A CONSTITUTIONAL DEFENSE TO EPA ADMINISTRATIVE COMPLIANCE ORDERS Presented to the Annual Legal Conference American Public Power Association San Francisco, California November 9, 2004 By Carlos C. Smith General Counsel, Chattanooga EPB Member, Miller & Martin PLLC ( )

This presentation by Carlos C. Smith is a discussion of legal issues that arose in or relate only to a specific and now concluded case in the United States Court of Appeals and on which the United States Supreme Court denied EPA’s petition for certiorari, and to no other pending or future case or controversy. The views and opinions in this presentation do not necessarily represent the views of The Tennessee Valley Authority (“TVA”) nor the clients of Miller & Martin, PLLC. All rights reserved in, and copyright of, the logo of “EPB” as the property of the Electric Power Board of Chattanooga. Illustrated drawings in the presentation are the property of the Tennessee Valley Authority, which reserves all rights in and to such illustrations.

What the Case Was and Was Not TVA and Chattanooga EPB and Other Parties Not Opposed to Clean Air and Good Environmental Practices Focus of Chattanooga EPB and Petitioners Was: –The Unfairness of the Proceedings, EPA’s Sudden Change of the Rules Without Notice, Without A Rule Making and Without an Opportunity to Comment On Proposed Rule Changes; AND –EPA’s Blatant Disregard of Constitutional Rights of Those With Whom It is Charged To Regulate

TVA’s Generation Capacity Available to Chattanooga EPB and Other Distributors Hydroelectric 16,103 MW Coal Fired 90,975 MW Nuclear 43,167 MW Combustion Turbine 817 MW Other 15 MW Total 151, 077 MW

TVA’s Generation Capacity Yellow = Coal Fired Plants

Coal-Fired Plant Schematic

The Billion Dollar Dispute TVA started 14 rehab projects at 9 coal- fired plants over 20 year period, beginning in late 1970s TVA did not obtain Clean Air Act pre- construction permits for the projects TVA had concluded that rehab projects were exempt from NSPS and NSR regs as routine repairs and replacement In November, 1999 EPA Cites TVA

EPA’s Enforcement Action EPA Issues ACO on November 3, 1999 ACO found TVA modifications violated provisions in Clean Air Act ACO directed TVA –Take several remedial measures –Propose schedule for obtaining permits –Propose schedule for installing pollution controls that should have been installed when modifications constructed

EPA Enforcement Order ACO required TVA to audit and disclose any other unpermitted modifications to its plants ACO stated TVA’s failure to comply may result in administrative action for relief including civil penalties EPA refused TVA’s request that order be withdrawn

The End: Final Appellate Decision CAA Unconstitutional To Extent Mere Noncompliance With ACO Can Be Basis For Imposition of Severe Civil and Criminal Penalties ACOs Lack Finality – Not Reviewable By Courts EPA Must Prove CAA Violation In District Court If Seeking Civil or Criminal Enforcement

The Beginning: The EPA “Hearing” Prelude EPA decided TVA’s maintenance and repair projects from 1982 to 1996 were not “routine maintenance” EPA believed projects were subject to NSR and NSPS under various State Implementation Plans (SIP) EPA to TVA, : “’Fess Up!” and Sign Compliance Agreement For Your Sins (Paraphrasing)

TVA’s Response to EPA Alleged “Modifications” were routine maintenance as contemplated by CAA Claimed no increased emissions due to alleged “modifications” Claimed EPA changed rules after more than two decades Claimed EPA violated fair notice concepts and administrative common law

EPA’s Continued Push During series of negotiations EPA amended its ACO six times TVA maintained steadfastly it did no wrong EPA decided rather than further amend, it “reconsidered” its earlier ACOs and decided, indeed, “adjudicated” that TVA violated CAA; but Whitman delegated the “reconsideration” to Environmental Appeals Board

The EPA “Hearing” At instruction of EAB, ALJ made no findings of fact or law Discovery effectively not available ALJ would not issue subpoenas for TVA; TVA not allowed to take several critical depositions; TVA got privilege log only after “hearing” completed ALJ limited testimony at hearing at request of EPA Administrator

The EPA “Hearing” ALJ made up, or “invented” the rules of the hearing process on an ad hoc basis as case proceeded ALJ Refused to Apply EPA’s Rules of Practice, including sustaining EPA’s objections to TVA’s discovery request ALJ considered the ACO similar to a “complaint” and allowed EPA to supplement the record in the proceeding

Financial Importance to Distributors TVA wholesale power contract retains for TVA authorization to adjust rates upon 90 days’ notice Potential rate increase of 14% in wholesale rates if EPA prevailed Distributors had no notice of EPA’s intended actions

The Judicial Review ALJ Review To Court of Appeals Petitioners: –Tennessee Valley Authority – Distributors of TVA Power: Chattanooga EPB Memphis LGW Tennessee Valley Public Power Association Volunteer Energy Cooperative Middle Tennessee Electric Membership Corporation North Georgia Electric Cooperative

Eleventh Circuit’s Opinions Two opinions –Tennessee Valley Authority v. U.S.,E.P.A., 278 F.3d 1184 (2002) –Tennessee Valley Authority v. Whitman, 336 F.3d 1236 (2003) – Cert. Den., Leavitt et. al. vs. Tennessee Valley Authority, U.S. Sup. Ct., May 3, 2004 Court concluded that CAA unconstitutionally delegates judicial power to a non-Article III tribunal No “finality” by ALJ permitting Judicial Review

Are EPA’s ACOs Dead On Arrival? “…ACOs are legally inconsequential and do not constitute final agency action.” Tjoflat, C.J., 11 th U.S. Ct.App. ACOs issued: –Without Adjudication That CAA Has Been Violated –EPA Decides On Basis of “Any Information” – A Less Rigorous Standard Than The Probable Cause Standard

Are EPA ACOs Dead On Arrival? ACOs Have Status Of Law ACOs, Infinitely Effective, Result In Civil and Criminal Penalties For Non-Compliance EPA Typically Makes No Record Of The Proceeding Because ACOs Are Unconstitutional, There Is No “final agency action” For A Court To Review 11 th Circuit: Described TVA Case As “Bizarre” Direct Judicial Enforcement Is An EPA Option