Amicus Curiae Brief — Util. Air Regulatory Grp. v. Envtl. Prot. Agency, 135 S. Ct. 702 (2014) (No. 14-47)

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| ~~“‘Supreme Court, U.S.

FLED

JAN 27 206

No. 14-46, No. 14-47 & No. 1449

IN THE

Supreme Court of the Anited States

STATE OF MICHIGAN, ET AL.,

Petitioners,

Vv.

ENVIRONMENTAL PROTECTION AGENCY, ET AL..,

Respondents.

On Writs of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

AMICUS CURIAE BRIEF OF

MURRAY ENERGY CORPORATION

IN SUPPORT OF PETITIONERS

J. VAN CARSON

Counsel of Record

GEOFFREY K. BARNES

WENDLENE M. LAVEY

JOHN D. LAZZARETTI

ROBERT D. CHEREN

SQUIRE PATTON BoacGs (US) LLP

4900 Key Tower

127 Public Square

Cleveland, Ohio 44114

(216) 479-8559

van.carson@squirepb.com

January 2015 Counsel for Murray Energy

III caccchicssconsancnonsanmsincmecadassicasticehicmensmmantaatarmadins i

TABLE OF AUTHORITIES .............2......cccccecceeeeeseeeeeeees ili

INTERESTS OF THE AMICUS CURIAE ................00...00000+ 1

SUMMARY OF THE ARGUMENT. .....................0.0000000e00000 3

Ba ceterarcs rn ac omianeneranenciennon 5

I. EPA acts unreasonably when it refuses to

consider an “important aspect of the problem.”.5

Il. The “problem” facing EPA was whether or

not to regulate power plants under

Section 112, or in some other way. ................ 7

A. The nation’s power plants evolved over decades

of support and regulatory oversight by state

and local governments taking into account

differing local circumstances. .............0.0...cc000ee0ee0es 8

B. Regulating power plants under Section 112

supplants state and local governments’ role

with an inflexible and uniform standard. .......... li

C. Congress provided the flexible Section 111

program as an alternative to power plant

regulation under Section 112. ..............22-..002..00++- 14

D. EPA has acknowledged that it erroneously

ignored Section 111 as an alternative for

regulating power plant emissions. ..................+++- 16

‘3

ITI.Costs are an “important asvect” of the

decision to regulate powei p!>uts under

Section 112 or Section 111. ................0.000000.... 20

A. Costs are the principal difference between

Section 111 and Section 112. .............0ccccccceceeesee 20

B. EPA’s decision imposes significant costs on

state and local providers of public power............ 23

C. The Unfunded Mandates Reform Act of 1995

underscores the importance of costs in this case. ..23

IV. EPA’s refusal to consider costs renders its

decision arbitrary and capricious. .............. 26

I IIIIEY cvvireitevnennncniiboninctauasvanadeenecanintontandsagemnaaie 27

TABLE OF AUTHORITIES

Cases

FERC v. Mississippi

A sa ca euceboeiie i)

FPC v. East Ohio Gas Co.

i os eanienduinbeuets 8, 25

Garcia v. San Antonio Metro. Transit Auth.

I i i casmtuncasees 24

General Motors Corp. v. Tracy

LE RR a SR ES ee ee ee OPE g

Motor Vehicle Mfrs. Ass’n v. State Farm

RS TUE SSE Ste Oe ee! 3-6

New Jersey v. EPA

yg Pp be Ui toe | Seen 18

Util. Air Regulatory Grp. v. EPA

No. 01-1074 (D.C. Cir. July 26, 2001).......... Be seel 17

Whitman v. Am. Trucking Ass’ns, Inc.

a to. cannieonnebanbbadens 6

Statutes

Administrative Procedure Act

i Ty RR ERARES nn Rerne P ac a nar She 5

Clean Air Act Section 111

I ae 14-15, 20-22

Clean Air Act Section 112

My as OF WIEN redcrcindtns inccntceceacueds 2, 5, 7, 12—15, 22

Clean Air Act Section 307

Be es Oe OD veiihckicsveneccktcdecsucscacsceccnsenion 5

1990 Clean Air Act Amendments Section 108(g)

Pub. L. No. 101-549, § 108(g)

104 Stat. 2399, 2467 (1990) ..............cccseescccscsserees 14

Unfunded Mandates Reform Act of 1995

le ae rE eiiisctcecedin miseabevapeetinanaaimvonsiatin 25

Federal Register Notices

65 Fed. Reg. 79,825 (Dec. 20, 2000)....................00004. 16

69 Fed. Reg. 4,652 (Jan. 30, 2004)................000000.. 17

70 Fed. Reg. 15,994 (Mar. 29, 2005)............... 6,17, 21

76 Fed. Reg. 24,976 (May 3, 2011)............ 8, 18-19, 26

77 Fed. Reg. 9,304 (Feb. 16, 2012).................. 9, 23-24

Other Authorities

136 CONG. REC. 3,493 (1990).................cccccsessscccceseees 14

be SS St | none 25

iy, Se IED veiseccacecserssanstansiessansossedane 23~—24

Joint Hearing on S. 1 Before the S. Comm. on

Governmental Affairs and the S. Comm. on the

Budget, 104th Cong. 61 (1995)...............0.0.0.ccccccceeeeee 24

THE POWER INDUSTRY AND THE PUBLIC INTEREST

REELS Me RAE RASS TRE SS PAD Sey EOS ROLE. ae cD 9

Robert L. Swartwout, Current Utility Regulatory

Practice from a Historical Perspective

Be PE, BN a I CIID webs cvtsccccecnsccesrincascscvesesoves 9

Petition for Review, Util. Air Regulatory Grp. v.

