NACWA Regulatory Alert (RA 06-05)

Action Please By:
July 10, 2006

On June 7, the U.S. Environmental Protection Agency (EPA or Agency) released a much anticipated proposed rule to clarify that “water transfers” are not regulated by Clean Water Act (CWA) § 402, the National Discharge Elimination System (NPDES) permitting program. 71 Fed. Reg. 32,887. EPA’s proposal emphasizes that the water quality impacts of water transfers are better regulated primarily by the states in cooperation with the federal government. EPA also notes that Congress did not intend for the Act to interfere with state regulation, and by requiring federal permits for the transfer of water, the CWA would unnecessarily involve EPA in this arena.

If finalized, EPA’s proposal would codify the Agency’s longstanding position which had been challenged in the courts – primarily in the cases of South Florida Water Management District (SFWMD) v. Miccosukee Tribe of Indians (Miccosukee), decided by the U.S. Supreme Court in 2004, and Catskill Mountains Chapter of Trout Unlimited, Inc. v. City of New York (Catskills), which still awaits decision before the U.S. Court of Appeals for the Second Circuit. In both cases, NACWA filed amicus curiae briefs supporting the Agency’s historic position on water transfers, as now expressed in this proposed rule.

This Alert summarizes EPA’s water transfer proposal and discusses the implications for NACWA member agencies. A copy of EPA’s proposal is available on NACWA’s Member Pipeline at http://www.nacwa.org/getfile.cfm?fn=2006-06-07prule.pdf. Based upon NACWA’s historic advocacy on this issue, NACWA plans to file comments supporting EPA’s proposed rule by the July 24 deadline. NACWA welcomes input from the membership to inform these comments. Comments may be sent by e-mail by July 10 to NACWA’s General Counsel Alexandra Dunn adunn@nacwa.org. Any questions regarding the Agency’s proposal also can be directed to Ms. Dunn by e-mail or by telephone at 202/533-1803.

I. Background
Historically, EPA has not subjected water transfers – the conveying of one U.S. water source to another U.S. water source – to the NPDES permitting program. EPA’s position, while not formally expressed in any policy or regulation, was that the CWA intended water resource management facilities and states to control the laws and regulations applicable to water transfers.

EPA’s failure to formally publish this position, however, left the agency vulnerable to activist groups concerned with the water quality impacts of water transfers. These groups began a coordinated effort to have courts across the nation rule that water transfers are covered by the CWA’s NPDES permitting program. If the NPDES program applied, then the water transfers would be required to meet state water quality standards upon discharge. The activist groups believed that the NPDES program would drive water quality improvements more quickly than other approaches.

The groups were successful. In 2001 the U.S. Court of Appeals for the Second Circuit ruled in Catskills that New York City was required to obtain an NPDES permit for its tunnel used to convey untreated natural water between reservoirs for drinking water supply purposes. Then, following the Second Circuit, the U.S. Court of Appeals for the Eleventh Circuit then held in 2002 in Miccosukee that the SFWMD required an NPDES permit for its stormwater pumping station – one of hundreds of pumps operated in the Everglades flood control system. In 2003, on remand, the federal district court assessed New York City the largest CWA penalty in history – $5.7 million – and ordered the City to pursue an NPDES permit from New York State.

While New York City appealed the remand to the Second Circuit, SFWMD appealed the Eleventh Circuit decision to the U.S. Supreme Court. The Court ruled in 2004 that the NPDES program does not apply to water transfers within a single waterbody, but left the question open to NPDES permits for transfers between different waterbodies. In Miccosukee, the U.S. Supreme Court required EPA to submit an amicus curiae brief to outline its position. In this brief, the Agency for the first time in many years provided a clear legal and policy justification for its historic approach in excluding water transfers from the NPDES program. The Court then remanded the Miccosukee case to the lower federal courts for further factual development regarding the nature of the waterbodies at issue in the case. This remand continues today as an active case.

Recognizing that policy uncertainty would continue in this arena, especially with continued court battles, on August 5, 2005, EPA General Counsel Ann Klee and Assistant Administrator for Water Benjamin Grumbles released a 19-page memorandum clearly expressing the Agency’s position that water transfers of any sort are only subject to management by water resource authorities and state officials, and committing to a proposed rulemaking to codify the Agency’s views. EPA’s June 7 proposed rule fulfills this commitment and represents EPA’s effort to codify a “holistic approach” to water transfers.

