Judges Explore Deferring to EPA on Water Transfer Rule

By John Herzfeld

Dec. 1 — Two of the three judges hearing oral arguments Dec. 1 in the U.S. Court of Appeals for the Second Circuit appeared to signal an interest in deferring to the regulatory expertise of the Environmental Protection Agency on its 2008 water transfers rule.

Judges Susan L. Carney and Robert D. Sack seemed willing to defer to the EPA when faced with complex points of contention about the rule and whether a Clean Water Act permit is required for transfers of water from one waterway to another.

The EPA is appealing a March 2014 district court decision that sent the transfers rule back to the agency for further consideration of its use of the term “navigable waters”.

The U.S. District Court for the Southern District of New York rejected EPA's analysis in the rule of whether a water transfer constituted an addition of a pollutant to navigable waters under the Clean Water Act, saying the agency used a “flawed methodology” and missapplied it to reach “flawed conclusions.”

The 2008 rule (RIN 2040–AE86) permanently exempts from Clean Water Act permitting requirements water that has been transferred from one point to another without being subjected to intervening industrial, municipal or commercial use. It is backed by New York City, other water systems, and 10 Western states led by Colorado and opposed by environmental groups, a coalition of nine states led by New York and a South Florida Indian tribe.

However, two earlier rulings by the Second Circuit, known as Catskills I and Catskills II, found that permits are required for water transfers through tunnels, channels or natural streams for public water supplies. The second decision was allowed to stand when the U.S. Supreme Court denied certiorari in March 2007.

The issue centers on whether New York City’s drinking water utility must obtain a National Pollutant Discharge Elimination System (NPDES) permit to control discharges of sediment-laden water through the system’s 18-mile Shandaken Tunnel into Esopus Creek, raising turbidity concerns at a popular trout-fishing site central to the city's drinking water supply.

Overturning Precedent?

The judges' line of questioning pointed to the difficulty the appeals court would have of overturning its own precedent even though no rule was in place at the time.

Robert W. Yalen, assistant U.S. attorney arguing for the EPA, said the 2008 rule was a reasonable interpretation of the Clean Water Act's provisions and that the Second Circuit's earlier decisions had left the door open to deferring to the agency’s authority under Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984), if a rule were promulgated. The rule that was promulgated in 2008, he said, reflected 40 years of agency practice and constituted a reasonable interpretation of the statute.

Carney again raised the option of simply deferring to the EPA on the rule, while probing James E. Nutt, counsel to the South Florida Water Management District, on the intricacies of congressional intent on intra-basin transfers versus inter-basin transfers. Nutt argued that the distinction appears nowhere in the law’s legislative history.

Legal disputes over the South Florida district’s transfers of phosphorous-contaminated water from canals in the Everglades into Lake Okeechobee were consolidated with others into the New York case, after the Supreme Court declined to review a decision by the U.S. Court of Appeals for the 11th Circuit that had found no appellate court jurisdiction over a parallel challenge to the EPA rule (2013 WLPM, 10/16/13).

Sack also raised the issue of deferring to EPA authority in an exchange with Barbara D. Underwood, solicitor general in the office of New York Attorney General Eric T. Schneiderman (D), who argued on behalf of a coalition of nine states and the Canadian province of Manitoba in favor of a permit requirement.

Underwood had maintained that “no evidence” supports the contention that the permit process would impose burdensome costs on water systems, arguing that similar objections had been raised to the EPA’s regulation of stormwater from sewer systems but had turned out to be unfounded.

“Many different situations could be addressed in the permit process,” Underwood said, adding that the permits “don’t have to be more burdensome than necessary to control water quality.”

Judge Sees ‘Underlying' Expertise Issue

That prompted Sack to interject that the “underlying problem” is that a “specialized agency,” rather than the appeals court, has to make the regulatory decision.

“They do know what’s going on,” he said of rule-makers at the EPA.

Underwood replied that the EPA had a “quite sad history” in promulgating rules to exclude areas from its jurisdiction, finding a reasonable way to regulate in those areas once the exclusions had been rejected in the courts. The agency, she said, “is better at figuring out how to regulate” than at interpreting the statute on “whether to regulate.”

Subjecting the water transfers to permit requirements, she said, would set a “national floor” to protect all states and “give voice to concerned citizens.”

The Second Circuit “has considered and rejected” all of the EPA’s arguments before, and “nothing EPA has said or done” has changed the picture, Underwood said.

Backing Sack on the comparison between the EPA’s expertise and the court’s, Carney later said that the agency “is charged with balancing other interests” than water quality and said the rule under challenge “strikes a balance.”

Chin seemed to probe along the lines of the environmentalists’ and state coalition’s arguments against the rule, raising hypothetical situations of transfers of toxic water to pristine water or warm water to cold water.

During arguments in favor of the EPA rule by Assistant Corporation Counsel Julie Steiner of the New York City Law Department, he suggested that it wouldn’t “make any sense” not to call those transfers the addition of a pollutant, in the statute's terminology.

Burdens of Permit Process Disputed

Under questioning from Carney, though, Steiner argued that the city’s drinking water system is regulated by the state—“not unregulated, by any means.” But the state permit system, she said, isn’t “a workable solution for this water transfer.”

Even with permit variances, the city system has been in regulatory limbo for five years, Steiner said, prompting Sack to suggest that the EPA rule could lift that “impediment.”

Representing the Catskill Mountains Chapter of Trout Unlimited Inc. and 11 other environmental and fishing groups, Daniel E. Estrin, supervising attorney at the Pace Environmental Law Clinic in White Plains, N.Y., took issue with the city’s assertion of the burdensome nature of the permit process. The state permit hasn’t stopped the city from transferring turbid water into Esopus Creek or changed “how it operates the tunnel in any way,” he argued.

The advocacy groups he represents has a pending challenge to the permit, but “no one has asked that the tunnel be shut down” or sought any steps that would affect the city’s water supply, he said.

Acknowledging Carney’s point about the EPA’s need to balance interests, Estrin said that although the statute recognizes the interests of the states, the recognition “doesn’t affect in any way” the water quality priorities it sets.

He also argued that the EPA, in citing provisions of the law to support its exclusion of water transfers, had opposed its own arguments in the pending Water of the U.S. litigation. “EPA can’t have it both ways,” he said.

Arguing for the National Water Resources Association and 20 western water authorities in favor of the EPA rule, Peter D. Nichols of Berg Hill Greenleaf & Ruscitti in Boulder, Colo., said that states have the authority to be “more stringent” than the EPA in regulating water quality and had entered into numerous interstate compacts to allocate water and address pollution. Subjecting water systems to the NPDES permit process, however, would force the states into that role across the board, he argued.

To contact the reporter on this story: John Herzfeld in New York at jherzfeld@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com