Amicus Curiae Brief — Entergy Corp. v. Riverkeeper, Inc.

\o\ US) WW) WZ

Nos. 07-588, 07-589, 07-597 f

—=FAILED

IN THE JUL 21 2008

Supreme Court of the United CE OF THE CLERK

SUPREME COURT, U.S.

t

ENTERGY CORPORATION,

Petitioner,

v.

ENVIRONMENTAL PROTECTION AGENCY, et ad.,

Respondents.

PSEG Fossit LLC, et al.,

Petitioners,

v.

RIVERKEEPER, INC., et al., |

Respondents.

Uti.ity WATER GROUP,

Petitioner,

v.

RIVERKEEPER, INC., et al.,

Respondents.

On Writs OF CERTIORARI TO THE UNITED STATES

Court oF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF Amicus CuRIAE CALIFORNIA COUNCIL

FOR ENVIRONMENTAL AND ECONOMIC BALANCE

IN SUPPORT OF PETITIONERS

Kevin M. Fonc

Counsel of Record

MARGARET ROSEGAY

PiLLsBuRY WINTHROP

SHaw Pittman LLP

50 Fremont Street

San Francisco, CA 94105

(415) 983-1270

Counsel for Amicus Curiae

794A LD,

0

QUESTION PRESENTED

Whether Section 316(b) of the Clean Water Act,

33 U.S.C. § 13826(b), authorizes the Environmental

Protection Agency (“EPA”) to compare costs with

benefits in determining the “best technology available

for minimizing adverse environmental impact” at cooling

water intake structures.

ii

TABLE OF CONTENTS

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Table of Cited Authorities ...................

Interest of Amicus Curiae ..................

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I. EPAShould Have Discretion To Use Cost

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II. Prohibiting EPA From Using Cost-

Benefit Analysis Would Impose

Enormous Costs And Cause Economic

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TABLE OF CITED AUTHORITIES

Page

Cases

Chevron U.S.A. Inc. v. NRDC,

Ce OED 04 been eecceccudesecee passim

United States v. Shimer,

ED 6056 ps es ess ceeseverdies 4

Statutes and Codes

ED vnwctcavececetdustncesees passim

EE Cc cccdadabveutaueus Veeeeewess 14

California Health & Safety Code,

eee. cae hrs ncéhe dba ewe’ 10

Rules and Regulations

40 C.E-R. § 126.94(a)(S)ii) .. 2... cee ce eees 9

69 Fed. Reg. 41,576 (July 9, 2004) .......... passim

72 Fed. Reg. 37,107 (July 9, 2008) ............ 9

iv

Cited Authorities

Page

Other Authorities

California Energy Commission, California

Energy Commission Comments on the State

Water Resources Control Board Scoping

Document and Proposed Statewide Policy on

Clean Water Act 316(b) Regulations

(Sept. 25, 2006), available at http://www.

energy.ca.gov/siting/documents/2006-09-

25 LETTER TO SWRCB.PDF ......... passim

California Independent System Operator, 2008

Summer Loads and Resources, Operations

Preparedness Assessment (April 28, 2008),

available at http://www.caiso.com/1fb7/1fb78

SEE 4 cocbNesecenvecserseviveses 11

California Independent System Operator, Old

Thermal Generation, Phase 1 Report (2008-

2012 Study Results) (February 29, 2008),

available at http://www.caiso.com/1f80/1f80a4a

EES 65-560 cccckeenasvesenccoraws 12

1

INTEREST OF AMICUS CURIAE '

The California Council for Environmental and

Economic Balance (““CCEEB”) is a non-partisan non-

profit organization of business, labor and community

leaders in California that seeks to achieve California’s

environmental goals in a manner consistent with a sound

economy. CCEEB’s membership includes the owners

and operators of existing power generating facilities in

California that comprise a significant percentage of the

generating capacity within the state. Many of these

plants are sited on the coastline or along other

waterways and use ocean or surface waters for cooling.

