The Problem with the 10th Circuit’s Ruling in State of Oklahoma, et al. v. EPA

EPA’s power relative to the States increased last Friday when the 10th Circuit Court of Appeals, by a 2-1 majority decision, ruled that the agency acted reasonably when it disapproved Oklahoma’s Clean Air Act plan to improve visibility. As I explain below, the court’s majority opinion in State of Oklahoma, et al. v EPA is questionable because it hinges on the credibility of an “independent” consultant hired by EPA. In fact, this consultant is biased and unqualified. She is a go-to, anti-coal litigation witness for environmental organizations like the Sierra Club, and, more importantly, her analysis is demonstrably wrong.

At issue is a Clean Air Act regulation known as Regional Haze. Amended to the law in 1977, the purpose of the Regional Haze program is to improve the view at National Parks and other federally-designated areas. Because it is an aesthetic regulation—and not a public health mandate—the Congress granted States a unique degree of power vis a vis EPA, relative to other regulatory regimes established by the Clean Air Act.

The Regional Haze rule’s most significant regulatory mandate is known as Best Available Retrofit Technology (BART). The Clean Air Act requires that States determine BART for all fossil fuel plants built between 1962 and 1977.

In 1999, the Clinton administration EPA promulgated rules for establishing BART. These rules were challenged by States and industry for being insufficiently deferential to States’ unique prerogatives under the Regional Haze program. In a 2002 decision, American Corn Growers v. EPA, the D.C. Circuit Court of Appeals agreed with the petitioners, and remanded the rule to the agency. The court’s opinion explained that, “states…play the lead role in designing and implementing Regional Haze programs” generally, and that, in particular, the Clean AirAct “giv[es] the states broad authority over BART determinations.”

The legal history is clear: Congress wanted States to choose BART.

Fast Forward 9 Years…

…It’s December 28, 2011, and EPA Region 6 has just finalized a federal implementation plan that establishes BART for 6 power plants in Oklahoma. State officials had spent countless hours crafting Oklahoma’s own BART limits. Yet EPA disapproved the Sooner State’s conclusions, and imposed a federal BART determination that cost $1.8 billion more.

EPA plan was much more expensive than the State’s plan, yet it would achieve non-existent benefits. This isn’t an overstatement. Thanks to computer software known as WinHaze, we can actually model the visibility improvement wrought by EPA’s controls. See for yourself! (It’s on page 25 of this report). The pictures don’t lie: EPA’s $1.8 billion in controls buys an invisible ”improvement” in visibility.

If you’ve been paying attention to this blog post, I hope you are thinking: “But the D.C. Circuit Court ruled that States get to choose Regional Haze BART, not EPA. Yet EPA just rejected Oklahoma’s choice for Regional Haze BART, and imposed a ridiculous, all-pain no-gain BART regulation in its stead. WHAT GIVES?!?”

The answer is that EPA engineered an indirect reckoning with Oklahoma’s BART determination. Due to the primacy accorded States on visibility improvement policy by the Clean Air Act, EPA could not simply reject outright the BART controls selected by Oklahoma. Instead, the agency exercised an (questionable) authority to object to the methodology by which Oklahoma rendered its decision on BART.

To be precise, EPA disapproved Oklahoma’s estimate of what BART controls would cost. Oklahoma calculated that scrubbers, a retrofit to reduce sulfur dioxide emissions, would cost $1.8 billion to install at six power plants. Based in part on this estimate, state officials deemed that scrubbers were too expensive to serve as Regional Haze BART.

EPA contested this conclusion by hiring an “independent” consultant. According to this “independent” consultant, Oklahoma’s accounting was improper, and the actual cost of installing the six scrubbers was half what the Sooner State claimed it was—about $900 million.

Having determined that Oklahoma’s cost estimate was unreasonable, EPA then disapproved the State’s BART determination, because it was partly based on a supposedly inaccurate accounting. In the place of Oklahoma’s plan, EPA imposed a federal Regional Haze plan that required scrubbers as BART. EPA concluded that the cost of scrubbers was reasonable based on the “independent” consultant’s work.

Oklahoma sued EPA, as did industry within the State. The petitioners alleged, among other things, that EPA acted in an arbitrary and capricious fashion when it disapproved Oklahoma’s BART determinations. You can read the petitioner’s brief here, and its reply brief here.

I followed the case closely, and I thought it would be a slam dunk for Oklahoma. For starters, the State won a stay preventing EPA’s implementation of its Regional Haze rule while the court deliberated the case. This is always a good sign for the petitioners. More importantly, the previous case law made it clear that States get to choose BART. It seemed obvious that EPA had engineered a rationale to impose the controls it preferred. It is, after all, EPA policy under the current administration to see that all coal-fired power plants in the U.S. are retrofitted with scrubbers.

