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Arkansas Water Rights/ Supply/Development/Protection Issues January 18, 2012 Walter G. Wright, Jr. Edward Swaim

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Presentation on theme: "Arkansas Water Rights/ Supply/Development/Protection Issues January 18, 2012 Walter G. Wright, Jr. Edward Swaim"— Presentation transcript:

1 Arkansas Water Rights/ Supply/Development/Protection Issues January 18, 2012 Walter G. Wright, Jr. Edward Swaim Doug Ford 1

2 The availability of water is essential for a community’s sustainable growth. Two primary factors determine whether water is available to meet those needs. – First is a water supply issue: Is a source of water available? – Second, is a water quality issue: Assuming a source is available, is it clean enough to be treated and used? Historically, water supply and water quality issues have been dealt with separately. There are vastly different regulatory schemes that provide permitting and approval oversight related to water quality and water supply projects. That availability of a safe and reliable water supply is dependent upon water that is not too impaired to efficiently treat and use. (water quality/water quantity overlap) Addressing the supply issue through water development can trigger various federal statutory/regulatory programs that we will discuss In addition, can Arkansas’ current legal structure (including laws and administrative structure) for governing water withdrawals produce predictable, consistent, equitable, secure or timely results? Overview of Program/Key Questions 2

3 Riparian rights states such as Arkansas, suffer from serious problems, including the vagueness and unpredictability of the criteria of decision, the instability of the resulting legal decisions, the lack of a process for managing water during shortages or of the resulting legal decisions, the lack of a process for managing water during shortages or for protecting public values, a systematic bias in favor of large users and the impracticality of markets under such a legal regime. Given the vague and unpredictable criteria of decisions, even long- established uses could be cut off without compensation if a court decides that a recently begun use is more reasonable. As water shortages become chronic, such problems could become a serious impediment to private investment in facilities that use material amounts of water. 3

4 Future Demands for Water in Arkansas May be increased by: – Agriculture needs – Population growth and increased per capita use – Increased consumptive use for power generation – Out-of-state diversions and out-of-basin diversions – Increased pumping and depletion of groundwater – Pollution of aquifers (covenants restricting use of groundwater of part of proposed remediation remedies) – Climate changes that increase drought frequency – Environmental needs (minimum streamflows) May be modified by: – Water conservation strategies (elimination of water wasting and leaks) – Reuse and recycling of water – Protection of source water quality – Protection of minimum instream flows – Groundwater recharge by stormwater BMPs (Best Management Practices), land application of wastewater effluent and other land management techniques – Construction of reservoirs? 4

5 Source of information that often addresses issues relevant to water and wastewater facilities: Arkansas Environmental, Energy and Water Law Blog 5

6 Water Quantity Issues Examples of other States TCEQ warns of possible curtailment of water rights - Drought conditions are widespread across the state. As a result, the Texas Commission on Environmental Quality informed water rights holders today that the agency may need to administer water rights on a priority basis, if drought conditions persist. If restrictions become necessary, junior water rights, or those rights issued most recently, are suspended or curtailed before the senior water rights in the area. Texas water law provides that riparian landowners, those that own land adjacent to a river or stream, have a right, superior to appropriated water rights, to take water from the river or stream for domestic and livestock purposes. 6

7 WATER SERVICE ISSUES/CONFLICT/COMPETITION 1926(b) Federal Debt Protection 7 U.S.C. §1926(b) “The service provided or made available [by a federally indebted rural water] association shall not be curtailed or limited by inclusion of the area… within the boundaries of any municipal corporation or other public body, or by the granting of any private franchise for similar service within such area during the term of such loan.” 7

8 Typical 1926(b) Case Municipal Expansion of Water Service Facilities into Rural Area May be accompanied by Annexation of Territory into City New Subdivision/Customers Served by City City Policy Arguments: Cost, Fireflow, Economic Development, Sovereignty, etc. “Does § 1926(b) also preclude a state regulatory agency from modifying the service area of a federally indebted utility. But we leave that issue for another day” North Alamo Water Supply Corporation v. City of San Juan, (5 th Cir. 1995) 8

9 U.S.C. 1926(b) (continued) An overlap between a city and a federally indebted water district, the water district may prevail over a city that is either demanding that the city serve, or the city demanding that a franchise fee be paid for the right to serve. In Moore Bayou v. Jonestown, a letter indicating an intent to condemn water district assets was enough to trigger declaratory relief and an injunction in favor of the district. 9


11 PLAINTIFF’S ORIGINAL COMPLAINT AND APPLICATION FOR DECLARATORY AND INJUNCTIVE RELIEF FACTUAL ALLEGATIONS 1. Aqua Water Supply Corporation (“Aqua”) is a rural, non-profit water supply corporation, created in 1968 pursuant to Article 1434(a) of the Texas Revised Civil Statutes, and operating under Chapter 67 of the Texas Water Code. 2. Defendant City of Elgin (“Elgin”) is a Texas municipal corporation organized and existing under the laws of Texas and located in Bastrop County and Travis County, Texas. 3. Aqua is duly empowered to and has borrowed money from the United States of America acting through the United States Department of Agriculture (USDA), originally on June 12, 1989, and again on September 26, 2002. Aqua remains indebted on said loans. 4. In order to qualify for protection under 7 U.S.C. § 1926(b), an indebted association must have “made service available” – that is, it must have the legal right to serve and the physical ability to serve the disputed customer. 5. 7 U.S.C. § 1926(b) prohibits municipalities or similar entities from exercising their powers to sell water, and from placing conditions or restrictions on the service provided or made available by the indebted association or competing with a federally indebted association, when the exercise of such powers would result in curtailment or limitation of the service provided or made available by a federally indebted association. 11

12 6. On November 1, 1979, Aqua was issued CCN Number 10294 by the Public Utility Commission of Texas, establishing Aqua’s “service area,” which is herein referenced as “Aqua’s Territory,” “Aqua’s CCN,” or “Aqua’s Certificated Area.” 7. Elgin is and has been selling water within “Aqua’s Territory” (Aqua’s federally protected service area) to approximately 2,000 potential customers of Aqua (herein “Existing Customers”), to which Aqua “made service available” as required in order to obtain and qualify for 7 U.S.C. § 1926(b) protection. The service provided or made available through any such association shall not be curtailed or limited by inclusion of the area served by such association within the boundaries of any municipal corporation or other public body, or by the granting of any private franchise for similar service within such area during the term of such loan; nor shall the happening of any such event be the basis of requiring such association to secure any franchise, license, or permit as a condition to continuing to serve the area served by the association at the time of the occurrence of such event. 12

13 Analagous Arkansas/Arkansas Water Plan Provision Arkansas Water Plan Amendment? Encroachment Issue may arise if proposing to serve area/district with Ark/ANRCC Debt Arkansas Natural Resource Conservation Commission may require municipal buy out of relevant district assets 13

14 Water Quantity Issues/Competition Example Power Plants are often forced to use poorer quality water – Poorer quality aquifers – Reclaimed (Grey) or recycled water Extensive treatment is required – New technologies needed – Generally very expensive Reclaimed/Recycled Water (a failed example) 14

15 Fresh water is becoming an increasingly scare resource in some areas. – Both groundwater and surface water Power Plants are competition with: – Agriculture – Other industries – Potable uses – Natural Resources Minimum Flows Minimum Levels – Transaction issue? 15

16 Eminent Domain Issues Water rights may be subject to power of eminent domain powers because it is an interest in real property. No compensation is required for property exercise of a state’s police powers that protect values such as public health and safety (i.e., water condemned for recreation required compensation as opposed to maintenance of water quality) Kelo v. City of New London (Does Arkansas have a narrower view of “public use” test?) 16

