National Environmental Enforcement Journal
Court Remands Much of EPA’s Rule Governing Existing Cooling Water Intake Structures
Riverkeeper, Inc. et al. v. U.S. Environmental Protection Agency
Nos. 04-6692 et al. (2d Cir. Jan. 25, 2007)
The petitioners, including the States of Connecticut, Delaware, New Jersey, and New York, and the Commonwealth of Massachusetts, challenged a final rule promulgated by U.S. EPA pursuant to section 316(b) of the Clean Water Act (CWA) that is intended to protect aquatic organisms from impingement and entrainment caused by cooling water intake structures at large, existing power-producing facilities. These structures were regulated by Congress in 1972 in its amendments to the CWA, 33 U.S.C. ¿¿ 1251?1387. Section 316(b) requires that ?[a]ny standard established pursuant to section 1311 of this title [CWA section 301] or section 1316 of this title [CWA section 306] and applicable to a point source shall require that the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact.? 33 U.S.C. ¿ 1326(b). The cross-referenced sections direct EPA to issue rules regulating the discharge of pollution from existing point sources.
Although EPA was to promulgate regulations for cooling water intake structures at the same time it established pollution discharge standards pursuant to section 301 and 306, there has been considerable delay in doing so. Its first attempt was remanded by the Fourth Circuit in 1977 on procedural grounds. See Appalachian Power Company v. Train, 566 F.2d 451 (4th Cir. 1977). Eventually, environmental groups sued and reached a consent agreement with the agency that established a timetable to issue rules pursuant to section 316(b). The first phase, governing new facilities, was the subject of a decision rendered by this court in Riverkeeper, Inc. v. EPA, 358 F.3d 174 (2d Cir. 2004) (Riverkeeper I). That decision forms much of the basis for the decision entered in this case. The second phase, covering large, existing power plants, is the regulation addressed in this lawsuit. The third phase will regulate existing power plants not governed by Phase II as well as other industrial facilities.
Since section 316(b) of the CWA cross-references sections 301 and 306, the court looked at those sections to inform its interpretation of section 316(b). Section 301 provides a framework that requires that regulation governing the discharge of pollutants from existing sources to become more stringent over time. At first, the effluent limitations were to be based on ?the best practicable control technology currently available? (BPT). By 1989, existing limitations were to be based on the more stringent ?best available technology economically achievable? (BAT).
Section 316(b) establishes another standard to govern cooling water intake structures ? the ?best technology available for minimizing adverse environmental impact? or BTA. In Riverkeeper I, the court observed that EPA should ?give decreasing weight to expense as facilities have time to plan ahead to meet tougher restrictions.?
On July 9, 2004, EPA issued the Phase II Rule. 69 Fed. Reg. 41,576 (codified at 40 C.F.R. pts. 9, 122?125). The rule established five compliance alternatives and requires that a facility select and implement one of them for ?establishing best technology available for minimizing adverse environmental impact?: (1) Use of a closed-cycle recirculating system or demonstration of reducing through-screen design intake velocity to 0.5 ft/s or less; however, the facility would still be subject to the requirements for entrainment reduction; (2) demonstration that the existing design and construction technologies, operational measures, and/or restoration measures meet the specified performance standards or restoration measures; (3) demonstration that a facility has selected and will install, properly operate, and maintain, technologies and/or measures that will, in combination with those existing, meet the specified performance standards or restoration measures; (4) demonstrate that a facility has installed or will install and properly operate and maintain an approved design and construction technology in accordance with 40 C.F.R. ¿ 125.99(a) or (b); or (5) demonstrate that a facility has installed, or will install, and properly operate and maintain those technologies or measures that the Director has determined to be the best technology available to minimize adverse environmental impact for that facility in accordance with the specifications in subsections (a)(5)(i) or (ii). 40 C.F.R. ¿ 125.94(a).
Thus, in this rule, EPA did not designate one technology as BTA, such as a closed-cycle cooling system, but, instead, designated a ?suite? of technologies as BTA for large, existing power plants.
National Performance standards are established in section 125.94(b) for both impingement and entrainment. Section 125.94(c) states that facilities may comply with the rule by implementing restoration measures ?in place of or as a supplement to installing design and control technologies and/or adopting operational measures that reduce impingement mortality and entrainment.? Id. ¿ 25.94(c). The restoration measures implemented must produce ecological benefits ?at a level that is substantially similar? to what would be achieved by meeting the national performance standards of 125.94(b).
