The FCC tolls the death knell for the Internet as we know it – February 26, 2015

On February 26, 2015 the FCC voted to approve the Report and Order on Remand, Declaratory Ruling, and Order (FCC 15-24), also known as the “Open Internet Order.” The Order reclassifies the “internet” as a “telecommunications service and allows the FCC to impose strict regulations on Internet Service Providers (ISPs). What is interesting is that there are no rules that have been made public. The rules will follow later. The internet is rife with summaries of what the Order will accomplish, so I won’t use this post to go into those details. What I will do is to explain why I believe that this Order tolls the death knell for the internet as we know it.

When I first started practicing law three decades ago, I handled the disposition of assets for two bankrupt railroads, the Rock Island and the Chicago Milwaukee and Pacific. I also handled regulatory work for a third railroad that managed to avoid bankruptcy, the Chicago and Northwestern (later swallowed up by the Union Pacific). I learned a lot about railroads and I learned a lot about federal regulations. Here is some of what I learned. The railroads had a good thing going in the 1800s and early 1900s but destroyed it through monopolistic practices, suppression of innovation, terrible customer relations, price gouging and lowered levels of service. As a result of the public outcry about the railroads, the Interstate Commerce Commission and every state adopted draconian regulations to protect the public and shippers, to keep prices low, and to increase competition. The result was exactly opposite of what was intended.

Because railroads were now fully regulated, they could not do anything unless they plodded through years and sometimes decades of litigation. Investment dried up, tracks began to fall apart, and railroads found themselves totally unable to compete with the new trucking industry. The trucking industry had the competitive advantage of not having to pay for the billions of dollars that the US Government spent on the brand new interstate highway system outside of a modest fuel tax.

Between the death grip of burdensome regulation and heavily subsidized trucking, the railroads had no chance. One after another huge operations went into bankruptcy. As a result, Congress was forced to pass the Railroad Revitalization and Regulatory Reform Act of 1976. However, it was too little too late. The Staggers Rail Act of 1980 was another effort to save the dying industry but by then most of the major railroads were bankrupt. Finally, in 1995 Congress abolished the ICC altogether. Out of those ashes rose a revitalized railroad mostly free of government regulation.

So why do I talk about railroads when talking about the internet? Let me swap out the railroad terms for the situation that we find ourselves in now.

The major ISPs (telecom and cable companies) had a good thing going in the 1990s and early 2000s but destroyed it through monopolistic practices, suppression of innovation, terrible customer relations, price gouging and lowered levels of service. As a result of the unprecedented public outcry, primarily about mindbogglingly hateful anti-customer behavior, the Federal Communication Commission adopted draconian regulations to protect the public, to keep prices low, and to increase competition. The result was exactly opposite of what was intended.

Because the ISPs were now fully regulated, they could not do anything unless they plodded through years and sometimes decades of litigation. Investment dried up, switching facilities and fiber optic lines began to fall apart, and the IPSs found themselves totally unable to respond to new forms of communication. One by one they filed for bankruptcy, leaving consumers with no choice, high prices, and slow connections.

Do I blame the FCC for taking the action it did? Not really. I blame the ISPs for treating their customers so poorly that the American public demanded action. However, increased regulation is rarely a recipe for innovation or economic progress. One exception is breaking up natural monopolies that only work to stifle progress and competition. The one partial success story I can think of was the breakup of Bell Telephone in 1982. Had that hide-bound monopoly not been broken up we would still be using rotary phones to communicate. This is why I believe that parts of the FCC’s Order are misplaced. While it is good to prevent government from protecting monopolies and to encourage competition, it is usually the death of innovation to regulate prices and services. As they say, be careful what you ask for as we may actually get exactly what are demanding — the internet of 2008 — frozen in place for the next twenty years.

James Pray

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EPA Delays Rules on Clean Power Plan until summer of 2015

The Clean Power Plan proposed by EPA in June of 2014 has now received over four million comments. What is the Clean Power Plan? The EPA’s proposal has two main elements: (1) EPA-imposed state-specific emission rate-based CO 2 goals that each state is required to meet and (2) guidelines for the development, submission, approval by EPA, and implementation of those state plans.