EPA, No. 01-1074 (D.C. Cir. Feb. 16, 2001)............. 16

Statement of Issues, Util. Air Regulatory Grp. v.

EPA, No. 01-1074 (D.C. Cir. Mar. 26, 2001) ............ 16

INTERESTS OF THE AMICUS CURIAE

Murray Energy Corporation (“Murray Energy”)

respectfully files this brief in support of Petitioners.”

Murray Energy is the largest privately-owned

coal company in the United States and the fifth

largest coal producer in the country, employing

roughly 7,500 workers in the mining, processing,

transportation, distribution, and sale of coal. In 2014,

Murray Energy produced approximately 63 million

tons of coal from twelve active coal mining complexes

in six states. Murray Energy also owns two billion

tons of proven or probable coal reserves in the United

States.

Murray Energy sells coal to public and private

power plants. Affordable and reliable power, much of

which is generated by coal, remains essential to the

health of our nation’s economy. Murray Energy and

its employees proudly serve their customers that

provide this essential service.

In developing the current Section 112 program as

part of the Clean Air Act Amendments of 1990,

Congress recognized the drastic consequences that

would occur from subjecting the nation’s power

plants to inflexible Section 112 standards. Instead of

automatically authorizing or requiring imposition of

the Section 112 program on power plants, Congress

directed the Environmental Protection Agency (“EPA”)

* No counsel for any party authored any portion of this brief.

No person or entity other than Murray Energy made any

monetary contribution to the preparation and submission of

this brief. Murray Energy obtained consent to the filing of

this brief.

to complete a detailed study of emissions from power

plants and then to regulate them under Section 112

only if “appropriate and necessary” to do so. 42

U.S.C. § 7412(n)(1)(A). But when EPA undertook the

required “appropriateness” analysis, the agency

refused to consider the costs of such regulation on

the nation’s power sector, while at the same time

estimating — as it was required to do pursuant to the

Unfunded Mandates Reform Act of 1995 — that

regulating power plants under Section 112 would cost

$9.6 billion per year.

EPA’s decision to regulate power plants under

Section 112 will have a dramatic effect on the power

sector and those who supply the fuel to be converted

to electricity at those power plants, including Murray

Energy and other coal companies.

Murray Energy supports the Opening Briefs of

Petitioners, but offers this Amicus Brief in order to

present in greater detail why EPA’s determination

under Section 112(nX1XA) was arbitrary and

capricious. By refusing to consider costs, EPA ignored

an important aspect of the regulatory choice it faced.

Indeed, once Section 112(n)1XA) is fully understood,

it is evident that EPA ignored the most important

factor that would otherwise inform that choice.

SUMMARY OF THE ARGUMENT

For over a century, state and local governments

have constructed and supported power plants in

order to provide affordable and reliable electric power.

These power plants are as diverse in size and age as

the states themselves and also vary widely in design.

Applying Section 112 of the Clean Air Act forces

all existing power plants to either equal the emission

levels achieved by a small set of the nation’s best-

performing facilities or else shut down completely.

Section 112 also prohibits the construction of any

new power plants unless they match the emission

levels achieved by the nation’s very best power plant.

These requirements are imposed without regard to

costs, energy requirements, or local resources.

Mindful that regulating power plants under

Section 112 might well be a costly mistake, Congress

ordered EPA to do so only after first evaluating the

degree of health impacts from power plant emissions

in light of all other Clean Air Act requirements, and

then to subject power plants to Section 112 only after

deciding that regulation under Section 112 was still

“appropriate and necessary.”

As an alternative, Congress provided Section 111

of the Clean Air Act. Section 111 is a more flexible

program that considers costs, energy requirements,

and the remaining useful life of existing sources.

Section 111 provides a greater role for the states by

tasking them with setting standards for their own

existing facilities rather than imposing a uniform

nationwide standard set by EPA.

As held by this Court, EPA acts arbitrarily and

capriciously when it fails “to consider an important

aspect of the problem.” Motor Vehicle Mfrs. Ass’n v.

State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43

(1983). In this case, the “problem” facing EPA is the

regulatory decision as to whether or not to regulate

power plants under Section 112, recognizing that

Congress provided an alternative in Section 111.

The key difference between the Section 111 and

Section 112 programs is, in fact, costs. Yet EPA has

refused to consider the $9.6 billion in annual costs it

estimates would result from subjecting power plants

to the inflexible Section 112 program.