Furthermore, option 5 under section 125.94(a) allows a site-specific compliance alternative to the generally applicable performance standards in two circumstances: if a demonstration that a facility?s compliance costs ?would be significantly greater than the costs considered by the Administrator,? the permitting authority must then make a site-specific determination that BTA is ?as close as practicable to the applicable performance standards . . . without resulting in costs that are significantly greater than the costs considered by the Administrator: in establishing those standards. 40 C.F.R. ¿ 125.94(a)(5)(i). This is called the ?cost-cost compliance alternative? or the ?cost-cost variance.? In the second circumstance, the permitting authority must make a site-specific determination of BTA that is ?as close as practicable? to the national performance standards if a facility demonstrates that its compliance costs would be ?significantly greater than the benefits of complying? with the performance standards at the facility.? Id. ¿ 125.94(a)(5)(ii). (This is called the ?cost-benefit compliance alternative? or ?the cost-benefit variance.?)
The challenges brought by the state and environmental petitioners are similar. They argued that (1) EPA exceeded its authority in rejecting closed-cycle cooling as BTA for existing facilities; (2) EPA exceeded its authority by establishing ranges of acceptable performance rather than a single-numeric performance standard; (3) the CWA does not allow restoration measures as a means of compliance; (4) EPA failed to give adequate notice of the site-specific determinations of BTA based on cost-cost analysis and that EPA impermissibly construed the statute to allow such; (5) EPA?s allowing compliance with the performance standards to be determined by a facility?s technology installation and operation plan (TIOP) violates the notice and comment requirement; and (6) EPA?s classification of certain new constructions as ?existing facilities? contrary to the Phase 1 Rule violates the notice and comment requirement.
Holding ? BTA
The petitioners argued that EPA engaged in improper cost considerations when it rejected closed-cycle cooling as BTA and, instead, selected the suite of technologies. The court noted that the shift in the CWA from BPT to BAT altered the way in which EPA could factor cost into its determinations. In determining BAT, the agency may consider cost only in determining whether the cost of a given technology could reasonably be borne by industry, not the relation between the technology?s cost and the benefits it achieves. See Riverkeeper I, 358 F.3d at 195. The court stated that the shift to BAT clearly signaled Congress?s intent to shift from a cost-benefit analysis to a cost-effectiveness one.
Section 316(b) sets forth no factors that can be used in determining BTA. However, that section is linguistically similar to the BAT standard of section 301 and the standard applicable to new sources under section 306. The court concluded that the plain language of section 316(b) requires facilities to adopt BTA and, thus, no cost-benefit analysis is appropriate. Therefore, EPA may permissibly consider cost in only two ways in establishing BTA: to determine what technology can be ?reasonably borne? by the industry and to engage in a cost-effectiveness analysis. In making the first analysis, the agency must look at the most effective technology based, not on the average Phase II facility, but on the optimally best performing Phase II facilities. This technology, according to the court, constitutes the benchmark for performance. Once that determination has been made, EPA may consider cost-effectiveness in choosing a less expensive technology that achieves essentially the same results as the benchmark.
The Phase II rule does not require facilities to reduce intake flow to a level commensurate with the intake of closed-cycle systems. The rule, instead, requires facilities to meet the national performance standards associated with a suite of technologies identified as BTA. In the rule?s preamble, EPA sated that the BTA standard should be interpreted as ?best technology available commercially at an economically practicable cost? and stated that ?an important component of economic practicability? is ?the relationship of costs to environmental benefits.? 69 Fed. Reg. at 41,604. EPA took this concept from a speech by a congressman. However, that interpretation of section 316(b) is problematic because it resembles the less stringent BPT standard. The word ?practicable? is missing from the BAT standard. The court?s concern with EPA?s interpretation was heightened by the agency?s rejection of closed-cycle cooling because the suite of technologies chosen were the most ?cost effective? options. 69 Fed. Reg. at 41,667. Because of the language used by EPA of economic practicability, the court was unsure whether EPA improperly weighed the benefits and costs of requiring closed-cycle cooling, finding it difficult to discern from the record how EPA determined that the cost of closed-cycle cooling could not be reasonably be borne by the industry. The court termed the record evidence ?oblique, complicated, and insufficient to permit? it to determine what the agency relied upon in reaching its conclusion. Thus, it was impossible for the court to tell whether EPA based its decision on permissible cost-effective analysis or on an impermissible cost-benefit analysis. EPA?s failure to explain its methodology frustrated effective judicial review. Therefore, the court remanded this portion of the rule.
