EPA Rule Exempts Water Transfers from NPDES Permit Requirements

The Environmental Protection Agency (EPA) has released the final version of its “National Pollutant Discharge Elimination System (NPDES) Water Transfers Rule” (Water Transfer Rule) codifying that “water transfers” are excluded from regulation under the Clean Water Act (CWA)[1] and, therefore, do not require NPDES permits. The Water Transfers Rule, which takes effect on August 12, 2008, defines “water transfer” to mean “an activity that conveys or connects waters of the United States without subjecting the transferred water to intervening industrial, municipal, or commercial uses.”[2] Farmers, municipalities, and utilities that move water from one body to another for irrigation, municipal supplies, and power generation will now have greater certainty that they do not need a pollution control permit from the EPA. Critics, however, say the EPA’s definition of “water transfer” “effectively authorizes most transfers ‘regardless of how dirty the transferred water is and regardless of how clean the receiving water is.’”[3] Legal challenges to the Rule are imminent.

The Water Transfer Rule is intended to cure defects that led the Second Circuit to reject previous agency efforts to implement the policy by way of a guidance document. In a June 2006 decision, in Catskills Mountains Ch. of Trout Unltd., Inc. v. City of New York (Catskills II)[4] the Second Circuit rejected arguments by the City of New York based on the same rationale the EPA used to support its Water Transfer Rule. In that case, however, the City of New York argued that its water transfers were exempt based on an August 2005 EPA guidance document, and not a rule that would be subject to judicial review. The next time the courts review EPA’s position – which they will – it will be based on a higher standard of deference paid to agency rulemaking.

The Water Transfer Rule

The CWA prohibits the discharge of a pollutant by any person except in compliance with specified statutory sections, including the NPDES permit provisions in CWA Section 402. The Water Transfer Rule is an exception to the NPDES permit requirements. The Rule arises from EPA’s legal interpretation of the CWA which concludes that “Congress generally did not intend to subject water transfers to the NPDES program and that there is no ‘addition’ of a pollutant which would trigger the requirement to obtain an NPDES permit because the pollutants are already in the waters being transferred and are not being added from the outside world.”[5]

Water transfers can include routing water through tunnels, channels, or any other “engineered activity that diverts a water of the U.S. to a second water of the U.S.” for public water supplies, irrigation, power generation, flood control, and environmental restoration.[6] EPA has written that the water transfer exclusion does not apply to pollutants added by the water transfer activity itself but only to the water being transferred.[7] According to Benjamin H. Grumbles, EPA Assistant Administrator for Water, “the Water Transfer Rule gives communities greater certainty and makes clear they have the flexibility to protect water quality and promote the public good without going through another new federal permitting process.”[8]

The Water Transfer Rule arises from an August 5, 2005 policy memorandum (EPA Memo) that EPA issued stating its position on an issue it characterizes as “unresolved” following the United States Supreme Court’s decision in South Fla. Water Mgmt. Dist. v. Miccosukee Tribe of Indians, 541 U.S. 95 (2004), i.e. “whether the movement of pollutants from one navigable water to another by a water transfer is the ‘addition’ of a pollutant potentially subjecting the activity to the permitting requirement under section 402 of the [Clean Water] Act” (“CWA”).[9] We previously wrote about EPA’s August 5, 2005 Memo in J. Kray, EPA Says No NPDES Permit Required for Water Transfers, Marten Law Group Environmental News (October 12, 2005).

Like the EPA Memo, the Water Transfer Rule sets EPA’s interpretation of ‘water transfer’ against a factual background that emphasizes that water transfers are a “routine” and “integral component of U.S. infrastructure” “administered by various federal, State, and local agencies and other entities.”[10] Of particular note, EPA concludes that “[b]ecause the NPDES program only focuses on water pollution from point source discharges, it is not the kind of comprehensive program that Congress believed was best suited to addressing pollution that may be associated with water resource management” and, therefore, that it is reasonable for EPA to interpret the CWA as not generally including “mere transfer(s) of navigable waters” as additions of any pollutant into those waters.[11] If EPA is correct, then the burden will fall to state and local authorities to regulate the environmental effects of such transfers under state law. EPA states in the Federal Register notice for the Water Transfer Rule that “nothing in this rule precludes a State, under State law, from regulating water transfers that are not subject to [the NPDES provisions] of the Clean Water Act.”[12]

Furthermore, the Water Transfer Rule does not exempt water transfers that involve “intervening industrial, municipal, or commercial use” from the NPDES requirements.[13] As an example, EPA states that “if the water is withdrawn to be used as cooling water, drinking water, irrigation, or any other use such that it is no longer a water of the United States, the water has been subjected to an intervening use” and requires an NPDES permit.[14] Similarly, a discharge from a waste treatment system would not constitute a water transfer and would require an NPDES permit.[15]

