operating Permits Program Interim

Approval Expiration Dates, 63 Fed. Reg. 40054 (27 July 1998);

Extending Operating Permits Program Interim Approval Expiration

Dates, 65 Fed. Reg. 7290 (14 Feb. 2000).

The EPA was sued for doing so. Sierra Club v. EPA, No. 00-

1262 (D.C. Cir. 2000). As part of the settlement of that action,

the EPA agreed: (1) to implement a federal permit program by 1

December 2001 in any State that did not have full approval; and (2)

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to take and respond by 1 December 2001 to public comments regarding

deficiencies in state permit programs. Id. (Settlement Agreement).

Regarding such public comments, it committed to respond on the

merits to any claims of deficiency raised during the comment period

and either issue an NOD or explain why it did not do so.

C.

In 1993, Texas submitted its Title V program to the EPA for

approval. See Clean Air Act Final Interim Approval of Operating

Permits Program; the State of Texas, 61 Fed. Reg. 32693 (25 June

1996). In 1996, the EPA granted interim approval to Texas’

program. See id. The EPA identified numerous deficiencies in its

approval notice that Texas was required to correct before it could

obtain full approval. See id. at 32694-98; Clean Air Act Proposed

Interim Approval for the State of Texas, 60 Fed. Reg. 30037 (7 June

1995). Subsequently, Texas submitted program revisions for the

EPA’s review.

Pursuant to the Sierra Club Settlement Agreement, the EPA

published a Federal Register notice inviting public comments about

Texas’ program; Petitioners submitted comments in which they

objected to full approval, based on their belief that Texas had not

corrected all of the interim deficiencies and that additional

deficiencies existed that had not been identified previously. The

EPA determined, however, that Texas’ revisions satisfactorily

addressed the program deficiencies identified during interim

6

approval, Clean Air Act Proposed Full Approval for Texas, 66 Fed.

Reg. 51895 (11 Oct. 2001); accordingly, it granted Texas full

approval in December 2001, Clean Air Act Full Approval of Texas

Permits Program, 66 Fed. Reg. 63318 (6 Dec. 2001).

Regarding the deficiencies not identified by the time of

interim approval, the EPA concluded that newly identified

deficiencies did not prohibit full approval. It stated it would

respond to those alleged deficiencies in a separate, then

concurrently pending administrative proceeding. Id. at 63329-30.

In January 2002, based upon the EPA’s review of the public

comments, it issued an NOD that identified six deficiencies.

Notice of Deficiency for Clean Air Act Operating Permits Program;

State of Texas, 67 Fed. Reg. 732 (7 Jan. 2002).

In February 2002, the EPA issued a response letter explaining

its rationale for not issuing NODs for other deficiencies claimed

by Petitioners. See Operating Permits Program; Notice of Location

of Response Letters to Citizens Concerning Program Deficiencies in

Texas, 67 Fed. Reg. 16374 (5 Apr. 2002). The response explained

that the EPA agreed with Petitioners concerning some of the issues

and was working with Texas to ensure its program was being

implemented consistent with Title V; on other issues, it did not

agree with Petitioners. EPA Responses to Citizen Comments on State

Program Deficiencies (Texas) (21 Feb. 2002), at,

http://www.epa.gov/air/oaqps/permits/response/.

7

II.

Petitioners seek review of two EPA final actions related to

Texas’ Title V operating permits program: (1) the 6 December 2001

full approval of the program; and (2) the 21 February 2002 decision

not to issue NODs related to four aspects of the program. Texas

has intervened in favor of the EPA, as have BP America, Inc., et

al. (Industry Intervenors).

Where Congress has delegated authority to an agency to make

rules carrying the force of law and the agency’s interpretation of

its governing statute was promulgated in the exercise of that

authority, we apply the familiar two-step inquiry established by

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S.

837, 942-43 (1984). United States v. Mead Corp., 533 U.S. 218,

226-27 (2001). Under Chevron, we will not defer to an agency’s

interpretation that contravenes Congress’ unambiguously expressed

intent. Chevron, 467 U.S. at 942-43. On the other hand, we must

defer to a reasonable agency interpretation when the question is

one to which the statute does not speak directly. See id.

