Environmental Groups Challenge Inter-Basin Water Transfers Rule

Environmental groups have challenged a EPA rule which took effect August 12, 2008 (the “Water Transfers Rule”)[1] that allows water rights holders to transfer water from one water basin to another without first obtaining a National Pollution Discharge Elimination System (“NPDES”) permit under the Clean Water Act (“CWA”).[2] Five of the seven suits that have been filed so far have been consolidated in the Eleventh Circuit Court of Appeals. The outcome of the pending challenges to the Water Transfers Rule is particularly important in western states, where a high percentage of water is delivered via inter-basin transfers.

Water Transfers Rule Background

The Water Transfers Rule 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.”[3] The Water Transfers Rule is an exception to the CWA prohibition against any person discharging a pollutant from a point source except in compliance with specified statutory sections, including the NPDES permit provisions contained in CWA § 402.

The rule arises from an EPA 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.”[4] 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.[5]

The Water Transfers Rule is based on an August 5, 2005 policy memorandum (“EPA Memo”) that the agency published 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), where the Court did not expressly address the question of “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.”[6] 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 Transfers 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” and “administered by various federal, State, and local agencies and other entities.”[7] Of particular note, EPA concluded in the rule 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.[8] 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 in fact mentions in the Federal Register Final Notice for the Water Transfers 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.”[9]

Furthermore, the Water Transfers Rule does not exempt water transfers that involve “intervening industrial, municipal, or commercial use” from the NPDES permitting requirements.[10] 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 prior to discharge through a point source.[11] Similarly, a discharge from a waste treatment system would not constitute a water transfer and would require an NPDES permit.[12] For more on the Water Transfer Rule’s history, see J. Kray, EPA Rule Exempts Water Transfers from NPDES Permit Requirements, Marten Law Group Environmental News (June 18, 2008).

Consolidated Litigation Over the Water Transfers Rule’s Validity

Five suits challenging the Water Transfers Rule have been filed in the United States Courts of Appeals, including three suits in the Eleventh Circuit, and one each in the First Circuit and the Second Circuit. Two suits were also filed in federal district courts, one in New York and one in Florida. These latter suits are reportedly on hold. On July 22, 2008, the United States Judicial Panel on Multidistrict Litigation entered a Consolidation Order consolidating the circuit court litigation in the Eleventh Circuit under the caption Friends of the Everglades v. United States Environmental Protection Agency, Case No. 08-13652-C (“Friends II case”).

Petitioners’ Arguments

Petitioners challenging the Water Transfers Rule include national and local environmental groups and the Miccosukee Tribe of Indians of Florida.[13] The consolidated suits seek to vacate the rule as inconsistent with the CWA. Environmental groups challenging the rule assert that it allows water to move between basins in ways that “could spread toxic algae blooms, introduce invasive species, chemicals, and other pollutants.”[14] For example, the original Petition of the Florida Wildlife Federation (“Federation”) to Vacate argues that the effect of the Water Transfers Rule is to unlawfully exempt water transfers between distinct basins from the CWA’s § 402 permitting scheme requirements for point source discharges of pollutants. The Federation and EPA are parties to an appeal pending in the Eleventh Circuit Court of Appeals that centers on the validity of the August 5, 2005 EPA Memo. In that case, Friends of the Everglades, Inc. v. South Florida Water Management Dist., 11th Cir. Case No. 07-13829-H (“Friends I case”), the District Court for the Southern District of Florida found that the CWA unambiguously intended to subject water transfers to the CWA’s point source permitting requirements. The Friends I case is now pending before the Eleventh Circuit, fully briefed and awaiting oral argument. For more on that case, see our prior article, J. Kray, Revisiting Miccosukee: Court Rules NPDES Permits Required for Water Transfers, Marten Law Group Environmental News, December 20, 2006.

