As the electric power industry considers the options for compliance with an unprecedented suite of new environmental requirements, it faces continued uncertainty as to the fate of some of the most significant new regulations. In recent months, litigation over two of the Environmental Protection Agency’s (EPA) most significant rules—the Mercury and Air Toxics Standards (MATS) and Clean Power Plan (CPP)—has moved forward swiftly. Meanwhile, the EPA has sought to provide additional guidance to states regarding the CPP’s near-term compliance plan deadline and opened a new comment period on its proposed federal implementation plan and “model trading rules,” each of which could be a key basis for many states’ plans to comply with the CPP.

States and Industry Seek Stay of CPP Pending Judicial Review

The CPP establishes limits on carbon emissions from existing fossil-fuel, electric generating units under Section 111(d) of the Clean Air Act (CAA). Pursuant to this statute, the CPP requires each state to develop a compliance plan that describes the measures it will take to achieve the required emissions reductions.

While the final CPP was unveiled on August 3, 2015, it was published in the Federal Register on October 23, 2015, which serves to start the clock on the 60-day period within which Petitions for Review of the final rule must be filed pursuant to the CAA. On the same day, numerous Petitions for Review challenging the final rule were filed in the Court of Appeals for the District of Columbia Circuit by states, electric power industry groups, individual utilities and power generators, business and consumer groups, and coal industry representatives. These petitions are relatively simple procedural filings that serve to initiate proceedings to challenge the CPP. Several additional petitions could be filed before the 60-day clock runs out on December 22, 2015.  

Four Motions for Stay of the CPP were also filed in the D.C. Circuit on October 23. Specifically, a group of 24 states, a coalition led by several major utilities and power industry trade groups, a group of business and consumer groups, and representatives of the coal industry all sought a stay of the effectiveness of the CPP pending judicial review. An additional stay motion was filed the next week, and more could be filed. These stay requests come after the D.C. Circuit denied the emergency requests for stay filed by a smaller group of states and other parties after the CPP was finalized in August.   

To obtain a stay, parties must demonstrate that (1) they are likely to prevail on the merits, (2) they will be irreparably harmed if the rule is not stayed, (3) no other parties will suffer substantial harm as a result of a stay, and (4) the public interest favors granting the stay. Much like the previous emergency motions for stay, the Motions for Stay filed on October 23 provide an important preview of the key legal arguments that parties seeking to overturn the CPP will make in merits briefing before the D.C. Circuit.    

In particular, to demonstrate that they are likely to prevail on the merits, all of the movants focus first and foremost on the EPA’s use of emissions reductions measures across the electric system (the “building blocks” summarized here) to set the final emissions goals each state must achieve. They all assert that this approach violates the plain langue of Section 111(d) of the CAA, which they argue limits the EPA to considering emissions reduction measures than can be applied directly to affected sources (i.e., fossil-fuel power plants) when setting emissions standards. In addition, they argue that the EPA’s approach of reducing emissions from affected sources by shifting generation to other technologies (such as renewables and natural gas) exceeds the EPA’s authority by encroaching on the states’ traditional role of determining the need for new generation resources and a mix of generation types used to serve their customers. They also argue that EPA, through the CPP, is claiming authority to restructure the electric grid beyond any delegation of authority that Congress has given to the Federal Energy Regulatory Commission, the primary agency with such expertise.     

To demonstrate that they will suffer irreparable harm without a stay, the states assert that the compliance deadlines in the CPP1 require them to immediately debate, design and enact new legislative and regulatory programs that will displace their own energy policy priorities, resulting in irreparable “sovereign harms.”  The states contend that, given the significant shifts in generation and new infrastructure that may be required to comply with the CPP, they cannot simply seek an extension of the initial 2016 compliance plan deadline and wait for judicial review to be completed before developing the final compliance plan due in 2018. They note that just requesting an extension of the initial compliance deadline requires significant work and expenditure of public funds, resulting in additional irreparable harms. Others note that, without a stay, the EPA’s own modeling shows that affected coal-fired generators will begin retiring even before the initial compliance period begins in 2022, resulting in irreparable harms to consumers, utilities and communities, including higher electricity rates, unrecoverable transition costs, and job and tax base losses.

Finally, the Motions for Stay argue that the balance of equities favor a stay. They note that no other parties will be harmed by a stay, since the impacts of climate change that the CPP seeks to address are long-term in nature, and the EPA and the administration have themselves asserted that the CPP is just one step of many required to address this global issue. In addition, they assert that the public interest favors maintaining affordable and reliability electricity supplies, while litigation over the CPP is pending.

On October 29, 2015, the D.C. Circuit issued an order establishing the schedule for further briefing on the pending Motions for Stay. Under that order, any additional stay requests must be filed by November 5, and briefing will end on December 23, making it likely that the D.C. Circuit will not rule on the motions until early 2016.       

