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June 22, 2011 

The Honorable Cass Sunstein 

Administrator 

Office of Information and Regulatory Affairs 

Office of Management and Budget 

725 17th St. NW 

Washington, DC 20503-0004 

Washington, D.C. 

 Re: E.O. 12866 Meeting: EPA’s Proposed Clean Air Transport Rule1

Dear Administrator Sunstein: 

 Thank you for scheduling our Executive Order 12866 meeting this week. As you 

may know from our comments on the proposed Clean Air Transport Rule (CATR), 2 our 

client, Edison Mission Energy (EME), has very significant legal and operational concerns 

regarding the proposed CATR. EME has already invested several hundreds of millions 

of dollars over the past decade to reduce emissions to meet state and federal mandates 

and has a very substantial interest in ensuring that these improvements continue on a 

rapid but practical and legally permissible course. 

 Over the past decade, EME has worked proactively hand-in-hand with EPA and 

state regulators to reduce mercury, NOX and SO2 emissions.3

 Indeed, EME intervened in 

 

1

 This letter is submitted pursuant to the public disclosure requirements of section 6(b) of Executive 

Order 12866. 

2 Comments of Edison Mission Energy on EPA’s Proposed Federal Implementation Plans to 

Reduce Interstate Transport of Fine Particulate Matter and Ozone (Oct. 1 2010) (“EME 

Comments”). See Federal Implementation Plans to Reduce Interstate Transport of Fine Particulate 

Matter and Ozone, 75 Fed. Reg. 45,210 (Aug. 2, 2010) (“CATR”). 

3

 On December 11, 2006, EME’s subsidiary Midwest Generation EME, LLC entered into an 

agreement with the Illinois Environmental Protection Agency (“IL EPA”) whereby it committed 

to aggressive fleet-wide reductions in emissions of mercury, NOX and SO2 from its Illinois-based 

coal-fired generation facilities. 35 IAC 225.291 to 225.299. EME committed to a 90% reduction 

in its fleet-wide mercury emissions rate, a 4-fold reduction in its fleet-wide SO2 emissions rate and 
June 22, 2011 

Page 2 

2

prior litigation to support EPA’s CAIR rule, and plans to file public comments supporting 

EPA’s most recent proposed rule on Utility MACT.4 Given its prior support for EPA 

policy and rulemaking in other contexts, EME regrets that it must strongly and publicly 

oppose the CATR as currently proposed. 

 Multiple fundamental flaws in EPA’s proposed rule stem from the fact that its 

effort to mandate environmental benefits in the coming year—2012—can only be 

achieved from industry retrofits that cannot realistically be completed until 2014 at the 

earliest. EPA has no real world support—and certainly no administrative record 

support—for any conclusion that EME or other entities can realistically accelerate this 

construction so that it can be completed next year. Indeed, EPA has acknowledged: “it is 

not possible to require the installation of post-combustion SO2 controls (scrubbers) or 

post-combustion NOx controls (SCRs) before 2014 (because it takes about 27 months to 

install a scrubber and 21 months to install an SCR) . . . .”5

 EPA’s NODA6 nevertheless 

mandates that these results be achieved by 2012, and compels EME and other utilities to 

buy billions of dollars worth of emission allowances if they are not. The proposed CATR 

and NODA are fundamentally flawed—and could not survive judicial review—for at 

least two reasons: (1) EPA can only impose these mandates through an illegal “FIP-first”7

unilateral federal mandate; and (2) although EPA imposes massive new costs on utilities 

and rate-payers in multiple states in its NODA, it achieves zero environmental benefits by 

doing so. 

 First, as many states and power generation industry commenters have explained in 

depth, EPA’s CATR proposal disregarded the core procedural requirements of the Clean 

Air Act’s (CAA) process of cooperative federalism. For example: 

West Virginia: “[T]he action of EPA issuing a FIP with no SIP mechanism 

wrongly implies that states have intentionally failed to comply with Clean Air Act 

Requirements.” West Virginia Department of Environmental Protection, 

Comments on Proposed Transport Rule, 3 (Sept. 30, 2010). 

 a two-fold reduction in its fleet-wide NOX emissions rate (these NOX reductions are on top of the 

50% reduction made to comply with the NOX SIP Call). 

4

 See Press Release, Midwest Generation (an EME subsidiary), Midwest Generation Supports Goals 

of Proposed USEPA Air Regulations, Opposes Delay (May 23, 2011). 

5

 CATR, 75 Fed. Reg. at 45,281. By industry calculations, it may take even longer. See Comments 

of Edison Mission Energy on EPA’s Proposed Federal Implementation Plans to Reduce Interstate 

Transport of Fine Particulate Matter and Ozone (The “Transport Rule”), 22-25 (Oct. 1, 2010). 

6

 Notice of Data Availability for Federal Implementation Plans to Reduce Interstate Transport of 

Fine Particulate Matter and Ozone: Request for Comment on Alternative Allocations, Calculation 

of Assurance Provision Allowance Surrender Requirements, New-Unit Allocations in Indian 

Country, and Allocations by States, 76 Fed. Reg. 1109 (Jan. 7, 2011) (The “NODA”). 

7

 “FIP” refers to Federal Implementation Plan and “SIP” refers to State Implementation Plan. 
June 22, 2011 

Page 3 

3

Utility Air Regulatory Group (UARG): “This [FIP-first] scheme is plainly 

contrary to the terms of the Act and the states-first principle recognized and 

enforced by the courts. . . . Congress gave the states the right to develop and 

submit SIPs implementing the Act’s requirements in the first instance, based on 

state-specific considerations. No amount of expediency can justify violation of the 

terms of the Act and upsetting the balance that Congress struck between federal 

and state government.” Utility Air Regulatory Group, Comments on Proposed 

Transport Rule, 23-24 (Oct. 1, 2010) (hereinafter, “UARG Comments”). 