The Catskills II Decision

In the Catskills II decision the Second Circuit reached a conclusion at odds with EPA’s interpretation and the rationale of the new Water Transfer Rule. The Second Circuit held that the City of New York must obtain an NPDES permit to transfer highly turbid drinking water from a water-management tunnel into a trout stream.[16] See J. Kray, Interbasin Water Transfers Require NPDES Permit, Court Rules, Marten Law Group Environmental News (July 19, 2006). In reaching its holding, the Second Circuit rejected the City’s argument that, under the CWA, states control all water quantity issues. The City’s argument relied on the EPA’s August 2005 Memo and was supported by amicus curiae briefs filed by Colorado, New Mexico, Idaho, Nebraska, North Dakota, and Utah, which feared that the Catskills rule “will upend state regulation of water rights.”[17] The Court was not persuaded and held that the “power of the states to allocate quantities of water within their borders is not inconsistent with federal regulations of water quality.”[18]

EPA was not a party to the Catskills II suit. However, New York City conceded that the EPA interpretation, at that time only captured in the August 5, 2005 EPA Memo, is not entitled to heightened deference under the Chevron doctrine and the Court held that it would defer to EPA’s interpretation of the CWA only “according to its ‘power to persuade.’”[19] The Second Circuit was clearly not persuaded. It held that “[t]hese ‘holistic’ arguments about the allocation of state and federal rights, said to be rooted in the structure of the statute, simply overlook its plain language.” The Supreme Court declined to review the Second Circuit’s Catskills II decision.[20] A key issue for any court reviewing EPA’s new Water Transfer Rule will be whether the fact that EPA’s interpretation is now in the form of a rule will require a higher level of deference than the Second Circuit gave EPA’s August 2005 memo.[21]

Statements by Interested Parties

Even in draft form the Water Transfer Rule generated a press battle. The Rule’s proponents include the Florida Fruit & Vegetable Association whose Regulatory Affairs Manager said “[t]his rule is beneficial because it will clarify that resource management agencies should regulate water transfers rather than EPA.”[22] As amicus curiae briefs in Catskills II reflect, some states, such as Colorado, New Mexico, Idaho, Nebraska, North Dakota, and Utah, are lining up to support the Water Transfer Rule. The states’ positions on the Water Transfer Rule are not likely to be uniform, however, and may track the competing positions taken by states in Miccosukee where Washington, New York, Vermont, and other states filed an amicus brief to the U.S. Supreme Court supporting the Eleventh Circuit’s decision that the CWA required an NPDES permit where a water transfer conveys pollutants.[23]

On the other side, states such as Colorado, New Mexico, Texas, and others filed an amicus brief asking the Supreme Court to reverse the Eleventh Circuit’s decision in Miccosukee.[24] In June 2006 thirteen states (New York, Connecticut, Delaware, Illinois, Iowa, Kentucky, Maine, Massachusetts, Minnesota, Missouri, Rhode Island, Vermont, and Wisconsin) and one Canadian province (Manitoba) submitted comments opposing and recommending that EPA permanently withdraw the proposed Water Transfer Rule. The state’s position relied substantially on the Second Circuit’s decision in Catskills II. The states wrote that:

A large amount of data demonstrates that water transfers may have significant impacts on the environment, including: (i) the introduction of invasive species, toxic-blue green algae, chemical pollutants, and excess nutrients; (ii) increased turbidity; and (iii) alteration of habitat (e.g., warm water into cold water, or salt water into fresh water). Among the most significant environmental concerns related to water transfers is the introduction of species not normally found in receiving waters, including exotic or “invasive” species, pests, and diseases.[25]

The states concluded that the Water Transfer Rule “contravenes the [Clean Water] Act’s plain text and prime objective.” EPA responded to such comments by concluding that “Congress generally intended to leave the oversight of water transfers to authorities other than the NPDES program.”[26]

The Rule’s opponents also include the Clean Water Network, a coalition of public interest organizations representing “environmentalists, commercial fishermen, recreational anglers, surfers, boaters, farmers, faith communities, environmental justice, labor unions, consumer advocates, and others.”[27] The Clean Water Network has written that the “rule essentially allows polluters to take dirty, polluted water and pump it into clean water without being regulated” and prepared a “Sample Pollution Pumping Comment Letter” for people to download and submit to EPA.[28]

Conclusion

The Water Transfer Rule completes a two-year rulemaking process. The final rule does not, however, resolve the issue of whether water transfers require CWA permits. David Guest, an attorney with Earthjustice in Florida, said he “expects to challenge the rule within two weeks in the Eleventh U.S. Circuit Court of Appeals in Atlanta.” Given their comments on the rule, it is likely that several states may also challenge the Rule. It will again inevitably fall to the courts to determine the scope of EPA’s CWA authority.

For more information on the Water Transfer Rule and Marten Law Group’s water quality practice please contact Jeff Kray.