The new Republican Congress and Senate are obviously looking hard at this EPA requirement and seeing if they can avoid a veto by slipping in contrary legislation into an appropriations bill. Also, various parties have noted in the comments to the proposal that while the  EPA cites section 111(d) of the Clean Air Act as authority, the EPA has previously questioned whether it has jurisdiction under 111(d) to mandate state-wide limits on CO emissions. The EPA has never issued any regulations under that law that is applicable on a state-wide basis for a ubiquitous pollutants. Regardless of the reason, the EPA has now decided to delay its rules until the summer of 2015.

What is certain is that Congress will not propose any legislation intended to cut both greenhouse gas emissions and the jurisdictional questions raised by the plan.

— James Pray

Sources:

http://www2.epa.gov/carbon-pollution-standards/fact-sheet-clean-power-plan-carbon-pollution-standards-key-dates

http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule

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EPA Decides Coal Ash is Not a Hazardous Material.

epalogo (00822922x9F897)Just before the Holidays the Environmental Protection Agency approved new rules governing the disposition of coal ash. EPA Director McCarthy called the new rules “pragmatic,” which is a bureaucratic code word meaning “I don’t like it, but I’m doing it anyway.” Environmental groups object because the proposed rule does not treat coal ash (also known as fly ash) as a hazardous material. Treating coal ash as a hazardous material would make burning coal extraordinarily expensive due to the ensuing liability of having to dig up and rebury all of the billions of tons of coal dust that have been generated over the years. I am sure that this end result that was not lost on the environmental groups.

Instead of reclassifying coal ash as a hazardous material under CERCLA and/or RCRA, the EPA treated coal ash under Subtitle D of RCRA, which governs landfills. I know that some utilities have seen this regulatory change on the horizon for many years and have already switched over to Subtitle D landfills for any unused coal ash not sold for other purposes, such as concrete.

Even though I would not recommend sprinkling coal ash on my frosted flakes, this decision by the EPA does make some economic sense. To treat coal ash as a hazardous material could well have bankrupted the public and private utilities in the United States and shifted most of the cleanup costs to the American public, who would end up paying the price regardless. Portal to portal costs of $500 per ton are not uncommon in the hazardous waste industry for disposal costs of hazardous materials. Multiply that per ton cost against 131 million tons of coal ash generated every year and the cost would be 65 billion each year going forward. This figure ignores the cost of cleaning up the old coal ash disposal sites, which will cost up to $2,000 per ton to clean up just the last fifty years’ worth of coal ash — to the tune of up to 7.5 trillion dollars in clean up costs. Of course, that figure does not include the cost of tearing down every large building and replacing every bridge and mile of concrete highway built because coal dust is universally incorporated into concrete. It is easy to say that this or that material ought to be regulated as a highly toxic, hazardous material. But every decision needs to be weighed against the other costs that are involved.

New Rules are available here: http://www2.epa.gov/coalash/coal-ash-rule

Coal Ash production figures were obtained from http://www.coalashfacts.org.

Coal Ash and concrete information: http://www.ceratechinc.com/Content/PDFs/Coal-Ash-Primer.pdf

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US Fish and Wildlife has a tool you can use to look for wetlands

Swamp (00800337x9F897)Are you building on wetlands? Is the real estate you are buying listed by the US Fish and Wildlife Service as a wetlands on its maps? If your property or prospective purchase has been identified as a wetlands then think twice before developing the property. Before buying property for development, check this link:

http://www.fws.gov/wetlands/Data/Web-Map-Services.html

You can also download a KML file that you can launch in Google Earth:

http://www.fws.gov/wetlands/Data/Google-Earth.html

A wetlands classification will not show up on title searches or a standard Phase I. Years after your project is complete the U S Army Corps of Engineers may demand a fine of up to $37,500, not to exceed $187,500 per day violation. In addition to checking these websites, you should also consider hiring a qualified wetlands consultant to make a determination in case the Corps comes knocking on the door some day.

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Iowa Supreme Court Approves the Sale of Electricity from Solar Power.

On July 11, 2014, the Iowa Supreme Court issued a long-awaited ruling holding that the “behind the meter” direct sale of electricity generated from solar power (photo voltaic) arrays and using a power purchase agreement that sold the electricity on a cents-per-kWh basis did not automatically render the seller a “public utility.” SZ Enterprises, LLC, d/b/a Eagle Point Solar v. Iowa Utilities Board, ___ N.W.2d. ____ (July 11, 2014)The court issued its ruling in a 4-2 decision and affirmed a district court decision by the Polk County District Court that had overruled an earlier decision by the Iowa Utilities Board.

