Amicus Curiae Brief — Utility Water Water Act Group Group v. Riverkeeper, Inc. (Nos. 07-597, 07-588, 07-589)

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

I JUL 2 1 2008

N THE

Supreme Court of the United Ee OG US.

ENTERGY CORPORATION,

Petitioner,

Vv.

ENVIRONMENTAL PROTECTION AGENCY, et al.,

Respondents.

PSEG Fossit LLC, et al.,

Petitioners,

VU.

RIVERKEEPER, INC., et al.,

Respondents.

UTILITY WATER GROUP,

Petitioner,

v.

RIVERKEEPER, INC., ef al.,

Respondents.

On Writs oF CERTIORARI TO THE UNITED STATES

CouRT OF APPEALS FOR THE SECOND CIRCUIT

BrieF oF Amicus CuRIAE FOR THE AMERICAN PETROLEUM

INSTITUTE IN SUPPORT OF PETITIONERS

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Of Counsel: DANIEL P ALBERS

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General Counsel VED & ASSAD

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MICHAEL SEF One North Wacker Dr;

American Petroleum Institute ae pores ae Seow

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Washington, DC 20005-4070 (312) 357-1313

Counsel for Amicus Curiae

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TABLE OF CONTENTS

TABLE OF CITED AUTHORITIES .........

INTEREST OF AMICUS CURIAE ..........

SUMMARY OF ARGUMENT ...............

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III.

IV.

CWA § 316(b) authorizes EPA to compare

costs and benefits for determining

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If upheld, the Second Circuit’s decision

is likely to lead to major impacts on our

nation’s energy supply. ................

Overturning existing common-sense

regulatory law and policy in favor of the

Second Circuit’s undefined tests would

lead to substantial uncertainty under

every regulatory statute. ..............

A general prohibition on regulatory

decisions based on cost-benefit analysis

would destroy the ability of regulatory

agencies to regulate in an orderly and

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TABLE OF CITEDAUTHORITIES

Page

CASES

A.M.L. International, Inc. v. Daley, 107 F. Supp.

ree rere 25

Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837

SNE oc6kU edb cbAdods eeyate denenwaeeens passim

Riverkeeper, Inc. v. EPA, 475 F.3d 88 (2d Cir.

aa ce ala als oe ee passim —

Seacoast Anti-Pollution League v. Costle,

597 F.2d 306 (1st Cir. 1979) ................. 22

U.S. Telecom. Association v. Federal

Communications Commission, 400 F.3d 29

reer orn eee. 26

Virginia Electric & Power v. Costle, 566 F.2d 446

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STATUTES AND REGULATIONS

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IE oso i wis ad bakeuNiedeeeecken 26

PP IE hoe 0 nnd bes ee ensecesseeuentens 25

ili

Cited Authorities

Page

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EN ED deas Wh 6vevicacsenscudauenwanen 26

rr rrr ey passim

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ee 28

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

71 Fed. Reg. 35,006 (2006) ................. 7,9,13

MISCELLANEOUS

API, Comments to Docket OW-2004-0002

i i eee Ree ee ey 21

Office of Management and the Budget, Office of

Information and Regulatory Affairs, 2006

Report to Congress on the Benefits and Costs

of Federal Regulations and Unfunded

Mandates on State, Local, and Tribal Entities

EE ccuad tab ead bea de eRe eee oe 29-30

U.S. Small Business Administration, Office of

Advocacy, SBREFA Panel Support for

Cooling Water Phase Ill Regulations Under

Section 316(b) of the Clean Water Act: Final

ED vn doc vaneneheeeeeen ss 24

1

INTEREST OF AMICUS CURIAE'

The American Petroleum Institute (“API”) is a

national non-profit trade association headquartered in

Washington, DC, which represents over 400 members

engaged in all aspects of the petroleum and natural gas

industry. API members own and operate existing

offshore oil platforms and onshore refinery facilities that

use cooling water intake systems that are directly

regulated by EPA’s final Phase III rule under section

316(b) of the federal Clean Water Act (“CWA”), 33 U.S.C.

§ 1326(b), the same statutory section that is the subject

of this litigation. As such, API’s members are affected

by and have a strong interest in the question presented

to the Court concerning whether EPA can conduct a

cost-benefit analysis under CWA § 316(b) in determining

the “best technology available for minimizing adverse

environmental impact” (“BTA”) for cooling water intake

structures, and the practical impacts that the Court’s

holding may have. API frequently represents its

members in regulatory and judicial matters involving

the CWA.

