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Clean Power Plan Faces Uncertain Future After Stay by U.S. Supreme Court

In an unusual move, and a sign that the Obama administration's proposed Clean Power Plan (CPP) could be in trouble, the U.S. Supreme Court on Tuesday temporarily blocked implementation of the rule until all legal challenges have been resolved.

Early indications are that the 5-4 ruling by the high court's conservative justices represents a stinging rebuke of the administration's plans, and could torpedo commitments the United States made in Paris last December on climate change (see Daily GPIDec. 14, 2015). All four of the court's liberal justices dissented.

"We disagree with the Supreme Court's decision to stay the CPP while litigation proceeds," White House Press Secretary Josh Earnest said Tuesday. "The CPP is based on a strong legal and technical foundation, gives states the time and flexibility they need to develop tailored, cost-effective plans to reduce their emissions, and will deliver better air quality, improved public health, clean energy investment and jobs across the country, and major progress in our efforts to confront the risks posed by climate change."

Earnest said the administration remained confident that it would prevail in the courts, and added that the U.S. Environmental Protection Agency (EPA) had indicated that it was willing to work with states to implement their plans to limit greenhouse gas (GHG) emissions, as required under the CPP.

Last month, the U.S. Court of Appeals for the District of Columbia denied a motion by several states and power generators to stay implementation of the CPP until all legal challenges were resolved (see Daily GPIJan. 22). Currently, West Virginia, Texas and 25 other states have sued the EPA over the CPP, arguing that it is an overreach by the federal regulatory agency. The 27 states are petitioners in the appellate case State of West Virginia et al v. EPA et al [15-1363].

Specifically, the Supreme Court on Tuesday issued stays in two cases -- Murray Energy Corp. v. EPA et al [15-1366] and State of North Dakota v. EPA [15-1380] -- that were combined with the West Virginia case last October. The appellate court has ordered all parties in the West Virginia case to file final briefs by April 22, and to prepare for oral arguments beginning on June 2.

Attorney: CPP 'In Big Trouble'

Attorney David Schnare of the Burke, VA-based Free Market Environmental Law Clinic, told NGI’s Shale Daily on Wednesday that the stay is in line with both the high court and the appellate court's "recent jurisprudence limiting the reach and discretion of EPA where the matter is of great economic significance that extends well beyond the Congressional intent of the law, in this case the Clean Air Act [CAA].

The CAA “does not contemplate taking from states the states' responsibility for determining how they want power generated within their own borders nor does the act contemplate a restructuring of the nation's electrical service. Thus, while indeed a surprise that they issued a stay, it is not really surprising in light of recent jurisprudence."

Schnare said the Supreme Court "cannot issue a stay unless it believes the arguments supporting the stay will likely prevail when addressed by the court. Thus, while by no means a lock, it is a good indicator that the CPP is in big trouble.”

It is “the first time a regulation has been stayed before the legal merits have been adjudicated, but where the harm is irrevocable, that is not unexpected. In most stay cases going to the Supreme Court, such as in death penalties and deportations, the irrevocable harm results from a decision by a lower court. In this case, however, the irrevocable harm occurs before any court can adjudicate the merits, so to prevent that harm, a stay makes good sense, even if it is a first time event."

EPA, FERC ‘Disappointed’

In separate statements Tuesday, EPA and FERC officials voiced their disappointment over the ruling, but pledged to soldier on.

“We’re disappointed the rule has been stayed, but you can’t stay climate change and you can’t stay climate action,” EPA officials said. “Millions of people are demanding we confront the risks posed by climate change. And we will do just that. We believe strongly in this rule and we will continue working with our partners to address carbon pollution.”

Cheryl LaFleur, commissioner at the Federal Energy Regulatory Commission, said she believes “the legality of the rule will ultimately be decided in the courts. Though the CPP has been stayed, the nation’s transition to cleaner energy has not. I will continue to work with state and federal colleagues to ensure that energy markets and infrastructure adapt to sustain reliability and affordability during this transition.”

Reaction by States

Officials from several of the states challenging the rule issued enthusiastic responses to the high court's ruling on Tuesday.

"This is a big win for Wyoming and the nation," Gov. Matt Mead said. "It puts on hold this very bad policy based on a deeply flawed process while the legal issues are being addressed. I couldn't be happier."

West Virginia Attorney General Patrick Morrisey concurred. "Make no mistake, this is a great victory for West Virginia," he said. "We are thrilled that the Supreme Court realized the rule's immediate impact and froze its implementation."

The Texas Oil & Gas Association said the ruling "is a powerful reminder that executive overreach cannot go unchecked...We're hopeful that the Supreme Court's stay will get federal regulators out of the business of politicking."

Elsewhere, Wisconsin Attorney General Brad Schimel called the ruling "extraordinary...and is telling of the obvious illegality of the rule," while Indiana Gov. Mike Pence called it "a win" for his state, which ranked eighth in coal production in 2013, according to the National Mining Association.

But not every state official was thrilled. In California, Gov. Jerry Brown said his state, which is not a party to the lawsuit over the CPP, would continue to work toward implementing the rule.

"As the world gets hotter and closer to irreversible climate change, these justices appear tone-deaf as they fiddle with procedural niceties," Brown said. "This arbitrary roadblock does incalculable damage and undermines America's climate leadership. But make no mistake -- this won't stop California from continuing to do its part under the CPP."

Industry, Lawmakers React

Marty Durbin, executive director for market development at the American Petroleum Institute (API), told NGI’s Shale Daily that while the organization didn’t litigate on the CPP, “from a natural gas standpoint, our view all along has been that natural gas is abundant and affordable. We have been working with the states and utilities to say that, with or without the CPP, natural gas is still the way to continue reducing emissions, and do it affordably while providing reliable power.”

