EPA Finalizes New Clean Water Act Section 401 Certification Rules—Will States Bite Back?

Posted on June 10, 2020 by Rick Glick

On June 1, 2020, the Environmental Protection Agency released its new rules implementing section 401 of the Clean Water Act (CWA). Section 401 provides that before a federal agency can approve a project that may result in a “discharge to the navigable waters” the applicant must obtain water quality certifications from the affected state. The certification encompasses compliance with water quality standards and “any other appropriate requirement of State law.”

However, the state is deemed to have waived its delegated authority under section 401 if it "fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt of such request." The rules adopt the D.C. Circuit’s view in Hoopa Valley Tribe v. FERC that one year means one year, and they narrow the scope of conditions that states can impose on a project as part of the certification.

One Year Means One Year

The section 401 process has been controversial in the context of energy infrastructure projects requiring federal approvals, such as natural gas pipelines, LNG terminals and hydroelectric facilities. Historically, states have commonly avoided the one-year limit by allowing multiple cycles of withdrawal-and-resubmittal of 401 certification applications, stretching the review period over many years.

This in part was thought necessary to allow adequate time to assess the water quality effects and appropriate mitigation measures for complex facilities, which would often draw comments from many stakeholders seeking to influence the terms of a new certification. However, in Hoopa Valley the court rejected this workaround and denounced the withdrawal-and-resubmittal practice as a tool “for states to use Section 401 to hold federal licensing hostage.”

Shortly after Hoopa Valley, President Trump issued an Executive Order “Promoting Energy Infrastructure and Economic Growth,” for the stated purpose of making the regulatory process more efficient and creating “increased regulatory certainty.” Among other things, the Executive Order directed EPA to review federal policy and regulations on section 401 implementation in light of the Hoopa Valley decision.

With the new rules, EPA has adopted Hoopa Valley’s position that the one-year limit of section 401 actually means one year, and explicitly rejected state practices resulting in certification processes extending to several years. The rules make clear that upon receiving a complete 401 certification application, a state has one year to grant, grant with conditions, or deny the certification. Failure to do so will result in the state having waived its delegated authority with respect to the project under consideration.

Scope of 401 Certification Conditions

The Supreme Court has ruled that section 401 confers on a state broad authority to impose conditions on a water quality certification. In the 1994 case of PUD No. 1 v. Wash. Dep’t of Ecology, the Court found that water quality certifications could include conditions related to quantity of water flow, holding that a state could require minimum stream flows as part of the section 401 certification. Twelve years later, the Court found in S.D. Warren Co. v. Me. Bd. Of Envtl. Prot. that states have broad latitude in imposing conditions that are not directly water quality-related, such as provision for fish passage or recreation.

However, in the preamble to the rules, EPA found that nothing in the CWA nor section 401 contains any statement suggesting that section 401 “authorize[s] consideration or the imposition of certification conditions based on air quality or transportation concerns, public access to waters, energy policy, or other multi-media or non-water quality impacts.”

EPA reasoned that the phrase “any other appropriate requirement of State law,” often used to justify broad state authority, only included “those provisions of State or Tribal law that contain requirements for point source discharges into water of the United States.” The rejection of conditions not directly related to water quality seems to ignore Supreme Court guidance in PUD No.1 and S.D. Warren.

The Rules’ Prospects in Court

The new rules are certain to draw legal challenges from environmental groups and from states concerned that EPA’s interpretation denies them the full authority conferred under the statute.

EPA’s interpretation that one year means one year is consistent with Hoopa Valley and with subsequent decisions and may fare well in court.  However, narrowing the scope of the states’ authority to impose conditions on a certification will face serious judicial scrutiny in light of PUD No. 1 and S.D. Warren. In addition, opponents of the new rules may take issue with EPA’s authority, or lack thereof, to make rules governing how a program delegated to states should be administered.

Supremes Let Hoopa Stand, Leave Door Open for EPA to Reshape CWA 401

Posted on December 10, 2019 by Rick Glick

On December 9, the Supreme Court denied certiorari to review the D. C. Circuit Court of Appeals ruling in Hoopa Valley Tribe v. FERC.  As reported in this space, in January the D.C. Circuit roundly rejected the common practice of withdrawing and then refiling applications for state water quality certification to avoid the one-year limit for state action under Section 401 of the Clean Water Act. 