Otherwise, our review of agency action is governed by the

familiar deferential standard established by the Administrative

Procedure Act, 5 U.S.C. §§ 701-706 (APA): we must set aside any

agency action that is “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law”. 5 U.S.C. §

706(2)(A). Under this standard, we must assure ourselves that the

8

agency considered the relevant factors in making the decision, its

action bears a rational relationship to the statute’s purposes, and

there is substantial evidence in the record to support it; but, we

cannot substitute our judgment for that of the agency. Texas Oil

& Gas Ass’n v. EPA, 161 F.3d 923, 934 (5th Cir. 1998). We will

uphold an agency’s actions if its reasons and policy choices

satisfy minimum standards of rationality. Id. at 934. Moreover,

the EPA’s interpretations of its regulations are entitled to

substantial deference and are given “controlling weight” unless

“plainly erroneous or inconsistent with the regulation”. Thomas

Jefferson Univ. v. Shahala, 512 U.S. 504, 512 (1994).

A.

Petitioners first maintain the EPA, in December 2001, had no

authority to grant Texas’ permit program full approval without

finding that the program met the requirements of Title V and its

implementing regulations. They further maintain that the EPA acted

arbitrarily and capriciously in granting full approval because

Texas had not corrected all deficiencies identified at interim

approval.

1.

The first issue is a question of statutory interpretation

governed by the Chevron standard. Under the EPA’s interpretation

of the statutory provisions governing interim and full approval,

CAA § 502g, 42 U.S.C. § 7661a(g) (governing interim approval),

9

provides an alternate path to full approval. Full approval would

otherwise be governed by CAA § 502(d), 42 U.S.C. § 7661a(d), and

would not be permitted when the EPA determined (as it did) that the

program did not meet all of Title V’s requirements. According to

the EPA, if a State is granted interim approval, then to receive

full approval it need only remedy deficiencies identified by the

EPA at the time of interim approval.

Petitioners dispute this interpretation, contending that, when

the EPA is aware of deficiencies, it may not fully approve a

program (regardless of whether it becomes aware of the deficiencies

before or after interim approval). According to Petitioners:

there is but one path to full approval, that provided by CAA §

502d, 42 U.S.C. § 7661a(d); and only deficiency-free programs may

be approved. Petitioners urge that the EPA’s interpretation is

contrary to the clear and unambiguous intent of Congress; and, in

the alternative, that the approval was arbitrary and capricious

because it contradicts EPA regulations and memoranda.

a.

CAA § 502(d), 42 U.S.C. § 7661a(d)(1), relied upon by

Petitioners, provides:

Not later than 3 years after November 15,

1990, the Governor of each State shall develop

and submit to the Administrator a permit

program under State or local law or under an

interstate compact meeting the requirements of

this subchapter ... Not later than 1 year

after receiving a program, and after notice

and opportunity for public comment, the

10

Administrator shall approve or disapprove such

program, in whole or in part. The

Administrator may approve a program to the

extent that the program meets the requirements

of this chapter, including the regulations

issued under subsection (b) of this section.

If the program is disapproved, in whole or

part, the Administrator shall notify the

Governor of any revisions or modifications

necessary to obtain approval. The Governor

shall revise and resubmit the program for

review under this section within 180 days

after receiving notification.

CAA § 502(g), 42 U.S.C. § 7661a(g), which governs interim

approval, provides in part:

If a program (including a partial permit

program) submitted under this subchapter

substantially meets the requirements of this

subchapter but is not fully approvable, the

Administrator may by rule grant the program

interim approval. In the notice of final

rulemaking, the Administrator shall specify

the changes that must be made before the

program can receive full approval.

We agree with the Second Circuit that ambiguity exists in

these provisions. See New York Pub. Interest Research Group v.

Whitman, 321 F.3d 316, 328 (2nd Cir. 2003).