Southern Company: “The Act grants no authority to EPA to promulgate a FIP 

without first giving the states adequate time and a real opportunity to develop and 

submit SIPs that reflect each state’s ‘sensitive . . . choices’ on how to implement 

section 110(a)(2)(D)(i)(I). EPA has no authority to leapfrog over the SIP process 

and impose its own choices on states and regulated parties.” Southern Company, 

Comments on Proposed Transport Rule, 22 (Oct. 1, 2010) (citing Michigan v. 

EPA, 268 F.3d 1075, 1084 (D.C. Cir. 2001)). 

Massachusetts: “[W]e are concerned about the loss of state’s ability to tailor the 

trading program to meet state policy goals under a FIP, rather than a [SIP].” 

Massachusetts Department of Environmental Protection, Comments on EPA’s 

Proposed CATR, 2 (Oct. 1, 2010). 

Illinois: “EPA should allow sufficient time for states to develop state plans. . . . 

Using a later date than 2012 for the initial budgets under the Transport Rule FIP 

allows states sufficient time to develop SIPs and would allow emission sources 

sufficient time to plan and optimize control measures. Allowing states sufficient 

time to develop SIPs may ultimately prove to be a more timely approach for 

reducing interstate transport than will U.S. EPA’s FIP approach, due to the 

likelihood of further litigation.” Illinois EPA, Comments on Proposed Transport 

Rule, 1-2 (Sept. 30, 2010). 

Ameren: “EPA has no authority to promulgate a FIP to replace CAIR without 

first giving the states the opportunity to develop their own SIPs and then finding 

such SIPs deficient for a failure to submit.” Ameren, Comments on Proposed 

Transport Rule, 3 (Oct. 1, 2010) (citing 42 U.S.C. §§ 101(a)(3), 107(a)). 

Edison Mission Energy: “EPA’s promulgation of a FIP absent the statutory 

findings is flatly contrary to the CAA’s requirements, as well as being 

inconsistent with the cooperative federalism dictates of Title I.” Edison Mission 

Energy, Comments on Proposed Transport Rule, 8 (Oct. 1, 2010). 

 The D.C. Circuit has repeatedly addressed the CAA mandates of cooperative 

federalism in a long line of cases, addressed below. In short, in order to implement new 

emissions limitations through CATR, EPA must do a SIP call pursuant to 42 U.S.C. § 
June 22, 2011 

Page 4 

4

7410(k)(5).8

 As recently as 2005, EPA expressly recognized that a SIP call was the 

appropriate procedural course to implement an air transport rule.9

 

Second, the practical flaws in EPA’s approach—specifically including its recent 

January 2011 NODA, are profound. As EPA has itself expressly acknowledged, 

applying Phase I of the proposed CATR in 2012 would not result in any significant 

increase in the speed of retrofits.10 But again, in its haste to impose a new 2012 mandate, 

EPA has disregarded the practical reality facing facilities, and more than a decade of 

careful planning that has allowed significant emissions reductions to progress in an 

aggressive but ultimately achievable fashion.11 As set forth below, the net effect of 

EPA’s new proposals is not to achieve any substantial emissions reductions by 2012, but 

instead only to make marginal adjustments to operations and to mandate that certain 

facilities purchase allowances from other facilities between 2012 and 2014 when real 

emission-reduction gains will be realized.12 In other words, although the EPA proposals 

may have permitted the agency to state publicly that it was imposing a tough new 

deadline, Phase I of the CATR proposal, and the NODA approach specifically, will have 

zero environmental benefit, and instead would only create a mandate to purchase 

emissions credits that could effectively tax rate payers in certain areas and enrich utility 

owners in others. 

 EPA’s proposed NODA approach is particularly perplexing given the 

Administration’s recent public announcement recommitting to the cost-benefit rationality 

purposes of Executive Order 12866.13 As the President recently indicated: 

 

8

 See EME comments at 7-8, UARG comments at 20, Progress Energy, Comments on Proposed 

Transport Rule, 4 (Oct. 1, 2010). 

9

 See Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate 

Rule); Revisions to Acid Rain Program; Revisions to the NOx SIP Call, 70 Fed. Reg. 25162, 

25268-69 (May 12, 2005) (“CAIR”) (providing states with the opportunity to issue SIPs in 

response to the new rule and clarifying that “EPA will only issue a final FIP for those jurisdictions 

that fail to respond adequately to the CAIR”). 

10 75 Fed. Reg. at 45,281 (“it is not possible to require the installation of post-combustion SO2

controls (scrubbers) or post-combustion NOx controls (SCRs) before 2014 (because it takes about 

27 months to install a scrubber and 21 months to install an SCR).”). Industry comments make 

clear that a more realistic estimate is 40 to 60 months for scrubbers and 32 to 46 months for SCR. 

See EME comments at 22-25. Title IV, the Acid Rain Program under the 1990 Clean Air Act 

amendments, left almost four years before requiring the first emission reductions, and left nearly 

nine years for producers to install equipment before the cap and trade system entered into force. 

See 42 U.S.C. §§ 7651c, 7651d. 

11 While EPA proposes mandatory emission reductions by 2012 in Phase I of CATR, the D.C. 

Circuit expressly declined to impose specific deadlines for EPA action when it remanded CAIR. 

See North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). 

12 See 75 Fed. Reg. 45281; 76 Fed. Reg. at 1,114. 

13 Improving Regulation and Regulatory Review, Executive Order 13563, (Jan. 18, 2011) 

(reaffirming the principles of E.O. 12866 and requiring each agency “to use the best available 
June 22, 2011 

Page 5 

5

Our regulatory system must . . . . take into account benefits and costs, both 

quantitative and qualitative. . . . 

