EPA’s Proposed Rule on Waters of the United States Audio Dial in Number February 27, 2014

Don Parrish Senior Director, Regulatory Relations, American Farm Bureau Federation Chair, Waters Advocacy Coalition

Waters Advocacy Coalition Members Agricultural Retailers Association American Farm Bureau Federation® American Forest & Paper Association American Iron and Steel Institute American Petroleum Institute American Road & Transportation Builders Association Associated General Contractors of America CropLife America Edison Electric Institute The Fertilizer Institute Florida Sugar Cane League Foundation for Environmental and Economic Progress Independent Petroleum Association of America Industrial Minerals Association - North America International Council of Shopping Centers Irrigation Association NAIOP, the Commercial Real Estate Development Association National Association of Home Builders National Association of Manufacturers National Association of REALTORS® National Association of State Departments of Agriculture National Cattlemen’s Beef Association National Corn Growers Association National Council of Farmer Cooperatives National Milk Producers Federation National Mining Association National Multi Housing Council National Pork Producers Council National Stone, Sand & Gravel Association Public Lands Council RISE - Responsible Industry for a Sound Environment Southern Crop Production Association United Egg Producers Western Business Roundtable

Deidre Duncan Partner, Hunton & Williams LLP Counsel to Waters Advocacy Coalition

| brattle.com5 Presenter Information DAVID SUNDING Principal │ San Francisco Prof. Sunding holds the Thomas J. Graff Chair of Natural Resource Economics at the University of California, Berkeley. He is the founding director of the Berkeley Water Center and currently serves as the chair of his department. He has won numerous awards for his research, including grants from the National Science Foundation, the U.S. Environmental Protection Agency, and private foundations.

EPA’s Proposed Rule on Waters of the United States February 27, 2014

Background CWA provides federal jurisdiction over “navigable waters,” defined as “the waters of the United States” In 1985, in Riverside Bayview Homes, the Supreme Court upheld the regulation of wetlands adjacent to or “inseparably bound up with” navigable waters The agencies adopted the current regulations in

Background In 2001, the Supreme Court in SWANCC rejected regulation of “isolated waters” under the Migratory Bird Rule because the waters lacked a “significant nexus to navigable waters” −Emphasized Congress’ use of the term “navigable” After SWANCC, the agencies adopted a broad interpretation that “waters of the U.S.” include any water “connected” to navigable waters 8

Background In 2006, the Court in Rapanos rejected the agencies’ “any hydrological connection” theory of jurisdiction as overly broad −Plurality opinion (Scalia): Rejected assertion of jurisdiction over ephemeral streams, ditches, and drains Relatively permanent waters −Kennedy concurrence: Joined plurality in rejecting the Government’s any connection theory Significant nexus 9

2013 “Proposed” Rule The Proposed Rule replaces the definition of “navigable waters” and “waters of the United States” in the regulations for all CWA programs, and in particular sections 311, 401, 402, and 404: −33 C.F.R. § −40 C.F.R. § −40 C.F.R. § −40 C.F.R. § −40 C.F.R. § 117.1(i) −40 C.F.R. § −40 C.F.R. § 230.3(s) and (t) −40 C.F.R. § −40 C.F.R. § −40 C.F.R. § 300, Appendix E to Part 300, 1.5 −40 C.F.R. § −40 C.F.R. §

WOTUS Under the “Proposed” Rule 1.All waters currently, in the past, or may be susceptible to use in interstate or foreign commerce, including tidal waters; 2.All interstate waters, including interstate wetlands; 3.The territorial seas; 4.All impoundments of waters otherwise defined as waters of the U.S.; 5.All tributaries of waters identified in 1-3 above; 6.All waters, including wetlands, adjacent to water identified in 1-5 of this section; and 7.On a case-specific basis, other waters, including wetlands, that alone or in combination with other similarly situated waters in the region have a significant nexus to a water identified in paragraphs

New Definitions in “Proposed” Rule Tributary: −Water body physically characterized by a bed and bank and ordinary high water mark which contributes flow directly or through other water bodies to waters in 1-3. −A water does not lose its tributary status if there are man-made breaks (such as bridges, culverts, pipes, dams) so long as bed and bank can be identified up and downstream of the break. −A wetland can be a tributary. −A tributary can be natural, man-altered, or man- made and includes rivers, streams, lakes, impoundments, canals, and ditches (unless excluded). 12

