On Petition to Review a Decision of the Environmental Protection Agency.
EUGENE A. WRIGHT, Circuit Judge:
These consolidated cases are classic examples of the difficulties inherent in interpreting the Clean Air Act, as amended, 42 U.S. C.A. §§ 7401, et seq. (West Supp. 1978).
Numbers 77-2253 and 77-2521 are appeals by the EPA and intervenors Northern Plains Resource Council and the Northern Cheyenne Tribe (collectively called the Tribe) from the district court's declaratory judgment that Colstrip Units 3 & 4 had "commenced construction" before June 1, 1975, within the meaning of EPA's then effective regulations and therefore were grandfathered from PSD review and permitting. Number 78-1140 is a petition by Montana Power to review the EPA's determination that, despite the district court's holding, the 1977 amendments to the Clean Air Act (1977 Amendments) subject Colstrip Units 3 & 4 to PSD review and permitting under a new and stricter definition of "commenced construction."
We have jurisdiction over the appeals by EPA and the Tribe under 28 U.S.C. § 1291 and over Montana Power's petition under § 307(b)(1) of the Clean Air Act. We reverse the judgment of the district court and affirm the EPA's determination.
A. The PSD Regulations.
The EPA promulgated regulations under the Clean Air Act, effective on January 6, 1975, to prevent the significant deterioration of air quality.
Enforcement of the restrictions was provided through preconstruction review and permitting of specified stationary pollution sources that included electric coal-burning power plants like Colstrip Units 3 & 4. If the EPA suspected a violation of the applicable class increments would occur, it refused the source a permit and prohibited construction.
The regulations contained a grandfather clause, excluding from PSD review and permitting those sources that "commenced construction or modification prior to June 1, 1975." Id. at 52.21(d)(1). "Construction" was defined as "fabrication, erection or installation of a stationary source." Id. at 52.21(b)(6). More important here is the definition of "commenced", which means that
Id. at 52.21(b)(7).
If a source could establish it should be grandfathered, it might avoid additional expensive pollution control efforts. In some cases, exemption from PSD review and permitting might be the only way a source could be built in a particular location even
Before June 1, 1975, Montana Power had taken some significant preliminary steps for the construction of Colstrip Units 3 & 4. Plans for Units 1 & 2, being built in the same area planned for Units 3 & 4, included excess capacity for common facilities such as a surge pond, water intake structures, and power transmission lines to serve all four plants.
The company arranged for an environmental analysis of the Colstrip project in early 1973. It applied for a state construction permit in June under the Montana Major Facility Siting Act, Mont.Rev.Codes Ann. § 70-801 et seq. (Supp. 1977), and executed several contracts.
In September 1975, the administrator of EPA's Region VIII informed Montana Power that its plans to build Colstrip Units 3 & 4 might be subject to PSD review and permitting, and requested more information about the project. The company responded in February 1976 and petitioned the EPA for a ruling on the applicability of the PSD regulations.
B. The Strelow Memoranda.
In evaluating Montana Power's request for exemption from PSD review and permitting, Region VIII's administrator relied upon two memoranda written by Roger Strelow, then EPA's Assistant Administrator for Air and Waste Management, which interpreted the phrase "commenced construction".
The first memorandum, dated December 18, 1975, provided in relevant part:
The second memorandum of April 21, 1976, clarified what was necessary for a contractual obligation to qualify a source for exemption from PSD review and permitting:
The second memorandum also stated that the absence of a state construction permit should be a "relevant factor" in determining whether a source should be exempt from PSD review and permitting because it was irrevocably committed to a specific site.
Thus, using the Strelow Memoranda to interpret its regulations, the EPA would grandfather a source from PSD review and permitting only if, by June 1, 1975, the source had: (1) actually begun a continuous program of on-site construction; (2a) contracted for a continuous program of on-site construction which could not be terminated without substantial loss; or (2b) contracted for construction not amounting to a continuous program of on-site construction, but which nevertheless irrevocably committed the source to a specific site.
C. Applicability of the PSD Regulations.
Region VIII's administrator advised Montana Power on February 26, 1976, of the EPA's decision that Colstrip Units 3 & 4 were subject to PSD review and permitting. A following letter in May affirmed that decision and gave the reasons.
The EPA based its conclusion that the company would suffer no substantial loss on a ratio of unavoidable losses to total project cost. It found that contract payments and cancellation charges amounting to $8.7 million were clearly "contractual obligations" for the construction of Units 3 & 4 and that another $13.6 million was arguably in this category.
Montana Power sought judicial review of the EPA's final determination. In January 1977, the court granted the company declaratory, but not injunctive, relief,
In reaching its holding, the court concluded that the EPA's determination was arbitrary and capricious because the agency recently had exempted two other electric generating plants not as far advanced as Colstrip Units 3 & 4. Id. at 699-701. It also concluded that, although the use of a ratio in determining substantiality of loss is itself not necessarily arbitrary and capricious, its application here was because of the huge sum of money, in absolute terms, already committed to the units' construction.
D. 1977 Amendments.
While the district court's judgment was on appeal, Congress passed the 1977 Amendments, effective August 7, 1977. These provided for the first time explicit statutory authority for the prevention of significant deterioration of air quality, a subject previously covered only in EPA's regulations.