€

' Pursuant to Rule 37.6 of the Rules of the Court, API states

that 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 API, or its counsel, made a monetary

contribution to its preparation or submission. The parties have

consented to the filing of this brief. On June 24, 2008, certain

Respondents filed a blanket consent for all amicus briefs. On

June 30, 2008, all three Petitioners filed a blanket consent for

all amicus briefs. On July 11, 2008, state respondents filed a

blanket consent for all amicus briefs. For all other parties, their

individual consents are being lodged herewith.

2

. SUMMARY OF ARGUMENT

The API submits this brief in support of the

Petitioners’ request for reversal of the Second Circuit’s

decision because: (1) the lower court failed to follow the

test this Court established in Chevron, (2) complete

elimination of cost-benefit analysis from the application

of CWA § 316(b) will harm the American economy and

consumers by increasing costs of extraction and

production of oil and gas in exchange for little or no

benefit to aquatic life, (3) acceptance of the Second

Circuit’s rationale and interpretation of the CWA

essentially invalidates another, later Act of Congress and

thirty years of regulatory practice, leading tomassive

regulatory uncertainty under not only the CWA, but

every other statute under which administrative agencies

regulate, and (4) the Second Circuit’s proposed cost

effectiveness test would preclude regulatory agencies

from regulating in an orderly and efficient fashion.

First, the Second Circuit did not follow Chevron and

simply substituted its own judgment for EPA’s upon the

determination that the statute was ambiguous. That

decision interpreted CWA § 316(b) as not allowing EPA

to conduct a cost-benefit analysis when it establishes

national uniform standards setting BTA for cooling

water intake structures at large, existing power plants.’

Ho-vever, the plain language of CWA § 316(b) does not

state whether EPA can consider potential technology

costs and related effluent reduction benefits, and,

in the light most favorable to the Second Circuit’s

* The Second Circuit decision is reported as Riverkeeper,

Inc. v. EPA, 475 F.3d 83 (2d. Cir. 2007).

3

decision, is ambiguous and subject to multiple,

conflicting interpretations concerning the cost-benefit

issue. Indeed, the Second Circuit and EPA both

interpreted CWA § 316 to reach the exact opposite

conclusions. Regardless, the plain language of CWA

§ 316(b) does not show a clear Congressional mandate

prohibiting EPA from considering costs and benefits

when establishing the “best” technology available for

reducing environmental impacts from cooling water

intake structures. As a result, the Second Circuit should

have deferred to EPA’s reasonable interpretation as

required under Chevron. Instead, the Second Circuit

wholly ignored EPA’s interpretation of CWA § 316(b), a

statute which EPA administers, and found that the

language of CWA § 316(b) clearly establishes that EPA

cannot conduct a cost-benefit analysis. In reaching this

conclusion, the Second Circuit drew support from the

dissimilar language of CWA §§ 301 and 306, and

borrowed interpretations of those provisions to bolster

ite examination of CWA § 316(b). This analysis directly

conflicts with the well-established Chevron framework,

which, if conducted below, would have deferred to EPA’s

interpretation. The Second Circuit’s failure to follow

Chevron and defer to EPA’s interpretation of CWA

§ 316(b) requires reversal.

API further submits this brief to describe the

potential dramatic impacts that the Second Circuit

decision may have on the regulated community. Though

the Second Circuit overturned the Phase II rule only

as it pertains to national uniform standards, and API’s

members’ permits under the Phase III rule are granted

with controls using the “best professional judgment”

(“BPJ”) of individual permitting officials, the Second

4

Circuit’s decision could be misread to include permitting

decisions. If the Second Circuit decision is upheld, EPA

permit writers confronted with a Supreme Court

decision disallowing cost-benefit considerations in

setting national uniform standards will likely also

conclude that they are prohibited from considering costs

and benefits in exercising their BPJ for permit

conditions.

It is difficult to overestimate the negative impact to

the American economy the Second Circuit’s decision will

have if it is upheld by this Court and applied to our

domestic oil and gas industry. Should the Court order

EPA to completely forego cost-benefit considerations

in implementing CWA § 316(b), EPA’s response will

likely be to impose billions of dollars of costs on energy

consumers with little or no corresponding environmental

benefit. EPA estimated the costs of a conversion to

closed-cycle cooling systems for Phase II electrical

power plants at up to $200 million per facility, plus a

nationwide “social cost” of $3.5 billion per year. In the

Phase II rulemaking, FPA further recognized that even

these high cost estimates could double based on the need

for Phase II facilities to acquire property needed to

construct new cooling towers for the closed-cycle

systems.

