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Evaluating, Challenging Regulatory Overreach in Energy Industry

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The Legal Intelligencer - April 20, 2016

In-House Counsel

By: Chris Carusone

"You can't fight City Hall."

While this famous phrase is ­believed to have its origins in the political corruption of the ­mid-1800s in New York City's Tammany Hall, it can also be used to describe the steep climb faced by corporate counsel when challenging a government agency in the promulgation of regulations. But don't tell that to the nation's energy industry. Indeed, the energy industry is at the very center of several high-profile cases challenging the statutory authority and processes used by the U.S. Environmental Protection Agency (EPA) and the Pennsylvania Department of Environmental Protection (DEP) in promulgating sweeping new regulations on energy production. In doing so, the industry is blazing a new trail in the fight against regulatory overreach that corporate counsel in all industries would be wise to monitor.

It is well established under federal and state law that administrative agencies are creatures of statute and may not establish regulations outside the boundaries established by the legislature. Under federal law, an agency "has no power to tailor legislation to bureaucratic policy goals by rewriting unambiguous statutory terms," as held in Utility Air Regulatory Group v. Environmental Protection Agency, 134 S.Ct. 2427, 2445 (2014). Similarly, "Commonwealth agencies have no inherent power to make law or otherwise bind the public or regulated entities. Rather, an administrative agency may do so only in the fashion authorized by the General Assembly," as in Northwestern Youth Services v. Commonwealth Department of Public Welfare, 66 A.3d 301, 310 (Pa. 2013).

Statutory authority is not the only ­constraint on an administrative agency's rule-making power. Federal administrative agencies are required to engage in "reasoned decision-making," as in Michigan v. Environmental Protection Agency, 135 S.Ct. 2699, 2706 (2015). Stated differently, an agency's action must be logical, rational and based on a consideration of relevant factors. Proposed federal rules may also be subject to a myriad of other requirements, such as the Administrative Procedure Act, Regulatory Flexibility Act, Paperwork Reduction Act, Unfunded Mandates Reform Act, Information Quality Act, and review by the President's Office of Information and Regulatory Affairs. Similarly, regulations in Pennsylvania are subject to the procedures set forth in the Commonwealth Documents Law, Regulatory Review Act, Commonwealth Attorneys Act, and review by the Independent Regulatory Review Commission (IRRC). The IRRC looks at nine factors in determining whether a regulation is "in the public interest," including, but not limited to, the economic or fiscal impact of the proposed regulation, the clarity, feasibility and reasonableness of the regulation, and whether the regulation is supported by acceptable data.

Three recent cases illustrate the ­important role that the courts are currently playing in the energy industry's challenges to ­administrative rule-making power.

In Michigan, 23 states along with ­industry, labor and environmental groups sought federal judicial review of a final rule promulgated by the EPA setting standards for the regulation of hazardous air pollutants emitted by power plants. In its challenge, the petitioners argued that the EPA unreasonably deemed the cost of the new standards to be irrelevant to its determination that expansion of the standards to power plants was "appropriate and necessary" under the Clean Air Act. In reversing the U.S. Court of Appeals for the District of Columbia Circuit, which had rejected the petitioners' argument, the U.S. Supreme Court emphasized, "Agencies have long treated cost as a centrally relevant factor when deciding whether to regulate. Consideration of cost reflects the understanding that ­reasonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions." More recently, on Feb. 9, the high court took the highly unusual step of granting a stay of the EPA's final rule titled "Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units," otherwise known as the Clean Power Plan, as held in Chamber of Commerce v. Environmental Protection Agency, No. 15A787 (Feb. 09, 2016). In its application, the petitioners (29 states) argued that the EPA exceeded its statutory authority under the Clean Air Act, citing the court's prior decision in Utility Air Regulatory Group, for the proposition that an agency must point to "clear congressional authorization whenever it claims to discover in a ­long-extant statute an unheralded power to regulate a significant portion of the American economy." The merits of the case are now before the D.C. Circuit, which had previously refused to grant a stay.

Most recently, on March 24, the Pennsylvania Independent Petroleum Producers Association (PIPP), joined by the Pennsylvania Independent Oil and Gas Association (PIOGA), filed a petition in the Commonwealth Court seeking expedited ­review of a final-form regulation promulgated by the Pennsylvania Environmental Quality Board (EQB) governing conventional oil and gas wells in PIPP v. Commonwealth of Pennsylvania, No. 219 M.D. 2016. In its petition, PIPP alleged that the EQB violated a provision of the Pennsylvania fiscal code added in 2014 requiring the EQB to promulgate regulations governing small conventional oil and gas producers separately from the large unconventional gas producers. In its petition, PIPP argued that the EQB was without authority to disregard this statutory mandate, and that the EQB's violation of the statute had the effect of significantly diluting the concerns of small conventional producers about the economic and fiscal impact of the regulation. A decision on PIPP's request to enjoin the rule-making is expected later this month.

While the three cases profiled above are limited to challenges to regulations geared toward the energy industry, the legal principles at issue in those challenges are equally applicable to the evaluation of new regulations for any highly regulated industry. When evaluating the legality of an administrative agency's rule-making, whether on behalf of an employer or an industry trade group of which the employer is a part, corporate counsel should evaluate the rule-making by carefully examining the following: (1) Does the agency have the statutory authority to promulgate the regulation; (2) Did the agency adhere to all procedural requirements governing the rule-making process; (3) Is the regulation necessary and/or supported by acceptable data; (4) What is the fiscal/economic impact of the regulation; (5) Is the fiscal/economic impact of the regulation in line with the public policy goals sought to be achieved by the regulation; (6) Is the regulation logical, rational, and based on a consideration of all relevant factors; (7) Are the requirements imposed by the regulation reasonable; (8) Is the language of the regulation clear and unambiguous; (9) Does the regulation represent a policy decision of such a substantial nature that it belongs in statute rather than regulation; and (10) Are there any less costly or less intrusive alternative methods of ­achieving the goal sought to be achieved by the regulation?

The 10 factors outlined above are not intended to be an exhaustive list of factors to consider when evaluating the propriety of an administrative agency's rule-making. However, they can serve as initial criteria that corporate counsel can use in order to determine whether a challenge to new government regulations is worth exploring.

Reprinted with permission from the “April 20, 2016” edition of the “The Legal Intelligencer”© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or visit