Performance Standards Expressed as Ranges
The environmental petitioners challenged the rules ranges as failing to constitute ?precise single-level limitations based on the best technology available for minimizing adverse environmental impact,? arguing that these ranges are inconsistent with congressional intent that there be a national standard under section 316(b). EPA argued that section 316(b) does not require a single numeric standard applicable to all Phase II existing facilities. The agency noted that the Phase II requirements are to be applied to a variety of settings, and facilities? performances are affected by the nature of the waterbody, facility intake requirements, climatic conditions, and the waterbody?s biology. Therefore, expressing performance standards as ranges is necessary to account for variables in impingement and entrainment to ensure that facilities choose technologies that produce the greatest reduction possible.
The court agreed that record evidence supports EPA?s conclusion that the percent reduction of impingement mortality and entrainment is not completely within the control of a facility. However, the ranges stated by EPA go from a low range of the percent reduction that all facilities could eventually achieve to the high end that is a percent reduction that many facilities can and have achieved. Congress specifically used the superlative ?best?; therefore, a facility that achieves the lower end of the range, but could do better, cannot be deemed to have complied with the law. EPA must require facilities to choose the technology that permits it to achieve as much reduction as is technologically possible.
The court remanded this portion of the rule because it agreed, in part, with the petitioner that the CWA ranges are inconsistent with congressional intent that there be a national standard. These concerns must be addressed if, in the agency?s BTA determination, it decides to retain performance ranges.
The Phase II rule allows a facility to meet the national performance standards by the use of restoration measures. The environmental and state petitioners pointed out that Riverkeeper I held that restoration measures cannot be substituted for the installation of BTA. EPA argued that its interpretation of the statute is entitled to deference because it defined certain statutory terms in the Phase II rule that it had not defined in the Phase I rule. It also contended that the court?s prior interpretation of the statute does not trump the agency?s construction.
In Riverkeeper I, the court stated that the Phase I restoration provision clearly contradicted congressional intent since, although beneficial, restoration measures have ?nothing to do with the location, the design, the construction, or the capacity of cooling water intake structures, because they are unrelated to the structures themselves.? 358 F.3d at 189. The court rejected EPA?s arguments that the court?s earlier interpretation of the statute should not also apply to the holding regarding the Phase II rule. The court in Riverkeeper I clearly stated that restoration measures are ?plainly inconsistent? with the statute?s text. EPA?s interpretation is not entitled to deference because it clearly contradicts the unambiguous language of section 316(b). Since the court concluded that EPA impermissibly construed the statute by allowing compliance via restoration measures, it remanded that aspect of the rule.
Site-Specific Compliance Alternatives
The Phase II rule contains two site-specific compliance alternatives: the cost-cost alternative and the cost-benefit alternative. The petitioners challenged the cost-cost alternative because, they allege, EPA failed to comply with the Administrative Procedure Act?s notice and comment requirements in promulgating that portion of the rule. The court agreed that the agency had not given interested parties the requisite notice by failing to identify cost data for actual, named facilities, as opposed to model facilities, until after the notice and comment period had ended. EPA acknowledged that it did not provide specific facility names because he had not yet developed a means to protect confidential business information in the proposal. However, interested individuals could still comment on the methodology and general cost data underlying EPA?s approach because this information was included in the Notice of Data Availability (NODA).
Only the final rule identified facilities by name; therefore, interested parties could not comment on the basis of a particular facility?s cost figures established by EPA. EPA?s argument that the NODA detailed its intended methodology ignores the importance of the cost estimates for a particular facility in determining whether a site-specific cost-cost variance is appropriate. Since the court found that EPA did not comply with the APA?s notice and comment requirement for this portion of the rule, it remanded the cost-cost alternative portion to EPA.
