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Because EPA Failed to Consider Costs to Industry, Supreme Court Overturns Power Plant Regulation

Posted: 07/01/2015
Services: Utilities


The Mercury and Air Toxics Standards rule ("MATS") for electric utility steam generating units has been reversed and remanded with the Supreme Court’s much-anticipated decision in Michigan v. EPA on June 29, 2015. Writing for the Court in this 5-4 ruling, Justice Scalia explained that remand was necessary because EPA failed to consider costs in its determination to regulate hazardous air pollutants from these sources. The remand leaves the future of MATS unclear for the regulated community.

EPA’s Determination

Under the Clean Air Act, Section 112(n), EPA was required to determine whether the regulation of hazardous air pollutants from power plants was "appropriate and necessary." The agency conducted a study of health hazards reasonably anticipated to result from hazardous air pollutant emissions from the steam generating units after implementing other controls required under the Act. In making this determination, EPA said costs should not be considered in the initial determination of whether to regulate these emissions, and found that regulation was "appropriate" because hazardous air emissions posed a risk to human health and the environment and controls for these emissions are available. EPA also determined that regulation was "necessary" because implementation of controls under the Clean Air Act did not eliminate these risks.

Supreme Court’s Ruling

The Court found EPA’s refusal to consider costs unreasonable, and therefore, did not accord deference to the agency’s interpretation. Instead, the Court determined that the term "appropriate" is much broader than EPA’s interpretation and includes consideration of all relevant factors, including costs. Although EPA did factor costs into its subsequent rulemaking activities, the Court reasoned that it can only uphold agency action on the grounds invoked by the agency when it took the action. Because EPA failed to consider costs in the initial "appropriate and necessary" determination, any subsequent costs analysis could not save the rule.

Effect of Determination

In light of this decision, the future of MATS is not clear. On remand, the D.C. Circuit may leave the rule in place and afford EPA the opportunity to reevaluate the cost analysis, or it could vacate the rule altogether.

The Supreme Court’s willingness not to defer to EPA’s interpretation of the law is somewhat at odds with the Court’s previous determinations and ought to give the regulated community some cause for cheer. Irrespective of the D.C. Circuit’s actions, the results may have little practical effect, as most of the affected sources have either installed the necessary controls or have decided to cease operations. Of interest to the regulated community, EPA should consider costs in ongoing or future rule making when the statutory provision requires an "appropriate and necessary" analysis.

Members of Saul Ewing’s Energy, Environment and Utilities Practice have experience with interpreting EPA regulations. For more information on the implications of this Supreme Court decision, please contact the author or the attorney at the firm with whom you are regularly in contact.