17 Taking Issues Water rights are property rights. Protected by the Constitution, common law, and Arkansas statute. Arkansas citizens have purchased land, constructed facilities and engaged in farming and industry, in reliance on the legal precedent that their water rights will be protected by law. Current and future land investments, and investment for agricultural, municipal and industrial purposes depend upon the ability of these land owners to utilize water. The State’s power to regulate uses of the waterways does not come from any ownership of the waters by the State. State need not own the waters in order to regulate them. As a protector and manager of the resources, the State through its agencies, is acting to protect the citizens Not acting as a property owner to enforce a property right. Changes in the way in which the State regulates withdrawers of water, dischargers of water and other uses of the waterways must be based upon addressing a need to protect the health, safety or welfare of the citizens of Arkansas. 17

18 Water Quantity/Competition L&S Water Power, Inc., et al, v. Piedmond Triad Regional Water Authority Court of Appeals of North Carolina 2011 N.C. App. LEXIS 734, April 19, 2011, filed Defendant is a public water authority comprised of Randolph County and the municipalities of Greensboro, High Point, Jamestown, Archdale, and Randleman organized to satisfy water deman Plaintiffs L&S Water Power, Inc., Brooks Energy, L.L.C., Deep River Hydro, Inc., Hydrodyne Industries LLC and Howard Bruce Cox (collectively “plaintiffs”) are downstream riparian owners who operate hydroelectric power plants on the Deep River. 18

19 Defendant petitioned the North Carolina Environmental Management Commission to use the power of eminent domain to divert water from the Deep River basin to construct Randleman Lake. EMC issued a certificate authorizing defendant to acquire land by eminent domain and divert by inter-basin transfer up to 30.5 million gallons of water per day from the Deep River Basin to the Haw and Yadkin River Basins. In April of 2001, defendant received a 404 Permit from the Department of the Army authorizing it to construct the Randleman Dam. Defendant built the Randleman Dam and started filling the Randleman Lake in order to develop a public water supply. On May 29, 2008, Plaintiffs filed a complaint against defendant for inverse condemnation and asserted that defendants decreased the rate of water flow in the Deep River and sought compensation from defendant for the taking of their riparian rights. Court rules defendant had taken plaintff’s riparian rights and that plaintiffs were entitled to compensation from the defendant. Specifically, the trial court found that: (1) defendant used its power of eminent domain to build the Randleman project, in furtherance of developing a public water supply; and (2) the Randleman project has and will continue to reduce the rate of water flow in the Deep River; (3) plaintiff’s ability to produce electricity has been negatively impacted by reduction of the natural stream flow of the Deep River. Court concluded that plaintiffs are entitled to be compensated for the loss of stream flow and that plaintiffs’ riparian rights can be valued by the loss of electricity capable of being produced as a result of reduction of stream flow. 19

20 DID HOLDERS OF SURFACE WATER APPROPRIATION PERMITS SUFFER A DEPRIVATION OF PROPERTY WHEN ORDERED TO CEASE WATER WITHDRAWALS? In Keating v. Nebraska Public Power District, the Eighth Circuit Court of Appeals affirmed the district court’s ruling that the appellants had not suffered a deprivation of property when they were told to cease drawing water from a watershed. Appellants, who were farmers in Nebraska, had obtained surface water appropriation permits that allowed them to draw water from the Niobrara Watershed. In 2006, the Nebraska Public Power District (“NPPD”) asked the Nebraska Department of Natural Resources to issue Closing Notices to farmers and ranchers who held permits junior to NPPD’s. DNR issued those notices in 2007 without providing notice or a hearing to those affected. The Court of Appeals found that the permit to use surface water from the Niobrara Watershed was a property right. However, the right was not ownership of the water prior to capture. The Court stated that the permit holder “acquires the rights granted by the permit and is subject to constraints articulated by the permit.” In this case, the Court stated that the appellants had the right to use the water in the watershed but that right was subject to regulation by DNR and subject to the rights of those senior to them. The Court stated that when DNR determined the watershed did not have sufficient water for all of the permits, the appellants no longer have an entitlement claim and do not suffer a deprivation of property right. The Court noted that the permits themselves warned the holders that the water supply might at sometime be insufficient to meet demands and that the permit states that “permit holders are ‘hereby given notice that [ they ] may be denied the use of water during times of scarcity.’” 20

21 RESOLUTION OF ARKANSAS GAME AND FISH COMMISSION TAKINGS CLAIM The Arkansas Game and Fish Commission had filed a physical takings claim against the United States in the Court of Federal Claims alleging temporary deviations by the Army Corps of Engineers (“Corps”) from an operating plan for Clearwater Dam during the years 1993 to 2000 increased flooding in the Commission’s Dave Donaldson Black River Wildlife Management Area. The Commission claimed that such flooding caused excessive timber mortality in the Management Area. The Claims Court concluded that the United States had taken a temporary flowage easement of the Commission’s property and awarded over $5,000,000 in damages. The Court of Federal Claims in Arkansas Game and Fish Commission v. United States (March 30, 2011) concluded that the Corps deviations did not constitute a taking and therefore reversed the Claims Court ruling. The opinion provides an extensive discussion of the Corps adoption of Water Control Manuals subsequent to construction of the dam which details release rates, safety features, and other operating instructions. Apparently, this dispute involved release rates from the dam established by the plan for Clearwater Dam and deviations from the planned rates. The opinion indicates that different interests favored different rates. For example, agricultural interests supposedly favored a lower release rate. In contrast, those located near Clearwater Lake apparently preferred a higher release rate to return the lake to its normal lake more quickly. Ultimately, the Commission brought suit against the United States under the Tucker Act claiming that temporary release rate deviations during the 1993-2000 constituted the taking of a flowage easement entitling it to compensation. The United States responded that any increased flooding was only temporary and not substantial enough to constitute a taking. The Court of Federal Claims concluded that it did not need to decide whether the flooding on the Management Area was “sufficiently substantial to justify a takings remedy” or “the predictable result of the government’s action” because the deviations were by their very nature temporary and therefore cannot be “inevitably or recurring” or constitute a taking the flowage easement. 21

22 Competition? Shale – Regulation of Water Impacts Disposal issues - Direct discharge to surface waters prohibited under Clean Water Act - Pretreatment and discharge via Publicly Owned Treatment Works (POTWs) – may be curtailed in some instances by State agencies - EPA – developing Effluent Limit Guidelines (2014) for shale gas wastewater treatment based on current and evolving technologies and options, affordability, etc. 22

23 Natural Gas Extraction Federal SDWA Regulation Safe Drinking Water Act exempts fracing (except w/diesel fuel) from regulation as “underground injection” by the Energy Policy Act of 2005. (42 U.S.C. 300h(d)(a)(B)(ii)). - Bills introduced in march 2011 to remove exemption and explicitly include fracing in SWDA (HR 1084, S 587). - Similar bills introduced in past (2009 – HR 2766. April 12, 2011: EPA Deputy Administrator Bob Perciasepe testifed before Congress that using diesel in fracing requires an SDWA permit or is a violation. August 11, 2011: EPA sent letters to nine companies requesting data on 350 wells that were frac’d, as part of its study of potential impacts on drinking water resources. October 20, 2011: EPA announces that in 2014 it will propose technology-based water pretreatment standards for water going from shale gas (frac) wells to publicly owned treatment plants. 23

24 Range Resources Case EPA Emergency Order December 7, 2010: EPA issues emergency order under Section 1431 of SDWA alleging contamination of two domestic wells. - No notice, no opportunity for Range Resources to comment, and no presentation of evidence. - Failing to comply with Emergency Order could lead to $16,500 per violation per day penalty. Order requires Range Resources to: - Provide drinking water within 48 hours to affected resident; - Install explosivity meters within 48 hours; and - Identify gas flow, eliminate gas flow if possible, and remediate areas of aquifer that have been impacted. Alleges methane contamination, not fracing fluid specifically. Alleges that state and local authorities had not taken sufficient action to address endangerment. 24

