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Oct. 31, 2008

With Election Day right around the corner, most of the media’s focus is on the candidates and their campaigns. Yet while the candidates garner all of the headlines, government agencies continue to draft new regulations that impact the average voter and taxpayer.  Many of these regulations will have as much, if not more, of an effect on the economy than many legislative policies. They often reflect years of debates, negotiations and voluminous documents merely to implement a one page bill, such as the price gouging rule, or in the case of ozone, a one sentence limitation on DNR’s authority.

By far the biggest regulatory issues at both the state and federal levels involve the environment and energy, particularly clean air and climate change. In this addition of Tidbits, we touch on some significant rulemaking efforts at both the state and federal level we have been working on that impact the business community and our clients. We intend to provide more emphasis on important regulatory initiatives over the next few months, while at the same time preparing for what is expected to be a major debate on the budget.

Also in the issue, we provide an Update on a Supreme Court decision providing greater protection to property owners, and with a final look at the key campaigns in the state, we remind you all to get out and VOTE on Nov. 4!

For more in depth background on some of these regulatory initiatives, consider attending the November 12 WMC Clean Air Act Update in Pewaukee.

Policy Developments

DATCP’s Price Gouging Rule Finalized after Long Journey
A rule imposing price caps on all goods and services sold during an emergency is expected to become effective Jan. 1, 2009. Despite Sen. Jauch’s last minute effort to work out a compromise between the business community and the Department of Agriculture, Trade and Consumer Protection (DATCP), the rule continues to have serious flaws that may result in shortages of goods and services.

2005 Wis. Act 450 prohibits excessive pricing of consumer goods during times of abnormal economic disruption. The law directed DATCP to develop a rule that sets forth the criteria used in determining whether a price is unreasonably excessive. (See Hamilton’s Act 450 Overview) Under the rule, DATCP’s price controls are set forth as follows:

ATCP 106.02 Price gouging prohibited. (1) PROHIBITION. Except as provided in sub. (2), no seller may sell a consumer good or service in an emergency area during an emergency period at a price that is more than 15% above the highest price at which the seller sold like consumer goods or services to like customers in the relevant trade area during the 60-day period immediately preceding the emergency declaration.

(2) EXEMPTIONS. The prohibition in sub. (1) does not apply to a sale if, at the time of sale, the seller relies upon accurate information that demonstrates any of the following:

(a) The selling price does not exceed the seller’s cost plus normal markup.

(b) The selling price is required by law.

(c) The emergency declaration directly or impliedly exempted the sale from coverage under the emergency declaration.

The central issue during two years of back and forth between industry and DATCP representatives was whether to create a market-based exception to the 15 percent cap on prices. As evidenced by wide price gyrations these past few years, the market price for commodities such as fuel and food products is mostly driven by supply and demand forces, not costs. In its rule analysis, DATCP acknowledges the equally obvious corollary – “some sellers may withhold goods or services from the market rather than sell at … limited prices.”

During a lengthy legislative review process, Assembly and Senate committees unanimously requested DATCP make changes to address the primary flaw in the draft rule that could create shortages of needed goods and services. DATCP refused, incongruously asserting, in light of these clear legislative requests for modifications, that the Legislature intended to risk product shortages during times of emergencies. (See Industry Memo to Standing Committees).

The long rulemaking process pretty much ended with the lapsing last Friday (Oct. 24) of the Joint Committee for Review of Administrative Rules’ (Co-Chaired by Sen. Jauch) jurisdiction. DATCP is now free to promulgate the rule, which is expected to be published in December, creating a Jan. 1, 2009, effective date.

Please contact Hamilton’s Bob Fassbender or Pat Osborne if you have any questions on this rule.

DNR’s Mercury Rule also Completes Legislative Review
It was over four years ago that DNR adopted mercury emission rules as a placeholder to a pending federal rule, with specific provisions to revise the rule consistent with any future EPA program. Much has changed since then, culminating in the recent adoption of a state program for mercury that has severe ozone and particulate requirements bootstrapped as a “compliance option.”

