Aug 19

Supreme Court Decision on MATS Confirms EPA Inadequately Addressed Benefit Analysis of the Regulation

By Danny Gray, Executive Vice President, Governmental and Environmental Affairs at Charah, Inc.

On June 29, 2015, the last day of its session, the U.S. Supreme Court ruled on the Mercury and Air Toxic Standards (MATS) case and remanded the case back to the 5th Circuit Court stating that Environmental Protection Agency (EPA) did not justify implementing the regulations based on proper economic benefit analyses. While the coal-fired electric utility industry can take some comfort in the 5/4 decision, it does not set aside the regulations but left that decision to the lower court. What is troubling about this expensive regulation is that EPA can inflict such economic damage on any industry without properly evaluating the benefits; and a whole industry must comply regardless if the rules were inappropriate. The fact that EPA can force this level of spending without properly justifying their action highlights a weakness in the administrative legal process for developing new regulations. To correct this flaw, economic benefit analysis should be performed and vetted in an open process prior to compelling any industry to spend large sums. In this case, every American citizen is negatively impacted through higher electricity costs without justifiable gains.

The Clean Air Act plainly requires EPA to consider economic benefit analysis prior to issuing the power plant regulations. Writing for the Court, Justice Antonin Scalia said it is not appropriate to impose billions of dollars of economic costs in return for a few dollars in health or environmental benefits. The estimated costs to plants were 1,600 to 2,400 times more than the direct benefits. Contrary to the intent of the Clean Air Act, EPA said “…that cost was irrelevant to that determination – not that cost-benefit analysis would be deferred until later” therefore the benefits analysis played no role in their decision to regulate. In subsequent review, the Agency included ancillary benefits for reducing SO2 and NOx in order to inflate their estimated benefits, even though these emissions are not included under the law under which the regulation was being promulgated. Scalia writes that “Federal administrative agencies are required to engage in reasoned decision making,” within the authority of the law granted to them, using a process with a result that is logical and rational.

Trying to justify its actions, EPA in developing the MATS regulations stated that “we further interpret the term ‘appropriate’ to not allow for the consideration of costs.” The Court found that EPA strayed far beyond the bounds of reasonable interpretation when it elected to ignore cost when deciding whether to regulate power plants under MATS.” The Court further stated that, “One would not say that it is even rational, never mind appropriate, to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.” It went on to clarify that “in addition, costs includes more than the expense of complying with regulations; any disadvantage could be termed a cost.” While the Court found that there are settings in which the phrase ‘appropriate and necessary’ does not encompass cost…the MATS rule is not one of them. The Court characterized the absurdity of EPA’s argument logic behind the rules with an example where “someone could decide to whether it is appropriate to buy a Ferrari without thinking about cost, because he plans to think about cost later when deciding whether to upgrade the sound system.” Unfortunately for American citizens, we must all bear the high cost of the MATS compliance equipment that was required to be installed while the legal process dragged along in finding the mistakes of EPA’s administrative rulemaking. Utilities were required to spend huge sums of money to prepare for MATS compliance deadlines while the EPA regulatory process was being debated through the court system. Since EPA likely knew the court process would extend beyond the compliance deadline, EPA was essentially the judge, jury and executioner. Using the Court’s analogy, now we the American public must pay for the Ferrari that EPA forced us to buy, even though EPA did not justify that we needed the Ferrari nor could afford it.

In response to the Court’s decision, EPA did not concede the error of their ways and/or ask for forgiveness for the huge inappropriate cost to the impacted public, but instead gave a statement by EPA spokeswoman Melissa Harrison that “EPA is disappointed that the Supreme Court did not uphold the rule, but this rule was issued more than three years ago, investments have been made and most plants are already well on their way to compliance.” The assertion is that the damage is now inflicted without any recourse. EPA achieved its desired result even if they did not follow the intent of the law. Something about this outcome and EPA’s imposition of the costs on ratepayers just seems unjust and out of step with the Clean Air Act intent to have and implement laws which are reasonable and necessary.

Now, as the fate of the rules moves back to the lower court, the Court should set aside the compliance requirements of the rules to avoid creating differential costs between utilities and differential burdens on electric customers. The tough issues now faced by utilities may revolve around recovery of the capital investment forced on them by EPA’s regulation deemed inappropriate by the Court. EPA and the Court, along with regulated community input, should openly develop the appropriate methodology for calculating the direct cost benefit analysis prior to establishing any new MATS type regulation. This process today is even more appropriate as we move toward implementation of even more expensive EPA regulations under the Clean Air Act.