United States: EPA Proposes to Extend Regulation of Cooling Water Intake Structures to Manufacturing Sector

Originally published November 2004

Earlier this month, the United States Environmental Protection Agency ("EPA") issued its third installment in a three-phase effort to regulate cooling water intake structures ("CWIS") under § 316(b) of the Clean Water Act ("Proposed Rule"), using National Pollutant Discharge Elimination System ("NPDES") permits or analogous state permits. The premise for each of the three phases is that the use of CWIS may create an additional stress on already compromised aquatic communities, particularly on early life stages of fish species. The proposed solution in each case is to require potentially costly modifications to CWIS, or mandate reductions in water use and associated limitations on facility operations, to respond to perceived fisheries impacts. Each phase of the rulemaking was required by a consent decree entered in the federal court for the Southern District of New York, which requires the Proposed Rule to become final no later than June 1, 2006.

In its first two phases of § 316(b) regulation, EPA focused on a single industry, targeting new and existing large-scale electric-generating stations. In addition to small generation sources, the Proposed Rule extends the regulation of CWIS beyond the power sector to include existing manufacturing and industrial facilities, as well as to new offshore oil and gas facilities. The Proposed Rule targets any facility that constitutes a point source requiring an NPDES permit, has a design intake flow rate of more than 2 million gallons per day (MGD), and withdraws at least 25% of its average annual intake flow for cooling purposes. Surprisingly, it does so despite EPA’s own conclusion that the costs of the Proposed Rule to the regulated community substantially exceed the monetized benefits of potential or theoretical reductions in fisheries impacts. In other words, EPA is proceeding with the Proposed Rule despite its conclusion that the Proposed Rule may not optimize societal resources and, therefore, may not be consistent with its own view that § 316(b) requires compliance efforts to be "economically practicable, cost-effective, and justified by the benefits to the source waterbody."

As with the prior phases, if promulgated as proposed, EPA will implement the Proposed Rule in NPDES permits by imposing performance standards for CWIS design, construction, location, and operation. Consistent with industry experience with the prior phases, compliance with these performance standards are expected to require significant biological studies, costly upgrades to CWIS technologies or forced restrictions on cooling water flows – with potentially significant consequences for facility operations.

The public comment period on the Proposed Rule expires on March 24, 2005.

According to EPA estimates, the Proposed Rule potentially applies to nearly 700 existing manufacturing facilities nationwide. The vast majority of these facilities are in five industry sectors: pulp and paper (33%), chemical (27%), "small flow" electric power generators (with intake flows less than 50 MGD) (17%), metals (13%) and petroleum (6%).

EPA proposes to define two classes of regulated facilities: (1) those exceeding a threshold design intake flow rate that triggers national performance standards, and (2) those below the threshold rate for which NPDES permit terms will be established on a case-by-case basis. In both circumstances, a facility is subject to the Proposed Rule if it uses at least 25% of the annual average intake flow for cooling purposes and constitutes a point source requiring an NPDES permit. Given the prevalence of stormwater permitting under the Clean Water Act and therefore the ubiquity of NPDES permits, the operative criterion is expected to be the relative contribution of intake flow for cooling purposes. Nonetheless, whether individual NPDES permits addressing only stormwater can and should be a triggering factor is likely to be a target for public comment. Likewise, comments are expected to seek clarification of whether general permits issued pursuant to the NPDES program should trigger compliance with the Proposed Rule.

Because the establishment of the threshold design intake flow rate ultimately will circumscribe the number of facilities that must meet rigorous performance standards, this consideration is also expected to be a focus of public comments. Three different threshold rates are on the table for public comment: 50 MGD from any waterbody; 200 MGD from any waterbody; and 100 MGD for withdrawals from an ocean, estuary, tidal river, or one of the Great Lakes. For those facilities with design intake flow rates below the threshold rate, but above 2 MGD, NPDES permit writers will develop permit terms implementing § 316(b) on a case-by-case basis in lieu of the national performance standards. Comments are expected on these thresholds, particularly with respect to the technical bases for EPA’s selection.

EPA proposes to require compliance with the same national performance standards it established in phase two of the rulemaking applicable to existing electric generating stations with a minimum withdrawal rate of 50 MGD ("Phase II Rule"). The rigorous Phase II Rule performance standards are intended to address two perceived adverse impacts to fish and shellfish associated with CWIS: impingement mortality and entrainment. Impingement occurs when aquatic organisms are carried against CWIS screening devices. Entrainment occurs when very small and typically very young aquatic organisms, that is eggs and larvae, pass through the screening mechanisms and travel through the CWIS, potentially experiencing some disturbance or mortality as a result.

As in the Phase II Rule, the performance standards under the Proposed Rule require a reduction in impingement mortality of 80-95% and a reduction in entrainment (regardless of the level of mortality imposed) of 60-90% from a so-called "calculation baseline." The calculation baseline is defined as an estimate of impingement mortality and entrainment that would occur at the facility assuming: (a) a once through cooling system; (b) a CWIS opening located at the shoreline near the surface of the source waterbody, with the face of a standard 3/8-inch mesh traveling screen oriented parallel to the shoreline; and (c) baseline operational practices (i.e., practices, procedures, and structural configurations that would be maintained in the absence of any structural or operational controls implemented in whole or in part for the purposes of reducing impingement mortality and entrainment). In concept, the calculation baseline is an attempt to give credit to facilities which may already have installed fish protection technologies or adopted operating procedures for fish protection purposes.

