Reply Brief — Ohio Power Co. v. Thomas

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No. 88-60

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

OHIO POWER COMPANY,

‘ Petitioner,

LEE M. THOMAS, et al..,

Re sponde nts.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

REPLY BRIEF

FOR PETITIONER OHIO POWER COMPANY

HENRY V. NICKEL

(Counsel of Record)

F. WILLIAM BROW NELL

MEL S. SCHULZE

HUNTON & WILLIAMS

2000 Pennsylvania Ave., N.W.

Suite 9000

Washington, D.C. 20006

(202) 955-1500

A. JOSEPH DowpD

JEFFREY P. WHITE

AMERICAN ELECTRIC POWER

SERVICE CORPORATION

One Riverside Plaza

P.O. Box 16631

Columbus, Ohio 43216

(614) 223-1636

Counsel for Petitioner

September 27, 1988 Ohio Power Company

WILSON - Eres PrintinGc Co., Inc. - 789-0096 - WASHINGTON. D.C. 20001

TABLE OF CONTENTS

RN A PRE I I canis cSatsincnncdairnnnempssiccsaasadasincs

ar cecesk Lisp Ahccatiigentiin tsar dais Sieadicieed ohana bee

CERTIORARI SHOULD BE GRANTED TO

SETTLE THAT REGULATIONS UPSETTING

PAST TRANSACTIONS BETWEEN THE GOV-

ERNMENT AND PRIVATE PARTIES ARE

PROSCRIBED UNDER THE APA IN THE AB-

SENCE OF EXPLICIT AUTHORITY IN AN

AGENCY’S ENABLING STATUTE FOR SUCH

RULES

CONCLUSION ........

Ww)

TABLE OF AUTHORITIES

CASES: Page

American Methyl Corp. v. EPA, 749 F.2d 826

CE. aR IID a resscinssensicsnnnitnarcconschnieeentacielaas ean 4,9

Chapman v. El Paso Natural Gas Co., 204 F.2d

ME CTE, TTY skies neeeicrncinciccespeseonnnvananiganildamiaes 4

Citizens to Save Spencer County v. EPA, 600 F.2d

BOG TENG; CO, TT wisi netestncersbntdasoscensomnnnnsnbiaiaetans 8

Georgetown University Hospital v. Bowen, 821

F.2d 750 (D.C. Cir. 1987), cert. granted, 56

U.S.L.W. 3590 (U.S. February 29, 1988) (No.

SRN inn N NO nnU Rg CARTE an CB i sb Ae 2,4

Greater Boston Television Corp. v. FCC, 463 F.2d

268 (D.C. Cir. 1971), cert. denied, 406 U.S. 950

CIID snsictshncniakeuscstpchastsutabeeeienacaeesmaanes eens 4

Hirschey v. FERC, 701 F.2d 215 (D.C. Cir. 1983) .. 4

Hotch v. United States, 212 F.2d 280 (9th Cir.

|.” |) en eRe On a REN SON Cr ensh Leoe dae che bliss 3

NRDC v. Thomas, 845 F.2d 1088 (D.C. Cir. 1988) -. 6

Motor Vehicle Manufacturers Association v. State

Farm Mutual Auto Insurance Company, 463

Uae Te ANI soca cen cnteichiesesccpseceaelecseeadeeanaladtead 5

Retail, Wholesale & Department Store Union v.

NLRB, 466 F.2d 380 (D.C. Cir. 1972) ................ 3

Sierra Club v. EPA, 719 F.2d 436 (D.C. Cir.

1983), cert. denied sub nom. Alabama Power Co.

v. Sierra Club, 468 U.S. 1204 (1984) —.......0000...... 3

Society for Propagating the Gospel v. Wheeler,

S38 ©. Con: 756 €C.C.BA ee SOME cece 2

United States v. Seatrain Lines, Inc., 329 U.S. 424

CT scccctintcabene Dasani eauaiasadee ae nasal 4

Utah International, Inc. v. Andrus, 488 F. Supp.

ee Oe I, MUDD ssc du co.eaingd cha deiivoniouaceaacceammmuaniae 9

STATUTES:

The Clean Air Act, 42 U.S.C. § 7401, et seq. (1982)

$ 110(a) (2) (H), 42 U.S.C. § 7410(a) (2) (H)