Water is drawn in through cooling water intake

structures, passed through the plants’ condensers to

absorb heat, and then discharged back to the waterbody

(“once-through” cooling). These cooling water intake

structures are regulated under Section 316(b) of the

Clean Water Act, which requires that the “location,

design, construction, and capacity [of such structures]

reflect the best technology available for minimizing

adverse environmental jimvact,” namely, the

impingement and entrainment of fish and other aquatic

organisms (hereafter, “BTA”). See 33 U.S.C. § 1326(b).

CCEEB — as well as the millions of Californians who

depend on the electricity generated by these plants —

' No counsel for a party authored this brief in whole or in part,

and no such counsel or party made a monetary contribution intended

to fund the preparation or submission of this brief. No person other

than the amicus curiae, its members, or its counsel made a monetary

contribution to its preparation or submission. The parties have

consented to the filing of this brief.

2

will be directly affected by the Court’s decision in this

case and thus have a strong interest in the question on

which review was granted: whether Section 316(b) allows

EPA to consider the costs of compliance relative to the

environmental benefits to be gained in determining what

constitutes “best technology available for minimizing

adverse environmental impact” (“BTA”) at existing

power generating facilities that utilize “once-through”

cooling. Any interpretation of Section 316(b) that would

bar EPA from performing a cost-benefit analysis, either

for purposes of identifying a national performance

standard or for purposes of making site-specific BTA

determinations at existing individual facilities, would

have a dire impact on California’s electricity grid and,

indeed, on the economy of California as a whole.

In this brief, CCEFB seeks to illustrate the

importance of upholding EPA’s discretion to conduct

cost-benefit analyses under Section 316(b), as

fundamental to the development of sound environmental

and energy policy. Absent the flexibility that is made

possible through cost-benefit analysis, older plants will

face severe pressure to shut down prematurely rather

than incur the extraordinary costs to retrofit aging

infrastructure that would be necessary to achieve

compliance with a “one size fits all” standard. While

some facility owners may be able to recover a portion of

these costs over time by passing them through to their

ratepayers, other facilities operate under different

business models that do not allow this type of cost-

shifting. In either case, enormous up-front capital

investments would have to be made to modify the cooling

systems of these older plants, despite the fact that the

generating units themselves may be approaching

3

retirement. These site-specific financial and operational

circumstances, as well as the adverse environmental and

societal impacts of potential alternative cooling

technologies, must be taken into consideration in any

reasoned decision-making process. Cost-benefit analysis

is the mechanism by which these fundamental policy

decisions have historically been made, and is a critical

tool that should continue to be available to EPA under

a proper reading of Section 316(b).

ARGUMENT

I. EPA SHOULD HAVE DISCRETION TO USE

COST-BENEFIT ANALYSIS.

The proper framework for determining whether

EPA may rely upon cost-benefit analyses in making BTA

determinations under Section 316(b) is set forth in

Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984): If

“the court determines Congress has not directly

addressed the precise question at issue,” then the

question for the court is whether the agency’s

interpretation of the statute “is based on a permissible

construction of the statute.” Jd. at 843 (footnote

omitted). As discussed in Petitioners’ briefs, there is

nothing in the language of Section 316(b) which

expressly prohibits EPA from conducting cost-benefit

analyses in determining what constitutes BTA, either

nationally or at an individual power generating facility

or operating unit. Thus, the inquiry is whether EPA’s

interpretation of Section 316(b) — that it may conduct

cost-benefit analyses under the statute — is

permissible. See 69 Fed. Reg. 41,576, 41,603-41,604 (July

9, 2004) (hereafter, the “Phase II Rule”).

4

Where an agency is charged with the administration

of a statute, deference to its interpretation is particularly

appropriate where the “decision as to the meaning or

reach of a statute has involved reconciling conflicting

policies.” Chevron, 467 U.S. at 844 (quoting United

States v. Shimer, 367 U.S. 374, 382 (1961)). That is

precisely the case here, where the interests of the

environment and the economy must both be considered.

As in Chevron, EPA's interpretation of Section 316(b)

“represents a reasonable accommodation of manifestly

competing interests and is entitled to deference.”

Id. at 865.

Indeed, in adopting the Phase II Rule, EPA

acknowledged the necessity for balancing environmental

improvements to existing cooling water intake

structures and individual operating units with the need

to maintain reliable energy supplies for the country.