25 Range Resources Litigation January 18, 2011: U.S. DOJ files complaint in Federal Court against Range Resources for not complying with EPA’s emergency order. January 20, 2011: Range Appeals EPA order to 5 th Cir. March 22, 2011: Following investigation, Texas RRC Commissioners unanimously vote to clear Range Resources of EPA allegations. EPA did not testify at hearing. October 3, 2011: Oral argument held in Range’s 5 th Cir. Appeal. 25

26 EPA Hydraulic Fracturing Study Plan (final – Nov. 3, 2011) Water Use in Hydraulic Fracturing Operations Water Acquisition Chemical Mixing Well Injection Flowback and Produced Water Wastewater Treatment and Waste Disposal Fundamental Research Question What are the potential impacts of large volume water withdrawals from ground and surface waters on drinking water resources? What are the possible impacts of surface spills on or near well pads of hydraulic fracturing fluids on drinking water resources? What are the possible impacts of the injection and fracturing process on drinking water resources? What are the possible impacts of surface spills on or near well pads of flowback and produced water on drinking water resources? What are the possible impacts of inadequate treatment of hydraulic fracturing wastewaters on drinking water resources? 26

27 AWWA Urged Changes to EPA Fracking Study In a letter to EPA, AWWA urged the agency to ensure a new study on hydraulic fracturing include a robust program to monitor drinking water sources. Commenting on EPA’s Draft Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, AWWA Deputy Executive Director Tom Curtis said, “Protecting drinking water should trump everything.” Study will include: - Five retrospective case study locations: Bakken Shale, ND; Marcellus Shale, PA (2 locations); Raton Basin, CO; and Barnett Shale, TX - Two prospective cases study locations: Marcellus Shale, PA; Haynesville Shale, LA. Initial results expected in 2012, with 2014 report. 27

28 Regulation of Water Impacts Current Federal Studies and Initiatives, cont’d – DOE, Advisory Board, Shale Gas Production Subcommittee, Second 90- Day Report (Nov. 18, 2011) No demonstrated need for additional federal regulation via SDWA; recommended that federal funding be granted to STRONGER AND Ground Water Protection Council, and improved communication between federal and state regulations Recommends development of a national data portal, to improve public information about shale gas operations Supports DOI announced plan to require disclosure of fracturing fluid composition for all wells drilled on federal lands; recognizes that industry appears willing to do this across-the-board Measure and publicly report composition of water stocks and flow throughout the fracturing and reclamation process; manifest all transfers of water among different locations Adopt best practices in well development and construction (especially casing, cementing and pressure management) Adopt requirements for background water quality surveys 28

29 Regulation of Water Impacts Penn State, Center for Rural Pennsylvania, October 2011 Study - Pre- and post-drilling assessment of 233 drinking water well - Pre- and post-hydraulic fracturing assessments - Conclusion: no statistically significant correlation between water quality and gas well drilling or fracturing - Approximately 40% of wells fell below SDWA standards before drilling - A few wells showed higher bromide levels after drilling 29

30 Natural Gas Extraction -- Future Issues Broad disclosure of fracing fluids and chemical additives Narrowing of UIC exemptions Ban on use of certain additives Restrictions on disposal of flowback fluids Enhanced enforcement, site inspections Challenges to obtaining water during drought 30

31 Development of New Water Facilities/Supplies/Infrastructures The development of new facilities to extract, store, impound, and/or transport water can involve complex technical, political, legal and regulatory issues. A few strategies to consider to attempt to ease the development process might include: – Start permitting early – Pursue all required permits simultaneously (if possible) Example: 404 Nationwide/NPDES/ESA – Recognize Construction/Design Issues Development of water supply facilities are often complex projects Limitation of Liability Issue Waterworks and wastewater treatment plant owners that wish to retain the ability to seek compensation for the failure to meet performance standards must identify and remove these clauses in the applicable contracts and service agreement – Add additional environmental benefits to project wetland mitigation, parks, conservation easements, etc. 31

32 Can water be purchased or otherwise acquired in the desired amounts in lieu of developing a new facility Contract issues are critical Certainty of supply - Physical - Legal (use ANRC rules) We will also discuss this. 32

33 Construction Project Risk Management The design, construction, operation, maintenance and management of facilities that provide wastewater services and water continue to generate complex issues. Recognize Risk – Construction involves risk management – Risk management involves identifying risk and dealing with the risk Major Causes of Disputes 1.Lack of scope definition by owner - refer to contract documents - is proposal included? - National Environmental Policy Act issue (example) 2. Improper risk allocation in contracts (stormwater examples) 33

34 Environmental Consultant Limitation of Liability Clause The CLIENT agrees to a limit Bodine’s liability to the CLIENT and all parties claiming through the CLIENT or otherwise claiming reliance on Bodine’s services, allegedly arising from Bodine’s professional acts or erros or omissions, to a sum not to exceed Bodine’s fees for the services performed on the project, provided that such claims are not attributable to Bodine’s gross negligence or intentional misconduct. In this latter event, the limit of liability will be increased to $25,000 less any applicable insurance amount covering alleged damages or claims. In no event shall Bodine or any other party to this agreement, including parties which may have claimed to have paid direct or indirect reliance on Bodine’s services be liable to other parties for incidental, indirect or consequential damages arising from any cause. 34

35 CONNECTICUT DECISION ADDRESSING WHETHER ENGINEERING AND ENVIRONMENTAL CONSULTING FIRMS COMMITTED ENGINEERING MALPRACTICE BY PROVIDING OPINIONS THAT CERTAIN LAND WAS EXEMPT FROM THE HIGHLAND WATER PROTECTION AND PLANNING ACT A Superior Court in New Jersey in Bob McEwan Construction Corp. vs. Donohue Engineering Co. and Ecols-Ciences, Inc., et al, addressed a claim alleging engineering malpractice. The Plaintiff’s malpractice count alleged that Defendant Donohue Engineering Co. and Defendant Ecols-Ciences, Inc. (“negligently and carelessly provided advice and counsel”) to Plaintiff Bob McEwan Construction Corp. by reason of their providing opinions of certain lots under contract of purchase were exempt from the Highlands Water Protection and Planning Act. Donohue was engaged to do “whatever was required to get a subdivision before the Planning Board….and to conform with the ordinances”. Ecols-Ciences, an environmental consultant, was hired to prepare a preliminary investigation report – not to provide opinions about the Highlands Act. The opinion states Ecols-Ciences provided an opinion on the applicability of the Highlands Act. The opinion states that in the March 2, 2006 letter Ecols-Ciences explained: Although the site is located within the Highlands Preservation Area, the standard 300 foot buffer from the Highlands Open Water/Wetlands do not apply to the proposed l ots. It is my understanding that you propose to develop the site with two single-family residences that will connect to the existing sewer service area. Therefore as long as t he cumulative disturbance proposed on both lots does not exceed an acre and cumulative impervious surfaces do not exceed ¼ of an acre, development on the two lots is exempt from the standards of the Highlands Preservation Area. 35

36 Transactional Issues: Environmental Due Diligence Associated With A Bond Issue/Dispute Regarding Responsibility The development of facilities, properties, and/or districts is sometimes financed through the issuance of bonds. Like other commercial activities, the determination of whether or not past or current environmental issues might impact the operation and/or development of a bond project can be a key issue. Environmental due diligence and/or assessments may be undertaken of the project’s improved or unimproved properties. The responsibility for supervising the environmental due diligence and determining the appropriate assessment activities can become a source of contention. Example is found in a federal district court opinion from the Eastern District of Louisiana in Coves of the Highland Community Development District vs. McGlinchey Stafford, P.L.L.C. The opinion discusses a federal court complaint that had been filed against a law firm. The Plaintiff community development district had been established for the purpose of financing and managing a planned residential community in Louisiana. The opinion indicates that the law firm had been engaged to serve as counsel to the district in connection with its organization, bond issuance, and compliance activities for the real estate development. It is also states that Plaintiff alleged that Defendant verbally promised to “guide and oversee the entire process” and “to ensure that all necessary work was performed for the project …..” 36