This refusal renders EPA’s decision to regulate

power plants under Section 112 arbitrary and

capricious. Accordingly, the Section 112 rule — and

the determination on which it was based that it was

“appropriate” to regulate power plants in this

manner — must be vacated.

ARGUMENT

I. EPA acts unreasonably when it refuses to

consider an “important aspect of the problem.”

In 1990, Congress tasked EPA with determining

if the Clean Air Act’s Section 112 regulatory program

was appropriate for power plants. 42 U.S.C.

§ 7412(nX 1A). The Clean Air Act provides for

judicial review of this determination to ensure it is

not “arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” 42 U.S.C.

§ 7607(dX9XA). This is the same standard as that

found in the Administrative Procedure Act. 5 U.S.C.

§ 706(2)(A).

This “arbitrary and capricious” standard demands

that, in making its decision, EPA “must examine

the relevant data and articulate a_ satisfactory

explanation for its action including a rational

connection between the facts found and the choice

made.” Motor Vehicle Mfrs. Ass’n v. State Farm Mut.

Auto. Ins. Co., 463 U.S. 29, 43 (1983) (internal

quotation omitted). Moreover, EPA’s determination

is “arbitrary and capricious if the agency has relied

on factors which Congress has not intended it to

consider, entirely failed to consider an important

aspect of the problem, offered an explanation for its

decision that runs counter to the evidence before the

agency, or is so implausible that it could not be

ascribed to a difference in view or the product of

agency expertise.” Jd. (emphasis added).

EPA acknowledges that it did not consider costs

when deciding to subject power plants to the Section

112 program, notwithstanding the $9.6 billion

annual cost the agency has estimated will result

from its decision with virtually no offsetting benefits.

In fact, EPA agrees that it could have considered

costs, but chose not to do so.

Thus, whether EPA acted arbitrarily and

capriciously in determining that power plants should

be regulated under Section 112 hinges on whether

costs were an “important aspect of the problem”

before the agency.' This question cannot be answered

without first understanding the “problem.” When the

“problem” is properly understood, it is clear that

costs are an “important aspect” of that problem.

1. Whether Congress has intended to prohibit consideration of

a factor, see State Farm, 463 U.S. at 43, is a statutory

interpretation question governed by the familiar Chevron

analysis. See, e.g., Whitman v. Am. Trucking Ass’ns., Inc.,

531 U.S. 457, 471 (2001) (applying Chevron to determine

that Congress intended to prohibit cost consideration under

another section of the Clean Air Act). In this case, Congress

has not done so. EPA recognized in 2005 that consideration

of cost was not prohibited. See 70 Fed. Reg. 15,994, 16,001

n.19 (Mar. 29, 2005) (“Nothing precludes EPA from

considering costs in assessing whether regulation of Utility

Units under section 112 is appropriate in light of all the

facts and circumstances presented.”). And the Solicitor

General has indicated that EPA is not now advancing a

contrary view. EPA Opp. at 2 (stating that “EPA declined to

consider costs when making thle] determination”). Were

EPA to now reject its 2005 position, it would propound an

unreasonable interpretation of the meaning of the statute

that would be rejected under Chevron.

lJ. The “problem” facing EPA was whether

or not to regulate power plants under

Section 112, or in some other way.

Section 112(nX1)A) is a special provision that

applies only to “electric utility steam generating

units” (referred to herein as “power plants”). 42

U.S.C. § 7412(n)(1)(A); 42 U.S.C. § 7412(aX8).

Under this provision, Congress directed EPA,

first, to undertake a study of the public health

hazards reasonably anticipated to occur as a result of

hazardous air pollutant emissions by power plants

“after imposition of the requirements of this

chapter.” 42 U.S.C. § 7412(n)(1)(A).? Second, EPA

was to present the results of the study, including a

description of alternative control strategies for

emissions found to warrant regulation “under this

section.” Id.’ Then, and only then, Congress directed

EPA to “regulate electric utility generating units

under this section, if the Administrator finds such

regulation is appropriate and necessary after

considering the results of the study required by this

subparagraph.” Jd.

EPA has erroneously defined the regulatory

question — or “problem” — as whether or not to

regulate harmful power plant emissions “at all.” See

2. This “chapter” refers to Chapter 85 of Title 42 of the United

States Code, which is the entire body of Clean Air Act

programs.

3. This “section” refers to Section 112 of Chapter 85 of Title 42

of the United States Code, which establishes the framework

for addressing hazardous air pollutants.

76 Fed. Reg. 24,976, 24,989 (May 3, 2011).* However,

the problem is not whether any harmful power plant

emissions are to be regulated “at all,” but how they

are to be regulated.

By misapprehending the problem, EPA ignored

the issues specific to power plants addressed by

Section 112(mX1MA). Yet, it is only with an

understanding of Section 112(nX1XA) that “important

aspects” of the decision to be made under this

provision can be identified.

A. The nation’s power plants evolved over decades of

support and regulatory oversight by state and

local governments taking into account differing

local circumstances.

