Supreme Court Upholds EPA’s Regulation of Intake

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SandBar 8:2, July, 2009 Recommended citation: Fredieu, Brian R., Supreme Court Upholds EPA’s Regulation of Intake Systems, 8:2 SandBar 1 (2009). Supreme Court Upholds EPA’s Regulation of Intake Systems Entergy Corp. v. Riverkeeper Inc., 129 S. Ct. 1498 (2009). *Brian R. Fredieu, J.D.1 The U.S. Supreme Court rejected a challenge by several environmental groups and states to the Environmental Protection Agency’s (EPA) use of cost-benefit analysis in regulating water pollution by power plants. The case involved regulation under the Clean Water Act (CWA)2 that seeks to ensure protection of shellfish, fish, and wildlife from the intake structures used by power plants to take in cooling water. Background* Petitioners operate, or represent those who operate, large power plants. In the course of generating power, coal-fired and other types of power plants generate large amounts of heat. To prevent overheating, these plants employ “cooling water intake structures” that extract enormous amounts of water from nearby water sources. Doing so is hazardous to the fish and other aquatic life forms that live in these bodies of water, chief among these hazards is “the squashing against intake screens (elegantly called ‘impingement’) or suction into the cooling system (‘entrainment’) of aquatic organisms that live in the affected water sources.”3 To mitigate against this, A7 316(b) of the CWA requires that power plants employ various measures. The CWA mandates that any standard established pursuant to A7 316(b) and applicable to a point source shall require that the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact. This section employs a variety of “best technology” standards to regulate the discharge of effluents into the nation’s waters. After 30 years of regulating new facilities under A7 316(b) on a case by case basis, the EPA promulgated a regulation requiring existing cooling water intake structures to be retrofitted to comply with the agency’s latest determination of the “best technology available for minimizing adverse environmental impact,” (which the Court identifies as “BTA”) measured in terms of the potential effects on early life stages of fish. The EPA issued two phases of regulations. Its “Phase I” regulations govern new cooling water intake structures, while the “Phase II” rules at issue here apply to certain large existing facilities. For Phase II, the EPA set “national performance standards,” requiring most Phase II facilities to reduce “impingement mortality for [aquatic organisms] by 80 to 95 percent from the calculation baseline,” and requiring a subset of facilities to reduce entrainment of such organisms by “60 to 90 percent from [that] baseline.”4 For Phase I power plants, the EPA regulations require the use of any technology at least as effective as a “closed-cycle cooling system.” These systems re-use cooling water within the plant, which substantially reduces the amount of external water used, and thus reducing the impact on fish and other aquatic life. However, because it is much cheaper to build a closed-cycle cooling system from the ground up than it is to retrofit an existing plant with such a cooling system, the EPA regulations exempt old plants from this requirement. The EPA decided that the BTA standard allows consideration of the technology’s costs and of the relationship between those costs and the environmental benefits produced. Under the challenged EPA regulations at issue, an old power plant will not be subject to the closed-cycle cooling-system requirement, and may qualify for a site-specific variance, if it can show either that the cost of retrofitting would be significantly greater than the EPA assumed in setting the standard for new plants, or that compliance costs “would be significantly greater than the benefits of complying with the applicable performance standards.”5 Where a variance is justified, the EPA must impose remedial measures that yield results “as close as practicable to the applicable performance standards.”6 Several environmental groups and states (respondents) challenged the EPA’s Phase II regulations. The Second Circuit, deferring to EPA, held that EPA has authority to retrofit existing facilities. But, siding with environmental petitioners and against EPA, the Second Circuit also held the site-specific cost-benefit variance provision to be unlawful and should be limited to a narrow “cost-effectiveness” test. Regulations at Issue The issue for the Supreme Court was whether the EPA is permitted to use cost-benefit analysis in determining the content of Phase II regulations. Writing for the Court, Justice Scalia overturned the Second Circuit’s decision and said that the EPA acted reasonably in weighing the costs and benefits of various technologies when it promulgated regulations under A7 316(b) of the Clean Water Act . The Court focuses on the “BTA” test. The majority opinion states, “[i]n the Phase II requirements challenged here the EPA sought only to avoid extreme disparities between costs and benefits.”7 The court noted that under another Supreme Court case, Chevron v. Natural Resources Defense Council, an agency’s view governs if it is a reasonable interpretation of the statute – not necessarily the only possible interpretation, nor even the interpretation deemed most reasonable by the courts.8 The EPA refused to require plants to retrofit in part because of the “generally high costs” of converting existing facilities to closed-cycle operation, and because “other technologies approach