The U.S. Court of Appeals for the District of Columbia Circuit temporarily blocked the Cross-State Air Pollution Rule (CSAPR) just two days before it was set to go into effect. The federal court ordered the Environmental Protection Agency (EPA) to continue administering the previously promulgated Clean Air Interstate Rule (CAIR) until a final decision can be made on the merits of the rule, likely this summer or fall.

In a two-page per curiam order in the case EME Homer City Generation L.P. v. EPA, the three-judge panel of the appeals court on Dec. 30 granted, among other measures, the consolidated motions to stay the rule issued by the EPA last July. Among entities opposing the rule are Southern Co., EME Homer City Generation, the state of Texas, the National Mining Association, and the International Brotherhood of Electrical Workers. Six states and a few power companies had intervened in support of the EPA.

“Petitioners have satisfied the standards required for a stay pending court review,” Judges Brett Kavanaugh, Thomas Griffith, and Janice Rogers Brown said in the ruling.

The motions considered by the court in its order stem from 45 separate appeals from several companies, industry and environmental groups, and 15 states. Nineteen parties had filed motions to stay the rule.

Like the state of Texas, some petitioners had raised concerns about the legal validity of CSAPR, saying the agency had bypassed state authorities by imposing Federal Implementation Plans. Others contested the methodology and accuracy of state emissions budgets. Otherwise, petitioners listed “unrealistic compliance deadlines, reliability concerns and federalism concerns as among the reasons warranting a stay,” Gabriel Rodriguez, an attorney for law firm Schiff Hardin said on Tuesday.

In its ruling, in addition to ordering the EPA to continue administering CAIR, the court called on parties involved in the case to submit a briefing plan by Jan. 17 that makes it possible to hear all the consolidated cases by April 2012. Industry experts said that this marked an “expedited schedule” and that a decision on the merits of CSAPR could like be reached by summer or early fall of 2012.

EPA: Not a Decision on the Merits of the Rule
The CSAPR, issued on July 6, 2011, requires 28 states to improve air quality by slashing power plant sulfur dioxide and nitrogen oxide emissions that contribute to ozone or fine particle pollution in other states. The rule replaces CAIR, a rule the EPA promulgated in 2005. The U.S. Court of Appeals for the D.C. Circuit had struck down CAIR in July 2008, but later that year, the court  reinstated CAIR and directed the EPA to issue a new rule to implement Clean Air Act requirements concerning interstate air pollution. CSAPR, which would have been effective on Jan. 1, 2012, was to succeed CAIR.

In a statement last week, the EPA said it was “disappointing that the significant public health benefits of the Cross State Air Pollution Rule may be delayed, even temporarily, especially given EPA’s work to utilize the Clean Air Act’s flexibility to ensure the rule is achievable.” But the agency expressed confidence that the court would eventually uphold the rule after weighing its merits, even though it believed the “decision is not a decision on the merits of the rule.”

Some industry groups lauded the stay. “The underlying rule was the subject of hasty process, poor technical support, unequal application, and substantial threat to jobs, power bills and reliability,” Scott Segal, director of the Electric Reliability Coordinating Council told Reuters on Friday. "Stays are granted when there is a strong chance of success on the merits and when parties can be injured without preliminary relief.”

Luminant, which had petitioned the court to review the rule, claiming it would cause “irreparable harm” and force the Dallas-based company to idle two coal plants and slash 500 jobs, on Friday said the court’s decision would allow its Monticello Units 1 and 2 to continue operating. The plants are badly needed by the Electric Reliability Council of Texas, which in July said it would face generation shortages if CSAPR were implemented as written.

“The company intends to continue closely evaluating business and operational decisions given that this stay does not invalidate the rule, but delays a decision on its implementation until a final court ruling is issued,” Luminant said.

Addressing the Legal Validity of the Case
According to Kyle Danish, an environmental and energy expert for law firm VanNess Feldman, the stay order suggests that the court has at least “some concerns about the legal validity of at least some aspects of the CSAPR.” This does not “necessarily foretell invalidation,” he said, however, pointing to a 1999 D.C. Circuit case in which the court stayed a predecessor to the CAIR and the CSAPR—the NOx SIP Call rule—but ultimately upheld the essential components of the rule.

Another critical concern is how long the court’s decision will delay implementation of CSAPR. “It appears that the court’s stay will push back the start of the CSAPR program by at least one year—and perhaps more if the court reverses EPA on core elements of the rule,” Danish said.

The most substantial impact the rule will have is on the nascent markets for CSAPR. “Though many traders had taken into account the possibility of a stay, the court’s decision to stay CSAPR and reinstate the CAIR is likely to result in a significant degree of market disruption. The stay order plays havoc with already executed transactions for delivery of 2012 CSAPR allowances. It also could lead to a scramble for 2012 CAIR allowances, which EPA had withdrawn from accounts after it finalized the CSAPR."

One thing is certain: “The stay order contributes to regulatory uncertainty for power companies and power markets in a time of significant EPA rulemaking activity. The order suggests that litigation will remain a wild card for compliance and market planning,” Danish said.

Courtesy: POWERnews, EPA, Reuters, Schiff Hardin LLP, VanNess Feldman LLP