Post-Chevron Ushers in ‘New Normal’ For Regulated Community

The U.S. Supreme Court recently overturned the longstanding Chevron doctrine, a foundation of administrative law for 40 years, when it ruled on Loper Bright Enterprises v. Raimondo. The impacts on a wide range of industries subject to federal regulations will be significant.

Some are already being felt; others are harder to predict. Some will likely be positive for the energy sector, but there are significant business risks to consider. As the post-Chevron “new normal” takes shape, it is critical for regulated entities to stay focused on regulatory compliance, and to ensure they remain active and engaged with legislators and policymakers.

COMMENTARY

The legal status change of revoking Chevron is that previously under the doctrine, when reviewing a challenge to a federal agency action, such as an IRS, Environmental Protection Agency, or Federal Energy Regulatory Commission (FERC) rule, regulation, order, or similar, courts were required to defer to an agency’s own interpretation of any ambiguous (or silent) statute. Under the now-current, post-Chevron law, courts are instead the ones charged with determining the law, significantly, without deference to the agency or its interpretations. If the law underlying some regulatory scheme or agency action is vague or ambiguous, which virtually all are in one way or another, it is now for the courts to decide what the law is. This fundamentally shifts significant administrative power to the courts and away from federal agencies.

The practical implications are that any agency action—a regulation or order for example, which relies on an agency’s interpretation of ambiguous or absent language in a statute, can (will) be challenged. And while a court may consider, or even solicit, information and briefings from an agency, they are no longer required to give any deference to such participation, or any of the agency’s interpretations. Given the highly technical nature of many industries, especially the energy and power generation sector, statutes regulating areas such as pollution, engineering or safety standards, or even accounting protocols are often vague, ambiguous, or silent when applied to real-world technical activities. It will now be for the courts to resolve challenges that an agency “got it wrong” when it interpreted any statute it relies upon for its authority.

The expectation almost universally is that a period of significant deregulation is before us. Regulations and actions relying on an agency’s own interpretations are almost certain to be challenged, with the net result ultimately being fewer federal regulations and dramatically cooled enforcement by agencies. But it is critical to remember that while deregulation can bring significant benefits to regulated industries, especially the energy sector, there are also potentially significant risks. Certain agency actions extending tax benefits, permit exclusions, or other agency-extended benefits are just as likely to be challenged, potentially risking the loss of benefits.

The eventual impacts of overturning Chevron on regulated entities cannot be overstated. Federal agencies regulate virtually every aspect of life for many sectors—from energy transactions, to tax subsidies, to transmission line approvals and permits, to environmental regulations, among many, many others. And though the Supreme Court tried to head off a flurry of cases being re-filed by stating that prior decisions relying on Chevron remain settled, the fact is that virtually every federal regulation relying on an agency’s interpretation is now subject to a potential challenge. Nonetheless, while the “new normal” is expected to be a period of significant deregulation, it is critical to maintain an appropriate compliance posture and strategy.

What is the best path forward in the short and medium term for the energy sector? First, seek qualified legal counsel. As important, maintain strict regulatory compliance and foster positive relationships with regulators. Not much has immediately changed for most regulated entities. Although a series of high-profile injunctions have stopped some rules from taking effect, all those currently on the books should be considered valid and enforceable until they are changed—whether that occurs through an agency rule change or a court order. And though courts are no longer mandated to defer to an agency’s interpretations, the agencies are certain to continue to enforce their regulations, and rely on their own interpretations, until such time as those are changed or overturned. It is critical to maintain and foster productive relationships with federal regulators, to adhere strictly to all permit obligations, and to maintain and ensure strict regulatory compliance.

It’s also critical for regulated entities to get and stay current (and engaged) with administrative rulemaking. Although courts no longer must defer to agencies, the fact is that many do and will, especially on the most-technical matters. Agencies often possess reams of data, studies, and findings, which can be persuasive to courts. Preparing a counter to such expertise and data can be challenging and time-consuming. Now, more than ever, it is critical to stay aware and engaged with federal rulemakings.

With the death of Chevron, a new normal is upon the energy sector. Regulatory uncertainty is likely to skyrocket, so stay calm, proceed forward, and succeed by staying current on rulemakings, maintaining strict regulatory compliance, and engaging with lawmakers and policymakers. The future holds the promise of a more flexible regulatory environment compared to today, but we are not there yet.

—Joel Johnston is an environmental, energy, and regulatory attorney from national law firm Hall Estill in its Denver office.