The Water Transfers Rule: District Court Judge Vacates and Remands to EPA

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Prior to Friday March 28, 2014, moving water from one U.S. water source to another—known as “water transfer”—did not require a permit under the Clean Water Act (CWA).  According to a recent decision by Justice Kenneth M. Karas of the Southern District of New York, it should.

In 2005, after a series of legal suits challenging unpermitted water transfers, the Environmental Protection Agency’s (EPA) Office of the General Counsel issued a memorandum attempting to clarify the turbid waters.  The memorandum concluded that “Congress intended to leave the oversight of water transfers to authorities other than the NPDES program” (National Pollutant Discharge Elimination Systems).  Less than a year later, EPA initiated a rulemaking codifying the position taken in EPA’s memorandum and on June 13, 2008, the “Water Transfers Rule” was finalized (Rule).  The Rule exempted “water transfers,” defined as “an activity that conveys or connects waters of the United States without subjecting the transferred water to intervening industrial, municipal, or commercial use” from the requirement to obtain a NPDES permit.  73 Fed. Reg. 33697 (June 13, 2008). 

Following the issuance of the Rule, a group of plaintiffs filed suit against the EPA.  The Group argued that Congress enacted the CWA to protect the water quality of receiving waters and thus, a transfer into a receiving water must be regulated by NPDES permitting.  After years of procedural posturing, Judge Karas agreed to hear the case.

Judge Karas waded deeply into the issues in his lengthy decision.  He began by addressing “step one” of the Chevron Doctrine and agreed with EPA that neither the statutory context nor the legislative history helped resolve the issue of whether the NPDES program was intended to apply to water transfers.  “Step two” of Chevron proved more troublesome for the Agency.

The Court rejected EPA’s “holistic approach” and the logic it proscribed in its “step two” analysis.  It found that its legal justification for the Water Transfers Rule relied too heavily on EPA’s overly-narrow interpretation of “addition…to navigable waters” in § 502(12).  EPA argued that because Congress did not specifically instruct the Agency to regulate water transfers, it must not have intended transfers to constitute an “addition.”  And if transfers are not an “addition,” then the donor waterbody and the receiving waterbody must be part of the same navigable waterbody.   And if the transfer of water takes place within the same body of water, a permit under NPDES cannot be required.  The Court found this logic to be circular and fatally flawed.

The Court also faulted EPA for failing to consider whether water transfers under the Water Transfer Rule could be regulated by § 301(a), § 302, or even § 404.  The Court further disagreed with EPA’s overreliance on the statutory provisions within the CWA that support states’ rights goals and emphasized EPA’s duty to oversee and enforce baseline standards prescribed in the Statute.  Moreover, the Court found that EPA’s Water Transfers Rule was inconsistent with the overarching policy goals proscribed by Congress in its enactment of the CWA.  In sum, the Court held EPA’s “flawed methodology” led to “flawed conclusions” stripping any deference the Agency would have been granted under Chevron.

Finally, the Court distinguished its opinion from an Eleventh Circuit decision known as “Friends I” by dismissing its lack of analysis under “step two” of Chevron.  And because no water decision can be complete without a discussion of Rapanos, the Court concluded its decision with a finding that EPA’s attempt to expand the definition of “navigable water” under the Rule was ultra vires.

Justice Karas vacated the Water Transfers Rule to the extent it is inconsistent with the CWA and remanded it back to EPA for a reasoned explanation of its interpretation.

The administrators of the New York City Water Board will no doubt have followed the developments of this case carefully.  New York City’s reservoir system employs numerous, massive water transfers that may now require NPDES permits at each stage.  With millions of dollars at stake, an appeal to the Second Circuit—which has been unkind to the City on this issue in the past—is likely.  

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