37 Bond (continued) Corps of Engineers issued a public notice in which it stated that the Plaintiff’s property had been used as a bombing, rocket, and gunnery range, and was the subject of an active investigation by that agency. Parish Engineer prohibited additional permits or approval until the unexploded ordinance and contamination had been fully investigated and remediated. Plaintiff alleged that it was unable to further develop the property or sell the lots, resulting in a default of the bonds. Plaintiff alleged that the law firm, had a duty to conduct a reasonable investigation into the environmental issues that might delay or prevent the development. It alleged that had the law firm performed a basic environmental assessment, it would have discovered that the development project site was within the bounds of a historic bombing range. Consider relevance to water/wastewater project? 37

38  Performance Guarantees and Acceptance Testing  Problems for water and wastewater sector:  subjective standards for water quality  broad range of influent parameters  effluent standards that are more stringent than applicable law  measuring the standards  remedy if fail to meet guarantee  impact of operations ability to meet guarantee  The Challenges of Meeting Taste and Odor, Color and Noise Guarantees  Taste, odor and color are directly related to influent  what is the baseline for raw water?  what happens if actual influent changes from the baseline?  different ways to treat different influents  Attempt to make standards of classification objective  Noise  what is objectionable? Facility Development 38

39 CONSTRUING A WATER SYSTEM CONSTRUCTION CONTRACT Construction and design contracts involving water or wastewater facilities can pose challenges. Project objectives often involve somewhat more subjective issues such as toxicity (i.e., toxicity in toxic amounts), taste, odor, etc. 2010 Mississippi case titled Greenbriar Digging Service Limited Partnership and Insurance Company of the West v. South Central Water Association, Inc. (USDC SD Miss) provides a recent example. The contractor entered into a contract with a water district for a project to install an ozone system to reduce the color in one of the water system’s wells. The contract between the contractor and the water system included the following language: GUARANTEE REQUIREMENTS: The contractor shall guarantee that the ozonation system will reduce the color in raw well water from well 4 to 20 units or less in the finished water, as noted in these Contract Documents. The opinion indicates that the system installed by the contractor reduced the color of the water to 20 units or less at a flow rate between 600 and 700 gallons per minute which was below the anticipated maximum flow rate of 1200 per minutes and the actual flow rate of 1000 gallons per minute. Both this decision and a prior decision addressed the liability of the contractor and the appropriate measure of damages in view of this performance failure. 39

40 Emerging Contaminants Affect wastewater treatment as water supply? Research is documenting with some frequency that many chemical and microbial constituents that have not historically been considered as contaminants are present in the environment on a global scale. These emerging contaminants are commonly derived from household, (personal care products, drugs, etc.) municipal, agricultural, and industrial wastewater sources and pathways. 40

41 National Association of Clean Water Agencies Asks If Advances in Technology Increase Detection Rates, Causes Unfounded Concern? Increasingly sophisticated chemical dectection and monitoring technology is revealing the presence of chemical compounds at lower and lower trace levels, down to nanograms per liter, or millions of times lower than a therapeutic dose of pharmaceuticals. 41

42 Despite the low levels at which PPCPs have been detected, growing public awareness and heightened concerns on the part of consumers quite possibly may lead to future demands that these chemicals be removed. The relative lack of definitive regulations at the federal or state level governing acceptable practices for the disposal of PPCPs and EDCs and the proper management of such chemicals during water recycling and recharge activities may contribute to growing public uncertainty. In 2002 and 2004, the US Geological Survey published studies reporting the detection of a broad array of personal care products at nanogram (i.e., parts per trillion) levels in rivers and streams and in raw and treated drinking water nationwide. 42

43 AUTHORITY TO SELL LARGE VOLUMES OF WATER : LOUISIANA ATTORNEY GENERAL OPINION The ability to transfer water in eastern states is often dictated by riparian common law principles. May be particularly problematic to determine what authority is available to transfer water from various types of water bodies to off-site users. In 2011, Louisiana Attorney General was asked to provide an opinion as to whether a watershed district had the authority to sell large volumes of surface water from a lake, a tributary to a lake and any parish stream outside a national forest. The following questions were posed in regards to withdrawal of groundwater for new commercial uses which included: 1. Are there specific state controls regarding new commercial uses of groundwater a. From an existing well; and b. From an existing public supply well? 2. Is there a minimum volume of water that would be subject to such control ( in question 1 above)? 3. Are there any controls that apply when a commercial user that is withdrawing from a public supply of groundwater increases its withdrawal amount? 4. What is the extent, if any, of the authority of the Commission regarding new commercial groundwater withdrawal within the parish? 43

44 Project Risk Management (Lessons Learned) Public projects requiring permits – Likelihood the required permits will be appealed/challenged. – Do employees/consultants recognize that most of what they write can be obtained through discovery/FOIA? – Humorous comments, conservative observations, disagreements about regulatory/legal issues, etc. will be obtained by opponents if in writing. (Example – NPDES appeal) – All written communications should be prepared with the thought that they may appear in open court (on administrative hearing) one day. – Sensitive information should be communicated orally. – Critical that understanding/information/provided/etc. to government be documented. 44

45 Recognize significant water source development activities could face greater challenges on certain waters. Recognize creative argument/obstacles: Presence of Endangered Species Act critical habitat and/or threatened or endangered species Interstate or interbasin transfers (ANRCC Issue?) Waters whose substantial use will engender opposition by state/federal authorities, tribes or significant environmental organizations Federal reservation of rights Clean Water Act TMDL’s Clean Water Act Jurisdictional Issues FERC License 45

46 National Environmental Policy Act (NEPA) – Major federal actions such as the re-allocation or apportionment of waters between states would need to go through specific procedural requirements. – While application of NEPA does not necessarily change the outcome of a federal decision on apportionment, it would require consideration of impacts from the project and alternatives to the proposed action. Overview of Key Statutes Affecting Development 46

47 Key NEPA Concepts NEPA Purpose? Procedural / Not Substantive Statute Jurisdictional Test – Major federal action / significant impact on the environment Relevant Issues – EA or EIS? Example – Greers Ferry decision Segmentation Project modifications/changes/supplement EIS? (speculative?) AWF Grand Prairie decision canal / pipeline / natural stream mix change, etc. – Scope of EIS Subsequent developments (woodpecker?) What range of alternatives must be considered? – AWF Grand Prairie – dry farming, congressional direction to provide surface water to farmers? Cumulative impacts – Example – Dardanelle decision 47

48 Potential Role of Endangered Species Act in Water Supply Development The ESA can be a material issue or hurdle for large or small water projects if an endangered or threatened species is potentially affected. – Key Sections are 7 and 9. – Relevant scenarios may involve development or operation of dams, reservoirs, canals, pipelines (i.e., flow, quantity issues) – Dam footprint, diversion of waters, etc. can potentially trigger ESA – Project might not be able to proceed, or conditions attached – What is critical habitat? (Note: Grand Prairie/White River decision) – Future Species listing? 48

49 Endangered Species Act of 1973 Species are listed as endangered or threatened because of any of five factors: – the present or threatened destruction, modification or curtailment of its habitat or range; – overutilization for commercial, recreational, scientific or educational purposes; – disease or predation; – the inadequacy of existing regulatory mechanisms; – other natural or manmade factors affecting the species’ continued existence. 49

