The Environmental Protection Agency (“EPA”) provided the electric utility industry with an early Christmas gift last year.  On December 21, 2011, EPA issued its “UMACT” rule, setting forth maximum achievable control technology (“MACT”) standards for coal and oil generating stations. Troutman Sanders has prepared a memorandum summarizing the rule here.  The rule can be appealed 60 days after publication in the Federal Register.  We expect publication in the Federal Register at some point during January 2012.

Late in the afternoon on December 30, the United States Court of Appeals for the D.C. Circuit issued a stay of the Cross-State Air Pollution Rule (“CSAPR”).  Acting in response to 19 motions filed by various state and utility parties, the court ruled that movants had met the standards for obtaining a stay, which include likelihood of success on the merits and the existence of concrete and imminent irreparable injury.  A stay is an “extraordinary remedy” and is rarely granted.  At the same time, the Court indicated that it intended to proceed to, and resolve, the merits of the case expeditiously.  It asked the parties to submit briefing schedules and formats that would allow the case to be heard by April.  A decision is expected before the end of the year, possibly by mid-year.

The Court further ordered that EPA continue administering the Clean Air Interstate Rule (“CAIR”) pending final disposition of the case.  As a result, EPA will have to reinstate CAIR allowances, at least for 2012.  In anticipation of the transition from CAIR to CSAPR, EPA depopulated all CAIR allowances of vintage 2012 and later this past October.  Because sources have to surrender CAIR allowances for the 2011 compliance periods this coming March (regardless of the outcome of the stay), the 2011 vintage CAIR allowances and earlier (including the banks) were left in place.  In light of the stay, EPA will need to repopulate the facility accounts with 2012 CAIR allowances.  It seems unlikely EPA will deposit 2013 vintage CAIR allowances, expecting the merits to be resolved in 2012.

In its motion for stay, EME Homer City claimed the depopulation of 2012 and later vintage CAIR allowances constituted imminent harm.  In its response, EPA explained that if a stay were granted it would simply repopulate the CAIR accounts.  Specifically, EPA stated: “The fact that CAIR allowances for 2012 and beyond will be terminated on October 14 is a red herring.  CAIR allowances are no longer relevant because they have been replaced by the Transport Rule.  If the Transport Rule were to be stayed or vacated by the Court, EPA would reinstate the CAIR allowances.” 

It is uncertain what EPA will do with the CSAPR allowances. It has populated accounts with 2012 vintage CSAPR allowances for most facilities (86%), and for several states (which have not indicated an interest in adjusting allocations) it has populated accounts with 2013 vintage CSAPR allowances.  What EPA’s next step will be as to CSAPR allowances and CSAPR trading is still to be determined.

Moreover, it should not be assumed that issuance of the stay means the Court will ultimately overturn CSAPR on the merits.  Even though the Court found that movants case has a likelihood of success on the merits, the same Court previously stayed the NOx SIP Call, but then upheld the rule on the merits.

In a related move, EPA on December 30 published in the Federal Register a proposal under which electric generating units located in states that are subject to CSAPR would be deemed to comply with best available retrofit technology (“BART”) requirements for regional haze.  EPA previously determined that EGUs subject to CAIR would be deemed in compliance with BART; however, that determination was going to be obsolete with the sunsetting of CAIR on December 31 and its replacement with CSAPR.  The court’s mandate that EPA reinstate CAIR suggests that EPA’s “CAIR-equals-BART” policy would also remain in effect pending the outcome of the CSAPR litigation.  In the short term, it seems likely that EPA will take comment on its December 30 proposal and then hold off making a final decision until the Court acts on the merits of the CSAPR litigation.