the performance of this option.” The closed-cycle cooling systems can reduce fish and wildlife mortality by 98%, but the cost of retrofitting all Phase II plants would be approximately $3.5 billion per year, or what would amount to nine times the cost of compliance with Phase II performance standards. Furthermore, if retrofitted, the Phase II plants would produce 2.4 to 4.0% less electricity due to reduced efficiency which could possibly require “the construction of 20 additional 400 MW plants . . . to replace the generating capacity lost.”9 When looking at the Phase II facilities, the Court stated that it, “demonstrates quite clearly that the agency did not select the Phase II regulatory requirements because their benefits equaled their costs.”10 The Court went on to say that the EPA’s practice of using cost-benefit analysis is a reasonable and legitimate exercise of its discretion. Statutory Construction Questions The dissenters thought that the EPA exemption for existing power plants was inconsistent with A7 316(b) of the Clean Water Act because that section is silent on authorizing the EPA to conduct cost-benefit analysis. That omission, the dissenters thought, was intentional by Congress, because other provisions of environmental laws passed at the same time as A7 316(b), expressly authorize cost-benefit analysis and other tests concerning “best technology” preclude cost-benefit. Thus, the dissenters argued, Congress did not intend the agency to balance costs and benefits. The dissenters disagreed with the EPA’s approach, stating that cost-benefit analysis tends to minimize the value of regulation because costs are easier to monetize than benefits, especially when it comes to assigning value to wildlife. For example, although the EPA estimated that water intake structures kill 3.4 billion fish and shellfish each year, the agency counted only those species that are commercially or recreationally harvested, which is only 1.8% of all impacted fish and shellfish. The EPA struggled to value all aquatic life, but measured the benefits at $735 million. But, when the EPA decided to give value only to the fish commercially or recreationally harvested, the benefits calculation dropped to $83 million. The agency even noted that its failure to monetize the other 98.2% of affected species could result in serious misallocation of resources, and may not accurately assess the net benefits to society. Because of the inadequacy of cost-benefit, the dissenters concluded that Congress deliberately chose not to authorize the EPA to balance away the environmental benefits of the BTA rule. The majority disagreed, stating that the other statutory provisions of the CWA authorizing best-technology tests also authorized other consideration of factors not addressed by A7 316(b). The majority reasoned that silence should be reasonably interpreted as suggesting that the EPA is accorded discretion in determining how to regulate the section. Justice Scalia reasoned that if the dissent’s conclusion regarding A7 316(b)’s silence of cost consideration is correct, it must be true that the BTA test permits no consideration of cost whatsoever, not even the “cost-effectiveness” and “feasibility” analysis that the Second Circuit approved, or that the dissent would approve. Justice Scalia noted that “[i]f silence here implies prohibition, then the EPA could not consider any factors in implementing A7 316(b) – an obvious logical impossibility.”11 Thus, the majority reasoned that the other statutory provisions cited by the dissent were not part of the relevant context for understanding A7 316(b) itself. The Court went on to say that “[i]t is eminently reasonable to conclude that A7 316(b)’s silence is meant to convey nothing more than a refusal to tie the agency’s hands as to whether cost-benefit ana lysis should be used, and if so to what degree.”12 Justice Scalia also noted that even the environmental groups challenging the EPA regulations acknowledge that the EPA did not have to require power plants to “spend billions to save one more fish or plankton.”13 Thus, he concluded, at some point in time the costs of further mitigation of environmental harm must outweigh the benefits, and the EPA must eventually draw a line. Accord ing to the majority, the only issue for the Court was whether the line the EPA drew was reasonable. Conclusion Though the majority sided with the dissenters that the EPA was not required to conduct cost-benefit analysis, the majority also concluded that the EPA also not prohibited from doing so. Under the Chevron test, where a statute conferring regulatory authority on an agency does not address some question, longstanding administrative law principles state that the courts should defer to a reasonable agency regulation that does address the question. Endnotes 1. Fredieu is an Analyst and Presidential Management Fellow with the NOAA Aquaculture Program on developmental assignment with the Sea Grant Law Center. 2. Federal Water Pollution Control (Clean Water) Act A7 33 U.S.C.S. A7 1251 et seq. 3. Entergy Corp. v. Riverkeeper, Inc., 129 S. Ct. 1498, 1502 (U.S. 2009) 4. 40 C.F.R. A7 125.94(b)(1), (2). 5. Id. A7 125.94(a)(5)(ii). 6. Id. A7 125.94(a)(5)(i), (ii). 7. Entergy Corp., 129 S. Ct. at 1508. 8. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-844 (1984). 9. Entergy Corp., 129 S. Ct. at 1504. 10. Id. at 1508. 11. Id. 12. Id. at 1507. 13. Id. at 1510.
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SandBar 8:2, July, 2009
Recommended citation: Fredieu, Brian R., Supreme Court Upholds EPA’s Regulation of Intake Systems, 8:2 SandBar 1 (2009).

