American Paper Institute, National Forest Products Association, James River Paper Company, Georgia-Pacific Corporation, the Mead Corporation, Westvaco Corporation, Weyerhaeuser Company, St. Regis Paper Company, Union Camp Corporation, Boise Cascade Corporation, and the Corn Refiners Association, Inc., Miller Brewing Company, the Great Western Sugar Company, Intervenors v. United States Environmental Protection Agency and Douglas M. Costle, Administrator, American Frozen Food Institute v. United States Environmental Protection Agency and Douglas M. Costle, Administrator, National Food Processors Association v. United States Environmental Protection Agency, Tanners' Council of America, Incorporated v. United States Environmental Protection Agency and Douglas M. Costle, Administrator, Frozen Potato Products Institute v. United States Environmental Protection Agency and Douglas M. Costle, Administrator, American Textile Manufacturers Institute, Inc. v. United States Environmental Protection Agency and Douglas M. Costle, Administrator, Champion International Corporation, Potlatch Corporation, the Proctor & Gamble Paper Products Company v. United States Environmental Protection Agency and Douglas M. Costle, Administrator, Chemical Manufacturers Association, American Cyanamid Company, Arizona Chemical Company, J. T. Baker Chemical Company, E. I. Du Pont De Nemours & Company, Fmc Corporation, Glyco Chemicals, Inc., the Goodyear Tire & Rubber Company, Mallinckrodt, Inc., Northern Petrochemical Company, Olin Corporation, Stauffer Chemical Company, Union Carbide Corporation v. United States Environmental Protection Agency

The petitioners in these consolidated cases seek judicial review of the actions of the Administrator of the Environmental Protection Agency (EPA) in issuing regulations pursuant to section 304(b)(4)(B) of the Clean Water Act ("the Act")1 promulgating effluent water limitations controlling conventional pollutants2 from private industrial sources in accordance with section 301(b)(2)(E) of the Act.3 This court is vested with the responsibility and authority for making a pre-enforcement examination of the EPA guidelines by section 509(b)(1)(E) of the Act.4

Although the petitioners challenge the best conventional technology (BCT) regulations issued pursuant to section 304(b)(4)(B), their primary objection is to the methodology used by the Administrator in promulgating the regulations. In particular, the petitioners contend that Congress in section 304(b)(4)(B) mandated that EPA incorporate two main factors in its methodology for determining BCT: an industry cost-effectiveness test and a test that compares the cost for private industry to reduce its effluent levels with that incurred by publicly owned treatment works (POTWs) for a similar purpose. The petitioners assert that EPA considered only the latter factor and that EPA's benchmark for this latter factor was arbitrary and capricious. Some of the other challenges that the petitioners raise are that EPA used statistically unreliable and internally inconsistent data, and that it deprived petitioners of their right to comment.5 We hold that all the regulations promulgated pursuant to section 301(b)(2)(E) must be invalidated on the ground that EPA did not consider all the factors mandated by section 304(b)(4)(B).6 The only other contention that has merit is that the data on which EPA relied in formulating its POTW benchmark are statistically unreliable.I. BACKGROUND

In 1972, Congress amended the Federal Water Pollution Control Act7 to establish a timetable for achieving certain water pollution control objectives. Congress declared as its policy that the discharge of pollutants in our nation's navigable waters "be eliminated by 1985." 33 U.S.C. § 1251(a)(1). With respect to private industrial sources, such as these petitioners, this achievement was to be accomplished in two stages: an interim level of control effective in 1977, and a final level effective in 1983. The 1977 standard was designated "best practicable technology" (BPT) and the more stringent 1983 standard was "best available technology" (BAT).

