The Supreme Court will take up a major air pollution enforcement case this fall, reviewing a lawsuit involving coal-fired power plants owned by Duke Energy. During today's OnPoint, Eric Schaeffer, founder of the Environmental Integrity Project, debates the Duke case with utility lobbyist Scott Segal of Bracewell & Giuliani. Segal and Schaeffer discuss how a ruling could affect existing power plants around the country, and whether the case will resolve the long-standing debate over the Clean Air Act's New Source Review program.
Darren Samuelsohn: Welcome to OnPoint. I'm Darren Samuelsohn. Joining us today in Washington is Scott Segal, an industry lobbyist for some of the nation's largest power companies, and Eric Schaeffer from the advocacy group Environmental Integrity Project. Gentlemen thanks for coming on the program.
Eric Schaeffer: Thanks.
Scott Segal: Thanks for having us.
Darren Samuelsohn: The Supreme Court has agreed to hear a case involving power plant pollution from some power plants from North Carolina and South Carolina. Eric, you were at the EPA in the enforcement office when these cases were originally brought. Can you explain for us what these cases are all about?
Eric Schaeffer: Sure. These cases involve a really important provision of the Clean Air Act known as New Source Review. Now those rules say that if you take an old coal-fired plant or an old plant in general and you modify it in some way that increases pollution then you have to get a permit and you have to put on modern pollution controls. In the Duke case we argued that the company hadn't done that. Now the key there is EPA has always measured increase, that's the key word in the case, by looking at the annual amount of pollution. If the annual amount of pollution goes up you have an increase. The industries argued you should measure increase on an hourly basis. And in this case the Duke court agreed with the industry position. The D.C. Circuit has taken a different view although they didn't rule on the case directly. And so it is good that this is going to the Supreme Court and hopefully we'll get it resolved.
Darren Samuelsohn: And Scott, the utility industry has taken a little bit of a different position, or a big different position on this. Explain for us what that is.
Scott Segal: Well, first of all I want to agree with Eric Schaeffer that we're glad it's going up on appeal too, because it's been a long day's journey into night on New Source Review. And it's time to have a national clarity. I think we might have preferred to do it through legislation, so that Congress could directly speak on it, but having the Supreme Court review it is certainly a way to achieve finality, at least with respect to existing law. The biggest difference that I have with Eric's characterization actually is just a diversion from what he said, which is that, in our judgment, hours of operation cannot be used as a basis to measure increase. First of all, it is an increase resulting from a physical change and the hours of operation of a plant are not a physical change and so should not trigger the rules is what the Duke court said. In addition, the Duke court was very specific and that's why I think the opponents of the Duke decision are going to find it hard to find a handle to really oppose this case. Because they have a very specific interpretive question they posed. The definition of increase, with respect to the New Source Performance Standard, does look at the hourly emissions rate. The definition with respect to the Prevention of Significant Deterioration Program, which is for facilities that already are in areas that are in attainment, there there is dispute and that's the dispute that Eric talks about. But what the court said was you can't use a different definition for the same term that occurs in two different parts of the statute. And they cite a Supreme Court precedent with respect to the Internal Revenue Code and the definition of the word wages. That seems to me to be a rather reasonable argument. I think it would strike most Americans that if you use the same term twice in the same statute it ought to have the same meaning each time, even though there may be differences in the program.
Darren Samuelsohn: I want to go to you Eric. This is a case where now the environmental groups are actually going to be the attorneys arguing this case.
Eric Schaeffer: Right.
Darren Samuelsohn: How do you think that they will present this case to the Supreme Court?
Eric Schaeffer: Well, first of all, just to take issue with one thing Scott said, of course in order for the law to apply at all you have to have two things: You have to have a physical modification, and we never disputed that at EPA, and you have to have an increase. So the situation in Duke, from the government's position and also from the environmental group's position, is there was a physical modification and there was also an annual increase. I don't think we agree, well, we don't agree obviously at all that you measure increase based on what happens in a single hour; you look at the whole year. We're not persuaded by the 4th Circuit's decision. We think they left out some congressional legislative history and the regulatory history that sort of contradicted the industry's position. And I should just point out that the D.C. Circuit, which is the court, the D.C. Circuit Court of Appeals, which is the court that generally has the final word on regulatory issues just below the Supreme Court, has disagreed with the Duke decision and has done that not once, but twice. They basically have said they're not at all convinced.