PEED ca:Ghaics occcatedbtanmniestactandanidseidatodiceseaataens 7

By ip. Lee ye! -- T 6. | | SeenenemenemE ty |

S 123(c), 42 U.S.C. § 7423(c) (1982) ................ passim

ili

TABLE OF AUTHORITIES—Continued

Page

EE Ss Ee ee ) 7

§ 165 (4), 42 U.S.C. § 7475 (4) (1982) ................ 7

The Administrative Procedure Act, 5 U.S.C. § 551,

et seq. (1982)

Ne MEME CR UEIED sciccetcsnccnsscacncaccnnssnessenen- 3

i ncvnepnasncsentinnsesencsseecsisenn 5

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

No. 88-60

OHIO POWER COMPANY,

Petitioner,

LEE M. THOMAS, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

REPLY BRIEF

FOR PETITIONER OHIO POWER COMPANY

ARGUMENT

In this case, Petitioner seeks review of a decision of

the U.S. Court of Appeals for the District of Columbia

Circuit holding that the U.S. Environmental Protection

Agency (“EPA” or “the Agency”) was not precluded

under the Administrative Procedure Act (“APA”) from

promulgating a legislative regulation that revokes a final

order issued to Ohio Power Company under § 123(c). of

the Clean Air Act, 42 U.S.C. § 7423(c) (1982), when

$ 123(c) does not explicitly provide EPA with authority

to do so. Federal Respondents advance several arguments

in opposition to certiorari... For the reasons discussed

below, Federal Respondents’ arguments are without merit.”

1 Brief of Federal Respondents in Opposition at 20-24 (here-

inafter ““Fed. Resp. Brief ——’’).

2 Federal Respondents in a footnote object to Petitioner’s Motion

to Defer Consideration of the Petition in this case pending this

CERTIORARI SHOULD BE GRANTED TO SETTLE

THAT REGULATIONS UPSETTING PAST TRANS-

ACTIONS BETWEEN THE GOVERNMENT AND

PRIVATE PARTIES ARE PROSCRIBED UNDER

THE APA IN THE ABSENCE OF EXPLICIT AU-

THORITY IN AN AGENCY’S ENABLING STATUTE

FOR SUCH RULES.

The scope of an agency’s authority to regulate depends

upon the congressional delegation. Inherent in any dele-

gation of regulatory authority is the power to control the

future conduct of regulated parties. As the APA makes

clear, regulation of future conduct is the centerpiece of

rulemaking—i.e., “rules” are statements of “future

effect.” *

Prescribing rules for the future will necessarily re-

strict a person from engaging in conduct that he could

lawfully have undertaken in the past. That is a neces-

sary consequence of rulemaking, and is not questioned by

Petitioners in this case or in Georgetown. A delegation of

authority to prescribe rules for the future, however, does

not provide, without more, authority to reverse blithely

transactions with the government completed under prior

rules. That is, a new rule that impinges on “transactions

or considerations already past” * can no longer be char-

acterized as a rule that has a purely “future effect.”

Court’s decision in Bowen v. Georgetown University Hospital, No.

87-1097 (“Georgetown”). Fed. Resp. Brief 22 n.14. For reasons

discussed herein and in the Petition filed in this case, the ad-

ministrative law issue in this case and the issue in Georgetown

are virtually identical. See also Brief of Ohio Power Company as

Amicus Curtae in Support of Respondents, filed on August 4, 1988,

in Georgetown. For these reasons and those stated in Petitioner's

Motion, the Motion to Defer Consideration of this Petition until

Georgetown is decided should be granted.

35 U.S.C. § 551(4) (1982).

4 Society for Propagation of the Gospel v. Wheeler, 22 F. Cas.

756, 767 (C.C.D.N.H. 1814) (emphasis added).

In evaluating the validity of a rule that impinges on

past transactions between the government and a private

party, such as administrative orders, it is necessary to

turn for guidance to the underlying congressional delega-

tion and the APA. Where Congress has delegated to

the agency authority to revoke orders issued in the past,

the agency may revoke such orders by rule notwithstand-

ing the APA. In so doing, however, the agency should

consider whether the public interest in retroactivity out-

weighs the hardship that reversal of the agency’s position

would cause the affected party.

Where Congress has not delegated to the agency au-

thority to revoke past orders, however, the APA, which

must be read into every agency’s general delegations,’

precludes an agency from adopting a rule that upsets

rights granted in those orders.* As the D.C. Circuit rec-

ognized in Georgetown, it is this latter category of rules

—i.e., rules that not only establish new legal require-

ments for the future, but that also revoke past transac-

tions between the government and a private party—that

5 See Hotch v. United States, 212 F.2d 280, 283 (9th Cir. 1954)

(Given the focus of the APA on the overall! limits of agency au-

thority, “the Administrative Procedure Act ... must be read as

part of every Congressional delegation of authority, unless specifi-

cally excepted.” ).