* * * * 

[E]ach agency must, among other things: (1) propose or adopt a regulation 

only upon a reasoned determination that its benefits justify its costs. . . .14

 We are not aware of any EPA effort at all to analyze the costs imposed on 

ratepayers by the NODA.15 A recent study suggests that the NODA approach would 

result in an increase in consumer power prices by as much as $514 million per year in 

2012 and 2013 with consumers in the Midwest bearing the greatest increase in power 

costs.16 None of the billions of dollars in benefits that EPA predicts from this rule result 

from the NODA approach in 2012. This failure to account for the potential costs 

imposed on ratepayers by the NODA undermines EPA’s proposals. 

 Although we have very specific concerns with the proposed CATR, we are not 

privy to EPA’s approach to the final rule. We thank EPA for its willingness to meet with 

us and be briefed on these issues, and we hope that good faith efforts will be made to 

consider these and similar concerns voiced by many commenters in the record. EME is 

committed to working with the Administration to achieve real meaningful progress on air 

quality without imposing significant new costs on ratepayers and industry during these 

difficult economic times. 

BACKGROUND 

The Clean Air Act’s Cooperative Federalism 

Cooperative Federalism is at the core of Title I of the CAA. Congress specifically 

assigned different tasks to the states and to the EPA: EPA is tasked with promulgating 

 techniques to quantify anticipated present and future benefits and costs as accurately as 

possible.”). 

14 E.O. 13563, section 1(a), (b). 

15 As many commenters made clear, the costs of such a change are likely to be significant, as 

overallocated units have a strong incentive to refuse to trade allocations, forcing underallocated 

units to curtail production and drive up the cost of electricity on the market. Given the small 

number of players in the market, such abuse of market power is likely. See Comments of Edison 

Mission Energy on EPA’s Notice of Data Availability for FIPs to Reduce Interstate Transport of 

Fine Particulate Matter and Ozone (The” NODA”), 7-11 (Feb. 7, 2011). See also Letter from 

U.S. Representative Shuster of Pennsylvania to EPA Administrator Jackson (June 15, 2011) 

(describing both local effects and a national increase in electricity prices of between $359 and 

$514 million). 

16 See Charles River Associates, Market Power Implications of EPA’s Proposed Alternative 

Allowance Allocations Under CATR for 2012-13, 3-4 (May 9, 2011). 
June 22, 2011 

Page 6 

6

uniform national ambient air quality standards (NAAQS);17 States are specifically 

assigned the “primary responsibility” for weighing the appropriate manner to achieve 

these standards, consistent with local, economic and other state interests.18 Although the 

EPA has the responsibility to review and approve or disapprove of state implementation 

plans (SIPs), the role of the states in formulating their SIPs is fundamental to the 

operation of the Act, and a key reason for its past success. 

Upon EPA’s issuance (or revision) of a NAAQS, “[e]ach State shall, after 

reasonable notice and public hearings, adopt and submit to the Administrator, within 3 

years . . . a plan which provides for implementation, maintenance and enforcement of 

such . . . standard in each air quality control region . . . within such State.”19 The statute 

is unambiguous in assigning to states the role of developing implementation plans, and 

indeed requires public hearings on such plans in order to ensure that the location-specific 

issues in each state are considered by the state regulatory authorities while drafting their 

SIPs.20 

Upon receipt of a state plan, the EPA must determine whether such a plan is 

complete, based on preexisting criteria, and if so, approve or disapprove of it.21 The EPA 

must approve such a plan if it meets all of the applicable requirements under the Act.22 

The structure of cooperative federalism thus provides that states produce the plans, and 

EPA evaluates whether these plans meet the requirements of the Act.23 This institutional 

separation preserving the role of the states is key to the Act, as a long line of case law in 

the D.C. Circuit Court of Appeals and the Supreme Court confirm. 

Relevant Caselaw 

Beginning in 1975, the Supreme Court considered “whether Congress intended 

the States to retain any significant degree of control of the manner in which they attain 

and maintain national standards”: 

 

17 42 U.S.C. § 7409. 

18 § 7401(a)(3) (“air pollution prevention . . . and air pollution control at its source is the primary 

responsibility of States and local governments.”); § 7407(a) (“Each State shall have the primary 

responsibility for assuring air quality within the entire geographic area comprising such State by 

submitting an implementation plan for such State which will specify the manner in which 

[NAAQS] will be achieved and maintained within each air quality control region in such state.”). 

19 42 U.S.C. § 7410(a)(1). 

20 See id.

21 § 7410(k). 

22 § 7410(k)(3). 

23 See § 7410.
June 22, 2011 

Page 7 

7

[EPA] is relegated by the Act to a secondary role in the process of 

determining and enforcing the specific, source-by-source emission 

limitations which are necessary if the national standards it has set are to be 

met. Under [CAA] § 110(a)(2), the Agency is required to approve a state 

plan which provides for the timely attainment and subsequent maintenance 

of ambient air standards, and which also satisfies that section’s other 

general requirements. The Act gives the Agency no authority to question 

the wisdom of a State’s choices of emission limitations if they are part of a 

plan which satisfies the standards of § 110(a)(2), and the Agency may 

devise and promulgate a specific plan of its own only if a State fails to 

submit an implementation plan which satisfies those standards. § 110(c). 

Thus, so long as the ultimate effect of a State’s choice of emission 

limitations is compliance with the national standards for ambient air, the 

State is at liberty to adopt whatever mix of emission limitations it deems 

best suited to its particular situation. 