Darren Samuelsohn: Let's step back and look at this from 10,000 feet up. What does this case mean, biggest picture, about air pollution? Scott?
Scott Segal: Well, it raises a number of important points. I mean the fact of the matter is that if the New Source Review program is interpreted too inflexibly, if for example it is triggered off of hours of operation, it has the unintended consequence, I would argue, of delaying efficiency improvements or even maintenance projects, a different issue as well. The net effect of doing so means that these power plants, which are a very, very important part of the electric reliability of the country, the plants in question in the Duke case provide electricity to 2 million consumers. So we're not going to take these off-line. The question then is what of their future operation? And if you delay efficiency improvements at these projects or if you delay maintenance projects at these projects or replacement of, in this case, boiler tubes or economizers, the net result of that is fundamentally to increase emissions, to increase the amount of air pollution per unit of electricity generated. In addition, it's very difficult to maintain the high and exacting levels of workplace safety that we have come to expect. And that's why 10 labor unions also share the side of the issue with the power companies in these cases.
Darren Samuelsohn: Eric, what's the big picture implications of this case?
Eric Schaeffer: Scott's illustrated why we need the Supreme Court to rule on this, because we've batted this tennis ball back and forth enough. I mean we don't agree that you're going to delay efficiency improvements. These plants make a lot of money. They're old plants that were paid off a long time ago. They make a lot of money. The effect of saying it's only an emission increase if you haven't increase by the hour, in any given hour, is that it's going to mean that the New Source Review rules aren't going to apply to lots and lots of big projects that actually increase pollution on an annual basis.
Darren Samuelsohn: Big old projects, right?
Eric Schaeffer: Yeah, big old projects. If you build a new plant you've got to meet very, very strict standards. The fight here is getting the old facilities, there were built in some cases in the '50s and '60s, to put on pollution controls that have been available since the mid-1970s.
Darren Samuelsohn: What were the Clinton administration's original intentions when they brought these cases?
Eric Schaeffer: To get these plants cleaned up.
Darren Samuelsohn: One by one?
Eric Schaeffer: No. These plants were sued in a cluster. The Clinton administration filed lawsuits against basically the major electric generators in the United States; American Electric Power, Duke, Cinergy, the Southern Company, TBA. These cases were all brought at once, for a couple of reasons. I think one was to make the point that these old plants were very dirty and needed to be cleaned up and that cleanup was long overdue. But secondly, to show that in fact the modifications that had been made here were illegal and had substantially increased emissions.
Darren Samuelsohn: Scott?
Scott Segal: You know I would say these cases have been overtaken by events. First of all there is consistent data the EPA Clean Air Trends Reports, for example, that show year after year of consistent improvement in air quality. Second, the very technological improvements that Eric refers to are on schedule to be implemented, pursuant to the Clean Air Interstate Rule and in the state of North Carolina specifically, their Clean Smokestacks legislation. In fact, these plants that are at issue in Duke have spent or are planning to spend $1.7 billion, that's billion with a B, on improvements. And in my judgment the very types of things that Eric would have liked to have seen are piecemeal happening. The reason that's important is because, in my judgment, there's a right way and a wrong way to wrest new controls. The wrong way is to do it on a case-by-case basis, litigation after litigation after litigation. That is expensive. That is uncertain and here we sit waiting for the Supreme Court to decide. Whereas when the Environmental Protection Agency, through its regulatory authority or the United States Congress, when it chooses to exercise its legislative jurisdiction, acts we can get things done much more efficiently and in one fell swoop.
Darren Samuelsohn: Eric, you, obviously when you brought those cases, couldn't have known who would be the president seven years later, what regulations would be put into place and what Congress would've done, but what are your thoughts looking, at this point now, in light of the regulations that have been put in place?
Eric Schaeffer: Well first of all, I agree that the Clean Air Implementation Rule is going to have some effect and helps to put a kind of baseline of cleanup expectations for these plants. It helps to push the ball forward. It's not as much as we'd like. It's not as fast as we'd like, but it's at least better than some of the alternatives we saw from the administration earlier. A couple of things, first of all, some of the cleanup Scott is talking about has come about through enforcement actions. In the state of Virginia, just to the south, the biggest polluter in Virginia is installing a scrubber. That's as a result of the settlement of the New Source Review case with Dominion. So you can't separate the lawsuits from some of the environmental improvements. I also think this is a very hardheaded industry that doesn't do anything unless it has to. That's the bottom line. So what you want to do with a group of companies like the power industries that own these coal plants is you want to sue them when they violated the law and you want to tighten up the regulations wherever you can and you want to pass state laws on top of that if you can do it. Basically you have to hit them coming and going if you want them to clean up, because they're not going to do it until the last possible minute.
