D.C. Circuit Upholds NSPS for Coal-Fired Plants, Ratifies White House, Congressional Input Into Rulemaking

In June 1979 the Environmental Protection Agency (EPA) promulgated new source performance standards (NSPS) to control particulate and sulfur dioxide emissions from coal-fired power plants. In Sierra Club v. Costle,¹ decided in April 1981, the District of Columbia Circuit Court of Appeals upheld the standards against an array of substantive and procedural challenges by both industry and environmental groups. The decision is notable not only because of the substantial impacts of the challenged standards on national coal use, energy costs, and the utility industry, but also because of the great respect shown by the court for EPA's substantive standard-setting authority. There may be even greater implications, however, in the court's holding that communications between EPA and outside interests after the close of the comment period for the rulemaking were permissible under the Clean Air Act's² prescribed rulemaking proceedings. This could prove to be a landmark development in administrative law that opens the door considerably to ex parte contacts in all informal rulemaking proceedings.

Background

NSPS for Coal-Fired Power Plants

Section 111³ of the Clean Air Act requires EPA to promulgate technology-based standards to control emissions from certain categories of new and modified sources and to revise, as necessary, existing standards to achieve greater reductions in emissions. Like the national ambient air quality standards (NAAQS), NSPS are intended to control pollutants reasonably anticipated to endanger public health and welfare. Unlike NAAQS, however, NSPS must reflect the costs, energy requirements, and non-air quality health and environmental impacts of available control measures on a given source category. The final NSPS must be based on the technology adequately demonstrated to be the best system for achieving continuous emissions reductions for a given source category, taking the factors listed above into account.

One source category subject to NSPS is coal-fired electric power plants. Because power plants contribute significantly to the total amount of sulfur dioxide (SO₂) and particulate emissions in the ambient air, § 111 specifically requires NSPS that establish both maximum emissions rates and minimum reductions in total emissions for these sources. In 1976 the Sierra Club and others petitioned EPA to revise the existing NSPS for power plants in light of emerging technology that could provide greater emissions control. While EPA was considering the request, Congress amended the Act to require EPA to revise electric power plant standards within one year.

In September 1978, EPA proposed for public comment an SO₂ emissions ceiling of 1.2 pounds per million Btus (lbs./MBtu).⁴ This figure, which ultimately was adopted as the final standard, represented no change from the existing standard. In proposing the standard, EPA stated that major considerations affecting its decision were the impact of the standard on high sulfur coal reserves located in the East and the implications of the ceiling for coal washing and stack-gas scrubbing requirements. In the four-month comment period for the proposed rule, EPA received hundreds of comments from all affected interests, and the Agency itself continued to analyze the effects of the proposed standard and alternative standards on industry and the national economy. A joint working group of EPA and other agencies concluded that a lower ceiling would not seriously affect coal interests, and a subsequent modeling study bore out that conclusion. By early 1979, EPA was apparently considering a change in the proposed standard. During this period, however, industry representatives including the National Coal Association (NCA) brought to the Agency and other governmental officials their concerns over the possible impacts of a lower standard, particularly with respect to high-sulfur coal producers in the East. Eventually, Senator [11 ELR 10219] Byrd (D-W. Va.) and even President Carter began to take an active role in the discussions. In April 1979, EPA held a meeting of affected parties and interested agencies to discuss the situation. At that time, the Agency presented the results of its latest analysis, which indicated that a lower ceiling would have a more significant impact on eastern coal production than previously had been projected. Extensive documentation presented by NCA essentially confirmed EPA's study results.After further consideration, EPA concluded that in order to meet both statutory NSPS requirements and the express intent of the 1977 amendments to encourage use of high sulfur coal, the best course was to retain the 1.2 lbs./MBtu standard. A more stringent standard was technologically feasible, the Agency stated, but only at the cost of significant disruptions in the coal market.⁵

The final standards,⁶ which EPA projected would reduce uncontrolled industry-wide SO₂ emissions by 50 percent by 1995, allow for a "sliding scale" of SO₂ emissions reductions, depending on the source's rate of emissions. However, all sources, regardless of their emissions rate, must reduce potential emissions by at least 70 percent, and those which emit more than 0.6 lbs./MBtu must achieve reductions of at least 90 percent. The standards also limit particulate emissions to a flat 0.03 lbs./MBtu.

