(November 2009)Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this year...
Duke-ing It Out at the High Court: The End of New Source Review?
To what extent can the EPA force utilities to update aging fleets with expensive pollution-control technology?
As to the first question, the study found that “larger firms were more likely to be sued, with a 15 percent increase in the size corresponding to a one percent increase in the probability of a lawsuit.” 21 The authors posit that this is likely due to EPA choosing higher-profile cases to maximize deterrence. 22 The study also finds that increases in historical emissions and capital investments lead to a corresponding increase in the probability of enforcement: “A 1,000-ton rise in a plant’s maximum year-on-year emissions increase boosted the probability of a lawsuit by one percent,” as did a change of $23 million in the maximum investment in a single year. 23
As for how the utilities responded to enforcement, the study finds that as the probability of being sued increased, the plant’s emission rates decreased. 24 According to the study, the “findings suggest that firms reduced emissions in 1999 in response to the threat of lawsuits, regardless of whether their plants were sued or not.” 25 Perhaps the most surprising finding is that the actual lawsuits had no statistically significant effect. In other words, the lawsuits themselves had no effect on the utilities’ emissions behavior. 26
So what will the Supreme Court justices make of the Yale study? The results seem to imply that New Source Review, and more particularly the threat of agency enforcement of New Source Review, can cause emission reductions. If the Supreme Court upholds the 4th Circuit’s decision, utilities will worry less about New Source Review enforcement, as almost all modifications will pass the weaker hourly test. It follows, then, that the study’s findings support the use of the annual test.
The Duke Decision’s Ramifications
Let’s hope that the Supreme Court will put an end to the incessant fighting over the New Source Review modification rule. The court basically has three choices. It could do nothing, it could leave the rule as it is (the annual test), or it could change the nationwide rule, at least temporarily, to an hourly test. Because of a technical jurisdictional argument from the environmental petitioners, the court could overturn the 4th Circuit’s decision, without overturning the 4th Circuit’s analysis on the New Source Review modification rule. In so doing, the court would not need to address the New Source Review issues. While this would eliminate the split in the circuits, it would leave lingering doubts as to the validity of EPA’s use of the annual test. Although EPA has flip-flopped its position in the case, if this occurs, EPA may continue with its proposed rulemaking, thereby changing the national rule to the hourly test. This would allow utilities to modify their equipment without requiring additional environmental controls. Keep in mind, though, that EPA rule changes can take years and often are subject to court challenges.
The court’s other two alternatives involve deciding the primary issue in the case. If the Supreme Court overturns the 4th Circuit, EPA’s annual emissions test stands, and the modification rule continues unabated. If the Supreme Court upholds the 4th Circuit, the national rule, at least