*If that person has not received a final determination (e.g., an

administrative order) from the agency, but rather has relied upon

a legal principle established in a rulemaking or adjudication, a new

rule that changes that legal principle for the future is not pro-

scribed. However, as Federal Respondents recognize, Fed. Resp.

Brief 22-24, in order to avoid injustice, agencies will balance the

adverse effect of the change in legal principle on a person who

relied on that princinle with the public interest in broad applica-

tion of the new rule. See Sierra Club v. EPA, 719 F.2d 436, 467

(D.C. Cir. 1983), cert. denied, 468 U.S. 1204 (1984); Retail, Whole-

sale & Dep’t Store Union v. NLRB, 466 F.2d 380, 390 (D.C. Cir.

1972). This type of rule is not questioned by Petitioner.

is inconsistent with the APA’s definition of a rule as a

statement of “future effect.” *

Federal Respondents argue that this case can be dis-

tinguished from Georgetown on the grounds that a regu-

lation that upsets a past transaction with the government

leading to restrictions on “future emissions” is not pro-

scribed, while a regulation that involves future “‘mone-

tary reimbursements for past transactions” is.* This

simplistic distinction does not withstand analysis.

The applicability of the APA proscription does not

turn on whether a regulation affects “future conduct.”

All regulations affect future conduct. In Georgetown,

* Georgetown University Hospital v. Bowen, 821 F.2d 750 (D.C.

Cir. 1987); see Petition for a Writ of Certiorari at 10-14 (here-

inafter “Pet. ———-”). Given the historical view that laws apply

only to the future, the authority of an agency to change estab-

lished rights retrospectively does not depend upon the type of

transaction in which the rights were established. Thus, just as

an agency may not revoke an administrative order through rule-

making without explicit congressional authority, where a person

wus a party to a prior adjudication, rights established for that party

in that adjudication may not later be revoked in a subsequent

adjudication absent explicit statutory authority to do so. See United

States v. Seatrain Lines, Inc., 329 U.S. 424, 430-33 (1947) (the

Interstate Commerce Commission cannot revoke a certificate of pub-

lic convenience and necessity previously issued to a water carricr,

given the absence of explicit statutory authority) ; American Methyl

Corp. v. EPA, 749 F.2d 826, 834-40 (D.C. Cir. 1984); Hirschey v.

FERC, 701 F.2d 215, 220 (D.C. Cir. 1983): Greater Boston Televi-

sion Corp. v. FCC, 463 F.2d 268, 291 (D.C. Cir. 1971), cert. deni:

406 U.S. 950 (1972); Chapman v. El Paso Natural Gas Co., 204

F.2d 46, 53-54 (D.C. Cir. 1953).

* Fed. Resp. Brief 21. This is the same superficial grounds for

distinction used by the court below. The illogical nature of this

distinction is the very reason why certiorari is important to clarify

the proper scope of rulemaking under the APA,

the rule affects the hospitals’ future cash flow; in this

case, the rule affects future emissions. The crucial con-

sideration raised in the Petition, which Federal Respond-

ents refuse to address, is whether the regulation not only

addresses future conduct, but also upsets previously es-

tablished legal rights and obligations. Under the APA

and the D.C. Circuit’s decision in Georgetown, such reg-

ulations are proscribed unless the statute being imple-

mented by the agency explicitly authorizes such regula-

tions."®

Applying the APA, the lower court in Georgetown held

that the regulation at issue was invalid because it af-

fected the hospitals’ continuing right to money received

under a previous administrative determination. The lower

® See Pet. 10-11 and note 21. Federal Respondents deem critical

to this case whether a rule causes a regulated party to suffer a

penalty stemming from past conduct. Fed. Resp. Brief 21. Without

such an impact, Federal Respondents contend that a rule is valid.

However, in the rule involved in Georgetown, which Federal Re-

spondents do not question is retroactive, the hospitals are not being

penalized for having received money under an earlier rule to which

they are not entitled under the new rule. Rather, the hospitals are

being required in the future to give back something of value that

under the relevant statute they believed would always be theirs.

1 Pet. 11 and note 25. An illustration of this principle occurs

in the context of the ongoing controversy over whether the Depart-

ment of Transportation (DOT) should adopt regulations requiring

the installation of air bags in automobiles. See Motor Vehicle

Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983).

