The Chevron Deference Is Dead. What Does It Mean for the Power Sector?

The U.S. Supreme Court on June 28 overturned the Chevron doctrine—a forty-year-old precedent—significantly curtailing the power of federal agencies to interpret ambiguous statutory provisions, even in areas of agency expertise. The landmark 6–3 decision could have far-reaching effects on the power industry, with specific impact on sweeping energy regulations from the Environmental Protection Agency (EPA) to the Federal Energy Regulatory Commission (FERC), legal experts have suggested.

The Supreme Court’s opinion in Loper Bright Enterprises v. Raimondo (No. 22-451) is a consolidated decision on two challenges to a rule issued by the National Marine Fisheries Service. But as part of its decision, the Supreme Court pivotally overturned Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc. (467 U.S. 837), a 1984 case that established the so-called Chevron “doctrine” or “deference.” The high court held in blatant terms: “Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the [Administrative Procedure Act] requires.”

What Is Loper Bright?

As Michael Drysdale, an environmental law expert at international law firm Dorsey & Whitney, explained to POWER, the landmark case stems from a “highly technical dispute over the scope of the Magnuson-Stevens Fishery Conservation Act (MSA), and whether the National Marine Fisheries Service (NMFS) could require fishermen to pay the cost of on-vessel observers required by NMFS fishing plans, for certain classes of fishing vessels.”

The MSA “did not expressly grant that authority, but the NMFS inferred that the authority was implied by the agency’s general powers to enforce the law, and the agency enacted the requirement through rulemaking,” he noted. Ultimately, however, “The court chose to overrule Chevron entirely. In an opinion written by Chief Justice Roberts, a six-member majority concluded that Chevron was both wrongly decided from initiation and had proved unworkable over time,” he said.

What Was the Chevron Doctrine?

As Chief Justice John Roberts surmised in the high court’s majority opinion, since its 1984 decision in Chevron, the court has “sometimes required courts to defer to ‘permissible’ agency interpretations of the statutes those agencies administer—even when a reviewing court reads the statute differently.”

The established Chevron doctrine required courts to use a two-step framework to interpret statutes administered by federal agencies. “After determining that a case satisfies the various preconditions we have set for Chevron to apply, a reviewing court must first assess ‘whether Congress has directly spoken to the precise question at issue.’ If, and only if, congressional intent is ‘clear,’ that is the end of the inquiry,” Roberts wrote. “But if the court determines that ‘the statute is silent or ambiguous with respect to the specific issue’ at hand, the court must, at Chevron’s second step, defer to the agency’s interpretation if it ‘is based on a permissible construction of the statute.’ “

How Has the Chevron Doctrine Influenced Energy Regulations?

Over its 40-year history, the Chevron doctrine has empowered agencies like the EPA to interpret ambiguous terms within the Clean Air Act, including setting standards for air pollutants like mercury, particulate matter, and other hazardous emissions from power plants and industrial sources.

The Chevron doctrine played a role in American Electric Power Co. v. Connecticut, 564 U.S. 410 (2011), a landmark case centered on the EPA’s authority to regulate greenhouse gas emissions (GHGs) from power plants under the Clean Air Act. In that case, the Supreme Court, applying the doctrine, sided with the EPA. The doctrine has also played a role in the agency’s interpretation of the “significant contribution” in the Cross-State Air Pollution Rule (CSAPR), and it has allowed the EPA some flexibility in interpreting terms like “best available technology” when setting standards.

Notably, however, while the Supreme Court acknowledged the Chevron doctrine in Michigan v. EPA (2015), it ultimately sided with Michigan in a case disputing the Mercury and Air Toxics Standards (MATS), finding that the EPA interpreted the Clean Air Act unreasonably when it deemed cost irrelevant to the statutory decision of whether regulating power plants was “appropriate and necessary.” As Justice Scalia wrote in that case: “Chevron directs courts to accept an agency’s reasonable resolution of an ambiguity in a statute that the agency administers. Even under this deferential standard, however, ‘agencies must operate within the bounds of reasonable interpretation.’ ”

While there aren’t as many clear-cut landmark cases related to FERC regulations where the deference was a deciding factor, the deference may have influenced cases examining FERC’s jurisdiction and its intersection with state regulatory authority. One recent example stands out: FERC’s May 2024–approved Order 1920, a final rule on transmission planning and cost allocation.

