Reply Brief — Utility Air Regulatory Group v. New York (No. 06-750)

No. 96-750

IN THE

Supreme Court of the United States

UTILITY AIR REGULATORY GROUP,

Petitioner,

V.

STATE OF NEW YORK. ET AL..,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

REPLY BRIEF FOR PETITIONER

HENRY V. NICKEL

F. WILLIAM BROWNELL

(Counsel of Record)

MAKRAM B. JABER

HUNTON & WILLIAMS LLP

1900 K Street, N.W.

Washington, D.C. 20006

(202) 955-1500

WiLSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20002

DISCLOSURE STATEMENT

Pursuant to Rule 29.6, the Utility Air Regulatory Group

(“UARG”) hereby incorporates by reference the disclosure

statement filed with its petition for a writ of certiorari on No-

vember 27, 2006.

TABLE OF CONTENTS

Table of Authorities

Introduction

Argument

I. EPA Is Not Precluded By the CAA

From Defining the Statutory Term

“Modification” Consistently for

NSPS and NSR

The 1977 CAA Amendments Ratified the

Policy Reflected in EPA’s Preexisting

NSPS and PSD Modification Definition

Conclusion

ill

TABLE OF AUTHORITIES

CASES

Alabama Power Co. v. Costle,

636 F.2d 323 (D.C. Cir. 1979)

Chevron U.S.A., Inc. v. NRDC,

467 U.S. 837 (1984)

Citizens to Save Spencer County v. EPA,

600 F.2d 884 (D.C. Cir. 1979)

Lorillard v. Pons 434 U.S. 575 (1978)

New York v. EPA, 443 F.3d 880

(D.C. Cir. 2006)

STATUTES

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

CAA § 110(a); 42 U.S.C. § 7410(a)

CAA § 111 (a); 42 U.S.C. § 7411(a)

CAA § 168(a); 42 U.S.C. § 7478(a)

CAA § 168(b); 42 U.S.C. § 7478(b)

CAA § 169(2)(A); 42 U.S.C. § 7479(2)(A)

CAA § 169(2)(C); 42 U.S.C. § 7479(2)(C)

4, 6,8

passim

7,8

7

passim

passim

iv

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INTRODUCTION

Respondents dismiss UARG’s arguments as “irrelevant,”

asserting that New York IT addressed “only the definition of

‘physical change’” and not the definition of “modification.”

See Brief in Opposition for Respondents State of New York,

et al. (“Opp.”) at 20. As UARG explains in its petition, that is

precisely why certiorari should be granted. The D.C. Circuit

struck down the U.S. Environmental Protection Agency’s

(“EPA’s”) Equipment Replacement Provision (“ERP”) rule

under Chevron step one, finding unambiguous congressional

intent in isolated words (“any physical change”), while spe-

cifically refusing to “decide whether parts replacements [al-

lowed by the ERP rule] . . . necessarily constitute” a “modifi-

cation” under the Clean Air Act (“CAA”) definition of modi-

fication “taken as a whole.” App. 15a.'

The D.C. Circuit’s approach is a misapplication of Chevron,

not a “routine application” of it. See Opp. at 6. Apparently

cognizant of this weakness in New York I], Respondents pro-

ceed to defend that decision based on the statutory definition

of modification and its history — precisely the approach the

D.C. Circuit disavowed but should have taken to discern con-

gressional intent. Thus, according to Respondents, “Congress

clearly intended the definition of modification to encompass

equipment replacement activities that cause more than a de

minimis increase in [annual] emissions.” Opp. at 6-7 (empha-

sis added). Respondents’ analysis of the “modification” defi-

nition “as a whole,” however, fails in two principal respects.

First, Respondents’ argument establishes the relevance of

the very issues of statutory construction currently before this

' As originally enacted in 1970 in conjunction with the New Source

Performance Standards (“NSPS”) program, the CAA defines “modifica-

tion” to mean “any physical change in, or change in the method of opera-

tion of, a stationary source which increases the amount of any air pollutant

emitted by such source” or “which results in the emission of any air pol-

lutant not previously emitted.” 42 U.S.C. § 7411(a)(4); CAA § 11 1(a)(4).

2

Court in Environmental Defense v. Duke Energy Corp., No.

05-848 (argued Nov. 1, 2006). According to Respondents,

New York II stands for the proposition that EPA lacks author-

ity to define “modification” for New Source Review (“NSR”)

consistently with NSPS. See, e.g., Opp. at 14. Asa result, the

mere finding in Environmental Defense that EPA has author-

ity to define “modification” consistently across new source

programs should lead to summary vacatur of New York II.

