In January 1981 the Environmental Protection Agency (EPA) took its first steps toward enforcing the noncompliance penalty program authorized by § 120 of the Clean Air Act.¹ A novel enforcement tool established by the 1977 amendments to the Act, § 120 prescribes automatic administrative money penalties equal to the economic benefit of delayed compliance for sources still in violation with Clean Air Act requirements two years after passage of the amendments.By coupling the extended 1979 compliance deadline with immediate financial consequences for failure to comply, the penalty program was intended to provide a quick, certain, and equitable means of assuring compliance. However, implementation of § 120 has followed a tortuous path, with regulations scheduled by statute for February 1978 not promulgated until July 1980. Moreover, the regulations were promptly challenged in court by industry.

In the year since the regulations became final, the Agency has made only a few attempts to assess penalties, and source operators have contested the alleged violations in several instances.Given the current administration's desire to reduce regulatory burdens and the difficulty of implementing § 120, it seems doubtful that noncompliance penalties can live up to their original purpose as the centerpiece of EPA's enforcement program against stationary sources.

Background

Although approximately 90 percent of the major stationary sources of air pollution had complied with applicable Clean Air Act requirements before passage of the 1977 amendments, the fact that many very large sources had not complied constituted a serious threat to achievement of the goals of the Act. Congress was aware that this problem wasdue largely to intransigence on the part of large source owners, who had learned that by resisting enforcement efforts at every turn, they could avoid or defer many millions of dollars in compliance costs.The 1977 amendments addressed the matter in two ways. First, they augmented the enforcement powers of federal and state agencies.² Second, they established an innovative penalty scheme under § 120, the purpose of which is to remove the economic benefit of — and thereby the incentive for — noncompliance. The statute makes penalties mandatory against all major pollution sources not in compliance with any emission limitation, emission standard, or compliance schedule under any applicable state implementation plan (SIP) after July 1, 1979, or any subsequent Clean Air Act deadline.³ Penalties are also mandatory against sources of any size that violate either hazardous emissions standards or applicable new source performance standards.⁴ Penalties are to be assessed for noncompliance with operation and maintenance requirements as well as initial emission control requirements, and may be assessed in addition to any penalties sought in separate civil enforcement actions.⁵

Section 120 does provide certain exemptions. One covers sources in compliance with primary nonferrous smelter orders under § 119 of the Act.⁶ Others are specified for sources with extended compliance schedules resulting from conversion to coal as a primary fuel, those prohibited from using petroleum or natural gas products pursuant to separate federal energy legislation, those employing approved innovative technology, those unable to comply for reasons entirely beyond their control, and those under emergency orders temporarily suspending requirements under the Act.⁷ In addition, EPA may exempt any source from penalties for a specific instance of noncompliance if it finds the noncompliance has been "de minimus in nature and in duration."⁸

The statute requires that penalties, calculated and assessed quarterly, be "no less than the economic value" of a delay in compliance.⁹ This value is defined as the equivalent of the capital costs of compliance and debt service, total operation and maintenance costs foregone as a result of noncompliance, and any additional economic value noncompliance may have, less any amounts expended toward compliance.¹⁰ Once EPA has issued an initial notice of noncompliance to a source, the source automatically calculates the penalty each quarter until it comes into compliance.¹¹ Sources that do not [12 ELR 10013] make timely payments are subject to additional penalties.¹²

The Regulations

In March of 1979 EPA issued proposed regulations¹³ to implement § 120, including an economic model to be used in calculating the penalty. The Agency received hundreds of comments covering every aspect of implementation, including the scope and applicability of the regulations; procedures for assessing, calculating, and paying penalties; exemptions from penalties; and availability of administrative and judicial review. However, the final regulations,¹⁴ promulgated in July 1980, differ from the proposed regulations in only a few respects.