II. NACWA’s Advocacy on this Issue
In conjunction with member agency the New York City Department of Environmental Protection (NYCDEP) and other municipal groups, NACWA filed amicus curiae briefs before the U.S. Supreme Court in Miccosukee and before the Second Circuit in Catskills. In both cases, NACWA’s briefs and related submissions highlighted the administrative difficulty of adding thousands of sources to the already backlogged NPDES permit program, the importance of maintaining local government autonomy over water management and allocation decisions, and – in response to a question from the Second Circuit – the inability to essentially “waive” water quality standards for covered entities.

III. Highlights of the Proposed Rule
In the proposed rule, EPA explains in detail that the NPDES program is not appropriate for the management of water transfers, as supported by the statute’s text, structure, and legislative history. In particular, EPA notes that “[w]hile no one provision of the Act expressly addresses whether water transfers are subject to the NPDES program, the specific statutory provisions addressing the management of water resources – coupled with the overall statutory structure – support the conclusion that Congress did not intend for water transfers to be regulated under section 402.” 71 Fed. Reg. 32,890. EPA also adds that the “States have primary responsibilities with respect to the ‘development and use (including restoration, preservation, and enhancement) of land and water resources’” (CWA § 101(b)) and that the CWA “is to be construed in a manner that does not unduly interfere with the ability of States to allocated water within their boundaries” (CWA § 101(g)). EPA cites several other CWA provisions that also support its position, including § 304(f)(2)(F) (urging EPA to issue guidelines for nonpoint sources such as those that change “the movement, flow or circulation of any navigable waters or ground waters, including changes caused by the construction of dams, levees, channels, causeways, or flow diversion facilities.” Id. (emphasis in original). EPA goes on to note that “[w]ater transfers are not like effluent from an industrial, commercial or municipal operation. Rather than discharge effluent, water transfers release one water of the U.S. into another.” Id. at 32,891. EPA concludes its lengthy analysis by noting that “Congress generally intended that pollutants be controlled at the source whenever possible.” Id.

The proposed rule expressly excludes discharges from water transfers from requiring an NPDES permit. The proposal would define a water transfer as an activity that conveys waters of the U.S. to another water of the U.S. without subjecting the water to “intervening indistrial, municipal, or commercial use.” Id. EPA also confirms that merely moving water through a dam is not a water transfer. However, EPA is careful to state that if a water transfer structure (a “point source”) adds a pollutant to the water when passing through the structure, then NPDES permits are required. Id. at 32,892. EPA makes clear that “if water is withdrawn from waters of the U.S. for an intervening industrial, municipal or commercial use, the reintroduction of the intake water and associated pollutants is an ‘addition’ subject to NPDES permitting requirements.” Id. EPA clarifies that the CWA “also clearly imposes permitting requirements on publicly owned treatment works, and large and medium municipal separate storm sewer systems” and that the proposed rule “does not affect EPA’s longstanding regulation of such discharges.” Id. EPA clarifies that the proposed rule does not change EPA’s position that the definition of “’discharge of a pollutant’” in the CWA covers point sources that do not themselves generate pollutants” (such as an MS4 or like facility that moves pollutants already in the water). By focusing on whether pollutants are being added by the water transfer, EPA eliminates the need to develop different guidelines for water transfers within a single waterbody and water transfers between separate waterbodies, as the Supreme Court attempted. Id.

EPA concludes its proposal by emphasizing that “States retain the authority under State law to regulate water transfers as they see fit, including requiring permits for such transfers” although such permits would not be NPDES permits. Id. at 32,893.

IV. Next Steps
As noted above, NACWA plans to file comments supportive of EPA’s proposed rule by the July 24 deadline. NACWA encourages member agencies impacted by EPA’s proposal to provide input to the National Office for NACWA’s comments, and to file their own individual comments as well. NACWA would appreciate any input for these comments by July 10.

Please feel free to contact NACWA’s General Counsel Alexandra Dunn at 202/533-1803 or adunn@nacwa.org with any questions. As always, NACWA will keep its members informed of any new developments.