Reply Brief — Appalachian Power Co. v. Environmental Protection Agency

No. 00-445

IN THE

Supreme Court of the Anited States

APPALACHIAN POWER COMPANY, ef ai.,

Petitioners,

Vv.

U.S. ENVIRONMENTAL PROTECTION AGENCY,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit r

REPLY BRIEF FOR PETITIONERS

DAVID M. FLANNERY ANDREA BEAR FIELD

KATHY G. BECKETT (Counsel of Record)

JACKSON & KELLY NORMAN W. FICHTHORN

1600 Laidley Tower HUNTON & WILLIAMS

500 Lee Street East 1900 K Street, N.W.

P. O. Box 553 Washington, D.C. 20006

Charleston, WV 25301 (202) 955-1500

(304) 340-1017 MEL S. SCHULZE

Counsel for Petitioner HUNTON & WILLIAMS

Midwest Ozone Group 600 Peachtree Street, N.E.

Atlanta, GA 30308

(404) 888-4000

Counsel for Petitioners

Appalachian Power

DISCLOSURE STATEMENT

Pursuant to Rule 29.6, Petitioners hereby amend the

corporate disclosure statement filed with this petition for a

writ of certiorari. (Case No. 00-445). For convenience,

provided below are the page numbers of the petition for a

writ of certiorari listing petitioners as to which an amended

statement is provided.

Carolina Power & Light (p. x)

(parent: Progress Energy, Inc.)

(State Street Bank & Trust Company Boston is no longer

a 10% or greater owner)

Central and South West Services, Inc. (p. x) (now merged

with American Electric Power Co., Inc.)

Central Illinois Public Service Company (p. x) (now known

as AmerenCIPS)

Central Power and Light Company (p. x)

(parent: American Electric Power Co., Inc.)

Florida Power Corp. (p. x)

(parent: Florida Progress Corporation, which is a

subsidiary of Progress Energy, Inc.)

Illinois Power Company (p. xi) (now known as Dynegy

Marketing aiid Trade)

Otter Tail Power Co. (p. xi)

(Otter Tail Power Co. ESOP is no longer a 10% or

greater owner)

, ii

PacifiCorp Electric Operations (p. xi) (now known as

PacifiCorp)

(parent: Scottish Power plc)

Public Service Company of Oklahoma (p. xii)

(parent: American Electric Power Company, Inc.)

Southwestern Electric Power Company (p. xii)

(parent: American Electric Power Company, Inc.)

Union Electric Co. (p. xii) (now known as AmerenUE)

West Texas Utilities Co. (p. xii)

(parent: American Electric Power Company, Inc.)

Il.

TABLE OF CONTENTS

BY UPHOLDING EPA’S SUBSTITUTION OF

COST FOR AIR QUALITY IN DETERMINING

WHETHER AN AIR QUALITY

CONTRIBUTION IS SIGNIFICANT, THE

COURT OF APPEALS’ DECISION

CONFLICTS WITH BASIC PRINCIPLES OF

ADMINISTRATIVE LAW ESTABLISHED BY

EE TE GIN chctreisicaintssncisieenpuiasesnnctinces

BECAUSE THE LOWER COURT’S

REASONING FOR REJECTING

APPLICATION OF THE NON-DELEGATION

DOCTRINE WOULD UNDERMINE THAT

DOCTRINE, THIS COURT SHOULD HEAR

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CONCLUSION

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TABLE OF AUTHORITIES

CASES

American Trucking Ass’ns v. EPA, 175 F.3d 1027,

modified on reh’g, 195 F.3d 4 (D.C. Cir. 1999), cert.

granted, 120 S. Ct. 2003 and 2193 (2000) (Nos. 99-

1257, 99-1426, argued Nov. 7, 2000).............::cseeeees

Bowen v. Georgetown Univ. Hosp., 488 U.S. 204

CT IIIOD snicscnrsssinsnsesssnnnpnensnisieencaidienianaaiiaduaiiaaaiied

Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984)

Ethyl Corp. v. EPA, 51 F.3d 1053 (D.C. Cir. 1995)...