It arises because the text of § 502(g),

governing interim approval, does not clearly

describe the process by which a permit program

that has received interim approval receives

full approval. After making the changes

specified at the time of interim approval,

must the state resubmit its plan for

evaluation under the standards set forth in §

502(d), which would require the EPA to examine

the program’s compliance with Title V? Or

11

does a state’s program automatically qualify

for full approval when the state makes “the

changes” specified at the time of interim

approval?

Id. (emphasis added).

On fully approving Texas’ program, the EPA acknowledged this

ambiguity, finding an “apparent tension” between the requirement

that it grant full approval only to programs that meet minimum

requirements and the requirement that it grant full approval to any

program that has corrected interim deficiencies. 66 Fed. Reg. at

63319 (“Standing alone, § 502(d) appears to prevent EPA from

granting a state operating permit program full approval until the

state has corrected all deficiencies in its program no matter how

insignificant, and without consideration as to when such deficiency

was identified. Alternatively, § 502(g) appears to require that

EPA grant a state program full approval if the state has corrected

those issues that the EPA identified in the final [interim

approval].” (emphasis added)).

Therefore, the EPA had to decide “whether Texas by virtue of

correcting the deficiencies identified in the [interim approval

was] eligible ... for full approval, or whether Texas must also

correct any new or recently identified deficiencies as a

prerequisite to receiving full approval”. Id. at 63319-20

(emphasis added). The EPA concluded:

[T]he appropriate and more cohesive reading of

the statute recognizes the EPA’s authority to

grant Texas full approval [where interim-

12

approval deficiencies have been corrected]

while working simultaneously with the state,

in [the EPA’s] oversight capacity, on any

additional problems that were recently

identified. To conclude otherwise would

disrupt the current administration of the

state program and cause further delay in

Texas’s ability to issue operating permits to

major stationary sources.

Id. at 63320.

Because Congress did not unambiguously express its intent on

this issue through the CAA, the EPA’s interpretation is entitled to

deference under Chevron. As a result, we must decide whether the

EPA’s interpretation is “based on a permissible construction of the

[CAA]”. Chevron, 467 U.S. at 843.

We hold that it is. First, CAA § 502(g), 42 U.S.C. §

7661a(g), provides that, in the notice of final rulemaking granting

interim approval, the EPA must “specify the changes that must be

made before the program can receive full approval”. (Emphasis

added.) This suggests the interim-approval notice must identify

all of the changes required for full approval, and the making of

those specified changes (not all possible changes) triggers full

approval.

Second, as the Second Circuit noted:

[T]he EPA’s interpretation comports with the

timetable established by Congress, if not

adhered to by the EPA. Under § 502(g),

interim approval expires after two years and

is not renewable. 42 U.S.C. § 7661a(g).

Changes identified at the time of interim

approval may require modifications of state

statutes or regulations and, therefore, may be

13

time consuming. If a state were required, not

only to make the changes identified at the

start of interim approval but also to correct

deficiencies arising during interim approval,

a state’s efforts to receive full approval

could be sabotaged by the identification of

new deficiencies during or at the end of

interim approval. Should these events occur

it is doubtful whether the state could

resubmit its plan for full approval since §

502(d) provides that any such submission must

occur “[n]ot later than three years after

November 15, 1990,” 42 U.S.C. § 7661a(d)(1),

and the statute does not otherwise authorize

re-submission.

New York Pub. Interest Research Group, 321 F.3d at 329 (emphasis

added).

Finally, the CAA provides a mechanism for correcting

deficiencies in fully-approved programs — the NOD process

(discussed in detail infra). Like the Second Circuit, “[w]e

question whether Congress would have armed the EPA with this

arsenal if it believed that every deficiency would be corrected

during the interim approval period”. Id. at 329. Moreover, the

NOD process also applies to programs that have been granted interim

approval, providing a means to correct deficiencies not identified

at the time of interim approval. Thus, Congress provided processes

for making corrections to programs once they initially enter the

approval process and are given at least interim approval.

b.

Petitioners maintain that, even if the EPA’s interpretation is

not contrary to law, its full approval of Texas’ program was

14

arbitrary and capricious because: two EPA memoranda support

Petitioners’ view of the CAA; and the EPA’s interpretation is

contrary to EPA regulations.