Second, Respondents’ assertion that there is “nothing in the

language of the statute or the legislative history to support”

the claim that Congress in 1977 legislated in direct reference

to the preexisting Prevention of Significant Deterioration

(“PSD”) rules promulgated in 1974, Opp. at 13, does not bear

scrutiny. That Congress did so was previously recognized by

the D.C. Circuit and is evident on the face of the CAA itself.

ARGUMENT

EPA IS NOT PRECLUDED BY THE CAA

FROM DEFINING THE STATUTORY TERM

“MODIFICATION” CONSISTENTLY FOR NSPS

AND NSR.

Respondents argue that “[i]n issuing the [ERP] rule, EPA

abandoned its longstanding interpretation of the statutory

definition of modification.” Opp. at 2. According to Respon-

dents, EPA’s longstanding interpretation of “modification” is

reflected in “[rjegulations adopted in 1980,” id. at 20, which

define “major modification” as a source-wide increase in

emissions in tons-per-year above specified regulatory thresh-

olds (called “significance” levels). 40 C.F.R. § 52.21(b)(2).

Respondents’ argument founders on its attempt to substitute

the regulatory term “major modification” for the statutory

term “modification.” See, e.g., Opp. at 2, 16 (claiming EPA’s

1980 “major modification” rule is EPA’s definition of “modi-

fication”). In this regard, no one disputes that EPA has al-

ways defined the statutory term “modification” under NSPS to

3

apply only to activity that increases emitting capacity, meas-

ured in terms of hourly rate unaffected by hours of operation.

40 C.F.R. § 60.14. Furthermore, no one disputes that EPA

defined “modification” for PSD in 1974 consistent with

NSPS. 40 C.F.R. § 52.01(d). Finally, no one disputes that the

ERP rule fits well within these definitions of “modification,”

because the ERP rule excludes from NSR only projects that

do not increase a facility’s emitting capacity (measured in

terms of hourly emission rate) by any amount. See UARG

Petition at 10-11.

Respondents’ only response is that “whatever was EPA’s

pre-1977 interpretation of ‘modification’ in the NSPS regula- -

tions, that interpretation . . . contravenes the plain statutory

language.” Opp. at 16. But that interpretation has been on the

books unchallenged for over 30 years, and is a straightforward

implementation of the congressional policy in the 1970 CAA

that new source programs apply to new sources of pollution.

See UARG Petition at 5-6.

In contrast to the statutory term “modification,” EPA

adopted the regulatory term “major modification” in 1976.

The sole purpose of this regulatory term was to subject those

“modifications” that were “major” to more stringent require-

ments than applied to those “modifications” that were not

“major.” Thus, EPA defined a “major modification” subject

to NSR as “a modification . . . which increases the allowable

emission rate” above specified tonnage thresholds, based on

the addition of emissions increases and decreases across all

emitting equipment at the stationary source at which the

“modified” piece of equipment was located. 41 Fed. Reg.

$5,528 (1976). In this way, a modified piece of equipment

would not trigger NSR if any emissions increase from that

modified equipment was offset (in tons per year) by emissions

decreases at other, unmodified equipment at the stationary

source.

Consistent with EPA’s 1976 definition of “major modifica-

tion,” both EPA and the courts have repeatedly recognized

that the regulatory concept “major modification” is a subset of

4

the statutory concept “modification.” For example, in the

1979 nonattainment NSR rule, EPA explained that “the state

plan requirements for major modifications may exempt modi-

fications . . . that are accompanied by intrasource offsets so

that there is no net emissions increase [from the source as a

whole].” 44 Fed. Reg. 3276-77 (1979). In Alabama Power

Co. v. Costle, 636 F.2d 323 (D.C. Cir. 1979), the D.C. Circuit

explained that “[s]tandards for PSD construction of facilities

apply also to the ‘modification’ of any source or facility,

[footnote omitted] as defined by section 111(a)(4).... By

regulation, EPA has limited PSD review to only those modifi-

cations deemed ‘major’.” 636 F.2d at 350 (emphasis added).

In the 1980 PSD rules defining “major modification,” EPA

explained that “[t]he applicability of the PSD regulations to

modifications mirrors that for new sources . . . PSD review

will apply to any modification . . . if the modification would

result in a significant net increase [from the source as a

whole].” 45 Fed. Reg. 52,710-11 (1980) (emphasis added).

In Chevron, this Court upheld NSR rules under which “an

existing plant that contains several pollutant emitting devices

may... modify one piece of equipment without meeting per-

mit conditions if the alteration will not increase total emission

from the plant [i.e., if the ‘modification’ does not constitute a

‘major modification’].” 467 U.S. at 840 (emphasis added).

In short, just as one cannot have a “major source” unless

there is a “source” in the first place, one cannot have a “major

modification” unless there is a “modification” in the first

place. See, e.g., 40 C.F.R. § 52.21(r)(4)(“At such time that a

particular source or modification becomes a major source or

modification . . . the [NSR] requirements of paragraphs (j)

through (s) of this section shall apply.”).