Grand Canyon Air Tour Coalition v. FAA, 154 F.3d

455 (D.C. Cir. 1998), cert. denied, 526 U.S. 1158

Industrial Union Dep’t v. American Petroleum Inst.,

pee eC. SORRRsaaintd ed haemlaatiinta eet:

NRDC v. EPA, 824 F.2d 1146 (D.C. Cir. 1987) (en

STATUTES

SWI SI iii scciireckacineensnins

The Clean Air Act, 42 U.S.C. §§ 7401-7671q (1994

& Supp. III 1997)

CAA § 110(a)(2)(D)(i), 42 U.S.C. §

| RENE ae aenet es

CAA § 110(k)(5), 42 U.S.C. § 7410(k)(5) ...e..s-

Page

FEDERAL REGISTER

63 Fol. Ree SIT OG)... 3,4

GS ied Minee, S700 CAI io cisctsnicinininseureiichcnmcoeceiaees 3

ARGUMENT

In its response, EPA argues that Petitioners are mistaken

in asserting that EPA relied on cost to the exclusion of air

quality considerations in making its findings of “significant

contribution” under § 110(a)(2)(D\i) of the Clean Air Act,

42 U.S.C. § 7410(a)(2)(D)(i). EPA Br. 10. Based on this

argument, EPA now asserts that the issue is not whether a

§ 110(a)(2)(D)(i) significant contribution finding can be

based exclusively (or primarily) on cost rather than air

quality effects, but whether EPA may use cost analyses to

develop the regulatory remedy in response to supposedly air-

quality-based significant contribution findings. /d. at 12.

EPA’s post-hoc attempt to re-frame the issue must fail.

EPA did not make significant contribution findings based on

air quality considerations. The record makes clear that (1)

EPA considered air quality effects in deciding whether one

state’s emissions make any contribution to nonattainment air

quality in another state, but (2) once EPA found .».y

contribution, EPA determined whether that contribution was

significant based solely on the cost of emission controls.

This approach ignores the Clean Air Act’s decisional

criterion — i.e., air quality effects — for assessing whether a

contribution to nonattainment is significant, and therefore

conflicts with cases in this Court and in the D.C. Circuit

establishing that, where a statutory provision confines an

agency’s authority to consideration of a specific criterion, the

agency is not at liberty to base regulatory actions on other

criteria that it prefers to use.

With regard to the conflict between the decision below

and the constitutional non-delegation doctrine, EPA does not

even attempt to rely on or support the court of appeals’

reasoning — i.e., that, despite the lack of an intelligible

2

principle guiding EPA’s action, the non-delegation doctrine

is not applicable where that action affects less than “all

American enterprise” or no more than “half of the nation.”

Pet. App. 28a. Instead, EPA contends that the statute

provides an intelligible principle and that EPA acted

consistent with that principle. EPA Br. 20. But the issue

presented here is not whether some rationale rejected by the

court might sustain EPA’s action; the issue is whether the

court’s decision is consistent with the fundamental principle

that lawful agency actions must always be bounded by an

intelligible principle in statutory law. Because the court’s

basis for finding the non-delegation doctrine inapplicable

cannot be reconciled with that principle, this Court should

grant the petition and review that decision.

I. BY UPHOLDING EPA’S SUBSTITUTION OF

COST FOR AIR QUALITY IN DETERMINING

WHETHER AN AIR QUALITY CONTRIBU-

TION IS SIGNIFICANT, THE COURT OF

APPEALS’ DECISION CONFLICTS WITH

BASIC PRINCIPLES OF ADMINISTRATIVE

LAW ESTABLISHED BY THIS COURT’S

CASES.

EPA asserts that this case need not be reviewed because

the Agency in its rulemaking examined whether one state’s

emissions significantly contribute to another state’s ozone

nonattainment based on air quality considerations, rather than

cost. EPA Br. 10 (the petitions “rest largely on the mistaken

assertion that the NO, SIP Call ‘rel[ies] on cost-effectiveness,

to the exclusion of air quality effects, in assessing whether

one state’s emissions contribute “significantly” to another

state’s ozone nonattainment air quality.’”). The rulemaking

3

record contradicts EPA’s assertion and shows that EPA is

now attempting to avoid review based on a rationale that

EPA did not use to support its significant contribution

findings. EPA’s characterization is revisionist history.

EPA used a two-step process to make its significant

contribution findings. The first step was to determine

whether a state made any contribution to another state’s

ozone nonattainment area. In this first step, which did

involve evaluation of air quality effects, EPA modeled air

quality effects in downwind ozone nonattainment areas

resulting from all man-made nitrogen oxide (“NO,”) and

volatile organic compound emissions from each upwind

state. 63 Fed. Reg. 57,391 (1998). If EPA found no air

quality effects above a very low air quality effects threshold,

EPA declared that there was no contribution (or “linkage”’)

by the upwind state to the downwind state’s nonattainment

air quality. Jd. (“The first step in evaluating this [modeling]

information was to screen out linkages for which the

contributions were very low....”). However, if an upwind

state’s effects exceeded EPA’s very low threshold, EPA

declared an air quality contribution “linkage” - not a

“significant” contribution — between that state and the

downwind state’s nonattainment area, and then proceeded to

the second step. In other words, EPA used its air quality

threshold only as a screening tool to determine whether or

not a state “contribute[s]” to downwind nonattainment, not to

determine whether or not a state contributes “significantly.””