Under the final regulations, the penalty process begins with the issuance of a notice of noncompliance to the owner or operator of any source determined to be violating applicable legal requirements.¹⁵ The period on which the penalty is based begins to run upon receipt of the notice by the source owner or operator.¹⁶ The notice must state the specific legal provisions violated and the factual basis and support for the finding.¹⁷ It also must advise the recipient of the right to request a hearing to challenge the finding and of the accrual of penalties pending the hearing.¹⁸

The regulations implement the exemptions specified in § 120 but establish conditions under which they apply. Sources converting to use of coal as a fuel, sources using innovative technology as part of compliance agreements, sources holding temporary waivers from requirements because of energy or employment emergencies, or sources unable to comply for reasons beyond their control may be eligible for exemptions.¹⁹ To qualify, however, the source must have in hand an order, suspension, extension, or consent decree reflecting these circumstances at the time it applies for the exemption.²⁰ The regulations also limit the scope of the "inability to comply" exemption to seven specific situations: act of God; fire; embargo; strike; inability to obtain capital as a result of temporary, verifiable general market conditions; verifiable and unforeseeable failure of pollution control equipment; and inability of a contractor or supplier to furnish labor or materials necessary to achieve compliance.²¹

The regulations also identify a series of considerations to be taken into account in granting a de minimus exemption. In reviewing an exemption petition, EPA will consider the extent of the excess emissions, whether noncompliance is recurring or persistent, whether the source is trying to minimize and correct excess emissions, whether the excess emissions create economic savings for the source, how the emissions affect air quality, and how long the excess emissions lasted.²² In reviewing petitions for de minimus exemptions where equipment malfunctions have caused the violations, EPA considers several additional factors: whether control equipment has been properly designed, operated, and maintained; whether repairs were undertaken as soon as possible; whether excess emissions impacts were minimized; and whether economic savings to the source were minimal.²³

A source owner who wants to challenge EPA's finding of a violation or claim an exemption from noncompliance penalties must request a hearing within 45 days of receiving the notice.²⁴ A petition for a hearing must include all grounds for either claim; issues not raised at this time are deemed waived.²⁵ EPA will deny the request in cases where the petition contains no information that, if true, would alter the liability of the source.²⁶ Hearings on issues of the existence of a violation or entitlement to a statutory exemption are adjudicatory, but the regulations specify that hearings on de minimus exemptions will be informal.²⁷

If the source does not contest EPA's findings of noncompliance, it must calculate the penalty according to a mathematical model developed by EPA and submit its calculations, together with verification, within 45 days.²⁸

The economic model for calculating penalties takes into account the capital and operation and maintenance costs avoided.²⁹ To determine the value of delay, the model compares the cash flow the source would have had if it had been in compliance with that it has had as a result of its delay, both figures adjusted to present dollar value equivalents.³⁰

[12 ELR 10014]

The first penalty payment is due six months after receipt of the notice or, for a source that has mounted but lost a challenge to the penalty, six months after the final Agency decision establishing the sources's liability.³¹ The Agency may recalculate the penalty from time to time to allow for changed circumstances. Once compliance is achieved, EPA must perform a final calculation to determine actual benefits of noncompliance and make appropriate adjustments for over-or underpayments.³²

Challenges to the Regulations: Duquesne Light

Many of those who had submitted comments during the rulemaking petitioned the D.C. Circuit to review the final regulations on essentially the same grounds they had raised in opposition to the proposed regulations.³³ The court ordered all cases consolidated and scheduled for joint briefing. Extended efforts to negotiate a settlement have not succeeded and the consolidated case, known as Duquesne Light Co. v. Environmental Protection Agency,³⁴ has progressed slowly.

The petitioners filed a set of joint briefs³⁵ in October 1981. EPA and intervenor Natural Resources Defense Council, Inc. (NRDC) have yet to file reply briefs. Because settlement negotiations could resume and because there is a chance that Congress will revise § 120 in the spring,³⁶ it may be some time before the issues are fully joined by the parties. However, the petitioners, who represent a broad range of industries, generally are in agreement in their objections to the regulations.³⁷ Counter arguments presented by EPA when it promulgated the regulations seem likely to be repeated in the litigation.³⁸

One area of disagreement involves the scope of the regulations. For example, do the penalties apply to sources subject to consent decrees? Industry contends that they are exempt, at least implicitly, from penalties under § 120(a)(2)(A)(iii) because by explicitly providing for penalties against sources that violate interim requirements of consent decrees in that section, Congress must have intended to exempt from penalties all other sources that are meeting obligations under consent decrees.³⁹ In its earlier response to this argument EPA cited § 120(a)(2)(A)(i), which provides that any source that violates a SIP requirement is subject to penalties, regardless of whether it is also subject to a consent decree.⁴⁰

A related concern is what industry perceives as undue and statutorily unauthorized restrictions on the availability and applicability of the "de minimus" and "inability to comply" exemptions.⁴¹ It contends that the regulations unlawfully restrict the statutory allowance for excess emissions that are "de minimus in nature and duration" by requiring consideration of other factors not mentioned in the statute.⁴² Industry asserts that the purpose of the de minimus exemption is to avoid administrative overload from cases unlikely to affect air quality significantly, but that EPA's adoption of additional criteria has the opposite effect.