The nation’s power industry is the product of a

century of efforts to provide affordable and reliable

electricity, much of which was pioneered by states

and local governments building and supporting the

construction of public and private power plants.

These efforts have resulted in a diverse fleet of power

plants that vary significantly in size, age, cost of

operation, fuel costs, and efficiencies.

The Court has long recognized these pioneering

efforts. As Justice Jackson stated, “[llong before the

Federal Government could be stirred to regulate

utilities, courageous states took the initiative and

almost the whole body of utility practice has resulted

from their experiences.” FPC v. East Ohio Gas Co.,

338 U.S. 464, 489 (1950) (Jackson, J., dissenting); see

4. EPA's erroneous statement of the problem was then adopted

by the court below. Op. at 28 (quoting 76 Fed. Reg. at 24,989).

also FERC v. Mississippi, 456 U.S. 742, 789 (1982)

(O’Connor, J., concurring in judgment and dissenting

in part) (“Utility regulation is a field marked by

valuable state invention.”).

Indeed, nearly all power plants in this country,

both public and private, are the result of significant

state and local government efforts. Many were

directly constructed by state and local governments.

Most others owe their economic feasibility to a

“regulatory compact” with the states. In exchange for

territorial monopolies that protect their investments

and provide the degree of certainty necessary for

enormous capital outlays, private power utilities are

intensely regulated by state commissions that

determine what prices they charge and what power

plants they build. Robert L. Swartwout, Current

Utility Regulatory Practice from a _ Historical

Perspective, 32 NAT. RES. J. 289, 289-90 (1992); see

generally General Motors Corp. v. Tracy, 519 U.S.

278, 288—90 (1997) (citing Swartwout’s article while

discussing state regulation of utilities).

This important legacy of state initiative is

especially evident in the public power sector that

provides electricity for communities previously

unserved or underserved by private utilities. See THE

POWER INDUSTRY AND THE PUBLIC INTEREST 104

(1944) (“Between 1882 and 1927 most municipal

systems were operating in communities never before

served by private companies.”); 77 Fed. Reg. 9,304,

9,440 (Feb. 16, 2012) (estimating “80 municipalities,

5 states, and 11 political subdivisions” are currently

operating large power plants that would be subject to

regulation under Section 112).

Moreover, utility investments in power plants are

closely supervised by state commissions that must

ensure the investment decisions are made primarily

for the benefit of users of electricity by keeping costs

as low as possible. This supervision covers the

decision where and when to build a new power plant,

the determination of its design, the decision whether

any upgrades should be made, and the decision when

it should be retired and replaced. In order to ensure

that electricity costs are minimized for users, each of

these decisions is influenced by local conditions such

as the availability of local fuel sources.

For example, some states have older fleets

because they are closer to coal resources and enjoy

lower fuel costs such that investing in new plants

does not offer the same return as in states that have

much higher fuel costs. Other states have been able

to avoid requiring expensive scrubbers on every coal

power plant while nevertheless achieving national

ambient air quality standards and complying with

the provisions of the Title IV acid rain program,

largely through the use of locally available low sulfur

coal.

Given the traditional and ongoing role of states in

cultivating and overseeing the nation’s power

generation industry, it is no surprise that power

plants are diverse in design, size, and age. This

diversity is no accident — it is a central feature of

the federal system. As with many issues they address,

state and local governments have responded to

differing local circumstance with decades of decisions

that have tailored their power generation fleets

accordingly.

B. Regulating power plants under Section 112

supplants state and local governments’ role

with an inflexible and uniform standard.

In light of this variability, Congress has shown

understandable caution in implementing national

emission standards for power plants.

At the same time that the current version of

Section 112 was being developed, for example, much

effort was spent developing a national cap and trade

program to address acid rain concerns to avoid

imposing uniform national sulfur dioxide standards

on power plants. The acid rain program, which was

established by Title [TV of the 1990 Clean Air Act

Amendments, was designed to give power plants the

choice among spending millions of dollars to install

scrubbers, or using more lower-sulfur coal, or

purchasing emission “credits” in a marketplace,

rather than require every power plant in the nation

take the same steps to reduce the acid rain problem.*

Section 112 threatens to be equally inappropriate

for power plants as Title IV would have been had

that program imposed one-size-fits-all standards.

This is because Section 112 would require that EPA

mandate potentially drastic emissions standards at

great cost and for little benefit, without regard for

differences in power plant performance that reflect

differing local circumstances. Specifically, Section 112

5. The market-based credit system ensures that facilities can

operate with existing controls without gaining a competitive

advantage over those capable of cost-effectively achieving

lower rates of emissions.

requires existing sources in categories or sub-

categories with more than 30 sources to achieve

emission standards that are no “less stringent

than the average emission limitation achieved by

the best performing 12 percent of the existing sources.”

42 U.S.C. § 7412(dX3). Thus, by design, subjecting

power plants to Section 112 indiscriminately forces

many existing power plants to shut down. They have

to either upgrade to match the performance of the

highest performing facilities in the nation or stop

operating. There is no opportunity to consider costs,

the age of the facility, or the needs of the community.