Durbin said for six months in 2015, gas produced more electricity than coal. Although final numbers for December were not yet available, 2015 could be the first year on record where gas beat coal in terms of power generation.

“I don’t think there’s any question this throws a monkey wrench in the works,” Durbin said. “We’re going to see a delay in how, and even if, this moves forward. But the market is already driving the decisions in power generation, and the market dynamics for natural gas are just compelling.”

A variety of other energy groups and legislators applauded the ruling. American Energy Alliance President Thomas Pyle said the ruling "sends a clear signal to state leaders that they must avoid making any binding commitments until the legal process plays out, especially because EPA's regulations are looking increasingly legally dubious.

"States should continue to pursue actions, such as legislation, to stop utilities from continuing their trend of shutting down low-cost, reliable power plants. A 'do no harm' approach, meaning avoiding binding commitments, is the best way to protect the American people from higher electricity costs."

National Association of Manufacturers CEO Jay Timmons said the CPP "creates uncertainty, threatening our global competitiveness and ability to create jobs and economic opportunity." He added that while manufacturers would continue reducing GHG emissions, "we need a president and administration that will fight for pro-growth, pro-manufacturing energy and environmental policies."

Key Republican lawmakers in Congress also voiced support for the ruling. Chief among them were Sen. Jim Inhofe (R-OK), chairman of the Senate Environmental and Public Works Committee.

"The Supreme Court has delivered a major blow to President Obama's legacy on climate change," Inhofe said. "The U.S. Supreme Court's decision to stay the implementation of the so-called CPP while the legal challenges to that plan are proceeding is a sign the court recognizes that the Obama administration has over reached its authority. The court's action should demonstrate once again to the world that this president has committed the U.S. to actions that are unenforceable and legally questionable."

Sen. Lisa Murkowski (R-AK), chairman of the Senate Energy and Natural Resources Committee, said the high court "is to be commended for stepping in to allow the many legal challenges to the rule to go forward in an orderly way. Without the court's action today, people who keep the lights on in the Lower 48 would have been faced with irrevocable and costly decisions to close or retrofit power plants before opponents of the rule even had their day in court."

Sen. Ben Sasse (R-NE) concurred. "Sadly it's not surprising that the same administration that brags about circumventing Congress with its pen and phone was rebuked today," he said. "The EPA is not a super-legislature and this stay is an important step toward having the American people, not unelected bureaucrats, set energy policy."

Greens, CPP Backers Outraged

Conversely, environmental groups were shocked by the ruling but predicted that they would eventually prevail and the CPP would become law.

"We opposed this stay because we know the severe consequences that climate-changing carbon pollution has on the health of our planet, our communities and our families," said Howard Fox of Earthjustice, co-counsel for the Sierra Club. "The CPP is a vital, common-sense safeguard that will drastically reduce the U.S.'s largest source of carbon emissions. The battle to defend the CPP is far from over. We are confident that the D.C. Circuit will uphold the Plan, which rests on a solid legal and factual foundation."

U.S. Conference of Mayors CEO Tom Cochran said the organization was disappointed by the ruling. "This is a surprising ruling, given the fact that the court earlier ruled that GHG emissions are considered an air pollutant and therefore subject to regulation under the CAA," Cochran said. "More importantly, this is disappointing to the thousands of cities that are already doing their part to reduce GHG emissions and were looking to the utilities to become partners in the fight to reduce GHG emissions."

Analysts: Ruling Affects Coal, Too

In a note Tuesday, Christi Tezak, managing director of ClearView Energy Partners LLC, said that because the five Supreme Court justices who granted the stay did not explain their reasoning, it was impossible to determine whether they were concerned that the EPA was infringing on state energy policies. But it was "highly unlikely" that utilities would resurrect coal-fired generation that has either already been retired or is scheduled for retirement in the near future.

"Even if CPP collapses, renewable power won five years of continued federal tax support in last December's budget deal, and demand has not yet rebounded with the U.S. economic recovery," Tezak said. "As a result, given the crowded generation mix, with or without CPP, [natural] gas is likely to continue to have to fight for market share."

Analysts with Tudor, Pickering, Holt & Co. (TPH) said the high court's ruling "was largely expected," and added that delaying the CPP "will push out rate-base growth for utilities looking to be carbon-free later into the decade, and is incrementally negative for clean generators," singling out Calpine Corp., Exelon Corp., Entergy Corp., NextEra Energy Inc., PPL Corp. and DTE Energy Co. Large coal players, including Dynegy, NRG Energy Inc. and FirstEnergy Corp., "are beneficiaries, as this is positive for the asset lives of merchant coal plants."

EPA's Authority Disputed

The crux of the states' opposition to the CPP lies with CAA, which Congress amended in 1990. Lawmakers at that time prohibited the EPA from regulating hazardous air pollutants (HAP) at national standards under more than one section of the law. Specifically, the states said Congress expanded Section 112 of the CAA to include source categories for HAP, but EPA could not also regulate source categories under Section 111(d), a rarely used part of the law where EPA was granted the authority to require states to invoke HAP standards.

The Obama administration unveiled the final version of the CPP last August (see Daily GPIAug. 3, 2015). The plan, which embraces renewables, solar and wind power, but not so much natural gas, calls for states to reduce emissions by 32% below 2005 levels by 2030.

Under the CPP, states must develop and implement plans that ensure power plants in their state -- either as single plants or as a collective group -- achieve goals for reducing carbon dioxide (CO2) emissions between 2022 and 2029, and final CO2 emission performance rates by 2030. The CPP gives states the option of choosing between either an emissions standards plan or a state measures plan to reduce emissions. They would also have the option of trading emissions rate credits with other states.

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