50 U.S. FISH AND WILDLIFE SERVICE NOTICE OF PETITION/INITIATION OF STATUS REVIEW OF TWO BATS AS ENDANGERED OR THREATENED UNDER THE ENDANGERED SPECIES ACT The United States Fish and Wildlife Service (“Service”) announced on June 29, 2011 a ninety-day finding on a petition to list the eastern small-footed bat and the northern long-eared bat (“bats”) as endangered or threatened under the Endangered Species Act (“ESA”) and designate critical habitat. Section 4(b)(3)(A) of the ESA requires that the Service make a finding on whether a petition that lists, delists, or reclassifies species presents substantial scientific commercial information indicating that the petitioned action may be warranted. The Service is requesting scientific and commercial data and other information regarding the species and will issue a twelve month finding on the petition which will address whether the petition to action is warranted as provided in the Endangered Species Act. The eastern small-footed bat ranges from Eastern Canada and New England south to Alabama and Georgia and west Oklahoma and its range includes Arkansas. 50

51 Endangered Species Act Section 7(a)(2), 16 U.S.C. 1536(a)(2): – Each Federal agency shall … insure that any action authorized, funded, or carried out … is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [critical habitat]. : NO ADVERSE MODIFICATION OF CRITICAL HABITAT Section 9 – Take, Harass, Modify Habitat, etc. 51

52 The Section 9 “Take” Prohibition in the Endangered Species Act Section 9 – Take, Harass, Modify Habitat, etc. Applies to public and private entities Arkansas Exs. – Ivory Billed Woodpecker, Burying Beetle Prohibits all kinds of taking, including direct death and injury, and “harm” and “harassment” Harass: Harass is defined as an intentional or negligent act or omission that creates the likelihood of injury to wildlife by annoying it to such an extent as to significantly disrupt normal behavior patterns…. Harm: Harm is defined as any act that actually kills or injuries wildlife including significant habitat modification 52

53 ACTION ALLEGING TEXAS COMMISSION ON ENVIRONMENTAL QUALITY OFFICIALS VIOLATED ENDANGERED SPECIES ACT IN THEIR MANAGEMENT OF FLOW OF FRESH WATER INTO THE SAN ANTONIO BAY The Aransas Project, a nonprofit corporation brought an action pursuant to the Endangered Species Act (“ESA”) against several Texas Commission on Environmental Quality (“TCEQ”) officials. The Project alleged that TCEQ officials failed to adequately manage the flow of fresh water into the San Antonio Bay ecosystem during the 2008-2009 winter resulted in a “taking” of Whooping Cranes, and endangered species, in violation of Section 9 of the ESA. The Project argued that the reduced flow of fresh water into the ecosystem increased salinity, reducing the food and water supply for the whooping crane, thus weakening and ultimately resulting in the death of 23 whooping cranes. The plaintiff’s request for relief included an assurance that the whooping cranes would have sufficient water resources to prevent a future “taking”. The parties filed various motions for partial summary judgment. The TCEQ officials contended that, as a matter of law, the Project is not entitled to recovery under Section 9 of the ESA because imputing liability to regulatory agencies for merely carrying out their regulatory duties runs contrary to the ESA. TCEQ officials also attempted to distinguish case law cited by the plaintiff arguing that the agency had almost no authority to modify or revoke water permits because such permits reflect property rights that are constitutionally protected under Texas law. Project further argued that permit holders have rights in water, but ultimately water is the pro property of the state. Court rejects the TCEQ officials argument that Section 9 of the ESA does not extend to suits brought against regulators whose actions indirectly result in the taking of an endangered species. 53

54 Clean Water Act Relevance to Water Supply? - 404/10 permits - Jurisdictional Issues - Interstate - Stormwater Jurisdictional issues – Navigability Rapanos and subsequent decisions – South Florida Water District (Miccosukee) (pumping from a canal into another waterbody), r – Dam flow cases (“discharge” – Does flow constitute discharge under 401) 54

55 The Corps’ Wetlands Jurisdiction The Corps of Engineers has jurisdiction over wetlands under the CWA. 33 U.S.C. §§ 1251, et seq. The CWA prohibits the discharge of pollutants into navigable water. “Navigable waters” means the waters of the United States. 33 U.S.C. § 1362(7). The Corps has issued a regulation defining “waters of the United States. – All waters which are currently used, or were used in the past, or may be susceptible to use in interstate or foreign commerce, including all waters which are subject to the ebb and flow of the tide; – All other waters such as intrastate lakes, rivers, streams (including intermittent streams, mudflats, sandflats, wetlands, sloughs, prairie potholes, wet meadows, playa lakes, or natural pponds, the use, degradation or destruction of which could affect interstate or foreign commerce including such waters; – Tributaries of waters identified in paragraphs (1) through (4) of this section; – Wetlands adjacent to waters (other than waters tha are themselves wetlands) identified in paragraphs (1) through (6) of this section 33 C.F.R. § 328.3 The regulations further provide that the term “adjacent” means bordering contiguous, or neighboring, and they specify that “wetlands separated from other waters of the United States by man-made dikes or barriers, natural river berms, beach dunes and the like are “adjace nt wetlands”. 55

56 STATE (SOUTH CAROLINA) WETLAND/WATER POLLUTION CONTROL JURISDICTION FOUND TO BE BROADER THAN FEDERAL CLEAN WATER ACT COUNTERPART The jurisdictional reach of state water pollution control and wetland statutes is often broader than that provided by the federal Clean Water Act. For example, the Arkansas Air and Water Pollution Control Act provides that “[It shall be unlawful to place any ….waste in a location where it is likely to cause pollution of any waters of the state.]” See Ark. Code Ann. 8-4-217. Waters of the state is defined as “all streams, lakes, marshes, ponds, water courses, water ways, wells, springs, irrigation systems, drainage systems, and all other bodies or accumulation of water, surface and underground, natural or artificial, public or private which are contained within, flow through or border upon this state or any portion of the state. The South Carolina Supreme Court in Georgetown County League of Women Voters vs. Smith Land Company, Inc., addressed a situation in which the owner of a parcel of property in South Carolina argued that a portion of it was not subject to either federal or state wetland jurisdiction. As we explained in Spectre, LLC vs. S.C. Dep’t of Health and Enviro. Centl., 386 S.C. 357, 688 S.E.2d 844 (2010), Solid Waste holds that the Corps may not regulate isolated wetlands, but has no impact on DHEC’s ability as a state agency, to do so. While Spectre decided DHEC’s continuing authority under the coastal management program developed pursuant to the statutory mandate found in the Coastal Zone Management Act, this Act specifically defines the waters subject to its regulation by DHEC to include isolated wetlands. 56

57 Clean Water Act Key CWA water “movement” decisions – South Florida, etc. Drainage and flood control projects, irrigation water delivery systems, and interbasin and even intrabasin transfers for drinking water supplies might someday need to ask these questions: – Does the project move water from one distinct waterbody to another? – Would the water being transferred have remained separate from the receiving waterbody but for the project or the transfer? – Does the water being transferred differ in quality from the quality of the receiving waterbody? Does the water being transferred contain levels of total suspended solids, total dissolved solids, nutrients, or any other constituent that could constitute the “addition of pollutants” to the receiving waterbody? Note – EPA Policy 57

58 FEDERAL ENVIRONMENTAL PROTECTION AGENCY/CORPS CLEAN WATER ACT DRAFT GUIDANCE RE WATERS OF THE UNITED STATES The federal Environmental Protection Agency (“EPA”) and the United States Corps of Engineers (“Corps”) drafted additional guidance governing what they consider waters constituting wetlands and/or “isolated waters” under the Clean Water Act (“CWA”). Guidance is marked draft and has been submitted to the Office of Management and Budget and carries the label “DELIBERATIVE PROCESS: CONFIDENTIAL DRAFT.” Document is dated December, 2010. Specifically, the guidance describes how EPA and the Corps will identify waters subject to jurisdiction under the CWA and implement the Supreme Court decisions concerning the extent of waters covered by the Act such as United States v. Rapanos. Guidance is the most recent in a series of guidance the agencies have issued since the Rapanos decision. 58

