Judges Question Need to Vacate EPA Mercury Rule

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By Patrick Ambrosio

Dec. 4 — A panel of federal appeals court judges appeared to be disinclined to grant a request to vacate the Environmental Protection Agency's mercury and air toxics standards for power plants, even though the U.S. Supreme Court ruled in June that the agency erred by not considering cost when it decided to regulate power plant emissions.

Industry and states that oppose the standards argued Dec. 4 that the U.S. Court of Appeals for the District of Columbia Circuit should vacate the standards because the EPA lacked the authority to promulgate the rule, known as MATS, because it has still not adequately fulfilled a congressional precondition to first determine it was “appropriate and necessary” to regulate power plant emissions before promulgating standards under Section 112 of the Clean Air Act.

The EPA, along with intervening states, environmental groups and power companies, argued that the rule should be remanded without vacatur so the agency can address the Supreme Court's decision without causing disruption to the public health protections achieved by the rule and without devaluing the investments made by power plant operators that are already in compliance with the standards.

Vacatur of Rule at Issue

Members of the three-judge panel that heard arguments questioned whether circuit precedent required vacatur of the MATS rule and whether there would be any practical effects on industry given the EPA's plan to reaffirm its appropriate and necessary finding this spring. Argument was heard by Chief Judge Merrick Garland and Judges Brett Kavanaugh and Judith Rogers.

Michigan Solicitor General Aaron Lindstrom, who argued on behalf of the industry and state petitioners, argued that the EPA does not have the authority to promulgate the MATS rule because the agency has still not fulfilled a “substantive precondition” from Congress that it make an “appropriate and necessary” finding after reviewing the need to regulate, which the Supreme Court in June ruled must factor in some consideration of cost to the power industry (Michigan v. EPA, 135 S. Ct. 2699, 80 ERC 1577, 2015 BL 207163 (2015); 125 DEN A-1, 6/30/15).

“The rule must be vacated,” Lindstrom said.

The 2012 MATS rule (RIN 2060–AP52, RIN 2060-AR31) was projected by the agency to cost $9.6 billion per year. Most plants have either already invested in pollution controls or opted to shut down, though some plants have until April 15, 2016, to come into compliance under a one-year extension that was available.

EPA Authority Questioned

Lindstrom argued that the D.C. Circuit had previously vacated rules because the EPA did not have the authority to promulgate them.

James Pew, an Earthjustice attorney who represented the Sierra Club and other intervening groups in the litigation, told Bloomberg BNA that the industry and state petitioners tried to argue that the court should not engage in its “usual balancing of equities” in weighing vacatur for a “very formalistic reason.”

“Judge Garland and Judge Kavanaugh were both very skeptical about that,” Pew said.

Pew predicted that the D.C. Circuit will likely rule pretty quickly, given that some of the parties involved in the case have expressed a need for a quick resolution.

Kavanaugh said the EPA's current situation, that it did not have authority to promulgate Section 112 standards without first making a finding that included cost consideration, seems “a little different” than a situation where a court has clearly found that an agency lacked the authority to do something.

“If we say, as we sometimes do, the statute does not give the agency authority to do X...the reason we vacate, I believe, is there's nothing they're going to be able to do about that,” Kavanaugh said.

Kavanaugh said in instances where the agency may have the authority, but didn't explain it correctly or didn't consider a relevant factor, that is a “different kind of case.”

The EPA in November issued a supplemental proposed finding (RIN 2060-AS76) that cost consideration doesn't alter the EPA's appropriate and necessary finding. The agency projects it will issue a final supplemental finding in spring 2016 (225 DEN A-13, 11/23/15)

Garland: ‘Nothing Special' About Case

Garland said there is “nothing special” about the MATS case and compared it to several other cases where the D.C. Circuit left major EPA rules in place despite significant legal flaws. He specifically cited a 2008 decision that found “fundamental” deficiencies in the Clean Air Interstate Rule but left that rule in place while the EPA worked on a valid replacement and a 2015 decision to remand invalid emissions budgets promulgated under the cross-state air pollution rule back to the EPA for further consideration (North Carolina v. EPA, 531 F.3d 896, 67 ERC 1151, 2008 BL 146717 (D.C. Cir. 2008); EME Homer City Generation LP v. EPA, 795 F.3d 118, 80 ERC 2005, 2015 BL 239912 (D.C. Cir. 2015); 145 DEN A-6, 7/29/15).

Rogers offered limited comments during arguments, though she noted that she was a member of the panel that initially vacated the Clean Air Interstate Rule, then reversed its decision due to state concerns about disruption.

Thomas Lorenzen, a partner with Crowell & Moring LLP who attended the arguments, said although Rogers didn't say much during arguments, she is “probably leaning EPA's way” based on her previous opinions on use of the remand without vacatur option.

Focus on Possible Disruptions

Pew said the D.C. Circuit panel seemed to focus on the consequences of vacating MATS versus leaving the standards in place. He said Kavanaugh and Garland kept pressing attorneys on both sides of the dispute to explain what disruptions could be caused by the court's decision.

The court, in a 1993 decision, established a two-factor test for deciding whether to vacate an agency action on remand. Under the Allied-Signal test, the court considers the seriousness of the order's deficiencies and the disruptive consequences of vacating the rule only to have it later be reissued (Allied-Signal Inc. v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146, 300 U.S. App. D.C. 198 (D.C. Cir. 1993)).