Consistent with its administrative practice over the

course of the past 30 years, EPA noted that “(tlhe

legislative history of section 316(b) indicates that the

term ‘best technology available’ should be interpreted

as ‘best technology available commercially at an

economically practicable cost.’ This position reflects

congressional concern that the application of best

technology available should not impose an impracticable

and unbearable economic burden.” 69 Fed. Reg. 41,576,

at 41,604 (citing 118 Cong. Rec. 33,762 (1972)

(statement of Rep. Clausen)). In adopting the Phase II

Rule, EPA deterniined that the costs of mandating a

specific technology (closed-cycle, recirculating cooling

systems) at existing facilities, as opposed to a

requirement to achieve percentage reductions in

impingement and entrainment through a variety of

5

allowable means (i.e., a performance standard), were not

justified. Jd. at 41,605. When it proposed the Phase II

Rule in April 2002, EPA estimated that it would cost at

least $3.5 billion per year, nationwide, for all existing

facilities to install closed-cycle cooling,’ and that

approximately 20 additional plants might have to be built

to compensate for the “energy penalty” associated with

operating with cooling towers. Jd.* EPA’s cost estimate

did not take into account the fact that a large number

of existing plants would have to acquire additional

property to accommodate cooling towers (assuming, in

the first instance, that land could even be acquired and

other land use obstacles overcome). In short, “the total

capital cost investment and associated economic impact

is simply too high at this time for EPA to be able to

justify selecting cooling towers as a required technology

for all existing Phase II facilities.” /d. at 41,606.

Having rejected mandatory closed-cycle cooling on

an economic basis, EPA considered the overall national

costs of the different technologies that could be

employed to achieve the required reductions in

impingement and entrainment, and compared them to

the environmental benefits, on a national level, that

would be derived through implementation of these

technologies. EPA determined that, overall, the costs

* This is equivalent to approximately $4.2 billion in 2008

dollars using a conservative 3% annual adjustment for inflation.

* The period of time over which EPA assumed the Phase

II Rule would be implemented is not specified. Based on

information available to the industry, total retrofitting costs

are expected to be at least an order of magnitude greater than

k PA’s annual estimate. See infra at p. 7.

6

were warranted relative to the environmental benefits.

Id. at 41,603-41,604. However, EPA explicitly recogrized

that the same may not hold true for an individual facility

where, due to site-specific considerations, the costs could

outweigh the environmental benefits to be gained at a

specific location. Jd. To address this concern, EPA

adopted a range of different compliance alternatives for

meeting the performance standards “to provide a

significant degree of flexibility to Phase II existing

facilities, to ensure that the rule requirements are

economically practicable, and to provide the ability for

Phase II existing facilities to address unique site-

specific factors.” Jd. at 41,591. EPA noted that the costs

of retrofitting could be disproportionate to the benefits

derived, and that “the validity and extent of such

concerns often must be addressed on a case-by-case

basis.” Jd. at 41,606.

In light of the “manifestly competing interests”

(Chevron, 467 U.S. at 865), EPA’s interpretation of

Section 316(b) represents a reasonable accommodation

that is entitled to deference. Thus, EPA should have

discretion to use cost-benefit analysis in determining

BTA for cooling water intake structures at existing

power generating facilities and operating units.

7

Il. PROHIBITING EPA FROM USING COST-

BENEFIT ANALYSIS WOULD IMPOSE

ENORMOUS COSTS AND CAUSE ECONOMIC

DISRUPTION.

In adopting the Phase II Rule, EPA emphasized

the need “to provide a significant degree of flexibility

to Phase II existing facilities, to ensure that the rule

requirements are economically practicable, and to

provide the ability for Phase II existing facilities to

address unique site-specific factors.” 69 Fed. Reg.

41,576, at 41,591. EPA recognized the enormous costs

that would be imposed by any requirement that existing

facilities adopt closed-cycle cooling. Jd. at 41,605.

Indeed, one study estimates that the nationwide cost of

retrofitting would be $40 billion. See UWAG Pet. For

Writ of Cert., p. 37 (discussing UWAG Comments on

Proposed § 316(b) Rule for Existing Facilities Comment

1.41, Aug. 7, 2002).

