NRDC Comments, cont. (part 2 of 2)

B. Legal Basis section (p. 4, Agency Background Document).

1. The agency is arbitrary and capricious in its failure to identify a specific lawful basis for the agency action, other than a facile citation of Va. Code § 10.1-1308 (presumably meaning subsection (A)).  It does not explain how that general authority is durable in light of subsection (E) of the same code provision (see NRDC Section 1 above), or in light of the specific provisions of the RGGI Act, which on its face grants the Air Board no authority to modify or repeal the Carbon Trading Regulations.

2. The agency is arbitrary, capricious, and facially erroneous in citing as its legal authority its duty to “abate, control, and prohibit air pollution,” per § 10.1-1308: the proposed regulation would instead return polluters in Virginia to unfettered carbon pollution (and with it increased co-pollutants like sulfur dioxide, particulate matter, and nitrogen oxide). Yet the cited authority, by contrast, solely grants the Board authority to do the opposite: “abate, control, and prohibit air pollution.”

3. The agency is arbitrary, capricious, and facially erroneous in its facile citation of a governor’s order as a legal basis for promulgating the proposed regulation: executive orders apply only to executive actions, and do not supersede statutory law (see NRDC Section 3 above).

C. Purpose section (p. 4).

4. The agency is arbitrary and capricious in failing to clearly describe the “rationale or justification,” the “specific reasons the regulatory change is essential to protect the health safety or welfare of citizens,” and “the goals of the regulatory change,” and instead merely makes spurious, passing reference to “public health, safety, and welfare.”

5. The agency is arbitrary and capricious in attempting to incorporate by reference an executive order (“EO-9”) as its “Purpose”: EO-9 was not composed for the purpose of answering the required questions, EO-9 fails to address the requirements of this section, and EO-9 was not composed by the agency.

D. Issues section (p. 5).

6. Virginia’s air agency is arbitrary and capricious in citing non-pollution related matters (“energy costs, “energy markets”) as the proposed regulation’s “primary advantage,” when the agency’s central charge is unrelated to economic or commerce impacts, but rather is wholly concerned with “abating, controlling, and prohibiting air pollution” (see NRDC Section 5A above).

7. Virginia’s air agency is arbitrary and capricious in citing non air-related matters (“energy costs”) as the proposed regulation’s “primary advantage,” when “energy costs” are the province of the Virginia SCC.

The SCC is Virginia’s designated entity charged with ensuring that Virginia ratepayers receive utility services at “just and reasonable rates.” And that includes any compliance costs associated with the RGGI trading program, as well as all other environmental compliance costs that have long been a regular, ongoing function of providing electricity from state-regulated utilities (e.g. longstanding compliance costs from the sulfur dioxide trading program, the nitrogen oxide trading program, water pollution standards, coal ash remediation, particulate matter standards, etc.). There is nothing new or unique about oversight by the SCC of ensuring the lowest possible environmental compliance costs, to minimize the impact on total energy costs.

If, in the specific case of RGGI, Dominion fails to prudently and economically reduce emissions under RGGI by increasing its energy efficiency and low-cost carbon-free resources, and instead continues to expose Virginia ratepayers to high fossil fuel costs, then it is up to the SCC to address these “energy costs” and determine whether the utility should indeed be able to recover them, if imprudently incurred. Indeed, Virginia law explicitly requires that Dominion’s energy costs may be deemed recoverable by the SCC only if they are proven to be prudently incurred and not the result of the utility’s unreasonable failure to minimize such costs. If the DEQ is concerned about energy costs, its appropriate venue is to intervene or otherwise participate in a cost-related case at the SCC, not to attempt to impact economic matters by tampering with standing air pollution law.

Virginia law is clear that “energy costs” are the province of the SCC, and DEQ is arbitrary and capricious to cite such consumer costs as a primary “issue” for an air agency to address.

8. Virginia’s air agency is arbitrary and capricious in citing “transparency in the energy markets” as a primary advantage of the proposed action, as such matters are beyond the scope of the agency’s statutory purpose. Even if “energy market transparency” were the air agency’s province, the DEQ fails to account for the RGGI program’s inherent transparency: pollution levels and allowance costs are known and publicly reported on an ongoing basis. As a cap-and-trade program, RGGI provides Virginia and the surrounding region with the transparent certainty of declining pollution over time. Without RGGI, emissions reductions are neither certain nor transparent.