Train v. Natural Res. Def. Council, 421 U.S. 60, 78-79 (1975) (emphases added) 

(footnote omitted). The D.C. Circuit has been just as clear; in Virginia v. EPA, 108 F.3d 

1397, 1407-08 (D.C. Cir. 1997) the D.C. Circuit Court of Appeals considered EPA’s 

attempt to dictate the content of states’ SIPs by requiring specific control measures for 

interstate ozone transport: 

EPA determines the ends--the standards of air quality--but Congress has 

given the states the initiative and a broad responsibility regarding [the] 

means to achieve those ends through state implementation plans and 

timetables of compliance . . . . The Clean Air Act is an experiment in 

federalism, and the EPA may not run roughshod over the procedural 

prerogatives that the Act has reserved to the states. 

Id. at 1408 (quoting Bethlehem Steel Corp. v. Gorsuch, 742 F.2d 1028, 1037-38 (7th Cir. 

1984)). See also Natural Res. Def. Council v. Browner, 57 F.3d 1122, 1123 (D.C. Cir. 

1995) (“The states are responsible in the first instance for meeting the NAAQS through 

state-designed plans that provide for attainment, maintenance and enforcement of the 

NAAQS.”). 

Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000) is also instructive. In that case, 

the court affirmed EPA’s NOx SIP Call rule, in large part because the rule sufficiently 

respected the important role of states in making the source-specific regulatory decisions 

within their own borders. The court noted that the validity of the rule turned on “whether 

the program constitutes an impermissible source-specific means rather than a permissible 

end goal.” Id. at 687. The court affirmed the rule because it “merely provide[d] the 

levels to be achieved by state-determined compliance mechanisms” and allowed states 

“real choice with regard to the control measure options available to them to meet the 

budget requirements.” Id. It is clear from both the Supreme Court and D.C. Circuit 
June 22, 2011 

Page 8 

8

precedent that the courts take cooperative federalism seriously and have regularly 

recognized the right of the states to develop SIPs to meet the Act’s requirements. 

 The States’ procedural right to design their own SIPs is not easily forfeited. 

When a new NAAQS is promulgated, the EPA does not step in and dictate new plans for 

each state to ensure that the new NAAQS are met. Instead, states are given up to three 

years after the issuance of a new NAAQS to issue a new SIP.24 If the EPA disapproves 

of a submitted SIP25 or finds that a state either failed to make a required submission, or 

submitted an inadequate plan, the state may be given a chance to “correct[] the 

deficiency” before the EPA steps in and issues a FIP.26 

 Even when an existing SIP is “substantially inadequate” to comply with the 

requirements of the Act, the Administrator must notify the state of the inadequacies and 

require the state to make revisions within a reasonable amount of time.27 Such a “SIP 

Call” is the statutorily appropriate way for EPA to require states to update their SIPs for 

compliance with a new rule.28 In CAIR, the EPA expressed publicly its concern with the 

speed of implementation, but also publicly recognized the proper statutory role of the 

Agency. EPA concluded that the appropriate and legal course of action was a “SIP 

Call”—giving states eighteen months to submit new SIPs to address interstate transport in 

compliance with the rule.29 The EPA proposed a FIP during the submission period, but 

observed the State’s statutory right to react to CAIR by submitting SIP revisions before 

any FIP could be applied. As a result, the states maintained their critically important and 

statutorily required opportunity to submit their own SIPs. Although EPA prepared FIPs 

for States that did not respond to the SIP call, EPA recognized that it could not preempt 

the State SIPs by implementing a FIP first. As the D.C. Circuit has recently observed, no 

agency policies, no matter how strong, can allow an agency to violate the terms of a 

statute.30 

CAIR 

 Although CAIR was ultimately struck down by the D.C. Circuit in North 

Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008) (per curiam), the court expressly 

decided not to vacate CAIR, leaving the rule in place until the EPA promulgated a 

 

24 § 7410(a)(1). 

25 SIP submissions must be evaluated by the EPA and the Administrator must approve a SIP 

submittal if it meets the requirements of the Act. § 7410(k)(3). 

26 § 7410(c)(1). 

27 § 7410(k)(5). 

28 See NOx SIP Call Rule, 63 Fed. Reg. 57356 (Oct 27, 1998); CAIR, 70 Fed. Reg. at 25263-70. 

29 CAIR, 70 Fed. Reg. at 25263. 

30 See North Carolina v. EPA, 531 F.3d 896, 922 (D.C. Cir. 2008) (per curiam) (“Lest EPA forget, it 

is ‘a creature of statute,’ and has ‘only those authorities conferred upon it by Congress’; ‘if there is 

no statute conferring authority, a federal agency has none.’”)(citation omitted).
June 22, 2011 

Page 9 

9

replacement rule.31 In North Carolina, the D.C. Circuit concluded that, because the 

interstate trading system set up under CAIR allowed for the possibility that emitters in a 

given state could simply buy credits from out of state instead of reducing emissions, the 

rule did not sufficiently assure that upwind states would reduce their significant 

contribution to downwind states.32 By leaving CAIR in place, the court acknowledged 

the continued environmental benefits it would provide compared to is vacatur and chose 

to remand the rule to “temporarily preserve the environmental values covered by 

CAIR.”33 In order to continue providing environmental benefits, states’ existing SIPs 

also must stay in place. The D.C. Circuit in North Carolina did not rule, or even 

expressly hint, that any of the existing or proposed SIPs under the rule were invalidated 

by its ruling. Indeed, the EPA continued to approve SIPs under CAIR after the D.C. 

Circuit remanded CAIR. As will be discussed below, the existence of these approved 

SIPs is one key reason why EPA’s new FIP-first approach for CATR will fail. 

