B-248544, August 14, 1992

B-248544: Aug 14, 1992

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(2) EPA's use of a telephone queuing system is within its discretion. You expressed concern that EPA's proposal is driven by the statutory phrase. We are not in a position to evaluate the relative merits of EPA's proposal and the alternative methods it rejected. Reductions of sulfur dioxide emissions are to be achieved in two phases. As will be explained more fully below. Further reductions by a broader group of utilities will be required. Phase II is not applicable to the issues in this opinion.). Procedures for allocating these allowances are provided under section 404(d). EPA's Proposed Regulation EPA expects that many utilities will apply for allowances in a short period of time and that the 3.5 million allowances will be oversubscribed.

B-248544, August 14, 1992

MISCELLANEOUS TOPICS Environment/Energy/Natural Resources Environmental protection Air quality Allowances Extension MISCELLANEOUS TOPICS Environment/Energy/Natural Resources Environmental protection Allowances Allocation Methods Opinion concerning legal basis for EPA's proposal to use a telephone queuing system to rank order applications for extensions from sulfur dioxide emissions limitations under acid rain provisions (section 404, 42 U.S.C. Sec.??7651c) of the Clean Air Act concludes that (1) nothing in section 404 precludes EPA from conditionally ranking allowance awards; (2) EPA's use of a telephone queuing system is within its discretion; and (3) EPS's proposal meets the statutory criteria for receiving an extension under sections 404(d)(1) and (2).

The Honorable John D. Dingell Chairman, Subcommittee on Oversight and Investigations Committee on Energy and Commerce House of Representatives

Dear Mr. Chairman:

This responds to your April 6, 1992, request that we review the legal basis for EPA's proposal to use a telephone queuing system to rank order applications for extensions of the deadline for meeting sulfur dioxide emissions limitations under the acid rain provisions of the Clean Air Act. You expressed concern that EPA's proposal is driven by the statutory phrase, "in order of receipt," instead of the statutory criteria and qualifications for obtaining an extension.

We are not in a position to evaluate the relative merits of EPA's proposal and the alternative methods it rejected. However, as explained below, we believe that EPA's proposal meets all of the statutory requirements.

Background I. Clean Air Act

Title IV of the 1990 Clean Air Act amendments establishes a program to reduce the effects of acid deposition, or rain, through reductions of sulfur dioxide at fossil fuel burning (e.g., oil and coal) utility plants. The amendments establish a plan for cutting sulfur dioxide emissions by 10 million tons from 1980 levels through a system of marketable allowances. Each allowance gives the facility unit holding it permission to emit one ton of sulfur dioxide.

Reductions of sulfur dioxide emissions are to be achieved in two phases. Under Phase I, starting in 1995, the act prohibits utility units listed in the act from emitting sulfur dioxide over the annual tonnage allowances established for that unit. As will be explained more fully below, utilities can apply for an extension of the deadline for meeting this requirement. (In Phase II, further reductions by a broader group of utilities will be required. Phase II is not applicable to the issues in this opinion.)

Table A of section 404 of the Clean Air Act, 42 U.S.C. Sec. 7651c, Table A, lists the 111 utility units covered by Phase I with their initial allowances. In addition to the initial allowances, EPA may establish a reserve of up to 3.5 million allowances. Procedures for allocating these allowances are provided under section 404(d), 42 U.S.C. Sec. 7651c(d).

Under section 404(d), the owner or operator of a unit may, in its permit application under section 408, 42 U.S.C. Sec. 7651g, apply to EPA for a 2- year extension of the 1995 Phase I deadline. A unit granted an extension would obtain additional allowances to emit sulfur dioxide for the 2-year period. To qualify for an extension, the unit must meet certain requirements. For example, it must use a qualifying phase I technology or transfer its emissions reduction obligation to a unit that does. Clean Air Act, Sec. 404(d)(1). The extension proposal must, among other things, specify information concerning the unit's projected emissions rate and the number of allowances expected to be needed. In addition, the proposal must include a copy of an executed contract, which may be contingent upon EPA's approving the proposal, for installing the qualifying technology. Clean Air Act, Sec. 404(d)(2). Section 404(d)(3) directs EPA to take final action on each extension proposal "in order of receipt, consistent with section 408 . . . ."

II. EPA's Proposed Regulation

EPA expects that many utilities will apply for allowances in a short period of time and that the 3.5 million allowances will be oversubscribed. Thus, EPA has proposed an early ranking procedure to decide the order in which it will act on the applications. The EPA proposal calls for a telephone queuing system to distribute the 3.5 million allowances in the "order of receipt." According to EPA, such a telephone system can rank the order of incoming calls by milliseconds. 56 Fed. Reg. 63002, 63040 (December 3, 1991).

Under the proposal, EPA would publish a notice with instructions for participating in the telephone queuing procedure. The notice would include procedures for registering an identification number with EPA and obtaining a secured telephone number to call, the date and time of the telephone queuing, and instructions on how to enter information into the system. Not later than midnight of the same business day an early ranking application is registered under the telephone queuing procedure, the utility must submit a complete written early ranking application. According to EPA, the allowances awarded under the early ranking application would be conditioned on EPA's action on the utility's permit application.