FERC’s sole dissenting commissioner, Mark Christie, suggested the rule promotes a renewable agenda and would harm consumers.  He notably argued that the rule’s legal authority was built on a previous order (Order No. 1000, a 2021 rule reforming the commission’s transmission planning and cost allocation requirements for public utility transmission providers) and that rule was, in turn, built on “what may be a foundation of sand known as Chevron deference.”

On Friday, Christie, in a statement, suggested the Supreme Court’s decision jeopardized Order No. 1920’s legal standing. “[T]he most important legal lifeline that Order No. 1920 needed was pulled away today, and the final rule’s chances of surviving court challenges just shrank to slim to none,” he said. “Given today’s Supreme Court decision overturning Chevron, I hope that this Commission, with its new lineup of commissioners, will be willing to work on amending Order No. 1920 into something that can actually work in the field and is within our legal authority, which the current version is not.”

Does Loper Bright Affect Previous Regulations?

The barrage of legal commentary following the Supreme Court’s issuance of its decision in Loper Bright on Friday forcefully underscored its significance.

Law firm Bracewell emphasized the decision’s groundbreaking shift in administrative law. “Writing for a 6-3 majority, the Chief Justice explained the almost accidental birth of Chevron deference, its remarkable expansion as modern doctrine, and its progressive deflation in more recent years,” it noted. “The Court held that, throughout its rise and fall in popularity, the deference doctrine was fatally inconsistent with both the mandate of Article 3 of the US Constitution and the Congressional prescription in the Administrative Procedure Act: it is for judges to say what the law is, without bending to the contrary wishes of any other authority.”

Still, it noted that while the high court has abandoned Chevron’s directive of deference—“removing “a decaying husk with bold pretensions”—its application in previous cases remains. “It does not sweep the legs from under the many court decisions that have applied Chevron deference in the past,” it explained. “The Court reminds us that mistaken reliance on Chevron does not conclusively determine that these past decisions were themselves wrong, and stare decisis may also justify preserving them.”

What Does Loper Bright Mean for the Future of Federal Energy Regulation?

But looking ahead, the decision could be powerful. “Loper Bright continues a trend in Supreme Court jurisprudence that tends to limit the authority of the Executive Branch, favoring Congress or the Court in the Constitutional balance of power,” Bracewell said. 

In particular: “Agencies face a new future. While they have always sought to justify their rulemaking efforts on the basis of statutory authority, Chevron afforded them a measure of grace—some would say a large measure of power—in devising a statutory interpretation that suited their policy goals. Loper Bright instructs federal courts to look carefully at the law themselves and not to defer to agency interpretations that are merely ‘permissible.’ ”

That means, essentially, that agencies must now “act with more discipline and with more attention to grounding their assertions of authority in the language and structure of the statutes themselves,” the law firm said.

One immediate implication could apply directly to the “remarkable increase” in the length of preambles to draft and final agency rules, which have often sought to elaborate on an administration’s “world view” of the legal landscape, the firm said.

Recent examples include the Securities and Exchange Commission (SEC) March 2024 Climate Disclosure Rule, which sought to standardize climate-related disclosures by public companies. Defeat of the SEC rule is almost certain given Chevron’s overturn, wrote attorney Jon McGowan in a recent Forbes commentary.

Rules imperiled by the decision could also include the Bureau of Ocean Energy Management’s May 2024 final Renewable Energy Leasing Modernization Rule, which promotes regulatory flexibility and efficiency for offshore renewable resources, and apply to the Council on Environmental Quality National Environmental Policy Act (NEPA) May 2024–issued Phase 2 rule. That rule implements Biden-Harris Administration priorities to address environmental justice and climate change.

