Legal Backgrounder
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Vol. 24 No. 22
June 19, 2009
ENTERGY CORP. v. RIVERKEEPER:
WHAT IMPACT ON THE FUTURE OF
COST-BENEFIT IN RULEMAKING?
by
Craig P. Wilson and Robert A. Lawton
On April 1, 2009, the U.S. Supreme Court ruled in Entergy Corp. v. Riverkeeper, Inc., upholding the
Environmental Protection Agency’s (“EPA”) use of cost-benefit analysis in connection with rulemaking under
Section 316(b) of the Clean Water Act (“CWA”). 1 The Court’s decision overturns a 2-1 ruling by a panel of the
U.S. Court of Appeals for the Second Circuit, which found EPA’s use of cost-benefit analysis impermissible in
this context. The Court’s reversal has afforded EPA the opportunity to weigh the costs and benefits of various
rulemaking alternatives under CWA § 316(b), although the extent to which EPA will continue to avail itself of
this opportunity remains an open question. The Obama Administration, pursuant to a Presidential directive, is reevaluating the use of cost-benefit analysis in federal agency rulemaking, and it is possible that the Administration
will decide to de-emphasize this quantitative analysis in favor of qualitative factors. When considering a shift to
a qualitative approach, however, consideration should be given to the appropriate level of subjectivity used in the
rulemaking process and the ongoing role for cost-benefit analysis.
The Entergy Decision
In Entergy, the Court confronted EPA’s use of cost-benefit analysis in connection with regulations
promulgated pursuant to CWA § 316(b), which requires use of “best technology available for minimizing adverse
environmental impact” by cooling water intake structures. The regulations (commonly known as the “Phase II
Rule”) were designed to minimize the adverse effect of impingement and entrainment of aquatic life by cooling
water intake structures at existing electric generating power plants. 2 The Phase II Rule, issued in 2004,
established national performance standards for impingement and entrainment, based in part on EPA’s
consideration of the costs and benefits of the standards, and authorized EPA and state agencies to allow variances
from the standards when making permit decisions if the costs of compliance are “significantly greater than” the
costs considered by EPA in setting the national standards, or the costs of compliance are “significantly greater
than” the benefits of compliance. EPA did not require all existing power plants to install closed-cycle cooling
systems because of the high cost of retrofitting such facilities with the technology and the marginal benefit of
doing so as compared to other technologies.
1
33 U.S.C. § 1326(b).
2
The “Phase I” rule, previously promulgated, addressed new facilities.
Craig P. Wilson is a partner in the Harrisburg, Pennsylvania office of the law firm K&L Gates LLP. He
specializes in environmental law. Robert A. Lawton is an associate in the firm’s Harrisburg office.
A long history of rulemaking and litigation preceded the issuance of the Phase II Rule. 3 Not surprisingly,
once issued, the Phase II Rule was challenged by parties on all sides.
The Second Circuit, in an opinion authored by Judge Sonia Sotomayor, held that EPA’s use of even this
limited balancing of costs versus benefits was impermissible under § 316(b), and, for that and other reasons,
remanded the regulations to EPA for further consideration. The industry parties appealed to the Supreme Court
and the Court agreed to consider whether CWA § 316(b) authorizes EPA to compare costs with benefits in
determining the “best technology available for minimizing adverse environmental impact.” If upheld, the Second
Circuit decision could have required retrofitting power plants across the country with closed-cycle re-circulating
cooling water systems, without regard to the net benefit (cost compared to benefit) of installing such technology
versus alternate technology.
In a 6-3 decision written by Justice Scalia, the Court reversed the Second Circuit and held that EPA was
authorized to use a cost-benefit analysis in setting the national performance standards and to provide for costbenefit variances from those standards as part of the Phase II Rule. Chief Justice Roberts and Justices Kennedy,
Thomas, and Alito joined in the majority opinion. Justice Breyer wrote separately, agreeing with the majority
that CWA § 316(b) allows EPA to compare cost and benefit, but stating that he would have sent the matter back
to EPA to clarify its standards. Justice Stevens filed a dissenting opinion, in which Justices Souter and Ginsburg
joined.