The immediate and most narrow impact of the decision is that companies offering “behind the meter” solar power installations can use this decision to fashion legal power purchase contracts that sell the power from those solar power installations directly to customers. Prior to this decision, buyers had to either buy the systems outright or enter into long term leases. Some customers do not want to take on the ownership of photo voltaic arrays. A lease offers financial certainty, but because it is not linked directly to the electrical performance of the array it places all of the efficiency risk on the buyer. In both cases, the uncertainties of the system’s performance caused issues for buyers that were unsure if the cost of the system might outweigh the value of the electricity that would be generated. This was especially true for buyers who could not offset the cost with tax credits, such as non-profits. By structuring the transaction as a behind the meter sale of electricity, a buyer can rest assured that the cost will not exceed the buyer’s budget for the purchase of power.

In the Eagle Point Solar decision, Eagle Point Solar was in the business of providing design, installation, maintenance, monitoring, operational and financing services with respect to solar electric generation systems in Iowa. The City of Dubuque was interested in pursuing the development of a renewable energy resource in the form of an on-site solar power system to satisfy a portion of the electric power needs of a single city building. Dubuque sought to enter into a long-term financing agreement with Eagle Point Solar to accomplish that goal. Eagle Point proposed to finance, install, own, operate, and maintain the solar system and charge the City on a cents-per-kWh basis for the electric output. Under the proposed power purchase agreement, Eagle Point Solar would be entitled to the incentives associated with the solar power system, including tax credits and accelerated depreciation, and would credit Dubuque with one-third of any revenues received from the sale of the credits. The city-owned building is located within the exclusive electric service territory of Interstate Power and Light Company (“IPL”). The building would continue to remain connected to the electric grid and Dubuque would continue to purchase electricity from IPL to satisfy some of the electric energy needs of the building.

Eagle Point Solar petitioned the IUB for a declaratory order determining that under Iowa law Eagle Point Solar was neither a “public utility” subject to regulation by the IUB under Iowa law nor an “electric utility” subject to the exclusive service territory provisions of Iowa law. On April 12, 2012, the IUB issued an order finding that Eagle Point Solar would be a “public utility” subject to regulation by the IUB and an “electric utility” subject to the exclusive service territory provisions of Iowa law. This decision was based on a “bright line test” that prohibited all sales of electricity from any entity other than regulated utilities. The IUB ignored Eagle Point’s argument that the IUB was bound by prior Iowa case law in Northern Natural.  Based on these findings, the IUB order declared that Eagle Point Solar would be prohibited by Iowa law from offering the services described in its petition because it had no right to sell power to customers in IPL’s exclusive service territory.

On judicial review of the IUB’s decision, the Polk County District Court agreed with Eagle Point Solar and held that the IUB erred by applying an incorrect legal standard in determining whether Eagle Point Solar would be a “public utility” under Iowa law. In lieu of the “bright line test” that prohibited all sales of electricity from any entity other than regulated utilities, the district court held that the proper standard was whether the transaction was “clothed with a public interest” under the statutory definition of a public utility. To determine whether the public interest was involved, the court looked to the eight-factor test from Natural Gas Service Co. v. Serv-Yu Cooperative, Inc., 219 P.2d 324, 325–26 (Ariz. 1950) that had been approved by the Iowa Supreme Court in Iowa State Commerce Commission v. Northern Natural Gas Co., 161 N.W.2d 111, 115 (Iowa 1968).

The IUB and IPL appealed the district court decision to the Iowa Supreme Court. They were joined in their appeal by MidAmerican Energy Company and a consortium of other utilities. On appeal, the IUB argued that any sale of electricity on a cents per kWh basis, even if it was not on the utility “grid,” automatically qualified the seller as a regulated utility. Because any such utility would not have an approved sales territory, the sale would therefore be illegal. The utilities trotted out a parade of horribles should Eagle Point Solar be allowed to sell electricity directly to the City of Dubuque, even if the transaction was wholly “behind the meter.” Eagle Point Solar argued that the statute defined a “public utility” and that Eagle Point Solar did not meet that definition. Eagle Point Solar also argued that the District Court was correct in applying well-established Iowa law and that before a company can be deemed to be a “public utility,” its actions must be “clothed in the public interest.”

In its ruling, the Iowa Supreme Court agreed with Eagle Point Solar and the District Court. First, It held that the IUB was entitled to no deference in defining the term “public utility” as that the definition was already set out in Iowa law. This was an important holding because the IUB had developed its own bright line test that any sale of power triggered a finding that the seller was a utility. This test ignored prior Iowa Supreme Court precedent that dealt with the clear statutory definition of a public utility.