This consequences-blind mandate to match the

performance of the highest performing power plants

takes no account of the diversity of power plants

built and maintained to address differing local

circumstances. As a result, for many power plants,

this mandate offers no choice at all — Section 112

regulation of power plants is a death sentence.

Section 112 also strips the state commissions of

their traditional authority to tailor new power plants

to local circumstances in order to minimize electricity

costs for users. Every new power plant must be

designed to meet emission standards that are no

“less stringent than the emission control that is

achieved in practice by the best controlled similar

source.” Id. In other words, any new power plant

must match the performance of the best-performing

power plant in the nation, again regardless of costs,

energy requirements, or local needs.

The result is that, under Section 112, states that

face higher fuel prices and have accordingly built the

more expensive power plants required to minimize

electricity costs for their citizens will now set a

uniform performance standard for power plants in

other states. But these other states have built and

preserved less expengive power plants because doing

so is the best way to minimize electricity costs for

their citizens given their differing local conditions.

By imposing a uniform consequences-blind standard

for every new and existing power plant, Section 112

will force these states to depart from the tailored

cost-minimizing electricity generation systems by

scrapping many of their existing power plants and

either buying power from other states or devoting

hundreds of millions of dollars on new power plants,

upgrades to existing power plants, or retrofitting

power plants to accept alternative fuels. To put the

matter simply, a lot of people are going to have to

pay a lot more for their electricity if power plants

have to meet a rigid Section 112 standar?.

Furthermore, regulating power plants under the

Section 112 program threatened to combine with the

Title IV program to produce a grossly inefficient and

unjustifiable result — a mandate to spend billions of

dollars to install scrubbers after first having to

purchase emission credits to avoid the cost of

installing these same scrubbers and to subsidize the

cost of installing them on competitors. So long as just

12 percent of the industry has installed scrubbers,

the emission limitation they achieve for acid gases

will be the “emission limitation achieved by the best

performing 12 percent of the existing sources” in the

category and every existing power plant in the nation

must match this level of performance or shut down.

42 U.S.C. § 7412(dX3). This aspect of Section 112

regulation alone will force closure of many power

plants and force many others to spend billions of

dollars to install scrubbers without any benefits to

public health or the environment to show for it.

As stated by one legislator: “The basic concern” in

considering whether to subject power plants to

Section 112 regulation is that “certain otherwise

‘clean’ utilities might be forced to install scrubbers

even where “[sjuch ‘scrubbing’ would increase power

rates, while potentially providing little or no public

health benefit.” 136 CONG. REC. 3,493 (1990)

(statement of Sen. Steven Symms) (quoting staff

memorandum).

C. Congress provided the flexible Section 111

program as an a!ternative to power plant

regulation under Section 112.

In light of the enormous costs of Section 112 for

power plants, the potentially inconsistent treatment

of power plants under the Acid Rain Program and

Section 112, and the significant state role in assuring

a diverse fleet of local power generation facilities

that meets local demands cost-effectively, Congress

in 1990 provided an alternative program to regulate

any sources whose emissions “cause[], or contribute[]

significantly to, air pollution which may reasonably be

anticipated to endanger public health or welfare” —

Section 111. 42 U.S.C. § 7411(bX1)(A). This included

regulation of new sources under Section 111(b) and

regulation of existing sources under Section 111(d).

42 U.S.C. § 7411(b); 42 U.S.C. § 7411(d).

The existence of Section 111 as an alternative to

regulate power plant emissions is no happenstance.

In the very legislation enacting Section 112(n)(1)(A),

Congress included an amendment to provide for the

regulation of existing sources under Section 111(d) if

they were not regulated under Section 112. Pub. L.

No. 101-549, § 108(g), 104 Stat. 2399, 2467 (1990).

Without that key amendment, Section 112(n)\1)A)

would have required EPA to decide whether to

regulate some emissions from existing power plants

at all, because Section 111(d) would have excluded

the pollutants listed for regulation under Section 112.6

The amendment assured that Section 111 could be

used to regulate any harmful power plants emissions

that could be regulated under Section 112 if EPA

found Section 112 inappropriate or unnecessary.

Thus, through Section 112(nX1XA), Congress gave

EPA the choice whether to subject power plants to

Section 112 or Section 111. The decision Section

112(n)(1MA) required EPA to make — i.e., the

“problem” confronting EPA — was not whether to

regulate power plant emissions, as EPA claimed, bu.

whether to use Section 112 or Section 111 to regulate

them.

6. Prior to 1990, the Clean Air Act prohibited Section 111(d)

regulation of the limited set of emissions that were regulated

under the initially very narrow Section 112 program. See

42 U.S.C. § 7411(d) (1988); 42 U.S.C. § 7412(a)(1) (1988)

(pre-1990 limitation on Section 112 regulation to those

emissions “which may reasonably be anticipated to result in

an increase in mortality or an increase in serious

irreversible, or incapacitating reversible, illness”); 42 U.S.C

§ 7412 (post-1990 expanded authority for Section 112

regulation of those emissions “which present, or may

present, a threat of adverse human health effects. or

adverse environmental effects”).

