Hermes Consolidated, LLC v. Environmental Protection Agency
415 U.S. App. D.C. 319
| D.C. Cir. | 2015Background
- The Renewable Fuel Standard requires EPA to set annual renewable fuel percentage obligations; small refineries received a temporary exemption and may seek extensions if compliance would cause "disproportionate economic hardship."
- DOE produced a 2011 Study with a scoring methodology using two indices—disproportionate impacts and viability—each requiring a score >1 to recommend an extension.
- Wyoming Refining Company (WRC), a small refinery, received a 2010–2012 exemption after DOE’s 2011 evaluation; WRC petitioned EPA in 2013 for a further two-year extension due to spiking RIN prices.
- DOE evaluated WRC’s 2013 petition using the 2011 methodology but applied an intermediate score (5) on one component where it had previously used only 0 or 10; DOE recommended denial because WRC’s viability index <1.
- EPA denied WRC’s petition, deferring primarily to DOE’s recommendation but performing an independent qualitative financial review; EPA later conceded two mathematical errors in that independent analysis.
- The D.C. Circuit upheld EPA’s interpretation and procedural choices but vacated and remanded because EPA’s arithmetic errors materially affected its independent assessment and might have changed the outcome.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Meaning of "disproportionate economic hardship" | WRC: statute requires exemption when hardship is disproportionate to larger refineries; viability index is not required | EPA: statute silent on metric; must consult DOE and consider 2011 Study; viability is a reasonable part of assessment | Court: Chevron step one fails; at step two EPA’s reliance on DOE/viability index is a permissible construction |
| 2. DOE’s use of intermediate scoring (change in method) | WRC: change was arbitrary, capricious, and required notice-and-comment because it raised the burden | EPA/DOE: change explained as more accurate; 2011 Study anticipated nuance; no notice-and-comment required for DOE’s consultation role | Court: change was acknowledged and reasonably explained; no notice-and-comment obligation; not arbitrary |
| 3. EPA’s consideration (or not) of economic factors (RIN prices, dividends, EBITDA, passthrough taxes) | WRC: EPA misapplied or ignored relevant factors and used improper measures (wrong RIN baseline, faulted dividends, used net income over adjusted EBITDA, ignored unit-holders’ taxes) | EPA: reasonably used updated RIN estimates, could consider dividend decisions as relevant to preparedness, used EBITDA and net income appropriately, confined review to refinery finances | Court: EPA acted within discretion in choosing factors and measures; its treatment of dividends, RIN estimates, EBITDA, and exclusion of unit-holder taxes was reasonable |
| 4. Mathematical errors in EPA’s independent financial analysis | WRC: EPA made computational errors that materially affected conclusions | EPA: concedes errors but argues they are harmless because DOE’s recommendation controlled | Held: Errors materially overstated 2013 net income and refining margins; because EPA gave independent weight to its financial review, the court cannot conclude harmlessness — decision vacated and remanded for corrected analysis |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (framework for agency statutory interpretation)
- Monroe Energy, LLC v. EPA, 750 F.3d 909 (D.C. Cir. 2014) (agency discretion when statute leaves factor selection unspecified)
- White Stallion Energy Ctr. LLC v. EPA, 748 F.3d 1222 (D.C. Cir. 2014) (standard for reviewing agency policy changes)
- FCC v. Fox Television Stations, Inc., 556 U.S. 502 (agency must acknowledge and reasonably explain policy changes)
- Salt River Project Agric. Improvement & Power Dist. v. United States, 762 F.2d 1053 (harmless error test for agency decisions)
- Jicarilla Apache Nation v. U.S. Dep’t of Interior, 613 F.3d 1112 (burden to show prejudice from agency error not onerous)
- Shinseki v. Sanders, 556 U.S. 396 (appellate review may find prejudice from errors on the record)
- PDK Labs. Inc. v. DEA, 362 F.3d 786 (court may vacate agency action when the record does not reveal the weight given to factors)