Five years later Congress undertook to re-examine these standards. Ultimately, the Federal Water Pollution Control Act was amended again, and the Act as amended became known as the Clean Water Act.8 Under the Clean Water Act, the 1977 requirements (BPT) were left intact, but changes were made in the 1983 requirements (BAT). As part of these changes, Congress established various standards and schedules for three classifications of pollutants: (1) conventional pollutants; (2) toxic substances; and (3) non-conventional non-toxic pollutants not otherwise classified. 33 U.S.C. § 1311. The strict BAT standards were retained for toxic pollutants known to be dangerous and for non-conventional non-toxic pollutants, the effects of which are uncertain, but the effective date for both categories was delayed.

While the parties disagree over precisely what Congress intended to do when it enacted the 1977 amendments to the Act and draw markedly different conclusions from the language of the amendments and the legislative history, it is clear that Congress felt that the results produced by the BPT had provided a high degree of water quality improvement, and that in some instances, BAT for conventional pollutants about which much was known might require treatment not deemed necessary to meet the 1983 water quality goals of the Act.9 Concern was expressed about requiring "treatment for treatment's sake,"10 and there was much discussion about comparing the cost of treatment with the benefits obtained from the reductions achieved.

Out of this came the development of a new standard, best conventional pollutant control technology (BCT). The new requirement was described by one Senate-House conferee as "the equivalent of best practical technology or something a little bit better, even as far as best available technology in some circumstances."11

In directing EPA to promulgate regulations concerning BCT standards, Congress passed section 304(b)(4)(B) of the Act, which provides in part:

Factors relating to the assessment of best conventional pollutant control technology (including measures and practices) shall include consideration of the reasonableness of the relationship between the costs of attaining a reduction in effluents and the effluent reduction benefits derived, and the comparison of the cost and level of reduction of such pollutants from the discharge from publicly owned treatment works to the cost and level of reduction of such pollutants from a class or category of industrial sources, and shall take into account the age of equipment and facilities involved, the process employed, the engineering aspects of the application of various types of control techniques, process changes, non-water quality environment impact (including energy requirements), and such other factors as the Administrator deems appropriate. 33 U.S.C. § 1314(b)(4)(B).

In addition, in section 73 of the 1977 amendments, Congress directed EPA to "review every effluent guideline promulgated prior to the enactment of this Act which is final or interim final."12 This required review of all outstanding BAT limitations for conventional pollutants for all secondary industrial sources within 90 days after the effective date of the amendments.

Pursuant to this Congressional directive, EPA proceeded to carry out its duties. On August 23, 1978, proposed rules were published relating to 13 secondary industry categories. These rules also contained a methodology for determining the reasonableness of any proposed effluent limitation under the BCT criteria. Critical comments were received, and on April 2, 1979, a notice was published indicating that the use of two additional documents was being considered for the data contained therein and that such data might be used in the future for computing the costs and levels of pollutants from POTWs.13 EPA published its final BCT determinations on August 29, 1979, and the petitioners filed these petitions on May 9, 1980, thus presenting these final regulations for our review.

EPA's position is that Congress did not require it to utilize an industry cost-effectiveness test, but instead only mandated a POTW cost comparison standard in arriving at BCT regulations for industry. In interpreting section 304(b)(4)(B), EPA concludes that the proposed effluent guidelines are not required to pass two reasonableness tests. In support of its position, EPA reads the seemingly dual requirements of section 304(b)(4)(B) as one, commanding only a consideration of reasonableness. It contends that the second clause in the relevant portion of section 304(b)(4)(B) sets forth the benchmark of reasonableness a comparison of the proposed BCT cost and level of effluent reduction for industry to the cost and level of reduction from the discharge of POTWs.14

We are unable to accept this suggested statutory interpretation. When faced with such a question, our starting point for discerning congressional intent is the words of the statute itself. See American Textile Manufacturers Institute, Inc. v. Donovan, --- U.S. ----, ----, 101 S.Ct. 2478, 2489, 69 L.Ed.2d 185 (1981); State Water Control Board v. Train, 559 F.2d 921, 924-25 n.20 (4th Cir. 1977). The law which empowers EPA to act directs that EPA's effluent regulations "shall ... specify factors to be taken into account in determining the best conventional pollutant control technology measures and practices to comply with section 1311(b)(2)(E) of this title to be applicable to any point source (other than publicly owned treatment works) within such categories or classes." 33 U.S.C. § 1314(b)(4)(B). Congress did not leave EPA free to select these factors. The statute continues:

Factors relating to the assessment of best conventional pollutant control technology ... shall include consideration of the reasonableness of the relationship between the costs of attaining a reduction in effluents and the effluent reduction benefits derived, and the comparison of the cost and level of reduction of such pollutants from the discharge from publicly owned treatment works to the cost and level of reduction of such pollutants from a class or category of industrial sources. Id. (emphasis added)

We find the language of this statute to be clear and straightforward. We thus find no reason to resort to additional rules of statutory construction or to rely on the legislative history, which has minimum probative value because of the numerous conflicts contained therein.

EPA's construction of section 304(b)(4)(B) is contrary to the plain meaning of the words contained therein. EPA ignores the mandatory language of the law ("shall"), disregards the conjunctive ("and"), and completely eliminates the first factor. By its own admission, the agency made no effort to determine what it would cost an affected industry to remove a pound of pollutant past the BPT level nor did it compare the cost of such removal with the benefits derived from the removal,15 as specifically required by statute. See American Textile Manufacturers Institute, Inc. v. Donovan, --- U.S. ----, ---- & n.30, 101 S.Ct. 2478, 2489 & n.30, 69 L.Ed.2d 185 (1981).

This court has made it clear that EPA must be held to a standard of at least literal compliance with the language of a statute which it is authorized to implement. Appalachian Power Co. v. Train, 545 F.2d 1351, 1357 (4th Cir. 1976). Where, as here, the language of the Act is unambiguous and EPA has failed to comply with its directives, we must grant the petitions to set aside the regulations involved and remand the regulations to EPA for reconsideration. On remand EPA is to develop an industry cost-effectiveness test in accordance with the provisions of section 304(b)(4)(B), employ that test in a manner consistent with the statute, and re-examine all existing BCT regulations to ensure that they are not inconsistent with the proper employment of this industry cost-effectiveness test.

The petitioners also challenge the action of EPA in the formation and application of the POTW comparison test. They argue that EPA erred in using an incremental approach, i. e., one going beyond the cost of normal secondary treatment for POTWs, in arriving at a POTW benchmark. They also contend that even if EPA were permitted to use an incremental POTW comparison, it acted arbitrarily and capriciously because the increment was too large to comply with congressional intent. The petitioners also object to the POTW cost data as being inadequate and statistically unreliable. We reject each of these challenges, except the one directed to the errors in the cost data.

For rule making procedures conducted pursuant to Section 4 of the Administrative Procedure Act, 5 U.S.C. § 553, as these were, we must strike "agency action, findings, and conclusions" that we find to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). In discussing the scope of judicial review under similar circumstances, this court has emphasized that "(t)he ultimate standard of review is narrow. This court is not empowered to substitute its judgment for that of the agency." Consolidation Coal Co. v. Costle, 604 F.2d 239, 243 (4th Cir. 1979), rev'd on other grounds sub nom., EPA v. National Crushed Stone Association, 449 U.S. 64, 101 S.Ct. 295, 66 L.Ed.2d 268 (1980). Our court has also stressed that "(i)n evaluating the course of conduct employed by the EPA, we must, of course, bear in mind that Congress vested that agency with the power to choose among alternative strategies." Appalachian Power Co. v. Train, 545 F.2d 1351, 1356 (4th Cir. 1976). Under the arbitrary and capricious standard of review, agency action is presumed to be valid, and we must uphold the agency's decision if it is rationally based. Ethyl Corp. v. EPA, 541 F.2d 1 (D.C.Cir.), cert. denied, 426 U.S. 941, 96 S.Ct. 2663, 49 L.Ed.2d 394 (1976).