Under Section 401, applicants for federal authorizations that could result in a discharge to navigable waters must first obtain certification from the state that applicable water quality standards would be met.  States must act on Section 401 applications within one year, or they are deemed to have waived their authority.  State authority under Section 401 is broad and presents an opportunity to superimpose state policy on federal licenses or permits, an opportunity many states are eager to exercise.

Section 401 is often invoked in the context of licensing and relicensing of hydroelectric power facilities before the Federal Energy Regulatory Commission.  Such facilities and their impacts are complex, and states struggle to complete their analysis within one year.  This has led to states offering applicants the choice of either withdrawing and refiling the application to reset the clock, or having their certification denied.

In the Hoopa case, PacifiCorp entered into a settlement agreement with the states of Oregon and California, and other stakeholders, concerning removal of four dams on the Klamath River.  As part of the settlement, PacifiCorp would annually submit a letter to withdraw its pending Section 401 applications before both states and simultaneously refile the application with no changes.  The D. C. Circuit found this practice a subversion of the plain statutory language limiting state action to one year.

So, with the Supreme Court’s denial of certiorari, the withdrawal/refile stratagem seems less viable.  Where do we go from here?  One answer is that when states need more time they will simply deny Section 401 applications without prejudice, meaning the applicant can reapply.  But that approach could also be seen by the courts as an evasion of the one-year limitation.

Another answer lies with EPA, which recently proposed new rules to constrain state authority under Section 401.  As part of the reform of Section 401 policy, the new rules would adopt time limitations “consistent” with the Hoopa decision:  “The certifying authority is not authorized to request the project proponent to withdraw a certification request or to take any other action for the purpose of modifying or restarting the established reasonable [i.e. no more than one year] period of time.”

Under the new rules, then, one year means one year.  However, the new rules, once adopted, will certainly be challenged.  Two related issues are whether EPA has authority to direct state implementation of Section 401 and, if it does, whether EPA’s interpretation is entitled to Chevron deference.

While all of this plays out, however, the D. C. Circuit’s decision in Hoopa stands, but many questions remain to be answered.  Did Hoopa effectively kill the withdraw/refile workaround?  Or should Hoopa be read narrowly and limited to the unique facts underlying the case?  And how will all this ultimately affect the timing and content of federal permits for major projects?  Stay tuned.

Hoopa Valley Tribe v. FERC: When Does One Year Mean One Year?

Posted on March 19, 2019 by Rick Glick

As Seth Jaffe noted in this blog, on January 25, 2019, the U. S. Court of Appeals for the D. C. Circuit rendered a highly significant opinion with respect to state water quality certification under section 401 of the Clean Water Act (CWA).  In Hoopa Valley Tribe v. FERC, the court rejected the commonly used workaround of the one-year statutory limit on state action by allowing multiple cycles of withdrawal-and-resubmittal of applications, holding that the States of Oregon and California had waived their authority by acceding to this practice.  The attached article, just published in The Water Report, discusses the case and its implications in detail.

Section 401 provides that before a federal agency can approve a project that may result in a “discharge to the navigable waters” the applicant must obtain water quality certifications from the affected state.  However, the state is deemed to have waived its delegated authority under section 401 if it "fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt of such request."   

Determining the water quality effects and appropriate mitigation for hydroelectric facilities that have been in place for over half a century is a complex undertaking.  Additional study and data are often needed, which could take more than one year to complete.  Moreover, since relicensing brings out a myriad of stakeholders seeking an opportunity to influence the next license term, 401 issues are frequently addressed through multi-party settlement negotiations, which can also take a long time to resolve.  This has led state 401 agencies and applicants to enter into understandings under which the applicant would withdraw its application before the end of one year and then resubmit it to reset the clock.  Such withdrawal-and-resubmittal cycles have often stretched over a period of many years. 

The case arises under a settlement agreement between the States of California and Oregon, PacifiCorp and other stakeholders leading to eventual removal of PacifiCorp’s Klamath River hydroelectric projects.  Such removal requires FERC approval, and thus water quality certification by the two states. The parties contemplated that this process would take years to complete and agreed that each year PacifiCorp would withdraw and resubmit its 401 applications to avoid waiver, but the new annual applications would be unchanged from the previous ones.  The D. C. Circuit was plainly put off by this common practice, and it is clear that the particular facts of this case drove the outcome. 

The court’s holding has huge implications for owners of hydroelectric facilities going through the licensing or relicensing process at FERC.  In the attached article, I describe the decision, the context in which it was reached, and what it might mean for the FERC and section 401 processes going forward.

More litigation is likely to come.  Watch this space for updates.