As states work behind the scenes to craft compliance strategies for U.S. EPA's Clean Power Plan, legal action against the rule is now front and center. Is the latest move by petitioners requesting the Supreme Court consider a stay of the rule a long shot? During today's OnPoint, Jeff Holmstead, a partner at Bracewell and a former assistant administrator for air and radiation at EPA, discusses the outlook for legal proceedings on the rule and explains why he believes carbon trading makes the rule more economically viable.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Jeff Holmstead, a partner at Bracewell & Giuliani and a former assistant administrator for air and radiation at EPA. Jeff, it's nice to have you back on the show.
Jeff Holmstead: Thanks, my pleasure.
Monica Trauzzi: So, Jeff, as states work behind the scenes to create Clean Power Plan compliance mechanisms, legal action against the rule is now front and center. The D.C. Circuit has ruled against a request for a stay on the rule, and most stakeholders were not surprised by this, but what has come as a bit of a surprise to some is this escalation request to the Supreme Court. Is the latest move a long shot?
Jeff Holmstead: Yes. It would be very unusual for the Supreme Court to grant the stay, but the Clean Power Plan is pretty remarkable and EPA is asserting authority that goes way beyond what they've ever done before, so I think there is a chance that the Supreme Court will step in because you have to remember, the Supreme Court in the last two terms has really sent a signal that EPA has overreached with the mercury rule and with the permitting program, so it may be that the Supreme Court is willing to step in and say enough is enough, we're going to put this on hold, but it is a long shot.
Monica Trauzzi: How much of this aggressive legal action, though, is politically motivated and tied to individual political aspirations in the states?
Jeff Holmstead: You know something? I think very little. If you were to be involved in the discussions that are going on with the litigants, people just say look at the Clean Air Act. Just know there's no way that it can possibly authorize EPA to do what it needs to do. So I think the legal officials in 27 states just believe that EPA has gone well beyond its statutory authority. Now, of course there's always political motivations as well, but I think it really is a response to the legal issues that are raised by EPA's assertion of authority.
Monica Trauzzi: So we now know what the D.C. Circuit panel looks like. We'll be hearing the power plan case. This isn't the panel you were hoping for, is it?
Jeff Holmstead: Well, you know, you're never quite sure what panel you're going to get, and certainly our hope is that the legal issues are clear enough that it really won't matter very much who we get on the panel. You know, we have a little more history with two of the judges. The third judge is a little newer and so people don't really know very much about him, but we're hopeful and confident that even with this panel, the legal issues will be clear enough that the states will prevail.
Monica Trauzzi: So the court has also denied the motion to split certain issues. How complex then does that make the case?
Jeff Holmstead: That is probably, to my mind, the most disappointing thing. This rule creates so many issues that by requiring them all to be briefed at once, it's going to be very difficult, especially for the states. You have to remember that every state got its own individual mandate. It's not like MATS where there was a uniform standard that applied throughout the country, and so there are many states that are wondering how we're really going to present our issues if we have to brief them all at once. So that was disappointing, especially after the CSAPR decision where the Supreme Court said we're going to uphold on the basic legal issues but then, states, you can bring separate as-applied challenges. We were hopeful that the D.C. Circuit would adopt the same approach here, but they haven't.
Monica Trauzzi: So then it does -- does it potentially muddy the waters when it comes to the case?
Jeff Holmstead: I think all the litigants are pretty united around the core legal issues, and so I think those will be presented in any event, and the real challenge now is to see all these what are called programmatic issues, if there's a way to present them without going kind of state by state. So there will definitely be some briefing challenges for both the petitioners and for EPA. You didn't mention that the court actually imposed a very expedited briefing schedule. I mean, it's almost unheard of for a case of this magnitude to be briefed in just a couple of months, oral arguments in June, so things are moving pretty quickly, which is certainly something that the petitioners will ask for.
Monica Trauzzi: Is that concerning, this timeline?
Jeff Holmstead: Oh no, no. I think the petitioners are all more than ready to brief the case. But as I said, the challenge is going to be the programmatic issues, and not so much a time challenge, but just a space challenge. We're still not sure how many briefs we'll get to brief all of these issues, although the court has said that there may well be a second day of oral arguments, so we're hopeful that they give us enough words to really brief the issues.
Monica Trauzzi: There does seem to be this concern, though, within states, among utilities regulators and state governments that legal challenges will not hold up because they're all having conversations on how they're going to comply, what the mechanisms are going to look like. What do you think sort of that two-pronged strategy says about the legal strength of the rule and the strength of the arguments against it?
Jeff Holmstead: I don't think it tells us really anything about that. If you're a company, if you're a state, if there's any chance at all that the rule will be upheld, then you need to begin to prepare for it. So I think virtually everyone is confident that we'll prevail, is hopeful that we'll prevail, but there's no guarantee. So you have virtually all of the states now, and as far as I know, all the companies that we're working with, at the same time they're challenging the rule. They're saying, well just in case, how would we possibly comply with this? And so you're seeing both of those things going on, but I don't think it really tells us anything about the legal case. It would be silly for someone to say, you know, we're not going to worry about it because we're 100 percent certain. No one's quite that sure about the legal issues.
Monica Trauzzi: Trading seems to be the name of the game for states. Everyone's talking about regional trading schemes.
Jeff Holmstead: There's no way -- there has to be a trading scheme. I mean, the way the rule is set up, if there's a trading scheme -- if there's not a trading scheme, then no existing plant can continue to function because they need to be able to buy a credit from somebody else. So the question is whether it's going to be trading within a state or trading much more broadly.
Monica Trauzzi: Right, so then does this idea of trading, and potentially regionally trading, make the rule more politically and economically viable?
Jeff Holmstead: Oh, it certainly makes it more economically viable. I mean, without the trading, the rule wouldn't work at all. It would be essentially impossible, so -- and that's why I think you see states and industry who are saying, well if -- in the event that this rule is upheld, how would we comply, and they're looking at the broadest possible trading regimes, but it's tricky because the kind of trading regime that will work for one state depends on what other states do. So everyone's kind of circling around each other and having these conversations as to what really, you know, what kind of a trading regime would work for the broadest number of people, and that's certainly what you're seeing going on.
Monica Trauzzi: The Supreme Court recently ruled in the government's favor in the FERC demand-response case. What does that tell you about this court's perspective on the government's ability to have a say on a state's planning on energy?
Jeff Holmstead: I don't think it really tells us much of anything. You know, if you -- you probably read that decision, but it's really very much about the wording of the Federal Power Act, and I think the Clean Power Plan will be all about the wording of the Clean Air Act. The cases are pretty different. For one thing, the Supreme Court specifically noted that this order that was being challenged was actually supported by most states and most industry because it would reduce consumer prices and it would at least arguably improve reliability, so in that regard, it's 180 degrees from the Clean Power Plan where you have at least a significant majority of the states who oppose it, and no one believes that it will reduce prices. Everyone agrees it will increase them. So you know, I wasn't involved in that case. I did read the decision, and I'm not sure that it really has very much to tell us about the Clean Power Plan.
Monica Trauzzi: All right, we'll end it right there. Always good to see you.
Jeff Holmstead: Thank you for having me.
Monica Trauzzi: Thanks for coming on the show. And thanks for watching. We'll see you back here tomorrow.
[End of Audio]