The petitioners specifically argue that EPA erred in concluding that it was appropriate to consider the cost of upgrading POTWs beyond secondary treatment.16 The petitioners object to the POTW benchmark for several reasons because: (1) secondary treatment is the only specifically defined treatment level that POTWs are required by law to meet;17 (2) advanced secondary treatment (AST),18 the increment which EPA chose, was not in existence when Congress enacted section 304 of the Act; and (3) the legislative history indicates that the POTW benchmark should be based on the average cost of normal secondary treatment.

We reject the petitioners' contentions. Section 304(b)(4)(B) explicitly authorizes EPA in establishing BCT limitations to compare "the cost and level of reduction of such pollutants from the discharge from publicly owned treatment works to the cost and level of reduction of such pollutants from a class or category of industrial sources." This controlling statute unequivocally directs EPA to employ a POTW comparison test. Contrary to the suggestions, we find nothing on the face of the statute or in the legislative history to suggest that Congress intended for EPA to use a specific POTW benchmark.19 Although Congress specifically directed the use of this comparison test, it did not issue any instructions as to how EPA was to structure or administer the test.

EPA considered a number of ways in which a POTW test could be formulated. 43 Fed.Reg. 37,572 (1978). One of the suggestions was that the POTW benchmark be based on the average pollutant removal costs for secondary treatment at POTWs, i. e., the increment from no treatment to secondary treatment. 43 Fed.Reg. 37,572 (1978). In addition to looking at average POTW costs for secondary treatment, EPA considered various incremental approaches below secondary treatment.20 EPA rejected these proposals primarily because it felt that a proper POTW benchmark should be one roughly paralleling that with which it is to be compared the industrial increment from BPT to BAT. Whereas industry was required to be at a BPT level in 1977, POTWs were required to have met effluent limitations based upon secondary treatment by 1977. EPA believed that a relevant basis of comparison for POTWs would be at an incremental level beyond secondary treatment since BCT would be at a level at least equal to BPT and in many cases beyond BPT. EPA considered several such increments.21 After a careful consideration of various alternatives, EPA adopted a test employing a comparison of the cost of upgrading POTWs from secondary treatment levels. The selection of this upgrade comparison does not do violence to the language of the statute, and we do not find it to be arbitrary or capricious.

Not only do the petitioners object to an incremental POTW benchmark, but they also object specifically to the use of the increment from secondary to AST as being too costly. In essence, the petitioners contend that even if EPA were permitted to use an incremental POTW benchmark, it should have used a narrower increment, one that more closely straddles the marginal cost of secondary treatment.

We reject this contention. We cannot substitute our judgment for that of EPA and condemn EPA for not choosing what we may consider to be the best increment. See Ethyl Corp. v. EPA, 541 F.2d 1, 36 (D.C.Cir.), cert. denied, 426 U.S. 941, 96 S.Ct. 2663, 49 L.Ed.2d 394 (1976). While we are obligated to scrutinize the record, particularly in a complex technical case such as this one, "(w)e must look at the (agency's) decision not as the chemist, biologist or statistician that we are qualified neither by training nor experience to be, but as a reviewing court exercising our narrowly defined duty of holding agencies to certain minimal standards of rationality." Id.

EPA initially proposed comparing the incremental costs of removal from industrial plants with the incremental costs of removal from POTWs of a similar flow. EPA based its proposal on separate and distinct technologies for small and large POTWs and arrived at POTW cost-effectiveness ratios at an increment progressing from normal secondary treatment at 30 mg/1 each of BOD and TSS to better secondary treatment defined as 12 mg/1 each of BOD and TSS. 43 Fed.Reg. 37,571-72 (1978).

