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Cost-Benefit Analysis in Regulations for Cooling Water Intake Structures Upheld

Beveridge & Diamond, P.C., April 7, 2009

On April 1, 2009, the U.S. Supreme Court held in Entergy Corp., et al. v. Riverkeeper, Inc. et al., that the U.S. Environmental Protection Agency’s (“EPA”) use of cost-benefit analysis to weigh the costs of installing new technology on cooling water intake structures at large, existing power plants to protect fish and other aquatic life with the benefit to the aquatic environment was reasonable, and therefore permissible, under the Section 316 of the Clean Water Act (“CWA”).  2009 U.S. LEXIS 2498, Slip Op. No. 07-588 (U.S. April 1, 2009).  The Court’s decision that the Agency may use cost-benefit analysis in absence of an express prohibition on the use of such analysis is a substantial victory for the utility company petitioners and could have broad implications for other environmental regulations.  Others believe that the Obama EPA may reevaluate or rewrite the cooling water intake regulations, and perhaps other environmental regulations, to remove or change the cost-benefit analyses.

The case arose from a decision in the U.S. Court of Appeals for the Second Circuit in which Entergy Corp., other utilities, environmental groups including Riverkeeper Inc., and six states challenged an EPA rule governing cooling water intake structures at large, existing power plants.  The challenge was to Phase II of a three phase EPA rulemaking schedule to address the environmental impacts of large, existing power plant cooling water intake structures, which can trap or destroy millions of fish and other aquatic organisms each year when the structures draw in water to cool power plants and other industrial facilities.  Riverkeeper, et al. v. U.S. Envt’l Prot. Agency, 475 F.3d 83 (2d Cir. 2007).  The Phase II rules applied to existing facilities whose primary activity is the generation and transmission of electricity and whose water-intake flow is more than 50 million gallons of water per day, of which at least 25% is used for cooling purposes.  40 C.F.R. § 125.91 (now suspended).  “National performance standards” were set requiring most covered facilities to reduce impingement mortality of fish by 80% to 95% through the use of a mix of remedial technologies that EPA determined were “commercially available and economically practicable.”  69 Fed. Reg. 41,559 at 41,602.  Site-specific variances from national performance standards were also allowed for facilities with extraordinary cost concerns.  40 C.F.R. § 125.91(a)(5)(i).

Based on its comparison of the cooling water intake provisions of the CWA, Section 316(b), with other CWA provisions under which EPA was not permitted to use cost-benefit analyses in the selection of best available technologies for new and existing facilities, the Second Circuit held that EPA impermissibly used cost-benefit analysis in selecting the best technology available for protecting aquatic life from withdrawals from cooling water intake structures at large, existing power plants (Phase II).  Id. at 101-02, 114-15.  Also finding EPA’s record of decision unclear as to how and when EPA applied cost-benefit analyses in its Phase II Rule, the Second Circuit remanded the rule for clarification and re-promulgation in accord with the court’s interpretation of Section 316(b).  Id. at 105.

The narrow question upon which the Supreme Court granted review of the Second Circuit decision was whether the cooling water intake provisions at 33 U.S.C. § 1326(b) authorize EPA to compare costs with benefits in determining the best technology available for minimizing adverse environmental impacts at cooling water intake structures.  Slip Op. at 2.  PSEG Fossil LLC and Utility Water Act group (a non-profit interest group) had also petitioned the Supreme Court for review of the same Phase II Rule; the Court consolidated the three cases.  Writing for the majority, Justice Scalia grounded the majority opinion in deference to the Agency and a comparison of Section 316(b) with other text of the statute which, by its nature, does not allow for the use of cost-benefit analysis because it requires the elimination of pollution, as opposed to the “best technology available” standard for cooling water intake structures.  33 U.S.C. § 1326(b). 

The majority held that EPA’s decision to weigh the costs of the various technologies it could require for Phase II cooling water intake structures with the benefits to the environment was permissible because it was a reasonable interpretation of the CWA.  Slip Op. at 2.   The Court found that EPA’s position that the “best technology available for minimizing adverse environmental impact” statutory requirement permits consideration of a technology’s costs versus its environmental benefits was a reasonable interpretation of the 33 U.S.C. § 1326(b), although not the only possible interpretation of this provision.  Slip Op. at 7.  The majority held that a reasonable interpretation of the “best technology available” could be either the technology that provides the greatest environmental benefit, or the technology that “most efficiently” provides environmental benefits at the lowest per-unit cost.  Slip Op. at 8.  To bolster its argument that costs can be considered when deciding what constitutes “best technology available,” the majority compared the cooling water intake provisions with other provisions in the CWA that require EPA to set effluent limits to eliminate discharges of all pollutants, such as the requirements regarding toxic pollutants.  Id. at 8-9.  Justice Scalia added that the less ambitious goal of “minimizing adverse environmental impacts” suggests that “the agency retains some discretion to determine the extent of reduction that is warranted under the circumstances.”  Id. at 9.  In sum, the Court held that EPA permissibly relied on cost-benefit analysis in setting both the national performance standards and the cost-benefit variances from such standards under the Phase II program, reversing the Second Circuit and remanding the cases for further proceedings.  Id. at 16.

Justice Stevens was joined in his dissenting opinion by Justices Souter and Ginsburg.  Justice Stevens found that the relevant statutory provision does not expressly allow for, nor does it prohibit, the use of cost-benefit analysis.  Slip Op. at 4-5.  Nevertheless, Justice Stevens wrote, that the Court has recognized that when “Congress has intended that an agency engage in cost-benefit analysis, it has clearly indicated such intent on the face of the statute.”  Id. at 3 (citing to prior Court opinions).  He continued, that Congress’ silence on the issue in this case is not implicit approval of a cost-benefit approach because Congress does not “hide elephants in mouseholes” by changing the basic details of a statutory scheme in vague terms.  Id. at 3-4 (citing to prior Court opinions). 

Justice Breyer issued a separate opinion, concurring with the majority that EPA can compare costs and benefits under 33 U.S.C. § 1326(b), but also going one step further than the majority by writing that he would also remand the cases to EPA so that the Agency can clarify the cost-benefit approach used in the Phase II regulations.

The respondents are confident that the Obama Administration will reevaluate, and possibly rewrite, the Phase II regulations, especially because the Court stated that EPA was free to include or not include cost-benefit in these regulations.  Although it remains to be seen how the current Administration will treat cost-benefit analyses in the context of environmental regulation, advocates of environmental regulation based on cost-benefit analysis are certainly satisfied with the Court’s April 1 decision.

For further information, please contact Richard Davis at (202) 789-6025, rdavis@bdlaw.com, Karen Hansen at (202) 789-6056, khansen@bdlaw.com, or Ami Grace-Tardy at (202) 789-6076, agrace@bdlaw.com.

To read the full court opinion, click here.

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