The standards satisfied neither industry nor environmental groups, and both interests petitioned EPA to reconsider the rule. Environmental groups pressed for a standard requiring a 90 percent reduction in SO₂ emissions across the board, while the utilities argued that technology had not progressed sufficiently to make the new standards feasible for power plants as a class. Moreover, the utilities contended, EPA had not adequately considered the economic impacts of the revised NSPS on affected industries and the national economy. EPA rejected all petitions for reconsideration.

Standard Setting under § 307

The procedures that must be followed by EPA in establishing NSPS are set out in § 307 of the Act.⁷ Under § 307(d)(3), all announcements of proposed rules must include a statement of the basis and purpose of the rule, including the factual data on which the rule is based, the methodology used in obtaining and analyzing the data, and the major legal interpretations and policy considerations underlying the proposed rule.⁸ Section 307(d)(2) requires EPA to establish a rulemaking docket for each proposed rule and to make the docket available for public inspection during the rulemaking.⁹ The docket is to include all comments received during the comment period and transcripts of any public hearings on the proposed rule. Documents that become available after publication of the proposed rule are to be added if the EPA Administrator determines they are "of central relevance to the rulemaking."¹⁰ The final rule may not be based in whole or in part on any information or data that had not been included in the docket as of the date of promulgation.¹¹

Section 307 also specifies requirements for review of a rule. Those seeking review must have raised objections to the rule "with reasonable specificity" during the comment period.¹² If objecting parties can show it was impracticable to raise objections during that time, or if the objection arose after the comment period but within the time specified for judicial review, and if the objection is "of central relevance to the outcome of the rule," the Administrator must reconsider the rule.¹³ Judicial review of procedural determinations is limited to documents in the rulemaking docket, including proposed and final rules and accompanying statements.¹⁴ Agency actions generally are subject to the "arbitrary or capricious" standard of review,¹⁵ but the court may invalidate a rule for procedural error "only if the errors were so serious and related to matters of such central relevance to the rule that there is a substantial likelihood that the rule would have been significantly changed if such errors had not been made."¹⁶

Challenges Presented to the D.C. Circuit

Sierra Club v. Costle involved both substantive and procedural challenges to the validity of the NSPS for coal-fired power plants. The Sierra Club and the California Air Resources Board contested EPA's authority to establish the variable 70 to 90 percent reduction standard rather than a single standard reflecting the maximum feasible reduction. Some 90 electric utilities and related organizations challenged both the 90 percent maximum reduction required for SO₂ and the 0.03 lbs/MBtu emissions limit for particulates, arguing that they were more stringent than required under § 111. The Environmental Defense Fund (EDF) objected to the 1.2 lbs/MBtu emissions ceiling for SO₂ on procedural grounds.

EDF alleged that EPA had in fact decided to tighten the standard prior to the final rulemaking but that after the comment period closed, EPA was subjected to such intense pressure from industry, Congress, and the White House that its final decision was grounded more in political considerations than in data on the record. Specifically, EDF objected to the NCA meeting and eight other contacts which occurred during March, April, and May 1979, between EPA and "outside" parties, including Administration and congressional representatives.

EDF's argument was that these meetings represented unlawful ex parte contacts. The group also contended that some information EPA had used in the rulemaking had not been included in the rulemaking record as statutorily required. In addition, EDF asserted that other information in the record had been improperly added just before the final rulemaking, violating EDF's due process right to a meaningful opportunity to respond to all material in the record.

[11 ELR 10220]

Substantive Issues

In reaching its decision to uphold the NSPS for coal-fired power plants, the court conducted an extensive review of technical data in the record and a close examination of the rulemaking requirements of § 307. The court held first that the variable reductions standard of SO₂ emissions was neither arbitrary nor capricious. Considering all the technical data, the sliding scale reductions formula for SO₂ emissions was held reasonable because it would yield the "maximum reduction practicable," as required by statute.¹⁷ The court found that the variable standard would not only achieve the same emissions reductions nationally as a uniform standard, but also permit flexibility in use of either dry or wet scrubber technology and high or low sulfur fuel, all with less severe long-term economic and regional impact than would be the case under the uniform standard.

