Changing all the rules - Part two
Many more wish lists arrived at the Energy Department, and many of them led with the same idea: gutting new-source review. In case the administration didn't get the message, a consortium of energy companies hired Haley Barbour, former chairman of the Republican National Committee, to press their cause in a face-to-face meeting with Vice President Cheney. According to a recent article by Christopher Drew and Richard A. Oppel Jr. in The New York Times, Barbour was accompanied in that meeting by Bush's friend Marc Racicot, who is now chairman of the president's re-election campaign.
Over at E.P.A., Whitman and other top officials tried to resist the policy changes coming out of the Energy Department. When a draft of the National Energy Policy circulated in late April 2001, Tom Gibson, an associate E.P.A. administrator appointed under President Bush, sent a memo to the task force director arguing that one of the president's, and the policy's, fundamental assumptions -- that environmental regulations had hamstrung American domestic energy production -- was flat wrong. ''Costs of compliance with environmental regulations are overstated, several inaccurate statements and opinions are presented as factual and no citations are provided for many of these statements,'' Gibson wrote. He and other E.P.A. officials, he continued, ''are very concerned that this language is inaccurate and inappropriately implicates environmental programs as a major cause of supply constraints. . . . Such a conclusion, in our opinion, is overly simplistic and not supported by the facts.''
Whitman, who was a member of Cheney's task force, often found herself and Treasury Secretary Paul O'Neill acting as the panel's only defenders of environmental protections. In Ron Suskind's recent book ''The Price of Loyalty,'' O'Neill recalls Whitman saying after one meeting: ''This is a slaughter. It's 10 on 2, not counting White House people and all the advisers to the group from the various industries.'' (Whitman, who is co-chairman of President Bush's re-election campaign in New Jersey, declined to comment for this article. According to her spokesman, she has criticized O'Neill's book as inaccurate in many of its details.)
Whitman was in an especially tough position with respect to new-source review. Thirteen months before she was named to the Bush cabinet, when she was governor of New Jersey, Whitman joined a lawsuit to force Ohio-based American Electric Power to clean up its coal-fired plants, and now that she was head of the E.P.A., American Electric was one of the seven utilities the agency was suing for new-source review violations. In the spring of 2001, as the energy task force was completing its work and preparing its report, Whitman understood that new-source review faced effective elimination under industry pressure, and she worried about the environmental and political implications of such a move. In May 2001, less than two weeks before the final energy report was released, Whitman sent a memo to Cheney. ''As we discussed, the real issue for industry is the enforcement cases,'' she wrote. ''We will pay a terrible political price if we undercut or walk away from the enforcement cases; it will be hard to refute the charge that we are deciding not to enforce the Clean Air Act.''
President Bush's final National Energy Policy (N.E.P.) was published on May 16, 2001. In its 170 well-designed, color-illustrated pages lay the administration's vision of the environmental future of the United States. The policy's defining notion was simple: environmental regulations have constrained America's domestic energy supply. In broad strokes, the N.E.P. laid out the next three years of the Bush administration's energy and environmental agenda: roll back wilderness and wildlife protections to open up more public land to oil and gas development; establish fast-track hydropower permits; expand offshore oil and gas drilling; and replace tough Clean Air Act rules, including new-source review, with an industry-friendly market-based pollution trading system. These weren't items on a wish list. They were marching orders. Among the first to be carried out was the mandate to overhaul new-source review.
To that end, the White House directed the Justice Department to review its cases against the Southern Company, American Electric and others to see if any of the suits might be dropped outright. According to a senior E.P.A. adviser supportive of the administration's policies, who spoke on condition of anonymity, ''The administration believed some of those cases were brought'' -- by the Clinton Justice Department -- ''without regard to whether they were really egregious violations of the Clean Air Act worthy of enforcement.'' Certain lawsuits, he said, ''were regarded as more punitive than designed to achieve environmental goals.''
During the same period, Bush appointees at the E.P.A. disbanded Robert Perciasepe's N.S.R. working group and, led by Jeffrey Holmstead, the former industry lobbyist who had become an assistant administrator at the E.P.A., started to rewrite the rules. Publicly, the president ordered the agency to conduct a 90-day review of its new-source rules, and officials dutifully sat through four public hearings during the summer of 2001 and took note of the hundreds of comments regarding the policy. Privately, though, the E.P.A. and the Energy Department were already moving to undo new-source review. At a Senate hearing that July, Whitman outlined a plan to replace the E.P.A.'s toughest clean-air programs with a more flexible, industry-friendly regimen. ''New-source review is certainly one of those regulatory aspects that would no longer be necessary,'' she said.