Under the statute at issue, a manufacturer could clearly be required

to include air bags in future model year cars. However, he could

not be required to retrofit air bags in cars produced in past model

years under the seat belt regulations, since the statute does not

give the DOT authority to engage in retroactive rulemaking. 15

U.S.C. § 1392 (1982). While each regulation would obviously only

impact the manufacturer’s “future conduct,” the latter is prohibited

under the APA since it upsets previously established legal rights

and obligations arising when past model year cars were built.

court found that the Medicare statute does not explicitly

authorize such retroactive regulation.

Similarly, in this case, the regulations at issue affect

Ohio Power Company’s “good engineering practice” stack

height credit previously approved by EPA pursuant to

the procedures in § 123(c) of the Clean Air Act."! See-

11 Federal Respondents suggest, although they never explicitly

argue, that the approval of stack height credit for Ohio Power’s

Kammer Plant was not the product of a completed transaction with

the agency, because a “mid-level” EPA employee gave the approval.

Fed. Resp. Brief 10 n.7. At the outset, the approval was not given

by an obscure mid-level employee of EPA—it was given by the

Acting Chief of Air Programs for EPA Region III (the Region

in which the plant is located). Moreover, in the long history of

this proceeding, this is the first time that Federal Respondents

have ever even implied that EPA’s approval was not authoritative

and final or that the EPA official sending the letter approving the

stack height credit had no authorization to do so. Cf. Brief for

Respondents in Nos. 86-1331, et al. (D.C. Cir.) at 12 (“EPA finally

approved the [Ohio Power] fluid modeling demonstration [for

Kammer] .. . by letter of October 6, 1982”). In any event, the

law is clear that an EPA determination can be “final” even if not

issued by a “high-level” employee. See NRDC v. Thomas, 845 F.2d

1088, 1094 (D.C. Cir. 1988).

Federal Respondents also suggest that the court below found

only that the rule “might have” a retroactive effect, not that it

did have such an effect. Fed. Resp. Brief 23-24 n.17. In fact, the

court was not questioning whether the regulation was retroactive

as applied to Ohio Power; it accepted that characterization of the

rule, Pet. 12-13 and note 30, a characterization made by EPA

itself. See Brief for Respondents in Nos. 86-1331, et al. (D.C. Cir.)

at 20 (“These new requirements were made retroactive to all sources

which conducted demonstrations after December 31, 1970”). The

court was only expressing the view, with which petitioners dis-

agree, that the retroactivity may not be unduly burdensome. The

degree of the burden of retroactivity is an issue only if the balanc-

ing test applies; that is, it is only an issue where the rule changes

the legal standards for the future but does not disturb past orders.

See supra note 6.

Finally, Federal Respondents note in passing that Ohio Power

had already constructed Kammer’s stack before § 123 was enacted,

tion 123(¢c) does not explicitly authorize EPA to revoke

stack height credit granted after notice and an oppor-

tunity for comment in an administrative proceeding

under that provision.’* Accordingly, the administrative

law principle applied in Georgetown is equally applicable

in this case.

and therefore that the demonstration was “after the fact.” Fed.

Resp. Brief 24 n.18. This point has no significance except to high-

light Federal Respondents’ confusion concerning § 123. Under § 123,

it is irrelevant that a stack was in existence before enactment of

§ 123 in 1977, since § 123 applies to all stacks in existence after

1970.

12 Federal Respondents do not dispute that § 123(c) nowhere pro-

vides explicit authorization for EPA to revoke a prior approval of

a stack height demonstration. Rather, Federal Respondents suggest

that EPA has such authority through §110(a)(2)(H) of the Act,

42 U.S.C. § 7410(a)(2)(H). Fed. Resp. Brief 22. Federal Respond-

ents are confused. While § 110(a)(2)(H) prescribes procedures

requiring revisions to state implementation plans to meet new

requirements mandated under the Act, it says nothing about the

substantive nature of those requirements. The terms of the specific

statutory provisions referred to generally in § 110(a)(2)(H) will

determine whether the requirements to be applied to a particular

source are those established under prior rules or those established

under revised rules. Many of the Act’s provisions, including

§ 123(c), contain no authority to apply new rules to those subject to

standards or orders established under prior rules.

For example, once EPA determines what control technology rep-

resents “best available control technology” (BACT) for a source

under § 165(4) of the Act, 42 U.S.C. § 7475(4), the Agency lacks

authority to revoke that BACT determination later and impose a

more stringent technology on that source. Moreover, once EPA

establishes an NSPS for a source category under § 111, any revi-

sion to that NSPS cannot apply to sources already built that are

subject to the previous NSPS. Similarly, once EPA determines

that a certain stack height represents “good engineering practice”

pursuant to a § 123(c) demonstration, the statute does not provide

the Agency with authority to reevaluate and revoke that determi-

nation. Accordingly, once requirements are established under these.

provisions, they are not subject to change under § 110(a)(2)(H)

(or any other section of the Act).