Legal Issues

EPA's proposed procedure raises the following three issues:

1. Whether EPA may decide the ranking of allowance awards before the submission of a complete proposal and permit application;

2. If so, whether EPA's proposed use of a telephone queuing system would constitute an authorized method for such ranking; and

3. Whether EPA's reliance on the statutory phrase "in order of receipt" in section 404(d)(3) was at the expense of the requirements of sections 404(d)(1) and (2).

For the reasons explained below, we believe that EPA has discretion to determine the order of receipt before it receives a complete application; that EPA's proposed use of a telephone queuing system is legally authorized; and that its proposal meets the substantive requirements of sections 404(d)(1) and (2).

Discussion

I. Ranking Allowance Awards

According to EPA's proposal, the ranking, and the allowances awarded under the ranking, would be conditional. In the preamble to its proposed regulation, EPA states:

"The ranking provided . . . would, therefore, not constitute either an approval of a proposed Phase I Extension plan or an award of Phase I Extension allowances. Thus, the ranking . . . would be presumptive, and conditional on the Administrator's review of, and action on, a complete Phase I extension plan and approvable and timely permit application . . . . Likewise, Phase I Extension allowances would be awarded pursuant to the ranking procedure on a conditional basis only. The awards would be subject to the timely submission of the permit application and compliance plan, and to yearly demonstrations that the qualifying Phase I control technology for the control unit and the source has achieved 90% removal of sulfur dioxide."

56 Fed. Reg. at 63040 (December 3, 1991).

There is precedent for EPA taking conditional action under the Clean Air Act. In Connecticut Fund for the Environment v. EPA, 672 F.2d 998 (2d Cir.), cert. denied, 459 U.S. 1035 (1982), the United States Court of Appeals for the Second Circuit held that EPA could conditionally approve a state's plan to achieve Clean Air Act standards, notwithstanding the act's requirement that EPA "approve or disapprove" such plans without specifically offering EPA the option to approve a plan conditionally. The court stated that, "an agency's power to approve conditionally is inherent in the power to approve or disapprove." 672 F.2d at 1006. The court reasoned that in the context of the Clean Air Act, conditional approval provides EPA with necessary flexibility in the administration of a complex statute. Id.

In this case, EPA views its early ranking as necessary to provide sources considering installing controls with a reasonable idea of whether they will be eligible for Phase I extension allowances, and to allow them enough time to install the qualifying technology. 56 Fed. Reg. at 63040. While section 404 does not explicitly authorize EPA to allocate allowances conditionally, we see nothing in section 404 that precludes EPA from conditionally ranking allowance awards, as long as EPA takes final action based on the substantive requirements of the Clean Air Act.

II. Authority for Telephone Queuing System

The Clean Air Act does not define "in order of receipt," nor describe how EPA is to go about determining the order of receipt under section 404. Likewise, the legislative history of section 404 does not address the issue of how "in order of receipt" is to be determined. Thus, EPA has considered a number of alternative methods to allocate allowances, including the telephone queue at issue here, a lottery, date stamp, stand- in-line, and pro rata distribution. 56 Fed. Reg. at 63040-41.

We are not in a position to evaluate the relative merits of each of these alternative methods of allocating allowances. Moreover, as a legal matter, a court generally would not substitute its judgment for that of EPA. As the United States Court of Appeals for the District of Columbia Circuit stated in a case concerning the Federal Communications Commission's selection of a method for computing rates:

"[T]he question is not whether this court, if it were examining the merits of [the alternatives considered by FCC], or any other method, as a matter of first impression, would have selected one over the others. Rather, the question is whether the FCC made a reasonable selection from the available alternatives. The court does not substitute its judgment for that of the agency, but merely confines the agency within the areas within which it may reasonably exercise its discretion. . . . And of course, the Commission has broad discretion in selecting methods for the exercise of its powers to make and oversee rates."

Aeronautical Radio, Inc. v. Federal Communications Commission, 642 F.2d 1221, 1228 (D.C. Cir. 1980), cert. denied, 451 U.S. 920 (1981). Similarly, the EPA has been held to have broad discretion in implementing the Clean Air Act. Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, reh'g denied, 468 U.S. 1227 (1984). In the absence of statutory direction, we believe that EPA's proposed use of a telephone queuing system is legally authorized as an exercise of its discretion to implement the requirements of section 404.

III. Substantive Requirements

EPA's proposal meets the statutory criteria and qualifications for receiving an extension. The proposed regulations require the written application to include information that parallels the information required by sections 404(d)(1) and (2). For example, the application must include calculations of annual emissions and a copy of an executed contract for the installation of a qualifying technology. 56 Fed. Reg. at 63115. The proposed regulations also provide that the utility must submit a permit application and compliance plan required by the subpart of the proposed regulations that implement section 408. EPA's final allocation of the Phase I extension allowances would be based on its action on the complete permit application. Thus, EPA's proposal addresses the statutory requirements of sections 404(d)(1) and (2) as well as section 408.

We hope that the foregoing is helpful. In accordance with our usual procedures, this opinion will be available to the public 30 days from its date.