The court upheld the 90 percent maximum reduction requirement because EPA data showed that the standard was achievable with a combination of pre-combustion coal cleaning and post-combustion sulfur removal.¹⁸ The court found that although EPA had not demonstrated that achievement of the standard was feasible with current scrubber technology, EPA had the authority to require improvements in technological design and operation that would result in future achievement of the standards.

In considering the particulate standard, the court applied a test enunciated last year in National Lime Ass'n v. Environmental Protection Agency.¹⁹ Under that test, before setting a new source standard, EPA must show that it is achievable by (1) identifying variable conditions that might contribute to the amount of expected emissions and (2) establishing that the test data the Agency had relied upon was representative of industry-wide performance.²⁰ After analyzing data from plants using either electrostatic precipitators or baghouses to control particulates, and identifying the variables that might affect performance, EPA had concluded that plants could meet the revised standard using either technology. Although the court found that EPA's views on the achievability of the standard with electrostatic precipitators did not satisfy the test for representativeness, the court nevertheless upheld the standard because the record did support EPA's conclusion that the standard was achievable with baghouse technology.²¹

Docketing Requirements under § 307

The court was unpersuaded by EDF's claims that EPA had (1) illegally failed to docket certain contacts between Agency officials and outsiders and (2) denied the public its notice and comment privileges by adding certain items to the docket only days before issuing the final standards. Weighing EDF's allegations against the requirements of § 307, the court concluded that, on the whole, EPA had complied with both the "structure and the spirit" of the statutory provision. Since § 307 neither prohibits nor requires the inclusion in the docket of all material received after close of comments,²² the determination of whether a document is "of central relevance" to the rulemaking and therefore includible in the docket is a matter within the discretionary judgment of the Administrator.²³ In this case, EPA had provided at least some documentation of all the contested contacts and had provided docket entries, albeit brief in some instances, of all but two.²⁴

The court also rejected EDF's constitutional argument. Although agreeing that EDF had a due process right to make a "meaningful" reply to late submittals, the court found that EDF had received copies of some late submittals and had been aware of others. Moreover, the court ruled, EDF's desire to conduct a "more complete evaluation" of such documents did not constitute an "inability to respond" sufficient to violate due process rights.²⁵

Ex Parte Contacts

Although § 307 contains no explicit language on which the court could rely in deciding the more complex question of the lawfulness of the alleged ex parte contacts, the court found the absence of such language to be a guide in itself. The court reasoned that Congress, not having indicated otherwise, must have intended rulemaking under the Clean Air Act to remain informal. Because informal rulemaking is by nature a quasi-legislative process, the placing of restrictions on agency contacts with those most affected by the rulemaking would destroy the give-and-take required in a working political environment.²⁶ In effect, the court declared, regardless of whether there are ex parte prohibitions applicable to rulemaking under the Administrative Procedure Act²⁷ (APA), they are simply inapposite to NSPS.

This is not to say that there are no limits to outside communications, the court noted, adding that the test of improper congressional infuence in rulemaking proceedings is well established.²⁸ First, the pressure upon the agency head must be designed to force a decision based on factors other than those required by statute. Second, the final decision must in fact have been based on those [11 ELR 10221] non-statutory considerations.²⁹ Applying this test, the court found no pervasive evidence that Senator Byrd's well-known concerns about coal production had created undue pressure on the Agency.³⁰

The court distinguished between contacts by outside parties generally and contacts by officials from other executive agencies or the executive office itself. The one intentionally undocketed meeting occurred among EPA officials, the President, and members of his staff. The court characterized the meeting as an intra-agency communication necessary to the executive's job of implementing policy. Noting that § 307 provides for inclusion on the docket of interagency correspondence received prior to promulgation of the rule but does not address either oral communications of any kind or post-promulgation communications generally, the court held that what is not prohibited between agencies clearly cannot be prohibited within the Agency hierarchy itself.³¹ Moreover, an Administration's need to coordinate policymaking and to have some privacy in formulating policy outweighs the interest served by entering every such contact on the public docket. The court observed that this holding might be inapplicable in instances where the meeting covered "information or data" on which a rule was based, particularly if a statute specifically provided for inclusion of such information on the record. Although § 307 does have such a provision, the court found that EPA had not so relied on any "information or data" presented during the meeting with the President.³²

In sum, the court concluded that although EPA had not conducted a model rulemaking proceeding, it had not committed such serious errors as to require invalidation of the rule under § 307(d)(8).