“Indeed, under the IUB approach, a behind-the-meter solar generating project built by an engineering class at Iowa State University that furnished electricity on a per kWh basis to a nearby farm would be considered a public utility subject to a wide gamut of regulatory requirements. Even if the students obtained a waiver of the territorial exclusivity of the local electric utility, students would be required to stay after class to handle the paperwork associated with filing tariffs with the IUB.”

By eliminating the IUB’s bright line test, the Supreme Court opened the door to the more nuanced analysis based on the Serv-Yu eight-factor test that had been urged by Eagle Point Solar and adopted by the District Court and used in previous Iowa Supreme Court cases.

The first factor requires an assessment of “what the corporation actually does,” or, as the court put it, “what is actually happening in the transaction.” The court noted that the transaction was an arms-length transaction between a willing buyer and seller. The court also found that the IUB would not try argue that behind the meter installations owned by a host or subject to a lease would not by itself be regulated. It was therefore the method of financing that was at issue, and utilities are not in the business of financing renewable energy. It therefore held that “From a consumer protection standpoint, there is no reason to impose regulation on this type of individualized and negotiated transaction.”

The second factor requires a review of whether there is “a dedication to public use.” With respect to the second factor the court agreed with the district court that it cannot be said that the solar panels on the city’s rooftop involves a “dedication to public use.” “The installation is no more dedicated to public use than the thermal windows or extra layers of insulation in the building itself. The behind-the-meter solar generating facility represents a private transaction between Eagle Point and the city.”

The court, like the District Court below, ignored the third factor as inconclusive. The fourth factor is whether the activity is “[d]ealing with the service of a commodity in which the public has been generally held to have an interest.” Here, the court found that it “seems clear that the provisions of on-site solar energy are not an indispensable service that ordinarily cries out for public regulation and behind-the-meter solar equipment is not an essential commodity required by all members of the public.”

The fifth factor is whether the transaction is “[m]onopolizing or intending to monopolize the territory with a public service commodity.” The court held that this factor “clearly cuts against a finding that Eagle Point is a public utility. “There is simply nothing in the record to suggest that Eagle Point is a six hundred pound economic gorilla that has cornered defenseless city leaders in Dubuque.” The court held that the nature of the third-party PPA suggests the opposite, “as the city has entered into what amounts to be a low risk transaction—it owes nothing unless the contraption on its rooftop actually produces valuable electricity.”

The court treated the sixth and seventh factors together. The sixt factor is an “[a]cceptance of substantially all requests for service”and the seventh is that “[s]ervice under contracts and reserving the right to discriminate is not always controlling.” The court found that both factors relate to the ability to accept all requests for service and, conversely, the ability to discriminate among members of the public. The court held that these twin factors cut in favor of finding that Eagle Point Solar is not a public utility. The court noted that Eagle Point Solar was “not producing a fungible commodity that everyone needs” and that it is “not producing a substance like water that everyone old or young will drink, or natural gas necessary to run the farms throughout the county.”

The eighth Serv-Yu factor, “[a]ctual or potential competition with other corporations whose business is clothed with public interest” was found to be “perhaps the most interesting” by the court. However, the court found that “There is nothing in the record of this administrative proceeding, however, to gauge the likelihood or degree of material impact, and there was no suggestion that the integrity of the grid or economic health of regulated providers has been adversely affected in states such as California, Nevada, Arizona, and Colorado, where third-party PPAs are not considered public utilities for purposes of regulation.” The court added that Eagle Point Solar “does not seek to replace the traditional electric supplier but only to reduce demand.”

The court added that behind-the-meter solar facilities offered positive impacts in keeping with Iowa’s mandate that utilities support customer programs to use renewable energy sources:

“Behind-the-meter solar facilities tend to generate electricity during peak hours when the grid is under the greatest pressure. Further, Iowa Code section 476.8 requires regulated electric utilities to provide reasonably adequate service, and such service must “include programs for customers to encourage the use of energy efficiency and renewable energy sources.” Thus, third-party PPAs like the one proposed by Eagle Point actually further one of the goals of regulated electric companies, namely, the use of energy efficient and renewable energy sources.”