Confining the "inability to comply" exemption to seven specified situations and adding conditions not mentioned in the statute is also improper, according to industry, because Congress explicitly rejected such an event-specific approach as too inflexible.⁴³ Industry strenuously [12 ELR 10015] objects to EPA's refusal to include the "technical impossibility" of achieving required emission limitations as grounds for receiving an "inability to comply" exemption, arguing that the regulations should exempt from penalties any source that has not been able to comply either because the technology does not exist or because installed pollution control equipment does not work.⁴⁴

EPA's position on these issues has been that the intent of the statute is to prevent unreasonable applications of penalties while keeping exemptions to a minimum. In the case of the de minimus exemption, EPA pointed out that § 120 gives it the authority to exercise administrative discretion in deciding what constitutes de minimus emissions. EPA contended that the criteria it has established for such exemptions provide necessary flexibility in making that decision in any given case.⁴⁵ In placing conditions on "inability to comply" exemptions, the Agency relied on statutory language and legislative history showing Congress' desire to have the exemption construed narrowly to prevent misuse.⁴⁶ In the past the Agency therefore has regjected the industry argument, raised again in Duquesne Light, that the regulations must include exemptions for sources that have made "good faith" but unsuccessful efforts to comply or that find compliance technologically or economically impossible. Its view has been that each source must be held responsible for selecting and installing controls that will work.⁴⁷ It pointed out that the Act is meant to be technology-forcing, and that a source that has supported technological research and development is eligible for a statutory exemption in any case. Moreover, a source that has taken all possible steps toward compliance, including having installed the best available controls, generally would not have benefited from noncompliance and would not be subject to penalties.⁴⁸ EPA stated that economic impossibility, in the context of market conditions, is provided for in the regulations, but that exemptions for individual sources having economic difficulties were never intended by the statute, in part because such sources still reaped an economic benefit from their noncompliance. Finally, EPA justifies its requirement that a source have a delayed compliance order (DCO) or consent decree prior to applying for an "inability to comply" exemption on statutory and policy grounds.⁴⁹

A third aspect of the regulations that has provoked industry challenges is the mathematical model used to determine the appropriate penalty for a given source.⁵⁰ For example, the model requires the use of readily available industry-wide or nationally averaged values, rather than source-specific economic data, for six of the 12 components of the penalty formula.⁵¹ Industry argues that average values are both inadequate and inaccurate for many sources. EPA counters that this is the only equitable means of determining values without establishing an arcane and costly system for checking economic data that would have to be submitted by individual sources as part of penalty calculations under a totally case-by-case approach.

A second penalty formula issue is whether there should be a dollar-for-dollar credit of air pollution control expenses against calculated noncompliance penalties. Industry argues that there should.⁵² The final regulations incorporate a modified approach that allows sources to reduce the average quarterly penalty to reflect progress made in installing pollution control equipment.⁵³ The [12 ELR 10016] Agency has argued that any further use of credits would fail to recoup the full benefits of noncompliance; a dollar-for-dollar credit would provide no incentive for more immediate compliance.⁵⁴ Industry also contends that the factors used to determine the amount of the penalty are insufficiently flexible because they do not take into account source expenses that reduce the economic value of noncompliance.⁵⁵ Finally, industry objects to the procedures for determining and applying penalties.⁵⁶ The petitioners in Duquesne Light insist that EPA cannot, consistent with the language of § 120, deny sources hearings on penalties, specify that hearings on de minimus exemptions shall be informal, or presume sources to have "waived" certain issues, all under the guise of administrative convenience. In addition, industry contends that calculating penalties from the date a source receives a notice of noncompliance effectively denies the right to a prior hearing and coerces compliance with a potentially invalid requirement. Industry asserts that this provision therefore violates both due process and statutory intent.⁵⁷

Implications of Duquesne Light

Of all the issues raised in Duquesne Light, perhaps the most critical to the future of the noncompliance penalty program are those concerning exemptions and the alleged need for a safety valve, because they threaten the basic goal of penalizing all sources that are not complying with requirements under the Act.

