Supreme Court Rulings Threaten Utilities

04/18/2007 | By Lew Tagliaferre

The editorial buzz on newswires this month was full of commentary about two rulings issued by the U.S. Supreme Court on Monday, April 2, 2007. The Court handed environmentalists some hope, which some pundits called "the most important environmental decision in years." They could become historic decisions that affect your bottom line, because electric utility costs will likely go up.

At the crux of them is the federal policy on selective law enforcement. As you probably realize, law enforcement is more a political art than a legal science. It just is not feasible to completely enforce all the laws on all the books in all the legal jurisdictions. Local law enforcement, for example, could not possibly employ enough cops to catch all traffic-law violations (think how many times you got away with one). At the federal level, one must factor in the effect of politics and policies of the Administration currently running the Department of Justice. The present Administration has been more reluctant than some others to vigorously enforce laws it does not enthusiastically support. Among them is the Clean Air Act that is assigned to the Environmental Protection Agency (EPA) for implementation. The Administration obviously favors corporate interests over environmentalists and is soft on regulations that would increase costs and, possibly, throttle back the economic growth engine. This is the issue that the Supreme Court confronted in its recent rulings, although the cases related to emissions of electric power plants and automobiles.

In one case, the Court ruled 5-4 that the EPA has the authority to regulate heat-trapping gases in automobile emissions. Although not applied to utilities as such, this case is crucial – when combined with the other one – to your bottom line. The Court ruled that the EPA could not sidestep its authority to regulate the greenhouse gases that contribute to global climate change unless it can provide a scientific basis for its refusal.

The decision appeared to be a strong message to the Administration, which has maintained that it does not have the right to regulate carbon dioxide and other greenhouse gases under the Clean Air Act; even if it did, it would not use the authority. The ruling does not force the EPA to regulate auto emissions, but, editors note, it probably would face further legal action at taxpayer expense if it fails to do so.

Writing for the majority, Supreme Court Justice John Paul Stevens said the only way the EPA could avoid taking further action is if it determines that greenhouse gases do not contribute to climate change or if it provides a good explanation why it cannot or will not find out whether they do.

Judge Stevens, who was joined by Justices Anthony M. Kennedy, David H. Souter, Ruth Bader Ginsburg, and Stephen G. Breyer, said that, by providing nothing more than a "laundry list of reasons not to regulate," the EPA had defied the Clean Air Act's "clear statutory command." He said a refusal to regulate could be based only on science and "reasoned justification." He added that, although the statute left the central determination to the "judgment" of the agency's administrator, "the use of the word 'judgment' is not a roving license to ignore the statutory text." The Court criticized use of semantics and word games to defy the law.

In a second and closely related Clean Air Act case, the Court unanimously endorsed authority of the EPA over factories and power plants that add generating capacity or that make renovations, increasing emissions of air pollutants. In this case, the Court reopened a Clinton Administration federal enforcement effort against Duke Energy Corp. under the Clean Air Act's "New Source Review" provision. In the unanimous decision, the justices ruled against Duke Energy Corp. in a lawsuit originally brought by the Clinton Administration as part of its enforcement effort targeting more than a dozen utilities. Most companies settled with the government, but several cases involving more than two dozen power plants in the South and the Midwest still are pending. The remaining suits demand fines for past pollution that, if levied in full, some editors say would amount to billions of dollars in costs to utilities. That is where your bottom line comes in, because such costs likely are passed on to consumers rather than absorbed by stockholders. The Supreme Court ruled that a U.S. appeals court overstepped its authority by implicitly invalidating EPA regulations and interpreting them in a way that favored Duke Energy. The appeals court's decision "seems to us too far a stretch," wrote Justice David Souter.

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