The amendments generally preserved the structure of the PSD regulations.
Clean Air Act § 169(2).
Although the definition in the amendments is substantially different on its face from the definition in the regulations, it is generally consistent with the interpretation of the regulation definition in the Strelow Memoranda. A significant difference is that the possession of necessary preconstruction permits, only a "relevant factor" in determining if a source had commenced construction under the regulations, is required for such a determination under the 1977 Amendments.
The transition from the regulatory to the statutory scheme is outlined in § 168. Section 168(a) provides that, until a state's implementation plan is revised to conform to the Act's new PSD procedures, the preamendment regulations will remain in effect for that area, except as provided in subsection (b).
Section 168(b) also provides that, in the case of a source which commenced construction — under the new definition of § 168(a) — after June 1, 1975, and before the effective date of the 1977 Amendments on August 7, 1977, PSD review and permitting "shall be in accordance with the regulations for the prevention of significant deterioration in effect prior to the enactment of the Clean Air Act Amendments of 1977."
The proposed regulation amendments would "greatly expand the coverage of the EPA's current regulations and generally impose more stringent requirements for pollution sources seeking to construct or modify in clean air areas." 42 Fed.Reg. 57,479 (1977). A source would not be subject to the new PSD regulations if it had obtained a final PSD permit by March 1, 1978, and commenced construction before December 1, 1978.
The EPA issued a final determination on November 29, 1977, that Colstrip Units 3 & 4 had not timely commenced construction under § 169(2) of the Clean Air Act because Montana Power had not received all necessary preconstruction approvals or permits. The agency therefore found the plants were subject to PSD review and permitting under the 1977 Amendments. 42 Fed.Reg. 60,784 (1977).
Montana Power petitioned this court for review of EPA's determination and, without prejudice to its contentions on appeal, continued its efforts to obtain a PSD permit for Units 3 & 4. On June 12, 1978, EPA denied the company's application because it determined the units would violate the Class I pollution increments applicable to the Northern Cheyenne Reservation.
We face two issues:
(1) whether the district court erred in reversing EPA's determination that Colstrip Units 3 & 4 were subject to PSD review and permitting under the regulations because construction had not commenced before June 1, 1975; and
(2) whether the EPA erred in concluding Montana Power had not commenced construction of the units under § 169(2), thus subjecting them to PSD review and permitting under the 1977 Amendments.
WHETHER CONSTRUCTION COMMENCED UNDER THE REGULATIONS
The district court focused on EPA's application of a "substantial loss test", read into the regulations by the Strelow Memoranda, in holding the agency's refusal to exempt Colstrip Units 3 & 4 from PSD review and permitting to be arbitrary and capricious. Although the EPA cited other reasons for its refusal, also challenged by Montana Power here,
A. Degree of Deference.
A reviewing court may set aside an agency action that is arbitrary, capricious, or an abuse of discretion. 5 U.S.C. § 706(2)(A) (1976). When making this determination, the court ordinarily must give agency interpretations of its regulations upon which the action is based the degree of deference described in Udall v. Tallman, 380 U.S. 1, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965):
Id. at 16, 85 S.Ct. at 801 (emphasis added). Accord, Burglin v. Morton, 527 F.2d 486, 490 (9th Cir. 1975), cert. denied, 425 U.S. 973, 96 S.Ct. 2171, 48 L.Ed.2d 796 (1976); Brubaker v. Morton, 500 F.2d 200, 202 (9th Cir. 1974). See also Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 89 S.Ct. 1794, 23 L.Ed.2d 371 (1969).
The district judge recognized that it is not the court's province to substitute its judgment for that of the agency to which is committed the interpretation of a statute or regulations. 429 F.Supp. at 695, 697. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28
429 F.Supp. at 695. It also found that the Strelow Memoranda were merely intra-agency, non-public guidelines to interpret the PSD regulations and, as such, were not entitled to the usual degree of deference.
We are aware that a court reviewing an agency action "must consider whether the decision was based on a consideration of the relevant factors" and that the "inquiry into the facts is to be searching and careful." Citizens to Preserve Overton Park, 401 U.S. at 416, 91 S.Ct. at 824. But, "the ultimate standard of review is a narrow one" and the objective of the inquiry is to determine "whether there has been a clear error of judgment" by the agency. Id. See also Bone v. Hibernia Bank, 493 F.2d 135, 139-40 (9th Cir. 1974); Hughes Air Corp. v. CAB, 482 F.2d 143, 145-46 (9th Cir. 1973); United States v. Whelan, 463 F.2d 1093, 1094 (9th Cir. 1972).
Unlike the district court, we do not believe the standard set forth in Tallman allows the courts any broader grant of review when an agency determination "concern[s] the meaning of a statutory term", as long as the agency does not exceed its own statutory authorization. Here, the EPA was not interpreting a statute, but rather its own regulations, which is entitled under Tallman to even more deference.
Similarly, even though we agree with the district court that the Strelow Memoranda "were merely intra-agency, non-public guidelines", we are unpersuaded they should be given any less than normal deference as long as they are a reasonable interpretation of the PSD regulations.