D. EPA has acknowledged that it erroneously

ignored Section 111 as an alternative for

regulating power plant emissions.

Over the last 14 years, EPA changed its mind a

few times on whether or not Section 111 is an

alternative to regulation of power plants under

Section 112, a choice that in turn impacts whether

costs are important in deciding if Section 112

regulation is appropriate. At first, EPA seemingly

forgot about Section 111. A few years later, EPA

acknowledged it had been mistaken in rendering a

decision to regulate under Section 112 without

recognizing the Section 111 alternative. More

recently, EPA repeated its initial mistake, a mistake

acknowledged by the Solicitor General in this case.

When EPA first set out to determine whether

Section 112 is appropriate for power plants, the

agency failed to consider costs, and did so without

the benefit of notice and comment from the public. 65

Fed. Reg. 79,825 (Dec. 20, 2000). Following EPA’s

announcement of its assessment of the

“appropriateness” of regulating power plants under

Section 112, utilities filed a petition for review

seeking an order for EPA to conduct the finding

through rulemaking. Petition for Review, Util. Air

Regulatory Grp. v. EPA, No. 01-1074 (D.C. Cir. Feb.

16, 2001). The utilities objected to EPA’s failure to

provide an opportunity for notice and comment.

Statement of Issues J 4, Util. Air Regulatory Grp. v.

EPA, No. 01-1074 (D.C. Cir. Mar. 26, 2001). And they

further pointed out that EPA had wrongly believed

that the Section 112 program was the “sole source of

regulatory authority for hazardous air pollutant

emissions from coal- and oil-fired power plants.” Id. { 2.

EPA first responded by moving to dismiss the

petition for review on the ground that even if the

finding was either procedurally or substantively

defective, it constituted a “listing” decision that, per

a provision of Section 112, could only be challenged

at the time standards for the category were issued,

not when the listing was made. The D.C. Circuit

Court of Appeals agreed and issued a per curiam

order dismissing the petition. Util. Air Regulatory

Grp. v. EPA, No. 01-1074 (D.C. Cir. July 26, 2001)

(per curiam).

Subsequently, EPA concluded that it had erred by

failing to recognize the Section 111 alternative

Congress had provided for addressing the very same

emissions that could be regulated under Section 112.

EPA explained that it had found Section 112

appropriate and necessary “based solely on its

belief, at the time, that there were no other

authorities under the CAA that would adequately

address Hg and Ni emissions” from power plants. 69

Fed. Reg. 4,652, 4,684 (Jan. 30, 2004). But after

“conductling] a more thorough review of the available

authorities under the CAA,” EPA had now “identified

a viable statutory mechanism other than section 112”

that could be used to “adequately address” power plant

emissions: The Section 111 program. Jd.

Having recognized the availability of Section 111,

EPA found power plants should not be subject to

Section 112 and accordingly proceeded with a rule to

regulate power plants under Section 111 instead.

70 Fed. Reg. 15,994 (Mar. 29, 2005).

But when EPA promulgated the Section 111 rule

for power plants and retracted the agency’s flawed

Section 112 appropriateness finding, certain stake-

holders successfully challenged EPA’s authority to

rescind the earlier finding. The court agreed that

EPA itself could not accomplish a “delisting” of power

plants by simply admitting its error. New Jersey v.

EPA, 517 F.3d 574 (D.C. Cir. 2008). Accordingly, the

court of appeals vacated the revision of the finding

and also EPA’s Section 111 rule for power plants. Id.

at 583.’

As a result of the court of appeals’ decision, EPA

was in an awkward position. Had EPA continued to

acknowledge that the initial finding was erroneous

because it was made in ignorance of the Section 111

alternative, EPA would have had to go through all

the work of preparing and promulgating a Section

112 rule, finalize it, and then refuse to defend the

finding on which it rested. This scenario did not

occur, however, because EPA simply reverted to its

initial mistake by once again failing to recognize the

availability of Section 111, claiming that it was

deciding whether to regulate power plants “at all.”

76 Fed. Reg. at 24,989. On that basis, EPA defended

the original finding’s failure to consider costs and

then went even further and affirmatively refused to

consider costs.

In its brief to the court below defending this

refusal to consider costs, EPA’s counsel did not

repeat — but also did not correct — this assertion

that the agency had n» alternative to Section 112 for

regulating power plant emissions. As a result, the

7. The Court vacated the Section 111(d) guideline because EPA

cannot regulate power plants or any existing source category

under both Section 111(d) and Section 112. Id. The Court

vacated EPA’s Section 111(b) standard for new power plants

on the basis that EPA would not have issued it without the

Section 111(d) guideline. Id.

court below relied on the erroneous statement in its

opinion upholding EPA’s refusal to consider costs as

reasonable. Op. at 28 (quoting 76 Fed. Reg. at 24,989).

In support of several states’ petition for certiorari

challenging this decision, Murray Energy identified

this error by EPA and the court below. Brief at 9.