59 WATER: THE COMMON ENEMY DOCTRINE IN THE CONTEXT OF FEDERALLY REGULATED WETLANDS In B & B, LLC v. Lake Erie Land Co., the Court of Appeals of Indiana addressed a scenario involving the “Common Enemy Doctrine”. The court considered whether a land owner, who raises the subterranean water table on his land and creates a federally regulated wetland may invoke the Common Enemy Doctrine of water diversion and shield himself from liability to adjoining land owners whose property also becomes federally regulated wetlands. The facts involved one entity attempting to create wetland mitigation on its property and allegedly causing a wetland to develop on another property. T he owner of the inadvertent/unintended wetland sought damages for lost profits and the lost value of the land. The Common Enemy Doctrine generally provides that surface water that does not flow into defined channels is a Common Enemy and each land owner may deal with it in such a manner that best suits his own convenience. The court held that the Common Enemy Doctrine did not bar a cause of action against the land owner that allegedly caused wetlands to develop on the other property. It held that the entity that undertook the wetland mitigation had a duty and breached that duty by not stopping the propagation of wetland species that culminated in the establishment of the wetlands on the other parcel. 59

60 Water Quality Standards Water Quality Standards (CWA § 303(c)) – Designated use – Water quality criteria (numeric or narrative) States develop WQS (CWA § 303(c)) EPA Role – CWA §§ 303(c) 304(a) – Develop and publish criteria guidance to assist states – Review/approve WQS developed by state – Promulgate standards where necessary – States develop WQS (CWA § 303(c)) Many states lack numeric nutrient criteria – No nutrient criteria – Narrative standards only – Numeric criteria for only certain waters/classes of waters – EPA Goal – Accelerate adoption of numeric criteris 60

61 Clean Water Act Nutrient Issue Widespread impairment of waters due to nutrient loadings Sources vary – Agriculture, stormwater, municipal wastewater, atmospheric deposition … Non-point sources are top contributors – and hardest to regulate NPDES permitting program TMDLs – Water Quality Standards – EPA Florida and Chesapeake Bay TMDL’s 61

62 Conflict between Drinking Water and Wastewater? APPEAL OF CITY OF HUNTSVILLE, ARKANSAS NPDES PERMIT RENEWAL The City of Huntsville, Arkansas has a Clean Water Act National Pollution Discharge Elimination System (“NPDES”) Permit to discharge into Town Branch, which is stated to be approximately one- half mile above its confluence with Coleman Creek. NPDES Permit expired in 2009 and the city subsequently applied for a renewal of the permit. Beaver Water District (“BWD”) submitted public comments on two drafts of the permit renewal that were issued by the Arkansas Department of Environmental Quality (“ADEQ”). ADEQ issued a final permit on April 27, 2011. The BWD filed a Request for Hearing (i.e. appealed the permit decision) on May 26, 2011 pursuant to the Arkansas Pollution Control and Ecology Commission Regulation No. 8. BWD’s Request for Hearing references three issues. Those issues are stated to include: “First, the permit is required to contain effluent discharge limits for Total Dissolved Solids (TDS). Second, the permit is required to contain limits on chlorides, or at a minimum, require chloride monitor reporting. Third, the final limits for Total Phosphorus (TP) should be effective immediately, or in the alternative, and as more fully explained below, at a minimum by September 1, 2011.” - Settled 62

63 Flow/CWA Compliance The federal CWA requires the states to have water quality programs that meet minimum federal standards. Compliance with many of the federal and state water quality standards could be achieved by simply allowing more water to remain in streams. Thus, water quality requirements could be addressed by water quality measures. If states establish mechanisms that increase flows and protect stream environments based on water quality, then adequate flows for stream flushing, assimilating wastes, and a number of other environmental purposes are possible. 63

64 Oklahoma/Arkansas Clean Water Act Conflict Oklahoma’s efforts to restore the Illinois River to pristine scenic river conditions have resulted in recurrent and steadily intensifying disputes with agricultural interests on both sides of the border and point sources located predominantly in the headwaters on the Arkansas side. Environmental groups have filed a petition with EPA asking the agency to impose nutrient water quality standards and adopt TMDLs for the main stream of the Mississippi River, all of its tributaries, and certain related coastal waters in the Gulf of Mexico. Oklahoma Water Resources Board adopts.037 mg/1 numeric criteria for phosphorous in Oklahoma scenic riversin 2002 (but not fully effective until 2012). Major NW Ark POTW Reductions 64

65 Model and TMDL Development Watershed Model Covering Both States May lead to one or more TMDLs in the watershed Identify sources of nutrients in watershed Modeling Goals Quantify reductions needed to meet water quality needs Tool to guide non-point source and point source implementation 65

66 EPA Activity TMDLS – Provides a basin wide characterization and budget to address nutrients between both States – Comprehensive Plan for the Illinois River Watershed Watershed Based Plans – Provide road map to on-the-ground implementation activities in Arkansas and Oklahoma 66

67 Project Tasks/Tentative Schedule Tasks/Tentative Timeframe – Final Simulation Plan, Final Gap Report, Final GIS Database, and Final Modeling QAPP – August 2011 – WQ Modeling (Setup) – July 2011 – WQ Modeling (Calibration/Validation) – September 2011 – WQ Modeling Scenarios – October 2011 – Preliminary TMDL(s) – Nov-Dec 2011 – TMDL(s) – Public Notice – January 2012 – TMDL(s) – Establishment – April-May 2012 67

68 CWA Citizen Suit / Common Enemy Rule / Stormwater Arkansas follows a version of the Common Enemy Rule. The courts have held that the right to divert surface water must be exercised with due care so as not to inflict injury on a neighboring landowner beyond what may be fairly necessary. Can affect levees, dams, etc. Comparison to Common Law Suit? (Example) 68

69 Obtain Water Through Aqusition? Transaction Examples Sale of rights Water Ranching Water Banking Contractual Sale – Term contracts – Dry year options – Conservation measures – Exchanges – ground for surface (creativity of parties guides transaction form) 69

70 Water Marketing What is it? – Transfer of water/rights between willing seller (landowner) and buyer Transaction Forms: – Lease, sale of right, sale of water, land purchase, cooperative Exporting: – Transfer of water off property, outside of basin, state, etc. Benefits of Water Marketing Provides water to growing cities Drought management tool Reallocation of lower valued water Alternative to reservoir construction Incentives to conserve – sell the water Revenue source for agriculture Minimizes water bureaucracy Requires negotiation with impact parties 70

71 Drafting Water Transfer Agreements How do we sell and how do we buy water? – Most Common Forms Buy the land and get the groundwater as a part of the bundle of sticks Water supply agreements 71

72 Water Contract/Acquisition Considerations Selling and buying water? (a checklist) – Most Common Forms Buy the land and get the groundwater as a part of the bundle of sticks Also will need use of surface estate The right to use the surface estate for the exploration and development of the groundwater estate on an exclusive or non- exclusive basis The right to place infrastructure on the surface estate (through a fee interest, lease or easement) The right to ingress and egress to construct, operate and repair a water collection system Purchase of groundwater in fee simple absolute Transfer of groundwater for a period of time – Fee simple determinable – Lease License 72

73 Legal/Regulatory Considerations Transfer authorizations (ANRC issue?) Transfer Barriers Third party impacts Interbasin/Aquifer transfer Navigability – can’t buy public streambed Federal reserved rights Riparian Issues (Power Plant example) 73

