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A Utility Executives' Guide to 2007: A Cloudy Forecast

Experts predict the top issues that utilities will have to weather this year, and beyond.

Fortnightly Magazine - January 2007

then the litigation filed by attorneys general in these states may not go anywhere,” says Robert Graham, chairman of the environment, energy, and natural resources practice at Jenner & Block in Chicago. “But there might be more to it than meets the eye. The Supreme Court took the case for a reason; it could have just deferred.”

Also, the court’s ruling in Massachusetts v. EPA will send a message to federal and state lawmakers. A ruling for EPA might actually spur legislators forward, to fill the statutory gap. Conversely—and even more ironically—a ruling for the plaintiffs could slow down legislation on climate change. “It might allow Congress to say, ‘We don’t need legislation; let’s see what the EPA gives us in terms of regulation,” Graham says.

In the absence of federal regulation, however, lawmakers in many states are following the example of California and 10 states in the Regional Greenhouse Gas Initiative (RGGI), enacting carbon constraints and emissions-trading schemes. Climate concerns are working their way into other states’ policies as well, creating regulatory challenges for many companies—especially those whose markets cross state borders.

“The regulated community needs consistency and a concerted approach,” says Lewis T. Putman, partner and head of the environmental practice at Milbank, Tweed, Hadley & McCloy in Washington, D.C. “Utilities are hindered in their ability to use their scale-economies to address these issues if there isn’t consistent regulation.”

Meanwhile, the multi-year battle over EPA New Source Review (NSR) regulation might culminate with a Supreme Court verdict in 2007—perhaps reconciling conflicting verdicts from two federal appeals courts in 2005 and 2006.

Late last year, the court heard arguments in Environmental Defense v. Duke Energy (formerly known as EPA v. Duke et al.; the EPA declined to seek certiorari in the case after the 4th Circuit ruled against the agency in 2005.) The court will consider whether a “modification” triggering NSR under the CAA should be defined by plant modifications resulting in greater hourly emissions rates or greater total annual emissions.

The 4th Circuit Court’s decision in Duke seems to directly conflict a 7th Circuit Court decision earlier in the year, in United States v. Cinergy, which upheld the total-annual emissions standard.

How the Supreme Court might rule in Duke is difficult to predict. The court’s first term under Chief Justice John Roberts was marked by several splintered decisions, in which thorny legal questions were left to be resolved by other courts on a case-by-case basis. Such an outcome might occur in Duke. “Physical change which increases the amount of any air pollutant could mean different things in different places,” observed Justice Stephen Breyer during oral arguments on Nov. 1, 2006.

Nevertheless, the outcome of the case might be obviated by changes EPA proposed to its NSR rules in September. The changes explicitly would exempt increases in total annual emissions resulting from increased hours of operation that in principle a plant “could have accommodated” before the modification in question.

The Future of Nuclear

If the winds of greenhouse-gas regulation are blowing hot on Capitol Hill, they are whipping up a perfect