IS THERE ANY ROOM FOR COOPERATIVE FEDERALISM IN EPA’S GHG REGULATIONS?

2. IS THERE ANY ROOM FOR COOPERATIVE FEDERALISM IN EPA’S GHG REGULATIONS? CONFERENCE OF WESTERN ATTORNEYS GENERAL July 22, 2014 Park City Utah Paul M. Seby pmseby@hollandhart.com

3. Low Cost Electricity is Vital to U.S. Social & Economic Welfare • Affordable electricity creates and protects America’s high standard of living. • Sustaining and improving American quality of life depends upon having disposable income for food, education, health care, personal savings and other goods & services. • Encouraging continued economic development and environmental protection depends upon meaningful respect for “cooperative” federalism.

4. Energy Cost Impacts on American Families, 2001-2012 Energy Costs as Percentage of Annual Household After-Tax Income Source: www.americaspower.org

5. EPA Regulation of GHGs • No explicit Congressional directive to regulate GHGs, yet EPA is using the Clean Air Act (CAA) to implement the President’s climate policy. • EPA Proposed Regulations for Electric Power Generation Sources. • New Sources - § 111(b) • Existing Sources - § 111(d)

6. Cooperative Federalism Under the CAA • Where do the States fit in? • The CAA establishes “a comprehensive national program that makes the States and the Federal Government partners in the struggle against air pollution.” General Motors Corp. v. United States (U.S. Supreme Court 1990). • State primacy is explicit under several key CAA programs: • NAAQS – related SIPs • PSD (BACT) Determinations • Visibility/Regional Haze Plans • Existing Source NSPS

7. CAA Framework for NSPS - New Sources (§ 111(b)) • §111(b) requires EPA to set performance standards that are achievable, cost-effective, and based on technologies that are “adequately demonstrated” in practice. • EPA’s Proposed Rule would require a performance standard for utility boilers and Integrated Gasification Combined Cycle (IGCC) units based on implementation of carbon capture and storage (CCS) systems. • A ban on new coal-fueled generation?

8. CAA Framework for Existing Sources (§ 111(d)) • Authority under § 111(d) to establish performance standards for existing sources is vested with the States – not EPA. • EPA’s authority is limited to developing a procedure for the submission of State plans. • No EPA authority to set minimum substantive requirements. • EPA can require States only to adopt performance standards based upon the States’ application of several statutory factorsset forth in § 111(a)(1). • EPA CANNOT dictate substantive State outcomes.

9. EPA’s Past Use of § 111(d) • Over past 30 years of the CAA, EPA has made only limited use of § 111(d), for: • Phosphate fertilizer plants (fluorides); sulfuric acid plants (acid mist); primary aluminum plants (fluorides); Kraft pulp plants (total reduced sulfur); municipal solid waste landfills (landfill gases); sources regulated under CAA § 129. • No precedent for regulating GHGs. • No precedent for regulating beyond the individual emission source.

10. EPA’s Proposal For Existing Electric Generating Facilities [and beyond] EPA HAS DECIDED HOW MUCH COAL, NATURAL GAS, NUCLEAR, AND RENEWABLE ENERGY EACH STATE SHOULD USE AND HOW MUCH LESS ELECTRICITY CONSUMERS SHOULD USE. • If States disagree with EPA, they have only 120 days to understand, analyze and rebut EPA’s analysis of each State. • If finalized, EPA’s stringent requirements cannot be changed by any State. • Final Rule by June 2015, with State Plans due by June 2016. • Each State must start implementing its Plan by 2020. • Each State must achieve its limit by 2030. In addition, EPA proposed interim emission limits each State must meet during the period 2020 to 2029. • State Plans submitted by June 2016 will be approved or disapproved (and a FIP) by EPA in July 2017. • Plans are “federally-enforceable.”

