Supreme Court Grants Cert in Case Pitting Billions of Aquatic Organisms Against Billions of Dollars

On April 14, 2008, the U.S. Supreme Court granted certiorari in a case in which the fate of billions of fish and other aquatic organisms is balanced against potentially billions of dollars in retrofits for electric utilities and potentially higher energy costs for consumers and businesses. The Court announced that it will consider whether the Environmental Protection Agency (“EPA”) may undertake a cost-benefit analysis in connection with environmental rules requiring utilities to install new technology to protect fish and other aquatic life when withdrawing water out of rivers and streams to cool turbines. Three separate petitions for certiorari were consolidated for review by the Court.[1]

As power plants withdraw cooling water, fish and other large aquatic organisms are trapped (“impinged”) against grills or screens covering the intake structure, while small aquatic organisms are “entrained” within the cooling mechanism.[2] In 2001, EPA issued a “Phase I rule,” governing cooling water intake structures at new power plant facilities, and which applied to closed-cycle cooling technology.[3] EPA’s Phase II rule is at issue in this case – that rule selects a set of technologies that are designed to reduce mortality at large intake structures[4] by 80-95% and entrainment by 60-90%[5] at water intake structures at large existing power plants.[6] EPA has subsequently issued a Phase III rule, which applies to intake structures of offshore oil and gas facilities and other industrial plants not covered by the earlier rules.

Each of the petitions challenges the Second Circuit Court of Appeals’ ruling in Riverkeeper Inc. v. EPA,[7] which held in part that the retrofits were required regardless of costs. The issue before the Court is: “Whether 316(b) of the Clean Water Act, 33 U.S.C. 1326(b), authorizes the Environmental Protection Agency (EPA) to compare costs with benefits in determining the ‘best technology available for minimizing adverse environmental impact’ at cooling water intake structures.”[8]

Opinion Below

The Second Circuit opinion from which certiorari was granted is the latest in a series of opinions addressing EPA’s attempt to craft rules applying Section 316(b) of the Clean Water Act,[9] which is “intended to protect fish, shellfish, and other aquatic organisms from being harmed or killed by regulating ‘cooling water intake structures’ at large, existing power-producing facilities.”[10] The opinion was issued in response to petitions from both a number of states[11] and environmental groups.[12]

EPA’s rulemaking followed amendments to the Clean Water Act in 1989, when Congress changed the standard for control technology from one allowing EPA to consider “the total cost … in relation to the effluent reduction benefits to be achieved” to a standard that allowed EPA to consider only “the cost of achieving such effluent reduction”[13] but without including a list of permissible factors that EPA could examine in determining the cost of the control technology.

The Second Circuit concluded that although certain aspects of the rule were based on a reasonable interpretation of the CWA and supported by substantial evidence in the administrative record, several portions of the rule were not consistent with the statute, were not supported by substantial evidence, or were not properly subject to notice and comment rulemaking. With respect to the use of cost-benefit analysis in assessing control technology, the Second Circuit stated that “[a]lthough the EPA is permitted to consider a technology’s cost in determining whether it is ‘practicable,’ ‘economically achievable,’ or ‘available,’ it should give decreasing weight to expense as facilities have time to plan ahead to meet tougher restrictions.”[14] In light of Congress’ amendment to the statute, the Second Circuit concluded that “the language of section 316(b) itself plainly indicates that facilities must adopt the best technology available and that cost-benefit analysis cannot be justified in light of Congress’s directive”[15] and that “the statute does not permit the EPA to choose [a particular control technology] on the basis of cost-benefit analysis.”[16] Consequently, while some portions of the rule were upheld, other portions were remanded to EPA for further consideration consistent with the Second Circuit’s findings.

Solicitor General and States Urge Court to Defer Consideration While Utilities Point to Extreme Cost of Compliance

The Supreme Court’s decision to grant certiorari was made in the face of the Solicitor General’s opposition.[17] The Solicitor General had argued that the Second Circuit was wrong in holding that EPA could not undertake a cost-benefit analysis. The Solicitor General also pointed to the fact that EPA was conducting a new review that may take some months, and that review might change the shape of the legal dispute. 

The Solicitor General pointed out that the practical effect of the Second Circuit’s decision is far from certain, pointing to language in the Second Circuit’s opinion that “it is unclear whether the Agency improperly weighed the benefits and the costs. … Given the above indications that the EPA engaged in a cost-benefit analysis, we remand to the EPA to explain its conclusions.”[18] Both the Solicitor General and the states that opposed certiorari pointed to this language to argue that the true impact of the Second Circuit’s decision did not warrant a grant of certiorari.[19]

The Solicitor General also pointed out that EPA had already issued a Phase III rule that expressly relied on cost-benefit considerations, and that the new rule was currently under review in the Fifth Circuit.[20] Based on this fact, the Solicitor General urged the Supreme Court to defer consideration of the issue until that appeal had been decided.[21] The Solicitor General conceded, however, that the impact of the existing rule during the pendency of the Fifth Circuit’s review would have “dramatic effects. Nationwide, the costs would exceed $3.5 billion annually … [and would reduce] the amount of energy created by affected plants while forcing others to remain idle during extensive retrofits (or close their doors forever).”[22]

The Position of the Utilities

In their petitions for certiorari, the utilities pointed to estimates of much higher costs that compliance with EPA’s rule could entail, arguing that the rule “threaten[ed] to impose billions of dollars in costs on the electric generating sector for no appreciable benefit.”[23] According to the Utility Water Act Group, “[r]etrofitting would saddle the economy with billions of dollars of costs, lose significant energy generating capacity, and increase greenhouse gas emissions. … [T]he nationwide cost of retrofitting would be $40 billion, about 18 percent of the industry’s revenues. … The plants may be forced to shut down and the energy penalties imposed by retrofitting raise serious concerns about electric system reliability.”[24] The arguments asserted by the utilities persuaded the Court to accept certiorari, despite the vigorous opposition of the Solicitor General and the states that opposed Supreme Court review of the Second Circuit’s decision.

Case Set for Consideration in Supreme Court’s Upcoming Term

The consolidated cases will be heard in the Court’s new term starting October 6, 2008. No date for oral argument is currently set.[25]

For more information on this case or other environmental litigation issues, contact Steve Jones or any other member of our Environmental Litigation Practice Group.