The rule requires electric utilities to reduce their mercury emissions by 90 percent by the year 2015, or alternatively, reduce their mercury emissions by 2021 and also reduce NOx and SO2 emissions by 90-95 percent. With legislative review ending on Oct. 4, we expect the new rule to become effective Dec. 1, 2008. However, there remains a substantial prospect that groups may mount a legal challenge to the rule.

Hamilton Consulting is developing a more in-depth analysis of the new state mercury program, its troubling ozone and particulate components, and the prospects for a legal challenge, as well as the implications of an expected federal rule. In the meantime, DNR’s mercury rule web pages contain vital information on the new rule and WMC’s 33-page comments on the rule provides an in-depth look at the legal and policy debate from industry’s perspective.

Governor Doyle Recommends against Designating Wisconsin Counties Nonattainment
Governor Jim Doyle this month filed a letter with the U.S EPA urging that no Wisconsin counties be designated as “nonattainment” for the federal air quality standard for fine particulate matter (PM 2.5).  The term “particulate matter” refers to solid particles and liquid droplets found in air.  Particles less than 2.5 micrometers in diameter (PM 2.5) are referred to as “fine particulates.”

Gov. Doyle’s letter was in response to an EPA letter notifying the Doyle Administration it planned to list six Wisconsin Counties (Brown, Columbia, Dane, Milwaukee, Racine, and Waukesha) as failing to attain the Clean Air Act’s fine particulate standards.

Gov. Doyle argued in his letter that three of the counties (Columbia, Racine, and Waukesha) the EPA planned to designate as “nonattainment” do not violate federal standards.  In addition, Gov. Doyle argued that the remaining counties will meet the federal standards based on existing state regulations.

The EPA will finalize its nonattainment designations on Dec. 18, 2008.  Gov. Doyle’s recommendations, if adopted by the EPA, will significantly enhance economic development and protect jobs. Conversely, if the EPA decides to designate the counties as “nonattainment,” Wisconsin businesses could face even tougher times during the current economic downturn.

Wisconsin Manufacturers & Commerce and Wisconsin Economic Development Association also filed comments, urging EPA not to designate counties meeting the standard.

Ozone Season Closes with Big Surprise; but Much Work remains Undone
It is an understatement that many issues relating to ozone are percolating to the top of industry’s agenda. For example, early next year, Governor Doyle will be making recommendations to EPA on which counties should be designated nonattainment under the new ozone standard.

A closely related issue is which ozone monitors should be used for the purpose of those recommendations. Wisconsin businesses, economic development groups, and local elected officials are increasingly frustrated with the improper use of an Illinois-Indiana monitor to impose unjustified regulatory mandates on Wisconsin businesses. This monitor is located in Kenosha County, within the Chiwaukee Prairie Nature Preserve and just north of the border, and was designed and located to monitor Illinois and Indiana air quality.

Hamilton Consulting worked closely with clients on a timely opportunity to set the record straight on the purpose of the Chiwaukee monitor. Those positions were articulated in comments in the context of DNR submittal to EPA of its revised ozone monitoring network plan. (See WMC’s Ozone Monitoring Comments) Past positions by Governor Doyle are closely aligned with the views of industry and local officials on this matter.

While preparing to implement the new ozone standard, Wisconsin still suffers under nonattainment mandates relating to the old standard. Several vital developments relate to the current nonattainment designations.

In early 2007, Governor Doyle requested that EPA redesignate Southeast Wisconsin to attainment based on 2004-06 ozone monitoring data. EPA has yet to act on that request, asserting that 2007 data from the Chiwaukee monitor put that area back into nonattainment. But all five counties in the Milwaukee-Racine area meet the ozone standard and consistent with the Clean Air Act, EPA should have approved the Governor’s request. That is, the Chiwaukee monitor was improperly used to deny the Governor’s request.

