ELR Citation: ELR 20790
No(s). s. 80-2103 et al (D.C. Cir. May 27, 1986)

The court rules that the Environmental Protection Agency's (EPA's) regulations implementing the noncompliance penalties provision of the Clean Air Act are valid as applied to regulated utilities. Section 120(d)(2) of the Act authorizes EPA to sanction noncomplying stationary sources by assessing penalties designed to remove the economic benefits of noncompliance. EPA's model for assessing such penalties specifies that the economic value of noncompliance includes the return that can be earned on the capital costs of pollution control equipment that has not been installed and the operating and maintenance costs the firm has avoided by not having installed the equipment. After noting that it has already upheld the penalty assessment model in its general application, 13 ELR 20251, and that the arbitrary and capricious standard applies to its review of this action, the court holds that the model is valid as applied to regulated utilities. The court rejects petitioners' arguments that Congress intended in §120(d)(2) to assure that firms would be economically indifferent between polluting and complying with the Act. Section 120 specifically lists certain elements, such as the capital costs of compliance and foregone operation and maintenance costs, to be included in the calculation of appropriate penalties. Although the results may be more onerous for regulated public utilities which cannot pass on the costs of noncompliance through to ratepayers, thus increasing the costs of noncompliance relative to those of compliance, EPA's regulations cannot be held arbitrary and capricious for following the clear mandate of the statute. Even if the statute were not so clear, the legislative history indicates that Congress wanted §120 penalties to eliminate any incentive to avoid compliance; that a lesser penalty might have been sufficient is not a fatal flaw.

Counsel for Petitioners
Henry V. Nickel
Hunton & Williams
P.O. Box 19230, Washington DC 20036
(202) 955-1500

Counsel for Respondents
Bonnie A. Sullivan
Land and Natural Resources Division
Department of Justice, Washington DC 20530
(202) 633-1647

Before: ROBINSON, Chief Judge, MIKVA and GINSBURG, Circuit Judges.