While we express no opinion about the other parts of the Strelow Memoranda, we conclude that a "substantial loss test" is reasonable to determine if an owner "has entered into a contractual obligation to undertake and complete, within a reasonable time, a continuous program of construction or modification."
We agree with the Tribe that, if the Memoranda alter the meaning of the regulation at all in this respect, it is to liberalize the regulation's requirements.
It is not enough, however, to note that the district court applied an incorrect standard of deference to the Strelow Memoranda. Nor is it sufficient for us to conclude that passing a substantial loss test is a reasonable prerequisite to being grandfathered under the irrevocable commitment exception to PSD review and permitting.
B. Prior Decisions.
Before the EPA's final determination in May 1976 refusing to grandfather Colstrip Units 3 & 4, the agency exempted two other power plants in arguably similar contractual positions. The apparent inconsistency in interpreting the regulations clearly influenced the district court.
In May 1975 the Region X administrator notified Portland General Electric (PGE) that its plant at Boardman, Oregon was exempt from PSD review and permitting. The finding that PGE had obligated itself to complete within a reasonable time a continuous program of construction was based on a contract to purchase a turbine generator.
After the first Strelow Memorandum was issued, the Region VIII administrator ruled in March 1976 that Pacific Power and Light Company's Jim Bridger Unit 4 was "irrevocably committed" to its site as of June 1, 1975, because it had been designed to share facilities with existing units at that location and had executed contracts involving $5.4 million in cancellation charges. The plant was grandfathered from PSD review and permitting.
Montana Power argues that before June 1, 1975, it had contracted for a turbine generator for each plant, designed Units 3 & 4 to share facilities with Units 1 & 2 then under construction, and entered into contracts that could not be cancelled without penalties of $8.7 million. It contends it was further committed to a program of construction than were the two companies building the grandfathered power plants and that Units 3 & 4 therefore were entitled to exemption from PSD review and permitting.
Although the EPA and the Tribe attempt to distinguish the other two rulings on their facts,
The district court concluded that since the EPA "ha[d] switched horses in midstream", the policies implicit in the earlier two decisions, rather than in the Strelow Memoranda, should have been used to evaluate Montana Power's request for PSD exemption.
Both the district court and Montana Power misconstrue the scope of judicial review of agency action. Even if the action involves a new interpretation of a regulation, the traditional standard of deference announced in Tallman applies:
SEC v. Chenery Corp., 332 U.S. 194, 207, 67 S.Ct. 1575, 1582, 91 L.Ed. 1995 (1947).
The agency is not absolutely bound by its prior determinations, but rather may adjust its policies and rulings in light of experience:
NLRB v. Seven-Up Bottling Co., 344 U.S. 344, 349, 73 S.Ct. 287, 290, 97 L.Ed. 377 (1953). Accord, NLRB v. Weingarten, 420 U.S. 251, 264-66, 95 S.Ct. 959, 43 L.Ed.2d 171 (1975); FCC v. WOKO, Inc., 329 U.S. 223, 228, 67 S.Ct. 213, 91 L.Ed. 204 (1946); Santos v. INS, 375 F.2d 262, 265 (9th Cir. 1967).
The Boardman decision was made before either of the Strelow Memoranda was issued. It did not represent a settled agency policy. The EPA has since admitted it mistakenly exempted that plant from PSD review and permitting on the basis of a turbine generator contract.
In light of our limited scope of review and the prerogative of the agency to evolve the interpretation of its regulations, we cannot say the agency was bound by that decision or improperly disregarded it in ruling on Colstrip Units 3 & 4 once national guidelines in the Strelow Memoranda had been issued. Nor can we say that the Colstrip decision is entitled to any less deference because of the Boardman plant ruling.
The Bridger plant was exempted from PSD review and permitting under the "irrevocable commitment" exception explained in the first Strelow Memorandum. But the decision came prior to the second Memorandum that clarified the kind of contracts necessary for a sufficient contractual commitment to exist and emphasized that the situations in which a plant could be irrevocably committed to a site should be "rare."
We realize that Montana Power was first notified it was subject to PSD review and permitting on February 26, 1976, prior to the decision exempting the Bridger plant. But the letter that explained the basis of the agency's ruling was not sent until May, after the second Strelow Memorandum was issued.
Whether the agency was mistaken in its application of the first Strelow Memorandum to the Bridger plant, or it found a new and different rationale in the second Memorandum for refusing to exempt Colstrip Units 3 & 4, makes no difference. Providing the EPA does not single out the Colstrip plants for discriminatory treatment under a peculiarly harsh interpretation of its regulations and the Strelow Memoranda,
C. Use of a Ratio.
The district court allowed that some concept of substantiality of unavoidable loss is reasonable in determining if a source's contractual commitment is the functional equivalent of having commenced actual construction. But the court found that, under this fact situation, use of a ratio of unavoidable loss to total project cost to determine substantiality was improper:
429 F.Supp. at 701. The court concluded that the "assumption that `substantial' must be measured in relative rather than absolute terms . . . results in a capricious application of the policy designed to strike a balance between investor risk and social utility." Id.