Contrary to Federal Respondents’ argument,’ Citizens

to Save Spencer County v. EPA™ confirms that the

Georgetown prohibition on retroactive rulemaking is im-

plicated in this case. Federal Respondents contend that

the regulation in Spencer County “applied to past con-

duct and declared that the conduct had been unlawful at

the time it took place.” '* Federal Respondents mischar-

acterize the regulation at issue in that case.

The regulation in Spencer County did not declare as

unlawful construction activities that had already taken

place. Rather, it imposed new requirements (which

would apply in the future) on plants that had already

begun construction or been permitted under an earlier

set of requirements, even though the Act provides no

authority for such a rule.’"* Thus, the new regulation

was retroactive, having affected prior administrative de-

terminations by establishing requirements affecting the

future eniissions of plants that had already begun con-

struction."

Spencer County therefore shows that the fact that a

regulation affects “future emissions” is not relevant to

whether it is a regulation proscribed by the APA. Thus,

13 Fed. Resp. Brief 21 n.13.

14 600 F.2d 844, 879-81 (D.C. Cir. 1979).

15 Fed. Resp. Brief 21 n.13.

16 The principal effect of the new requirements was to change

the control technology applicable to such sources, i.e., to affect those

sources’ “future emissions.” Contrary to Federal Respondents’

suggestion, there were no penalties exacted under the rule for hav-

ing constructed a source without having met the new requirements

that did not exist when construction commenced. See supra note 9.

7 While the court in Spencer County condemned retroactive reg-

ulation under the APA, it upheld the rule in question only because

EPA had justified the rule’s retroactivity under the APA’s “good

cause” exception. See Pet. 13 n.20. No one contends that the “good

cause” exception is applicable in this case.

the distinction raised in this case by the court below,

and argued by Federal Respondents here, as to why the

principle established in Georgetown does not apply,

makes no sense. Regulation that revokes rights estab-

lished in a past transaction with the agency, thereby

resulting in future burdens (e.g., through future, addi-

tional controls on “future emissions” in this case and

through future repayments to the government in the

Georgetown case), is rulemaking proscribed by the APA

in the absence of an explicit congressional delegation of

authority.”

Finally, given Federal Respondents’ confusion as to

the type of “retroactivity” proscribed by the APA, it

should be clarified that Petitioner does not argue that

the regulations involved here cannot be applied to sources,

unlike Ohio Power’s Kammer Plant, that have not demon-

strated a stack height credit under § 123(c). If a source

(even a source constructed before promulgation of the

rules) desires to establish a stack height credit pursuant

18 Federal Respondents also attempt to distinguish two of the

cases cited by Petitioner establishing the principle that an agency

may not revoke a previous administrative determination without

explicit statutory authority. (A third case—a case from this Court

—is not mentioned by Federal Respondents.) Pet. 12 n.27; Fed.

Resp. Brief 22-23 n.15. By citing American Methy! Corp. v. EPA,

749 F.2d 826, 834-40 (D.C. Cir. 1984), Petitioner did not suggest.

as Federal Respondents state, that EPA had no authority to revoke

the administrative determination at issue in that case. Instead,

the case establishes that EPA had authority to revoke only pur-

suant to a statutory provision explicitly providing such authority.

By comparison, neither § 123(c) nor any other section of the Act

authorizes revocation of a stack height credit approved under the

procedures in § 123(c).

Federal Respondents also misread Utah Int’l, Inc. v. Andrus, 488

F. Supp. 976, 984-87 (D. Colo. 1980). In that case, a district court

refused to allow the government to change a determination made

under a regulation after that regulation was revised, allegedly in

furtherance of the statutory objective. The facts of that case are

therefore completely analogous to the facts of this case.

to $123(c) at this time or in the future, it must meet

the new requirements. Petitioner does contend, however,

that once a $123(c) credit is approved by EPA, the

Agency lacks authority under the APA and the Clean

Air Act to promulgate new regulations that revoke the

prior approval.

CONCLUSION

For the foregoing reasons and the reasons presented

‘n the Petition for a Writ of Certiorari, this Court

should grant certiorari to define the limits of an agency’s

authority to adopt retroactive regulations.

Respectfully submitted,