Regarding the memoranda, Petitioners have not shown that the

views reflected in those two isolated memoranda are the official

policy of the EPA. These memoranda simply are not binding on the

EPA.

Regarding the EPA regulations that allegedly conflict with the

EPA interpretation, 40 C.F.R. § 70.10(a) states:

(1) ... [I]f an interim approval expires and

the Administrator has not approved a whole

part 70 program:

(i) At any time the Administrator

may apply any one of the sanctions

specified in section 179(b) of the

Act; and

(ii) Eighteen months after the date

required for submittal or the date

of disapproval by the Administrator

[sanctions will apply].

(2) If full approval of a whole part 70

program has not taken place within 2 years

after the date required for such submission,

the Administrator will [take over the

program].

The regulations define “whole program” as “a part 70 permit

program, or any combination of partial programs, that meet all the

requirements of these regulations and cover all the part 70 sources

in the entire State”. 40 C.F.R. § 70.2.

Petitioners maintain: these regulations suggest that the EPA

believes a program must meet all requirements for full approval;

15

they constitute EPA’s definitive interpretation of the CAA; and

they may be changed only through a formal modification of the EPA’s

rules. The EPA responds that this regulatory section addresses the

consequences that follow from expiration of interim approval in the

absence of a fully approved Title V program. The EPA points out

that 40 C.F.R. § 70.10 does not address the criteria for approving

State programs and, in particular, whether § 502(g) authorizes the

EPA to grant full approval to a State that corrects the

deficiencies identified at the time of interim approval. It

concludes: § 70.10 has no applicability here because interim

approval of the Texas program did not “expire” — full approval

superceded interim approval; and, for this situation, the relevant

regulation is 40 C.F.R. § 70.4(f)(2), which addresses requiring

States with interim approval to submit changes before expiration of

interim approval.

Again, we must give substantial deference to the EPA’s

interpretation of its regulations. Here, the EPA’s position that

these regulations are not inconsistent with its interpretation of

the CAA is not “plainly erroneous” and is thus entitled to

“controlling weight”. Thomas Jefferson Univ., 512 U.S. at 512. In

short, the EPA’s interpretation of the CAA is reasonable, and the

EPA’s acting pursuant to that interpretation was neither arbitrary

nor capricious.

16

2.

Petitioners nonetheless contend that the EPA acted arbitrarily

and capriciously in granting full approval to Texas because it had

not corrected three of the deficiencies identified at interim

approval. The EPA responds that it evaluated Texas’ response to

each deficiency and concluded that Texas had satisfactorily

addressed the EPA’s concerns.

We note that the EPA’s determinations were based on detailed,

technical evaluations of revisions to the Texas program to

determine whether that program complied with the CAA and the EPA’s

regulatory scheme. Again, the EPA is entitled to a substantial

deference in interpreting its regulations. E.g., Marine Shale

Processors v. EPA, 81 F.3d 1371, 1384 (5th Cir. 1996), cert.

denied, 519 U.S. 1055 (1997).

a.

The new source review (NSR) component of the CAA addresses

preconstruction review for new and modified stationary sources of

air pollution. All States must administer an EPA-approved program,

commonly referred to as “minor NSR”, that requires new sources and

existing sources subject to modification to obtain a

preconstruction authorization containing appropriate emission

limitations and standards. See 60 Fed. Reg. at 30039 (citing 40

C.F.R. § 70.2). Minor NSR permit terms and conditions are

17

applicable requirements of the Act that must be incorporated into

a Title V permit. See id.

During the interim approval process, the EPA identified as a

deficiency Texas’ failure to recognize the terms and conditions of

minor NSR permits as applicable requirements. See id. It stated

that, prior to full approval, Texas had to identify minor NSR as an

applicable requirement and revise its regulations to be consistent

with the federal regulations (Part 70). Id. Additionally, it

stated that Texas had to, upon or before the granting of full

approval, institute proceedings to reopen Title V permits issued

under interim approval to incorporate any excluded minor NSR

permits. Id.