Although Montana Power apparently agrees that the Strelow Memoranda properly read into the regulations a "substantial loss test", it argues that nothing in the memoranda justified use of a ratio to determine substantiality in its case. It concedes that, despite the lack of reference in the memoranda, a ratio might be the fairest way to measure substantial loss for smaller projects, but argues that a ratio works an injustice on larger projects in which the stakes are higher. It contends that its unavoidable loss exceeding $22.3 million as of June 1, 1975, was clearly substantial in absolute terms.
Had we such an option, we might as a matter of policy define "substantial loss" to include significant cancellation or modification costs, in absolute terms, that only constitute a small percentage of the total anticipated cost of a large project such as Colstrip Units 3 & 4. In light of the deference we must accord the EPA's interpretation of its own regulations, however, we do not have that option.
The EPA could reasonably conclude that the developers of a large power plant were not "irrevocably committed" to the project at a given site unless their investment had reached a specific percentage of the total cost, regardless of the amount already expended. Here, $22.3 million is clearly a significant sum, but it was only 2.8% of the total cost, a relatively modest investment in terms of the overall project.
Neither the district court nor Montana Power suggested a formula by which substantiality of loss could be measured by a ratio on some projects, particularly on smaller ones, but by the absolute amount of unavoidable loss for larger power plants such as Colstrip Units 3 & 4. Nor was it practical for them to have done so. The determination of substantiality of loss for exemption from PSD review and permitting must be made on a case-by-case basis and is properly consigned to the sound discretion of the EPA.
Even if the EPA's objective in determining substantiality of loss was to "strike a balance between investor risk and social utility," we cannot say that the agency showed a "clear error of judgment," Citizens to Preserve Overton Park, 401 U.S. at 416, 91 S.Ct. 814, in using a ratio of unavoidable loss and total project cost to strike the balance. The district court merely substituted its judgment for that of the agency. As the Supreme Court noted in another context, the agency's "interpretation may not be the only one permitted by the language of the [regulations], but it is quite clearly a reasonable interpretation; courts must therefore respect it." Tallman, 380 U.S. at 4, 85 S.Ct. at 795.
D. Notice and Hearing.
The district court interpreted the alleged policy changes effected by the Strelow Memoranda to be an exercise of EPA's rulemaking function. Because the memoranda were issued without notice or hearing, it found them to be adopted improperly.
We conclude, however, that the memoranda were merely "interpretive rules" under 5 U.S.C. § 553(b)(3)(A) (1976), and that rulemaking procedures were unnecessary.
WHETHER CONSTRUCTION COMMENCED UNDER THE 1977 AMENDMENTS
Although we have determined that Colstrip Units 3 & 4 are subject to PSD review and permitting under the pre-amendment regulations,
No party discussed adequately the interrelationship of the pre- and post-1977 Amendment PSD review and permitting schemes. The EPA and the Tribe imply they would be "satisfied" if Units 3 & 4 are subject to review under either scheme. In light of changes in the regulations after the 1977 Amendments, however, which could make more difficult securing a PSD permit for the units, we consider Montana Power's petition for review of the EPA's determination that it had not commenced construction under the 1977 Amendments before August 7, 1977.
A. Refining the Issue.
The new definition of "commence" in the 1977 Amendments generally follows the Strelow Memoranda interpretation of the pre-amendment regulatory definition, with one significant distinction.
As with the Memoranda interpretation, an owner or operator must either begin "a continuous program of physical on-site construction" or enter into contractual obligations, "which cannot be canceled or modified without substantial loss . . ., to undertake a program of construction of the
The difference is that, whether a source "has obtained all necessary preconstruction approvals or permits required by Federal, State or local air pollution emissions and air quality laws or regulations," id., is no longer merely a "relevant factor" in determining if a source is irrevocably committed to its site, but rather is a prerequisite to satisfying the definition of "commence" irrespective of how the source claims its exemption.
Section 168 bridges the gap between the regulatory and statutory definitions of "commence." It provides that if a source meets the statutory definition between June 1, 1975, and August 7, 1977, "the review and permitting of such facility shall be in accordance with" the pre-amendment PSD review and permitting procedures in the regulations.
Thus, three time periods are relevant under the 1977 Amendments to determine the effect of PSD review and permitting on a given source. If the source "commenced construction," as defined in the statute:
There is no question that Montana Power did not commence construction, under the statutory definition, before June 1, 1975. It concedes it began no on-site construction before that date and we determined above that, under the EPA's acceptable interpretation, the company would sustain no substantial loss if it had been forced to cancel or modify its contractual obligations as of that time.
Montana Power argues that, even if it had not commenced construction under the statutory definition before June 1, 1975, it did so before August 7, 1977. It maintains that the language in § 168, specifying that sources commencing construction in this interim shall be reviewed "in accordance with" the regulations in effect before the 1977 Amendments, preserves the Colstrip Units' grandfather status as established by the district court. Since we reverse the district court, we need not reach this issue.
