The U.S. Court of Appeals for the Second Circuit upheld the U.S. Environmental Protection Agency’s Water Transfers Rule last week. Catskill Mountains Chapter of Trout Unlimited, et al. v. EPA, et al. 14-1823, 14-1909, 14-1991, 14-1997, 14-2003 (2nd Cir. January 18, 2017). The rule exempts some water transfers from the permitting requirements of the Clean Water Act. The Second Circuit’s decision marks a victory for the controversial rule, which has had an uncertain fate since it was promulgated in 2008. This is an important decision for entities reliant on water transfers, such as municipal water providers and irrigation districts.

EPA’s Water Transfers Rule

Water transfers are a critical water management tool across the nation for reallocating water for the purpose of providing drinking water, power generation, flood control, irrigation and environmental restoration. The arid West is particularly reliant on water transfers to meet the water demands associated with urban activities and agriculture in the region.

It has been EPA’s long-established position that where water transfers from a U.S. water body to another occur without an “intervening industrial, municipal, or commercial use,” these transfers do not require a National Pollutant Discharge Elimination System (NPDES) permit under section 402 of the CWA. EPA, however, did not codify its longstanding policy until 2008, when it promulgated the Water Transfers Rule. While EPA’s rule was lauded by those reliant on water transfers, it has faced fierce opposition from environmentalists.

Second Circuit Holds That EPA Deserves Deference

The Second Circuit, in a 2-1 decision, overturned a New York district court’s ruling that vacated and remanded EPA’s Water Transfers Rule. The Second Circuit upheld the rule as a valid exercise of deference to agency expertise embodied in a rule following Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (Chevron). Accordingly, the court reinstated the rule. 

This is not the first time the Second Circuit has ruled on whether water transfers are exempt from NPDES permitting requirements. The validity of this exemption has been a longstanding dispute dating back to 2000, when the first complaint in the dispute was filed in District Court. Before EPA promulgated the Water Transfers Rule, the Second Circuit held in two earlier rulings that EPA was not entitled to deference for its informal policy exempting water transfers from the CWA’s permitting requirements. This time, however, the Second Circuit concluded EPA was entitled to Chevron deference because EPA finally codified the Water Transfers Rule in 2008. 

In reaching this decision, the Second Circuit relied on the U.S. Supreme Court’s two-step framework set forth in Chevron. At step one of the Chevron analysis, the Second Circuit agreed with the District Court’s conclusion that the CWA does not directly speak to the question of whether a party is required to obtain an NPDES permit for a water transfer. Rather, the court found the meaning of the statutory text, which requires an NPDES permit for an “addition of any pollutant to navigable waters,” to be ambiguous.  

At Chevron step two, the Second Circuit, breaking with the reasoning of the District Court, concluded that EPA’s interpretation of the CWA as excluding water transfers is reasonable. The court noted “although we might prefer a different rule more clearly guaranteed to reach the environmental concerns underlying the Act, Chevron analysis requires us to recognize that our preference does not matter.”  

Implications

The fate of EPA’s Water Transfers Rule has been uncertain since it was promulgated in 2008. The Second Circuit’s decision, however, marks the second victory for the rule. In 2009, the U.S. District Court for the Eleventh Circuit also held the rule was valid in Friends of the Everglades v. South Florida Water Management District, 570 F.3d 1210 (11th Cir. 2009). These cases signal that courts are willing to uphold the Water Transfers Rule as a valid exercise of agency authority. 

Nevertheless, the plaintiffs in this case have indicated that they are likely to pursue additional litigation on this issue, including the possibility of seeking a rehearing with the Second Circuit and review by the U.S. Supreme Court. For now, this gives entities dependent on water transfers a bit more certainty that they will not be subject to costly and potentially prohibitive permitting requirements.  

© 2017 Perkins Coie LLP