Texas subsequently took a series of actions to correct the

deficiency, which the EPA determined met the minimum requirements,

66 Fed. Reg. at 51897-98: it amended its definition of applicable

requirements to include minor NSR, id. (citing 30 Tex. Admin. Code

§ 122.10(2)); and amended its rules to require new permit

applicants to list minor NSR permits in their applications and to

require that newly issued Title V permits incorporate minor NSR

permits, id. (citing 30 Tex. Admin. Code § 122.132(e)(11) and

122.142(b)(3)). For previously issued Title V permits, and those

for which the State had initiated public notice prior to the rule

changes, it amended its rules to require that, before 1 December

2001, the State would institute proceedings to reopen existing

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Title V permits to incorporate minor NSR permits no later than

permit renewal (i.e., no later than the end of the five-year term

of the permit). Id. (citing Tex. Admin. Code § 122.231(c)).

Pursuant to an agreement with the EPA, it committed to incorporate

the permits on a faster schedule: for existing permits with two or

more years remaining until renewal, within three to four years of

initial issuance. Id. at 51897-98.

Petitioners contend Texas had not corrected its exclusion of

minor NSR permits from its requirements for Title V permits. They

assert: not all of Texas’ permits (including previously-issued

permits) incorporated minor NSR terms at the time of full approval;

Texas’ permits did not include minor NSR permit terms but merely

cross-referenced minor NSR permits; and Texas’ correction was

flawed because it allowed incorporation of minor NSR into existing

general operating permits.

i.

Petitioners insist that Texas’ schedule was too slow and

failed to assure sources’ compliance with minor NSR terms and

conditions upon full approval, in violation of Part 70. The EPA

determined Texas corrected the deficiency based on its rule changes

and its commitment to incorporate minor NSR permits into existing

Title V permits on an expedited schedule.

The relevant section of Part 70 provides that a program with

interim approval that excludes minor NSR as an applicable

19

requirement “must, upon or before granting of full approval,

institute proceedings to reopen part 70 permits to incorporate

excluded minor NSR permits as terms of the part 70 permits....” 40

C.F.R. § 70.4(d)(3)(ii)(D) (emphasis added). As the EPA

determined, Texas met this requirement. This determination was

neither arbitrary nor capricious.

ii.

Petitioners next maintain Texas did not correct the

deficiency, because Texas’ permits do not include minor NSR permit

terms — instead, they cross-reference the permit numbers of minor

NSR permits. The EPA contends it reasonably found that minor NSR

permits could be incorporated by reference (i.e., the minor NSR

permit number listed, together with a statement that the minor NSR

terms are included as applicable requirements).

Nothing in the CAA or its regulations prohibits incorporation

of applicable requirements by reference. The Title V and Part 70

provisions specify what Title V permits “shall include” but do not

state how the items must be included. See 42 U.S.C. § 7661c(a)

(“[e]ach permit issued under this subchapter shall include

enforceable emissions limitations and standards ... and such other

conditions as are necessary to assure compliance with applicable

requirements of this chapter”); 40 C.F.R. § 70.6(a)(1) (“[e]ach

permit issued under this part shall include [elements including

emissions limitations and standards]”).

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The EPA concedes that, in providing guidance, it has stated

that emissions limitations and standards should be restated on the

face of the Title V permit and that incorporation by reference of

the details should only occur after such a restatement. On the

other hand, this guidance was not binding on the EPA and did not

require it to determine Texas has not corrected its interim

deficiencies. The EPA balanced the streamlining benefits of

incorporation by reference against the value of a more detailed

Title V permit and determined Texas’ deficiency had been cured to

its satisfaction. In so doing, it properly considered Petitioners’

concerns, such as the potential impact of incorporation-by-

reference on the ability of the public to be informed of the

requirements in the Title V permit and to comment on them. See 66

Fed. Reg. at 63324 & n.4. Contrary to Petitioners’ assertions,

neither the CAA nor its implementing regulations require more; and

the EPA determination was neither arbitrary nor capricious.

iii.