The Energy Department took an unusually active role in drawing up the proposed new-source review changes. In November 2001, D.O.E. officials circulated their proposed changes among the E.P.A. staff for feedback. Officials at the E.P.A.'s air-enforcement division were appalled. ''The current draft report is highly biased and loaded with emotionally charged code words,'' E.P.A. officials wrote in an internal memo. ''It is drafted as a prelude to recommendations to vitiate the N.S.R. program.'' The agency's memo noted that the report ''contains only comments by industry and ignores the comments of all other stakeholders.''
In January 2002, the White House suffered a setback. The Justice Department delivered its report on the legality of the E.P.A.'s lawsuit against the Southern Company and other N.S.R. violators. The department found that contrary to the administration's hopes, all of the lawsuits were legal and warranted. In fact, Justice's lawyers said they intended to prosecute the cases ''vigorously.''
Shortly thereafter, White House officials decided it was time to try the Congressional track. On Feb. 14, 2002, President Bush unveiled his Clear Skies Initiative. The president declared that his proposed legislation ''sets tough new standards to dramatically reduce the three most significant forms of pollution from power plants -- sulfur dioxide, nitrogen oxides and mercury.''
It was true that the new standards, if enforced, would reduce emissions from their current rate -- but the president's formulation was somewhat misleading. Clear Skies was to replace Clean Air Act regulations with a cap-and-trade market system. On its face, that was not an unreasonable proposition. Many Republicans and some moderate Democrats embrace the general concept of cap-and-trade, in which Washington sets pollution standards for the entire country (the ''cap'') and then allows companies that manage to reduce their emissions below the standard to sell their extra pollution ''allowance'' to companies that haven't met the standard (the ''trade''). The key to cap-and-trade lies in the standard -- how low it is set and how quickly it shrinks. And when President Bush announced Clear Skies, the E.P.A. was already on track to require deeper reductions in air pollution than his cap-and-trade proposal would produce. So the air would actually be dirtier under Clear Skies than if the president allowed the E.P.A. to enforce the existing law. Clear Skies allowed 50 percent more sulfur dioxide, nearly 40 percent more nitrogen oxides and three times as much mercury as the Clean Air Act -- rigorously enforced -- called for.
Because of this discrepancy, the legislation was not greeted with much enthusiasm in Congress. Clear Skies wasn't helped by the fact that a former top E.P.A. official went on ABC's ''This Week'' to denounce the proposal two weeks after it was introduced. ''We can do better under current law than what they're putting on the table,'' Eric Schaeffer told George Stephanopoulos. Schaeffer, the E.P.A.'s head of civil enforcement from 1997 to 2002, had worked on the new-source review lawsuits since their inception. He left the E.P.A. in early 2002, tired, as he said in his letter of resignation, of ''fighting a White House that seems determined to weaken the rules we are trying to enforce.''
Schaeffer's frustration stemmed from the collapse of talks that had been leading, in his estimation, to the elimination of more than four million tons of air pollution annually. Officials at the power companies named in the new-source review lawsuits, who had been negotiating with E.P.A. officials, were well aware that White House appointees were drafting new rules that would all but scuttle N.S.R., and they lost their incentive to cut deals. Beginning in 2001, soon after Bush took office, negotiations began to break down. ''We were 80 percent of the way done with seven or eight companies, and one by one they just walked away,'' said Bruce Buckheit, who conducted many of the negotiations himself. Even done deals fell apart. In late 2000, E.P.A. officials reached an agreement in principle with Cinergy that was designed to cut nearly 500,000 tons of the company's annual emissions. By 2002, Cinergy had backed out.
Christie Whitman did little to help the negotiations. In her testimony before the Senate Committee on Government Affairs in March 2002, she described new-source review as ''a program that needs to be fixed,'' but assured the committee that the E.P.A. would not eviscerate the program. Later in her testimony, though, Whitman offered unsolicited advice to the companies her agency was suing for N.S.R. violations. At the time, the Tennessee Valley Authority, which had refused to settle with the Justice Department, had gone to court to challenge the E.P.A. over new-source review. ''If I were a plaintiff's attorney,'' Whitman said, ''I would not settle anything until I knew what happened'' with the T.V.A. case. The message to the power industry, critics charged, was clear: don't settle the cases; change is coming.
V.