Tributary Definition The rule, for the first time ever, specifically defines ditches as jurisdictional tributaries under all CWA programs −Roadside ditches −Irrigation ditches −Stormwater ditches Other man-made conveyances that drain or connect would also likely qualify as tributaries Huge practical consequences that have yet to be evaluated 13

Farm Ditch 14

Potomac, Maryland 15

Roadside ditch constructed and maintained by Wicomico County, Maryland roads department 16

Other New Definitions in “Proposed” Rule Adjacent: Bordering, contiguous, or neighboring waters separated from other WOTUS by dikes, or barriers are adjacent waters Neighboring: Waters located within a riparian area or floodplain or waters with a surface or shallow subsurface connection −Riparian area: Transitional areas between water and land where surface or subsurface hydrology influences the ecological process and plant community of the area … −Floodplain: An area bordering inland or coastal areas that … is inundated during periods of moderate to high water flows 17

Industrial Ponds Along the Colorado River 18

Washington, DC Floodplain 19

Significant Nexus Definition in “Proposed” Rule Significant Nexus: −Means a more than speculative or insubstantial effect that a water or wetland has either or alone or in combination with other waters in the region on waters 1-3. −Other waters, including wetlands, are similarly situated when they perform similar functions and are located sufficiently close together so that they can be evaluated as a single landscape unit. 20

Exclusions in “Proposed” Rule Waste treatment systems designed to meet the requirements of the Clean Water Act; Prior converted cropland; Ditches excavated in uplands and that drain only uplands and have no more than ephemeral flow; and Ditches that do not contribute flow either directly or through other water bodies to a water in 1-3 above 21

Exclusions in “Proposed” Rule Artificially irrigated areas that would revert to uplands should irrigation cease Artificial lakes or ponds created in dry land and used exclusively for stock watering, irrigation, settling basins, or rice growing Artificial reflecting pools or swimming pools created by excavating and/or diking dry land Small ornamental waters created by excavating and/or diking dry land for primarily aesthetic reasons Water-filled depressions from construction Groundwater drained through subsurface drainage systems Gullies, rills, non-wetland swales, and puddles 22

Why Does CWA Jurisdiction Matter? The amount of jurisdictional waters influences: −Enforcement/likelihood for potential illegal discharges −Permitting/reporting requirements Type of permit: Nationwide or individual −“Federal action” triggers: NEPA, ESA, NHPA, 401 water quality certification, etc. −Mitigation −Third-party challenge 23

Enforcement 24

Enforcement 25

Spill Prevention and Countermeasure Plan 26

Industrial Facility Implications 27 Industrial ponds −Refineries −Process waters Industrial storm water systems −Closing or modifying facilities Ditches and other conveyances

Deidre G. Duncan Hunton & Williams LLP 2200 Pennsylvania Avenue, NW Washington, DC (202)

Copyright © 2014 The Brattle Group, Inc. Review of 2013 EPA Economic Analysis of Proposed Revised Definition of Waters of the United States David Sunding, Ph.D. February 20, 2014

| brattle.com30 Agenda Incremental Jurisdictional Determinations Incremental Acreage Calculations Incremental Cost Calculations Incremental Benefit Calculations

| brattle.com31 Incremental Jurisdictional Determinations

| brattle.com32 Calculation of Incremental JDs USACE review of 262 project files from FY 2009/10 ▀ 67% streams, 27% wetlands, 6% other waters −Old JD:  98% of streams, 98.5% of wetlands, 0% of other waters −USACE Review:  100% of streams, 100% of wetlands, 17% of other waters ▀ 2.7% incremental JDs

| brattle.com33 Calculation of Incremental JDs Key Limitations ▀ No discussion of impacts of new jurisdictional terminology (“neighboring”) and revised definitions (“adjacent”, “tributary”, “riparian areas”, “floodplain”) on number of permit applications ▀ ORM2 database (USACE) categories of jurisdictional waters not compatible with EPA draft rule categories ▀ Universe of jurisdictional waters underrepresented in ORM2 database −Preliminary JDs not included −Majority of individuals not seeking permits likely for isolated waters category −Only impacted areas currently included (omitting non-impacted portion of site)