Moreover, as noted by Petitioner UWAG, large areas

of the United States are operating with thin generation

and transmission capacity margins. These concerns are

particularly acute in California, where electricity

supplies already are barely sufficient to meet demand,

especially in Southern California, during periods of peak

demand (summer months). California suffers from a lack

of adequate generating and transmission capacity, and

its complex permitting scheme and comprehensive

environmental review requirements make the siting and

construction of new generation a multi-year process

under the best of circumstances. In addition, California

is vulnerable to natural disasters, such as firestorms that.

often cause the shut-down of major transmission lines

8

for extended periods. These fires have ravaged

California annually over the last several years, and the

added demand that is placed on the grid as a result is

significant. Broad areas of the state are at repeated risk

of power shortages and blackouts during these periods.

Even more to the point, nearly all of California’s

19 active coastal power plants — which account for

nearly one-half of the state’s generating capacity — use

once-through cooling. This includes the two nuclear

baseload facilities (Diablo Canyon Generating Station

and San Onofre Generating Station) which are currently

operating at greater than 99% capacity. In addition,

eight of the plants are designated as Reliability-Must-

Run (“RMR”) facilities by the California Independent

System Operator (“CAISO”). See California Energy

Commission, California Energy Commission

Comments on the State Water Resources Control

Board Scoping Document and Proposed Statewide

Policy on Clean Water Act 316(b) Regulations

(Sept. 25, 2006), available at http://www.energy.ca.gov/

siting/documents/2006-09-25 LETTER TO

SWRCB.PDF (hereinafter “CEC Comments”), p. 2.

RMR facilities are designated in areas where the local

public utility’s ability to import power is limited, and

the utility must rely on local power plants to maintain

electric service reliability. While the annual capacity

factor for RMR facilities averages about 5%, the plants

must be immediately available when they are dispatched

by the CAISO. The power provided by these load-

following facilities is vital to grid reliability and is

essential to preventing power shortages and blackouts.

9

Many of California’s existing coastal power

generating facilities may be unable to comply with the

large percentage reductions in impingement and

entrainment that would be required by the Phase II

Rule. As such, under the Phase II Rule as originally

promulgated, these plants (many of which are operated

by CCEEB’s members) would have sought site-specific

determinations of BTA, specifically, that their costs of

complying with the performance standard would be

significantly greater than the environmental benefits

resulting therefrom. See 40 C.F.R. § 125.94(a)(5)(ii)

(suspended July 9, 2007, 72 Fed. Reg. 37,107 (July 9,

2007)). Absent the ability to make site-specific

demonstrations of BTA based on a cost-benefit test,

these coastal plants might be required to shut down for

extended periods in order to retrofit with alternative

cooling technologies.‘ Even if these shutdowns were

staggered to occur over a period of time (a scenario that

is not contemplated by the Phase II Rule), the state

could still suffer significant power shortages, even if

some new replacement generation became available.

Given the very high capacity factor for the state’s two

coastal baseload nuclear power plants, it is doubtful

whether there is enough excess generation available to

— _—- - — —s

* This, of course, assumes, that permits could even be

obtained from California regulatory authoritics for the

installation of cooling towers in the coastal zone. By their very

nature, coastal covling towers are large and ungainly, and have

their own potentially significant adverse environmental and

societal effects. In the face of an absolute requirement to comply

with the national performance standard, these adverse affects

would have to be disregarded. This result is both illogical and

inconsistent with the broad Congressional directive in Section

316(b) “to minimize adverse environmental impact.”

10

replace their near-zero greenhouse gas and criteria

pollutant generating capacity that would be lost during

a prolonged shut down. Even if such excess generation

capacity could be found, all of the power would likely

have to be provided by fossil fuel-fired plants that emit

greenhouse gases and criteria pollutants, to the

detriment of the state’s ongoing efforts to combat global

warming, in direct conflict with the California Global

Warming Solutions Act of 2006 (“AB 32”) (Cal. Health &

Saf. Code, § 38500, et seq.) and the state’s efforts to

comply with ambient air quality standards for criteria

pollutants as mandated by the federal Clean Air Act and

the California Clean Air Act.°

Faced with these costs and burdens, many of the

plants would simply shut down, especially if they are

nearing the end of their useful lives in any event. These

shutdowns would leave California with a significant

shortfall in its power supplies and would pose a critical

threat to the stability of California’s electricity grid.

