While gay marriage and ObamaCare are drawing public attention at the end of this Supreme Court term, a less-noticed decision may prove to be just as important for the power of regulators. The court’s opinion in Michigan v. EPA brings major regulatory decisions under new scrutiny. Among the first on the cutting board will likely be the Federal Communications Commission’s attempt to regulate the Internet in the name of net neutrality. 

On Monday, the court struck down a rule governing power plant emissions because the Environmental Protection Agency ignored the costs and benefits of the rule — even its own estimates showed direct costs far outweighing direct benefits. Congress had ordered the EPA to regulate only when “appropriate and necessary,” which the EPA argued didn’t require cost-benefit analysis. The five conservatives on the high court disagreed, finding that “read fairly and in context… the term [appropriate and necessary] plainly subsumes consideration of cost.” In so doing the court was careful to distinguish regulatory decisions made under any standard “that on its face does not include cost.” But when Congress uses broad language, Michigan requires regulators to weigh the cost of regulation. Failure to do so is reason to strike down an agency’s decisions.

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This should fundamentally change the operations of the FCC. Its statute repeatedly requires the FCC to act in the “public interest, convenience, and necessity.” Historically, the agency has received broad deference as to what this term means, and so hasn’t had to offer much justification for its decisions. (Its frequent losses in court are usually on procedural, not substantive, grounds.) In practice, the “public interest” has meant whatever three FCC commissioners say it means. But it’s hard to see how, after Monday’s decision, the FCC can make decisions without weighing the costs of the decision against other options  — including the alternative of doing nothing. Regulatory humility, in short, will now be more than a slogan.

The FCC is already facing a stiff legal challenge to the Open Internet Order it issued in March. Broadband providers are focusing their legal challenge on the FCC’s decision to “reclassify” them under traditional telephone regulations (“Title II” of the 1934 Communications Act). But the Michigan decision suggests the FCC would have a hard time just defending net neutrality rules themselves. 

The decade-long debate over “net neutrality” has turned largely on the costs of translating that feel-good abstraction into regulations. Yet in both 2010 and 2014, the FCC’s chairman refused calls from the senior Republican commissioner for independent cost-benefit analysis by economists. This is unsurprising: There’s overwhelming evidence that a lack of such regulation has had positive economic impact — and plenty of evidence that imposing rules now will be harmful.

Rather than analyzing these trade-offs, the order includes only two paragraphs of cursory discussion of the new rules’ potential costs — a far cry from what Michigan seems to require. To the extent it addresses costs, the order simply insists they’re eliminated by its grant of broad “forbearance” from most of Title II. But the statute only authorizes forbearance from sections of the Communications Act “not necessary” to protect consumers and when forbearance is in the “public interest.” On both counts, Michigan would seem to require meaningful cost-benefit analysis.

More generally, Michigan also signals that court is trying to check regulators’ discretion under the Supreme Court’s 1984 Chevron decision. At the outset, the court reiterates that “agencies must operate within the bounds of reasonable interpretation,” quoting from its decision last year in UARG v. EPA. There, the court blocked the EPA’s effort to “modernize” the Clean Air Act, explaining that “the need to rewrite clear provisions of the statute should have alerted EPA that it had taken a wrong interpretive turn.”

The underlying concern in both Supreme Court decisions is, as Justice Clarence Thomas writes in his concurrence, that the agency is claiming “the power to decide — without any particular fidelity to the text — which policy goals [it] wishes to pursue.” That same concern lies at the heart of challenges to the Open Internet Order. Should the Supreme Court hear the case, it will likely rule that the FCC’s need to ignore regulatory costs and to rely on forbearance to “tailor” away the otherwise unreasonable burdens of Title II should have alerted the agency that its interpretation of the statute lies was unreasonable.

If the FCC were smart, it would finally undertake serious cost-benefit analysis of the rules it wants — and also ask Congress for a long-overdue update to the Communications Act. But if the last 10 years are any indication, the agency won’t change how it operates until it finally loses at the Supreme Court. That day can’t come too soon.

 

Szoka is president of TechFreedom, a think tank has joined the litigation against the Federal Communications Commission. Hurwitz is assistant professor of law at University of Nebraska College of Law.