Industry and the Agency agree that de minimus exemptions are intended to give EPA necessary flexibility in applying penalties in situations where they are most likely to deter future violations and relieve both sources and the Agency from unwarranted administrative burdens.⁵⁸ There is also agreement that fairness and statutory intent require reasonable provisions for exempting sources from penalties when they are unable to comply for reasons entirely beyond their control.⁵⁹ The question is, of course, when is a violation de minimis "in nature and duration" or impossible to prevent for reasons "beyond the control" of the source.

To date, EPA's approach on these issues has been to define the term "nature and duration" expansively and the term "inability to comply" restrictively in an attempt to limit the situations in which sources qualify for exemptions. Thus, the Agency interprets the term "de minimis in nature" in the context of each source's emission control history, rather than relying only on the quantity of emissions, and the term "duration" to include intermittent but repeated violations of whatever degree. The term "inability to comply," on the other hand, is defined by the Agency to apply only to those situations in which a source could not in any way have prevented the violation. As a result, situations in which better operation, maintenance, planning, or other measures could have averted a violation will trigger a penalty. Both the EPA and industry positions on these issues appear likely to require case-by-case analysis of exemption issues, but EPA's has the advantage of focusing that analysis on matters that can be more readily ascertained from source records. Industry's approach, on the other hand, not only would permit virtually automatic exemptions for what could be considered "minor" violations, but also would require case-by-case analyses of more complex and disputable issues, such as a source owner or operator's reasons for not complying with requirements.

Thus, if industry prevails in Duquesne Light, more sources will slip through the enforcement net established by § 120, the procedural demands of the program will increase, and the Agency will have to win more arguments before imposing the penalties. If the regulations are upheld, a relatively tight, administratively streamlined version of this complex regulatory idea will be in place.EPA will maintain some flexibility and limited discretion in applying the penalty program. However, given the slow pace of the litigation to date, and the potential for congressional attention to many of the issues, it seems unlikely that the case will be resolved quickly.

Implementation of the Regulations

While Duquesne Light has been pending, EPA has begun to implement the § 120 regulations. In its announcement accompanying the final regulations, EPA estimated that more than 2,000 sources were potentially subject to noncompliance penalties.⁶⁰ Recognizing that time and resources limited its ability to apply penalties against all noncomplying sources, the Agency indicated it would establish priorities for issuing notices of noncompliance. First in priority were major sources that had neither achieved initial compliance nor negotiated a consent decree or other enforceable order establishing a schedule for achieving compliance. In addition, EPA announced it was delaying implementation until January 1981. The Agency's hope was that because of these policies sources would voluntarily adopt compliance schedules to avoid penalties once the program was implemented.⁶¹ To some extent the strategy apparently worked; in January 1981 EPA anticipated having to issue notices to only 400 to 700 sources. Given the still substantial number of sources [12 ELR 10017] out of compliance, however, progress has been slow. Between January and December the Agency issued 12 notices and was processing only a few others at the end of 1981.⁶² The penalty notices, largely in Regions II, IV, and V, have covered a variety of industries, from steel plants and utilities to a plastic coating business and a cement plant.Most cases have been settled on the basis of the penalty formula, with final penalties ranging from 80 cents for a source that came into compliance immediately to $40,000 for a source that took longer to comply.

To date, three source owners have contested notices of noncompliance in administrative hearings. In two of the cases, they alleged that EPA did not have sufficient evidence to establish a violation and, in the alternative, that the violations were de minimus, entitling the sources to exemptions.In one of these, EPA's evidence was ruled insufficient by an administrative law judge.⁶³ The second has been stayed pending a possible revision of the SIP provision on which the alleged violation was based.⁶⁴ The opinion of the administrative law judge is pending in the third case,⁶⁵ which presents the issues whether the source is in fact "major" and therefore subject to the penalty and whether a requested variance from the pertinent SIP provision would bring the source into compliance and render the noncompliance penalty notice moot.