Respondents substitution of “modification” for “major

modification” demonstrates why Environmental Defense 1s

relevant here. In that case, the petitioners argue that, contrary

to EPA’s explanation of the “major modification” rule in the

rule’s preamble (quoted above), the 1980 “major modifica-

tion” rule should be interpreted to eliminate “modification” as

5

the trigger for PSD pre-construction review at existing

sources. By comparison, the D.C. Circuit in New York I]

found that the CAA precludes EPA from promulgating an

NSR rule that uses “modification” as the trigger for PSD pre-

construction review. See Opp. at 6-7 (The lower court found

“under Chevron’s first step . . . that Congress clearly intended

the definition of moaification to encompass equipment re-

placement activities” that are not NSPS modifications.).

As a result, Respondents’ contention that New York II in-

volves merely an “unexceptional, case-specific application” of

Chevron is belied by Respondents’ own argument. If the

Court accepts Duke Energy’s argument in Environmental

Defense that the statute requires NSPS modification as the

trigger for NSR preconstruction review (or even if it con-

cludes that the statute just authorizes that result), the Court

should grant certiorari and summarily remand this case for

further proceedings consistent with that decision.

il. THE 1977 CAA AMENDMENTS RATIFIED THE

POLICY REFLECTED IN EPA’S PREEXISTING

NSPS AND PSD MODIFICATION DEFINITION.

The definition of “modification” and the new source review

provision enacted in 1970, CAA § I11, § 110(a)(2)(D), re-

flected congressional policy to apply new source programs to

activity that creates a new source of pollution. See UARG

Petition at 5-6. EPA implemented the statutory term “modifi-

cation” by regulation following the 1970 CAA to reflect this

congressional policy. by defining “modification” as an activ-

ity that expands a source’s capacity to emit, measured as an

emission rate unaffected by hours of operation. /d. at 6-8.

As EPA explains in its petition for certiorari, Congress rati-

fied this congressional policy when it amended the CAA in

1977. EPA Petition at 15-19. Indeed, immediately following

the 1977 CAA, and repeatedly thereafter, EPA explained

Congress’s action in 1977 as ratifying the pre-existing “modi-

6

fication” regulations. See, e.g., 43 Fed. Reg. 26,394 (1978);

Alabama Power, 636 F.2d at 402.

Despite this history, Respondents now argue that Congress

in 1977 rejected the policy it adopted in 1970 as implemented

by EPA through the NSPS and PSD modification regulations.

Opp. at 12-14. In particular, Respondents dispute that Con-

gress, in enacting the 1977 CAA Amendments, “had before it

EPA’s preexisting PSD rules,” and “reviewed those rules pro-

vision-by-provision, adopting some elements anc changing

others.” UARG Petition at 16; Opp. at 13.

To the contrary, as UARG explains in its petition, it is clear

on the face of the 1977 CAA Amendments that Congress told

EPA not to change the way it implemented CAA § 111(a)(4)’s

definition of “modification” under the 1974 PSD rules, a defi-

nition consistent with the NSPS definition. For example, with

respect to such terms as “commence construction” and “best

available control technology,” Congress in 1977 specifically

directed EPA to change its regulatory definition. This under-

scores that Congress (i) understood what was in the 1974 PSD

rules; (ii) knew what it wanted EPA to keep and what it

to communicate its intent in unmistakable statutory terms.

Compare 42 U.S.C. §§ 7479(2)(A), (3); CAA §§ 169(2)(A),

(3) with 40 C.F.R. §§ 52.01(f); 52.21(b)(7) (1974).

Moreover, Congress provided that the 1974 PSD rules were

to continue in effect in each state until such time as the state

adopted an implementation plan that met the new PSD re-

quirements established by the 1977 CAA Amendments. See

42 U.S.C. § 7478(a); CAA § 168(a). At the same time, Con-

gress specifically directed that certain portions of the 1974

PSD rules were to be revised, effective immediately (e.g., new

PSD increments, the definition of “commence”), and others

were to be changed at the time state implementation plans

were revised (e.g., the definition of “best available control

technology”). See 42 U.S.C. § 7478(b); CAA § 168(b). The

1974 PSD rules’ definition of “modification” was, of course,

not among the provisions so revised by operation of statute or

7

required to be revised subsequently by the states. To the con-

trary, Congress directed that “modification” for NSR “means

the same . . . as used in [CAA § I1](a)].” 42 U.S.C. §

7501(4); see id § 7479(2)(C).

