April 2012

Citing “adverse market conditions,” BrightSource Energy, a wholesale solar power generator, announced yesterday morning that it would shelve a long-planned initial public offering of 6.9 million shares that the company had hoped would fetch 21 to $23 each. The canceled IPO is a blow to the company’s backers, chief among them the American taxpayer. In April 2011, the Department of Energy awarded BrightSource a $160 million subsidy, from the same program that blew almost half a billion on Solyndra. They sure know how to pick ‘em at the DOE!

BrightSource’s setback stands in stark contrast with this week’s ultra-successful IPO by Forum Energy Technologies, an oil-services provider. The company had hoped to sell 16 million shares, but demand far exceeded expectations, and almost 19 million shares were sold, at the high end of Forum Energy’s hoped-for price. Because the services provided by Forum Energy Technologies engender a product—oil—that people actually want to buy*, the company does not need government handouts.

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In late March, the House Judiciary Committee passed H.R. 3862, the Sunshine for Regulatory Decrees and Settlements Act of 2012, by a 20-10 vote. If enacted, the bill would make it more difficult for the Environmental Protection Agency to negotiate “sue and settle” agreements that effectively exclude States from environmental policymaking, in seeming contravention of the Clean Air Act. By making these “sue and settle” agreements more transparent, H.R. 3862 would spur a welcome rebalancing of American environmental federalism.

Federal environmental regulations pursuant to the Clean Air Act are prescribed or approved by EPA, but they are implemented by the States. This relationship is necessary because, as the law recognizes, “air pollution prevention…at its source is the primary responsibility of States and local governments.” Accordingly, the Act “establishes a partnership between EPA and the States for the attainment and maintenance of national air quality goals,” thereby reflecting the Congress’s intent to “carefully [balance] State and national interests by providing for a fair and open process in which State and local governments, and the people they represent, will be free to carry out the reasoned weighing of environmental and economic goals and needs.” Natural Res. Def. Council, Inc. v. Browner (D.C. Cir. 1995).

It is beyond dispute that the Congress wanted States and EPA to work together to improve air quality. Recently, however, EPA has found a way to ditch the States, and instead render environmental policy with environmentalist litigation groups.

Here’s how it works. An environmentalist litigation outfit like the Center for Biological Diversity sues EPA for missing a deadline to implement a regulation pursuant to the Clean Air Act. Due to the almost absolute discretion that courts give federal agencies to implement laws, EPA could squash this suit in court with ease. All EPA would have to do (and what it has done many times before*) is argue that it possesses limited resources, and, as such, the Agency must be afforded the discretion to dictate how these limited resources are used. Indeed, EPA has nowhere near the manpower nor the budget to comply with all the statutory deadlines established by the Clean Air Act; virtually no regulations are implemented on time. However, instead of challenging the lawsuit (and winning), EPA agrees to settle. Then, EPA and the environmentalist litigant negotiate a settlement (i.e., environmental policy). The resultant consent decree is then approved by a judge, lending it the force of law.

There are several troubling implications of these “sue and settle” consent decrees. For starters, they allow unelected environmentalist lawyers to create policy. Moreover, consent decrees are difficult to reverse, which means that a sitting President can use them to bind the discretion of his or her successor. (This point was aptly explained to the Judiciary Committee by New York Law School Professors David Schoenbrod and Ross Sandler. Their testimony is available here).

Even more alarming, these consent decrees deprive States of due process. As I note above, EPA has limited resources. In practice, “sue and settle” agreements effect a reworking of the priorities that determine how EPA uses its scarce resources. In this fashion, the Agency is negotiating Clean Air Act policy. But it is doing so without allowing the States to have a voice, despite the fact that the Clean Air Act stipulates that States are EPA’s partner on environmental policymaking. In written testimony about the H.R. 3862, Roger Martella of Sidley Austin LLP explains how EPA used a consent decree to circumvent the States’ right to have input on a controversial greenhouse gas performance standard:

On December 23, 2010, EPA announced a consent decree with several NGOs committing the agency to propose and finalize the first ever New Source Performance Standards for greenhouse gases. EPA agreed to promulgate such standards for utilities and refineries without any prior input from stakeholders in those industries. Specifically, EPA committed to propose the first-ever GHG NSPS for these sectors in July and December of 2011, which is an unprecedented quick schedule. In fact, the schedule was so ambitious that six months after the July deadline, the Agency has yet to propose the standards for either sector. Beyond the mere commitment of schedules and timelines, EPA also made various substantive commitments in the agreement that would ordinarily be open for public comment in a rulemaking process, such as a decision to regulate both new and existing sources in these categories, without prior industry input on the feasibility of such controls, the ability to implement in a timely manner, and the lack of adequate data to create such standards. Although the Agency ultimately held listening sessions and took comment on the agreements after finalizing them, the agreements did not materially change before being lodged with the Court.