Montana Power is at least subject to PSD review and permitting under the preamendment regulations. Even if it commenced construction under the statutory definition before August 7, 1977, the same PSD requirements would apply. The issue then becomes whether it failed to commence construction before August 7, 1977. If so, Colstrip Units 3 & 4 might be subject to the stricter PSD review and permitting procedures in the regulations amended to conform to the 1977 Amendments.
B. Necessary Preconstruction Approvals or Permits.
After prevailing in the district court, Montana Power began land clearing at the Colstrip site in June 1977. It asserts these operations began a "program of physical on-site construction" that would have been continuous but for the EPA's order to halt construction in September.
Montana Power obtained a permit in June 1976 under the Montana Major Facility Siting Act, Mont.Rev.Codes Ann. § 70-801 et seq. It did not receive a permit from the state's Department of Health and Environmental Sciences, under the Montana Clean Air Act, Mont.Rev.Codes Ann. § 69-3911 (Supp. 1977), until January 1978.
The company argues that it needed neither permit to satisfy the definition of "commence" in the 1977 Amendments. Alternatively, if any permits were required, it asserts the only one necessary was the one received under the Siting Act, issued before the effective date of the 1977 Amendments.
Because of the way we decide the approvals or permits issue, we do not reach Montana Power's representations about on-site construction begun or substantial loss incurred before August 7, 1977.
1. Section 169(2)(B)
Montana Power argues that § 169(2)(B) makes clear it needed no preconstruction permits to satisfy the definition of "commence" in the 1977 Amendments.
Referring to the immediately preceding subsection, § 169(2)(A), which defines "commence" as having "all necessary preconstruction approvals or permits" and either (i) having begun on-site construction or (ii) having entered into sufficient contractual obligations, § 169(2)(B) provides:
The use of the disjunctive "or" in connection with the plural "clauses" creates a significant problem of interpretation.
Montana Power emphasizes the disjunctive "or" and argues that the phrase "any activity under clauses (i) or (ii)" is the grammatical equivalent of "any activity under clause (i) or any activity under clause (ii)." It says that a source must have preconstruction permits necessary for either on-site construction or entering into contractual obligations, but not both. Since the contractual obligations on which it relies for its PSD exemption claim required no approval from any permitting authority before their execution, the company argues it satisfied the definition of "commence" in § 169(2)(A).
The EPA emphasizes the plural "clauses" and contends the phrase "any activity under clauses (i) or (ii)" means "any activity mentioned in either clause." It argues that the company needed all permits necessary for contracting and for on-site construction. Since it had no permit under the Montana Clean Air Act
The disputed phrase is ambiguous and could be given either interpretation, another example of poor drafting requiring judicial deciphering. Unfortunately, the legislative history is equally confused.
The definition of "commence" in the 1977 Amendments, as reported out of committee, did not define "necessary preconstruction approvals or permits." During Senate debate on the measure, Senator Henry M. Jackson proposed an amendment:
Montana Power argues that Senator Jackson's explanation of the amendment on the Senate floor confirms its interpretation.
The EPA responds that, even if Montana Power correctly read Senator Jackson's intent in offering the amendment, Congress did not agree. It cites the Senate Report describing the purpose of the definition of
Although conceding that Congress wanted to preserve the issues in the district court case, the EPA also quotes remarks by the chief sponsor of the 1977 Amendments in the House that the Conference Committee intended to create no special exception for Colstrip Units 3 & 4,
The EPA finally argues Senator Jackson held the mistaken idea that, when he proposed his amendment, Montana Power had all necessary permits for on-site construction. This is consistent, the agency contends, with his comment that Montana Power "ha[d] completely complied with the law" and that his amendment would "not prejudice the litigation that is pending" in the district court.
The legislative history is rife with inconsistencies, and the explanations of the parties attempting to rationalize it to correspond with their different interpretations are often strained. When conflicting, inconclusive views form the greater part of the legislative history, we are left with divining the "intent" of Congress from the overall purpose of the statute in question.
One of the declared purposes of the Clean Air Act is "to protect and enhance the quality of the Nation's air resources so as to promote the public health and welfare and the productive capacity of its population." Clean Air Act § 101(b)(1). PSD review and permitting is the only method of enforcing the allowable pollution increments applicable to sources such as Colstrip Units 3 & 4. Exemptions claimed from PSD review and permitting therefore must be so examined as not to contravene the basic policy of the Act.
Section 169(2)(A) requires a source seeking to satisfy the definition of commence to obtain "all necessary preconstruction approvals or permits required by Federal, State, or local air pollution emissions and air quality laws or regulations" (emphasis added). On its face, this language admits of no exceptions.
The kind of permits specified is also important. By requiring "preconstruction approvals or permits," the language of the statute implies that the kinds of permits required are those necessary to begin construction. This does not coincide with Montana Power's understanding that it did not need any construction permits to satisfy the definition of "commence" because it relied only upon its contractual obligations to claim a PSD exemption, and no permits are necessary to enter contracts.