In this manner, Congress made it clear that, at the very

least, EPA had discretion to continue to implement the con-

cept of “modification” as the “construction” trigger under the

PSD program, consistent with the way EPA had always

implemented “modification” under the NSPS program. Cf,

e.g., Lorillard v. Pons, 434 U.S. 757, 582 (1978) (the “selec-

tivity that Congress exhibited in incorporating provisions and

modifying certain FLSA practices [in the ADEA] strongly

suggests that but for those changes Congress expressly made,

it intended to incorporate fully the remedies and procedures of

the FLSA [into the ADEA].”). Given this, the D.C. Circuit’s

conclusion in New York // that a statutory fragment, the words

“any physical change” in CAA § 111(a)(4), deprives EPA of

all discretion to adopt a rule that is consistent with the NSPS

definition of modification defies explanation.

For their part, Respondents offer no explanation. Rather,

ignoring an extensive discussion of the CAA and its history

summarized above, see UARG Petition at 6-9, 16-18, they

incorrectly assert that UARG has “cite[d] nothing in the lan-

guage” of the CAA or in the legislative history of the 1977

CAA Amendments to support the notion that Congress in

1977 legislated in reference to the 1974 PSD rules. Opp. at

13. Further, Respondents dismiss CAA § 168(a) as a “savings

clause,” and on this basis argue that reliance on it is mis-

placed. /d.

Respondents’ ahistorical suggestion that EPA’s 1974 PSD

program did not provide the starting point for Congress’s

adoption of a new statutory PSD program in 1977, and that

Congress did not legislate in direct reference to those preex-

isting rules, does not withstand scrutiny.” Similarly misplaced

See, e.g., Citizens to Save Spencer County v. EPA, 600 F.2d 844, 851-

52 & n.8 (D.C. Cir. 1979); see also id. at 899 (J. Robinson, dissenting on

8

is their attempt to downplay the significance of CAA § 168(a)

by mischaracterizing it as a mere “savings clause.”

As for the claim that CAA § 168(a) “refutes” UARG’s po-

sition by supposedly indicating that Congress intended that

the 1974 PSD rules continue to apply “only provisionally”

(i.e., until such time as a given state adopted a revised imple-

mentation plan), Opp. at 14, Respondents’ argument begs the

question. Indisputably, Congress intended that certain

changes in the PSD program take place immediately and that

others await the revision of implementation plans. And it

specified in the statute which changes were to take place im-

mediately (e.g., new PSD increments, new definition of

“commence”) and which changes were to await the revision of

implementation plans (e.g., the definition of “best available

control technology”).

The point Respondents miss is that nowhere on the face of

the 1977 CAA Amendments did Congress instruct EPA to

change its regulatory definition of “modification.” Quite the

contrary: Congress specified that “modification” for NSR

other grounds) (“[I]n passing Part C of Title | of the Clean Air Act, Con-

gress was essentially codifying, revising and strengthening” the 1974 PSD

rules); Alabama Power Co. v. Costle, 636 F.2d 323, 349 (D.C. Cir. 1979)

(while the 1977 CAA Amendments made “substantial changes in the re-

quirements governing” state implementation plans, the Amendments

“maintain[ed] the basic structure of regulation of stationary sources” under

the 1974 PSD rules).

* See Citizens to Save Spencer County, 600 F.2d at 861 (rejecting the

environmental groups’ description of CAA § 168(a) as being “no more

than a routine ‘savings clause’ designed to ensure that there is no general

lapse in the applicability of [the 1974 PSD rules] while state environ-

mental plans undergo revision to implement the new federal regulations of

1977,” given that (i) another provision of the 1977 CAA Amendments

(i.e., § 406(b)) served as a generic savings provision; and (ii) CAA §

168(a) was “specifically targeted” under Part C of the CAA to deal with

the so-called “interim period” before a given state would have revised its

implementation plan to conform to the new requirements of the CAA,

which did not involve a change to the definition of “modification.”

9

would have the same “mean[ing] and “use[]” it has under

NSPS. 42 U.S.C. §§ 7479(2)(C); 7501(4).

In its petition, UARG observed that it would be a “particu-

larly odd approach to statutory interpretation to conclude that,

by defining ‘modification’ for NSR to mean ‘modification’ as

defined in NSPS, Congress intended to preclude EPA from

implementing CAA § 111(a)(4) for NSR the same way it had

always implemented that provision for NSPS.” UARG Peti-

tion at 17 (emphasis in original). The extraordinary response

by both Respondents and the D.C. Circuit is, apparently, “no,

not at all.” A Chevron step one reading based on an ipse dixit

transforms a reviewing court into a policy maker. Given the

importance of NSR as the gateway to economic development

in this country, certiorari should be granted.

CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully submitted,

HENRY V. NICKEL

F. WILLIAM BROWNELL

(Counsel of Record)

Makram B. Jaber

HUNTON & WILLIAMS LLP

1900 K Street, N.W.

Washington, D.C. 20006

(202) 955-1500

Counsel for the Utility Air

Regulatory Group

January 12, 2007