Assuming somewhat freely that these cases are representative, the results indicate that the penalty program may be much more of a problem for EPA than anyone had foreseen. In some respects, the three contested penalty cases are illustrative of the difficulties EPA faces in its enforcement program generally.⁶⁶ Ironically, § 120 was intended to provide a streamlined system for removing the economic benefits of noncompliance without overtaxing either sources or the Agency with complex procedures.⁶⁷ Unlike civil enforcement actions, this program was expected to be relatively free of procedural difficulty and delay.

A variety of factors have contributed to the program's failure to work as planned. An obvious difficulty is the mandatory nature of EPA's statutory duty to enforce the penalties. Although the requirement may serve as a clear message of congressional resolve to pressure all sources into compliance, it has placed the enforcement effort under great stress. EPA's original conservative estimate that proceeding against all eligible sources would be a three-year effort now seems very optimistic, and the program undoubtedly has suffered some loss of credibility. Moreover, because EPA has had to set enforcement priorities, sources not high on the list can be fairly confident that they will not face penalties for some time.

One reason given for the low number of sources actually served with notices of noncompliance under § 120 is that, as a result of stepped up enforcement programs in the last few years, many major noncomplying sources already are being pursued through state enforcement actions or federal civil actions. Although the pendency of conventional enforcement actions does not exempt sources from noncompliance penalties, EPA generally has been unwilling, for tactical reasons, to pursue both courses.⁶⁸

Finally, EPA efforts to advance the program have been hampered because the program is administratively complex and burdensome at the federal level.⁶⁹ Although the program was intended to be delegable to the states, no delegation has taken place at of December 1981.Penalty proceedings require resources that EPA is less able to provide each year, and it appears even less likely that states will find the resources — or the will — to assume responsibility for the program.

Even taking these considertions into account, however, there is reason to believe that a factor in the slow pace of the program is a lack of interest on EPA's part to pursue noncompliance penalties at this time. Although the regulations were in place and the program was getting under way when the current administration took office, only a dozen § 120 notices of violation have been issued over the course of the year. Even assuming the administration's commitment to the program, repeated reorganization of the Agency's enforcement office suggests uncertainty about basic enforcement policy which the Agency has only recently begun to resolve. The directions it will take with regard to § 120 are yet to be revealed.

Conclusion

The noncompliance penalty program presents an all-too-familiar dilemma for EPA: industry asserts that regulations have gone far beyond statutory intent, while [12 ELR 10018] experience to date in implementing the regulations suggests that the program may carry a high administrative price tag and fall short of the statutory goals. The regulations are indeed stringent, but insofar as they are found to reflect statutory intent they were meant to be so, in order to force foot-dragging source owners to pay attention to pollution requirements they have neglected in the past.

It may be expecting too much of the program to be at once streamlined and flexible yet capable of achieving the Herculean tasks with which it has been charged. If implemented conscientiously, however, the program could work well in connjunction with other enforcement tools to ensure continued progress in attaining and maintaining all quality standards. Whether such an effort can and will take place depends in large part on the outcome of Duquesne Light. That decision appears to be months away, however; in the interim, significant improvement in the pace of the program is unlikely.

1. Clean Air Act § 120, 42 U.S.C. § 7420 (Supp. 1978), ELR STAT. & REG. 42226.

2. The amendments granted EPA authority to bring civil actions for money penalties, in addition to the injunctive remedies previously authorized, and they made individual corporate officers criminally liable for willful violations. Clean Air Act § 113, 42 U.S.C. § 7413 (Supp. 1978), ELR STAT. & REG. 42220.

3. Section 120(a)(2)(A)(i), ELR STAT. & REG. 42227.

4. Section 120(a)(2)(A)(ii), ELR STAT. & REG. 42227.

5. Section 120(f), ELR STAT. & REG. 42228.

6. Section 120(a)(2)(A)(i), ELR STAT. & REG. 42227. A source that violates interim requirements of a nonferrous smelter order will be subject to penalties. Section 120(a)(2)(A), ELR STAT. & REG. 42227.

