DEPT OF ENVIRON. PROT. v. North American Refractories Co.

• Decision Date: 08 February 2002
• Parties: DEPARTMENT OF ENVIRONMENTAL PROTECTION, Petitioner, v. NORTH AMERICAN REFRACTORIES COMPANY, Respondent.
• Court: Pennsylvania Commonwealth Court

791 A.2d 461

DEPARTMENT OF ENVIRONMENTAL PROTECTION, Petitioner, v. NORTH AMERICAN REFRACTORIES COMPANY, Respondent.

Commonwealth Court of Pennsylvania.

Argued December 4, 2001.

Decided February 8, 2002.

Craig S. Lambeth, Harrisburg, for petitioner.

Robert L. Byer, Pittsburgh, for respondent.

Before SMITH-RIBNER, Judge, PELLEGRINI, Judge, and MIRARCHI, Jr., Senior Judge.

SMITH-RIBNER, Judge.

The Department of Environmental Protection (Department) petitions for review of an order of the Environmental Hearing Board (EHB) that sustained the appeal of North American Refractories Company (North American) and remanded its emission reduction credit (ERC) registry application to the Department for consideration on the merits. The EHB concluded that the Department erroneously denied North American's application based upon the Department's misinterpretation of a one-year deadline for applications set forth in 25 Pa.Code § 127.207(2). The EHB, however, stated in its opinion that the Department's interpretation of the regulation was reasonable. The principal issue in this appeal is whether the EHB must defer to the Department's interpretation of Department regulations when it determines that the interpretation is reasonable.

I

The EHB and the Department are two branches of the tripartite administrative structure that governs environmental regulation in Pennsylvania. The third branch of that structure is the Environmental Quality Board (EQB). The Department is the executive branch, assigned various duties to implement and enforce environmental statutes and regulations. See, e.g., Section 4 of the Air Pollution Control Act, Act of January 8, 1960, P.L. (1959) 2119, as amended, 35 P.S. § 4004. The EHB is the judicial branch, empowered to hold hearings and issue adjudications on orders, permits, licenses or decisions of the Department. Section 4 of the Environmental Hearing Board Act (EHB Act), Act of July 13, 1988, P.L. 530, 35 P.S. § 7514. Section 3(a) of the EHB Act, 35 P.S. § 7513(a), describes the EHB as "an independent quasi-judicial agency." The EQB is the legislative branch, responsible for developing a master environmental plan for Pennsylvania and empowered to formulate, adopt and promulgate rules and regulations for the Department. It is comprised of representatives from a plethora of organizations, including representatives from the Department.¹ This litigation arises from Pennsylvania's measures to prevent the formation of ozone. ERCs are a critical element of the New Source Review program that Pennsylvania adopted in response to the 1990 amendments to the federal Clean Air Act, as amended, 42 U.S.C. §§ 7401-7671q. ERCs are the currency in a market-based strategy to control the emission of air pollutants. When a business ceases to operate equipment that emits a pollutant, reduces or curtails operation of such equipment or installs more new emission controls than required by law, the business may apply for ERCs. The business may use the ERCs to offset emission increases at a new or modified facility or may trade the ERCs to another facility for use as emission offsets, and therefore ERCs have significant value. However, before ERCs may be used, they must be approved, certified and placed in a registry system by the Department. The root of the instant dispute concerns when the one-year deadline for an ERC registry application begins to run. The Department contends that the deadline begins to run when the relevant emissions reduction occurs. The EHB and North American contend that the deadline does not begin to run until the emissions reduction becomes permanent.

North American's ERC registry application requested ERCs for the shutdown of one of the two tunnel kilns at its brick refractory plant in Womelsdorf, Lebanon County. A tunnel or "continuous" kiln is "a long narrow kiln which is hottest at its middle portion and through which ware travels on cars or conveyor." Webster's Third New International Dictionary 494 (1993). The No. 1 tunnel kiln at the Womelsdorf plant was constructed in 1969, and the No. 2 tunnel kiln was constructed in 1974. From 1993 through 1997, the No. 1 tunnel kiln was used intermittently due to market conditions. When the No. 1 tunnel kiln was restarted in March 1997, the No. 2 tunnel kiln was taken down for a planned rebuild. That rebuild commenced in April 1997, but the rebuild ceased in July 1997 when North American began evaluating whether it should move the operations to its Becanour, Quebec facility.