In opposition to the petition for certiorari, the

Solicitor General acknowledged that, as EPA had

previously recognized, the agency had the alternative

to use Section 111 to regulate power plants. EPA

Opp. 7 (“In 2005 EPA concluded that it was

instead appropriate to regulate power-plant mercury

emissions through an alternative statutory authority,

42 U.S.C. 7411.”). The Solicitor General did not

dispute that the existence of the Section 111

alternative renders erroneous EPA’s principal basis

for refusing to consider costs, that EPA was deciding

whether to regulate power plant emissions “at all.”

Ill. Costs are an “important aspect” of the

decision to regulate power plants

under Section 112 or Section 111.

That the costs of Section 112 are enormous is not

in dispute. EPA has projected that regulating power

plants under Section 112 will impose far greater

costs than any other category of sources that EPA

has ever regulated under that program, an estimated

$9.6 billion per year, nearly ten times more than

every other Section 112 rule but one. It is difficult to

imagine any decision-maker concluding that this

unprecedented price tag ought not be considered

before deciding it is appropriate to impose those costs.

However, it is the availability of the Section 111

alternative that underscores the importance of costs

to the “problem” EPA seeks to address — costs are

the principal difference between the two options.

Additionally, the choice to use Section 112 comes at

great cost to public power plants which, given the

Unfunded Mandates Reform Act of 1995, surely is an

“important aspect of the problem” for EPA to consider.

A. Costs are the principal difference between

Section 111 and Section 112.

Section 111 is far more flexible and less costly

than Section 112 because Section 111 would allow

state and local governments to continue to tailor

their power generation fleets to address differing

local circumstances. Rather than mandate that EPA

force all sources to match the performance of the top

performing sources, Section 111 standards for new

and existing sources must be designed with costs

and energy requirements “take[n] into account.”

42 U.S.C. § 7411(a\1).

Crucially, Section 111 standards for existing

sources are separately designed by the states for

each state’s own set of sources, not by EPA for every

source in the category. 42 U.S.C. § 7411(d)(1}<2).

Furthermore, the states are authorized to account

not only for the differences in their sources from

other states, but differences in the lifespan of sources

as well. The standards may “take into consideration

the remaining useful life of the existing source” in

order to limit the potential for stranded investments

and wasteful retirements. /d.

EPA sets nationwide Section 111 standards for

new sources, but these standards are not subject to a

formula in which the single very best performing

source automatically dictates the standard of

performance for every new source in the nation, as is

the case with Section 112. Rather, EPA must identify

a standard that takes cost and other considerations

into account. Accordingly, if the very top performing

source in the nation is tailored to local circumstances

that are very different from the rest of the country,

EPA can exercise its judgment not to set a lower

standard of performance for other new sources.

EPA itself recognized the importance of cost in

choosing between Section 111 and Section 112 as the

method for regulating power plants. Having

admitted that it mistakenly overlooked Section 111

as a viable alternative to Section 112 in its earlier

Section 112 rulemaking, EPA proceeded with a

Section 111 rule instead. In doing so, EPA found that

costs are an important aspect of the problem under

consideration. 70 Fed. Reg. at 16,000—01 (“[I]t might

not be appropriate if the health benefits expected

as the result of such regulation are marginal and the

cost of such regulation is significant and therefore

substantially outweighs the benefits. [SJituation

specific-factors, including cost, may affect whether it

‘is appropriate’ a

While Section 111 offers the flexibility necessary

for regulating a widely diverse source category like

power plants without imposing unjustified costs and

without eliminating the ability of states to respond to

differing local circumstances, it nevertheless offers

the ability to address all of the same public health

and environmental concerns as Section 112 because

the Section 111 program can be used to regulate at

least as many substances as Section 112.°

Accordingly, the choice Congress tasked EPA to

make between using Section 112 or Section 111 as

the alternative does not require EPA to determine

whether the public health and the environment will

be protected. The choice-is how it will be done, and

that depends foremost on the costs of subjecting

power plants to Section 112

8. The opinion of the court below incorrectly implies that the

substances listed by Congress for Section 112 regulation

“cause, or contribute to, air pollution which may reasonably

be anticipated to result in an increase in mortality or an

increase in serious irreversible, or incapacitating reversible,

illness.” Op. at 7. But that standard has been removed from

the statute and replaced, as EPA conceded in its brief in

opposition to certiorari, with a standard requiring only that

the emissions “present a threat of adverse human

health effects . . or adverse environmental effects.”

42 U.S.C. § 7412(bX2); EPA Opp. at 2-3. This is similar to

the standard in Section 111 that emissions must “endanger

public health or welfare.” 42 U.S.C. § 7411(bX1XA).

B. EPA’s decision imposes significant costs on

state and local providers of public power.

EPA estimates that subjecting power plants to

Section 112 imposes “compliance costs greater than

1 percent of base generation revenue in 2016” on

“42 government entities” that provide public power

and of these “32 may experience compliance costs

greater than 3 percent of base revenues.” 77 Fed.

