Regulation:

Former EPA general counsel Martella discusses legal impacts of new power plant rule delay

With U.S. EPA likely missing the April 13 deadline for finalizing its New Source Performance Standards and indications the agency may be reworking the proposed rule, what is the future of air regulations during President Obama's second term? During today's OnPoint, Roger Martella, a partner at Sidley Austin and the former general counsel at EPA, discusses the legal issues surrounding an NSPS delay and explains the agency's possible reasoning for considering moving forward with revisions. Martella also outlines his expectations for Gina McCarthy's confirmation hearings to head EPA.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Roger Martella, a partner at Sidley Austin and the former general counsel at EPA. Roger, it's always good to have you here.

Roger Martella: Thank you, Monica. It's great to be back.

Monica Trauzzi: Roger, it seems EPA will be missing its April 13th deadline for finalizing the New Source Performance Standards, and we're hearing indicators also that EPA may actually be revising the proposed rule. How much of this is about managing the legal risks associated with the rule, and putting the rule as it is forward?

Roger Martella: As we've talked about before, the New Source Performance Standard I think is the most significant rule-making of EPA from the last four years. It's in proposed state, and what it does it effectively stops any new coal-fired power plant from being built in the United States, but symbolically, it's bigger than that. It's EPA's first endeavor into regulating energy itself, and saying we're now going to foreclose a source of energy in the United States. As you've mentioned, we've heard rumblings recently about the delay of the rule, a retreat from the standards. I'm pretty skeptical of that. The rule cannot be delayed as a theoretical matter. The rule is actually in effect, so there's nothing to delay, because the rule is actually there. In terms of retreating from it, the only thing they could do to retreat from it would be to withdraw the proposal, and no one seriously seems to be suggesting that. So I think that they're trying to do is just put it on the backburner for now. There's a confirmation process coming up. This is a lightning rod rule. There is legal risk associated with it, because the rule is in effect, it's doing what they want to it to be doing, but if they were to finalize it, then all of a sudden it'd be subject to judicial review. So given they have a rule that's in effect, doing what they want, doing the job they want it to do, with the confirmation proceedings, I think it makes sense for them to be kind of lowering the temperature on it and putting it on the backburner.

Monica Trauzzi: So then is there nothing that they could do right now to mitigate the legal risk?

Roger Martella: Right now, someone tried to challenge it back in - back last year, and the court rejected it and said it's too soon to challenge it because it's not final. What I think their options will be when they want to go ahead and finalize it, which I think will be some time I 2014, not this year, is they can either re-propose it, they can come out with a new rule and say we've gone back and revisited it. Same standards, but a better legal rationale, and now we're going to take comment on it again. Or the other option they have is they could finalize it, but then say, we're going to reconsider parts of it, kind of close the gasps, fill the record up, and make it stronger. I do think they'd have a hard time just finalizing as it sits there, because it is perhaps one of the more legally vulnerable rules I've ever seen.

Monica Trauzzi: And one of the things we've heard is that they may be actually considering separating coal plants and gas plants into distinct source categories. Do you think that that's a viable option forward, and is that something that they might consider doing?

Roger Martella: I think they are going to be looking at that, but I don't think that means that coal is going to live on to another day. I think what they would want to do is continue to keep the pressure on coal, have this rule effectively be kind of the nail in the coffin for coal, but maybe more flexibility for natural gas. I think one of the criticisms of the rule as kind of a bi-standard, natural gas, perhaps the standard was set too severely for that. So I think it's going to continue to function to kind of block coal, stop coal, but maybe offer a little more flexibility for natural gas.

Monica Trauzzi: So in terms of timing, your expectation is that this could delay things for about a year?

Roger Martella: Yes. I don't think we'll see any further action on it this year. Again, they don't have to do anything at all. The rule is in effect. The only incentive they really have to finalize it is they ultimately want to apply this standard to existing sources as well. They can't do that until they finalize the proposed rule for new sources. So they're facing this conundrum -

Monica Trauzzi: Why can't they work on both at the same time?

Roger Martella: Because technically they have to finalize this rule which applies to new sources before they can move onto existing sources under a different provision. They basically have to wrap this part of it up and then take that, convert that into guidelines by which they can attempt to apply that to existing sources.

Monica Trauzzi: So what are the biggest risks to industry right now as we're sort of in this wait and see period?

Roger Martella: I think right now the rule is still out there, and it's unclear what is going to happen. I think everyone who's thinking about building a new coal-fired power plant has read the message. They've gotten it. And we've seen a couple of examples of people pulling back the facilities. The biggest risk is to those who are operating existing facilities. How soon is this going to apply to them, and what format? Some people are arguing we should have a national cap and trade under this provision to ultimately shut down existing coal-fired power plants. Others are arguing, such as myself, that legally they can't even apply this to existing facilities. So it is creating a lot of uncertainty for the next couple of years, as are the mercury rule, as are natural gas prices. So a lot of things are kind of coming together simultaneously.

Monica Trauzzi: Explain that idea more, that they can't apply this.

Roger Martella: I think if you look at the - actually go back and look at the text of the statute, look at Section 111D, D as in dog, of the Clean Air Act, what it says is you can apply this - you can apply these standards to existing sources, unless those sources are subject to a different provision of the Clean Air Action, Section 112, which applies to hazardous air pollutants. Almost all sources, including utilities, as of 2012, are subject to Section 112. So the very clear and straightforward reading of the act says you can't apply this standard to existing sources when you're subject to Section 112. Now my colleagues at EPA vehemently disagree with me on that, and they have disagreed with me on that, but nonetheless, I think my reading and the reading of some others is the much clearer interpretation of the statute, if you just open it up and look at it.

Monica Trauzzi: And so you believe it would be struck down in court, then?

Roger Martella: I think the court's going to have - take a really hard look at it. Of course, the EPA gets deference a lot of times. This is a legal interpretation. Maybe they get less deference. But I think they are going to have a significant challenge confronting the clear reading of the Clean Air Act here.

Monica Trauzzi: So let's talk about Gina McCarthy for a second. She's Obama's pick to head up EPA now ...

Roger Martella: Yes.

Monica Trauzzi: ... and she needs to be confirmed. What are your expectations for the timeline of that confirmation and the process itself?

Roger Martella: I think, first of all, she will be confirmed. I think it's going to happen relatively fast, I would say, in a three to four month time period. I think on the one hand, the Republicans in the Senate are going to look at her and say, of all the rules we hated the most in the last four years, you're signing off on 90 percent of them, and so what are you doing here? But I think on the other hand, people recognize her reputation as kind of the epitome of an honest broker, something you don't see all that often. She's direct. She's open. Even if you disagree with her on the substance, she takes your views into account, and she'll explain where she disagrees, or try to incorporate them. I think the Senate's going to reward her for that. They'll have some tough questions for her. They'll want to see some documents. They may want to ask her to agree to certain positions. But at the end of the day, I think they're going to reward her for her style. She probably is in many people's mind the best person for the job.

Monica Trauzzi: And the inside the Beltway thinking is that she will be friendlier to industry. Is that your expectation?

Roger Martella: I think industry feels like at least they'll get a receptive audience. They'll have someone who will listen to their views. She may not adopt their views, but again, she'll be open, direct, she'll listen. I think she'll offer an explanation when she does disagree. And if she can find a way to find compromise and achieve her goals while incorporating those views, I think people trust that that's been her MO, and why would she change that as administrator?

Monica Trauzzi: All right, Roger. Very interesting. Thank you for coming on the show again.

Roger Martella: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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