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How much would you pay for nothing? Personally speaking, I wouldn’t pay a single cent for zero returns, and I think most Americans would agree. It is this shared sentiment that compels me to feel bad for North Dakotans, because EPA is forcing them to pay $12 million annually, for nothing.

I am not exaggerating. EPA last Friday promulgated a final Regional Haze regulation for North Dakota, which requires almost $12 million in annual compliance costs, in exchange for “benefits” that are literally invisible.

I’ve written about the Regional Haze rule many times before on this blog (see here, here, here, and here). It was created by the Congress in 1977 amendments to the Clean Air Act. Its purpose is to improve visibility at federal national parks and wilderness areas. The hallmark of the Regional Haze provision is the unique degree of primacy accorded to the States over EPA. Because Regional Haze is an aesthetic regulation—and not a public health regulation—the Congress intended for the States to be the lead decision makers.

Despite the Congress’s intent, EPA has aggressively interpreted its Regional Haze prerogatives so as to usurp the States’ rightful authority. Indeed, North Dakota is the fourth State subject to a federal implementation plan for Regional Haze. North Dakota Department of Health had spent years creating a visibility improvement plan that was submitted in the summer of 2011. The State plan met all of the criteria established by the Clean Air Act and its implementing rules, so it was eminently approvable. It would have cost $600,000 a year.

Last Friday, however, EPA disapproved North Dakota’s Regional Haze strategy, and imposed almost $13 million/year in additional Regional Haze controls at two power plants. In the rulemaking, the Agency stated that these controls were “cost-effective.” This is an eye-opening declaration, in light of the fact that these supposedly “cost-effective” controls fail to achieve a perceptible improvement in visibility.

Don’t take my word for it! The eyes never lie. Below, I’ve used a visibility modeling software program (WinHaze) in order to demonstrate the difference between North Dakota’s plan and that imposed by EPA. See for yourself:

Can you tell a difference? I can’t, and I’ve been staring at these photos intensely, as if they were Magic Eye posters. As the images above make clear, EPA’s Regional Haze regulation is all pain and no gain in North Dakota.

The green echo chamber is reverberating with reports about a new study claiming that the 468 megawatt Cape Wind project, a planned wind farm off the Cape Cod coast, would save New England ratepayers $7.2 billion through 2036. When I first encountered news of the study, I was surprised, because 75% of Cape Wind’s expected output is already under contract, at rates that are more than twice the average price of electricity in the region. How could it be that adding expensive power to a regional grid reduces electricity rates?

This mystery was solved by Randy Hunt, a Massachusetts state representative and part time myth-buster. In an excellent blog post, Mr. Hunt explains that the new Cape Wind rate impact study suffers from a significant flaw. Namely, it fails to account for the cost of wind power, which seems like a pretty big oversight for an analysis that purports to estimate the cost of wind power.

Then again, the study was commissioned by the developers who stand to make a mint with the Cape Wind project, so it’s not shocking that the analysis would be of such dubious quality. What is somewhat surprising, however, is the alacrity with which environmentalist media has trumpeted this bogus report.

In a recent post, I explained how President Obama’s Interior Department has undertaken a radical reinterpretation of the 1977 Surface Mining Control and Reclamation Act (SMCRA) that threatens to shut down coal production in Appalachia. In a nutshell, SMCRA authorizes coal surface mining, but now the Obama administration is poised to reinterpret the law such that it bans surface coal mining. (Read all about it, here). This is the latest salvo in the President’s war on coal; if implemented, it would effectively destroy the Appalachian coal industry.

Despite the enormous consequences at stake—an industry hangs in the balance—the Department of the Interior has deliberated largely in secret. Besides an Associated Press report on a leaked draft impact analysis, which suggested that the reinterpreted law would eliminate 7,000 jobs in Appalachia, information about the proposed rewrite has been scant.

