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US Court To Scrutinize EPA's Delayed Power-Sector Rule

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04/12/2012 | 10:42pm CEST

--EPA rule was delayed by appeals court in late 2011

--Companies, states challenge rule on 10 fronts

--Ruling will affect near-term coal-plant outlook

   By Ryan Tracy 

The U.S. Court of Appeals in the District of Columbia will scrutinize one of the Obama administration's top environmental accomplishments Friday when it hears challenges to an Environmental Protection Agency regulation that would affect coal-fired power plants.

In January, the court suspended the Cross-State Air Pollution Rule days before it was to take effect--a move that gave life to a group of power companies and states which said the rule is heavy-handed and illegal.

If the panel of three judges rules in the challengers' favor, companies such as GenOn Energy Inc. (>> Genon Energy Inc), American Electric Power Co. (>> American Electric Power Company, Inc.), and Southern Co. (SO) could earn more time to comply with the rule or avoid having to implement it altogether.

Had the rule been implemented already, "I know of several other companies who basically would have had to shut down [power] plants almost immediately," said Jeff Holmstead, an attorney with Bracewell & Giuliani and former head of the EPA's air-quality office, who is representing GenOn in the case.

The rule is a revision of a Bush-era regulation that the same court rejected. It attempts to deal with a difficult issue under the Clean Air Act: The law leaves air-pollution enforcement in the hands of individual states, but pollutants also blow far from where they are emitted. Downwind states on the East Coast have long complained that they can't meet their own air-quality standards because of pollution from upwind neighbors.

The EPA wants to require power plants in about two dozen upwind states--most of the states east of Colorado with the exception of those in New England--to slash emissions of nitrous oxide and sulfur dioxide. Those acid gases react in the atmosphere and create smog and soot, which worsen conditions such as asthma and heart disease.

The challengers attack the rule on at least 10 fronts, according to an analysis of legal filings by Robert W. Baird & Co. Among other things, power companies argue that the EPA didn't justify the rule's pollution limits, while a group of 15 upwind states say the EPA violated the law by not allowing them to develop their own plans for slashing emissions until the rule had already gone into effect.

The EPA said the rule will stand. Gina McCarthy, the agency's top official in charge of air quality, argued in January that the judges didn't want a long delay of the rule, pointing out that the court had set a relatively short schedule for hearing the case. "I believe we got this right," she said at the time. "We did what that court told us to do."

Power companies including Exelon Corp. (>> Exelon Corporation) and Calpine Corp. (>> Calpine Corporation) have joined nine downwind states in filing briefs supporting the rule. Several environmental and public-health groups are also supporting the agency. "The pollution reductions at stake are some of the most-important clean-air protections for children, families and communities across the eastern half of the United States," said Vickie Patton, general counsel for the Environmental Defense Fund.

Even if the court finds against the EPA, any delays in retrofits or retirements of aging coal-fired power plants might not last more than a few years. A separate but stricter EPA rule on mercury and other toxic power-plant emissions will take effect in 2015, and the low cost of natural gas for power generation is already driving companies to switch away from coal.

The court is expected to issue a ruling this summer.

-By Ryan Tracy, Dow Jones Newswires; 202-862-9245; ryan.tracy@dowjones.com

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