What's at Stake in Next Round of Mercury Rule Litigation?

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By Patrick Ambrosio

April 28 — The deadlines for power plants to come into compliance with the Environmental Protection Agency's Mercury and Air Toxics Standards may have passed, but attorneys who are following the issue told Bloomberg BNA that there is still a lot at stake in the next round of litigation over the regulation.

While power plants have already invested billions in pollution controls to limit their emissions of mercury and other toxic air pollutants, attorneys said continuing to litigate over the MATS rule offers opponents of the Obama EPA's regulatory approach an opportunity to rein in the agency's authority.

Attorneys said power plants that are already in compliance could see some benefits if the MATS Rule were to be struck down, which would remove the possibility of power plants being exposed to enforcement actions for regulatory violations. In addition, an environmental attorney involved in the litigation said that stakes remain for supporters of the MATS rule because even though power plants have already taken steps to comply, they would have no obligation to actually operate their pollution control equipment if the rule were struck down.

A coalition of states, led by Michigan, successfully litigated against the MATS rule, winning a 2015 Supreme Court decision that identified a legal flaw in the EPA's rulemaking process. The court, in a 5-4 decision issued in June 2015, found that the EPA erred when it did not consider cost in its threshold decision on whether it was “appropriate and necessary” to regulate power plant emissions (Michigan v. EPA, 135 S. Ct. 2699, 2015 BL 207163, 80 ERC 1577 (2015)).

The EPA April 25 published a supplemental finding (RIN 2060-AS76) in response to the Michigan v. EPA ruling, concluding that it is still “appropriate and necessary” to regulate power plants under Section 112 of the Clean Air Act after factoring in cost considerations. Murray Energy Corp. has already filed a lawsuit challenging that finding with the U.S. Court of Appeals for the District of Columbia Circuit and more lawsuits are expected by a June 24 filing deadline (Murray Energy Corp. v. EPA, D.C. Cir., No. 16-1127, 4/26/16; 80 DEN A-1, 4/26/16).

Chance to Rein in EPA

The MATS rule, which the EPA estimated to cost the power sector $9.6 billion per year, has remained in effect despite the Supreme Court's 2015 ruling. During that time, both the original April 2015 compliance deadline and an April 2016 deadline for plants that received a one-year extension have passed.

In addition to the new Murray Energy lawsuit over the supplemental finding, a coalition of states have asked the Supreme Court to step in and review the D.C. Circuit's practice of leaving regulations in place on remand while an agency works to address a legal flaw (Michigan v. EPA, U.S., No. 15-1152, 3/14/16).

When asked about the benefits of continuing to litigate, attorneys told Bloomberg BNA that challenging the supplemental finding offers opponents of the MATS rule and other EPA regulations an opportunity to rein in the agency's authority.

Richard Alonso, a partner at Bracewell LLP, said the states that continue to litigate want it recognized that the EPA has limits on its authority in promulgating maximum achievable control technology standards under Section 112, which the agency promulgated for various industrial sectors, not just utilities.

“They want to keep EPA in check,” Alonso told Bloomberg BNA. “They're worried about the next regulations ... that's why they're still pursuing all of this.”

Attack on EPA's Reasoning

Daniel Riesel, a principal at Sive, Paget & Riesel P.C., agreed that the benefit of continuing to litigate would be to find faults in EPA's analytical process for issuing regulations. Riesel said that with the compliance deadlines passed and most regulated units in compliance, there would be limited benefits for the power sector if the rule were to be overturned.

“The only possible benefit would be to attack the functions and reasoning process inherent in the government's risk calculations,” Riesel told Bloomberg BNA.

One issue that opponents of the MATS rule are likely to challenge is the EPA's long-standing inclusion of “co-benefits” in the cost-benefit analyses prepared in support of major air rules. While the agency identified as much as $90 billion in benefits associated with MATS, only between $4 million and $6 million of those quantified benefits were attributed to reductions of pollutants directly regulated under the rule (52 DEN B-1, 3/17/16).

James Rubin, a partner at Dorsey & Whitney LLP, told Bloomberg BNA in an e-mail that opponents of the mercury standards also may want a chance to challenge “precisely how EPA considered costs” because the agency might take a similar approach in future rules. In addition, Rubin acknowledged that legal challenges to the MATS rule have taken on political significance as litigation has continued over the past several years.

