Duke Energy dukes it out in Supreme Court

Company contends government pollution-control rule changes over past 25 years were 'arbitrary.'


WASHINGTON (CNN) -- A company operating coal-burning power plants was sharply critical of what it called "arbitrary" changes in government pollution-control rules over the past quarter century, in an important environmental case argued Wednesday before the Supreme Court.

The justices appeared divided over whether Duke Energy Corp (Charts). should be punished for ignoring a federal enforcement program when it sought to modernize more than two dozen of its coal-powered generating units.

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"Companies can get whipsawed," said Justice Antonin Scalia, in apparent support of the company. He said apparent differing government interpretations over the years - some favorable to Duke, some not - thwarted the company's understanding of how to operate its facilities. "They don't challenge the regulations when they come out because as far as they know, the agency is interpreting them in a way that they favor."

Environmental groups and the Bush administration assert the company misapplied the rules, which resulted in an annual increase of pollution the company released into the atmosphere.

At issue is whether power plants that innovate with emission-control technology can operate for longer periods each day, and thus release more pollutants. Duke wants emissions calculated on an hourly rate, but the government contends an annual calculation was always the rule.

The calculations are based on the EPA's "New Source Review" enforcement program to control sulfur dioxide and nitrogen dioxide emissions, which have been linked to acid rain and smog.

"The regulations were clear on their face," said lawyer Sean Donahue, on behalf of the group Environmental Defense, suggesting Duke Energy had clear guidance to follow.

"That's an audacious statement," said stern-faced and skeptical Chief Justice John Roberts, amid laughter in the courtroom.

Two federal programs have been in place since the 1970s to ensure satisfactory air quality, balanced with the need for continued economic growth. President Clinton had used those programs to bring suits against 51 aging, coal-burning power plants. Duke Energy Corp., based in Charlotte, N.C., was sued over improvements made at eight power plants in North Carolina and South Carolina that generate power for more than 2 million people. Those improvements were made without obtaining permits from the the EPA, because, the company contended, it was not increasing the hourly rate of pollution.

Duke Energy wound up winning its case at a federal appeals court against the allied strength of the government and environmental groups. A few months later, the EPA introduced new rules that environmentalists said pandered to the industry at the expense of Americans' health. EPA leaders contend the rules will prompt greater technology innovation. In making the policy changes, the agency wound up backing Duke's position, and urging the Supreme Court to stay out of the matter.

But the justices disagreed and accepted the case. So that created an awkward situation in the courtroom when the Justice Department was forced to reverse course for a second time and go back to supporting the appeal of Environmental Defense - and again opposing Duke Energy.

Some environmentalists say the Bush administration has imploded its own court case with its shifting strategies. Even Environmental Defense lawyers say the government wants to have it both ways - the power to enforce long-standing existing clean air laws, while seeking flexibility to possibly weaken those polices through regulatory review.

The confusion over the differing interpretations was not lost on the high court. Justice Samuel Alito pointed out one leading EPA official interpreted the rules years ago along the lines of Duke Energy's position. "I know you say he's wrong," Alito told Donahue, "but if somebody with his expertise can interpret the regulations in that way, doesn't that show they're not clear on their face?"

Donahue replied, "Duke had more opportunity than you could ask for to understand exactly what EPA's position was, understand what the regulation meant."

Duke Energy's attorney, Carter Phillips, said the government should have made its regulations clear from the beginning. "If they adopted that regulation in 1980, I wouldn't have had to litigate this issue 25 years later," he told the justices. He called the government's actions "pure gotcha."

Wednesday's arguments were the first of two major cases on the enforcement powers of the Clean Air Act. A second appeal to be heard next month deals with whether the EPA is required by law to regulate carbon dioxide emissions from cars and factories. Twelve states sued the administration, which claimed CO2 is not a pollutant under federal rules, and that they alone have the discretion to decide such matters.

The clean-air issue could become part of a broader political debate in an election year. Former Vice President Al Gore is a leading advocate in favor of an aggressive effort to reduce greenhouse gases. He is the subject of a new documentary, "An Inconvenient Truth," and travels the country speaking out on the issue.

Duke Energy supporters include electric utility groups, the state of Alabama, and several labor unions.

On the other side are the American Lung Association, several states, including New Jersey and New York, and other environmental groups.

The outcome could have implications for Duke's rivals American Electric Power Co. Inc (Charts) and Progress Energy Inc (Charts).

The case is Environmental Defense v. Duke Energy Corp. (05-848). A ruling is expected in a few months.

------------From CNN Supreme Court Producer Bill Mears

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.