SandBar 9:4, October, 2010
Recommended citation: Niki L. Pace, Regulating Cooling Water Intake Structures , 9:4 SandBar 8 (2010).
Regulating Cooling Water Intake Structures
Niki L. Pace, J.D., L.L.M.
Many industrial systems, such as power plants and offshore oil rigs, rely on circulating water for cooling. The water, often sourced from nearby waterways, contains numerous fish and other aquatic organisms that become mired in the intake system and eventually die. To address this problem, Congress authorized the Environmental Protection Agency (EPA) to regulate cooling water intake structures under the Clean Water Act. Since that time, an ongoing battle has ensued between EPA, industry, and environmentalists over how EPA should regulate the structures. In July, the U.S. Court of Appeals for the Fifth Circuit weighed in on the controversy.1
Background
The use of cooling water intake structures (CWIS) by industrial facilities accounts for an aggregate withdrawal of billions of gallons of water per day from the nation’s waterbodies. The process also results in the impingement and entrainment of aquatic life. (Impingement refers to organisms trapped against the intake structure while entrainment refers to the uptaking of organisms into the cooling system). Recognizing the detrimental effects of impingement and entrainment on ecosystem health, the Clean Water Act authorizes the regulation of CWIS by requiring “the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact.”2
As characterized by the Fifth Circuit, “Despite the seemingly straightforward mandate of § 316(b), successful and effective rule making under this section has been elusive.”3 The initial rule promulgated in 1976 was successfully challenged for procedural defects under the Administrative Procedure Act (APA), resulting in EPA’s withdrawal of the remanded portions of the rule. This remained the status quo until 1995 when EPA entered into a consent decree with Riverkeeper and others wherein EPA agreed to issue permanent regulations under § 316(b).
EPA proceeded with the new rulemaking in three phases: Phase I (all new CWIS facilities above a set intake threshold, except new offshore oil rigs); Phase II (existing large power plants taking in more than 50 million gallons of water a day); and Phase III (existing facilities, new offshore oil rigs, new offshore liquefied natural gas facilities, and new seafood processing vessels). In this case, the legal challenges, discussed in more detail below, center around the EPA’s use of cost-benefit analysis during the rulemaking process. Among other things, ConocoPhillips argued that EPA’s rulemaking was arbitrary and capricious under the APA because the national standards for new facilities do not consider the facility location and because the EPA failed to conduct cost-benefit analyses.
Phase III Rule
During the Phase III rulemaking process, EPA distinguished between new and existing facilities. For existing facilities, EPA conducted a cost-benefit analysis of the three gallons-per-day CWIS category. However, for new facilities, EPA determined that comparing the costs to individual facilities to the benefits was impossible because the facilities had not yet been built.4 Since a cost-benefit analysis was not feasible, the EPA instead examined the expected costs of compliance with uniform national standards and whether the industry could reasonably bear those costs.5
EPA focused its environmental impact analysis on the Gulf of Mexico, as this is the anticipated location for most new rig construction over the next 20 years.6 As no studies specifically addressed entrainment or impingement for new rigs, EPA relied on the Southeast Area Monitoring and Assessment Program (SEAMAP) for information regarding icthyoplankton densities in the Gulf, which EPA observed, “were the same range of densities observed in the inland and coastal waters addressed in the Phase I rule making.”7
Under the new rule, existing facilities’ CWIS requirements are established on a case-by-case basis under the NPDES program;8 individual permit writers must use their best professional judgment in determining the requirements needed for each facility to “achieve the best technology available for minimizing adverse environmental impact at that facility.”9 New offshore facilities must apply national performance standards for 1) any rig considered a “point source” under the Clean Water Act’s NPDES permitting program, 2) has a CWIS that uses at least 25% of intake water for cooling only, and 3) withdraws a minimum of two million gallons of water per day.10 This national standard extends to all coastal and offshore oil and gas extraction facilities.