“It would be surprising for opponents to drop a challenge now when they still see an opportunity to defeat one of the Obama EPA's most high-profile rules,” Rubin said.

Litigants Cite EPA Overreach

Opponents of the MATS rule have already cited the need to place limits on the EPA's authority as a driving force behind their requests for judicial review.

Seven states, including Colorado, Georgia and Nevada, told the Supreme Court in an April 15 amicus brief that “aggressive agency actions” taken recently by the EPA and the Interior Department show the need for the Supreme Court to step in and place “clear limits” on agency authority.

The states, arguing in favor of the cert petition to review the D.C. Circuit's “remand without vacatur” of the MATS Rule, said the EPA and other federal agencies have repeatedly sought to force entities to comply with regulations despite “serious questions” on the validity of those rules.

The examples provided by the states include the Bureau of Land Management's regulation on hydraulic fracturing and the EPA's Clean Power Plant rule to limit carbon dioxide emissions from power plants, which the Supreme Court stayed in February. The state brief cites statements from EPA Administrator Gina McCarthy that the agency will “keep moving” on the Clean Power Plan. While some states have halted their implementation efforts, 14 states asked the EPA for guidance as they prepare to comply with the rule in spite of the stay (See related story).

Limited Practical Effects

While continued litigation offers opponents an opportunity to make ideological arguments about the EPA, the litigation is only expected to have limited practical effects on the power sector.

Murray Energy said in an April 26 statement that even the Supreme Court's 2015 Michigan v. EPA ruling came “far too late” because the power industry was forced to comply in advance. American Electric Power, FirstEnergy Corp. and other utilities told Bloomberg BNA in April 2015 that the MATS rule's compliance deadline required them to make long-term investment decisions on pollution controls or to retire older plants, decisions that would not be affected by a court ruling to strike down the standards (71 DEN A-1, 4/14/15).

At this point, almost a year after the Supreme Court's decision, all regulated entities have had to take some action to move toward compliance with the mercury standards, Rubin of Dorsey & Whitney said. Rubin indicated that there would be limited benefits for utilities if litigation over the EPA's supplemental finding were to eventually result in vacatur of the MATS rule.

“For those plans that have been retro-fitted, re-fired or retired, it may not matter if the rule is ultimately invalidated in a year or two, especially if the economics of gas continue to disfavor older coal-fired generation,” Rubin said.

Alonso of Bracewell agreed that continued litigation over the mercury standards will have a limited effect on most power plants.

“From a practical standpoint, all of these legal maneuvers don't really impact anybody in the industry,” Alonso told Bloomberg BNA. “Industry is well on its way to compliance.”

Enforcement Implications Possible

Both Rubin and Alonso highlighted that a small subset of power plants could significantly benefit from vacatur of the MATS rule. Alonso said there are “a handful” of plants that need relief from aspects of the regulation, but suggested that the EPA could likely work those issues out on a case-by-case basis.

While the industry has already spent billions to comply with the MATS Rule and shut down some plants, Thomas Lorenzen, a partner with Crowell & Moring LLP, said there still are some implications for the power sector beyond the possible precedential effects of a court ruling on future EPA rules.

Lorenzen said that while the compliance deadline has passed for existing units, the issue of whether the Mercury and Air Toxics Standards remain in place is still relevant for any newly constructed power plants going forward. In addition, there is also the issue of enforceability for the power sector, Lorenzen said.

“A rule that is invalidated is no longer enforceable,” he said.

That issue of enforceability is one of concern for environmental and public health groups that helped defend the MATS rule in court.

Sean Donahue, an attorney who represented the Environmental Defense Fund in litigation over the MATS rule, told Bloomberg BNA that if the regulation were to eventually be struck down, the power sector would have no continuing federal obligations to control for mercury and other “really insidious” air pollutants. Donahue noted that some states have their own state-level standards, but said power plants in states with no standards could save money by shutting off their pollution controls if the MATS rule were to be vacated, which would result in large increases in emissions.

“Even though companies have already made their capital investments to comply, they would not be required to operate this equipment, there is cost to that.” Donahue said. “We continue to think the public health stakes are really high.”

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

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