Implications for Administrative Law

Although decided only six months ago, Sierra Club v. Costle already has assumed a position of some prominence in administrative law. It provides a valuable discussion of the nature of information rulemaking, a process given only limited treatment in the Administrative procedure Act, and provides useful guidance concerning "outside" participation in informal administrative proceedings. It also provides additional insight into the § 553 limits of judicial review in the wake of Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc.³³

Worth noting, however, are limits placed on the reach of the holding by the court itself. For example, the court observed that ex parte contacts were not really an issue at all in informal rulemaking because such rulemaking is not an adversarial proceeding involving "parties," as is formal rulemaking or adjudication. Thus, the court found existing case law on the ex parte issue inapposite.³⁴

The court's emphasis on the limitations of judicial review may cause concern among participants in rulemakings. Mindful of the strictures of Vermont Yankee, the court limited itself to a review of the "record," or docket. The court paid great attention to factual data in the docket, and thoroughly examined EPA's statements of relevant proceedings and rationales for proposed rules. Yet in concluding that outside interests had not unduly influenced the final rulemaking, the court disclaimed "omniscience" and accepted, without more, EPA's statements that its final decision was based only on information contained in the docket, as required by statute.³⁵

The court's position on this issue raises a question that administrative law specialists and practitioners have debated for some time: how reliable, indeed, how necessary are checkpoints in the rulemaking process in ensuring against undue influence by outside interests.³⁶ Individuals deeply involved in events that led to Sierra Club have indicated that in the rulemaking under review, the reasons stated in the docket were in fact the real reasons underlying the selection of the final rules and have estimated that this is probably the case in 99 out of 100 rulemakings.³⁷ While this "statistic" would provide little support for an argument against all restraints on outside contacts, it may assuage the fears of those who are concerned that external pressures often corrupt administrative decisionmaking. And since judicial review of informal rules is little more than a search for a rational relationship between the challenged rule and its stated purpose,³⁸ agency consideration of outside views would seem to have little chance of rendering an otherwise reasonably decision irrational.

A related aspect of the outside contacts issue raised by Sierra Club v. Costle is whether any limitations on such contacts now exist for the President and his staff.³⁹ The issue has taken on increased importance with the more active role that the White House and the Office of Management and Budget (OMB) have shown in specific agency decisions, particularly those affecting environmental policy. For example, the Sierra Club v. Costle holding has added to concern about President Reagan's executive order on regulatory reform⁴⁰ and the OMB review process,⁴¹ [11 ELR 10222] largely because the order appears to allow OMB to reject a rule for economic or other reasons not intended to be part of the rulemaking deliberation under the applicable statute. Moreover, OMB is not required to announce its reasons for modifying or rejecting a rule.⁴² There is thus some fear that executive staff, in pursuit of their own policies or even as conduits for views submitted to them by nongovernmental parties, might influence the implementation of laws in ways not intended by Congress.⁴³ In the environmental field there is the additional concern that because the Administration's Task Force on Regulatory Reform has targeted environmental regulations for careful review, the possibility exists that some form of cost-benefit analysis now either prohibited or restricted in most environmental statutes could nevertheless be applied to modify or reject a rule without opportunity for public comment.

If Sierra Club has heightened debate in administrative law circles, it has settled some other issues of environmental law. For example, the court elaborated at great length on the often puzzling requirements of § 307 of the Clean Air Act, with the result that those involved in Clean Air Act rulemakings have some guidance on what is expected of them and Congress has some indication of gaps in the existing provision that required the court virtually to speculate about congressional intent. The court's holdings and dicta in these areas should lend certainty to future NSPS rulemakings particularly with respect to the validity of alleged ex parte communications.⁴⁴

On the other hand, the application of Sierra Club v. Costle to non-Clean Air Act proceedings is uncertain. In effect, the court interpreted the enactment of § 307 to override the requirements of § 553 of the APA and any restrictions that the latter provision might impose on Clean Air Act regulations. It may be the case, therefore, that in the context of regulations promulgated under other statutes, where § 553 would govern, more significant restraints against ex parte contacts would exist.⁴⁵ Sierra Club v. Costle thus may complement rather than contradict previous understanding about the lawfulness of ex parte contacts.