Finally, Petitioners contend that Texas’ changes are flawed

because they allow incorporation of minor NSR into general

operating permits (GOPs). GOPs are issued to cover numerous

similar sources in lieu of a specific Title V permit. 42 U.S.C. §

7661c(d); 40 C.F.R. § 70.6(d). Petitioners contend GOPs may not

incorporate minor NSR requirements because minor NSR requirements

vary by site.

21

This issue was not presented to the EPA during the full

approval process. Absent exceptional circumstances, a party cannot

judicially challenge agency action on grounds not presented to the

agency at the appropriate time during the administrative

proceeding. See Texas Oil & Gas Ass’n, 161 F.3d at 933 n.7.

(Also, Petitioners could have, but did not, challenge revisions to

the GOPs themselves. See 42 U.S.C. § 7661c(d); 40 C.F.R. §

70.7(e)(4).) We conclude that this issue is not properly before

us.

b.

Next, Petitioners point to Texas’ Audit Privilege Act as an

interim-approval-identified deficiency that had not been corrected.

They maintain the Audit Privilege Act prevents Texas from having

adequate authority to enforce its permit program.

Title V includes, as one of its minimum elements, the

requirement that the State have adequate authority to assure that

sources comply with all applicable requirements and to enforce

permits. 42 U.S.C. § 7661a(b)(5); see also 40 C.F.R. § 70.11(c)

(penalties must be “appropriate to the violation”). Texas, through

its Audit Privilege Act, provides for certain immunities and

privileges associated with information obtained through an

environmental audit of a facility. TEX. REV. CIV. STAT. art. 4447cc.

In the EPA’s interim approval notice for Texas, it noted its

concern that the Audit Privilege Act might prevent Texas from

22

having adequate enforcement authority. 61 Fed. Reg. at 32697. The

EPA stated that, to qualify for full approval, Texas would be

required to demonstrate that the Audit Privilege Act did not limit

Texas’ ability to adequately enforce and administer the operating

permit program. Id.

In response, Texas amended the Audit Privilege Act. According

to the EPA, these amendments: (1) eliminated the application of

immunity and privilege provisions to criminal actions; (2)

eliminated the application of immunity where a violation results in

a serious threat to health or the environment, or where the

violator has obtained a substantial economic benefit that gives it

a competitive advantage; (3) clarified that the law would not

sanction individuals who report violations of environmental laws to

government agencies; and (4) clarified that the privilege does not

impair access to information required to be made available under

federal or state law. See 66 Fed. Reg. at 51903.

Petitioners concede that Texas has made these changes to its

Audit Privilege Act since 1996, but insist that the law still:

prevents Texas from having adequate enforcement authority; prevents

it from being able to assess appropriate penalties; and improperly

makes audit documents privileged. The EPA responds that it

reasonably determined that limited immunity does not, per se,

preclude States from possessing adequate enforcement authority.

i.

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Concerning the adequacy of Texas’ enforcement authority,

Petitioners insist the Audit Privilege Act prevents Texas from

being able to recover civil penalties for each violation of the Act

because it has granted certain immunities. On the other hand, the

EPA determined the immunities provided by Texas’ Audit Privilege

Act did not deprive Texas of adequate enforcement authority. It

reasoned the Act does not: limit Texas’ ability to seek

declaratory or injunctive relief for violations disclosed by an

audit; affect Texas’ ability to pursue criminal sanctions, if

appropriate; or preclude actions seeking penalties for serious

violations. This determination was not arbitrary and capricious.

ii.

Regarding the Audit Privilege Act’s impact on Texas’ ability

to impose appropriate penalties, Title V and Part 70 require that

Texas have authority to recover penalties of up to $10,000 per day

in an amount “appropriate to the violation”. 40 C.F.R. § 70.11;

see also 42 U.S.C. § 7661a(b)(5)(E). The EPA has interpreted these

provisions to require that state law allow for the consideration of

the penalty factors identified in CAA § 113(e), 42 U.S.C. §

7413(e): the violator’s compliance history; the economic benefit

of noncompliance; and the seriousness of the violation.