7. Section 120(a)(2)(B)(i)-(v), ELR STAT. & REG. 42227. An exemption will be revoked for a source's failure to comply with terms of its exemption order. Section 120(a)(2)(B), ELR STAT. & REG. 42227.

8. Section 120(a)(2)(C), ELR STAT. & REG. 42227.

9. Section 120(d)(2)(A), ELR STAT. & REG. 42227.

10. Section 120(d)(2)(A), (B), ELR STAT. & REG. 42227.

11. Section 120(d)(3)(A), ELR STAT. & REG. 42227. If a source does not calculate its penalty, EPA may hire a contractor to help determine the penalty and assess the cost of the contractor's work to the source. Section 120(c), ELR STAT. & REG. 42227.

12. Section 120(d)(5), ELR STAT. & REG. 42228.

13. 44 Fed. Reg. 17310 (Mar. 21, 1979); amended 44 Fed. Reg. 34524 (June 15, 1979). For a description and discussion of the proposed regulations and comments submitted concerning them, see Orloff, Buttressing the Traditional Approach to Enforcement of Environmental Requirements: Noncompliance Penalties Under the Clean Air Act. 9 ELR 50029 (1979).

14. 45 Fed. Reg. 50086 (July 28, 1980) (codified in 40 C.F.R. pts. 66, 67). Changes to the proposed regulations generally involved program details or technical adjustments to the economic model. See preamble to the final regulations.

15. 40 C.F.R. § 66.11.

16. 40 C.F.R. § 66.12.

17. Id.

18. Id.

19. 40 C.F.R. § 66.31(a).

20. 40 C.F.R. § 66.31(b).

21. 40 C.F.R. § 66.31(c)(1)-(7). In addition, the source must show that it tried its best to prevent the situation causing the inability and that, in cases involving fuel and equipment procurement, it has given the "highest possible priority" to planning to prevent such an occurence. 40 C.F.R. § 66.31(d)(1).

22. 40 C.F.R. § 66.32(c).

23. 40 C.F.R. § 66.33(b).

24. 40 C.F.R. § 66.13(a)(1).

25. 40 C.F.R. § 66.13(a)(2).

26. 40 C.F.R. § 66.41(a)(2).

27. 40 C.F.R. § 66.32(d).

28. 40 C.F.R. §§ 66.13(1), 66.21(a).

29. Section 120 also requires that the penalty take into account "any additional economic value … a delay may have." EPA did not include that component in the model, however, because the Agency had concluded that it was not possible to quantify and calculate such additional values in an "administratively manageable" way. EPA stated that it would propose changes in the model if it became evident that additional factors could be incorporated. 45 Fed. Reg. at 50090.

30. See 45 Fed. Reg. at 50122-258, apps. A-C. The comparison is made through use of 12 financial parameters: (1) projected capital investment schedule; (2) projected schedule of operating and maintenance expenses; (3) investment tax credits; (4) depreciation-related tax benefits from installing pollution controls; (5) useful life of control equipment; (6) marginal income tax rate; (7) inflation rate; (8) discount rate; (9) interest rate; (10) preferred stock dividend rate; (11) portion of long-term financing provided by equity; and (12) portion of long-term financing provided by preferred shareholders and debtholders. EPA is currently updating the model to reflect recent changes in the tax laws.

31. 40 C.F.R. § 66.61(a), (b).

32. 40 C.F.R. §§ 66.23, 66.72.

33. Those requesting judicial review of the regulations included: Duquesne Light Co., Pennsylvania Power Co., American Iron and Steel Institute, Kennecott Corp., Magma Copper Co., American Paper Institute, National Forest Products Ass'n, Ford Motor Co., Morgan Adhesives Co., Chemical Manufacturers Ass'n, Dow Chemical Co., Society of the Plastics Industry, Tennessee Valley Authority, Armco, Inc., Ohio Edison Co., ASARCO, Inc., Georgia-Pacific Corp., Ferroalloys Ass'n, SME Cement, Inc., Kopper Co., and Alabama Power Co. et al. (a consortium of utilities represented by the Utility Air Regulatory Group). NRDC also filed a petition for review of the regulations, but it has withdrawn that petition. As an intervenor in the case, NRDC plans to file a brief opposing industry positions on the regulations.

