District Court Opens Door to Expansion of Stormwater Permitting

A federal district court in California recently denied a motion to dismiss an action which seeks to require a utility – which otherwise would be exempt from stormwater permitting requirements – to obtain stormwater permits because the utility operates ancillary “support facilities” that are alleged to produce industrial stormwater discharges. In this case, the support facilities were “service centers” at which the utility stored and maintained its fleet of trucks and equipment. Although the utility itself was in an SIC code of businesses normally classified as exempt from Clean Water Act (“CWA”) [1] stormwater permitting requirements, the fact that the utility operated “support facilities” alleged to generate industrial discharges was held sufficient to bring the utility within the stormwater permitting program. The decision potentially requires otherwise exempt businesses to obtain stormwater permits if they operate support facilities – like a service or maintenance yard – that create industrial-type stormwater runoff.

Stormwater permits are required for companies that fall within only certain “industrial” SIC codes. In this case, the company was a utility, classified in SIC Group 49, a non-industrial code under CWA regulations.[2] As such, its operations would generally be exempt from EPA regulation under the CWA stormwater discharge regulations. However, in this case, the utility operated a number of “service yards” at which it conducts maintenance on service vehicles and other heavy equipment. The environmental plaintiffs in the case, Ecological Rights Foundation v. Pacific Gas & Electric Co.[3], argued that EPA can and should require otherwise exempt businesses to obtain a stormwater permit if they operate ancillary facilities – like the service centers – which produce industrial-type stormwater discharges. The utility sought to dismiss, relying on its status in an exempt SIC code. The district court disagreed holding that PG&E failed to show that its service yards fall outside “industrial activity” under EPA regulations.

Pacific Gas & Electric (“PG&E”) Operations and SIC Code 49

California utility PG&E operates 31 “corporation yards and service centers” in Northern California. At the service centers, PG&E stores vehicles, equipment, materials and supplies, and carries out various activities in support of its primary business as a provider of electricity and natural gas. PG&E admits that it has never obtained CWA permits for stormwater discharges from these service centers.

SIC codes are four digit numerical codes assigned by the U.S. government to businesses to identify their primary business.[4] SIC codes are used to collect data used by various agencies of the federal government, state agencies, and private organizations.

PG&E is classified in SIC Group 49, which “includes establishments engaged in the generation, transmission, and/or distribution of electricity or gas or steam.” The SIC Manual defines an “establishment” as “an economic unit, generally at a single physical locations, where business is conducted or where services are performed.” The Manual further explains that “auxiliaries” are establishments that primarily provide management or support services for other establishments that are part of the same enterprise. Auxiliaries that are treated as separate establishments are assigned SIC codes, “on the basis of the primary activity of the operating establishments they serve.”

Stormwater Permitting

CWA Section 301(a)[5] generally prohibits the discharge of pollutants from any “point source” into waterways without an NPDES permit. NPDES permits, including stormwater discharge permits, are governed under CWA Section 402.[6] Industrial Stormwater General Permits require industrial facilities to manage and monitor stormwater runoff to ensure that contaminated stormwater is not discharged to wetlands, creeks, rivers, and marine waters.

Under CWA Section 402(p), permits are required for any “discharge associated with industrial activity.” Section 402(p) does not define the phrase “discharge associated with industrial activity” or the term “industrial activity.” The Ninth Circuit Court of Appeals has, however, characterized the language as “very broad.”[7]

EPA’s current implementing regulation – 40 C.F.R. §122.26(b)(14) – provides a detailed definition of “discharge associated with industrial activity” that describes discharges from an “industrial plant” or “industrial facility.” The regulation then provides that, “facilities are considered to be engaging in ‘industrial activity’” if they are “classified as” any one of a number of specified SICs. The industrial activities listed in the regulation must have permit coverage for their stormwater discharge if they discharge to surface water. The industries that are included are mostly identified by SIC codes or by a description of the industrial activity. SIC Group 49 – the SIC applicable to gas and electricity distribution – is not one of the SICs “classified as” industrial activity.

The Decision in Ecological Rights Foundation v. PG&E

Plaintiff Ecological Rights Foundation (“ERF”) argued in its complaint that activities conducted at PG&E’s service centers, and the materials stored there, contaminate storm water that is discharged from the sites. ERF sought to require PG&E to obtain permits for the service centers. PG&E moved to dismiss ERF’s suit, contending that its service centers do not require permits under the CWA because they are not at facilities classified as conducting “industrial activity,” and therefore are exempt.

PG&E did not dispute that the service center facilities at issue comprise point sources.[8] The primary question in Ecological Rights Foundation was whether PG&E’s service centers should be “classified as” any of the SICs listed in 40 C.F.R. §122.26(b)(14). The court found that it is not clear from the SIC Manual when geographically separate facilities that provide support services to other establishments within the same enterprise should be classified according to the primary activities taking place at those facilities and when they should not.[9] Group 49 codes are not among those listed in 40 C.F.R. §122.26(b)(14).[10] Therefore, if Group 49 applies to the 31 PG&E service center sites at issue, they do not quality as facilities that are “considered to be engaging in ‘industrial activity’” under the regulation.

Accordingly, the question addressed in Ecological Rights Foundation was whether, as a matter of law, PG&E’s service center sites must be classified only under the Group 49 SIC code applicable to PG&E’s enterprise as a whole, or whether one or more other “industrial activity” codes may apply. The court found that PG&E failed to establish that its service yards must be classified only under Group 49 by virtue of either the CWA or EPA’s implementing regulations and, therefore, denied PG&E’s motion to dismiss ERF’s complaint.[11] The court further found that it was incontrovertible that permits are required under CWA Section 402(p) for any “discharge associated with industrial activity” and that PG&E failed to show that its service yards fall outside “industrial activity” under EPA regulations.[12] The court’s findings in this regard are consistent with recent Ninth Circuit Court of Appeals decisions broadly interpreting the CWA’s NPDES permitting requirements to apply to discharges which are industrial in nature.[13] Finally, the court found that nothing in CWA Section 402(p) would exempt “industrial activity” at a particular site “merely because it is owned and operated by an entity that is engaged in some larger business beyond ‘industrial activity’ per se.”[14]Because PG&E did not establish as a matter of law that it is not obligated to obtain permits for the service centers, the court denied PG&E’s motion to dismiss ERF’s CWA claims.

For more information about Marten Law’s water quality and wetlands practice, please contact Jeff Kray.