This issue of using 2007 data is somewhat moot given the recent ozone data from 2008. While yet to be verified, preliminary numbers from the 2008 ozone season, which recently came to a close, shows that all Wisconsin counties now meet the ozone standard. Most surprising were the compliance levels at Chiwaukee and Sheboygan, which came in substantially below the standard. DNR now must prepare a timely request for redesignation to avoid the delay that caused the prior request to be denied.

Midwestern Governors to Release Design for Emissions Trading Program
The Midwestern Greenhouse Gas Reduction Accord (Midwestern Accord) announced last week that it plans to unveil in November its recommendations for a regional emissions trading scheme.  The Midwestern Accord is a regional agreement between six governors (Iowa, Illinois, Kansas, Michigan, Minnesota, and Wisconsin) and one Canadian premier (Manitoba) to reduce greenhouse gas emissions.

An advisory group was formed by the governors and tasked with developing recommendations on the scope of an emissions trading system and preparing detailed policies to address climate change.  Once the draft policies are prepared, the individual governors will have to make broad policy decisions whether to adopt the proposed recommendations.

According to the Midwestern Accord, a draft of the proposed policies will be available to the public after the group’s next meeting, which will take place November 20-21 in Winnipeg, Manitoba.

Commerce Secretary: State Budget Deficit Underestimated
Blaming the recent economic woes for Wisconsin’s budget deficit, Gov. Jim Doyle’s prediction of a $3 billion shortfall could just as well be $4 billion according to Commerce Secretary Richard Leinenkugel.  State agencies have begun submitting their budget requests for the coming biennium but have been told by Doyle to cut 10 percent in order to help deal with the problem.

Secretary Leinenkugel spoke recently at a Wisconsin Economic Development Conference (WEDA), at which he offered the Doyle administration’s proposal to retain existing businesses, speed up tax breaks for “angel investors,” and promote what he termed “Next Generation Manufacturing.”  He also promoted tax credit reform which has been developed by WEDA and Congress.

Leinenkugel stressed the need for manufacturing businesses to adopt a series of steps to remain competitive in the global economy, as stated in a WisBusiness article covering his presentation. His description of “Next Generation Manufacturing,” included six steps he said were vital to making businesses competitive.

The “Next Generation Manufacturing” proposal includes suggestions that businesses focus on customer-focused innovation and continuous improvement on par with 15 percent productivity gains annually. It also addresses "going green" and engaging globally because global markets are growing at a rate three times faster than the U.S. market.

Wisconsin Supreme Court Provides Greater Protection to Property Owners
The Wisconsin Supreme Court granted property owners greater protection from government regulations when it issued its decision in Town of Rhine v. Bizzell, et al. The issue in the case was whether the Town of Rhine’s zoning ordinance, which allowed conditional use permits only while precluding any other use of right, was unconstitutional.

In a 7-0 decision authored by Justice Annette Ziegler (Chief Justice Shirley Abrahamson issued a separate concurring opinion) the court ruled that the ordinance was unconstitutional because it had “no substantial relation to the public health, safety, morals or general welfare.”

Please see the Update by Hamilton’s Andy Cook for a discussion of the history and the role of government in regulating private property, followed by a brief discussion of current constitutional law as it relates to private property. A brief discussion and analysis of the Wisconsin Supreme Court’s decision is also provided.

Wisconsin Politics

The Final Days: What to Watch for in the State Legislature
Get out the Vote (GOTV) weekend has finally arrived and campaigns across the state are mobilizing their volunteer forces to distribute the last of the literature, make the final phone calls, and get their people to the polls. Details from statewide polls seem to point to a rather easy Obama victory in Wisconsin, so election night intrigue for many will be focused on the state legislature.