Retrofits and CATR 

 Retrofitting an entire industry is a complicated, expensive, and time-intensive 

process, and EPA has conceded that it is impossible for these retrofits to occur in time for 

Phase I of CATR in 2012.34 Indeed, it is even questionable if the required retrofits can 

practically be made by 2014, let alone 2012. There is wide agreement among the 

industry and state commenters that EPA’s estimates about what will be required in this 

massive undertaking grossly underestimate the burdens on industry, particularly in the 

short-term.35 On a plant-by-plant basis, the time to design, contract, permit, and construct 

the pollution control equipment is significant and well-documented. By contrast, EPA’s 

estimates about how long it takes to install relevant equipment—multimillion dollar 

installations known colloquially as scrubbers or SCRs—are exceedingly optimistic and 

have no genuine support in the record. Relying on unrepresentative information 

concerning retrofits that two companies undertook a decade ago on two electrical 

generating facilities,36 EPA suggests (in the preamble) that owners of all such facilities 

should be able to install SCRs in 21 months.37 However, the overwhelming amount of 

available data demonstrates that it takes between 40 and 60 months to complete scrubber 

installation and SCR retrofits average 39 to 40 months, but can take as long as 60 

 

31 See North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). 

32 North Carolina, 531 F.3d at 906-08. 

33 North Carolina, 550 F.3d at 1178. 

34 CATR, 75 Fed. Reg. at 45,281 (“it is not possible to require the installation of post-combustion 

SO2 controls (scrubbers) or post-combustion NOx controls (SCRs) before 2014 (because it takes 

about 27 months to install a scrubber and 21 months to install an SCR).”). 

35 See, e.g. Southern Company, Comments on Proposed Transport Rule, 13-21 (Oct. 1, 2010); 

Progress Energy, Comments on the Proposed CATR, 5 (Oct. 1, 2010). 

36 See UARG Comments at 38-41, 44. 

37 CATR, 75 Fed. Reg. at 45,173. 
June 22, 2011 

Page 10 

10

months.38 Beyond being objectively infeasible, compressing all of the construction into 

the short period leading up to 2014 will likely lead to significant reliability concerns—an 

issue raised by state commenters. For instance, the Ohio Public Utilities Commission 

concluded: “We believe that in terms of reliability, implementation of the Transport Rule, 

as proposed, will result in a level of uncertainty that is unacceptable and, further, 

irresponsible.”39 This further demonstrates that EPA’s potential 2012 mandate in the 

NODA is unsupportable. 

 In addition to forcing plants to go offline to install pollution control devices, the 

rule is likely to drive a number of older coal plants to decommissioning. In areas that 

depend heavily on coal production, this is likely to have significant impacts on the price 

of electricity, as the costs of new plants are priced into the charges to consumers.40 It 

may also negatively affect the struggling economies in those areas. Moreover, the EPA’s 

compressed time schedule will unnecessarily drive up the cost of compliance, an effect 

the EPA has failed to consider. History shows that, even when EPA appropriately 

complies with the CAA to implement NAAQS, it often underestimates actual costs. This 

is precisely what happened recently with respect to the NOx SIP call.41 Compliance costs 

were dramatically higher for that rule than EPA predicted, largely due to increased costs 

for materials and services resulting from heightened demand that EPA failed to foresee in 

the proposed rule and its underestimation of the complexity of many retrofits. These 

significant costs of retrofits will be exacerbated by the unjustified costs to many facilties 

of the wealth transfer EPA proposed in the NODA, and these costs will be passed along 

to ratepayers. A recent study projects that the NODA allocation approach alone would 

result in an increase in consumer power prices by as much as $514 million per year in 

2012 and 2013 with consumers in the Midwest bearing the greatest increase in power 

costs.42 

 

38 UARG Comments at 42, 44. See also Southern Company, Comments on Proposed Transport Rule, 

13-21 (Oct. 1, 2010) (stating that Southern Company’s average installation time for scrubbers is 

54 months with a range from 40 to 69); Progress Energy, Comments on the Proposed CATR, 5 

(Oct. 1, 2010) (urging EPA to assume more realistic timeframes, estimating 44 months for 

scrubber installation and 38 months for SCRs). 

39 See Ohio Public Utilities Commission, Comments on Proposed CATR (Oct. 1 2010). 

40 See id. at 3-4. 

41 See J.E. Cichanowicz et al., Utility Industry Response to the IAQR Mandates: Estimates of 

Technology Retrofit and Schedule, EPA-HQ-OAR-2003-0053-1024 (Mar. 30, 2004); J.E. 

Cichanowicz et al., Analysis of CAIR Compliance Schedule: A Response to ICAC Estimates, 

Docket Entry EPA-HQ-OAR-2003-0053-1786 (July 26, 2004). 

42 See Charles River Associates, Market Power Implications of EPA’s Proposed Alternative 

Allowance Allocations Under CATR for 2012-13, 3-4 (May 9, 2011). 
June 22, 2011 

Page 11 

11

ARGUMENT 

While EME is not privy to EPA’s draft final rule, we can say confidently that 

EPA would err by replicating the proposed 2012 mandate therein. First, as many 

commentators and key state agencies have indicated, EPA lacks authority to require 

implementation in 2012 under FIPs, and must instead issue a SIP Call. Second, EPA’s 

most recent NODA proposal mandates an approach for allocations in 2012 that will have 

zero actual benefits—because, as EPA has acknowledged, retrofits cannot and will not be 

accomplished by that time. But EPA’s NODA proposal will leave some facilities short of 

emission allowances while others will be given excess allowances. Thus, EPA’s 2012 

mandates would serve no purpose but to require payments, funded by rate payers from 

certain regions of the U.S. (including in Pennsylvania, West Virginia, Ohio, Illinois and 

Tennessee) to the utility shareholders in others. EPA lacks statutory or record support for 

such a mandate, and would only further negatively impact the fragile economy in those 

regions by doing so. 