Scott Segal: Can I just speak to that, to that motivation? Eric refers to a hardheaded industry, but it's an industry that has a very serious job to do. It's an industry that keeps the lights on at the hospitals and in elementary schools and elsewhere. It's an industry that oftentimes is required by state law to provide reliable electricity at a reasonable price. And as Eric knows if the law is interpreted inflexibly, if you can't maintain your plants, if greater and greater investments have to be made out of cycle that are punitive in nature to coal, coal represents 55 percent of U.S. electric generating capacity. And when rates go up the people that are hurt the most are those who can least afford it, like the poor and those on fixed incomes.
Darren Samuelsohn: But what the Supreme Court is ultimately going to be asked to decide is whether or not the utility industry knew way back when what the law was differently than what they're saying it is, right?
Scott Segal: Well, that will factor into it. I think the court will look at sort of three issues, because the court didn't specify which issues it was granting the petition for review on. But there are three issues potentially at play; one, the notion that is it the D.C. Circuit or is it the 4th Circuit Court of Appeals that has jurisdiction over these issues? In our judgment the 4th Circuit makes sense because it's an enforcement action. That's where the enforcement action was brought. That's the appellate structure for an enforcement action. The other questions deal with this definition, whether you can use the same definition in two different places, herein the discussion between New Source Performance Standards and prevention of significant deterioration. We call that the Rowan question because the court cited Rowan.
Darren Samuelsohn: The Supreme Court precedent?
Scott Segal: Yes, that's exactly right. And the last point is the application of the facts of the law, which we classically think of as what a court case is about. And that's where your issue comes in.
Darren Samuelsohn: All right. Let's take this and boil it down. If the Supreme Court decides in favor of the utility industry, what happens going forward? And then?
Scott Segal: Well, if they decide in favor of the industry then I would suspect that most of the cases that Eric and his shop brought in 1999 are not going to meet the test. I wouldn't say all of them because there may be some that will make allegations that are consistent with the New Source Performance Standard definition of what increase based on modification is. So it is possible that there will still be some cases, but most of those cases, which in our judgment, I mean I must say, we think were wrongly brought, will not obtain.
Darren Samuelsohn: And if the environmentalists win in the Supreme Court, what happens going forward?
Eric Schaeffer: You'll see faster cleanup at these plants. They'll know they've been cut off at the pass. We'll finally have a decision from the highest court. The jig will be up.
Darren Samuelsohn: Do you think there will be more cases brought in the future?
Eric Schaeffer: I think it will certainly help to bring more cases. I think as significantly we have big cases still outstanding against American Electric Power, Cinergy, the Southern Company. I think those are much more likely to settle. And we're much more likely see a big cleanup if the Supreme Court goes the right way.
Scott Segal: Incidentally, based on breaking news, I just received word that the oral argument in the Cinergy interlocutory appeal, that is an appeal specifically on the law out in the 7th Circuit, will in fact continue as scheduled next Friday, which I think it's surprising.
Eric Schaeffer: Interesting.
Scott Segal: Yeah, it's very surprising.
Eric Schaeffer: I wouldn't have guessed that. That's interesting.
Scott Segal: Yeah, me too.
Darren Samuelsohn: And then again, of course, whoever the new president is after the 2008 elections, this could all change again based on what their decisions are, right?
Eric Schaeffer: You mean we could be here in three years time?
Darren Samuelsohn: Still talking about New Source Review.
Eric Schaeffer: Yeah, I hope not. I hope not.
Darren Samuelsohn: It'll keep you guys employed.
Scott Segal: At least new acronyms.
Darren Samuelsohn: That much for sure.
Scott Segal: All we ask is for new acronyms.
Eric Schaeffer: I think we can both agree we want to get it resolved.
Darren Samuelsohn: Yes.
Scott Segal: Definitely.
Darren Samuelsohn: Thank you guys so much.
Eric Schaeffer: Thank you for having us.
Darren Samuelsohn: Hope to have you on once we get a Supreme Court decision.
Eric Schaeffer: Great, thank you.
Darren Samuelsohn: Until next time, this is Darren Samuelsohn for another edition of OnPoint. Thanks for watching.
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