Publication

April 8, 2009Client Alert

EPA Permitted to Use Cost-Benefit Analysis in Determining Best Technology Available for Cooling Water Intake Structures

On April 1, 2009, the U.S. Supreme Court deferred to the Environmental Protection Agency’s (“EPA”) determination of “best technology available” for cooling water intake structures. In so doing, the Court declared that EPA may rely on a cost-benefit analysis when promulgating regulations pursuant to section 316(b) of the Clean Water Act. The result is that EPA can consider cost and incremental environmental benefits when determining the extent to which existing power plants must retrofit facilities with cooling water intake technology. For the moment, this decision can be considered a victory for existing power plants and one that could save billions of dollars annually in retrofit requirements. However, the rule at issue had previously been remanded and EPA suspended operation of the rule pending further rulemaking. As such, the rule is currently being redrafted by EPA which, under the Obama Administration, may be reluctant to apply a cost-benefit analysis in determining best technology available. In the long run this decision provides no guarantees for the industry.

Section 316(b) of the Clean Water Act requires that “the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact.” 33 U.S.C. § 1326(b). This section does not expressly allow for or mandate the use of cost-benefit analysis, nor does it expressly forbid such analysis.

For over 30 years, EPA has been determining the best technology available for cooling water intake structures on a case-by-case basis. Finally, in 2001, EPA promulgated a “Phase I rule” which applied to all new power plant facilities utilizing cooling water intake structures and required certain stringent best technology standards, including closed-cycle cooling technology. In 2004, EPA promulgated a “Phase II rule” which applied to all existing power plants and required less stringent best technology standards and did not require closed-cycle cooling technology. The Phase II rule included performance standards requiring existing facilities to determine a baseline environmental impact and reduce impingement by 80 to 95 percent and entrainment by 60 to 90 percent from the baseline. The Phase II rule also allowed EPA to set alternative performance standards for a facility if, after a site-specific evaluation, EPA determined that certain stringent technologies could not be justified because “the costs would be significantly greater than the benefits” at the facility. 40 CFR 125.94(a).

The Phase II rule was challenged in the Second Circuit Court of Appeals by environmental advocacy organization, Riverkeeper, Inc., and various states, which argued, among other things, that EPA could not rely on cost-benefit analysis to determine best technology available. The Second Circuit Court held that certain retrofits were required regardless of costs. Riverkeeper, Inc. v. EPA, 475 F.3d 83 (2d Cir. 2007). That decision was appealed and the U.S. Supreme Court accepted certiorari on the single issue of whether a cost-benefit analysis is permissible when promulgating rules under section 316(b) of the Clean Water Act.

Respondent Riverkeeper and the dissent argued that because section 316(b) did not expressly allow for, or mandate a cost-benefit analysis, Congress intended it not be applied to determine best technology available under this section. The majority rejected that argument and in its opinion, authored by Justice Scalia, the Court held that EPA’s interpretation of section 316(b) of the CWA was reasonable, therefore the regulations promulgated thereunder could be upheld. The Court relied on the great deference afforded to federal agencies in Chevron U.S.A. Inc., v. NRDC, 467 U.S. 847 (1984), and noted that EPA’s interpretation will govern “if it is a reasonable interpretation of the statute – not necessarily the only possible interpretation, nor even the interpretation deemed the most reasonable.” Entergy Corp. v. Riverkeeper, Inc., et al. U.S. Sp. Ct. April 1, 2009, Slip Op. No. 07-588 at 7.

Despite this favorable ruling, the fate of best technology requirements for cooling intake structures for existing power plants is yet unknown. Watch for additional updates regarding best technology requirements as determined by EPA under Administrator Lisa Jackson.

For more information, please contact Linda H. Bochert at 608.283.2271, or lhbochert@michaelbest.com, or Anna J. Wildeman at 608.283.0109, or ajwildeman@michaelbest.com.

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