Both the Corn Refiners Association, Inc. (hereinafter the Corn Refiners) and the Council on Wage & Price Stability (CWPS) made suggestions on the calculation of an incremental POTW cost standard. The Corn Refiners condemned the proposed incremental flow reduction from 30 mg/1 to 12 mg/1 as too unrealistic and objected that such a reduction was based on chemical addition technology which encompasses higher costs than some other methods because of its higher purchase, storage, and disposal costs. The Corn Refiners recommended using a POTW increment based on an improved sedimentation technology. Memorandum: "Comments on the Agency's Proposed 'BCT' Limitations," from Corn Refiners Association, Inc. to EPA (Dec. 7, 1978) at 33-40, App. at 498-505. The Corn Refiners also recommended using POTW incremental costs based on a microscreen filtration technology. Id. at 50-55, App. at 515-20.

Unlike the Corn Refiners, the CWPS did not object to the proposed increments as being too large or too unrealistic. The CWPS' recommendations were aimed at achieving the same level of cleanup that EPA had proposed at a lower overall cost. Instead of EPA using a flow basis of comparison, the CWPS recommended that EPA utilize a flow weighted average of marginal costs for POTWs "computed as the weighted average of the incremental cost per pound removed by POTWs of different size, where the weighting factor is the number of plants operating at a particular flow rate multiplied by that flow rate." Comments of the Council on Wage & Price Stability to EPA (Dec. 7, 1978) at 8, 21, App. at 447, 459. The CWPS also recommended that EPA use as its basis a different technology from that proposed. The CWPS suggested a technology based on increases in sedimentation area; yet, it is not clear as to the sources on which CWPS relies.22

As indicated by the above comments of the Corn Refiners and the CWPS, there may be any number of increments based on slightly different technology or slightly different sizes of a given technology that EPA could have used. It is clear from the record that EPA was not oblivious to these comments.23 Instead of using POTW cost reasonableness figures based on specific separate and distinct technologies employed by small and large POTWs, as it had proposed initially, in its final rules, EPA used a single POTW cost reasonableness figure based on the average of all cost-effective technologies used by POTWs operating beyond secondary treatment, but employing basic secondary treatment technology.

We cannot conclude that EPA acted arbitrarily and capriciously in choosing AST as the increment beyond secondary treatment for the POTW benchmark. While EPA sought to use an increment that narrowly straddled secondary treatment, i. e., one that closely approximated marginal cost, and although it admitted its failure to find the narrowest increment that would have more closely approximated marginal cost, there is no statutory mandate requiring EPA to use an increment that equals marginal cost.

EPA has rationally justified its use of the AST increment. AST is the "knee-of-the-curve" point, the maximum cost-effective level of control for POTWs. The increment from secondary treatment to AST for POTWs was also determined by EPA to be roughly analogous to the industrial increment from BPT to BAT. While comments received by EPA have suggested that there may have been a narrower increment that EPA could have used, the suggestions by the commentors imply that EPA would have had to limit itself to a specific POTW technology to arrive at a smaller increment.

We are unwilling to place a straitjacket on EPA to so limit its decision making process. We find that EPA made its decision on its POTW comparison after it fully considered various alternatives, and that its decision is rationally based. We thus conclude that EPA's choice of an increment for POTWs from secondary treatment to AST was neither arbitrary nor capricious.

The petitioners also challenge the POTW benchmark on the grounds that the POTW cost data upon which it was based are inadequate, statistically unreliable, and internally inconsistent. Recently, we have been apprised that EPA confesses error in the data in the two documents on which it relied in formulating its POTW benchmark.24 EPA has moved this court for a voluntary remand, and the petitioners do not contest the propriety of a remand solely to allow EPA to correct its data errors. Under these circumstances, therefore, we find it proper to remand this aspect of the case to EPA, but only for the purpose of allowing it to correct its data errors and to revise its BCT figures accordingly.25

We find no merit to the petitioners' other challenges. Accordingly, we vacate the regulations promulgated pursuant to section 304 of the Act. We remand this action to the agency with instructions to devise a cost-effectiveness test in accordance with the guidelines of this opinion and to correct its data errors.