What to watch for in the state Senate:  While the Senate Democratic majority won’t be threatened, the margin between caucuses is very important in relation to the ability of the Majority Leader to establish an agenda and pass legislation. The difference between a 17-16 majority and 19-14 is tremendous.

There are four races still very much in play with five days left. Open seat battles for the seats of Roger Breske and Carol Roessler have produced two competitive races. The rural Breske seat race between Democrat Jim Holperin and Republican Tom Tiffany could be one where if it's close, the result won’t be known until the following day. Republican Randy Hopper is running in a historically Republican Senate seat, but has received a formidable challenge from Democrat Jessica King.

Republican Senators Dan Kapanke and Alberta Darling are also in fierce battles to maintain their seats. Kapanke is facing Tara Johnson in a district where Obama is expected to do very well, and Darling is facing Assemblyman Sheldon Wasserman. Wasserman will likely set the spending record for an individual campaign for a state legislative seat; Darling will likely end up second in that category.

What to watch for in the state Assembly:  The real drama will be in the Assembly, which currently stands at 51 Republicans, 47 Democrats, and one Independent. With power at stake, and more than a dozen races in play, the respective caucuses will be frantic trying to obtain results and assess the impact.

While there are often surprises in the Assembly, the barometer of who comes back with the majority can be gauged in the targeted Democratic incumbents. If freshmen Democrats Soletski, Garthwaite, Hixson, Hilgenberg and Smith come back largely intact, there is a strong chance the House will flip. Competitive open seats (4 of them) and the overall environment may be too much to overcome if only zero or one of the current Assembly Democrats gets knocked off.

Federal Developments

Congressman Dingell, Boucher Release Climate Change Draft Legislation
The House Committee on Energy and Commerce earlier this month released a climate change legislation discussion draft [461pp].  According to the authors of the bill, Energy and Commerce Chairman John Dingell (D-MI) and Energy and Air Quality Subcommittee Chairman Rick Boucher (D-VA), the draft is to stimulate comments from stakeholders and other members of Congress.

As currently drafted, the legislation would impose a U.S.-wide cap and trade program covering nearly 88 percent of the country. The legislation seeks to reduce Greenhouse Gas emissions to 6 percent below 2005 levels by 2020, 44 percent below 2005 levels by 2030, and 80 percent below 2005 levels by 2050.  It covers six gases: carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, nitrogen trifluoride, and other emissions.

Covered Sectors
The proposed cap would cover power plants, producers and importers of petroleum, large industrial facilities, producers and importers of other bulk gases, natural gas local distribution companies and geologic sequestration sites.

Allowances
The draft provides a number of proposals for the allocation of allowances. The proposals range from free allowances to auctions.  Another proposal suggests that during the early years of the program some allowances would be distributed without charge to individual sectors.  However, the number of free distributed allowances gradually would decrease until all allowances would be auctioned starting in 2026.

Hamilton Consulting is monitoring this piece of legislation, along with legislation in the upcoming session stemming from Governor Doyle’s Global Warming Task Force and the Midwestern Greenhouse Gas Reduction Accord.  Continuous updates on climate change issues will be forthcoming in future Tidbits.

The U.S. Court of Appeals this month requested more information on petitions for a rehearing of the Court’s July decision (North Carolina v. EPA, D.C. Cir., No. 06-05-1244) where it overturned the EPA’s program to reduce power plant pollution using emissions trading.

The Clean Air Interstate Rule (CAIR) established an emissions trading program to control nitrogen oxide (NOx) and sulfur dioxide (SO2) from power plants in 28 states.  In its decision, the court vacated the regulation ruling that EPA’s method for allocating emissions allowances for upwind states and its interpretation of protections for downwind states violated the Clean Air Act. (North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008)).

Shortly after its decision the EPA and most of the parties petitioned the court for a rehearing.  As a result of this extraordinary position, the court requested that the parties address whether any party wants the court’s decision to vacate CAIR to stand.  In addition, the court asked the parties whether the court should stay a mandate implementing its decision until EPA issues a revised rule.  Lawyers involved in the case believe that the Court is signaling that it plans to reverse its decision.