The economic impact from the application of the

Second Circuit’s decision to Phase III production and

refinery facilities would dwarf the Phase II costs. Forced

conversion to closed-cycle systems where needed for

Phase III facilities could make domestic gasoline

production and refining unprofitable at today’s prices

or impose massive new energy costs through price

5

increases. Should this Court uphold the Second Circuit’s

decision and impose these costs on the industry, the

country will likely endure substantial energy cost

increases during an already strained economic period.

This outcome would be even less defensible because it

comes with marginal or no environmental benefits.

Further, the Second Circuit decision, if upheld, will

create broad uncertainty for both EPA and the

regulated community. Since 1977, EPA and state

agencies have been developing standards for facilities

based on their BPJ on a site-specific basis. As it made

clear before the Second Circuit, during that time EPA,

as well as state agencies, weighed costs and related

benefits under CWA § 316(b) in setting BPJ standards.

The regulated community relied on EPA and state

standards based on these cost-benefit analyses in

making substantial investments to install compliance

measures. By now requiring closed-cycle cooling

systems to be installed because EPA purportedly erred

in conducting a cost-benefit analysis for the Phase II

Rule, facilities will be forced to forfeit their substantial

investments to implement other compliance measures.

API submits this brief because of its concerns about

these detrimental impacts that may result from the

decision below.

Finally, if this Court adopts a position that disallows

cost-benefit analysis where the statute is silent, the

result will be the nullification of an act of Congress—

the Regulatory Flexibility Act of 1980 (5 U.S.C. §§ 601-

612)—and the overturning of thirty years of bipartisan

regulatory policy. The result could be a dramatic

reduction in the ability of the Federal government to

6

regulate effectively. Agencies implementing limited

statutory sections such as CWA § 316(b) could be

confronted with vocal and litigious advocates, such as

the environmental petitioners in the Second Circuit,

forcing agencies to adopt absurdly costly regulatory

alternatives with little correspondence benefits.

For all of the above reasons, the Second Circuit’s

decision should be reversed.

BACKGROUND

In the CWA amendments of 1972, Congress enacted

CWA § 316(b). 338 U.S.C. § 1326(b). That provision

provices the mechanism for EPA to regulate cooling

water intake structures. Jd. CWA § 316(b) provides as

follows:

Any standard established pursuant to section

301 or section 306 of this Act and applicable

to a point source shall require that the

location, design, construction, and capacity of

cooling water intake structures reflect the

best technology available for minimizing

adverse environmental impact.”

Id. Unlike other CWA provisions, CWA § 316(b) relates

not to the quality or quantity of discharges to surface

waters, but to the “location, design, construction, and

capacity of cooling water intake structures”—that is,

structures that are constructed in surface water bodies

to enable the withdrawal of cooling water. Jd. CWA

§ 316(b) does not explicitly provide any language that

addresses how or to what extent EPA considers costs

and benefits in establishing BTA.

7

EPA defines “cooling water intake structure” as “the

total physical structure and any associated constructed

waterways used to withdraw cooling water from waters

of the United States.” 69 Fed. Reg. 41,576, 41,580 (July

9, 2004). Facilities with cooling water intake structures

include power plants and industrial facilities that are

constructed near water bodies so they can circulate

water through their equipment to cool the heat

generated during operations. Over 90 percent of the

volume of cooling water withdrawn from surface waters

in the United States is used by electric utility generating

stations with a total design flow over 50 MGD. 71 Fed.

Reg. 35,006, 35,017 (June 16, 2006). Of the many

thousands of industrial facilities that withdraw cooling

water, EPA estimates that approximately 550 nationwide

withdraw 50 MGD or more, and most of these are

electrical generation facilities. 69 Fed. Reg. at 41,608.

In contrast, there are almost 4,000 offshore oil platforms

in the Gulf of Mexico and 150 refineries within the

continental United States. See Coastal Marine Institute,

Forecasting the Number of Offshore Platforms on the

Gulf of Mexico OCS to the Year 2023 (April 2001) <http:/

/www.gomr.mms.gov/PI/PDFImages/ESPIS/3/

3104.pdf>; Energy Information Administration,

Number and Capacity of Petroleum Refineries(visited

July 18, 2008), <http://tonto.eia.doe.gov/dnav/pet/

pet_pnp_capl_dcu_nus_a.htm>.