' EPA appears to claim now that it used the air quality threshold to decide

whether a contribution was or was not “significant.” EPA Br. 10-11 n.6.

This claim is wrong and misleading. EPA was careful to explain in the

preamble to the final rule that, only “for ease of discussion,” it used the

term “significant” to describe the contribution “linkages” identified in the

first step of its analysis. 63 Fed. Reg. 57,381 (1998). However, EPA

4

In the second step, EPA ignored air quality considerations

entirely and evaluated whether a state’s air quality

contribution was “significant” within the meaning of

§ 110(a)(2)(D)(i) by calculating the amount of that state’s

NO, emissions that, in its view, could be controlled cost-

effectively. 63 Fed. Reg. 57,381 (1998). EPA established a

cost-effectiveness “cutoff” of $2000 per ton of NO, removed.

Thus, EPA’s “actual finding of significant contribution”

(id.) was that amount of NO, emissions in each

“contributing” state that EPA estimated could be eliminated

at a cost of $2000 per ton or less. Whether and to what

extent that amount of NO, emissions had any effect on air

quality in any downwind nonattainment area was never

determined by EPA and therefore played no role whatsoever

in EPA’s significant contribution findings.’

As Judge Sentelle recognized below, EPA’s approach

reads out of the Clean Air Act the word “significantly.” See

Pet. App. 59a-60a (Sentelle, J., dissenting). If a state is

identified as “contributing,” i.e., is shown to cause air quality

made clear that its “actual finding of significant contribution” — i.e., its

determination of whether a given contribution rises to the level of

“significance” demanded by the statutory text — was based on its cost-

effectiveness cutoff, not on any air quality evaluation. /d.

? EPA indicates that, after its second step, it went on to a third step that

involved additional air quality modeling using the “cost-effective” NO,

emission reductions. EPA Br. 11. However, because that modeling was

done on a regional, not state-specific, basis, it revealed nothing about

whether any one state’s emissions were having any, let alone a

“significant,” air quality impact in another state’s ozone nonattainment

area. Section 110(a)2)(D)i)’s plain language allows EPA to make a

finding of “significant contribution” based only on emissions from

“within ... [a] State”; it prohibits EPA from making such findings based

on multi-state aggregations of emissions.

5

effects above the very low air quality threshold level chosen

by EPA for distinguishing between any contribution and no

contribution, the statute makes clear that EPA’s second step

should have been to evaluate whether that contribution to

nonattainment air quality is “significant” based on air quality

considerations. By contrast, EPA _ evaluated the

“significance” of the contributions it found only by

examining whether and how much NO, emissions can be

eliminated at $2000 per ton. Thus, under EPA’s approach,

each state with any contribution was automatically found to

“contribute significantly” in violation of § 110(a)(2)(D)(i), in

an amount equivalent to the amount of NO, emissions that

can be removed for $2000 per ton — irrespective of whether

that amount of emissions has any effects on air quality in a

downwind nonattainment area.

If EPA in the rulemaking had proposed, justified, and

used its air-quality-contribution threshold as the point at

which a contribution becomes “significant” under

§ 110(aX(2)(D){i), then the characterization of its action in its

Brief would be accurate. However, EPA did not propose its

air quality threshold as a significance test, EPA did not

justify that threshold for that purpose, and, most important,

EPA did not use that threshold — or any air quality test — as

its test for “significance” of contribution. Instead, EPA used

that threshold only to determine whether any contribution

existed at all, and then applied its $2000-per-ton cost-

effectiveness cutoff to determine what contribution was

“significant” within the purview of § 110(a)(2)(D)(i).

EPA’s substitution of cost for air quality effects to deter-

mine the significance of an air quality contribution violates

the fundamental administrative-law and separation-of-powers

principle requiring Executive Branch agencies to base their

6

actions on the decisional criterion imposed by Congress in

the governing statute — here, the amount of air quality contri-

bution to another state’s nonattainment of air quality stan-

dards that is “significant.” Bowen v. Georgetown Univ.

Hosp., 488 U.S. 204, 208 (1988). If left unreviewed, the

majority’s decision upholding EPA’s approach will

undermine that fundamental principle and established case

law reflected in numerous decisions applying that principle.

See, e.g., Ethyl Corp. v. EPA, 51 F.3d 1053 (D.C. Cir. 1995).

