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On May 17, 2007, the Supreme Court of Minnesota (Court) ruled that the Minnesota Pollution Control Agency (MPCA) acted properly in issuing a National Pollutant Discharge Elimination System (NPDES) permit for the Cities of Annandale and Maple Lake, Minnesota (Cities), consistent with the position urged by NACWA in its 2005 amicus curiae brief filed with the Court. In the case, In the Matter of the Cities of Annandale and Maple Lake NPDES/SDS Permit Issuance for the Discharge of Treated Wastewater, No. A04-2033, the Court supported NACWA’s position that the MPCA’s interpretation of the ambiguous language of 40 C.F.R. § 122.4(i) was reasonable. The Court also found that the MPCA properly determined that the Cities’ new discharges would not cause or contribute to a violation of a water quality standard in a Clean Water Act section 303(d) impaired waterbody where the Cities’ new discharges would be effectively “offset” by a decreased discharge of the pollutant of concern by other entities in the same waterbody. Opinion at 2. The Court thus concluded that “deference should be given to the MPCA’s interpretation and the agency’s interpretation should be upheld.” Id.
The Court’s decision will have several legal and practical implications in circumstances where a waterbody is impaired under section 303(d) of the Clean Water Act but a total maximum daily load (TMDL) has not yet been implemented (also called “pre-TMDL permitting” or “interim permitting”):
I. Case Background
On September 30, 2004, the MPCA issued an NPDES permit to the Cities for their new joint wastewater facility. In issuing the NPDES permit, the MPCA determined, among other things, that the issuance of the permit complied with 40 C.F.R. § 122.4(i), which provides in relevant part that “No permit may be issued . . . (i) To a new source or a new discharger, if the discharge from its construction or operation will cause or contribute to the violation of water quality standards.” Specifically, the MPCA found that the Cities’ new wastewater discharge, which would include approximately 2,200 pounds per year of phosphorus, would be effectively “offset” by a 53,500-pound reduction in phosphorus loading to the same receiving water resulting from the upgrade of a nearby treatment plant.
After the MPCA issued the NPDES permit to the Cities, environmental advocacy groups filed an appeal to invalidate the NPDES permit, arguing that the offset approach used by the MPCA was not authorized under 40 C.F.R. § 122.4(i). On August 9, 2005, the Minnesota Court of Appeals accepted the environmental groups’ arguments and invalidated the MPCA’s issuance of the permit issued to the Cities. In re: Cities of Annandale & Maple Lake NPDES/SDS Permit Issuance (Cities of Annandale & Maple Lake), 702 N.W.2d 768, 770 (Minn. App. 2005). In short, the Court of Appeals found that the MPCA could not consider offsets from other entities into the same waterbody when issuing NPDES permits because the plain language of 40 C.F.R. § 122.4(i) does not specifically allow such analysis. The MPCA and the Cities appealed to the Supreme Court of Minnesota, and NACWA joined the appeal as an amicus curiae at the request of, and to support, our Minnesota members.
II. Highlights of the Decision
The Supreme Court of Minnesota has now reversed the Court of Appeals decision and upheld the original decision by the MPCA to issue the NPDES permit to the Cities. In its reversal, the Court first addressed “whether a state agency’s interpretation of a federal regulation that the agency is charged with enforcing and administering is entitled to deference by the courts.” Opinion at 6-7. The Court noted that the precise issue presented in this case was an issue of first impression. Id. at 7. By looking at analogous precedent regarding the amount of deference a court should give agency interpretations of regulations, the Court established the test for determining when a state agency interpretation of a federal regulation should be given deference. The Court stated that the first factor in that test “is whether the agency is charged with enforcing and administering the regulation such that the regulation can be characterized as the agency’s own regulation.” Id. at 8. The second factor is whether the “state agency is charged with the day-to-day responsibility for enforcing and administering a federal regulation . . .” Id. According to the Court, if the above two factors show that the state agency considers the federal regulation its own and has the day-to-day responsibility for enforcing and administering the regulation, “courts should give deference to the agency’s interpretation of that regulation . . .” Id.
The Court then discussed the legal framework for determining whether giving deference to a state agency interpretation of a regulation is required. The Court found that such a determination is a two-part test. The first element is “whether the agency is legally required to enforce and administer the regulation under review . . .” Id. at 11. The second element is “[w]hether the meaning of the words in the regulation is clear and unambiguous or is unclear and susceptible to different reasonable interpretations--ambiguous.” Id.