The court concluded by holding:

“In the end, whether an activity is sufficient to draw an entity within the scope of utilities regulation is a matter of assessing the strength of the Serv-Yu factors on a case-by-case basis. The weighing of Serv-Yu factors is not a mathematical exercise but instead poses a question of practical judgment. See Northern Natural Gas II, 679 N.W.2d at 633. In our view, in this case, the balance of factors point away from a finding that the third-party PPA for a behind-the-meter solar generation facility is sufficiently “clothed with the public interest” to trigger regulation.”

The court added that behind-the-meter solar facilities offered positive impacts in keeping with Iowa’s mandate that utilities support customer programs to use renewable energy sources:

“Behind-the-meter solar facilities tend to generate electricity during peak hours when the grid is under the greatest pressure. Further, Iowa Code section 476.8 requires regulated electric utilities to provide reasonably adequate service, and such service must “include programs for customers to encourage the use of energy efficiency and renewable energy sources.” Thus, third-party PPAs like the one proposed by Eagle Point actually further one of the goals of regulated electric companies, namely, the use of energy efficient and renewable energy sources.”

It is indeed ironic that Iowa’s major utilities tout support for renewable energy but sought to clamp down on this modest effort by a single customer to obtain renewable energy for itself from its own rooftop. Renewable energy, in the eyes of the appellant-utilities is fine, as long is it is owned and controlled by them.

The decision by the Iowa Supreme Court will provide buyers of electricity new options when weighing whether to try renewable power. In addition to lease or outright purchase arrangements, they may be able to consider buying renewable power by the kilowatt.  Again, the details of the deal will matter. Regardless, the broad holding of this decision will allow new buyers more options to better budget electrical costs and to support renewable energy at the same time. By buying power by the kilowatt, the risk actually shifts to the seller, because if the array does not work as advertised, then the buyer will pay less.

From a more practical standpoint, the decision is a rebuke to the Iowa Utilities Board and its regulated utilities and signals that the Iowa Supreme Court will not be swayed by unsupported arguments based on the fears of monopolies worried about losing their iron grip on their service territories. Also, the decision did not open the door completely to all forms of power. The Iowa Supreme Court applied the Serv-Yu factors to this specific set of facts. The Iowa Supreme Court looked to the proposed agreement in particular when making its decision. Not every new power source will necessarily qualify under the Serv-Yu factors analysis.

For more information, please contact BrownWinick, whose attorney Philip Stoffregen argued the case before the Iowa Supreme Court on behalf of Eagle Point Solar. James Pray and Jonathan Gallagher were on the briefs as co-counsel.

Supreme Court Eagle Point Solar Decision

—- James L. Pray

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Utility Air Regulatory Group v. EPA – Narrowing EPA’s Greenhouse Gas Regulations

On June 23, 2014 the U.S. Supreme Court issued its long-awaited and much anticipated decision in Utility Air Regulatory Group v. EPA. At issue was the legitimacy of the EPA’s “tailoring” Rule which sought to impose regulations on greenhouse gas emissions on industrial stationary sources. Other than the EPA, everyone else didn’t want the regulations to be upheld though for different reasons. Environmental groups thought that the EPA was giving much of industry a pass by not imposing draconian regulations on everyone. Industry did not like the rules because they would impose additional regulatory burdens that would be difficult to handle. 

Regardless, Everyone ended up winning a little bit or losing a little bit, depending on your perspective. The biggest losers are Title V/PSD permit holders and the biggest winners are small source generators that are not regulated under Title V or PSD.  Rather than affirm the EPA’s method of applying a sweeping definition of greenhouse gases and resulting regulations on all of industry, though in different ways and in different amounts, the Court decided to give the EPA the authority to only apply the definition on existing Title V/PSD stationary sources. The logic used to get to that particular conclusion is difficult to follow even though Justice Scalia wrote the majority opinion. Normally, his opinions display an impressive logical flow even if they presuppositions are (usually) fatally flawed. It appears to me that the conclusion was reached because Justice Scalia thought it was the conclusion that would do the least amount of harm.  I don’t know how else to describe the reasoning in this opinion.

Ultimately, the impact is unclear for now as the EPA will have to refashion its regulatory tools to apply greenhouse gas emission regulations to Title V/PSD permit holders including some new undefined definition or application of BACT for those emissions.