The Majority
The basic question the Court considered was whether EPA’s decision to set Phase II national performance
standards and to provide site-specific cost-benefit variances was a reasonable interpretation of the CWA. A
reasonable interpretation, as recognized by the Court, is “not necessarily the only possible interpretation, nor
even the interpretation deemed most reasonable.” 4 The interpretation only must be a reasonable one.
The statutory language in question requires use of “the best technology available for minimizing adverse
environmental impact” by cooling water intake structures. The Second Circuit had interpreted this language to
mean “the technology that achieves the greatest reduction in adverse environmental impacts at a cost that can
reasonably be borne by the industry.”5 The Supreme Court acknowledged that this was a plausible interpretation;
however, the Court noted that a similarly plausible interpretation is that “best technology” could “describe the
technology that most efficiently produces some good.” 6 Thus, “best technology,” in the Court’s opinion, could
“refer to that which produces a good at the lowest per-unit cost, even if it produces a lesser quantity of that good
than other available technologies.” 7
The Court also reviewed parallel provisions of the CWA that have language similar to § 316(b), such as
“best practicable control technology,” “best available technology economically achievable,” “best conventional
pollutant technology,” and “best available demonstrated control technology.” Some of those provisions, and
associated statutory tests, expressly allow cost-benefit analysis, while others (respondent environmental groups
argued) preclude such analysis. CWA § 316(b) is silent on the point. The Court opined that this omission “can
reasonably be interpreted to suggest that EPA is accorded greater discretion in determining the precise content.”8
3
See Entergy Corp. v. Riverkeeper, Inc., 129 S. Ct. 1498, 1503-04 (2009).
4
Id. at 1505.
5
Riverkeeper, Inc. v. EPA, 475 F.3d 83, 99-100 (2d Cir. 2007).
6
Entergy, 129 S. Ct. at 1506.
7
Id.
8
Id. at 1508.
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Respondents argued that because Congress did not provide expressly for use of cost-benefit analysis in §
316(b), as it did elsewhere, Congress intended to forbid it. The Court observed that drawing such inference
“from the silence [of § 316(b)] is … implausible, as [§ 316(b)] is silent not only with respect to cost-benefit
analysis but with respect to all potentially relevant factors. If silence here implies prohibition, then the EPA
could not consider any factors in implementing [§ 316(b)] – an obvious logical impossibility.” 9 The Court,
instead, concluded that CWA § 316(b)’s silence conveys “a refusal to tie the agency’s hands as to whether costbenefit analysis should be used, and if so to what degree.” 10
The Court also compared the Phase II Rule with EPA’s practices for the past thirty years. The Court
noted that as early as 1977, EPA determined that it was not reasonable to “interpret Section 316(b) as requiring
use of technology whose cost is wholly disproportionate to the environmental benefit to be gained.”11 The Court
recognized that the “wholly disproportionate” standard may be different from Phase II’s “significantly greater
than” standard; however, there is nothing in the statute that indicates one interpretation is permissible and the
other is not.
After considering the text of § 316(b), the parallel provisions, and historical EPA practices, the Court
held that EPA’s interpretation of CWA § 316(b) was reasonable. Therefore, the Court concluded that EPA could
rely on cost-benefit analysis in setting the national performance standards and in providing for cost-benefit
variances from those standards.
The Dissent
Justice Stevens wrote a dissent joined by Justices Souter and Ginsburg. The dissent disagreed with the
majority’s conclusion that EPA’s interpretation of CWA § 316(b) was reasonable, and that EPA could
permissibly consider cost-benefit analysis. The dissent diverged from the majority particularly as to whether
silence in the pertinent statutory provision constitutes a prohibition.
Justice Stevens wrote that the section of the CWA in question “neither expressly nor implicitly authorizes
the EPA to use cost-benefit analysis when setting regulatory standards; fairly read, it prohibits such use.” 12 He
reached this conclusion based, in part, upon his determination that Congress should have expressed a clear intent
if it wished the agency to use cost-benefit in crafting regulations. He wrote that “this Court has recognized that
when Congress has intended that an agency engage in cost-benefit analysis, it has clearly indicated such intent on
the face of the statute.” 13 Thus, Justice Stevens felt that the Court should not treat CWA § 316(b)’s silence as “an
implicit source of cost-benefit authority,” particularly when other provisions of the CWA expressly grant such
authority. 14 According to Justice Stevens, Congress “does not alter the fundamental details of a regulatory
scheme in vague terms or ancillary provisions – it does not, one might say, hide elephants in mouseholes.” 15
9
Id.