Supreme Court Upholds EPA’s Regulation of Intake
Systems

Entergy Corp. v. Riverkeeper Inc., 129 S. Ct. 1498 (2009).

Brian R. Fredieu, J.D.1

The U.S. Supreme Court rejected a challenge by several environmental groups and states to the Environmental Protection Agency’s (EPA) use of cost-benefit analysis in regulating water pollution by power plants. The case involved regulation under the Clean Water Act (CWA)2 that seeks to ensure protection of shellfish, fish, and wildlife from the intake structures used by power plants to take in cooling water.

Background
Petitioners operate, or represent those who operate, large power plants. In the course of generating power, coal-fired and other types of power plants generate large amounts of heat. To prevent overheating, these plants employ “cooling water intake structures” that extract enormous amounts of water from nearby water sources. Doing so is hazardous to the fish and other aquatic life forms that live in these bodies of water, chief among these hazards is “the squashing against intake screens (elegantly called ‘impingement’) or suction into the cooling system (‘entrainment’) of aquatic organisms that live in the affected water sources.”3 To mitigate against this, A7 316(b) of the CWA requires that power plants employ various measures. The CWA mandates that any standard established pursuant to A7 316(b) and applicable to a point source shall require that the location, design, construction, and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impact. This section employs a variety of “best technology” standards to regulate the discharge of effluents into the nation’s waters.

      After 30 years of regulating new facilities under A7 316(b) on a case by case basis, the EPA promulgated a regulation requiring existing cooling water intake structures to be retrofitted to comply with the agency’s latest determination of the “best technology available for minimizing adverse environmental impact,” (which the Court identifies as “BTA”) measured in terms of the potential effects on early life stages of fish. The EPA issued two phases of regulations. Its “Phase I” regulations govern new cooling water intake structures, while the “Phase II” rules at issue here apply to certain large existing facilities. For Phase II, the EPA set “national performance standards,” requiring most Phase II facilities to reduce “impingement mortality for [aquatic organisms] by 80 to 95 percent from the calculation baseline,” and requiring a subset of facilities to reduce entrainment of such organisms by “60 to 90 percent from [that] baseline.”4 For Phase I power plants, the EPA regulations require the use of any technology at least as effective as a “closed-cycle cooling system.” These systems re-use cooling water within the plant, which substantially reduces the amount of external water used, and thus reducing the impact on fish and other aquatic life. However, because it is much cheaper to build a closed-cycle cooling system from the ground up than it is to retrofit an existing plant with such a cooling system, the EPA regulations exempt old plants from this requirement. The EPA decided that the BTA standard allows consideration of the technology’s costs and of the relationship between those costs and the environmental benefits produced.

      Under the challenged EPA regulations at issue, an old power plant will not be subject to the closed-cycle cooling-system requirement, and may qualify for a site-specific variance, if it can show either that the cost of retrofitting would be significantly greater than the EPA assumed in setting the standard for new plants, or that compliance costs “would be significantly greater than the benefits of complying with the applicable performance standards.”5 Where a variance is justified, the EPA must impose remedial measures that yield results “as close as practicable to the applicable performance standards.”6

   Several environmental groups and states (respondents) challenged the EPA’s Phase II regulations. The Second Circuit, deferring to EPA, held that EPA has authority to retrofit existing facilities. But, siding with environmental petitioners and against EPA, the Second Circuit also held the site-specific cost-benefit variance provision to be unlawful and should be limited to a narrow “cost-effectiveness” test.

Regulations at Issue
The issue for the Supreme Court was whether the EPA is permitted to use cost-benefit analysis in determining the content of Phase II regulations. Writing for the Court, Justice Scalia overturned the Second Circuit’s decision and said that the EPA acted reasonably in weighing the costs and benefits of various technologies when it promulgated regulations under A7 316(b) of the Clean Water Act
.
The Court focuses on the “BTA” test. The majority opinion states, “[i]n the Phase II requirements challenged here the EPA sought only to avoid extreme disparities between costs and benefits.”7 The court noted that under another Supreme Court case, Chevron v. Natural Resources Defense Council, an agency’s view governs if it is a reasonable interpretation of the statute – not necessarily the only possible interpretation, nor even the interpretation deemed most reasonable by the courts.8 The EPA refused to require plants to retrofit in part because of the “generally high costs” of converting existing facilities to closed-cycle operation, and because “other technologies approach the performance of this option.” The closed-cycle cooling systems can reduce fish and wildlife mortality by 98%, but the cost of retrofitting all Phase II plants would be approximately $3.5 billion per year, or what would amount to nine times the cost of compliance with Phase II performance standards. Furthermore, if retrofitted, the Phase II plants would produce 2.4 to 4.0% less electricity due to reduced efficiency which could possibly require “the construction of 20 additional 400 MW plants . . . to replace the generating capacity lost.”9

When looking at the Phase II facilities, the Court stated that it, “demonstrates quite clearly that the agency did not select the Phase II regulatory requirements because their benefits equaled their costs.”10 The Court went on to say that the EPA’s practice of using cost-benefit analysis is a reasonable and legitimate exercise of its discretion.