All parties agree that the § 169(2) definition of "commence" is stricter than the pre-amendment regulatory definition. Yet, when the regulatory definition is viewed in light of the Strelow Memoranda, there is but one important distinction that could make the statutory definition stricter. As interpreted by the Memoranda, the regulatory definition made possession of necessary preconstruction permits only a "relevant factor" in determining if a source was irrevocably committed to a specific site. In § 169(2)(A)-(B), possession of required permits is mandatory to satisfy the definition of commence. This casts doubt on any interpretation of the statute that would weaken the definition of "commence" and allow a source to satisfy it easily.
Montana Power suggests a definition of § 169(2)(A)-(B) that would allow a source to "commence construction" merely by entering into contractual commitments. Under this interpretation a source could begin construction illegally, lacking the necessary permits, but satisfy the definition of "commence" as long as it relied solely on its contractual obligations in claiming PSD exemption. This is hardly a "stricter definition"
Senator Jackson may have intended in his proposed amendment to allow Colstrip Units 3 & 4 to satisfy the permit requirement under § 169(2)(A) merely on the basis of its contractual commitments. But so interpreted, the amendment appears to be special legislation the primary purpose of which is to benefit Montana Power. Absent a clearer showing, we are unwilling to ascribe this intent to Congress. If Congress had wanted the Jackson amendment to protect the Colstrip Units against the possible adverse effects of the 1977 Amendments, it could easily have so stated. It did not.
2. Requirements of the Montana Clean Air Act
Even if the phrase "necessary preconstruction approvals or permits" in § 169(2)(A)-(B) is interpreted to mean those permits necessary for actual on-site construction, Montana Power argues it obtained the only permit required before the effective date of the 1977 Amendments.
The company received approval under the Montana Major Facility Siting Act, Mont. Rev.Codes Ann. §§ 70-801 et seq., in July 1976. It received no permit under the state Clean Air Act, Mont.Rev.Codes Ann. §§ 69-3906 et seq., until January 1978. It asserts that the state Clean Air Act permit is not required under § 169(2)(A)-(B), and that it sought one only to avoid protracted litigation as to its necessity. The EPA contends that permits under both the Siting Act and the state Clean Air Act are "necessary preconstruction approvals or permits."
The state Clean Air Act was enacted in 1967. With its regulations, it is part of the state's implementation plan under the federal Clean Air Act. While a parent organization administers the plan generally, the Board of Health and Environmental Sciences controls the permitting of all new sources of air pollution:
Mont.Rev.Codes Ann. § 69-3911. The regulations require two permits, one for construction and one for operation or use. Mont.Admin.Code §§ 16-2.14(1)-S1400(1)-(9), (11).
The Major Facility Siting Act, enacted in 1973, specifically governs "the construction of additional power or energy conversion facilities" and is meant "to ensure that the location, construction and operation of power and energy conversion facilities will produce minimal adverse effects on the environment." Mont.Rev.Codes Ann. § 70-802. Before a facility may be constructed or operated, it must obtain a "certificate of environmental compatibility and public need," the equivalent of a permit. Id. at § 70-804.
The Board of Natural Resources and Conservation controls the issuance of permits under the Siting Act. It may not grant one unless it determines
Id. at § 70-810(1)(h). The relevant agency is the Board of Health, which is responsible for issuing a permit under the state Clean Air Act.
Section 70-817 of the Siting Act provides that, once a permit under the act has been granted,
Montana Power argues that findings of the Board of Health in certifying a source to the Board of Natural Resources under the Siting Act duplicate those it must make under the state Clean Air Act. Since the Siting Act deals specifically with new energy sources and is, comprehensive to the exclusion of other state statutes,
The company reads narrowly the exception to § 70-817, which protects the authority of state air quality agencies like the Board of Health "to determine compliance of the proposed facility with state and federal standards." Instead of interpreting the exception as ensuring the Board of Health's power to issue construction permits, which might detract from the comprehensive scheme of the Siting Act, Montana Power argues that the exception only preserves the Board's power to grant use permits, for which there is no analogue in the Siting Act. Since a use permit is issued only after a source is constructed, it cannot be a preconstruction approval or permit required by the definition of "commence" in § 169(2)(A).
This understanding of the relationship between the state Clean Air Act and the Siting Act is strained, at best. The language of § 70-817 preserving the authority of the Board of Health is not limited to issuing use permits.
Whether construction permits required under the state Clean Air Act and Siting Act are duplicative is not our concern. That is a matter for the Montana legislature. Section 169(2)(A)-(B) requires a source to obtain "those permits or approvals . . . required by the permitting authority," in this case the State of Montana and its agencies.
Montana Power did not commence construction of Colstrip Units 3 & 4, as that
The district court judgment in Nos. 77-2253 and 77-2521 is REVERSED and the EPA's determination in No. 78-1140 is AFFIRMED.
Each state was responsible for submitting an implementation plan to the EPA specifying how the standards would be achieved and maintained. If the state plan satisfied certain criteria, the EPA had to approve it; if not, the agency had to promulgate regulations establishing its own plan for the state.