34. No. 80-2103 (D.C. Cir., petition filed Sept. 12, 1980).

35. On October 30, 1981, industry petitioners filed a set of joint briefs that consistsof a Joint Statement of the Case and separate briefs on eight specific issues: The Need for a Safety Valve, Expenditures That Reduce the Economic Value of Noncompliance, Specific Financial Assumptions Made by the Penalty Calculation Model, Dollar-for-Dollar Credit Issues, Exemptions from Noncompliance Penalties, Applicability of the Regulations, Parallel Procedural and Applicability Issues, and Procedural Issues.

36. Industry representatives attacked § 120 in hearings on Clean Air Act amendments, arguing that Congress should eliminate the program. See Clean Air Act Oversight: Hearings Before the Senate Committee on Environment and Public Works, 97th Cong., 1st Sess. 479, 530-47 (1981) (testimony of George C. Freeman, Jr.).

37. The Utility Air Regulatory Group, which has joined other industry petitioners in Duquesne Light, has been considering whether to file a separate brief on issues affecting only the utility industry. In essence, the group's position is that the economic model for calculating penalties should take into account the fact that ratepayers, not utilities, are the major beneficiaries of noncompliance because utility rates are government-regulated.

38. While EPA's final position will not be known with certainty until the brief has been filed, EPA attorneys familiar with the case indicate that the Agency will maintain its earlier positions as to the validity of the substantive portions of the regulations. Moreover, should EPA change its position on those points, it is likely that the environmental intervenors will make those arguments.

39. See Joint Brief for Petitioners on Applicability of the Regulations.

40. 45 Fed. Reg. at 50086-87. The Agency points out that even a source on a consent decree may derive economic benefit from a judicially sanctioned delay in compliance.

41. See Joint Brief for Petitioners on Exemptions from Noncompliance Penalties.

42. Id. As examples of the Agency's misreading of § 120, industry cites EPA's use of criteria such as whether violations are "recurring events," whether sources derive "economic savings" from violations, whether sources use off-shift labor to correct excess emissions, and whether sources have a pattern of avoiding compliance.

43. Id. Industry objects to EPA's placing additional conditions, such as requiring sources to have already received a delayed compliance order or to have placed the "highest possible priority" on planning for proper equipment, on exemption eligibility. Industry asserts that such conditions are neither required nor permitted under the Act.

44. Id. Industry also asserts that EPA's formula approach to application of penalties, which does not allow for such sourcespecific conditions, violates the intent of § 120 to provide for case-by-case determinations of liability. It also relies on "basic tenets of administrative law" which require an adequate "safety valve" in regulations to provide relief for parties that, despite best efforts, cannot comply for reasons beyond their control. See Joint Brief for Petitioners on the Need for a Safety Valve.

45. For example, EPA asserts that if the level and duration of excess emissions were the only criteria for de minimus exemptions, a source causing minor but frequent violations would be immune from penalties, even where such excess emissions were preventable and responsible for economic benefits to the operator. 45 Fed. Reg. at 50098.

46. H.R. REP. NO. 95-294, 95th Cong., 1st Sess. 76 (1977). In addition, EPA contends that the regulatory exemption for "Acts of God," defined as a "genuinely unforeseeable event, whether or not large numbers of people are affected", and the Agency's stated intent to consider additional factors justifying exemptions, provide necessary flexibility to prevent unjust penalty assessments. 45 Fed. Reg. at 50096.

47. 45 Fed. Reg. at 50103.

48. On the issue of economic considerations, EPA stated that economic impossibility, in the context of market conditions, is provided for in the regulations, but that exemptions for individual sources having economic difficulties were never envisioned by Congress, in part because such sources still reap an economic benefit from their noncompliance. EPA has indicated, however, that it would take into account the economic condition of a source in some circumstances and would not impose a penalty if doing so would force the source to shut down. 45 Fed. Reg. at 50097.

49. Section 120(a)(2)(B)(iv) specifies the need for a DCO prior to an exemption in some cases, and EPA extended that to include court orders or consent decrees on the rationale that the intent of the provision was to require sources to be on a compliance schedule. However, EPA rejects the suggestion that it must automatically grant exemptions for sources having such orders because their receipt of the orders per se establishes an inability to comply. EPA contends that under § 120 these orders, like DCOs, must meet the requirements of § 113(d) before they can become prerequisites for exemptions.