Offshore platforms extract oil from the geological

structures under the ocean floor. Given the danger posed

by fire and explosions in drilling through gas and oil

pockets, offshore platforms generally use ocean water

primarily for fire suppression and cooling operations.

Offshore platforms also use ocean water for cooling any

8

drilling operations. EPA Technical Development

Document for the Final Section 316(b) Phase III Rule,

pp. 2-8 -— 2-10 (EPA-821-R-06-003). These operations

generally use very little ocean water in comparison with

the amounts used by onshore electrical generation

facilities. 71 Fed. Reg. at 35,017. Similarly, onshore oil

refineries also use cooling water primarily for cooling

drilling and fire suppression. Refineries use much less

water than electrical generation facilities. Onshore

refineries are inherently dangerous facilities. Crude oil

molecules are “cracked” at extremely high temperatures

and pressures in massive containers, to produce

gasoline, kerosene, lubricants, and all the petroleum

products modern society requires to function. Cooling

water is used to maintain production equipment at

proper operating temperatures, which, among other

things, ensures proper safety at the refineries.

The primary environmental impact from cooling

water intake structures is that they “impinge” and

“entrain” aquatic organisms, from the smallest plankton,

fish, eggs, and larvae to the largest adult fish.

“Impingement” is when organisms are trapped against

intake structures by inflowing water, which can cause

physical injury; “entrainment” occurs when smaller

organisms are pulled into a facility’s cooling system,

which can cause injury from exposure to the facility’s

operations. /d. at 41,586. Because of these impacts on

aquatic life, the Phase II Rule was promulgated “to

minimize the adverse environmental impacts of cooling

water intake structures by minimizing the number of

aquatic organisms lost as a result of water withdrawals

associated with these structures or through restoration

measures that compensate for these losses.”

Id. at 41,586.

9

There are three primary technological systems for

cooling at electric utilities and industrial facilities: once-

through, closed-cycle, and air/dry. “Once-through”

cooling systems used by most existing plants are more

cost-effective and energy-efficient than “closed-cycle”

cooling systems, which recirculate water through cooling

towers, or “air/dry” cooling systems that use virtually

no water. Once-through systems, however, require a

larger volume of intake water, which can potentially have

amore significant impact on aquatic life. Regardless of

the volume of water withdrawn by a particular type of

cooling system, there are other practical and

environmental considerations. For example, closed-cycle

and air/dry cooling systems can be extraordinarily more

expensive than once-through cooling, requiring, in the

case of closed-cycle systems, existing facilities to install

retrofit systems that can reduce electric generating

capacity, which leads to an “energy penalty” while the

retrofit is installed. Also, closed-cycle and air/dry cooling

systems require more electricity to operate and create

additional adverse environmental impacts such as

increased air pollutant emissions resulting from greater

use of fossil fuels. Jd. at 41,605.

API’s members were regulated by EPA under the

Phase III rule issued on June 16, 2006, whereas

electrical generation facilities were regulated under the

Phase II rule, issued on July 9, 2004. The Phase II

Rule covers approximately 90 percent of the

total volume of cooling water withdrawn by all facilities

nationally. 71 Fed. Reg. at 35,017. In promulgating

national standards for the Phase IT Rule based on BTA,

EPA determined that Phase II facilities could

choose from five technology alternatives for

10

achieving the BTA “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. at

41,590. EPA found that Phase II facilities should have

the choice of the five alternatives to satisfy BTA because

adoption of a single technology standard for all

Phase II facilities was not practicable. Jd. Instead, EPA

determined that the “range of technologies” was

“commercially available” for the industry and the most

appropriate approach for addressing the variability

among Phase II facilities. 7d. at 41,599. The Phase II

Rule also set forth national performance standards that

consist of “ranges of reductions” that facilities must

achieve in impingement or entrainment from a

“calculation baseline.” Jd. at 41,683-84, 41,590.

EPA determined that “closed-cycle, recirculating

cooling systems” did not represent the single BTA for

Phase II facilities based on its “high costs (due to

conversions), the fact that other technologies approach

the performance of this option, concerns for energy

impacts due to retrofitting existing facilities. and other

considerations.” /d. at 41,605. EPA found that requiring

closed-cycle cooling retrofits at Phase II facilities “is not

the most cost-effective approach,” and that “retrofits

may be impossible or not economically practicable.” /d.