The Court then assessed whether the MPCA’s interpretation of 40 C.F.R.§ 122.4(i) is entitled to deference and should be considered by the Court. The Court first found that “the MPCA is charged by state and federal law with the day-to-day responsibility for enforcing and administering 40 C.F.R. § 122.4(i) in Minnesota. . . Therefore, we conclude that 40 C.F.R. § 122.4(i) is properly characterized as and qualifies as the MPCA’s own regulation” Id.
The Court also found that 40 C.F.R.§ 122.4(i) was unclear and susceptible to different interpretations. Id. at 17. Specifically, the Court found that “differing interpretations . . . have been applied to this regulation,” such that “40 C.F.R. 122.4(i) is unclear and susceptible to different reasonable interpretations.” Id. at 17. The Court then ruled that “the court of appeals’ narrow reading of the regulation in essence imposes a complete ban on new facilities like the one proposed here and that such an interpretation is unreasonable,” thus rejecting the environmental advocacy groups’ arguments Id. at 14.
The Court then concluded that the MPCA’s interpretation of 40 C.F.R. § 122.4(i) was reasonable and, therefore, should be followed. Id. at 19. The Court first determined that “when viewed in its setting and not isolated from its context, the broad nature of the phrase ‘cause or contribute to the violation of water quality standards’ leaves leeway for the MPCA to make a range of policy judgments based on the MPCA’s scientific and technical knowledge. . . ” such that “[n]othing in the language of the regulation or the structure of the CWA prohibits the MPCA from considering offsets in this situation.” Id. at 18. Accordingly, as the Court stated “it was not unreasonable for the MPCA to allow a 2,200-pound per year (at capacity) increase in phosphorus discharge from a new wastewater treatment facility to be offset by a contemporaneous 53,500-pound per year decrease in a nearby facility that is located in the same watershed.” Id. at 18-19.1
III. Effects of the Decision
The Court’s decision validates the flexible offset approach advocated by NACWA for issuing NPDES permits to new source dischargers in a pre-TMDL setting. The precedent of the case will allow a newly constructed facility to use decreased discharges from other sources into the same waterbody to obtain an NPDES permit, because the state agency issuing the permit will be able to consider the decrease in determining that the facility will not cause or contribute to a violation of water quality standards. The offset approach is consistent with the proper interpretation of 40 C.F.R. § 122.4(i), which views the regulation as a flexible instrument, and not as a strict bar against issuing NPDES permits for new source discharges into an impaired waterbody.
The importance of the Court’s confirmation of the offset approach cannot be understated, because an interpretation of 40 C.F.R. § 122.4(i) as advocated by the environmental groups would unreasonably halt the issuance of NPDES permits in many situations, even where the new discharges would not cause or contribute to an impairment. In practical terms, if the offset approach were rejected by the Court, and a waterbody was impaired under Clean Water Act section 303(d) for a particular pollutant, then no new source could discharge any amount of that pollutant into the waterbody, even if all other dischargers to the waterbody ceased their operations, until a TMDL was developed. Such an interpretation would bring new construction to a standstill on any impaired waterbody, with no options other than to wait until a TMDL is implemented. The Court’s decision avoids such an irrational result.
Another effect of the Court’s decision is that it grants state agencies substantial discretion in interpreting federal regulations where such agencies have the day-to-day responsibility for enforcing and administering the regulation. While in this case the result was favorable to NACWA members, this is an issue that must be treated with caution. If this decision is followed by other courts, unfavorable state agency interpretations of federal regulations could be given the same deference. It will be important to anticipate such arguments in future cases, and to carefully evaluate whether deference is appropriate. For example, the Court in this case made it clear that the issue was one of first impression—that is, the state agency was the first to interpret 40 C.F.R. § 122.4(i) as it applied to the consideration of offsets. Such deference might not be appropriate if the issue is one that has already been interpreted on a federal level, such as through EPA guidance or permitting decisions.
Finally, although we have not heard any discussion about the issue, the environmental groups have ten days to file a petition for rehearing to attempt to overturn the Court’s decision. A petition for rehearing would be due May 27, 2007. While rehearing is rarely granted, we will keep the members apprised of further developments in this regard.
1 A dissent was filed by two of the Justices of the Court. The dissent argued that the majority opinion was incorrect because the language of 40 C.F.R. § 122.4(i) is not ambiguous, and, thus, the Court should not have accorded any deference to the MPCA’s interpretation. Id. at 21. Moreover, the dissent stated that, even if the regulation was ambiguous, “none of the traditional rationales for deferring to an agency’s interpretation of a regulation are present in this case,” (Id. at 22) and that “[w]hen examined in light of the regulation’s language, the interpretation of 40 C.F.R. § 122.4(i) offered by the MPCA is not reasonable.” Id. at 24.