U.S. Supreme Court Recognizes EPA Authority to Consider Costs and Benefits in Setting Cooling Water Intake Structure Standards

April 2, 2009
by BRENDA HUSTIS GOTANDA and CHRISTOPHER BALL
MGKF Special Alert

On April 1, 2009, the United States Supreme Court issued a ruling with potentially sweeping impacts for electric utility and industrial facility use of cooling water throughout the country. The case, Entergy Corp. v. Riverkeeper, Inc., centered on the issue of whether the United States Environmental Protection Agency ("EPA") can compare costs and benefits of various technologies when setting national performance standards for cooling water intake structures under section 316(b) of the federal Clean Water Act, which requires such structures to reflect the "best technology available for minimizing adverse environmental impact" or "BTA." In ruling that EPA could permissibly consider costs and benefits, the Court reversed an earlier Second Circuit Court of Appeals ruling, and supported EPA's previous determination not to mandate the use of closed-cycle cooling water towers for existing power plants subject to the EPA rulemaking at issue. Thousands of power plants and industrial facilities rely on significant quantities of cooling water for their operations and could be affected by the Supreme Court ruling.

The Entergy litigation involved the second of three EPA regulations addressing the section 316(b) requirements, which mandate that the location, design, construction and capacity of cooling water intake structures reflect BTA. The first rule regulated cooling water intake by new power plants, and required the largest of those plants to restrict their intake of cooling water to the level that would be obtained if they employed closed-cycle recirculating cooling water systems. In the second rule ("Phase II rule"), issued in 2004 and applicable to existing power plants, EPA did not mandate closed-cycle technologies or equivalent results. Instead, the agency considered the comparative costs and benefits of various technologies in determining the best technology available for existing power plants to minimize adverse environmental impacts. Based on that analysis, the Phase II rule set national performance standard ranges for existing power plants reflecting the anticipated results of a suite of BTA technologies, and provided five compliance alternatives for meeting the BTA standard. The Phase II rule also allowed individual power plants to seek variances from the generally applicable national standards through site specific demonstrations that the cost of compliance with the national standards for a given facility would be (1) significantly greater than the costs considered by EPA in setting the standards ("cost-cost alternative"), or (2) significantly greater than the benefits of complying with the standards ("cost-benefit alternative").

Environmental groups and several states challenged the Phase II rule, arguing, in part, that EPA exceeded its statutory authority in comparing costs and benefits in the rulemaking, and in promulgating the resulting performance ranges, compliance alternatives, and cost-based site-specific variances. In a January 2007 ruling, the Second Circuit Court of Appeals largely agreed with the rule challengers, concluding that cost-benefit analysis was impermissible under section 316(b) and accordingly remanded to EPA those provisions of the Phase II rule such as the BTA determination and cost-benefit compliance alternative that relied on such an analysis. The Second Circuit also remanded several additional provisions of the rule based on perceived procedural rulemaking flaws or EPA exceedance of its authority unrelated to the use of cost-benefit analysis. Following the Second Circuit ruling, and pending the appeal before the Supreme Court, EPA suspended the Phase II rule, leaving existing power plants without regulatory compliance alternatives and instead subject to case by case best professional judgment determinations of the relevant permitting authority.

The Entergy appeal before the Supreme Court was limited to the single question of whether section 316(b) of the Clean Water Act authorizes EPA to compare costs with benefits in making its BTA determination. On that issue, the Court reversed and remanded the Second Circuit ruling in a 6-3 opinion authored by Justice Scalia. The Court held that it is reasonable for EPA to conduct a cost-benefit analysis in (1) setting national performance standards for cooling water intake structures under section 316(b), and (2) providing for site-specific cost-benefit variances to the national performance standards. The matter now returns to the Second Circuit, which must reassess the Phase II rule consistently with the Supreme Court's ruling and determine whether grounds still exist to remand the rule to EPA.

While the practical effect of the Entergy ruling is to support EPA's determination not to mandate closed-cycle cooling water towers (or equivalent associated reductions in environmental impacts) for all existing power plants regulated under section 316(b), many questions remain. The ruling only deals with EPA's authority to conduct cost-benefit analyses, and does not reach the other bases for the Second Circuit's remand of the Phase II rule to EPA, which implicate provisions of the rule including EPA's use of performance standard ranges, the cost-cost compliance alternative, and the agency's allowance of "restoration measures" as a compliance alternative. Additionally, the Entergy ruling only supports EPA's discretion to consider costs and benefits, but imposes no affirmative obligation on the agency for their consideration. The current remand of the Phase II rule is therefore unencumbered by mandates from the Court, and, should the remand continue, the rule may be subjected to further changes reflecting the discretion and policy determinations of the Obama administration. Finally, while BTA determinations for cooling water intake structures at industrial facilities are not covered by the Phase II rule (they are subject to the best professional judgment of the permitting authority), the ruling may nonetheless have an impact on future industrial facility permitting requirements by supporting the ability of the relevant permitting authority to compare costs and benefits in exercising its judgment.

If you have questions or would like additional information regarding this ruling, please contact Christopher Ball (cball@mgkflaw.com) or Brenda Gotanda (bgotanda@mgkflaw.com) through e-mail or at 484-430-5700. Also, Manko, Gold, Katcher & Fox LLP is planning an informational update program on the Entergy ruling and its practical implications for permitting. If you are interested in receiving additional information regarding this program, please contact Julie Hayes (jhayes@mgkflaw.com).