(emphasis added). Specifically, EPA reviewed evidence

showing that the costs of closed-cycle retrofits would

be exceedingly high-ranging per facility, from an

estimated $130 to $200 million in capital costs and $4 to

$20 million in annual operating costs. /d. Indeed, “EPA

estimated that the total social cost of compliance for this

11

option for Phase II existing facilities would be

approximately $3.5 billion per year.” Jd. EPA then found

that actual costs could be “at least twice those projected”

because its estimates “did not fully incorporate costs

associated with acquiring land needed for cooling

towers, and, therefore, these estimates may not fully

reflect the costs of the option.” /d.

EPA also considered information about the energy

impacts associated with closed-cycle retrofits. This

included EPA’s finding that if Phase II facilities were

required to install closed-cycle cooling systems, the

Department of Energy estimated “on average

20 additional 400-MW plants might have to be built to

replace the generating capacity lost by replacing once-

through cooling systems with wet cooling towers if such

towers were required by all Phase II facilities.” /d.

Moreover, EPA found that because that “deficit is

predicted to occur during the summer months (when

energy demand is highest), the net effect would be more

consumption of fossil fuel, which in turn increases the

emission of sulfur dioxide, NO[X], particulate matter,

mercury and carbon dioxide.” Jd. EPA found it

appropriate “to consider these non-water quality

environmental impacts and the additional costs

associated with controlling these increased emissions

in” issuing the Phase II Rule. /d.

EPA detertained that it was authorized to conduct

a cost-benefit analysis in establishing BTA under CWA

§ 316(b). While EPA looked to CWA §§ 301 and 304 toa

limited extent, EPA also explained the differences

between those provisions and CWA § 316(b). 69 Fed.

Reg. at 41,588. EPA found that in contrast to

12

CWA §8§ 301 and 304, the object of BTA “is explicitly

articulated by reference to the receiving water: To

minimize adverse environmental impact in the waters

from which cooling water is withdrawn.” /d. Because of

the differences in the language of the CWA provisions,

EPA explained that they were implemented differently:

While EPA has established effluent limitations

guidelines based on the efficacy of one or more

technologies to reduce pollutants in

wastewater in relation to cost without

necessarily considering the impact on the

receiving waters, EPA has previously

considered the costs of technologies in relation

to the benefits of minimizing adverse

environmental impact in establishing 316(b)

limits which historically have been done on a

case-by case basis.

Id. Thus, EPA concluded that “[flor this Phase II

Rulemaking, EPA ... interprets CWA section 316(b) as

authorizing EPA to consider not only technologies but

also their effects on and benefits to the water from which

the «* ing water is withdrawn.” /d. Based on its cost-

benefit analysis, EPA established in the Phase II Rule

“national requirements for facilities to install technology

that is technically available, economically practicable,

and cost-effective while at the same time authorizing a

range of technologies that achieve comparable

reductions in adverse environmental impact.” /d.

In the Phase III rule, EPA determined that

national uniform standards for implementing BTA

among the widely varied smaller facilities was not

13

appropriate. EPA found that the cost of establishing a

single, uniform standard for existing onshore refineries

and offshore rigs was wholly disproportionate to any

environmental benefits, and decided to provide permit

writers with the authority to make case-by-case

decisions on the BTA for a particular facility. 71 Fed.

Reg. at 35,014-17.

ARGUMENT

The sole question raised by the Court is whether

EPA can compare costs and benefits under CWA § 316(b)

in establishing BTA for cooling water intake structures.

The Second Circuit incorrectly denied EPA’s ability

under CWA § 316(b) to consider cost and benefits in

determining a reasonable regulatory approach, stating

that “[w]hen Congress has intended that an agency

engage in cost-benefit analysis, it has clearly indicated

such intent on the face of the statute,” and that EPA

may only consider regulatory costs to the extent that

an industry can “reasonably bear” technology costs and

the technology is “cost effective.” Riverkeeper, Inc. v.

EPA, 475 F.3d 83, 99-100 (2"¢ Cir. 2007). The Second

Circuit’s decision must be overturned because: (1) the

court improperly substituted its own interpretation of

an arguably silent statutory section for an agency’s

permissible interpretation; (2) the Second Circuit’s

interpretation of the CWA is likely to cause immediate

massive harm to the domestic petroleum industry,

American consumers, and the U.S. economy, in exchange

for little to no benefit to aquatic life; (3) the Second

Circuit’s decision would essentially invalidate a later Act

of Congress and reverse close to thirty years of

regulatory policy by that uses common sense and cost-

14

benefit analyses in favor of an ill-defined and

impracticable analysis forwarded by one panel of one

Circuit Court of Appeals; and (4) the Second Circuit’s

proposed cost effectiveness test would preclude

regulatory agencies from regulating in an orderly and

efficient fashion.