Turning to the challenge to the cost-benefit compliance alternative, the court noted that, in using this alternative, a facility must demonstrate that its compliance costs are ?significantly greater than? the benefits of compliance. The petitioners argue that this is using the prohibited cost-benefit analysis and the court agreed. Just as EPA cannot determine BTA on the basis of a cost-benefit analysis, it cannot authorize site-specific determinations of BTA based on cost-benefit analysis.
Also, in Riverkeeper I, the court noted that Congress rejected regulation by reference to water quality standards. The CWA regulates discharges from point sources rather than water quality. In reference to section 316(b), ?water quality? refers to quality measured by wildlife levels. EPA stated, in the preamble of the rule, that, if a water body is already degraded, there may be very few aquatic organisms subject to impingement or entrainment and, thus, the costs of retrofitting an existing structure may be significantly greater than the benefits. 69 Fed. Reg. at 41,604. EPA exceeded its authority both by permitting a cost-benefit analysis and allowing assessment of the receiving water in determining whether a variance is permitted. Thus, the court also remanded this aspect of the rule.
The court agreed with the petitioners that the portion of the rule that demonstrates facility compliance by whether the facility has ?complied with the construction, operational, maintenance, monitoring, and adaptive management requirements of a Technology Installation and Operation Plan (TIOP)? (40 C.F.R. ¿ 125.94(d)(1)) was not promulgated in accordance with the APA. Furthermore, the record justification for the TIOP provision depends on EPA?s selection of a suite of technologies as BTA, a section of the rule the court had already determined should be remanded.
The rule provides that, during the first permit term, a facility may request compliance based on whether it has complied with its TIOP, which must be designed to meet performance standards. If, during subsequent permit terms, a facility?s compliance with its TIOP does not cause it to meet performance standards, a facility may request that its compliance with the standards be judged on the basis of whether it has complied with its TIOP. EPA failed to give notice in the proposed rule of the potentially indefinite scope of this provision. The agency only said it was considering the need to give facilities a period of time to come into compliance if they choose to install technologies to meet performance standards. The proposal indicated that EPA was ?evaluating and considering allowing six months, one year, two years, or five years (one permit term) for a facility to come into compliance after issuance of its permit.? 68 Fed. Reg. at 133,586. The final rule appears to permit a facility to satisfy compliance for an indefinite period without ever demonstrating compliance with the performance standards.
?New Facility? versus ?Existing Facility?
In the Phase II rule, EPA reclassified certain new constructions as ?existing facilities,? thereby causing these facilities to come into compliance through the Phase II rule instead of the more stringent Phase I requirements. An agency may modify a regulation that has already been promulgated but may only do so through the process of notice and comment rulemaking. The court found that the Phase I rule was not ambiguous as to the facilities that were to be classified as new constructions. Therefore, the court did not owe deference to the agency?s interpretation of the Phase I definition in the preamble to the Phase II rule. The court therefore remanded this portion of the rule to EPA to require either adherence to the definitions set forth in the Phase I rule or to amend those definitions following notice and comment.
The industry petitioners argued various issues concerning the Phase II rule. One issue regarded EPA?s authority to apply CWA section 316(b) to existing, as opposed to new, facilities. This argument centered on the statutory language that the best technology available be reflected in the ?location, design, construction, and capacity of cooling water intake structures.? According to the petitioner, this shows congressional intent to regulate only new facilities. The petitioner also contended that EPA has authority to approve cooling water intake structures only before construction and cannot regulate these structures through National Pollutant Discharge Elimination System (NPDES) permits. The court adopted EPA?s reading of the statute. The cross-reference to section 301 in section 316(b) was, according to the court, particularly significant because Congress could have limited section 316(b)?s application to new facilities. According to the court, EPA?s interpretation of the statute is reasonable.
The argument concerning the permitting process required a closer look at the statute. Section 402 conditions the issuance of a permit on the circumstance that a ?discharge? will meet the applicable requirements. The Phase II requirements do not apply to the discharge of pollutants. Nonetheless, the court found that EPA?s decision to use the NPDES process to enforce section 316(b) was reasonable. Otherwise, Congress?s intent to regulate the intake structures of existing facilities could not be effectuated.