| brattle.com34 Section 404 Permitting Process Proposed Project Seeks JDJurisdiction No Jurisdiction No Action Omitted from EPA Analysis Statistically invalid procedure that likely underrepresents impacts PJDs are improperly aggregated with JDs

| brattle.com35 Incremental Acreage

| brattle.com36 Calculation of Incremental Acreage

| brattle.com37 Calculation of Incremental Acreage Underestimation of impacted acreage ▀ FY 2009/10 baseline not representative −Period of reduced development and economic contraction (impacting both number of projects and average size of projects) ▀ USACE review does not address potential new permit seekers −Only concerns applicants already in system ▀ Section 404 impacts unreasonably extended to all CWA programs ▀ Heterogeneity in project files ignored −State-level and project size differences not addressed

| brattle.com38 FY 2009/10 Baseline Not Representative Source: US Census Bureau

| brattle.com39 Incremental Costs

| brattle.com40 Calculation of Incremental Costs Section 404 ▀ Permit Application Costs ▀ Compensatory Mitigation Costs ▀ Permitting Time Costs (omitted from EPA analysis) ▀ Impact Avoidance and Minimization Costs (omitted from EPA analysis)

| brattle.com41 Section 404 Permit Application Costs

| brattle.com42 Section 404 Permit Application Costs Key Limitations ▀ Changes in distribution of individual/general permits not addressed ▀ Average project sizes ignore heterogeneity across projects ▀ Values from Sunding & Zilberman study nearly 20 years old and unadjusted for programmatic changes and inflation ▀ Permitting time costs and impact avoidance/minimization costs not addressed

| brattle.com43 Section 404 Compensatory Mitigation Costs Key Limitations ▀ Discrepancy between EPA 2011 and 2013 analyses −Unit costs and amount of mitigation lower in 2013 analysis

| brattle.com44 Calculation of Incremental Costs Other (Non-404) Sections ▀ Adopt old estimates ▀ Adjust for 2.7% incremental increase in jurisdictional waters ▀ Adjust for changes in program size Key Limitations ▀ Impacts to some programs omitted due to lack of data ▀ Other programs assumed to be cost neutral without explanation −Example: Section 303 (state water quality standards and implementation plans) and Section 402 (NPDES permits) ▀ Estimates of Section 404 impacts (+2.7%) not applicable to non- 404 programs

| brattle.com45 Incremental Benefits

| brattle.com46 Calculation of Incremental Benefits Section 404 ▀ Increased clarity in CWA jurisdictional determination (omitted from EPA analysis) ▀ Ecosystem benefits from increased compensatory mitigation

| brattle.com47 Section 404 Mitigation Benefits Benefit Transfer Analysis ▀ Synthesized 10 contingent valuation studies providing willingness to pay (WTP) estimates of wetland preservation ▀ WTP estimates multiplied by acres and households for each wetland region

| brattle.com48 Section 404 Mitigation Benefits Key Limitations ▀ Selection of WTP studies arbitrary and not representative −9 of 10 studies more than a decade old (oldest ~30 years old) −Several studies not published in peer-reviewed journals ▀ Unreasonable presumption of transferability of results −Localized benefits assumed to accrue to all members of wetland region −No adjustment for changes in economic trends, recreational patterns, stated preferences over time

| brattle.com49 Calculation of Incremental Benefits Other (Non-404) Sections ▀ Adopt old estimates ▀ Adjust for 2.7% incremental increase in jurisdictional waters ▀ Adjust for changes in program size Key Limitations ▀ Assumption that negative impacts would occur without increase in federal jurisdiction is unreasonable −State programs well-suited to protect local resources

| brattle.com50 Summary of Incremental Costs/Benefits

| brattle.com51 Conclusion Underestimation of Incremental Acreage Flawed calculation of Incremental Costs ▀ Focus on Section 404 costs, other sections ignored ▀ No consideration of permitting time costs and impact avoidance/minimization costs Flawed calculation of Incremental Benefits ▀ Benefit transfer analysis not consistent with best practices in environmental economics Analysis poorly documented and contains multiple inconsistencies with previous analyses

Questions?