The high court’s decision could also affect more recent EPA rules. Last week, the Supreme Court stayed the EPA’s Good Neighbor Rule, which requires industries and power plants in upwind states to cut ozone pollution that drifts into “downwind” states. The court halted enforcement of the EPA’s rule against applicants (which include states and industry groups), pending a review in the D.C. Circuit and any subsequent Supreme Court review. The court, notably, found applicants were likely to prevail in their legal claim that the EPA’s action was arbitrary or capricious because the agency failed to offer a satisfactory explanation for its action. “These efforts are all going to be reviewed under the new direction from the court,” Bracewell predicted. 

At FERC, it could have larger ramifications for a case related to the regulatory body’s interpretation of the Public Utility Regulatory Policies Act (PURPA). Last year, trade group the Edison Electric Institute and NorthWestern Energy petitioned the Supreme Court to reverse a D.C. Court ruling that upheld FERC’s PURPA classification of a Montana solar project as a “qualifying facility,” despite its ability to produce more power (160 MW) than it delivers to the grid (80 MW). The petitioners argued that the interpretation was overly broad and allowed for a more expansive reading of PURPA than Congress intended. The issue highlights concerns that such interpretations could lead to increased costs for utilities and consumers due to the mandatory purchase requirements at potentially higher rates.

For now, project developers and others seeking permits from the federal government may not be “directly affected” by the Loper Bright decision, but it may still prompt a shift in the “dialogue between permit applicant and agency,” Bracewell said.

“Especially for complex projects, such as liquefied natural gas terminals, interstate pipelines, and offshore wind facilities, federal agencies have progressively extended their assertion of power to demand information and concessions from applicants based on ever-broader readings of the underlying statutes,” it explained. “These assertions of power, and their tenuous link to statutory text, are apt to come under more severe judicial scrutiny if and when applicants choose to challenge them. Loper Bright encourages—actually requires—courts to come to their own conclusions about the underlying authority rather than tolerate agency interpretations.”

How Could the Decision Affect Industry?

According to law firm Foley Hoag LLP, the bigger picture impact may be even more severe, particularly as the power industry grapples with a rapid transition in a bid to achieve decarbonization.

For one, it may introduce greater legal uncertainty, hampered by cautious rulemaking. “In the long term, this decision likely hamstrings the federal government’s ability to quickly address pressing and fast-changing issues, including climate change, but also across the full scope of federal authority, such as with health or safety regulations,” the firm noted. “It will make agencies less nimble in enacting new regulations in response to new problems and information. Meanwhile, Congress remains as gridlocked as ever, so legislation is unlikely to fill the gap in the near future.”

The decision could also prompt more legal challenges. “We expect regulated entities to bring new (and potentially far-reaching) challenges to longstanding rules that are premised only on statutory ambiguity. Under Loper Bright, courts have significantly more leeway to interpret statutes contrary to an agency’s interpretations and courts can use this to cabin agency authority,” noted law firm Seyfarth Shaw.

Finally, as with all measures introducing legal uncertainty and a general shift toward more rigorous judicial review, companies and agencies may face higher costs due to prolonged litigation and the potential need to navigate a more complex regulatory approval process.

“Agency rules are likely to become more cautious, and even then are more likely to be overturned in court,” agreed Dorsey & Whitney expert Drysdale. “The pattern of recent years, in which many major agency rules get immediately challenged and enjoined, is likely to continue and accelerate,” he said.

However, Loper-Bright will capture a legacy for “its recasting of history,” he suggested.  “Justice Roberts characterized the unanimous Chevron decision as being authorized by a ‘bare quorum’ of six justices of the court because three justices did not participate. Loper-Bright itself garnered six votes, with two dissents and one non-participant,” he said.

“Whatever one thinks of the court’s conclusions, Loper-Bright is another milestone in the current court’s willingness to overturn long-established precedent,” Drysdale concluded.

—Sonal Patel is a POWER senior editor (@sonalcpatel, @POWERmagazine).