I. CWA § 316(b) authorizes EPA to compare costs

and benefits for determining BTA.

EPA’s interpretation of the phrase “best available

technology for minimizing adverse environmental

impacts” is that it authorizes EPA to consider, in

establishing standards for co’.ing water intake

structures based on such technology, the relationship

of the costs of the technology options to the benefits

associated with them. 69 Fed. Reg. at 41,583, 41,603.

The Second Circuit ignored EPA’s interpretation of

CWA § 316(b), and instead read non-existent language

into CWA § 316(b) prohibiting EPA from considering

costs and benefits. Riverkeeper, 475 F.3d at 98-99. A

proper Chevron analysis, however, shows that the

Second Circuit should have deferred to EPA’s

reasonable interpretation of CWA § 316(b), a statute

that is silent concerning the question at issue.

Under Chevron, if the intent of Congress is clear

from the statute, then the Court must give effect to that

intent. Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837, 842

(1984). But, if “the statute is silent or ambiguous with

respect to the specific issue, the question for the court

is whether the agency’s answer is based on a permissible

construction of the statute.” /d. at 842-43. The plain

language of CWA § 316(b) is silent concerning whether

15

or how EPA is permitted to weigh costs (or indeed, any

other factor) when determining BTA. Indeed, the Second

Circuit recognized the statute’s silence on this issue:

“Section 316(b) does not itself set forth or cross-

reference another statutory provision enumerating the

specific factors that the EPA must consider in

determining BTA.” Riverkeeper, 475 F.3d at 97.

Despite its recognition of the absence of language

in CWA § 316(b) that would prohibit EPA from

considering costs or conducting a cost-benefit analysis,

the Second Circuit held that “the language of section

316(b) itself plainly indicates that facilities must adopt

the best technology available and that cost-benefit

analysis cannot be justified in light of Congress’s

directive.” Jd. at 98-99 (emphasis in original). However,

a critical examination of CWA § 316(b) shows that its

language is silent or, at best, ambiguous, considering

EPA's reasonable interpretation to the contrary. The

Second Circuit’s interpretation ignores that CWA

§ 316(b) not only lacks a directive to EPA about how it

is to consider costs of technology, but it contains an

affirmative provision that EPA consider not only

available technology, but also what is “best” for

“minimizing adverse environmental impact.” This

language distinguishes BTA from almost all other CWA

standards, that typically focus on the feasibility of

technology, and instead focuses on environmental

impacts. The Second Circuit mistakenly read the

language of CWA § 316(b) as “expressly requir[ing] a

technology-driven result ..., not one driven by cost

considerations or an assessment of the desirability of

reducing adverse environmental impacts in light of the

cost of doing so.” Jd. at 99. However, the Second Circuit

16

only focused on the words “best technology available,”

failing to recognize that “minimizing adverse

environmental impact” modifies the first three words of

BTA. Jd. In comparison to the Second Circuit’s

incomplete interpretation, a proper construction of CWA

§ 316(b) permits EPA the discretion to weigh costs and

benefits in determining whether a technology for a

cooling water intake structure is the “best...

achievable” allowing for consideration of costs, while also

determining such technology minimizes adverse

environmental impact, thus allowing EPA to consider

environmental benefits. Thus, the Second Circuit erred

in finding that the plain language of CWA § 316(b) clearly

sets forth a Congressional mandate prohibiting EPA

from conducting a cost-benefit assessment.

Because the language of CWA § 316(b) does not

unambiguously state Congress’ intent on the cost-

benefit issue under step one of the Chevron analysis,

the Second Circuit should have deferred to EPA’s

interpretation of the statute. For the Phase II Rule,

EPA interpreted CWA § 316(b) as ailowing for a

consideration of “the national cost of .. . technologies in

comparison to the national benefits . . .” 69 Fed. Reg. at

41,603; see also id. at 41,583. Because CWA § 316(b) does

not expressly prosisit EPA from comparing costs and

benefits in establishing BTA, the Second Circuit should

have deferred to EPA’s interpretation so long as it was

reasonable. Chevron, 467 U.S. at 843. As thoroughly

discussed in briefs submitted by other parties, including

EPA itself, EPA’s interpretation of CWA § 316(b) as

allowing it to compare costs and benefits in establishing

BTA was reasonable. The text of CWA § 316(b) supports

EPA’s reasonable interpretation, which states that

17

intake structures “reflect the best technology available

for minimizing adverse environmental impact.” 33 U.S.C.