Compliance options for facilities covered by the Proposed Rule are the same as those available to existing electric generating facilities subject to the Phase II Rule. To comply with the Proposed Rule, the facility must demonstrate one of the following:

• that it already has reduced cooling water flow commensurate with a closed-cycle recirculation system – typically a reduction of 90% or more (to meet the performance standards for impingement mortality and entrainment), or that it already has reduced its design intake velocity to 0.5 feet per second or less (to meet the performance standard for impingement mortality only);

• that its current CWIS meets the applicable performance standards (without a reduction in intake flow rates commensurate with closed-cycle cooling);

• that it proposes new design and construction technologies, operational measures, and/or restoration measures, in combination with any existing measures, that meet the applicable performance standards;

• that it has installed and is properly operating and maintaining a rule-specified design and construction technology or an alternative technology that meets the performance standards; or

• that its costs of compliance would be significantly greater than (1) the costs considered by EPA for a similar facility to meet the performance standards, or (2) the benefits of meeting the applicable performance standards at the facility.

Facilities may request that compliance be determined on the basis of a Technology Installation and Operation Plan ("TIOP"), intended to describe how the facility will install and ensure the proper and effective operation of technologies, operational measures, or restoration efforts employed to meet the performance standards.

Although these alternatives are intended to provide a measure of regulatory flexibility, the amount of information required to demonstrate compliance may be daunting. In contrast to many electric generating facilities which have grappled for years with the design and implementation of sampling programs intended to assess potential impacts of impingement and entrainment at their facilities, many of the facilities covered by the Proposed Rule may have relatively scant historic information on which to base their calculation baseline, assess the effectiveness of previously installed technologies or operating measures in reducing impingement mortality and entrainment, and compare the costs of proposed compliance technologies with environmental benefits.

Developing this information can require a raft of experts, from cooling technology specialists to fisheries scientists and economists. Equally unsettling can be the prospect of performing the necessary analyses only to determine that costly technologies or operational restrictions are necessary to meet the performance standards.

Under the implementation schedule proposed by EPA, all of this analysis would need to be performed during the permit term in place at the time the Proposed Rule becomes final or, in the event the then-applicable permit expires within four years of the publication of the final rule, and at EPA’s discretion, within 3 1/2 years from the final publication of the rule – potentially short time periods in light of the quantity of information to be developed and the seasonal nature of fisheries investigations.

The prospects for mitigating perceived impacts through the implementation of restoration programs – as envisioned in the Proposed Rule – remain questionable. A similar provision contained in the rule implementing § 316(b) for new electric generating facilities ("Phase I Rule") was struck down by the Second Circuit Court of Appeals as beyond the authority of the EPA to allow in lieu of the installation of fish protection technologies or the imposition of operational restrictions. A similar challenge to the Phase II Rule is pending in the Ninth Circuit Court of Appeals. Should the Ninth Circuit concur with the Second, restoration may become unavailable as an avenue for compliance for facilities subject to the Proposed Rule. Moreover, a conflict among the Circuits may precipitate an appeal to the Supreme Court.

Severely undermining EPA’s rationale for the Proposed Rule is the relative absence of environmental benefit when compared to the costs of compliance – as estimated by EPA. Under any of the three alternative threshold design intake flow rates, EPA estimates that the annual costs of compliance significantly exceed monetized benefits:

The wildcard in the benefits assessment – and what EPA appears to rest the reasonableness of the Proposed Rule upon – is EPA’s assertion that non-use "ecological protection benefits" are sizeable, even though EPA readily admits they cannot be and have not been quantified. A controversial aspect of environmental policy and economics, non-use benefits can include the result of admittedly imprecise survey methods to detect the societal value of simply knowing that fish potentially saved by the Proposed Rule will continue to exist.

Notably, while EPA has only "begun exploring" the development of a survey to assess the non-use benefits of the Proposed Rule, it nonetheless "expects to complete the study in time to rely on its findings for the final regulation." Holding this wildcard until the final regulation is certain to draw significant criticism from industry, particularly if the methods relied upon are not unveiled for further public comment prior to finalizing the rule. This approach is all the more suspect, since EPA retracted its non-use benefits assessment in the Phase II Rule in response to widespread criticism that the mechanism was inapplicable in all but very limited circumstances not expected to exist in most applications of that Rule, and also improperly applied by EPA in that Rule. Thus, by holding its efforts in the Proposed Rule, EPA strategically avoids what it must expect will be legitimate criticism of a flawed approach.

Equally troubling is EPA’s admission that it could not estimate any benefits associated with the application of the Proposed Rule to new offshore oil and gas extraction facilities "due to significant data gaps." Hoping to fill those gaps, EPA is soliciting comment on what those benefits might be, posing an opportunity for the oil and gas extraction sector to educate EPA on its operations – an opportunity not to be missed because opponents to this industry certainly will set forth their own unfavorable perception for EPA’s consideration.

EPA’s Proposed Rule seeks to resurrect a long dormant provision of the Clean Water Act and extend its application beyond the electric generating sector to broad swaths of industry. Undaunted by the apparent lack of environmental benefits associated with the Proposed Rule, EPA proposes to apply nationwide performance standards with potentially hefty price tags – with potentially substantial impacts on operations – to existing industrial facilities across the nation, as well as new offshore oil and gas extraction facilities. The opportunity for public comment expires on March 24, 2005, and facilities potentially subject to the Proposed Rule should take this opportunity to alter its final contours.

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