The court’s decision has ramifications throughout the country, including Wisconsin.  The court’s decision vacating CAIR has caused uncertainty leaving many companies unsure of how much they should invest in emissions controls.

Hamilton Consulting will continue to follow the latest developments in this case and provide future updates.

CAIR May be Revived
The U.S. Court of Appeals this month requested more information on petitions for a rehearing of the Court’s July decision (North Carolina v. EPA, D.C. Cir., No. 06-05-1244) where it overturned the EPA’s program to reduce power plant pollution using emissions trading.

The Clean Air Interstate Rule (CAIR) established an emissions trading program to control nitrogen oxide (NOx) and sulfur dioxide (SO2) from power plants in 28 states.  In its decision, the court vacated the regulation ruling that EPA’s method for allocating emissions allowances for upwind states and its interpretation of protections for downwind states violated the Clean Air Act. (North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008)).

Shortly after its decision the EPA and most of the parties petitioned the court for a rehearing.  As a result of this extraordinary position, the court requested that the parties address whether any party wants the court’s decision to vacate CAIR to stand.  In addition, the court asked the parties whether the court should stay a mandate implementing its decision until EPA issues a revised rule.  Lawyers involved in the case believe that the Court is signaling that it plans to reverse its decision.

The court’s decision has ramifications throughout the country, including Wisconsin.  The court’s decision vacating CAIR has caused uncertainty leaving many companies unsure of how much they should invest in emissions controls.

HCG will continue to follow the latest developments in this case and provide future updates.

EPA Asks Supreme Court to Review Decision in Mercury Emissions Case
The EPA this month petitioned the Supreme Court of the United States to review a lower court decision that struck down Clean Air Mercury Rule (CAMR) (EPA v. New Jersey, U.S., No. 08-512, petition for certiorari filed 10/17/08).

CAMR, issued in 2005, set up an trading system to reduce mercury emissions.  In vacating the rule the U.S. Court of Appeals for the District of Columbia Circuit held that EPA ignored “plain text” of the Clean Air Act and that it must set strict limits on mercury emissions from all coal-fired power plants (see New Jersey v. EPA, 65 ERC 1993 (D.C. Cir. 2008)).

In its petition, the EPA argues that Section 7412 of the CAA grants the agency broad authority to regulate hazardous air pollutants when such regulations are deemed “appropriate and necessary.”

Under Section 112 of the CAA, EPA is required to list hazardous air pollutants that should be regulated for health reasons.  Congress amended this section in 1990 in an effort to eliminate much of EPA’s discretion in the process of listing sources of hazardous air pollutants.

EPA removed electric utility steam-generating units from the Section 112 list of sources of hazardous air pollutants to allow power plants to trade emissions allowances to cut back mercury emissions when it drafted CAMR.

The court held that EPA was attempting to evade Section 112’s plain text and was “deploying the logic of the Queen of Hearts, substituting EPA’s desires for the plain text of section 112(c)(9).

Hamilton Consulting will continue to monitor this case and provide updates when/if the U.S. Supreme Court accepts the petition.

Political News

Control of Wisconsin Assembly up for grabs on election day: Milwaukee Journal Sentinel, Oct. 31, 2008. If the Democrats take the Assembly, they will control all of state government for the first time since 1986.

Obama leads fundraising in state, McCain in Green Bay area: Green Bay Press-Gazette, Oct. 31, 2008. Obama has received $2.98 million and McCain $1.45 million from Wisconsin donors. But McCain's total of $67,720 from the Green Bay area bested Obama's $44,910.

Dan Mielke, Republican challenger for the state's 7th Congressional District seat, says he wants to bring 'fresh blood' to Washington, D.C.: Stevens Point Journal, Oct. 31, 2008. his bid for Wisconsin's 7th Congressional District is all about holding government accountable.