§ 1326(b). This language, unique to the CWA, combines

technology considerations (“best technology available”)

with environmental goals (“minimizing adverse

environmental impact.”). As a result, EPA reasonably

interpreted CWA § 316(b) to grant it the authority to

consider technology costs in relation to environmental

benefits, such as related reductions in impingement and

entrainment for the Phase II facilities. 69 Fed. Reg. at

41,603. Because it failed to conduct a proper Chevron

analysis that defers to EPA’s reasonable interpretation

of CWA § 316(b), the Second Circuit decision should be

reversed.

II. If upheld, the Second Circuit’s decision is likely

to lead to major impacts on our nation’s energy

supply.

If the Second Circuit’s decision is upheld, EPA's cost-

benefit analysis for the Phase [I Rule is invalidated, and

closed-cycle cooling systems are imposed on Phase II

and III facilities as BTA, the practical implications will

be broad and substantial on the already-strained energy

industry. If closed-cycle systems are imposed as BTA,

the oil and gas industry could likely be required to

retrofit existing refineries and existing offshore oil

platforms. Requiring a possible shut down of either one

of these to retrofit systems would impose costs on the

oil and gas industry that would necessarily be passed

on to consumers and harm the American economy.

Finally, reversing EPA's use of cost-benefit analysis in

establishing BTA over the last thirty years will lead to

regulatory uncertainty and unnecessary expenditures.

18

First, retrofitting an oil refinery with closed-cycle

cooling water systems may require a shutdown of the

entire refinery, which will not only raise costs for the

refinery, but could reduce the supply of gasoline and

other products to consumers. Just the cost of adding a

cooling tower to a refinery to support closed-cycle

cooling, even ignoring any costs imposed through

closure of the refinery for ten months, is likely to be

high, at possibly over $6,000,000 per unit. Again, this

estimate includes only the construction of the unit. The

significant cost would be required because the typical

petroleum refinery is a complex system of process

components that evolved over decades. Designers

provided heat removal systems based upon the needs

of the individual components and the available cooling

utilities. Changing once-through cooling systems to

recirculating systems will involve site-specific piping and

equipment location issues that may not be apparent to

those more familiar with power plants. Each refinery

component may have several different heat transfer

needs, ranging from pump cooling to steam eduction-

generated vacuum. If the cooling tower can provide

similar cooling capacity, then the process heat

exchangers will not need replacement. The problem is

that the temperature difference provided by once-

through cooling is not readily replicated with cooling

tower-based systems. Consequently, the complex nature

of a petroleum refinery will demand site-specific cooling

system designs having multiple cooling towers (possibly

placed far away from the process unit), the replacement

of pumps, and/or the replacement of process heat

exchangers (and possible associated piping, depending

upon system hydraulics). Moreover, not only are design

challenges daunting for refineries, but space restrictions

19

can increase construction costs exponentially. For

example, in the Phase II Rule, EPA recognized that

acquisition of property for siting cooling towers could

result in costs “at least twice those projected by EPA.”

69 Fed. Reg. at 41,605. This issue would equally apply

to Phase III facilities.

However, the construction costs are not the largest

costs this changeover imposes. In addition to the

massive refinery construction costs that would be

passed on to consumers, closing even a handful of these

at any one time could have massive impacts on the

American economy and the supply of gasoline and

energy. There are only about 150 refineries in the

United States to refine the gasoline and other petroleum

products, and those that are in operation are already

ruling at full capacity to satisfy consumer demands.

Energy Information Administration, Number and

Capacity of Petroleum Refineries(visited July 18, 2008),

<http://tonto.eia.doe.gov/dnav/pet/pet_pnp_ capi deu_

nus_a.htm>. With regards to offshore platforms, a

sizak‘!e percentage of U.S. domestic production may be

shut down for months on end while offshore cooling

water systems are reconfigured to specifications

designed for onshore electrical generation facilities a

couple hundred times their size. Since the companies

operating offshore platforms are so large, it is not likely

that even the costs of converting offshore platforms

would meet the Second Circuit’s test of not being able

to be “reasonably borne” by the industry. Of course, the

economic harm to this country could be massive.