Conclusion

The Sierra Club v. Costle decision appears likely to have significant impacts on both Clean Air Act standardsetting procedures and administrative law principles.⁴⁶ The court's extensive use of the record and its attention to the relationship between technological feasibility and the problems of the coal and utility industries suggests that discretionary administrative decisions may be less aggressively scrutinized in future judicial reviews of rulemaking. If so, as long as an Administrator follows the spirit of § 307, the nature of rulemaking increasingly may be a function of administrative discretion. Further, Sierra Club v. Costle seems to provide some authority for the executive branch to "jawbone" agencies into a desired course of action. Although the facts presented by Sierra Club v. Costle did not demonstrate that this form of persuasion had occurred, the decision appears to have left in its wake a more permissive atmosphere for this means of influencing Agency rulemaking.

1. __ F.2d __, 11 ELR 20455 (D.C. Cir. Apr. 29, 1981).

2. 42 U.S.C. § 7401 et seq., ELR STAT. & REG. 42201.

3. 42 U.S.C. § 7411, ELR STAT. & REG. 42217.

4. 43 Fed. Reg. 42154 (Sept. 19, 1978).

5. Sierra Club v. Costle, slip op. at 171.

6. 44 Fed. Reg. 33580 (June 11, 1979).

7. 42 U.S.C. § 7607, ELR STAT. & REG. 42257.

8. 42 U.S.C. § 7607(d)(3), ELR STAT. & REG. 42258.

9. 42 U.S.C. § 7607(d)(2), ELR STAT. & REG. 42258.

10. 42 U.S.C. § 7607(d)(4)(B)(i), ELR STAT. & REG. 42258.

11. 42 U.S.C. § 7607(d)(6)(C), ELR STAT. & REG. 42259.

12. 42 U.S.C. § 7607(d)(7)(B), ELR STAT. & REG. 42259.

13. Id.

14. 42 U.S.C. § 7607(d)(7)(A), ELR STAT. & REG. 42259.

15. 42 U.S.C. § 7607(d)(9), ELR STAT. & REG. 42259.

16. 42 U.S.C. § 7607(d)(8), ELR STAT. & REG. 42259.

17. Sierra Club v. Costle, slip op. at 61-71.

18. Id. at 130-131.

19. 627 F.2d 416, 10 ELR 20366 (D.C. Cir. 1980).

20. 627 F.2d at 433, 10 ELR at 20373. Establishing the "representativeness" of a standard "provides some assurance of the achievability of the standard for the industry as a whole, given the range of variable factors found relevant to the standards' achievability."

21. Sierra Club v. Costle, slip op. at 158.

22. Id. at 195. The court distinguished in certain respects between written and oral communications received, but reasoned that if § 307 does not require inclusion of all written material, the court would not infer such a requirement for oral communications.

23. Id. at 196.

24. Id. at 211-12. EPA stated that it had left one communication out of the docket inadvertantly. The other, it argued, involved a meeting with Administration officials and thus did not require docketing. See text at note 31, infra.

25. Id. at 198-202.

26. Id. at 205-7, 220.

27. 5 U.S.C. § 551 et seq., ELR STAT. & REG. 41005.

28. Citing D.C. Federation of Civic Ass'ns v. Volpe, 459 F.2d 1231, 1 ELR 20572 (D.C. Cir. 1971), cert. denied, 405 U.S. 1030 (1972) (congressman's intervention in a Department of Transportation decision whether to build a bridge as part of an interstate highway). See also Environmental Defense Fund, Inc. v. Blum, 458 F. Supp. 650, 8 ELR 20748 (D.D.C. 1978) (congressional involvement in pesticide registration proceeding).

29. 459 F.2d at 1246, 1 ELR at 20578.

30. Sierra Club v. Costle, slip. op. at 223.

31. Id. at 212-13.

32. Id. at 217-19.

33. 435 U.S. 519, 8 ELR 20288 (1978) (when reviewing administrative actions, the courts are not to impose their own views of proper procedure upon an agency where the agency has met the minimum procedural requirements of the applicable statute).