50. See Joint Brief for Petitioners on Specific Financial Assumptions Made by the Penalty Calculation Model. Petitioners also object to EPA's decision to accept only penalty calculations produced by its own model. 45 Fed. Reg. at 50091.

51. See note 30, supra. The model uses industry-specific averages for the inflation rate and rate of return on shareholder's equity. It uses a national average for values of useful life, interest on debt, and rate of return on preferred stock.In uses the higher of the industry average or the allmanufacturing average rate of return on shareholder equity as the value for the discount rate. Values for the other six parameters are supplied by individual sources. 45 Fed. Reg. at 50091.

52. See Joint Brief for Petitioners on Dollar-for-Dollar Credit Issues.

53. The EPA model bases a penalty on the difference between cash flows over time. The credit mechanism in the model allows for the fact that as the source progresses toward compliance, its expenditures toward compliance actually will represent a relative acceleration of payments, reflected in cash flow ratios. Thus, the difference between cash flows will decrease over time, with a resulting decrease in total required penalties. A dollar-for-dollar credit, by contrast, often would result in no penalty because every dollar spent for controls would offset a potential penalty dollar. See 45 Fed. Reg. at 50092-93 for a full explanation of EPA's arguments on this issue.

54. Id.

55. See Joint Brief for Petitioners on Expenditures that Reduce the Economic Value of Noncompliance. The argument is that § 120 requires EPA to apply a penalty equal to the economic value of noncompliance — no more, no less. Although the 12 factors in the model may produce this figure in some cases, they will not in other instances. Specifically cited is the hypothetical situation in which a source in good faith invests in control equipment that does not work. Poorly performing equipment reduces the value of noncompliance and adds to costs because of required repairs and interim control measures.

56. Joint Brief for Petitioners on Procedural Issues.

57. Joint Brief for Petitioners on Paralled Procedural and Applicability Issues.

58. Petitioners' Brief on Exemptions at 14-17; 45 Fed. Reg. at 50098.

59. Petitioners' Brief on Exemptions at 26; 45 Fed. Reg. at 50096.

60. 45 Fed. Reg. at 50087.

61. 45 Fed. Reg. at 50088.

62. Telephone conversation with attorney in EPA Office of Stationary Source Enforcement.

63. Carbon Division of Airco, Inc. (St. Mary's, Pa.) v. Environmental Protection Agency, No. 81-C.A. 3-001.

64. Bethlehem Steel Corp. (Bethlehem, Pa.) v. Environmental Protection Agency, No. 81-C.A. 3-002.

65. Columbus Coated Fabrics (Borden Corp.) (Columbus, Ohio) v. Environmental Protection Agency, No. 81-C.A. 3-003.

66. For example, EPA's inability to generate sufficiently timely and accurate emissions data to take sources to court for violations and uncertainty over legal effects of pending SIP revisions on pending cases seem to hamper § 120 proceedings no less then routine enforcement efforts.

67. Among the anticipated advantages of the § 120 concept was that by empowering EPA to assess penalties administratively, the Agency could obtain quicker results than if it had to go to court, thus making penalties a more effective prod to compliance. Whereas the levying of civil penalties is discretionary with a court, assessment of noncompliance penalties is mandatory, with the result that source owners know substantial penalties will result from noncompliance. Source owners also know the extent of their potential liability; because the means of calculating penalties is set out in the regulations, a projection of a substantial penalty is likely to encourage sources to come into compliance. See Orloff, 9 ELR at 50029-30.

68. In addition, some source categories that otherwise would be high priorties for enforcement are being brought into compliance under specially developed programs. Many steel plants, for examply, have received extended deadlines for compliance under an agreement reached in 1980 between the steel industry and the Carter Administration. As long as thosed sources meet interim compliance requirements, they will not be subject to § 120 penalties.

69. Recommendations for penalty actions come from EPA's regional offices, and some regions act only at a state agency's request. Hearings also are generally held at the regional level, although the program is administered by EPA headquarters. Because it is EPA's newest enforcement effort, the § 120 program may not receive high priority in regions already pressed to carry out more established programs with diminishing resources.

12 ELR 10012 | Environmental Law Reporter | copyright © 1982 | All rights reserved