State Senate candidates Darling, Wasserman wage attacks during debate: Milwaukee Journal Sentinel, Oct. 30, 2008. The two squared off over gas taxes, stem cell research, abortion, voter identification and school funding.

Economy Dominates Legislative Races: Wisconsin State Journal, Oct. 20, 2008. Layoffs, Jobs, Taxes, Health Care, Energy Among Top Issues Confronting Legislators.

Gottlieb the better pick (opinion): Milwaukee Journal Sentinel, Oct. 30, 2008. Mark Gottlieb has been a thoughtful representative and remains a good fit for the 60th Assembly District.

Area candidates talk about tackling poverty: La Crosse Tribune, Oct. 30, 2008. The issue was poverty. But for the most part the candidates invoked their broader campaign themes.

Tax pledge heats up 8th Senate District race: Milwaukee Journal Sentinel, Oct. 29, 2008. From voters' mailboxes to their TV sets, state Sen. Alberta Darling (R-River Hills) and Rep. Sheldon Wasserman (D-Milwaukee) have tangled over taxes.

Gary Sherman seeks return to Madison as district rep: Ashland Daily Press, Oct. 29, 2008. Says that Democrats are "poised" to take control of the Assembly, maintain control of the Senate and change the legislature's often-contentious direction.

Early voting numbers surpass 2004 presidential race: Green Bay Press-Gazette, Oct. 29, 2008. Twice as many absentee ballots cast in Brown Co.

Partisan politics the issue in 26th: Sheboygan Press, Oct. 29, 2008. Both candidates plan to work across party lines.

Congressional candidates discuss foreign trade: Manitowoc Herald Times, Oct. 29, 2008. Petri and Kittelson answer questions.

As liberals fan out to the suburbs, Democrats flex their newfound muscle in state Assembly races: Madison Capital Times, Oct. 29, 2008. a majority stake in the Assembly will give the Democrats complete control of the state's legislative agenda for the first time since 1985.

3rd District candidates stick to message in wide-ranging debate: La Crosse Tribune, Oct. 29,m 2008. Everyone running for Wisconsin’s 3rd Congressional seat seems to agree times are tough. They differ widely on the solutions.

Candidates for 29th Assembly District blur party lines: Eau Claire Leader-Telegram, Oct. 28, 2008. All three 29th Assembly candidates can agree on at least one thing - they are abortion-rights opponents.

Record voter turnout expected in Wisconsin: Green Bay Press-Gazette, Oct. 28, 2008. The state Government Accountability Board is predicting that 3.2 million votes will be cast. That is 74 percent of the 4.3 million people in the state who are of voting age.

Kagen, Gard ready for 8th Congressional District rematch: Green Bay Press-Gazette, Oct. 28, 2008.  2006 election was decided by fewer than 6,000 votes.

Rep. Jerry Petrowski 'a good listener': Wausau Daily Herald, Oct. 28, 2008. Nate Myszka challenges 86th Assembly District incumbent's claim to bipartisanship

Kagen pumps personal money into campaign: Green Bay Press-Gazette, Oct. 28, 2008. Steve Kagen loaned his campaign $180,000 over the weekend.

Bailout helps to shape 7th District race: Eau Claire Leader-Telegram, Oct. 27, 2008. Dan Mielke isn't intimidated by the fact that his opponent, David Obey, has been in Congress for 39 years.

2 take on incumbent Krusick: Milwaukee Journal Sentinel, Oct. 26, 2008. Democrat Rep. Peggy Krusick, who won her first election to what is now the 7th Assembly District seat a quarter century ago, is facing challenges from a Republican and a Libertarian.

Candidates make final push by narrowly targeting voters: Wisconsin State Journal, Oct. 26, 2008. The canvassing effort on both sides will wind down this week, when organizers turn to making sure they get voters to the polls.

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