Petitioners note minor semantic differences between the

federal penalty factors and those allowed consideration under the

Audit Privilege Act. For example, Texas must be able to penalize

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violations resulting in substantial economic benefit; Texas’ Audit

Privilege Act provides an exception to immunity for violations that

“have resulted in a significant economic benefit which gives the

violator a clear advantage over its business competitors”. TEX.

REV. CIV. STAT. Art. 4447cc § 10(d)(5). Notwithstanding minor

variations, the EPA reasonably determined that Texas’ statutory

language allowed it to consider the appropriate factors in imposing

punishments.

iii.

Petitioners assert Texas’ Audit Privilege Act impermissibly

makes audit documents privileged. The EPA responds that Texas

addressed this concern by adding a section to the Audit Privilege

Act that restored the authority of the State’s employees,

“[n]otwithstanding the privilege established under this Act” to

“review information that is required to be available under a

specific state or federal law....” TEX. REV. CIV. STAT. art. 4477cc,

§ 9(b). The EPA determined this section restored Texas’ authority

to view any documents required to be collected, maintained, or

reported under Title V, which it deemed sufficient to address the

deficiency and for Texas to conduct both civil and criminal

investigations. See 66 Fed. Reg. at 63329. This assessment was

not arbitrary or capricious.

c.

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Finally, Petitioners contend full approval was arbitrary and

capricious because Texas has not demonstrated that it has adequate

funding and personnel to administer a Title V program. 42 U.S.C.

§ 7661a(b)(4) requires States to so demonstrate, and Part 70

instructs that this demonstration must include a four-year estimate

of program costs and a description of how the State plans to cover

those costs. 40 C.F.R. § 70.4(b)(8)(v). The funding must be

collected as a fee from owners and operators of Title V sources and

must be sufficient to cover the cost of the Title V permit program,

including: granting/denying permits; enforcing permits; emissions

and ambient monitoring; preparing regulations and guidance; and

modeling and tracking emissions. 42 U.S.C. § 7661a(b)(3)(A)(i)-

(vi).

At the time of interim approval, the EPA identified as a

deficiency Texas’ failure to provide the four-year estimate. See

60 Fed. Reg. at 30044. Texas subsequently provided a four-year

estimate of costs and its projection that fee revenues would exceed

these costs. Texas estimated average annual costs of $34.3 million

and revenues of $36.8 million for the four-year projection period.

Petitioners maintain that Texas has not corrected the

deficiency because: this estimate includes an anticipated fee

increase in 2003 (from $26 to $30 per ton) that the Texas agency

staff stated it would recommend to the Commissioners of the Texas

Natural Resources Conservation Commission; and, although costs of

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the program will increase, Texas has not budgeted for additional

staff.

i.

Regarding the proposed increase, the EPA responds that it had

no reason to believe an increase would not be adopted. Moreover,

it notes that, if for some reason Texas did not adopt the

recommended increases, it could then issue an NOD. This

determination was not arbitrary or capricious.

ii.

Regarding Petitioners’ assertion that the Texas agency faces

a significant amount of work in the next few years which will

increase costs, the EPA notes that Texas provided a spreadsheet

identifying permitting tasks, the number of permitting actions in

each category, and the number of staff members required to complete

the tasks. It questioned Texas concerning certain items and was

satisfied with Texas’ explanations. This was not arbitrary or

capricious.

3.

In sum, because the EPA’s interpretation of these CAA

provisions is a reasonable, and thus permissible, interpretation of

the statute and because the EPA’s determination that Texas

corrected interim deficiencies was not arbitrary and capricious,

Petitioners fail in their challenge to the EPA’s decision to fully

approve Texas’ program.

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B.

In the alternative, Petitioners challenge the EPA’s failure to

issue an NOD to the Texas program for its failure to satisfy

regulatory requirements regarding: (1) public participation; (2)

source monitoring and reporting; (3) enforcement authority; and (4)

the timely issuance of permits.

As described supra:

Whenever the Administrator makes a

determination that a permitting authority is

not adequately administering and enforcing a

program, or portion thereof, in accordance

with the requirements of this subchapter, the

Administrator shall provide notice to the

State....