No criterion for EPA approval required state implementation plans to preserve existing air quality cleaner than that mandated by national primary and secondary standards. Relying on the statement of purpose in the Act's preamble, however, the court in Sierra Club v. Ruckelshaus, 344 F.Supp. 253 (D.D.C. 1972), ordered the EPA to disapprove state plans insofar as they did not prevent the significant deterioration of air quality and to promulgate appropriate PSD regulations. The decision was affirmed on appeal. 4 E.R.C. 1815 (D.C.Cir. 1972); aff'd by an equally divided court sub nom. Fri v. Sierra Club, 412 U.S. 541, 93 S.Ct. 2770, 37 L.Ed.2d 140 (1973).
A number of challenges to the regulations heard in Sierra Club v. EPA, 176 U.S.App.D.C. 335, 540 F.2d 1114 (1976), proved unsuccessful. The Supreme Court granted certiorari on two issues but, after passage of the 1977 Amendments, vacated and remanded the cause "for further consideration in light of Clean Air Act Amendments of 1977 . . ., and to consider the suggestion of mootness." Montana Power v. EPA, 434 U.S. 809, 98 S.Ct. 40, 54 L.Ed.2d 66 (1977). The court of appeals remanded to the EPA for reconsideration. Sierra Club v. EPA, 176 U.S.App.D.C. 335, 540 F.2d 1114 (1977). The EPA has issued no final determination on the interplay of the regulations and the 1977 Amendments, and the parties here do not challenge the regulations' validity.
39 Fed.Reg. 42,510 (1974).
The agency initially designated all clean air areas as Class II. 40 C.F.R. 52.21(c)(3)(i). A state could propose redesignation for any area within its boundaries, id. at 52.21(c)(3)(ii)-(iii), except Indian reservations, for which only "the appropriate Indian Governing Body" could propose a change. Id. at 52.21(c)(3)(v).
In the first three months of 1974, the company issued a purchase order to Combustion Engineering, Inc. for two steam generators costing $67 million, engaged Northern Testing Laboratories for soil exploration preparatory to on-site construction, and ordered reinforcing steel for the plans from Paper Calmenson & Co.
Later in 1974, the company ordered condensers and feedwater heaters from Westinghouse for nearly $4 million, closed a contract for coal silos, and ordered additional steel and bleeder trip valves.
On appeal, the Montana Supreme Court dissolved the injunction pending final disposition. It recently issued its opinion, affirming and reversing in part. 594 P.2d 297 (Mont. 1979). The court remanded to the Board of Natural Resources for additional findings of fact and conclusions of law on several matters, to be made within 90 days, and suspended the Siting Act permit pending compliance with the order.
Although the validity of the permit is still in doubt, we will assume for our purposes that Montana Power received a valid Siting Act permit in July 1976.
Both fall under the general umbrella of the "contractual obligation exemption" described in the regulations. As interpreted in the Strelow Memoranda, the regulations permit a source to be grandfathered on either of two types of contractual obligations: if the contracts are for on-site construction; or, when they are for non-site work, if they fall within the irrevocable commitment category.
Because both fall under the contractual obligation exemption, the substantiality of loss if the contracts were cancelled or modified is relevant to both. Thus, if a source had contracted for specific equipment to be built offsite (probative of an irrevocable commitment to a specific site), and the contract could not be terminated without substantial loss, the source could be exempt from PSD review and permitting even though no contractual obligation for a continuous program of on-site construction existed. This is the basis of Montana Power's claim of exemption.
429 F.Supp. at 702 (citations omitted).
The opposite is true. The 2.8% of total cost figure is based on a contractual commitment of $22.3 million and includes the "arguably" category. On appeal, the EPA and Montana Power agree on these figures.
42 Fed.Reg. 57,479, 57,481 (1977).
The Tribe proposed the redesignation in March 1977, and the EPA approved it in August. Montana Power is an intervenor in a case now before this court, Nance v. EPA, No. 77-3058, challenging the propriety of the reclassification.
After vacillating in its decision, first advising the company it would deny the permit and then that it would grant it under certain conditions, the EPA announced after an extended period for public comment that it was denying the permit because of an expected violation for a few days each year of the Class I sulfur dioxide limits for the reservation. Montana Power also intervened in another case on appeal, Puget Sound Power and Light Co. v. EPA, Nos. 78-2821, 78-3234, challenging the permit denial.
The EPA responds that the company may not accept the Strelow Memoranda's interpretation of the regulations by claiming an "irrevocable commitment" exemption while asserting the memoranda are invalid insofar as they make possession of state permits a relevant factor in determining the degree of commitment.
The Tribe agrees with Montana Power that the second memorandum is inconsistent with the regulations, but for a different reason. It contends the possession of state permits should be a requirement, not merely a relevant factor, in determining the degree of commitment.
Although we disagree with the Tribe's contention that the EPA exceeded its authority by including a substantial loss test in the regulations, we agree that the EPA's interpretation liberalized the regulation's facial meaning.
The company responds that there is no indication possession of a state permit was even considered in the Boardman decision since the regulations did not clearly require it and the Strelow Memoranda, which made possession a "relevant factor" in determining if a source was sufficiently committed to a site to be grandfathered, had not yet been issued.
The Tribe attempts to distinguish the Bridger ruling, asserting the EPA believed at the time of its decision that the total Bridger cost would be $60 million and that $5.4 million in cancellation charges would have amounted to 9% of the total cost. The EPA also asserts it had this belief and offers similar calculations in its attempt to distinguish the ruling.