In October 1998 North American decided to cancel the rebuild and permanently shut down the No. 2 tunnel kiln, and the kiln has not been operated since March 1997. North American filed its ERC application on August 26, 1999. The Department denied the ERC application as untimely based upon 25 Pa.Code § 127.207(2) because the application was filed more than one year after North American shut down the No. 2 tunnel kiln. Section 127.207(2) provides as follows:

For facilities subject to this subchapter, an ERC registry application shall be submitted to the Department within 1 year of the initiation of an emissions reduction used to generate ERCs. Facilities or sources not subject to this subchapter shall submit a registry application and receive Department approval prior to the occurrence of an emissions reduction.

In its appeal to the EHB, North American argued that its August 1999 application was timely because the application was filed within one year of the October 1998 date when it decided that the shutdown would be permanent.

After conducting a two-day evidentiary hearing, the EHB determined that the Department's interpretation of Section 127.207(2) was reasonable, but the EHB also determined that North American had advanced a reasonable alternative interpretation. The EHB stated as follows:

There is no question in our minds that Section 127.207(2) is reasonably capable of being understood in at least two different ways. The regulation could mean that any actual reduction in emissions triggers the one-year period. The regulation could mean that only an emissions reduction that may be `used to generate ERCs' triggers the one-year period. We view both interpretations advanced by the parties as reasonable.

EHB's opinion, at pp. 8-9.

The EHB rejected the Department's argument that the EHB must follow the Department's interpretation unless that interpretation is clearly erroneous. To the extent that the EHB had previously applied such a standard, the EHB overruled the applicable portion of those cases. The EHB recognized that "[t]he Department is frequently more knowledgeable than any other party and its interpretation is entitled to great weight." Id. at p. 10. Nevertheless, the EHB determined that the Department's interpretation was due no greater deference than the interpretation of any other party. The EHB wrote: "The Department's proposed interpretation is very important to us, but so is an appellant's or any other party's for that matter." Id. at p. 9 (emphasis added).

After finding inconsistencies in the testimony it heard from Department employees involved in the drafting process, the preamble to the regulations and the manner in which the Department had implemented the regulation, the EHB turned to considerations of reasonableness and policy to interpret the regulation. The EHB noted that Section 127.207(5) requires that an emissions reduction be "permanent" before it can be used to generate ERCs. The EHB reasoned that requiring an operator to apply for ERCs before the operator has decided to make the emissions reduction permanent would be unreasonable because the application could not possibly succeed. In terms of policy, the EHB determined that it should prefer an interpretation that favors the creation of ERCs, and consequently it accepted North American's argument as more convincing than the Department's argument. The EHB concluded that the application was filed within one year of the date when North American committed "to initiate an emissions reduction technique that would support a successful ERC application," i.e., within one year of the date when North American decided to permanently shut down the No. 2 tunnel kiln. Id. at p. 23. Two judges filed dissenting opinions, including the chair of the EHB.²

II

Well-settled precedent establishes that courts defer to an administrative agency's interpretation of its own regulations unless that interpretation is unreasonable. Pelton v. Department of Public Welfare, 514 Pa. 323, 523 A.2d 1104 (1987). The task of the reviewing court is limited to determining whether the agency's interpretation is consistent with the regulation and with the statute under which the regulation was promulgated. Id. The United States Supreme Court has referred to this deference as the interpretive lawmaking power of administrative agencies and has characterized it as a "necessary adjunct" of the authority to promulgate and enforce regulations. Martin v. Occupational Safety and Health Review Commission, 499 U.S. 144, 152, 111 S.Ct. 1171, 1176, 113 L.Ed.2d 117, 129 (1991). The dispute in this case concerns whether the Department or the EHB ought to possess the power to authoritatively interpret environmental regulations.

In Martin the United States Supreme Court confronted the same issue that is currently before this Court: the Supreme Court had to decide to whom a reviewing court ought to defer when two actors, assigned different roles by statute, furnish reasonable but conflicting interpretations of an ambiguous regulation. The statute at issue in Martin assigned one actor responsibility for rule-making and enforcement functions (administrative actor). A different actor was assigned responsibility for adjudicative functions (adjudicative actor). After analyzing legislative intent and the reasons for granting deference to an administrative agency's interpretation of its own regulations, the Court concluded that the legislature did not...