In the Phase II rule, as in the Phase I rule, EPA interpreted the requirement in section 316(b) to minimize ?adverse environmental impact? (AEI) to require the reduction of? the number of aquatic organisms lost as a result of water withdrawals associated? with cooling water intake structures. 69 Fed. Reg. at 41,586. This interpretation recognizes the fact that section 316(b) is an unusual provision of the CWA in that, instead of governing the discharge of pollutants into the water, it governs the environment effects of large scale withdrawals of water. The court rejected the argument by an industry petitioner that EPA?s focus on the environment effects of impingement mortality and entrainment rather than on only more severe ?population-level effects? is unreasonable. This same type of argument was advanced in Riverkeeper I and was rejected by the court. Even if it were considering this issue for the first time, the court indicated it would be inclined to defer to EPA?s judgment. The court, therefore, rejected this argument.
The industry petitioners noted that the Phase II rule requires a reduction of impingement mortality, but a reduction of entrainment generally. According to the petitioners, this presumes that all entrained organisms die and this is contrary to the scientific evidence. However, the court concluded that, in light of the uncertain record evidence, EPA acted within its discretion in assuming zero entrainment survival. Although peer reviewers did not accept EPA?s assumption of zero percent survival, none expressed the belief that reliable national statistics on entrainment survival exist. With the requirement to establish national standards and the uncertainty in the entrainment data, EPA was within its authority to determine that it could not provide a reasonable estimate of entrainment survival on a national basis. Therefore, the court deferred to EPA?s judgment.
Another issue raised by the industrial petitioners is that EPA failed to take into account the special concerns of nuclear facilities to ensure a stable flow of cooling water. The court disagreed. EPA included in the Phase II rule a provision that accounts for this concern by providing for a site-specific compliance alternative for nuclear facilities. The court deferred to EPA?s determination that this compliance alternative ensures that any safety concerns unique to nuclear facilities will prevail.
The Phase II rule provides that existing facilities are subject to the rule?s requirements even if they obtain cooling water from an independent supplier that does not itself fall under the purview of the Phase II rules. 40 C.F.R. ¿ 125.91(c). One industry petitioner argued that EPA gave inadequate notice of the scope of this third-party supplier rule. The court agreed. The proposed rule indicated that the Phase II provision would track the language of the Phase I provision that applied only to third-party suppliers that are not point sources. The proposed rule stated that the third-party supplier provision was intended ?to prevent circumvention of these requirements by creating arrangements to receive cooling water from an entity that is not itself a point source? (emphasis added). 67 Fed. Reg. at 17,220. The final rule, however, states that it ?is intended to prevent circumvention of these requirements by creating arrangements to receive cooling water from an entity that is not itself a Phase II existing facility.? 40 C.F.R. ¿ 125.91(c). Interested parties could not have anticipated the final rule?s scope. The court, therefore, remanded this aspect of the rule.
Another issue raised by an industry petitioner is how ?Great Lakes? is to be defined. The entrainment performance standard of 40 C.F.R. ¿ 125.94(b)(2) applies to facilities that use cooling water ?withdrawn from . . . one of the Great Lakes.? 40 C.F.R. ¿ 125.49(b)(2)(ii)(A). However, ?Great Lakes? is not defined. According to the industry petitioner, state regulators have affirmed that EPA intends to apply this standard to structures located in the great Lakes connecting channels or in waterways with open fish passage to a Great Lake and within 30 miles from a Great Lake. The court, however, found no evidence that EPA has issued a formal and binding definition or even applied a particular definition in a permitting proceeding. Therefore, there is no final agency action for the court to review.
In conclusion, the court remanded the provision establishing BTA so that the agency may provide a reasoned explanation or a new determination of BTA based on permissible considerations. It remanded the site-specific cost-cost variance, the TIOP provision, and the independent suppliers provision because of inadequate notice. It also remanded the definition of ?new facility? so that EPA could provide adequate notice or adhere to the definition in the Phase I rule. It also remanded, based on impermissible construction of the statute, those provisions that set performance standards as ranges, allow compliance through restoration measures, and authorize a site-specific cost-benefit variance. Finally, it dismissed for lack of jurisdiction the challenge to the definition of ?Great Lakes.?
Published by the National Association of Attorneys General with the cooperation and support of the Office of Enforcement and Compliance Assurance of the U.S. Environmental Protection Agency.
Chief Counsel for Environment