These very concerns have been voiced by the California

Energy Commission (“CEC”), the state agency charged

with ensuring a reliable supply of electricity for

California that is affordable and that minimizes harm to

the environment. In its comments on the preliminary

draft statewide policy on Section 316(b) being

developed by the California State Water Resources

Control Board,* the CEC underscored the current stress

5 AB 32 mandates significant reductions in current levels

of greenhouse gas emissions by 2020.

® Both the final content of the preliminary draft policy

(which is subject to formal rulemaking procedures), as well as

the timing of its adoption, remain uncertain, and could well be

affected by the Court’s decision in this case.

ll

on California’s electricity grid and the paramount need

to avoid untimely loss of generation by existing facilities.

See CEC Comments, p. 1. The CEC noted that

California’s fleet of power plants is in the midst of a

modernization trend, and that the most cost-effective

time to modify or change cooling systems is when the

plants are shut down for repowering. /d. at 2. However,

not all of California’s existing coastal power plants are

expected to re-power. Some will retire at the end of their

useful life, and it is these plants that are in particular

danger of closing prematurely in the face of a

requirement for an expensive retrofit. Since it is not

currently known which plants will receive extended

contracts in recognition of grid reliability requirements,

a “one size fits all” retrofit requirement that does not

allow for site-specific, cost-benefit considerations to be

taken into account would certainly accelerate the shut-

down of some facilities for economic or financial reasons.

In the absence of adequate, operational replacement

capacity, the state “cannot afford to have additional

generating units retire” in response to retrofitting

requirements. /d. at 3.

The CAISO, the entity responsible for the safe and

uninterrupted flow of electricity to the grid, had also

expressed concerns about how California will make it

through the summer of 2008 without any serious

disruption to the state’s utility grid. See CAISO,

2008 Summer Loads and Resources, Operations

Preparedness Assessment (April 28, 2008), available at

http://www.caiso.com/1fb7/1fb7855eed50ex.html. The

CAISO’s conclusion is that California has very little

cushion or margin for any potential shutdowns of

electricity supply, to the point where the loss of a single

12

unit’s output could result in power outages. More

pervasive shutdowns could result in a four-fold increase

in the risk of emergency blackouts. See CAISO, Old

Thermal Generation, Phase I Report (2008-2012

Study Results) (February 29, 2008), available at

http://www.caiso.com/1f80/1£80a4a5568f0ex.html. The

referenced studies by the CAISO represent the most

recent in-depth analysis of overall grid reliability in

California. These studies are ongoing and a more in-

depth, facility-by-facility California grid reliability

analysis is expected to be completed later in the year.

In California, a site-by-site (and indeed, unit-by-

unit) cost-benefit analysis is essential.’ Almost all of the

19 coastal power generation facilities in California have

once-through cooling systems, and these facilities

constitute nearly half of California’s in-state power

generating capacity. Each of these facilities must be

evaluated on its own, using a cost-benefit analysis, to

determine the best future course of action for that

facility. Each of these facilities faces different physical,

land use and financial constraints; their environmental

settings differ; and they operate on any of several

different business models. For example, the economic

and financial circumstances facing a baseload nuclear

plant operated by an investor-owned utility, a small

“peaker” or load-following facility owned by an

’ A single power plant may have multiple units with

different physical and operating characteristics that may impact

BTA decisions. What is appropriate or feasible for one unit may

not be feasible for other units at the same plant.

13

independent operator, and a facility operated by a

municipally-owned utility are each very different.®

All of these variables necessarily affect the BTA

determination.

Addressing such site-specific circumstances is vital

in California, where a large proportion of the state’s

power generation capacity utilizes once-through cooling.