EPA Outlines Path for States Seeking Extension of the Compliance Deadline

Perhaps in anticipation of the states’ argument that just requesting an extension of the initial 2016 compliance plan deadline would require them to expend significant resources, on October 22, 2015, the EPA issued a memorandum to provide guidance to states as to what steps they must take to seek such an extension. The memorandum emphasizes that the requirements for seeking an extension are not, in the EPA’s view, extensive. The agency explains that the purpose of the initial deadline is to “encourage planning and engagement with the public to facilitate the submission of an approvable and timely final state plan” and that the CPP places “only modest requirements on states seeking extensions.” 

Specifically, the EPA explains that a request for extension “must include simply” the following:

  1. an identification of the final plan approach or approaches under consideration by the state and a description of progress made to date on the final plan components
  2. an explanation of why the state requires additional time to submit a final plan
  3. a demonstration or description of the opportunity for public comment that the state has provided on the initial submittal and opportunities for meaningful engagement with stakeholders, including vulnerable communities, during preparation of the initial submittal, and plans for public engagement during development of the final plan.

The memo further elaborates on these components of an extension request, emphasizing, in particular, that states must provide an opportunity for the public to comment on their initial submittals. 

The EPA also states that any request for an extension will be deemed granted 90 days after it is submitted, unless the EPA notifies the agency in writing that the request cannot be granted.

90-Day Comment Period Opens on Proposed CPP Federal Implementation Plan

Finally, the EPA’s proposed Federal Implementation Plan for compliance with the CPP was also published in the Federal Register on October 23, 2015, beginning the 90-day comment period on the proposal. If a state does not submit a plan to comply with the CPP, the EPA can promulgate a federal plan for that state. The proposed federal plan now subject to comment is the plan that the EPA intends to enforce on states that do not submit plans that comply with the final CPP. It also serves as a model plan for states to consider as they design their own compliance plans. The proposed federal plan includes both a “rate-based” and a “mass-based” option for compliance. Of note, the proposed federal plan also includes what the EPA calls “model trading rules” that provide a roadmap for states and affected generators to utilize emissions trading to comply with the CPP. Those model trading rules also would, if adopted, provide the mechanism to implement the Clean Energy Incentive Program (CEIP) that the EPA included in the final CPP.2  EPA officials have stated that comments on the CEIP can be submitted to the EPA during the comment period on the proposed federal plan.

Comments on the proposed federal plan (including the CEIP) are due December 22, 2015.

D.C. Circuit Considers Whether to Vacate Mercury and Air Toxics Rule

In addition to the requests for stay of the CPP, the D.C. Circuit also has before it several motions to govern further proceedings on remand regarding another major EPA power plant emissions rule: MATS rule. 

Issued in 2011, the MATS rule established standards limiting emissions of mercury and other air toxics from new and existing coal and oil-fired power plants. On June 29, 2015, the Supreme Court held that the EPA had acted unlawfully and “strayed well beyond” the provisions of the CAA when it determined that it did not have to consider costs in reaching its determination that regulation of mercury and air toxics emissions was “appropriate and necessary.”3  The Court reversed the D.C. Circuit’s earlier decision upholding the EPA’s actions and remanded the case back to that court for further proceedings.

In their motion to govern further proceedings on remand, industry representatives, along with 18 states, ask the D.C. Circuit to vacate the MATS rule in its entirety, arguing that affected entities should not have to bear the costs of ongoing compliance, given the serious legal deficiency found by the Supreme Court. The EPA, along with several other states, industry representatives and environmental groups, oppose vacating the rule. For its part, the EPA contends that vacating the rule would be inappropriate, because it can quickly address the deficiency found by the Court, given the significant amount of cost information already in the record. In addition, the EPA and the other intervenors opposed to vacating the rule note that doing so would cause significant disruption to the regulated community and would endanger the health benefits provided by the rule.

Conclusion

Litigation over the fate of the MATS and CPP rules will necessarily create uncertainty for the electric power sector entities and the states that must comply with them. Most generators affected by the MATS requirements have likely already made decisions about how to comply (and, in particular, whether to retire rather than retrofit their equipment), given that the deadline for compliance was April 16, 2015 (with the possibility of a one-year extension to April 16, 2016). With respect to the CPP, however, the ongoing litigation, combined with the long period needed for states to develop compliance plans, results in significant uncertainty. Despite that uncertainty, however, many states (even those that are challenging the rule in the D.C. Circuit) are moving ahead and beginning the process of vetting compliance options with stakeholders.4

The result is that affected power sector entities and interested stakeholders must carefully monitor developments in the courts and in the individual states (perhaps multiple states at the same time) to assess the risks and challenges they face moving forward. Decisions made in these forums will have significant ramifications, not just for affected sources of carbon emissions, but also for wholesale and retail electric markets, energy infrastructure operators and developers, and consumers.