Cooperative Federalism is the Central Structure of Title I

 There are only two ways that EPA may involve itself in state-level 

implementation: SIP Calls and FIPs. 

SIP Calls: Once a SIP has been approved, EPA may not modify or otherwise disapprove 

of it without issuing a SIP call. Under section 110(k)(5), whenever the EPA finds that a 

SIP is “substantially inadequate” to attain or maintain the relevant NAAQS, to “mitigate 

adequately” interstate pollutant transport or otherwise fails to comply with requirements 

of the CAA, EPA “shall require the State to revise the plan as necessary to correct such 

inadequacies.”43 In issuing such a SIP call, the CAA requires that EPA notify the state of 

the inadequacies in the SIP and allows EPA to set “reasonable deadlines (not to exceed 

18 months after the date of such notice)” to submit SIP revisions.44 Absent the 

procedures provided in this subsection, an approved SIP remains in effect unless a 

specific statutory provision requires that it be updated or altered. A SIP call is the 

appropriate way to compel states to readjust their SIPs, while giving states the statutorily 

required opportunity to determine how to comply with the NAAQS. EPA knows this: 

EPA effectuated its last two interstate transport rules with SIP Calls. 

FIPs: EPA may issue a FIP in certain statutorily enumerated situations. In all of these 

situations, EPA has not yet approved a state’s SIP.

45 Under section 110(c)(1), EPA can 

only promulgate a FIP where: 

 

43 § 7410(k)(5). 

44 Id.

45 See § 7410(c)(1). 
June 22, 2011 

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 (1) the state failed to submit a SIP or SIP revision; 

 (2) EPA finds the SIP submission to be incomplete; or 

 (3) EPA disapproves the SIP in whole or in part, and the state fails to correct the 

 deficiency.46 

These limitations are an important part of the statute’s limits on federal power, and are 

designed to serve as a significant constraint on EPA’s ability to dictate the details of 

state-level implementation. They are not a menu, designed to allow EPA to mine back 

fifteen years through past SIPs or SIP revisions to try to justify a preemptive FIP. 

 Here, in a rush to promulgate regulations that would take effect as soon as 2012, 

EPA has issued a proposal that profoundly misinterprets these provisions. Instead of 

inappropriately dictating the content of states’ SIPs, as it did in Virginia v. EPA, EPA is 

now attempting to preempt states’ ability to generate SIPs at all.47 EPA proposed two 

rationales for a FIP first approach, neither of which could survive judicial review. 

First, in relation to states’ interstate transport obligations for 1997 Ozone and 

PM2.5 NAAQS, EPA inexplicably argued since “EPA approvals of the CAIR SIPs 

preceded the remand of the CAIR by the Court,” and the Court found CAIR unlawful, 

then “a CAIR SIP submission can no longer be considered an adequate section 

110(a)(2)(D)(i)(I) SIP submission” and EPA’s 2005 finding that states failed to submit 

SIPs addressing the transport obligations for the 1997 NAAQS “remain in force 

regardless of whether a state covered by CAIR submitted and/or had an approved SIP 

stating that compliance with the CAIR satisfied their 110(a)(2)(D)(i) obligations.”48 In 

other words, EPA claimed that the D.C. Circuit’s remand of the CAIR rule somehow 

acted as a repeal of EPA’s approval of the states’ SIP revisions addressing the transport 

obligations for the 1997 NAAQS. 

 Nothing in the North Carolina v. EPA decision or the CAA provides a basis for 

such a claim. While EPA made a finding of failure to submit for these states in 2005, 

EPA’s later action in approving each state’s SIP as meeting the requirements of section 

110(a)(2)(D)(i)(I) ended EPA’s authority to issue a FIP. The D.C. Circuit’s decision in 

North Carolina v. EPA did nothing to restore this authority to EPA. While the D.C. 

 

46 It is important to note for the third condition, that it is EPA’s and only EPA’s disapproval that 

triggers the FIP process. 

47 See Virginia, 108 F.3d at 1408. EPA’s proposal in the NODA purports to create options for states 

to issue abbreviated or constrained SIPs instead of accepting the FIP. Neither of these options 

cure the fundamental issue that is raised by EPA’s “FIP first” approach. In the proposal, EPA 

“assume[s] that the first year for which state allocations might be used, in lieu of EPA allocation, 

would be 2014,” requiring the implementation of the CATR by FIPs in the interim. See NODA, 

76 Fed. Reg. at 1,120.

48 See CATR, 75 Fed. Reg. at 45341. 
June 22, 2011 

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Circuit remanded CAIR and the CAIR FIP,49 EPA’s individual SIP approvals were not 

before the court in that case and, therefore, remain in place. EPA’s own actions support 

this conclusion. EPA approved six SIPs to meet the requirements of CAIR after the D.C. 

Circuit’s remand of the CAIR rule in December 2008, demonstrating the fallacy in EPA’s 

analysis.50 The conclusion that these SIPs remain in place is consistent with the D.C. 

Circuit’s goal in remanding the CAIR rule to “temporarily preserve environmental values 

covered by CAIR.”51 The plain language of the statute and EPA’s subsequent actions 

thus confirm that the individual SIPs that EPA approved under CAIR remain valid. 

Second, for states’ interstate transport obligations under 2006 PM2.5 NAAQS, 

EPA has proposed to disapprove many states’ SIPs for failing to meet requirements that 

had not even been identified by EPA at the time the SIPs were submitted. 52 For 

example, EPA is explicitly proposing to disapprove the state SIP revisions responding to 

the 2006 PM2.5 NAAQS (which revisions were submitted in 2009 for the most part) 

because none of those revisions have met the emission limitations EPA identified in its 

proposed 2010 CATR rule.53 In other words, EPA is proposing to deny the states the 

right to implement the requirements of EPA’s 2010 proposal following a SIP Call by 

pretending that the states failed to do so earlier—in 2009 submissions—before EPA even 

made that proposal. 