11. EPA’s Proposal For Existing Electric Generating Facilities [and beyond] Cont’d EPA’s NUMERIC “GOAL” FOR EACH STATE IS BASED ON EPA’S VIEW OF EACH STATE’S POTENTIAL TO REDUCE CO2 EMISSIONS UTILIZING FOUR “BUILDING BLOCKS:” • AT THE SOURCE: Improving heat rate (efficiency) at all 1,308 existing coal-fired units in the U.S. by 6%. • EPA has made an across-the-board assumption, even though the opportunities to improve efficiency vary widely from unit to unit. • However, EPA gives no relief from new source review requirements which are an impediment to efficiency improvement projects/spawn litigation. • BEYOND THE SOURCE: Increasing the utilization (capacity factor) of existing natural gas combined cycle power plants to 70% . • The average nationwide capacity factor for natural gas combined cycle units was 49 %in 2012. This capacity factor ranges from 24 % in the Midwest to 58 % in Florida. • Increasing gas utilization by the amounts EPA’s proposal requires means an increase of as much as 14 % in natural gas demand by the power sector and, EPA admits, a 10 % to 12.5 % increase in Henry Hub natural gas prices by 2020.

12. EPA’s Proposal For Existing Electric Generating Facilities [and beyond] Cont’d • BEYOND THE SOURCE: Adding new “renewable electricity” generation in every State, completing five nuclear power plants currently under construction, and preventing the retirement of nuclear capacity that might otherwise shut down. • These are resource planning and grid reliability decisions that fall solely within the jurisdiction of State public utility commissions, FERC, and interstate electrical grid operators. • BEYOND THE SOURCE: Increasing end-use energy efficiency to reduce electricity use by 9%to 12%. • EPA estimates consumers will have to spend as much as $25 billion per year to reduce their electricity use.

13. EPA’s Proposal For Existing Electric Generating Facilities [and beyond] Cont’d • U.S. power plants are responsible for a small fraction (4%) of global GHG emissions. EPA’s proposal will reduce global GHG emissions by less than 1% at a cost, according to EPA, of $4.2 billion to $8.8 billion per year. • Because the EPA proposal will have virtually no effect on global climate change, EPA is claiming health benefits for reducing ozone and particulate matter, pollutants that have been tightly regulated under the CAAfor decades to ensure that air quality is safe. Moreover, EPA is required to revise these standards periodically if they do not protect public health. • ACCCE analysis of similar proposal • $13 billion to $17 billion per year • 30,000 MW to 80,000 MW of coal unit retirements • Over 200,000 jobs lost in 2020

14. Relevance of Recent Supreme Court GHG Decision • “When an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ Brown & Williamson, 529 U.S., at 159, we typically greet its announcement with a measure of skepticism. We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’” Slip Op. at 19. • “In the Tailoring Rule, EPA asserts newfound authority to regulate millions of small sources – including retail stores, offices, apartment buildings, shopping centers, schools, and churches – and to decide, on an ongoing basis and without regard for the thresholds prescribed by Congress, how many of those sources to regulate. We are not willing to stand on the dock and wave goodbye as EPA embarks on this multiyear voyage of discovery.” Slip Op. at 23. • “We reaffirm the core administrative-law principle that an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” Slip Op. at 23.

15. Legal Questions & Ramifications • Authority to regulate sources under § 111(d) that are already subject to CAA § 112. • Authority to promulgate § 111(d) Rules without a “significant contribution” endangerment determination. • Severability and departure from 111(b) Rule. • Rulemaking authority to set State standards generally. • Authority to differentiate standards by State. • Defining BSER to look outside the fence of the “affected facility.” • Intrusion into State PUC/PSCs.

16. EPA Has Been Actively Substituting Its Judgment for State Decision-Making – Foreshadowing Experiences To Come? • EPA is actively vetoing State SIPs – often involving disagreement with States’ discretionary judgments. • Recent EPA FIP on Wyoming is the 50thSIP veto/FIP by this EPA/Administration. • Cost of EPA’s FIPs are routinely hundreds of millions of dollars greater than SIPs. • Differences in environmental benefits are often marginal.

17. Where Does It Go From Here? • Take stock of “lessons learned.” • Advancing and defending State authority is critical. • State participation in EPA’s rulemaking. • Coordinated involvement in SIP development. • Judicial review actions. • D.C. Circuit – Final EPA Rules • Other Federal Circuit Courts – Individual SIP/FIP actions