ELR Citation: ELR 20978
No(s). s. 93-2131, -2262 (7th Cir. May 27, 1994)

The court holds that the U.S. Environmental Protection Agency (EPA) failed to furnish a reasoned basis for denying two utilities' requests for additional sulfur dioxide emission allowances under Title IV of the Clean Air Act (CAA). One utility claimed that it was entitled to bonus allowances under CAA §405 because it is a "utility operating company whose aggregate nameplate fossil fuel steam electric capacity" exceeds 250 megawatts (MWe). It claimed that its aggregate capacity includes two electric plants of which it is 22 percent owner. EPA rejected the utility's interpretation of the phrase "whose . . . capacity" as meaning "capacity owned by" on the grounds that: The statutory language clearly refers only to the capacity of the facility operated by the company; it is infeasible to split facilities for allocating allowances to co-owners; and the utility's interpretation cannot work because only the largest utilities report ownership status. The court first holds that the statutory language is ambiguous. Next, on the Agency's claim that "splitting" utilities is infeasible, the court holds that it does not follow that the Agency must change any other utility's allowances if it gives the petitioner bonus allowances. Bonus allowances do not count against the allowance ceiling under Phase II of the Act's acid rain program. Even if the petitioner's interpretation did require taking away another utility's allowances, it would only be a reason for concluding that the Agency's allocation had been erroneous and should be corrected. The court further holds that the fact the form EPA used to create its database for allocating allowances does not list owned capacity does not make the utility's position unworkable. Only the largest utilities can qualify for bonus allowances on the basis of aggregate capacity, and they are required to submit ownership information on a different form. The court refuses to consider an additional EPA justification given at argument, because the Agency did not articulate it before.

The court next turns to the second utility's claim that its generating capacity is less than 450 MWe, entitling it to more allowances. The utility claimed that "generating capacity" as used in CAA §405(c)(3) means summer net dependable capability, not nameplate capacity. The court finds inadequate EPA's reasons for interpreting "generating capacity" to mean nameplate capacity. The fact that nameplate capacity is specified in CAA §405(c)(1) and (c)(2) is no reason the capacity measure for (c)(3) should also be nameplate capacity. The court vacates EPA's denial of the utilities' requests and requires the Agency to explain how administrative exigencies or the goals of the acid rain program justify its actions.

Counsel for Petitioner
Henry V. Nickel
Hunton & Williams
2000 Pennsylvania Ave. NW, Washington DC 20036
(202) 955-1561

Counsel for Respondent
John Nagle
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Before POSNER, Chief Judge, BAUER, Circuit Judge, and ASPEN, District Judge.^*