 

 Likewise, EPA has found that other states failed to submit SIP revisions to address 

the 2006 PM2.5 NAAQS where EPA had not yet established state emission budgets and 

was more than a year late in even designating areas as attainment or nonattainment. This 

 

49 See North Carolina, 550 F.3d at 1178. 

50 These states are: Maryland, 10/30/2009; North Carolina, 11/30/2009; West Virginia, 8/4/2009; 

 Pennsylvania, 12/10/2009; South Carolina, 10/16/2009; Ohio, 9/25/2009. 

51 See North Carolina, 550 F.3d at 1178. 

52 EPA explained that it had separately issued a finding of failure to submit § 110(a)(2)(D)(i)(I) 

transport SIPs for the 2006 PM2.5 NAAQS. See CATR, 75 Fed. Reg. at 45342. However, of the 

states for which EPA proposes FIPs to meet the transport obligations for the 2006 PM2.5 NAAQS, 

16 of those states submitted SIP revisions addressing those requirements. While a number of 

these submittals are still pending, in January and March of 2011, EPA proposed to disapprove the 

majority of these submittals. See, e.g., 76 Fed. Reg. 4584, 4586 (proposed Jan. 26, 2011).

53 See, e.g., Approval and Promulgation of Air Quality Implementation Plans; Georgia; Disapproval 

of Interstate Transport Submission for the 2006 24-Hour PM2.5 Standard, 76 Fed. Reg. 4584, 4586 

(proposed Jan. 26, 2011) (proposing to disapprove the state’s SIP revision based on modeling EPA 

conducted for the Transport Rule); Approval of Air Quality Implementation Plans; Indiana and 

Ohio; Disapproval of Interstate Transport State Implementation Plan Revision for the 2006 24-

Hour PM2.5 NAAQS, 76 Fed. Reg. 6376, 6378 (proposed Feb. 4, 2011) (same); Approval and 

Promulgation of Air Quality Implementation Plans; Kentucky; Disapproval of Interstate Transport 

Submission for the 2006 24-Hour PM2.5 Standard, 76 Fed. Reg. 4597, 4599 (proposed Jan. 26, 

2011) (same). 
June 22, 2011 

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again is an effort to work around the CAA requirements of cooperative federalism.54 

Indeed, EPA still has not finalized state emission budgets. It is not credible for EPA to 

contend that states failed to develop SIPs to meet the requirements of section 

110(a)(2)(D)(i)(I) until they know whether or not areas are in nonattainment or what the 

state emission budgets will be. 

 

The NODA

 Compounding the problems with EPA’s FIP-first approach, the NODA proposes 

an allocation of emission allowances between existing units during Phase I that amount to 

a redistribution of wealth without any environmental benefit. EPA has admitted that it is 

“not possible” to require retrofits of emission-control technology before 2014 because of 

required installation time,55 but EPA’s NODA nonetheless would give some units 

significantly fewer emission allowances than they will require (without the ability to 

install additional controls before 2014) and provides other units with significantly more 

allowances than they will use. Facilities that are assigned fewer allowances than they 

will need to operate will not be able to install equipment to reduce their emissions, and 

will thus be forced to either purchase allowances on the open market,56 or shut down.57 A 

recent study indicates that the price of allowances under the NODA approach is projected 

to be significantly higher than under the original CATR proposal because of the 

incentives for withholding allowances from the market, but EPA did not even evaluate 

the market power effects of the allowance approach under its NODA.58 According to the 

study: 

 

54 For example, EPA did not even designate areas as attainment or nonattainment until November 

13, 2009, more than a year after its statutory deadline for doing so and two months after states 

were purportedly required to submit SIPs. See 42 U.S.C. § 7407(d)(1)(B)(i); U.S. EPA, Air 

Quality Designations for the 2006 24-Hour Fine Particle (PM2.5) National Ambient Air Quality 

Standards, 74 Fed. Reg. 58688 (Nov. 13, 2009). 

55 CATR, 75 Fed. Reg. at 45,281 (“it is not possible to require the installation of post-combustion 

SO2 controls (scrubbers) or post-combustion NOx controls (SCRs) before 2014 (because it takes 

about 27 months to install a scrubber and 21 months to install an SCR).”). 

56 If indeed, such allowances are available. Due to the incentives to bank allowances for future years 

instead of selling, and the potentially monopolistic structure of the market EPA has designed, units 

that have been allocated allowances in excess of their emissions are likely to have considerable 

market power. See NODA Comments, at 7-11 (Feb. 7 2011); See also Charles River Associates, 

Market Power Implications of EPA’s Proposed Alternative Allowance Allocations Under CATR 

for 2012-13, 11-19 (May 9, 2011). 

57 This very problem led to the suspension of the RECLAIM NOx market during the California 

energy crisis. Moreover, shutting down plants harms more than the specific EGUs. Taking 

capacity off the market will decrease supply on the electricity market, increasing prices, and 

potentially causing volatility on the electricity spot markets. 