Like the majority below, EPA here relies on NRDC vy.

EPA, 824 F.2d 1146 (D.C. Cir. 1987) (en banc), to support its

argument that it can consider cost in determining “significant

contribution.” In fact, however, that case supports Peti-

tioners’ position and confirms the unlawfulness of EPA’s SIP

call rule. The court in NRDC v. EPA unanimously rejected

EPA’s attempt to replace the Clean Air Act’s decisional

criterion for establishing hazardous air pollutant standards —

i.e., safety in terms of public health — with EPA’s own cost

criterion. The court found that, “in the face of uncertainty

about risks to health, [EPA] has simply substituted [cost and]

technological feasibility for health as the primary considera-

tion under [Clean Air Act] Section 112.” /d. at 1163. The

court held that EPA must make “an initial determination of

what is ‘safe’ ... based exclusively upon the Administrator’s

determination of the risk to health at a particular emission

level.” Jd. at 1164 (emphasis added). Only after EPA

determined, based on that statutory criterion, that the Act’s

standard of public health “safety” was assured could cost and

technological feasibility play any role in EPA’s choice

among a range of margins of safety. Id. at 1165. 7

> But cf. American Trucking Ass'ns v. EPA, 175 F.3d 1027, 1040-

41(construing other Clean Air Act provisions, and holding that EPA may

7

The other cases cited by EPA (and the majority below)

also support, rather than contradict, Petitioners’ position here.

See EPA Br. 16 n.13; Pet. App. 23a. For example, in Grand

Canyon Air Tour Coalition v. FAA, 154 F.3d 455 (D.C. Cir.

1998), cert. denied, 526 U.S. 1158 (1999), the FAA, in

determining whether overflight regulations satisfied the

statutory criterion of “substantial restoration of natural

quiet,” relied solely on a measure of quiet to define

“substantial restoration.” Jd. at 461-62. Only after it had

established the meaning of: “substantial restoration”

consistent with the statute’s decisional criterion (based on a

measure of “quiet”) was the agency allowed to consider cost

in adopting a specific program to satisfy the statute. /d. at

475.4 Here, in contrast, EPA ignored air quality in

determining whether the governing statutory criterion of

significant contribution to nonattainment air quality was met.

not consider cost in establishing national ambient air quality standards),

modified on reh’g on other grounds, 195 F.3d 4 (D.C. Cir. 1999), cert.

granted, 120 S. Ct. 2003 and 2193 (2000) (Nos. 99-1257, 99-1426,

argued Nov. 7, 2000). In the present case, the court below neither cited

its then-recent decision in that case nor tried to explain how it could be

reconciled with NRDC v. EPA.

‘ The majority below, but not EPA here, also relied on this Court’s

plurality decision in Industrial Union Dep't v. American Petroleum Inst.,

448 U.S. 607 (1980). Pet. App. 2la-22a. However, that decision made

clear that the Secretary of Labor, in assessing “significant” risk of harm,

could not substitute cost considerations for the statute’s decisional

criterion, risk of harm to health. See Industrial Union Dep't, 448 U.S. at

639-46. A plurality of this Court held that, because the benzene standard

at issue there was based on the lowest economically and technologically

feasible level, rather than on consideration of the statute’s decisional

criterion, promulgation of the standard was unlawful. See id. at 659; see

also Pet. App. 60a n.1 (Sentelle, J., dissenting) (discussing /ndustrial

Union Dep't).

8

Consistent with this case law, Petitioners do not argue

that EPA is prohibited from considering cost in fashioning a

remedy to address a violation of § 110(a)(2)(D)(i)’s

prohibition on significant contribution. See Pet. 13, 18

(discussing Clean Air Act §110(k)(5), 42 U.S.C.

§ 7410(k)(5) (authorizing SIP calls to “mitigate adequately”

interstate transport that has been found to “contribute

significantly”)). However, requiring a state to fashion any

remedy — whether or not based on cost — is lawful only after

a determination has been made, based on the statute’s

decisional criterion, that that state creates a significant air

quality contribution to nonattainment air quality in another

state. Cost-effectiveness of controls cannot, consistent with

Congress’ choice of language in § 110(a)(2)(D){i), be

substituted for air quality in making that significant

contribution determination.

The language and structure of § 110(a)(2)(D)(i) leave no

doubt that the scope and nature of air quality effects must

govern any determination of whether a contribution to

nonattainment air quality is “significant.” See Pet. App. 57a,

59a-60a (Sentelle, J., dissenting).° Because the majority

below departed from Supreme Court precedent establishing

that an agency’s decision must be based on the decisional

criterion provided by Congress, this Court should grant the

petition for a writ of certiorari.