74 Water Transfer/Use/Sale Issues Economic Factors – Increasing demand – Limited supply options – Low valued uses – Buyer and seller base – Market data base – Transaction cost consideration Technical Considerations – Conveyance systems Pipelines Natural watercourses – Statewide plumbing systems – Urban growth PURCHASE OF REAL PROPERTY AND WATER SUPPLY IS CRITICAL: ISSUES – Reservations in title? (Nilsson case – water rights can be reserved) – Future “riparian” issues? 74

75 Price is Negotiable Pricing methodology dictated by lease or conveyance – Pricing methodologies include: Oil & Gas pricing concepts – “Guaranteed” money up front – Bonus – Delay Rentals – Shut in payment – Royalty payments » Sold at lease » Sold off lease » Royalty on take or pay Traditional water sales concepts – Price per 1000 gallons or acre foot (lease or conveyance) – Take or pay – Options or reservation fees – Price escalators Timing is Negotiable Lease and “so long as producing” Outright conveyance Production some time in the future 75

76 Drafting Water Transfer Agreements Start with Outright Purchase Not dissimilar to a real estate sales transaction – as a starting point – however there are notable differences: – Legal Description What groundwater is being conveyed? geological description; Determine if exclusive or non-exclusive right to develop and use groundwater; and If less than all of the groundwater is conveyed – determine the priority between the two estates for access and other purposes. 76

77 Drafting Water Transfer Agreements Outright Purchase Also Will Need Use of Appurtenant Surface Estate: The right to use the surface estate for the exploration and development of the groundwater estate on an exclusive or non-exclusive basis; The right to place infrastructure on the surface estate (through a fee interest, lease or easement); and The right of ingress and egress to construct, operate and repair a water collection system. Implied easement of necessity? 77

78 Surface Use is Negotiable Groundwater production not as “day to day” as oil and gas – Specify rights Damages payment for surface destruction Location of wells (distance from house or “special place”) Roads (existing versus new) Pipelines (existing right of ways, depth) Power and production facilities Access and care of roads Fences Hunting and fishing Clean up before, during and after production 78

79 Impacts to Consider When Reserving Uses Can affect property values Well location can affect what you get from the spigot in terms of quantity or quality Future land use is limited by reservation of use and by amounts of available production – Rural – Urban Will affect future use of land 79

80 Plant/Facility Management Enforcement Issues Criminal Offenses Clean Water Act (33 U.S. C. § 1319 (c)) Felony for “Knowing” Violations 3 years in prison/$5,000 - $50,000 fine per day of violation Misdemeanor for “Negligent” Violations 1 year in prison/$2,500 - $25,000 fine per day of violation Rivers and Harbors Act (33 U.S. C. §§ 406, 411) Misdemeanor Strict Liability Offense 1 year in prison/$500 - $25,000 fine per day of violation Potential minimum 30-day prison term 80

81 Other Criminal Offenses Conspiracy (18 U.S.C. § 371) Felony – Five Years in Prison, $250,000 fine for individuals $500,000 fine for organizations Misdemeanor – Same prison term as underlying offense, Fine False Statements (18 U.S.C. § 1001) Felony – Five Years in Prison, $250,000 fine for individuals, $500,000 fine for organizations Obstruction of Justice (19 U.S. C. §§ 1505, 1519) § 1505 – Felony – Five Years in Prison, $250,000 fine for individuals, $500,000 fine for organizations § 1519 – Felony – 20 Years in Prison, $250,000 fine for individuals, $500,000 fine for organizations 81

82 Enforcement Recordkeeping/Falsification Jury convicts Stover Missouri Mayor of lying to federal agent about adulterated drinking water supplies – On Aug. 13, 2010, co-defendant Richard R. Sparks, 54, of Stover, pleaded guilty to making a false statement. Sparks, the superintendent of the city’s public works department, admitted that he submitted a public water supply chain of custody record to the Missouri Department of Natural Resources that contained a false sampling location. 82

83 Mo. (cont.) - Sparks bore primary responsibility for the collection and submission for analysis of water samples taken on behalf of the city. - Beckmann knew about Sparks criminal activity but concealed I t from an agent of the Environmental Protection Agency Criminal Investigation Division. - Beckmann also lied to a federal law enforcement agent on Dec. 19, 2007. Beckmann was asked whether he knew that Sparks was adding chlorine to the city drinking water samples t hat were submitted to the Department of Natural Resources. Beckmann falsely denied any knowledge of the activity, although he earlier had admitted at a board of alderman meeting that he knew Sparks was putting chlorine in the city’s drinking water samples because the city water couldn’t pass inspection. 83

84 Other Recent Criminal Cases United States v. United Water Services, Inc., D. Bowie, and G. Ciaccio Northern District of Indiana (20-cr-217) Gary Sanitary District Charges: Conspiracy Tampering with a Monitoring Method (CWA 33 U.S.C. § 1319(c)(4)) 78 alleged occurrences of chlorine level tampering Other alleged misconduct United States v. John Tuma and Cody Tuma Western District of Louisiana (11-cr-31) Arkla Disposal Services, Inc./CCS Charges: Discharge to POTW in violation of Approved Pretreatment Program (33 U.S. C. § 1319(c)(2)(A)) Discharge to Red River Without a Permit (33 U.S.C. §§ 131(a), 1319(c)(2)(A)) Obstruction of Justice Alleged misconduct 84

85 DOJ, EPA and ADEQ Policies DOJ Policies U.S. Attorney’s Manual re Environmental Prosecutions (USAM § 5-11.114(C)) Factors in Decisions on Criminal Prosecutions for Environmental Violations in the Context of Significant Voluntary Compliance or Disclosure Efforts by the Violator Principles of Federal Prosecution of Business Organizations (USAM § 9-28) EPA Policies “Audit Policy” – Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations Interim Approach to Applying the Audit Policy to New Owners 85

86 USE OF THE ARKANSAS ENVIRONMENTAL SELF- DISCLOSURE INCENTIVE POLICY - EXAMPLE The Arkansas Department of Environmental Quality (“ADEQ”) developed an “Environmental Self-Disclosure Incentive Policy” a few years ago. Oil jobber discovered that certain inadvertent violations may have occurred in regard to an underground storage tank (“UST”) it owns and/or operates. Utilized the ADEQ policy. Oil jobber submitted a letter to ADEQ outlining the violation and seeking invocation of this ADEQ policy. ADEQ responded and stated the following: Based upon a review and evaluation of the submitted documentation with the conditions of the Policy by representatives from the Director’s office, the Small Business Assistance Manager, and Regulated Storage Tank Division, a determination has been made that the gravity-based component of the penalty can be mitigated 100%. 86

87 CAN A CLEAN WATER ACT CIVIL ACTION DEFENDANT ARGUE THAT GOVERNMENTAL GUIDANCE REGARDING THE PLACEMENT OF A DAM CONSTITUTES THE DEFENSE OF ENTRAPMENT BY ESTOPPEL? Plaintiff, United States of America, filed a Motion for Partial Summary Judgment against an individual defendant and a ranch. The defendants allegedly collectively owned over 2,000 acres of real property in Tennessee. A Clean Water Act civil action was filed arising out of their construction of a dam and impoundment sometime after June, 2005. As described in United States of America vs. Richardson M. Roberts, et al, 2011, the dam measured approximately 60 feet high and approximately 400 feet long. Opinion states that prior to the construction a biologist and permit writer for the Tennessee Department of Environmental Conservation, visited the prospective construction site. The ranch manager escorted this agency official around the property during an August, 2004 visit and other engineering consultants also approved the site during the visit. The opinion states: According to Blue, during the visit, Baker stood in a particular location and said “if you put [the dam]here, you wouldn’t have any issues” with either of the obtained permits. In a subsequent Clean Water Act civil action, the defense included “entrapment by estoppel”. Argument was apparently based on the Tennessee’s agency official statement that the dam in its present location “wouldn’t have any issues”. The court held that the entrapment by estoppel defense was limited to the criminal context and noted that since the United States is only seeking civil penalties, it was inapplicable to this civil action. 87