In the Friends II case, the Federation asserts that the “intent of the Water Transfers Exemption Rule is to overrule the [District Court’s] decision” in the Friends I case.[15] The Federation petitioned to vacate the Water Transfers Rule on grounds that it is unlawful because it is based on an interpretation of the CWA that conflicts with the District Court’s holding in Friends I, is contrary to the CWA, and is an unconstitutional agency action.[16] The Federation argues that the EPA’s only recourse is to conclude its pending appeal to the Eleventh Circuit in Friends I, followed by a petition for writ of certiorari to the United States Supreme Court should the Eleventh Circuit reject the EPA’s interpretation of the CWA in Friends I.

More specifically, the Federation argues that the plain language of the CWA requires NPDES permits for all discharges that result in the addition of pollutants into the waters of the United States, including discharges of polluted water from one meaningfully distinct navigable water to another, and that the EPA lacks the statutory authority to create a categorical exemption to point source permitting requirements beyond those specifically enumerated by Congress.[17] The Federation’s list of water transfers that should be subject to NPDES permitting requirements, but nevertheless exempt under the rule, include: salt water into fresh water, invasive species into non-infested waters, water polluted with nutrients and other pollutants into drinking water sources, and warm waters into cold water habitats. Finally, the Federation argues that EPA arbitrarily and capriciously failed to analyze actual and potential adverse impacts resulting from water transfers.

In a June 2006 decision, in Catskills Mountains Ch. of Trout Unltd., Inc. v. City of New York (Catskills II)[18] the Second Circuit rejected arguments by the City of New York based on the same rationale the EPA used to support its Water Transfers Rule as a valid interpretation of the CWA. In that case, however, the City of New York argued that its water transfers were exempt based on the August 2005 EPA Memo, and not a rule that would be subject to judicial review. In the Catskills II case the Second Circuit reached a conclusion at odds with EPA’s interpretation and the rationale of the new Water Transfers Rule. The Second Circuit consequently 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.[19] 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 of New York’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.”[20] 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.”[21]

EPA was not a party to the Catskills II suit. The Supreme Court declined to review the Second Circuit’s Catskills II decision.[22] But if the Eleventh Circuit reaches a decision in the consolidated Friends II cases contrary to the decision of the Second Circuit that would result in a conflict among the circuits, that could lead to a petition for certiorari being filed to the Supreme Court to resolve the conflict. A key issue for any court reviewing EPA’s new Water Transfers Rule will be whether the fact that EPA’s interpretation is now in the form of an agency rule will require a higher level of deference than the Second Circuit gave EPA’s August 2005 Memo.[23]

Intervenors’ Positions

The Cities of New York and Denver, and public water agencies in Florida, California, Colorado, Arizona, Utah (collectively “Intervenors”) that provide water supplies for domestic, industrial, and agricultural purposes in many of the nation’s largest urban areas and agricultural lands have intervened in Friends II. The Intervenors either supply water directly, operate water projects, or acquire water supplies from federal and state water projects and would be required to acquire NPDES permits if the Water Transfers Rule is vacated.[24] Many of the Intervenors receive water supplies through conveyance facilities, such as aqueducts, canals, pipelines, and other facilities and then deliver water to their customers.

The Intervenors argue that if the Water Transfers Rule were vacated, the projects that both supply water to Intervenors and those they operate would be required to acquire NPDES permits to comply with specific requirements and standards, such as effluent limitations, state water quality standards, total maximum daily load (TMDL) allocations, anti-degradation standards, among others.[25] Their concern is that if required to obtain NPDES permits, the projects would be forced to substantially reduce the amount of water delivered. They are also concerned that they would suffer economic injury because the permit requirement would substantially diminish “the reliability, security, and value” of their water supplies. The Intervenors further support their positions with the argument that requiring NPDES permits under the CWA would interfere with the states’ traditional authority to regulate water rights.[26]

Conclusion

The consolidated suits challenging the Water Transfers Rule further the lengthy nationwide dispute over when CWA permits are required to transfer water from one basin to another. The suits challenging the rule raise an important question concerning the EPA’s interpretation of the scope of the CWA § 402 NPDES permitting program. The outcome of the challenges is particularly important in western states where a high percentage of water is delivered via inter-basin transfers because it will either require water operators to acquire NDPES permits or allow water transfers that the parties challenging the rule believe are hazardous to water quality and the environment.

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