## Facts

- Congress enacted Title IV of the Clean Air Act Amendments of 1990 to reduce acid rain by creating a market in tradable sulfur dioxide (SO₂) emission allowances.
- Title IV required EPA to allocate SO₂ allowances for electric generating units in two phases using detailed statutory tables and formulas; allowances could be traded and each represented authorization to emit one ton of SO₂ per year.
- EPA issued a final rule setting Phase II allowance allocation tables for the year 2000 and beyond.
- Madison Gas & Electric Co. (MG&E), whose coal-fired unit had long burned low-sulfur western coal, argued that the statutory baseline methodology disadvantaged “clean” utilities that reduced emissions before the 1990 amendments.
- City of Springfield, Illinois, City Water, Light and Power (CWLP), a municipal utility, also contended that EPA’s allocations under-counted allowances for its units based on disputes about unit treatment and historical operating data.
- MG&E and CWLP filed petitions for review of EPA’s final action in the Seventh Circuit; the petitions were consolidated.

## Issues

1. Whether EPA’s Phase II SO₂ allowance allocations to MG&E and CWLP were arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
2. Whether EPA had authority, or a legal duty, to adjust Congress’s allowance formulas to address claimed inequities for utilities that reduced emissions before Title IV.

## Decision

- The Seventh Circuit denied the petitions for review and upheld EPA’s allowance allocations.
- The court held that Title IV’s allowance scheme is highly prescriptive, leaving EPA largely to apply Congress’s detailed instructions rather than redesign the allocation approach.
- The court rejected MG&E’s request for additional allowances based on its pre-1990 use of low-sulfur coal, concluding any disadvantage stemmed from Congress’s choice of historical baselines, not from EPA error.
- The court upheld EPA’s unit-specific determinations challenged by CWLP, finding EPA’s implementation reasonable where the statute left interpretive room.
- The court concluded petitioners’ arguments were primarily objections to the statute’s policy consequences rather than to unlawful agency action.

## Legal Principles

- When Congress specifies a detailed regulatory formula, an agency generally lacks authority to create ad hoc equitable adjustments that depart from the statutory design.
- Judicial review of EPA action under the Clean Air Act and APA asks whether the action was arbitrary, capricious, an abuse of discretion, or contrary to law; courts do not reweigh Congress’s policy choices.
- Where statutory text leaves ambiguity in implementation details, EPA’s reasonable interpretation is upheld (consistent with Chevron-style deference).
- Alleged unfairness produced by Congress’s baseline choices does not justify judicially compelled or agency-created revisions absent statutory authorization.

## Conclusion

The court upheld EPA’s SO₂ allowance allocations because Title IV tightly constrained agency discretion and did not authorize individualized, fairness-based departures from the statutory allocation formulas; challenges grounded in the statute’s distributional effects were for Congress, not EPA or the courts.


Madison Gas & Elec. Co. v. EPA, 25 F.3d 526 (7th Cir. 1994)