Here are the main quotes of interest:

 

“Even if the text were not clear, applying BACT to greenhouse gases is not so disastrously unworkable, and need not result in such a dramatic expansion of agency authority, as to convince us that EPA’s interpretation is unreasonable. We are not talking about extending EPA jurisdiction over millions of previously unregulated entities, but about moderately increasing the demands EPA

(or a state permitting authority) can make of entities already subject to its regulation. And it is not yet clear that EPA’s demands will be of a significantly different character from those traditionally associated with PSD review. In short, the record before us does not establish that the BACT provision as written is incapable of being sensibly applied to greenhouse gases.”

 

. . .

 

“To sum up: We hold that EPA exceeded its statutory authority when it interpreted the Clean Air Act to require PSD and Title V permitting for stationary sources based on their greenhouse-gas emissions. Specifically, the Agency may not treat greenhouse gases as a pollutant for purposes of defining a “major emitting facility” (or a “modification” thereof) in the PSD context or a “major source” in the Title V context. To the extent its regulations purport to do so, they are invalid. EPA may, however, continue to treat greenhouse gases as a “pollutant subject to regulation under this chapter” for purposes of requiring BACT for “anyway” sources. The judgment of the Court of Appeals is affirmed in part and reversed in part. It is so ordered.”

 

Note:

 

An “anyway” source is defined this way by the court: “sources required to obtain permits anyway because of their emission of conventional pollutants (so-called “anyway” sources) would need to comply with BACT for greenhouse gases if they emitted those gases in significant amounts, defined as at least 75,000 tons per year CO2e.”

Click to access 12-1146_4g18.pdf

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Federal Court Rebuffs EPA’s Effort to Require Non-Discharging Confinement Operators to Obtain an NDPES Permit

Louis Alt operates a poultry farm in Hardy County, West Virginia. All of the birds and the litter is kept under roofs. The farm does not discharge process water to any stream and followed best management practices.  Nevertheless, the EPA issued an Order finding that her farm was discharging pollutants “via sheet flow” to Mudlick Run during rain events generating runoff without having obtained an NDPES permit.” The EPA threatened penalties of $37,500 per day and criminal sanctions, including imprisonment.

At this stage of the case, it was clear that the EPA was seeking to criminalize all farming operations in the United States. This is because the “sheet flow” referred to by the EPA really refers to the transfer of particles that land or are tracked onto the ground around the farm and are subsequently picked up by rain and transported to a receptor stream. There is no farm that does not have some manure, hair, feather, or other organics that end up in the farmyard. This includes organic farms or even hippy operations where everyone wears hemp clothes and has a name for each chicken or pig in the barn.

On June 14, 2012 Louis Alt filed a challenge to the EPA’s Order in Federal District Court for the Northern District of West Virginia. On December 13, 2012, the EPA withdrew the challenged Order and followed up with a Motion to Dismiss, arguing that the lawsuit was then moot. The court rejected the EPA’s motion. Plaintiffs and intervenors filed a motion for summary judgment.

The undisputed facts relied upon by the court in ruling on the motion for summary judgement included:

Some particles of manure and litter from Ms. Alt’s confinement houses have been tracked or spilled in Ms. Alt’s farmyard. Some dust composed of manure, litter and dander, and some feathers, have been blown by the ventilation fans from the confinement houses into Ms. Alt’s farmyard where they have settled on the ground.

Precipitation has fallen on Ms. Alt’s farmyard, where it contacted the particles, dust and feathers from the confinement houses, creating runoff that carried such particles, dust and feathers across a neighboring grassy pasture and into Mudlick Run, a water of the United States.

The court reviewed the applicable law and noted that:

In 1987, Congress amended § 1362(14) to add an exemption to the statutory definition of a point source. As amended, § 1362(14) defined “point source” as “any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged. This term does not include agricultural stormwater discharges and return flows from irrigated agriculture.” (emphasis added).

Alt, p. 10 of the slip op (emphasis in original).

In its lengthy analysis, most of the issues revolved around the earlier case of Waterkeeper Alliance, Inc. v. USEPA, 399 F.3d 486 (2nd Cir. 2005), in which the EPA’s 2003 regulations had been upheld.  The Court first addressed EPA’s argument that the Court lacked jurisdiction because the issues in the case were addressed by the EPA in its 2003 CAFO rule. The court rejected this argument, noting that “[t]he plaintiff and plaintiff-intervenors are not challenging the 2003 Rules, which pertain to discharges from land application areas. Accordingly, this action is not barred by Waterkeeper or 33 U.S.C. § 1369(b).”

The court next identified the central issue in the case as “whether the litter found on Ms. Alt’s farmyard that could be picked up by rainwater, washed two hundred yards across a grassy cow pasture, and discharged into a creek named Mudlick Run is exempted from liability under the agricultural stormwater exception to the definition of a point source.”