9. The agency is arbitrary and capricious in its failure to include, as disadvantages, air pollution increases; loss of health benefits; loss of flood mitigation funding; loss of energy efficiency funding; and lower electric bills as a result of energy efficiency improvements funded by the existing regulation. In the case of energy efficiency benefits, energy efficiency programs bring critical advantages to the Commonwealth: by reducing energy waste, they reduce emissions and associated air pollution, reduce production costs associated with building new capacity to meet new demand, reduce transmission & distribution costs, and reduce Virginia’s need to purchase or import electricity from out-of-state to meet demand. Energy efficiency measures can eliminate up to 35% of the excess energy burden faced by both single- and multifamily low-income households in Virginia. For low-income families, the benefits of these programs are compounding: they will lower monthly energy bills, improve housing comfort and maintenance, and reduce indoor air pollution. The agency must include these readily-ascertained lost benefits as a disadvantage of the proposed repeal.

E. Agencies, Localities, and Entities Particularly Affected section (p. 5).

13. The agency is arbitrary and capricious in its failure to include all “particularly affected” agencies, such as the Virginia Resources Authority, the state treasury, Virginia Energy (formerly DMME), and the State Corporation Commission.

13. The agency is arbitrary and capricious in its failure to include those localities that have applied for or may apply for flood preparedness funding under the existing RGGI regulation.

13. The agency is arbitrary and capricious in its failure to include non-carbon emitting generating units and related businesses as “particularly affected” entities.

F. Economic Impact section (pp. 6-7).

13. The agency is arbitrary and capricious in omitting from the impact on the DEQ itself the loss of funding for the agency’s own statewide climate change planning and mitigation activities, as provided by the existing regulation.

13. The agency is arbitrary and capricious in its failure to include the projected cost to DHCD and DCR in its loss of funds to carry out those agencies’ respective missions.

13. The agency is arbitrary and capricious to spuriously include “energy market transparency” as a “benefit” to every state agency, when most, if not all, state agencies have no discernible interest in the purported transparency of any particular interstate market.

13. The agency is arbitrary and capricious in failing to indicate tables 1a or 2, as is explicitly required of the agency in the “Impact on Localities” section (at p. 6).

13. The agency is arbitrary and capricious in failing to indicate tables 1a, 3, or 4, as is explicitly required of the agency in the “Impact on Other Entities” section (at p. 6).

13. The agency is arbitrary and capricious for not meaningfully responding to the DPB EIA. 

G. Alternatives to Regulation section (p. 7).

13. The agency is arbitrary and capricious in citing a non-authoritative executive order (“EO-9”) as its rationale for repealing a regulation.

13. The agency is arbitrary and capricious in citing “meet[ing] the stated purpose of the regulatory action,” as this merely repeats the requirement of this section (“describe…the rationale used by the agency to select the least burdensome alternative that meets the essential purpose of the regulatory change,” (emphasis added)).

13. The agency is arbitrary and capricious in failing to provide any “rationale used by the agency to select the least burdensome alternative.”

13. The agency is arbitrary and capricious in its failure to consider, list, or adopt the far less burdensome and intrusive alternative of a “consignment auction” approach to regulation (an approach cited by the agency itself, in the “Mandate and Impetus” section (p. 4)).

13. The agency is arbitrary and capricious in its statement that an alternative regulatory change, such as a “consignment auction” approach or simply maintaining a state-cap on carbon, would not meet the stated purpose of the regulatory action, when a “consignment auction” or simply maintaining a state cap on carbon, outside of the RGGI program, would be viable alternatives (given a consignment auction alternative’s easily-measured impact on electricity prices and carbon emissions).

13. The agency is arbitrary and capricious in its total failure to include the unambiguously-required discussion of “alternatives for small businesses,” particularly the merits of the “consignment auction” approach the agency itself separately references on page 4.

H.  Regulatory Flexibility Analysis (p. 7).

13. The agency is arbitrary and capricious in its failure to fulfill the requirement of analyzing the alternative regulatory method of a “consignment auction” approach, and in its erroneous citation to the ORM Economic Impact form, which does not, in fact, include any such required analysis.

***

Due to the above defects, the NRDC therefore again respectfully requests that the Air Board return the proposed repeal to DEQ for additional consideration of the below comments and withdraw the proposed repeal.  At a minimum, the proposed repeal should be deferred until a lawful basis is articulated in accordance with the APA and prior to any adoption.  As currently drafted, the proposed repeal is unlawful on its face and will result in costly and unnecessary litigation, disruption in the trading market, and termination of vital public health and community benefits in the form of both energy efficiency and flood-prevention funding, and lower air pollution. 

                                                                                                Sincerely,

                                                                                                s/Walton Shepherd

         NRDC Virginia Policy Director & Senior Attorney