So I was a bit shocked when the 10th Circuit delivered a ruling last Friday that supported EPA’s takeover of Oklahoma’s Regional Haze authority. My shock turned to dismay after I read the majority (2-1) opinion. Here’s why: The decision’s logic rested on the credibility of EPA’s consultant.

About that “Independent” Consultant…

It is a tenet of administrative law that the decision-making of administrative agencies must be granted deference, especially so for technical matters. And if EPA had hired a truly “independent” consultant to audit Oklahoma’s cost accounting, I wholeheartedly believe that the agency should be accorded the deference to act on the basis of his or her analysis.

However, as I explain below, EPA’s consultant—Dr. Phyllis Fox—is anything but independent. Her resume demonstrates that she’s a go-to litigation witness for the Sierra Club. Indeed, only four months after she vetted Oklahoma’s BART determinations for EPA, Dr. Fox was hired by Sierra Club to file comments with EPA advocating for stringent BART controls at the Four Corners Power Plan on the Navajo Nation. Sierra Club, mind you, was an intervening party on behalf EPA in Oklahoma’s Regional Haze lawsuit against the agency before the 10th Circuit. Small world!

In a 2008 ruling, an administrative law judge in Georgia described Dr. Fox’s qualifications thusly,

“Dr. Fox is not a regulator, a design engineer, or an expert in the design of pollution control devices. She has never worked for a permitting agency reviewing permit applications. Nor has Dr. Fox ever drafted an air quality permit, made a BACT [Best Available Control Technology] determination for a permitting agency, or assisted an applicant in submitting an air quality permit application for a pulverized coal-fired power plant.”

It gets worse. Dr. Fox performed an identical role as “independent” consultant in two other Regional Haze federal implementation plans imposed by EPA on New Mexico and North Dakota. In both cases, Dr. Fox estimated that state officials had overestimated the cost of BART determinations by almost 100%. And on the basis of Dr. Fox’s “independent” analysis, EPA justified disapprovals of New Mexico’s and North Dakota’s Regional Haze BART determinations. Sound familiar? This is exactly what was done in Oklahoma. The template was the same in all three States.

Here’s how PNM, a New Mexico utility, characterized Dr. Fox’s work:

PNM believes that Region 6’s decision to rely solely on Dr. Fox resulted in numerous fatal flaws in the analysis underlying Region 6’s proposed FIP that render it legally untenable. PNM requests that Region 6 reconsider is decision to disregard the information and analysis provided by Black & Veatch. The sections below describe many of the flaws in the analysis prepared by Dr. Fox and relied upon by Region 6 in proposing the FIP for San Juan.

Basin Electric, a North Dakota utility, was a bit harsher:

[Phyllis Fox’s] revised estimate is riddled with errors, demonstrates a fundamental lack of engineering experience with SCR system design and appears to be driven by a single-minded goal of reducing the total annual cost of a TE-SCR by relying on the lowest cost option, regardless of whether such option is consistent with good engineering practices or consistent with actual costs for a TE-SCR system at Leland Olds Station.

Basin Electric later noted, under a subsection titled “Dr. Fox Is Unqualified and Biased”

Fox testified for the Sierra Club that SCR should be applied to a proposed Texas coal fired power plant, and testified for the Sierra Club in a challenge to the NO, emission limits for a proposed coal-fired plant in Illinois. As recently as October 2009, Fox was retained by Alaskans for Energy Freedom, d/b/a Alaska Coal, a group whose motto is “North to the Future Beyond Coal,” to provide technical advice about the Healy Coal Plant Unit 2. The group is currently circulating a petition against operation ofthat plant.

A Record of Being Wrong

Most damning of all is that fact that Dr. Fox’s cost analysis has been proven wrong on the very subject that the 10^th Circuit was considering.

As I noted above, she performed as an “independent” consultant for EPA in New Mexico and North Dakota, in addition to Oklahoma. In New Mexico, state officials estimated that BART for the San Juan Generating Station would cost $730 million; Dr. Phyllis Fox claimed it cost $340 million. And based on this, EPA disapproved New Mexico’s plan and imposed a Regional Haze federal plan in its stead. PNM subsequently solicited bids to actually build the technology. The utility received two bids, and the cheapest was $750 million!

Long story short: Congress wanted States to call the shots on Regional Haze. EPA justified a disapproval of Oklahoma’s Regional Haze plan based on the work of a supposedly “independent” consultant, who, in fact, is biased. More to the point, this “independent” witness has been proven wrong in a parallel situation that, in a logical world, would undermine her credibility.

It was a close decision, with two judges siding against one. The dissenting judge, moreover, was forceful. So I’ve not lost all hope of successful appeal.