The court looked at the definitions of “agricultural stormwater discharge,” “discharge of any pollutant” and a “point source.” The court next went through a history of the Clean Water Act and the regulations as interpreted by other federal courts and concluded that “It appears to be a central assumption of the EPA’s position that the agricultural stormwater discharge exemption had no meaning whatsoever from the time the exemption was added to the statute in 1987 until the EPA promulgated its new regulations in 2003. This is an assumption that this Court simply cannot accept.” Alt, p. 15 of the slip op. 

The court rejected the EPA’s argument that the agricultural exemption did not apply to the farmyard, as opposed to the actual confinement buildings. The court next rejected the argument that the exempt discharge must have an “agricultural purpose.”  The court noted that the statute only requires that the discharge be agriculturally related. It also rejected the argument that the discharges were industrial rather than agricultural, noting that this argument had already been rejected in the Waterkeeper case. Also rejected was the novel argument that the litter and manure had originally come from a non-exempt production area. Again, the court pointed to the Waterkeeper decision as “generally authorizing the regulation of CAFO discharges, but exempting such discharges from regulation to the extent that they constitute agricultural stormwater.”

Having rejected all of the EPA’s arguments, the court ruled in favor of Lois Alt and held:

This Court declares that the litter and manure which is washed from the Alt farmyard to navigable waters by a precipitation event is an agricultural stormwater discharge and therefore not a point source discharge, thereby rendering it exempt from the NPDES permit requirement of the Clean Water Act.

The decision was issued on October 23, 2013.

Decision: Alt v. EPA D.C. Decision (00616111)

Case File: http://www.fb.org/index.php?action=legal.recentDocket&id=85

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DNR Suspends Chapter 133 Revision.

In 2013 the Iowa Department of Natural Resources launched an effort to revise Chapter 133 of section 567 of the Iowa Administrative Code. Chapter 133 is a woefully out of date remediation rule that predates all of the advances in environmental regulations, including risk-based corrective action standards, background standards, vapor intrusion, and, most importantly, the modern understanding that complete removal of all contaminates is not only unnecessary but frequently impossible.  So, the effort to rewrite Chapter 133 was, in my opinion, long overdue and welcome.  Unfortunately, it was apparent from the beginning that certain industry or ag groups were apprehensive and distrustful of the reform process.  I don’t understand why, as the current system is akin to having a death penalty for going one mile over the speed limit. Who wouldn’t welcome something that makes more sense?  Perhaps it is the knowledge that the current system is so unworkable that the DNR does not even pretend to try to enforce the regulation as written. But that is not a good excuse. As long as the regulation is on the books, anti-industry and anti-farm groups have a weapon that they can wield to force expensive and impossible cleanup standards.  Luckily, they have not done that yet.

One acknowledged weakness of the proposed rule is that they do not address vapor intrusion. Understanding vapor intrusion is a necessary part of implementing a successful risk-based corrective action standard. The reason given for not including vapor intrusion was that the DNR had no real understanding of vapor intrusion and really did not want to try to understand it at this point. Of course, vapor intrusion has turned out to be very difficult to understand as site conditions, soil types, obstructions, preferential pathways, water tables, and the different transmissive aspects of the hundreds of different chemicals that can be involved each have an impact on a successful vapor intrusion analysis.  It was perhaps the acknowledgment that no rewrite of Chapter 133 could be successful unless it included vapor intrusion that led to the effort’s demise.

On November 8, 2013 the Iowa Department of Natural Resources sent an e-mail stating that “DNR has decided to suspend the current effort on the major rewrite of Chapter 133 of the DNR rules.”  No promise was made that this effort would be picked up in the future. On that same day, another e-mail, also sent by Cal Lundberg, stated that

Over the last several years the landscape in which the Contaminated Sites Section has operated has undergone some significant changes. During the last several months it has become apparent that these changes may significantly impact the way in which we operate. It is our opinion that a period of evaluation is warranted in the light of what had been proposed for Chapter 133.

The e-mail went on to note that vapor intrusion was now included in the EPA’s new Phase I all appropriate inquiry standard. Perhaps this is a sign that the DNR will first try to get a handle on vapor intrusion in other regulatory arenas before addressing further changes to Chapter 133.