All facilities must minimize impingement where the permitting authority finds that endangered, migratory, sport or commercial species are threatened. Finally, a variance is available for any offshore facility that can show that compliance would result in “compliance costs wholly out of proportion to the costs the EPA considered in establishing the requirement … or would result in significant adverse impacts on local water resources other than impingement and entrainment, or significant adverse impacts on energy markets.”11
Entergy Corp. v. Riverkeeper
While the Phase III rulemaking was occurring, a legal battle over the Phase II Rule made its way to the U.S. Supreme Court. In Entergy Corp. v. Riverkeeper, the Supreme Court considered whether § 316(b)’s statutory requirement for “best technology available for minimizing adverse environmental impact” precluded a cost-benefit analysis.12 In the appealed decision, the Second Circuit had interpreted this language to mean the “technology that achieves the greatest reduction in adverse environmental impacts.”13 Although the Court considered this reading “plausible,” the Court reasoned that the language could also mean “technology that most efficiently produces some good.”14
The Court found that the statutory language allowed the EPA some discretion in determining what extent of reduction is necessary under the circumstances; the language did not preclude a cost-benefit analysis. The Court concluded that while the EPA may use a cost-benefit analysis in rulemaking, the EPA is not required to do so. The EPA “is afforded discretion to consider to what degree, if any, costs and benefits should be weighted in determining the ‘best technology available for minimizing adverse environmental impact.’”15 The Supreme Court remanded the Phase II Rule for existing facilities to the EPA.
In light of the Entergy Corp. decision, the EPA sought remand of the Phase III Rule pertaining to existing CWIS in the instant case. The remand would allow EPA to reevaluate its Phase III Rule on existing facilities in conjunction with the EPA’s review of the Phase II Rule on existing facilities (as remanded by the U.S. Supreme Court in Entergy Corp.). The Fifth Circuit found this request “imminently reasonable” and non-prejudicial to the other parties and therefore granted the motion.
Economic Achievability
Before addressing ConocoPhillips’ substantive challenges to the EPA’s Phase III Rule, the Fifth Circuit first addressed ConocoPhillips’ claim that EPA violated the APA notice provisions by advancing a different interpretation of § 316(b) at the litigation stage. In other words, the court asked “whether the EPA’s interpretation of § 316(b) … is sufficiently different from the interpretation it proffered in the Proposed Rule to constitute a violation of the notice provision for informal rule making set forth in § 4 of the APA.”16 According to ConocoPhillips, the EPA gave notice that it would employ a cost-benefit analysis for new CWIS in its rulemaking but later abandoned that rationale during the appeal in favor of an “economic achievability” analysis. Further, ConocoPhillips maintained that the EPA’s economic achievability test “is sufficiently different from the ‘cost-benefit’ test announced during rule making that it amounts to a mere ‘litigation position’ and the agency’s justifications for its Phase III Rule that rest on the ‘economic achievability’ argument should be ignored.”17
The court disagreed, first noting that the EPA’s changed terminology does not necessarily denote changed methodology. Rather, “[t]he crux of the question is whether the EPA’s justification argument on appeal so differs from the justification articulated during the rule making process to have deprived interested parties of the notice required by the APA.”18 The court reviewed the preamble of both the Proposed and Final Rules concluding that both preambles articulated EPA’s interpretation of § 316(b) as allowing for a cost-benefit analysis but not requiring such analysis. In the Final Rule, EPA acknowledges that it lacked sufficient information to conduct cost-benefit analysis for new facilities; EPA therefore estimated compliance costs under national categorical standards for new CWIS and compared those costs to baseline benefits for existing facilities. After reviewing the language of the rules and EPA’s statements at trial, the court concluded that the differences cited by ConocoPhillips represented “no material difference” in EPA’s interpretation of its rulemaking authority.
Arbitrary Rulemaking?
Having lost on the economic achievability argument, ConocoPhillips additionally asserted that EPA’s Final Phase III Rule was arbitrary and capricious. These allegations rested at least partially on the contention that § 316(b) mandated EPA engage in a cost-benefit analysis. The court summarily rejected these assertions in light of the U.S. Supreme Court’s decision in Entergy Corp v. Riverkeeper, as laid out above, which made clear that “the EPA may but is not required to engage in cost-benefit analyses for CWIS rule making.”19 After dispensing with that element of the argument, the court went on to address ConocoPhillips’ two remaining arguments: “1) It is arbitrary and capricious for the EPA to fail to conduct a benefits analysis for specific facility locations, and 2) it is arbitrary and capricious for the EPA to rely on the general ‘qualitative’ SEAMAP study, rather than on site-specific quantitative studies, to estimate the environmental impact of new CWIS.”20
While regulations established under § 316(b) “require that the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impacts,”21 EPA and ConocoPhillips’ offered differing interpretations of the statute. ConocoPhillips argued that this language required EPA to consider the facility’s physical location. On the other hand, EPA maintained the language applied to the CWIS’s physical location.
