A controversial Environmental Protection Agency rule on interstate air pollution, which had been challenged by Dallas-based Energy Future Holdings, the state of Texas and other energy interests, was set aside Tuesday in a 2-1 decision by a federal appeals court in Washington.
The three-judge panel of the U.S. Court of Appeals in Washington sided with more than three dozen challengers to the EPA's Cross-State Air Pollution Rule, which was issued in July 2011 and reduced caps on emissions from power plants in Texas and 27 other states. The rule had been put on hold in December by the court while it considered the legality of the regulation.
It's the second time in little more than a week that a federal appeals court found that the EPA overstepped its authority enforcing federal standards on states. On Aug. 13, a U.S. 5th Circuit Court of Appeals panel ruled 2-1 that the agency intruded into state matters when it disapproved Texas' flexible permit program regulating emissions.
Like last week's ruling, Tuesday's decision drew applause from industry groups and Texas officials, while being criticized by environmental groups. Alisha Johnson, a spokeswoman for the EPA, didn't have an immediate comment on the ruling.
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Writing for the majority, Circuit Judge Brett Kavanaugh said "it is not our job to set environmental policy. Our limited but important role is to independently ensure that the agency stays within the boundaries Congress has set. EPA did not do so here."
In a dissent, Circuit Judge Judith Rogers wrote that in throwing out the rule, the court disregarded the limits Congress places on judicial review of challenges to EPA rules. She said the decision resulted in "the endorsement of a 'maximum delay' strategy for regulated entities, rewarding states and industry for cloaking their objections throughout years of administrative rulemaking procedures."
The court ordered the agency to instead enforce a 2005 rule known as the Clear Air Interstate Rule until a viable replacement to the cross-state pollution rule is made.
The issue gained prominence in Texas when Energy Future Holdings said it would be forced to idle two of three electricity generating units at its coal-fired Monticello facility near Mount Pleasant, as well as three coal mines in the area. EFH is the corporate parent of Luminant Generation, the state's largest electricity generator and operator of a number of coal-fired power plants.
After the appeals court's December decision delaying the rule's enforcement, the affected units kept operating this year amid concerns that the state's largest power grid, the Electric Reliability Council of Texas, would not have enough capacity to meet peak demand. ERCOT serves about 75 percent of the state.
In a prepared statement, Luminant said it "remains committed to its legacy of meeting or outperforming all environmental laws, rules and regulations." Luminant said that it spent $142 million last year on emissions reduction and "currently estimates that capital expenditures for environmental compliance will reach approximately $300 million in 2012. With this litigation behind us, we look forward to continuing to provide safe and environmentally responsible operations across our generation fleet and to meeting or outperforming all environmental laws and regulations," said Luminant CEO David Campbell.
ERCOT CEO Trip Doggett, in a prepared release, said "the rule, as originally proposed, had potentially far-reaching reliability impacts for a grid in which electric use is growing far more rapidly than new generation resources are being built to serve that need." As the EPA formulates a new approach, he said, "ERCOT hopes to serve as a resource to help ensure that the long-term solution considers the electric reliability issues."
Texas Gov. Rick Perry issued a statement Tuesday said that coming "on the heels of our recent flexible air permitting program victory, today's ruling further dismantles the misguided agenda of President Obama's activist, overreaching EPA that has no regard for the impact of its imprudent policies on states' economies or Americans' checkbooks."
John Walke, clean air director at the Natural Resources Defense Council, said the decision "allows harmful power plant air pollution to continue to aggravate major health problems and foul up our air. This is a loss for all of us, but especially for those living downwind from major polluters."
Mary Anne Hitt, director of the Sierra Club's Beyond Coal Campaign, said her group "is disappointed with the court's decision today. Americans have been waiting for the clean air they deserve for decades and the court's ruling today further delays the Clean Air Act's promise of safe, breathable air for our children."
Groups that had contested the rule included the National Mining Association and the International Brotherhood of Electrical Workers.
This report contains material from Bloomberg News.