This proposition is difficult to sustain. Sixty million dollars is a meager sum for a major power plant. Moreover, the EPA's exemption letter to Pacific Power and Light stated that "the record reflects that prior to June 1, 1975, contracts for major components of the system had been entered into resulting in a commitment of approximately $60,000,000 which could not be breached without incurring cancellation charges in excess of $5,400,000." (Emphasis added.) Thus, the EPA properly understood that $60 million was not the total cost of the Bridger project, but rather was the total of contract commitments by June 1, 1975.
It spoke of the weight to be given the memoranda:
429 F.Supp. at 698. Later the court concluded:
Id. at 700.
There is no basis in the record for finding that Montana Power relied on the Boardman and Bridger rulings in developing Colstrip Units 3 & 4 to avoid PSD review and permitting. Nor does the company make that contention. It would have been difficult to do so. The Boardman decision was announced two weeks before the grandfathering cut-off date and the Bridger decision came nine months later.
42 Fed.Reg. 57,479, 57,481 (1977).
In the commentary accompanying the new PSD regulations promulgated on June 19, 1978, the EPA noted the result of the public comments and outlines its current practice:
43 Fed.Reg. 26,388, 26,396 (1978).
The current practice is not inconsistent with that used to measure Montana Power's substantiality of loss for Units 3 & 4.
Here, the EPA's interpretation of its regulations that led to the Boardman and Bridger decisions was not a "long established" practice. The "policy it is now pursuing" is clear, and is not inconsistent with the Montana Power ruling. See note
Our conclusion is consistent with earlier holdings of this court when we found that the weight to be given to an administrative regulation depends upon "its consistency with earlier and later pronouncements," Martinez v. Marshall, 573 F.2d 555, 559-60 (9th Cir. 1978) (emphasis added), citing Morton v. Ruiz, 415 U.S. 199, 237, 94 S.Ct. 1055, 39 L.Ed.2d 270 (1974) and Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944), and that the agency "may not depart sub silentio from its usual rules of decision to reach a different, unexplained result in a single case," NLRB v. Silver Bay Local Union No. 962, 498 F.2d 26, 29 (9th Cir. 1974) (emphasis added), citing NLRB v. International Union of Operating Engineers, Local 925, 460 F.2d 589, 604 (5th Cir. 1972).
The facts in United States v. Union Oil Co., 549 F.2d 1271 (9th Cir.), cert. denied, 434 U.S. 930, 98 S.Ct. 418, 54 L.Ed.2d 291 (1977), are distinguishable. There the court refused to consider an agency interpretation of a statutory term primarily because the interpretation was written decades after the act was passed and therefore could not "reflect an agency view contemporaneous with the passage of the Act." Id. at 1280 n. 19. Such was not the case here.
123 Cong.Rec. at S9455 (daily ed. June 10, 1977).
H.R.Rep. No. 95-564, 95th Cong., 1st Sess. 153 (1977), U.S.Code Cong. & Admin.Laws 1977, p. 1533.
296 F.Supp. at 216. Accord, Gardner & North Roofing & Siding Corp. v. Board of Governors, Federal Reserve System, 150 U.S.App.D.C. 329, 333, 464 F.2d 838, 842 (1972). See also 2A Sands, Sutherland Statutory Construction § 48.15 (4th ed. 1973). We do not consider the letters as part of the legislative history or entitled to any weight.
The company asks that we consider a memorandum Senator Jackson enclosed with his letter. It described his intention in submitting his amendment and was apparently circulated to members of the Conference Committee. It is not, however, "a part of the records of the legislative body," Epstein, 296 F.Supp. at 216, and we have no way to measure the response of Conference Committee members to the policy underlying the memorandum. It may be an accurate reflection of the senator's intent but is not probative of congressional intent in passing the modified version.
In proposing his floor amendment, Senator Jackson described it as "a technical amendment . . . [that] is noncontroversial." 123 Cong.Rec. at S9455 (daily ed. June 10, 1977). The EPA contends that if the amendment is understood as Montana Power proposes and Senator Jackson ostensibly intended, it would have substantially changed the purpose of the "commence" definition as described in the Senate Report and therefore could not have been merely a "technical amendment."
The EPA maintains that congressional understanding of the amendment was closer to the interpretation expressed by Senator Muskie, chairman of the subcommittee that drafted the 1977 Amendments and the principal sponsor, in response to the proposed amendment:
123 Cong.Rec. at S9455 (daily ed. June 10, 1977). The Conference Committee version, which became § 169(2)(B), deleted the emphasized words, substituting "under" for the second italicized phrase.
The EPA argues that the deletion of "if any" eliminated the possibility that no preconstruction approvals or permits would be necessary. Deletion of the second phrase, it maintains, removed any reference to, and thus the importance of, activities a source relied on in its PSD exemption claim.
Although the Conference Committee Report indicated the deletions were only a "slight modification" of the Jackson amendment, EPA contends this description applies to Congress' understanding of the original amendment and not to Senator Jackson's intent.
123 Cong.Rec. at H8665 (daily ed. Aug. 4, 1977).