10
Id.
11
Id. at 1509.
12
Id. at 1516 (Stevens, J., dissenting).
13
Id. at 1517.
14
Id.
15
Id.
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Cost-Benefit Reconsidered
The Entergy decision illustrates the tension that surrounds the use of cost-benefit analysis in the
rulemaking process. Advocates point to the transparency and objectivity it affords; detractors emphasize the
difficulty in reducing all human values to figures in an equation. These factors and others are now being
considered by the new Administration in connection with its review of the role of cost-benefit analysis in
rulemaking processes.
In one of his first acts after taking office, President Obama issued an executive order that revoked
President Bush’s directives regarding regulatory planning and review.16 In conjunction with the executive order,
President Obama directed the Office of Management and Budget (“OMB”) to produce a set of recommendations
for a new executive order on federal regulatory review. 17 OMB was directed to, among other things, offer
recommendations on the role of cost-benefit analysis. This decision to review, and possibly revise, the role of
cost-benefit analysis in federal regulatory decision-making could portend a significant change in the
considerations agencies bring to the development of rules.
Since the early 1980s, when President Reagan issued Executive Order 12,291, federal agencies have been
required to prepare a cost-benefit analysis for all major rules. 18 Executive Order 12,291 sought to prevent
promulgation of rules that threatened to cost too much and deliver too little in the way of quantifiable benefits. 19
Since then, each new administration has continued to follow the same basic cost-benefit requirement (although
President Clinton modified the analysis by requiring federal agencies also to consider equity and distributive
impacts). 20
The rationale for utilizing cost-benefit analysis has been consistent since President Reagan first required
its use. Cost-benefit analysis provides a mechanism for agency decision-makers to translate the relevant
considerations into a usable form and quantitatively evaluate the net benefit of a proposed action. The practice,
in theory, promotes objectivity and consistency. Valuation is at times difficult (how much is a fish worth?), and
susceptible to manipulation if not closely monitored, but agencies nonetheless have utilized the practice in a wide
range of contexts for more than two and a half decades.
OMB’s review has elicited comment from a wide range of interests, reflective of the broad impact that a
change in the use of cost-benefit analysis could have on business, industry and the public. 21 Although not
directed to the OMB review process, the Court’s decision in Entergy highlights the importance of allowing costbenefit analysis in agency rulemaking. EPA believed it reasonable at the time of the Phase II Rule to compare
the costs of imposing new technology requirements against the benefits to be derived from the technology, and on
that basis refrained from requiring across-the-board retrofitting of all existing power plants with closed-cycle
cooling systems. The Court upheld the decision as consistent with EPA’s authority under CWA § 316(b).
Although the outcome of any particular cost-benefit evaluation may be debated, as EPA’s Phase II Rule was (and
is), the process of identifying and assessing the anticipated impact of potential regulatory action in objective
fashion is a logical and sound practice. With pressures on the new Administration from various constituencies to
expand the scope of federal regulation, attention to the net benefit of potential regulatory action is all the more
important to consider.
16
Exec. Order No. 13,497, 74 Fed. Reg. 6113 (Feb. 4, 2009).
17
The President’s Memorandum for the Heads of Executive Departments and Agencies, 74 Fed. Reg. 5977 (Feb. 3, 2009).
18
See Exec. Order No. 12,291, 46 Fed. Reg. 13,193 (Feb. 17, 1981).
19
Id.
20
See Exec. Order No. 12,886, 58 Fed. Reg. 68,709 (Dec. 28, 1993). President Clinton replaced President Reagan’s Executive
Order 12,291 with Executive Order 12,886.
21
The comments are available at http://www.reginfo.gov/public/jsp/EO/fedRegReview/publicComments.jsp.
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