58 See Charles River Associates, Market Power Implications of EPA’s Proposed Alternative 

Allowance Allocations Under CATR for 2012-13, 3, 10 (May 9, 2011). 
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[The] NODA alternative allocation proposals concentrate a large number of SO2

allowances in the hands of a few entities that do not need them to operate their 

generating units, giving them market power, which they can exercise by 

withholding allowances from the market.59

 The net effect of EPA’s rule will thus be to force the victims of the allocation 

system (those allocated fewer allowances than needed) to purchase allowances from the 

beneficiaries of the system (those allocated excess allowances) at inflated rates—money 

they should be spending on investing in the control technology needed to achieve 

emission reductions. This massive redistribution of wealth – amounting to $1.5 billion in 

2012 and 2013 – is depicted below60: 

 The wealth transfer effectively required under the NODA will have negative 

effects on ratepayers and local economies. As the victim companies face increased costs 

in the form of allowances that must be purchased from the beneficiary companies, they 

must necessarily attempt to pass these costs along to the ratepayers. A recent study 

projects that the NODA allocation approach would result in an increase in consumer 

 

59 Id. at 3. 

60 This chart depicts the wealth transfer for one year and only includes distribution that exceeds $10 

million. 
June 22, 2011 

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power prices by as much as $514 million per year in 2012 and 2013 with consumers in 

the Midwest bearing the greatest increase in power costs.61 The windfall that this will 

generate at the beneficiary companies will almost certainly accrue to the shareholders, 

with little to no benefits passed on to the ratepayers. 

 On the local level, this will have significant impacts. In a recent letter from 

Congressman Shuster to Administrator Jackson, the Congressman summarized the 

potential impact of the NODA allocation methodology on EME’s Homer City plant in his 

district.62 The NODA would require Homer City to buy three times as many allowances 

as it would need under CATR. This facility produces 1,884 MW of electricity—enough 

to power two million homes. The facility also employs many high earning workers and 

supports hundreds of local coal mining and trucking jobs. If this facility is forced to shut 

down or cut back operations because of the NODA, this would be very harmful to the 

local economy. Additionally, he noted that Pennsylvania residents could see a $30 

million per year increase in electricity costs under the NODA. 

 As a result, the net effect of Phase I will be to transfer wealth from the ratepayers 

of the victim companies to the shareholders of the beneficiary companies, however, there 

will be no environmental benefits to show for it. Since the victims of EPA’s NODA 

approach could not possibly install emission controls before 2012, as EPA acknowledges, 

the NODA approach will not result in any additional environmental benefits beyond the 

CATR proposal. Rather than providing environmental benefits, the NODA proposal will 

merely manipulate the market. 

 EPA goes so far as to acknowledge this, writing that “the initial allocation of 

allowances . . . [based upon] historic heat input would yield a distribution of allowances 

putting relatively greater burden on the higher-emission-rate units to reduce emissions or 

purchase additional allowances in order for the units to be in compliance with the 

proposed Transport Rule trading programs.”63 However, by EPA’s own admission, short 

term reductions in emissions are available only on a marginal basis by making minor 

changes. As a result, the effect of the allocation during Phase I will be to put a “relatively 

greater burden” on the relatively higher-emission-rate units to purchase allowances from 

those units allocated excess allowances. EPA has presented no environmental 

justification for requiring some producers to pay others. 

 

 EPA attempted to justify the wealth transfer consequence of the allocation 

methodologies in EPA’s proposal by stating that “because higher-emission-rate units 

generally are responsible for a greater share of a state’s total emissions and thus bear 

 

61 See Charles River Associates, Market Power Implications of EPA’s Proposed Alternative 

Allowance Allocations Under CATR for 2012-13, 3-4 (May 9, 2011). 

62 Letter from U.S. Representative Shuster of Pennsylvania to EPA Administrator Jackson (June 15, 

2011). 

63 NODA, 76 Fed. Reg. at 1,114. 
June 22, 2011 

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greater responsibility for a states’ significant contribution and interference with 

maintenance, this distribution of burden is consistent with the goals of CAA section 

110(a)(2)(D)(i)(I).”64 This reasoning is clearly erroneous. The “distribution of burden” is 

not consistent with the goals of the CAA. As established above, the “burden” generates 

no emission reduction benefits. The “burden” is simply an invention of the NODA’s 

pointless wealth transfer and cannot be justified by any reference to the CAA or any other 

sensible public policy interest. This is particularly the case given that CAIR was 

expressly premised on a two-phased implementation, wherein less stringent reductions 

would take place in 2010, with more stringent reductions occurring five years later, and 

on the presumption that some sources would not install controls – particularly for the 

2010-2014 phase of the rule. Under the NODA approach, however, sources are penalized 

for choices that not only were legal, but indeed were expressly contemplated by CAIR – 

and upon which EPA relied to ensure the cost-effectiveness of the CAIR rule. Nor do 

those sources have time to “correct” their compliance choices before the penalty occurs: 

as EPA acknowledges, sources cannot install new controls by 2012. This penalty is 

especially egregious as applied to sources such as EME, which committed in 2006 to 

aggressive reductions of mercury, NOx and SO2, but agreed to phase in implementation 

of controls based on the priorities established by the state. In sum, the NODA approach 

is simply punitive, and a textbook example of arbitrary and capricious agency action.65 

 EPA could easily avoid this problem by (1) abandoning the timeline for Phase I 

implementation of CATR and delaying the start of Phase II to a point where regulated 

entities could modify their demand by investing in additional emission control 

equipment, (2) allocating emissions based on estimated emissions instead of historic heat 

input, or (3) leaving it to the states, as required by the statute, to allocate allowances. 

 We appreciate your consideration of these issues. Should you have any further 

questions or want to discuss these issues further, please do not hesitate to contact me. I 

can be reached at claudia.o’brien@lw.com or 202-637-2181. 

Sincerely, 

/s/ 

Claudia M. O’Brien 

of LATHAM & WATKINS 

 

64 Id.

65 See Motor Veh. Mfrs. Ass’n v. State Farm Ins., 463 U.S. 29, 43 (1983) (“Normally, an agency rule 

would be arbitrary and capricious if the agency has relied on factors which Congress has not 

intended it to consider, entirely failed to consider an important aspect of the problem, offered an 

explanation for its decision that runs counter to the evidence before the agency, or is so 

implausible that it could not be ascribed to a difference in view or the product of agency 

expertise.”).