Meanwhile, Bush appointees at the E.P.A. and the Energy Department continued to undo the longstanding N.S.R. rules. There was one technical question that was very important to both sides: where would the line be drawn between ''routine maintenance'' of plants, meaning changes that did not trigger N.S.R. pollution upgrades, and significant overhauls that did. In the spring of 2002, Jeffrey Holmstead, the E.P.A.'s assistant administrator, asked Sylvia Lowrance, the E.P.A.'s deputy assistant administrator for enforcement, to suggest a financial threshold -- a percentage of the total value of each generator that a utility would be permitted to spend on renovations and still define them as routine. Lowrance, a 24-year veteran of the agency, had officials in her office study years of data, looking at figures that came from actual power plants, and on June 3, 2002, she wrote a memo to Holmstead indicating that her office thought 0.75 percent was a reasonable figure. (The memo was later released to reporters by a former E.P.A. official critical of the administration's policies.) In other words, if the total value of a generating unit was $1 billion, a power company should be able to legitimately spend up to $7.5 million a year on routine repair and maintenance without being required to install new pollution controls.
In a separate memo, Lowrance, Buckheit and Schaeffer warned Holmstead that the proposed changes in new-source review could seriously undermine the E.P.A.'s lawsuits against N.S.R. violators. There were several proposed changes, they wrote, ''that, if included in the final version of the recommendations, could undercut ongoing enforcement activities, including efforts to reach environmentally beneficial settlements.'' Holmstead does not appear to have worried much about the warning from his colleagues. A few weeks later, on July 16, 2002, he went before Congress and testified that officials at the E.P.A. ''do not believe these changes'' -- to new-source review -- ''will have a negative impact on the enforcement cases.''
Holmstead did not seem to believe in the very notion of new-source review. Speaking at an energy-industry conference in Washington in September 2002, Holmstead noted that N.S.R. had spawned thousands of pages of guidance documents, and, he said, ''we can't even say we've gotten any emissions reductions from existing sources.'' The E.P.A.'s own documents, however, show that from 1997 to 1999 alone, the program reduced emissions nationwide by a total of more than four million tons. Holmstead's statement also ignored the fact that the main reason the new-source review law hadn't brought greater across-the-board pollution reductions was that many power companies had systematically violated it for 20 years. (Holmstead declined to be interviewed for this article.)
Through the spring and into the summer of 2002, President Bush's Clear Skies Initiative was stalled in Congress. The bill's principal sponsor, Representative Joe Barton, a Texas Republican, formally introduced it on the last Friday in July 2002, just before the House adjourned for summer vacation. That fall, an internal E.P.A. analysis, later leaked to the media, found that a rival bill sponsored by Senator Tom Carper, a Democrat from Delaware, would reduce more emissions, on an earlier schedule and at a comparable cost to consumers, than the president's Clear Skies plan. If the Bush administration was going to bring about changes, it was becoming clear that they would have to be done administratively.
The E.P.A. revealed its overhaul of new-source review on Friday, Nov. 22, 2002. For all the buildup, it was a conspicuously low-key debut. President Bush issued no statement about the new guidelines. Christie Whitman declined to attend the news conference, which was run by Jeffrey Holmstead. Cameras were not allowed at the event, which seemed timed to hit the weekly news cycle at its Friday night nadir.
''There will be emissions reductions as a result of the final rules that we are adopting today,'' Holmstead said. The new rules gave utilities much more maneuverability under N.S.R. The E.P.A. adopted Carol Browner's old ''micro-cap'' idea -- but abandoned its critical component, the gradual tightening of the cap. Utilities that installed new pollution-control equipment were given 10-year exemptions from further upgrades. An official with the National Association of Manufacturers called the new rules ''a refreshingly flexible approach to regulation.'' The usually staid American Lung Association, in a report issued with a coalition of environmental groups, called the rule changes ''the most harmful and unlawful air-pollution initiative ever undertaken by the federal government.''
VI.
Bush's E.P.A. appointees left one crucial detail out of the final report. They said they were still working on a final revision of N.S.R. having to do with the often contested definition of ''routine maintenance.'' The agency published its proposed rule in the Federal Register but left the crucial percentage -- the one Sylvia Lowrance and the E.P.A.'s enforcement office had suggested setting at 0.75 percent -- unspecified.
In early 2003 -- before that important percentage was arrived at -- the Bush changes were being challenged. The attorneys general of nine states filed suit to stop the new rules from taking effect. Attorney General Eliot Spitzer of New York and his colleagues, almost all of whom were from states in the Northeast, charged that the changes were so sweeping and damaging that the E.P.A. could not make them without Congressional approval. The lawsuit argued, in effect, that the Bush administration's entire administrative approach to undoing new-source review was against the law. Administration officials brushed off the suit as a political maneuver, noting that most of the attorneys general were Democrats.