AFFIRMED IN PART, REVERSED IN PART AND REMANDED.

PHILLIPS, Circuit Judge, concurring and dissenting:

I concur in the court's opinion save for Part II. A. dealing with the "cost effectiveness test." As to that I respectfully dissent.

The gist of the court's opinion on this point is that in 33 U.S.C. § 1314(b) (4)(B) Congress unambiguously required the Administrator to use a precise two-part test in formulating BCT regulations. The critical language of this statutory provision is characterized in the majority opinion as "clear and straightforward" and "unambiguous" on the point so that we need not resort to legislative history in divining its meaning and in holding EPA "to a standard of at least literal compliance" with its "plain meaning." I simply disagree with this threshold assessment of the clarity of the statutory directive.

To my reading it is instead at least sufficiently ambiguous to drive us first to the relevant if concededly inconclusive legislative history properly identified by the court and from that source to the standard of judicial review which compels us to give great respect and deference to contemporaneous agency interpretations of uncertain language in statutes defining agency powers and duties. See Power Reactor Development Co. v. International Union of Electrical, Radio and Machine Workers, 367 U.S. 396, 408, 81 S.Ct. 1529, 1535, 6 L.Ed.2d 924 (1961); Fawcus Machine Co. v. United States, 282 U.S. 375, 378, 51 S.Ct. 144, 145, 75 L.Ed. 397 (1931).

Attempting, as does the court, to divine the provision's plain meaning by parsing the convoluted key sentence only reveals, I suggest, that it will not effectively parse.26 It is true that the two critical clauses from which the two-pronged test requirement is found by the court are phrased in the conjunctive, implying that they express parallel thoughts. But a look at their content reveals that they can only be made parallel in thought by importing into the first clause a phrase, "by means of an industry cost-effectiveness test," that is not literally or plainly there. Without that imported language actually a construct out of whole cloth by the petitioners that has the happy effect of resolving the issue in their favor the first clause simply lays down reasonableness of the cost/benefit relationship as a general standard for formulating the BCT regulations rather than positing, as the second clause surely does, a specific test by which reasonableness is to be gauged.27 This, of course, is the way EPA interpreted it; it seems obviously to have been Senator Muskie's understanding; and it is at least arguably that of Representative Roberts, based upon the extracts from the legislative history cited by the majority.

Indeed, were we compelled judicially to find plain meaning in the literal language one way or the other, the "plainer" meaning to me is that given it by the agency. The most internally consistent reading for me is this: EPA is directed in devising BCT regulations to take as its lodestar the imposition of no further requirements (beyond those imposed by BPT) than can be justified by demonstrating a reasonable relationship between the costs incurred and the benefits to be achieved through compliance, looking always to the end goal of total elimination of pollutant discharges by 1985. In testing reasonableness of the cost/benefit relationship, EPA must compare because it affords a convenient and trustworthy cost/benefit relationship for comparison the experience in effluent level reductions had by publicly owned treatment works, and must as well take into account such obvious factors as age of equipment, etc.

But of course we are not compelled to find a plain meaning, and as indicated, I do not believe it exists. As between alternative possible meanings, with legislative history inconclusive (though in my view favoring EPA's interpretation), I would defer to the agency's interpretation as a wholly reasonable, certainly not arbitrary or capricious, one. See 5 U.S.C. § 706(2) (A); Unemployment Compensation Commission of Alaska v. Aragan, 329 U.S. 143, 153-54, 67 S.Ct. 245, 250, 91 L.Ed. 136 (1946). On this basis I would remand solely for the purpose of correcting the confessed data errors in setting the POTW benchmark, and let the agency get on with a critical task entrusted to it in 1977 with an implicit mandate at that time to complete it within a ninety day period28 now long since passed.