Proposed Rule: Chapter 133 Revision draft 4-12-13 (00616069)

Redraft of Rule:Chapter 133 Revision Draft 8-19-13 (00616083)

Redline: Chapter 133 Revision – Redline (00616085)

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Iowa District Court Vacates DNR fish kill counting method as improper

winnriverkill Apple Ave2Iowa District Court Judge Rustin Davenport recently issued an order vacating the Iowa Department of Natural Resources (“IDNR”) restitution assessment against Monroe Branstad, a  Forest City, Iowa farmer. The case began in 2010 when the IDNR issued a restitution assessment against Monroe Branstad in the amount of $61,794.49 for a fish kill that took place on the Winnebago River in 2008.  Mr. Branstad challenged the restitution assessment arguing that the IDNR officer had not followed the counting method specified in the American Fisheries Society (AFS) Special Publication No. 24, which had in turn been incorporated into the IDNR’s rules by the Iowa legislature. In the initial hearing, the Administrative Law Judge sided with the IDNR and agreed that AFS 24 was merely a guideline and that the IDNR did not have to follow the scientific counting methodology set out in the publication. This finding was affirmed on appeal to the Natural Resources Commission. The case was then appealed to the Iowa District Court for Hancock County on a Petition for Judicial Review. Judge Rusty Davenport issued an order vacating the fish kill restitution assessment by the IDNR.

The DNR argues that AFS 24 is merely a guideline but the court disagrees. The enabling statute specifically calls for rules for investigating fish kills.” Guidelines are appropriate when it is not practical to count in sample areas. There was no question that here it was practical to count in sample areas along the Winnebago because that is what the DNR did. The standard for counting dead fish is not professional judgment. If it was, there would be no need for AFS 24 or separate provisions in the Iowa Administrative Code for fish kill investigations and investigations regarding other species.

 p. 15 (citations omitted, emphasis in original).

The court also held that:

Although language in AFS 24 discusses the rules as guidelines, once the DNR adopted the AFS 24 as rules of the State of Iowa, they were no longer guidelines. To allow the DNR to choose a methodology contrary to the AFS 24 violates the requirement that rules should provide fair notice to the public, and that the rules will be consistently applied. The actual method used by the DNR in this case was not a method that was subject to review prior to the adoption of the DNR regulations.

p. 22

Following a motion to reconsider, the court did allow the DNR to count the actual number of dead fish. Neither side filed an appeal of either order and all time limits for appeals have expired. James Pray served as counsel for Monroe Branstad in this matter. It is unknown at this time if the DNR has agreed to actually start following the fish kill counting methodology in the AFS publication.

— James Pray, attorney at law, BrownWinick Law Firm

Decision is available here. Ruling on Petition for Judicial Review (00533137)

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D.C. Circuit Rules That EPA Cannot Defer Carbon Dioxide Limits For Ethanol Plants

On July 12, 2013 the United States Court of Appeals for the D.C. Circuit issued an opinion in the case entitled Center for Biological Diversity v. EPA, 722 F.3d 401 (C.A.D.C. 2013).  In 2011 the EPA issued regulations deferring CO2 emissions from bioenergy and other biogenic sources under PSD and Title V programs.  The rule essentially gave the industry, including many ethnaol plants, until July 21, 2014, before the EPA would begin to regulate greenhouse gases, including CO2 emissions, from those industries. Environmental groups challenged the EPA’s deferral in court and on July 12, 2013 the D.C. Circuit Court of Appeals vacated the rule. Arguments were heard before three judges who each issued their own opinions, with one authoring the main opinion, one issuing a concurrence, and one dissenting. This ruling effectively cut one year from the date that the EPA would have to start formulating emissions standards for ethanol and other bioenergy companies. Because of the  short time involved, there does not appear to be a Supreme Court appeal.

The logic behind the deferral was in part based on the unique role that CO2 plays in biofuel production. Although ethanol plants produce vast quantities of CO2, that CO2 is part of an annual cycle of CO2 conversion from the atmosphere to plant matter and from plant matter to back to the atmosphere. In other words, there is not a marked net increase in CO2 into the environment. Ethanol plants are merely moving the CO2 through the natural cycle

The bottom line for ethanol plants is that they should begin to discuss with their air permit engineers permit amendments and renewals that can be put in place now before new rules are implemented so that that they are not caught unawares when filing for new permits. Most plants are already collecting a great deal of data on CO2 emissions and if the new rules require any other treatment or capture, then it may take awhile for the impact of those new rules to be understood.

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