On Aug. 27, 2003, two days before Labor Day weekend, the other N.S.R. shoe dropped. By then, Whitman was gone, having announced her resignation in May. She said she was tired of making the New Jersey-to-Washington commute and wanted to spend more time with her husband. ''I'm not leaving because of clashes with the White House,'' she said in a television interview. ''In fact, I haven't had any.'' A number of career E.P.A. officials told me they suspected that she'd had enough of the White House's dictating policies with which she disagreed, but, if true, Whitman never let on.
So it was Marianne Horinko, acting E.P.A. administrator, who announced in August that the agency had finalized its rule on routine maintenance. The new formula would not adopt Lowrance's suggested threshold of 0.75 percent. Instead, Horinko said, utilities would be allowed to spend up to 20 percent of a generating unit's replacement cost, per year, without tripping the N.S.R. threshold.
In other words, a company that operated a coal-fired power plant could do just about anything it wanted to a $1 billion generating unit as long as the company didn't spend more than $200 million a year on the unit. To E.P.A. officials who had worked on N.S.R. enforcement, who had pored over documents and knew what it cost to repair a generator, the new threshold was absurd. ''What I don't understand is why they were so greedy,'' said Eric Schaeffer, the former E.P.A. official. ''Five percent would have been too high, but 20? I don't think the industry expected that in its wildest dreams.''
The framework of new-source review would remain, but the new rules set thresholds so high that pollution-control requirements would almost never come into effect. ''It's a moron test for power companies,'' said Frank O'Donnell, executive director of the Clean Air Trust, a nonprofit watchdog group. ''It's such a huge loophole that only a moron would trip over it and become subject to N.S.R. requirements.''
The report from the American Lung Association and various environmental groups estimated that compared with enforcement of the old N.S.R. rules, the new rules would result in emissions increases of 7 million tons of sulfur dioxide and 2.4 million tons of nitrogen oxides per year by 2020. Had the new rules been in effect before 1999, the lawsuits that the Justice Department filed against the power companies would have been impossible: nearly every illegal action the power companies were accused of back then would have been legal under the new rules.
The announcement of the 20 percent limit had a devastating effect on the E.P.A.'s enforcement division. ''Under the new rules,'' Buckheit said, ''almost everything we worked to achieve is wiped out.'' Two months after Horinko's announcement, in November 2003, J.P. Suarez, the Bush-appointed E.P.A. assistant administrator for enforcement, informed staff members that the agency would newly ''evaluate,'' and perhaps choose not to pursue, existing N.S.R. investigations, except those cases that the Justice Department had already taken to federal court. Investigations into 70 companies suspected of violations of the Clean Air Act were abandoned.
On Christmas Eve, 2003, two days before the new-source review rules were to take effect, a federal appeals court halted their implementation. The court ruled that the new regulations could not go into effect until the lawsuit brought by Eliot Spitzer and 14 other attorneys general (6 more had joined the suit since its inception) was heard. The ruling meant that the new rules would be delayed for at least a year and signaled the beginning of what could be a years-long legal battle.
By the end of 2003, with new-source review all but dead, the White House began moving on to other projects. Mike Leavitt, the newly installed E.P.A. administrator, proposed two new regulations. The first suggested new standards for mercury emissions that would in the short term permit the release of as much as seven times as much mercury as current law allows. The second, known as the interstate air-quality rule, set new national caps on sulfur dioxide and nitrogen oxides, and was seen by many as the administrative enactment of Bush's Clear Skies Initiative. Supporters of the administration contend that the interstate air-quality rule will accomplish all the goals of new-source review in a more efficient and comprehensive way. ''All the arguments about N.S.R. and the ability to control pollution from power plants are made moot'' by the new rule, according to the senior E.P.A. adviser who is a supporter of the administration's policies and spoke on condition of anonymity.
Yet the new rule set higher national limits for emissions of dangerous chemicals like sulfur dioxide and nitrogen oxides than Clear Skies, which in turn was considered by critics to be weaker than the existing Clean Air Act. Around that time, some longtime E.P.A. officials decided they'd had enough. Bruce Buckheit and Rich Biondi, Buckheit's deputy, took retirement buyouts and left the agency. Buckheit and Biondi said they could no longer carry out their jobs effectively, given the Bush administration's attitude toward the Clean Air Act.
The White House's reversal of clean-air gains was especially disturbing to Biondi, who joined the agency in 1971, six months after its inception under President Nixon. The rule changes and the abandonment of the new-source review investigations ''excuse decades of violations,'' he said. ''We worked 30 years to develop a clean-air program that is finally achieving our goals. It was frustrating to see some of our significant advances taken away. I left because I wanted to make a difference, and it became clear that that was going to be difficult at the E.P.A.''
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