88 Government Settlement Considerations Both federal EPA and Arkansas ADEQ actions are settled through consent orders (similar to contract) Critical to ensure facts described in consent order to not pose a problem (accuracy/inflammatory/unnecessary) Critical to ensure consent does not require admissions that can be used against company in other contexts (damage suits, etc.) Critical to ensure consent order resolves/covers all violations from inspection that could have been alleged 88

89 Enforcement Settlement Issues Federal penalties are typically much higher than state assessments for similar violations Resolution of issue with Arkansas (or other states) may provide either a legal or practical argument that federal enforcement is unwarranted Governmental enforcement actions can pose problems at sites at which there is opposition to the project or facility – Energize opposition/bad PR (stormwater example) – Encourage/validate private damage/injunctive relief actions by utilizing facts alleged/developed by government – Action by settlement with government might prevent statutory/Clean Water Act Citizen suit by non-government folks/individuals 89

90 Avoiding Civil Enforcement Avoid unnecessary enforcement by securing a permit with as few problem conditions/terms as possible – Is the facility’s effluent correctly characterized in terms of flow, concentration and viability? – Are there any concerns re: default values for stream parameters, conservative model assumptions, accurate translation of facility’s waste load allocation into facility’s permit? Permit as a shield – For pollutants specifically limited in the permit – Pollutants identified as present in application – Constituents of waste streams, operations and processes identified in application – Identify all CSO outfalls 90

91 Residual / Filter Backwash / Biosolids Land application permits (ability to use land?) Common law liability – Poultry industry examples – Sewage sludge (Pennsylvania sludge involving rota virus) Public opposition Agency scrutiny – NW Arkansas example 91

92 California Hartwell Decision Pending Regulatory agencies may determine on the one hand that parties under its jurisdiction were in compliance and that the water quality and water quality standards were safe. On the other hand, courts and juries may determine that unregulated utilities delivering water damages for delivery of water that the jury or judge deems contaminated. – Is compliance with Safe Drinking Water – Are MCL’s relevant? Note congressional legislation – Defenses/Strategies Sovereign Immunity SDWA preemptions/consumer confidence reports relevant to failure to warn claims? 92

93 Liability of Water Providers? In re Groundwater Cases, 2007 DJDAR 3023 (Cal. App. 1 st Dist.) held that exceeding a drinking water standard known as a maximum contaminant level is not a basis for liability. Hartwell case ruled that the numerical standards, in the form of maximum contaminant levels and the action levels of the Department of Health Services, were the applicable standards and duties. Action levels are guidance for recommended action and are not binding as a matter of law. 93

94 Exceeding a numerical standard – Merely exceeding a numerical standard is not the end of the process but only the beginning. – When a standard is exceeded (except in those cases in which an organic pollutant exceeds the maximum contamination level by a factor of 10), the water provider and the department have a menu of options for addressing the problem. – These range from further testing over time (often many months) to confirm that the standard was exceeded, to the installation of wellhead treatment, to the use of blending plans to dilute the pollutant, among many other options. – Maximum contaminant levels are very conservative. 94

95 Common Law Claims Issues H.R. 306 – To amend the Safe Drinking Water Act to provide procedures for claims relating to drinking water – This Act may be cited as the ‘Drinking Water Standards Preservation Act – It is technologically infeasible for a drinking water system to provide water with a zero level of contaminants, and a determination that drinking water must contain no contaminants would threaten the adequacy of water supplies – The setting of these standards is not appropriate for individual juries deciding individual cases in the separate States, but rather is fundamentally a scientific issue to be resolved by the appropriate Federal and State agencies in accordance with the rulemaking provisions of the Safe Drinking Water Act and the applicable State authorities. – Claims for monetary damages brought against public water providers under the common law of the various States based on alleged contamination of drinking water threaten to undermine the science based uniform national system of water quality regulation. – The States should retain maximum flexibility to handle claims for monetary damages brought against public water providers based on alleged contamination of drinking water, including the authority to decide whether such claims should be heard by the courts or an administrative agency. – The costs of defending against multiple legal claims can be financially burdensome to any water provider, but especially to small systems, and the imposition of such costs cannot be justified when a supplier complies with the requirements of the Safe Drinking Water Act. 95

96 Water Plant Liability Exposure (Examples) Are SDWA Notification to public important? Water Supply Products Exposure – Malfunction at the plant allowed an improperly treated volume of water to be distributed to the residents. Contaminated Aquifer – Plant discovered a contaminated aquifer and was forced to re-drill wells – an expense not covered under its General Liability policy. Costly Cleanup – Bodily injury claims were filed by local residents against the water treatment plant for perceived injuries from drinking contaminated water. Dangerous Parasite Contaminates Drinking Water – Heavy rainfall brought unusually high levels of cryptosporidium, a parasite, to a water treatment plant from a surface waterbody. – Ammonia release – Odor – Microbial 96

97 Tort Claims Against Biosolids Some nuisance and personal injury claims; facts and science? Lawsuits may be viewed by activists as a tool to fight land application Contractors and farmers are the targets Location, location, location 97

98 Toxic Tort Suits – To Date No case to date has linked biosolids to human health problems through a court-approved expert report, court finding, or jury verdict EPA addressed and rebutted the underlying allegations of health impacts in a comprehensive letter dated December 2003 denying a petition to ban land application; NAS also has not found links 98

99 Gilbert Nuisance Suit July 2008: Lawsuit filed in York County, Pennsylvania by 37 individual plaintiffs living near land application site; sued farmer, land owner, contractor Complaint has three counts: Nuisance, negligence and trespass and seeks over $2.5 million in damges Plaintiffs allege that a 3 day land application in July 2007 caused: – Nuisance impacts from alleged bad odors, and – Alleged physical injuries ranging from coughs, rashes, sore throats to staph aureus infections August 2008: Defendants remove case to federal court based on Clean Water Act preemption; unsuccessful October 2008: Defendants move to dismiss the lawsuit on preemption grounds because biosolids are regulated under state rules (motion denied) 99

100 April 2010: Plaintiffs amend complaint in an attempt to remove “doctor diagnosed diseases” October 2011: Right to Farm Act defense rejected Many health impact allegations remain including: sore throats, eye irritation, nausea, sinus infection, gland pain, migraines, nose bleeds, diarrhea, rashes, teeth pain, and various degrees of respiratory irritation and congestion Defenses: – Land application of biosolids has never been linked to physical injuries – Experts must prove link between biosolids and health impacts – PA and York County regulators aware of odors – Trial Set for July 201 100

101 CITY OF HOT SPRINGS, ARKANSAS STORMWATER UTILITY FEE UPHELD BY ARKANSAS SUPREME COURT Funding Clean Water Air requirements imposed on municipalities is a constant challenge. The requirements imposed by the federal Clean Water Act stormwater requirements are no exception. In Morningstar v. Bush, the Supreme Court of Arkansas affirmed a Garland County Circuit Court ruling that a city ordinance establishing a Stormwater Utility Fund and imposing a fee was not contrary to Arkansas statutory law or the Arkansas Constitution. In January 2008, Hot Springs adopted Ordinance No. 5629, which established a Stormwater Utility Fund and imposed a Stormwater Utility Fee. The Fee applied to municipal utility accounts within city limits and was fixed at a per month amount of $6 for commercial and industrial accounts and $3 for residential accounts. 101

102 Bottled Water and Filter Protections and Right to Know Debate as to whether changes are needed in SDWA to require bottled water companies to fully disclose contaminants found in their water on the labels, to improve monitoring, regulation, and oversight and to expand right to know requirements. Are objective national standards, testing, certification and right to know requirements for home filters? 102

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