Stephanie Talbert, a Justice Department attorney who argued on behalf of the EPA, said application of that two-factor test “weighs heavily” in the EPA's favor. She argued the Supreme Court identified a “single limited deficiency” that the EPA is on track to quickly address.

Kavanaugh questioned whether anything “on the ground” would change if MATS were vacated but then reissued by the EPA. He said it seems it would be prudent for plants to “keep going” if they know that the EPA is likely to reaffirm the rule in spring 2016.

Lindstrom argued that the practical effect of vacating the MATS standards would be avoided additional costs on power plants that already have made investments to comply with the standards, as well as avoided costs for power plants that received a compliance extension. Plants that already made the necessary capital investments could avoid an estimated $158 million in ongoing annual costs attributed to compliance with the standards, Lindstrom said.

Both Talbert and Melissa A. Hoffer, assistant attorney general for Massachusetts, cited the rule's public health protections, including protection from cancer and developmental disabilities linked to exposure to pollutants regulated by MATS, as something that could be disrupted by vacatur. Hoffer argued on behalf of states who intervened in support of the rule.

Brendan Collins, a partner at Ballard Spahr LLP who argued on behalf of Calpine Corp., Exelon Corp. and other industry groups that intervened on the EPA's behalf, identified possible disruptions for the electric utilities if the MATS rule were to be vacated.

The MATS rule required power plants to “pony up” and install pollution controls or opt to shut down, Collins said. The surviving plants expected higher revenues to justify the higher capital and operating costs under MATS, he said. If the rule were to be vacated and plants that received a compliance extension were allowed to operate without making those necessary investments, the investments that other plants made would be devalued, Collins argued.

Collins added that although the EPA is talking about quickly reaffirming the “appropriate and necessary finding,” it is “by no means certain” that the EPA would be able to quickly resurrect the rule. He said it “could be years” before power plant standards were back in place if the EPA were required to go through a full rulemaking process. Several attorneys told Bloomberg BNA in advance of the arguments that a decision to vacate the appropriate and necessary finding and the MATS standards could force the EPA to go through a lengthy rulemaking process (232 DEN A-6, 12/3/15).

Lorenzen described Collins' concern that it could take a year or more to reissue MATS as a “telling statement” that the court will be thinking about when it decides whether to vacate the standards. If the court determines the EPA needs to start over on regulating power plant emissions, that would be a “much more disruptive delay” to the industry intervenors than a four-month period where the rule is not in effect.

EPA Confident on Timing

During argument, Garland questioned the level of EPA's confidence that it will be able to complete its work on remand by April 15, 2016, the date by which the plants that received a one-year extension must come into compliance or shut down.

Talbert said the EPA is on track to do that, though she noted that there are certain things that are outside the EPA's control, including the number of comments that it will receive on its proposal.

Releasing the proposal in advance of arguments likely helped the federal government's position during arguments, Pew said. Had that proposal not been released, there would have been some suspicion over whether the agency was actually going to be able to go through that process by April, he said.

“Getting the first step done showed the agency was serious,” Pew said.

If the court is concerned about the agency's ability to reaffirm its finding by April, it could opt to vacate the rule but withhold issuance of the mandate that would actually strike down MATS, Lorenzen suggested. That would allow the court to retain jurisdiction over the issue, while functionally leaving the standards in place on remand, Lorenzen said.

If the court were to simply remand MATS back to the EPA without vacatur, the court would lose jurisdiction over the issue and would be unable to act if the EPA did not meet its schedule for reaffirming the finding, according to Lorenzen.

Lorenzen said the idea that vacatur and withholding the court's mandate is the “better course” was suggested by Judge A. Raymond Randolph in a 2004 opinion that was later withdrawn (Honeywell Int'l Inc. v. EPA, 374 F.3d 1363, 58 ERC 2057 (D.C. Cir. 2004)).

Co-Benefits Discussion

Kavanaugh and Garland both raised the issue of the EPA's use of co-benefits to justify regulations, a practice that Chief Justice John Roberts criticized during oral arguments in Michigan v. EPA.

Garland noted that the deficiency identified by the Supreme Court did not involve the co-benefit issue, but he questioned Talbert on why the EPA was unable to quantify the economic effect of avoided cancer cases and other public health benefits of the rule. She said it is difficult to quantify due to limited data.

Kavanaugh cited Roberts' extensive criticism of co-benefits, but said that would likely be the “key battleground” in future litigation on EPA's action on remand.

The court's attitude on the co-benefits issue appears to be that it is a “question for another day,” Lorenzen said. He said that issue will be “far more ripe for resolution” if and when the EPA promulgates a final supplemental appropriate and necessary finding that includes an analysis based on co-benefits.

Sean Donahue, an attorney representing the Environmental Defense Fund and other environmental intervenors, noted before the court that the EPA's proposed supplemental finding does not rely on the use of co-benefits to justify the need to regulate power plant emissions.

The EPA's proposed supplemental finding did cite its formal cost-benefit analysis prepared for the MATS rule, which counted co-benefits attributed to the regulation, but the agency noted that such a formal analysis is not required. The agency relied on several other types of analyses, including comparing the costs of the MATS rule to the power sector's revenue and the increase in the price of electricity.

To contact the reporter on this story: Patrick Ambrosio in Washington at pambrosio@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

For More Information 
An audio recording of the Dec. 4 arguments in White Stallion Energy Ctr. LLC v. EPA is available at http://src.bna.com/boH.