Reg. at 9,439. All told, EPA estimates it will “impose

approximately $294 million in annual direct

compliance costs on an estimated 96 state or local

governments.” Jd. at 9,440. Perhaps most significant,

EPA projects that as a result of its decision to

subject power plants to Section 112, “6 units owned

by government entities are expected to retire”

completely. Jd. at 9,439.

Thus, the costs to public power providers further

supports the conclusion that costs are an important

aspect of the problem, and must be considered by EPA.

C. The Unfunded Mandates Reform Act of 1995

underscores the importance of costs in this case.

It was the states’ concerns over precisely the kind

of disproportional mandate resulting from Section 112

regulation of power plants that prompted states to

exercise their political clout in Washington to obtain

enactment of the Unfunded Mandates Reform Act of

1995. S. Rep. No. 104-1, at 2 (1995) (“State and

local officials from all over the Nation came to

Washington” and “conveyed a powerful message to

Congress.”). These officials demonstrated that EPA

and other agencies had issued many regulatory

mandates that imposed hundreds of millions of

dollars in unjustified costs.

The Mayor of Columbus, Ohio, noted in particular

the concern that state and local officials could be

“forced to raise utility bills to pay for” federal

mandates when they had no means of assuring that

these mandates would be “appropriate.” S. REP. No.

104-1, at 2 (1995). And in seeking the Mandates Act

to redress this issue, the Governor of Ohio explained

that the states were in part following the guidance

from the Court, which, in holding that state and local

governments have no regulatory immunity from

unfunded mandates, essentially advised the states to

work out their issues with Congress. Joint Hearing

on S. 1 Before the S. Comm. on Governmental Affairs

and the S. Comm. on the Budget, 104th Cong. 61

(1995) (testimony of Hon. Gov. George V Voinovich,

on behalf of the National Governors’ Association)

(referring to Garcia v. San Antonio Metro. Transit

Auth., 469 U.S. 528, 554 (1985)).

As required by Section 202 of the Mandates Act,

EPA calculated the costs of its decision to subject

power plants to regulation under Section 112 will

cost $9.6 billion per year. 77 Fed. Reg. at 9,439. EPA

knew its regulatory decision would result in costs

well over the statutory threshold of $100 million.

In fact, EPA also calculated that nearly $300 million

in costs would be imposed on state and local providers

of public power. Id. at 9,440.

But EPA is refusing entirely to consider any of

the information it was required by the Mandates Act

to develop — and did in fact develop. Somehow, EPA

concludes it was not an important aspect of its

decision.

Importantly, while Congress did not specify in the

Mandates Act what EPA was to do with the cost

estimates it was required to develop, Congress did

provide that the cost estimate would be examined as

part of the record for judicial review. See 2 U.S.C.

§ 1571(aX4) (“Any information generated under”

Section 202 of the Mandates Act “that is part of the

rulemaking record for judicial review under the

provisions of any other Federal law may be

considered as part of the record for judicial review

conducted under such other provisions of Federal

law.”); see also Conference Report on S. 1, H.R. REP.

No. 104-76, at 45 (1995). This assuredly assumed

that federal agencies would keep faith with the

states by considering the resu.ts of the Mandates Act

estimates at the very least in the rare circumstances

where the estimates in fact demonstrate the kind of

disproportionality in costs and benefits that the

states had complained of before Congress.

EPA’s conduct in this case announces to state and

local governments that the millions in costs they

must bear are irrelevant to the determination of the

federal policies that impose them. The “observance of

good faith with the states requires” that more than

this blithe disregard of the Mandates Act estimates.

FPC v. East Ohio Gas Co., 338 U.S. 464, 490 (1950)

(Jackson, J., dissenting).

IV. EPA’s refusal to consider costs renders its

decision arbitrary and capricious.

EPA’s analysis of the appropriateness of using

Section 112 to regulate power plants is as obviously

unfinished as if the agency had prefaced its

discussion with “On the one hand” without following

it up with another, for EPA never weighs the health

effects against any countervailing consideration. Yet

at the outset of the Section 112 rulemaking, EPA

admitted that applying Section 112 to power plants

would transform the nation’s power generation fleet.

76 Fed. Reg. at 24,979. By refusing to consider the

costs, EPA failed to determine the wisdom of such a

drastic reshaping of a core component of the nation’s

economy and the relationship between the states and

the federal government, despite the command to take

this step only if it was “appropriate.”

Congress presented EPA with a decision to make

pursuant to Section 112(nX(1XA): Should power plants

be regulated under Section 112? In presenting that

decision to EPA, Congress was well aware of the

regulatory alternative it provided in Section 111 for

both new and existing power plants. While EPA forgot

about this alternative authority for a period of time,

the agency eventually recognized that the question

under Section 112(n)(1)(A) calls for a choice between

regulatory programs — one of which is far more

inflexible and costly than the other. EPA’s refusal to

consider costs, one of the most important aspects of

making that choice, is arbitrary and capricious under

the standard established in State Farm.

CONCLUSION

The judgment of the court of appeals should be

reversed and EPA’s determination that power plants

could be appropriately regulated under Section 112

— together with the rule itself — should be vacated.

January 2015

Respectfully submitted,