To resolve the matter, the court employed the two-part analysis laid out in Chevron, U.S.A. v. Natural Resources Defense Council22 (commonly referred to as Chevron deference). The first step of Chevron requires the court to determine whether the statute is silent or ambiguous on the issue. If so, the court would then conduct step two of Chevron whereby the court would defer to the agency’s interpretation so long as the interpretation is based on a permissible construction of the statute. The court found that the statute clearly required that EPA consider the location of the CWIS, not the facility. In rejecting ConocoPhillips’ interpretation, the court pointed out the illogical scenario under that interpretation wherein EPA would be required to consider the location of a terrestrial facility but not the location of the facility’s remote CWIS.
Because the statute does not require considerations of the facility location, the court, considering the record as a whole, rejected ConocoPhillips’ assertion that EPA’s failure to conduct a benefits analysis for specific new facility locations was arbitrary and capricious. Rather, the court found that EPA’s decision to rely upon economic achievability grounds was at least “minimally related to rationality”23 in light of the information available to EPA during the rulemaking.
Turning finally to EPA’s reliance on the SEAMAP data, ConocoPhillips criticized EPA’s usage of the SEAMAP data in promulgating national categorical standards for new facilities. Rather, ConocoPhillips felt that EPA must either employ a case-by-case permitting regime or distinguish between deepwater and shallow water facilities in the rulemaking. Again rejecting ConocoPhillips’ assertions, the court noted that “[c]onducting precise ‘quantitative benefits studies’ for facilities that have yet to be built is impossible, and there are no existing quantitative studies of impingement and entrainment for new facilities.”24 Reliance on the SEAMAP data was further bolstered by fact that most new offshore facilities will be located in the Gulf of Mexico (where the SEAMAP study took place). Returning once again to the location of the CWIS versus the facility, the court also noted that while offshore facilities may be located at varying depths, the CWIS will almost always be located near the surface of the water column. Therefore, EPA reasonably relied on the SEAMAP study to evaluate the adverse environmental impact of CWIS on offshore facilities located near the surface of the water column.
Conclusion
Ultimately, the court upheld EPA’s Final Phase III Rule pertaining to new CWIS but remanded the portion of the Rule that regulated existing CWIS (as requested by EPA). Notably, the decision came on the heels of EPA’s announcement of a planned survey intended to evaluate what the public is willing to pay to protect aquatic organisms from CWIS, a move some say shows support for a new cost-benefit analysis under the upcoming proposal.25 The proposal was open for public comment through September 20, 2010.26
Endnotes
1. ConocoPhillips v. EPA, —- F.3d —-, 2010 WL 2880144 (5th Cir. July 23, 2010).
2. 33 U.S.C. § 1326(b).
3. ConocoPhillips, 2010 WL 2880144 at *2.
4. 71 Fed.Reg. 35,034.
5. Id. at 35,025-29.
6. ConocoPhillips, 2010 WL 2880144 at *5.
7. Id. at *4.
8. The NPDES program regulates the discharge of pollutants from a point source under the Clean Water Act. Any point source discharging a regulated pollutant is subject to this provision and must obtain a permit for the discharge from EPA. 33 U.S.C. § 1342.
9. ConocoPhillips, 2010 WL 2880144 at *5 (citing 71 Fed. Reg. 35,015).
10. 40 C.F.R. § 125.131(a).
11. Id. § 125.135.
12. Entergy Corp. v. Riverkeeper, 129 S.Ct. 1498 (2009).
13. Id. at 1506.
14. Id. (emphasis in original).
15. ConocoPhillips, 2010 WL 2880144 at *4.
16. Id. at *8.
17. Id. at *9.
18. Id.
19. Id. at *13 (emphasis in original).
20. Id.
21. 33 U.S.C. § 1326(b).
22. 467 U.S. 837, 842-43 (1984).
23. ConocoPhillips, 2010 WL 2880144 at *15.
24. Id.
25. Russell Prugh, Sparks Continue to Fly Over Cooling Water Intake Structures as Fifth Circuit Approves Oil and Gas Phase III Rule and EPA Issues Contingent Valuation Survey, Marten Law News, August 12, 2010 (available at http://www.martenlaw.com/newsletter/ 20100812 -cooling-water-intake-structures).
26. EPA, Cooling Water Intake Structures – CWA § 316(b), http://water.epa.gov/lawsregs/lawsguidance /cwa/316b/index.cfm .