Statutory Construction Questions
The dissenters thought that the EPA exemption for existing power plants was inconsistent with A7 316(b) of the Clean Water Act because that section is silent on authorizing the EPA to conduct cost-benefit analysis. That omission, the dissenters thought, was intentional by Congress, because other provisions of environmental laws passed at the same time as A7 316(b), expressly authorize cost-benefit analysis and other tests concerning “best technology” preclude cost-benefit. Thus, the dissenters argued, Congress did not intend the agency to balance costs and benefits.

   The dissenters disagreed with the EPA’s approach, stating that cost-benefit analysis tends to minimize the value of regulation because costs are easier to monetize than benefits, especially when it comes to assigning value to wildlife. For example, although the EPA estimated that water intake structures kill 3.4 billion fish and shellfish each year, the agency counted only those species that are commercially or recreationally harvested, which is only 1.8% of all impacted fish and shellfish. The EPA struggled to value all aquatic life, but measured the benefits at $735 million. But, when the EPA decided to give value only to the fish commercially or recreationally harvested, the benefits calculation dropped to $83 million. The agency even noted that its failure to monetize the other 98.2% of affected species could result in serious misallocation of resources, and may not accurately assess the net benefits to society. Because of the inadequacy of cost-benefit, the dissenters concluded that Congress deliberately chose not to authorize the EPA to balance away the environmental benefits of the BTA rule.

     The majority disagreed, stating that the other statutory provisions of the CWA authorizing best-technology tests also authorized other consideration of factors not addressed by A7 316(b). The majority reasoned that silence should be reasonably interpreted as suggesting that the EPA is accorded discretion in determining how to regulate the section. Justice Scalia reasoned that if the dissent’s conclusion regarding A7 316(b)’s silence of cost consideration is correct, it must be true that the BTA test permits no consideration of cost whatsoever, not even the “cost-effectiveness” and “feasibility” analysis that the Second Circuit approved, or that the dissent would approve. Justice Scalia noted that “[i]f silence here implies prohibition, then the EPA could not consider any factors in implementing A7 316(b) – an obvious logical impossibility.”11 Thus, the majority reasoned that the other statutory provisions cited by the dissent were not part of the relevant context for understanding A7 316(b) itself. The Court went on to say that “[i]t is eminently reasonable to conclude that A7 316(b)’s silence is meant to convey nothing more than a refusal to tie the agency’s hands as to whether cost-benefit ana lysis should be used, and if so to what degree.”12

      Justice Scalia also noted that even the environmental groups challenging the EPA regulations acknowledge that the EPA did not have to require power plants to “spend billions to save one more fish or plankton.”13 Thus, he concluded, at some point in time the costs of further mitigation of environmental harm must outweigh the benefits, and the EPA must eventually draw a line. Accord ing to the majority, the only issue for the Court was whether the line the EPA drew was reasonable.

Conclusion
Though the majority sided with the dissenters that the EPA was not required to conduct cost-benefit analysis, the majority also concluded that the EPA also not prohibited from doing so. Under the Chevron test, where a statute conferring regulatory authority on an agency does not address some question, longstanding administrative law principles state that the courts should defer to a reasonable agency regulation that does address the question.

Endnotes
1.   Fredieu is an Analyst and Presidential Management Fellow with the NOAA Aquaculture Program on developmental assignment with the Sea Grant Law Center.
2.   Federal Water Pollution Control (Clean Water) Act A7 33 U.S.C.S. A7 1251 et seq.
3.    Entergy Corp. v. Riverkeeper, Inc., 129 S. Ct. 1498, 1502 (U.S. 2009)
4.   40 C.F.R. A7 125.94(b)(1), (2).
5.   Id. A7 125.94(a)(5)(ii).
6.   Id. A7 125.94(a)(5)(i), (ii).
7.   Entergy Corp., 129 S. Ct. at 1508.
8.   Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-844 (1984).
9.   Entergy Corp., 129 S. Ct. at 1504.
10. Id. at 1508.
11. Id.
12. Id. at 1507.
13. Id. at 1510.