34. Sierra Club v. Costle, slip op. at 182, 203-07. Accord, Natural Resources Defense Council v. Schultze, 9 ELR 20124 (D.D.C. 1979).

35. Id. at 226.

36. The question was posed at a symposium on "Presidential Involvement in Agency Rulemaking after Sierra Club v. Costle," sponsored by the Administrative Law Section of the American Bar Association on October 16, 1981, in Washington, D.C. (hereafter referred to as ABA symposium). Serving on the panel were Joan Z. Bernstein, former EPA General Counsel; Lloyd Cutler, former Counsel to President Carter; Professor Kenneth C. Davis; C. Boyden Gray, Counsel to Vice President Bush; Alan B. Morrison, Director, Public Citizen Litigation Group; and Larry L. Sims, Deputy Assistant Attorney General, Dep't of Justice. The proceedings are to be published in a forthcoming issue of AD. L. REV.

37. Remarks of L. Cutler, J. Bernstein at ABA symposium, note 36, supra.

38. See Nathanson, Report to the Select Committee on Ex Parte Communications in Informal Rulemaking Proceedings, 30 ADMIN. L. REV. 377, 384 (1978).

39. Opening remarks of P. Verkuil at ABA symposium, note 36, supra.

40. Presidents Ford, Carter, and Reagan have issued executive orders requiring economic impact review, and, in some instances, economic justification for regulatory actions. For a discussion of these orders, see Comment, Reagan Orders Cost-Benefit Analysis of Regulations, Confers Broad Powers on OMB and Regulatory Task Force, 11 ELR 10044 (1981). The executive orders have raised constitutional issues concerning the extent of executive privilege and the limits of the chief executive's inherent authority over agency actions. See generally, Verkuil, Jawboning Administrative Agencies: Ex Parte Contacts by the White House, 80 COLUM. L. REV. 943 (1980).

41. OMB reportedly has incorporated the nondisclosure principles of Sierra Club v. Costle into its policy procedures. Ross, D.C. Circuit Writes Last Word on Rule-making Procedures, NAT'L L.J. 42 (Sept. 21, 1981).

42. See Comment, note 40, supra.

43. The current administration has a policy of requiring anyone who objects to pending agency decisions to challenge them administratively before attempting to meet with White House personnel. The executive staff also forwards all material it receives concerning rulemakings to the appropriate agency. It has been argued that these guidelines, combined with the time limitations of executive office personnel, protect against abuse of executive office review powers by outside interests. Remarks of C. Boyden Gray at ABA symposium, note 36, supra.

44. See American Petroleum Institute v. Costle, __ F.2d __, 11 ELR 20916 (D.C. Cir. 1981), a challenge to the national ambient standard for ozone, in which the Natural Resources Defense Council (NRDC) had objected to EPA's entering on the docket a seminal report supporting the standard one day before the standard was promulgated, as well as EPA's failure to enter on the docket several post-comment period meetings with White House officials. Relying on Sierra Club v. Costle, the court refused to rule on either issue because the record did not show that NRDC had filed objections to EPA's actions with the Agency within the time period specified by § 307. Judge Wald, who wrote the Sierra Club v. Costle decision, dissented from this holding, stating that other evidence indicated that NRDC had notified EPA of its objections with the "reasonable specificity" required by the statute and that the court should not decline to rule on the merits until it had clarified that issue.

45. See, e.g., Home Box Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1979), cert. denied, 434 U.S. 829 (1977) (prohibiting ex parte contacts after a rule has been proposed); Action for Children's Television v. FCC, 564 F.2d 458 (D.C. Cir. 1977) (limiting Home Box Office to proceedings involving "valuable privileges"); United States Van Lines, Inc. v. FMC, 584 F.2d 519 (D.C. Cir. 1978) (prohibiting ex parte contacts in informal adjudications). The Administrative Procedure Act prohibits ex parte contacts in formal rulemaking only. 5 U.S.C. § 557(d).

46. NSPS rulemaking could take on added importance if, as has been proposed, the Clean Air Act is amended to require NSPS across the board, thereby eliminating the need to achieve the lowest achievable emission rates in non-attainment areas and best available control technology in attainment areas.