For more than a year, House Natural Resources Committee Chairman Doc Hastings (R-Washington) has been asking the Obama administration for information about the pending SMCRA rulemaking. And for more than a year, the Interior Department has refused to comply with Chairman Hasting’s requests. This is particularly galling given that the information sought by Hastings can hardly be deemed as controversial. Basically, he wants the Interior Department to produce the draft Environmental Impact Statement and Regulatory Impact Analysis. These are standard procedural documents common to almost all major regulations. More importantly, these analyses were financed by taxpayers. Why wouldn’t a Member of Congress have a right to see documents that were created with taxpayer money, and which pertain to a reinterpretation of a law passed by the Congress? Simply put, there is no legitimate reason for the Obama administration to resist, especially in light of its boasts of being the most open and transparent administration, ever.

Last week marked the end of Chairman Hasting’s patience with the administration’s stonewalling. On Thursday, he subpoenaed the Interior Department, seeking:

• All recordings, and complete and unredacted transcripts of recordings, of meetings between the Department and contractors regarding the rewrite of the rule. This includes, but is not limited to, the known 43 digital audio recordings totaling approximately 30 hours.
• Complete and unredacted versions of email communications previously provided to the Committee and documents reviewed by Committee staff in camera.
• All documents related to the development of the Advanced Notice of Proposed Rulemaking and Notice of Intent to prepare a Supplemental Environmental Impact Statement for the coal production regulation.
• Complete drafts of the Environmental Impact Statement and the Regulatory Impact Analysis as of January 31, 2011 for the Administration’s rewrite of the coal production regulation.
• Complete current drafts of the Environmental Impact Statement and the Regulatory Impact Analysis for the Administration’s rewrite of the coal production rule, as well as versions created since January 31, 2011.

Chairman Hastings gave the Interior Department until April 12, 2012 to comply. In a press release, his office indicated that this action was only the first step, and that “Additional categories of documents, not included in this subpoena but previously requested as far back as February of 2011, that are broader in scope and will likely produce a greater volume of responsive material are anticipated to be sought in the near future.”

In December 2010, the Environmental Protection Agency ordered Fort Worth, Texas-based Range Resources Corporation, a natural gas company, to provide drinking water to residents in Parker County, because EPA tests had concluded that hydraulic fracturing (a.k.a. “fracking”) operations by the company “caused or contributed to the contamination of at least two residential drinking water wells.” EPA rendered this decision over the staunch objection of Texas officials, who argued that water in the Parker County wells had been contaminated by naturally occurring methane. Subsequent lab tests by the state Railroad Commission, which regulates oil and gas extraction in Texas, exonerated Range Resources.

Last Friday, EPA informed Range Resources that it was dropping its order. Although EPA’s letter to the company did not identify why the Agency was abandoning its case, it would appear that the move is a vindication of the conclusions drawn by the Railroad Commission.

This is the second time in three weeks that EPA has suffered egg on its face for an overreach on fracking regulation. In mid-March, EPA informed residents of Dimock, Pennsylvania that drinking water there has not been contaminating by hydraulic fracturing drilling. That revelation was uncomfortable for the Agency, because it had decided to test the Dimock water over objections from Pennsylvania officials.

In both instances, EPA took care to be discreet. In Dimock, the Agency hand delivered the negative lab results to residents; in Texas, EPA informed Range Resources general counsel with a brief letter. In neither case did EPA issue a press release.

EPA’s tight lipped approach to divulging information in these two cases stands in stark contrast to the Agency’s trumpeting of controversial, preliminary lab results suggesting that hydraulic fracturing “likely” contaminated water in Pavillion, Wyoming. Despite the severe public relations ramifications of the Pavillion press release (it was immediately seized upon by enviros as “evidence” that fracking threatens the nation’s water supplies), EPA issued it: (1) without having peer-reviewed the lab results and (2) in the face of substantial criticism about methodology leveled by Wyoming officials.

EPA thus demonstrates a striking public relations inconsistency regarding hydraulic fracturing. When lab results are good for the gas industry, they are announced to a handful of people. When lab results are bad for the industry, however, they become the subject of a press release that is rushed out the door before it is properly vetted.