42 U.S.C. § 7661a(i)(1). Upon issuance of an NOD, sanctions may be

imposed; and, if the State does not correct the deficiencies within

18 months, the EPA is required to take over and administer the

program. 42 U.S.C. § 7661a(i)(4).

Petitioners contend that essentially the same deficiencies

that should have prevented full approval obligated the EPA to issue

an NOD. (As noted, the EPA did issue an NOD for some, but not all,

issues requested by Petitioners.) The EPA asserts it has

discretion under the CAA to determine whether Texas’ commitment to

address the EPA’s concerns excused the need for a formal NOD.

Petitioners insist that the EPA was not entitled to rely on an

informal commitment by the State to address the deficiencies but

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was required by the CAA to utilize the formal NOD procedure because

it concluded Texas’ program was deficient.

In other words, the parties dispute whether § 502(i) obligates

the EPA to issue an NOD whenever it is made aware of deficiencies

(even minor ones) in a State’s permitting program or whether the

EPA has discretion to determine whether to engage its formal

enforcement mechanism.

Petitioners point out that the use of the word “shall”

suggests the EPA has no discretion. On the other hand, this is

preceded by, “[w]henever the Administrator makes a determination

[that a program is not being adequately administered]” — language

which clearly grants discretion. As the Second Circuit noted:

Presumably, Congress could have fashioned a

regime under which, for example, an interested

party could initiate the process leading to a

determination of whether “a permitting

authority is adequately administering and

enforcing a program.” Congress, however, took

a different path. Because the determination

is to occur whenever the EPA makes it, the

determination is necessarily discretionary.

New York Pub. Interest Research Group, 321 F.3d at 331 (emphasis

added). See also City of Seabrook v. Costle, 659 F.2d 1371, 1374

(5th Cir. Unit A 1981) (statutory authority to make finding of

violation creates discretionary duty to make findings when

violation is alleged). While the CAA requires the EPA to issue an

NOD when it has determined that a program is not being adequately

administered or enforced, this “nondiscretionary obligation arises

29

only after a discretionary determination by the EPA”. New York

Pub. Interest Research Group, 321 F.3d at 331 (emphasis added).

Under the APA, an agency’s decision not to invoke an

enforcement mechanism provided by statute is not typically subject

to judicial review. See 5 U.S.C. § 701(a)(2); Heckler v. Chaney,

470 U.S. 821, 832 (1985) (“[A]n agency’s decision not to take

enforcement action should be presumed immune from judicial review

under § 701(a)(2)”).

The presumption against judicial review of

such refusal avoids entangling courts in a

calculus involving variables better

appreciated by the agency charged with

enforcing the statute and respects the

deference often due to an agency’s

construction of its governing statutes....

New York Pub. Interest Research Group, 321 F.3d at 331; see also

Heckler, 470 U.S. at 831-2 (“[A]n agency decision not to enforce

often involves a complicated balancing of a number of factors which

are peculiarly within its expertise.... [T]he agency is far better

equipped than the courts to deal with many of the variables

involved in the proper ordering of its priorities.”).

The presumption against judicial review may be rebutted if the

statute “circumscribes agency enforcement discretion, and has

provided meaningful standards for defining the limits of that

discretion”, Heckler, 470 U.S. at 834-35. Such standards are not

present in this portion of Title V. The only limitation on the

EPA’s power in this context, contained in CAA § 502(i), 42 U.S.C.

30

§ 7661a(i), is that it must issue an NOD when it determines a

program is being inadequately administered. Here, the EPA has

concluded to the contrary, leaving us nothing to review.

The clear language of CAA § 502(i), 42 U.S.C. § 7661a(i),

undisputably grants the EPA the authority to initiate the NOD

process when it deems doing so appropriate. In other words,

Congress left the decision whether, and when, to issue an NOD “to

the institutional actor best equipped to make it”. New York Pub.

Interest Research Group, 321 F.3d at 332. Accordingly, the EPA’s

decision not to issue an NOD for the four grounds raised by

Petitioners is not subject to our review.

III.

For the foregoing reasons, the petitions for review are

DENIED.

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