California’s precarious situation clearly illustrates the

harm that would result if EPA were barred from

conducting cost-benefit analyses in making BTA

determinations under Section 316(b). In short, enormous

costs would be imposed on individual plants, leading to

a likely loss of generating capacity and widespread

® Unlike investor- or municipally-owned public utilities

that may have the ability to pass some or all of these costs

through to their ratepayers (subject to approval by the Public

Utilities Commission or other regulatory body), independent

power generators operate on the basis of short-term contracts

and, in the great majority of cases, are unable to pass costs

through to their customers. Without a source of revenue to cover

the investment needed for a re-powering or a cooling system

retrofit, many independently owned plants may simply be

retired. Even in the case of the utility-owned plants, significant

costs may not be able to be passed through to the ratepayers.

Moreover, a retrofitting project would not be undertaken at a

utility-owned facility simply because some or all of the costs

could be passed through. Instead, the project would need to be

justified in the first instance on the basis of a detailed economic

and engineering analysis. For many older plants, the

investment required to accommodate a retrofit with alternative

cooling technology cannot be so justified, irrespective of the

ability to recover costs.

14

economic disruption resulting from an energy deficit,

all without commensurate environmental benefit.’

As the agency charged with administration of the

Clean Water Act, EPA’s long-standing interpretation of

Section 316(b), as most recently articulated in the Phase

II Rule, should be upheld. Unlike health-based or water-

quality based standards, technology-based standards

such as Section 316(b) necessarily involve a weighing of

competing interests. In adopting the national

performance standards in the Phase II Rule, it was

reasonable and appropriate for EPA to evaluate both

the costs of new technology and the benefits that can

be gained through its implementation. Furthermore, it

® In conjunction with the periodic renewal of National

Pollutant Discharge Elimination System (“NPDES”) permits

for California’s coastal power plants under Section 402 of the

Act (33 U.S.C. § 1342), the regional water quality contro] boards

have required modifications and upgrades to the cooling water

intake structures at many of these plants in order to implement

Section 316(b). As a result, significant reductions in levels of

impingement and entrainment have already been achieved, to

the point where — in many cases — the continued operation of

cooling water intake structures does not pose an unacceptable

risk to aquatic populations. Exercising their “best professional

judgment” under Section 402, the permit issuers have

determined that the cost of replacing the once-through cooling

water systems would be “wholly disproportionate” to the

environmental benefits to be gained and that, accordingly, the

existing cooling water intake structures represent BTA. At

existing facilities that have already undergone modifications

to achieve compliance with Section 316(b), the costs of achieving

even greater reductions in impingement and entrainment, as

necessary to meet a “one size fits all” standard, would be even

more disproportionate to the benefits gained.

15

is inherently reasonable and appropriate to allow

existing facilities (as distinct from new facilities) to

demonstrate, on a case-by-case basis, that the costs of

complying with the national performance standards are

significantly greater than the environmental benefits

to be gained. Were this not the case, individual facilities

could be driven to expend enormous sums of money to

install new cooling systems even in circumstances where

the impingement and entrainment effects associated

with the once-through system were demonstrably small

or of nominal biological or ecological significance. Such

a result should not be condoned.

The ability to allow site-specific exceptions to

nationwide performance standards, based on a cost-

benefit analysis that takes into account site-specific

considerations, provides EPA, and state regulators with

delegated authority to implement Section 316(b) as part

of their NPDES programs, with the flexibility needed

to make sound decisions, based on all relevant factors

and to determine the best future course of action. Cost-

benefit analysis is an important policy tool that

accomplishes this result and that can be used wisely to

avoid undesirable and unwarranted outcomes. Any

interpretation of Section 316(b) that would bar EPA or

authorized state regulatory agencies from comparing

costs with benefits when making BTA determinations

for existing facilities would interfere with an important

and legitimate agency function and would most certainly

have a dire impact on California and the nation.

16

CONCLUSION

For the foregoing reasons, the judgment of the

Court of Appeals should be reversed.

Respectfully submitted,

KEVIN M. Fonc

Counsel of Record

MARGARET ROSEGAY

PILLSBURY WINTHROP

SHAW PITTMAN LLP

50 Fremont St.

San Francisco, CA 94105

(415) 983-1270

Counsel for Amicus Curiae