* For this reason, there can be no basis for reaching step two of Chevron,

U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), and deferring to EPA’s

interpretation. That Congress did not expressly define “contribute

significantly to nonattainment” is not determinative of whether Chevron

step two can be reached; it is clear from the language of the Clean Air

Act that the significance of an air quality contribution to a nonattainment

air quality area must be judged based on air quality considerations. No

other reading is possible given the statutory language.

9

II. BECAUSE THE LOWER COURT’S REASON-

ING FOR REJECTING APPLICATION OF THE

NON-DELEGATION DOCTRINE WOULD

UNDERMINE THAT DOCTRINE, THIS

COURT SHOULD HEAR THIS CASE.

The court below agreed that EPA’s $2000-per-ton cost-

effectiveness cutoff was not based on any intelligible prin-

ciple found in the Clean Air Act, i.e., EPA’s “selection of the

cut-off point was essentially unbounded.” Pet. App. 27a; id.

(EPA “neither rests that [cost-effectiveness] benchmark on

anything in the language or function of § 110(a)(2)(D)((D,

nor otherwise explains why the resulting cut-off point

represents the right degree of ‘cost-effectiveness’ (i.e., why

‘highly cost-effective’ should be at that ‘height’).”).

The court nonetheless rejected the argument that EPA’s

choice of $2000 per ton violated the Constitution’s non-

delegation doctrine, on the grounds that EPA’s action

currently affects only “[nJearly half of the nation” and not

“all American enterprise.” Jd. 28a. Contrary to established

law, the court invoked a putative rule that, where agency

action affects less than the entire nation, delegation-limiting

intelligible principles may permissibly be less “precise” (id.

27a) as the basis for judicial affirmation of Executive Branch

action that is wholly unconstrained — “unbounded,” in the

court’s words — by any intelligible principle, precise or not.

In its response, EPA does not even try to argue that the

court’s “nationwide effect” prerequisite to application of the

Constitution’s protection against excessive delegation of

legislative authority is correct or defensible. See EPA Br. 20.

Rather, EPA asserts that its action was constitutional under

this Court’s precedents addressing the non-delegation

doctrine. Jd. (“The Court need not rely on ... [the court’s test]

10

because Section 110(a)(2)(D) is constitutional under any

reasonable view of the nondelegation doctrine.”’).

Petitioners ask this Court to review the court of appeals’

decision, not the reasoning presented in EPA’s response.

EPA’s reasoning contradicts the decision below; unlike the

D.C. Circuit, EPA claims that there was an intelligible

principle that guided its selection of the $2000-per-ton cutoff.

Review of the lower court’s decision should not be denied on

the basis of an argument that that court rejected.

EPA also argues that this Court should not accept Peti-

tioners’ invitation to review the issue of the consistency of

EPA’:, $2000-per-ton cutoff with the Administrative Proce-

dure Act’s (“APA”) prohibition on “arbitrary and capricious”

agency action, 5 U.S.C. § 706(2)(A). EPA Br. 21. Yet, if,

as the court below held, EPA’s selection of the cutoff “was

essentially unbounded,” Pet. App. 27a, and if, as both the

court’s opinion and EPA assert, EPA’s action did not violate

the non-delegation doctrine, then EPA’s action must have

been arbitrary and capricious under the APA. Thus, even if

EPA’s action did not violate the non-delegation doctrine, this

Court should grant certiorari to review why EPA’s action was

not found deficient under the APA. To let the decision below

stand would serve as precedent for agencies to exercise

unfettered discretion in violation of the APA so long as they

can avoid a finding of violation of the non-delegation

doctrine — a result that would vitiate the APA’s safeguard

against arbitrary and capricious Executive Branch action.

CONCLUSION

Petitioners respectfully request that the petition for a writ

of certiorari be granted.

DAVID M. FLANNERY

KATHY G. BECKETT

JACKSON & KELLY

1600 Laidley Tower

500 Lee Street East

P. O. Box 553

Charleston, WV 25301

(304) 340-1017

Counsel for Petitioner

Midwest Ozone Group

January 16, 2001

Respectfully submitted,

ANDREA BEAR FIELD

(Counsel of Record)

NORMAN W. FICHTHORN

HUNTON & WILLIAMS

1900 K Street, N.W.

Washington, D.C. 20006

(202) 955-1500

MEL S. SCHULZE

HUNTON & WILLIAMS

600 Peachtree Street, N.E.

Atlanta, Georgia 30308

(404) 888-4000

Counsel for Petitioners

Appalachian Power Co., et al.