20

As EPA noted in its Phase II rulemaking,

retrofitting closed-cycle systems is no small task, and

EPA found that an electrical plant could be down for up

to ten months while performing necessary construction.

69 Fed. Reg. at 41,605. API agrees with this ten-month

downtime estimate. In fact, as API explained in 2005 in

response to EPA’s request for comments on a rule that

would only require retrofitting screens and intakes, not

installing cooling towers:

Petroleum refineries are not designed or

operated on the basis of taking periodic

routine shut downs. The experiences of

emergency shut-downs of refineries due to

recent hurricanes explains why shutting down

refineries is to be avoided. Typically, a refinery

runs 24 hours per day, 7 days per week.

Usually, turnarounds are performed on

individual process units, while most of the

remainder of the refinery remains in

operation. In addition, at least one API

member’s intake structure also provides

water to a municipality; this water supply

would be curtailed to accomplish the retrofit.

Therefore the demand for cooling water at the

intake structure is nearly always continuous.

Refineries rarely have suitable alternate

[cooling water intake structures]. If retrofit

of the intake structure were required, in many

cases essentially complete shutdown would be

necessary during the installation of a modified

intake structure. In each of these cases, API

estimates that retrofitting an intake

21

structure would typically result in 8 weeks of

lost production. For the 13 petroleum

refineries potentially subject to Phase III

(those with cooling water flows >50 mgd),

estimated downtime and lost production time

would total approximately 100 weeks.

API, Comments to Docket OW-2904-0002, at 5-6 (Dec.

27, 2005). Of course, the eight-week estimate only

includes the retrofitting of existing refinery equipment

such as intake screens, pipes, and circulation. This

estimate does not include the actual construction of

necessary new cooling towers or equipment for closed-

cycle circulation. It will be necessary for refineries to

actually build new towers to implement closed-cycle

cooling. API believes that refinery downtime is likely to

be in the range of ten months, as EPA previously found,

representing a potentially major decrease in gasoline

and diesel production, along with comparable losses of

other vital petroleum products. During the time

refineries were closed for turnaround, they would not

be producing any petroleum products. The production

stoppage could likely apply to virtually all of chis

country’s domestic gasoline and petroleum refining

facilities. In addition, a large number of offshore oil

platforms may need to be shut down for conversion. Yet,

the Second Circuit’s decision would preclude EPA from

weighing the costs its regulation could impose against

a small benefit to aquatic life.

Finally, adopting the Second Circuit’s elimination

of cost-benefit analysis in establishing BTA for the

Phase III rule would create broad uncertainty for both

EPA and the regulated community. After the Fourth

22

Circuit invalidated EPA's first attempt to implement

CWA § 316(b) in Virginia Electric & Power v. Costle,

566 F.2d 446 (4 Cir. 1977), EPA and state agencies

implemented CWA § 316(b) by developing standards

site-by-site, based on their “best professional

judgment. ” 69 Fed. Reg. at 41,584. While EPA and state

agencies issued site-specific standards for cooling water

intake structures, in 1979, the First Circuit confirmed

that CWA § 316(b) authorizes EPA to weigh costs

against environmental benefits. Seacoast Antt-

Pollution League v. Costle, 597 F.2d 306, 311 (1st Cir.

1979). As EPA made clear in the Phase II Rule, it was

operating consistent with the interpretation that it was

authorized to conduct a cost-benefit analysis. The

regulated community relied on E'PA’s interpretation,

and based on the standards issued by EPA and state

agencies based on site-specific BPJ, Phase II facilities

made substantial investments over the last thirty years

to install compliance measures. The Second Circuit’s

decision, however, would require Phase II facilities to

forfeit those investments. The loss of those investments

makes the cost of installing closed-cycle systems

especially daunting, and would likely lead Phase III

facilities to conclude that EPA’s regulatory actions could

not be relied upon.

23

III. Overturning existing common-sense regulatory

law and policy in favor of the Second Circuit’s

undefined tests would lead to substantial

uncertainty under every regulatory statute.

The Second Circuit provided very little guidance to

agencies on how to implement its potentially wide-

sweeping decision, and upholding its decision on cost-

benefit analysis would effectively invalidate thirty years

of common-sense regulatory policy in favor of a vague

test for what costs can be “reasonably borne” by an

industry that the court itself was unwilling to define

clearly. In its decision, the Second Circuit appears to

have concluded that unless a statute specifically

provided for cost-benefit analysis, such analysis would

be prohibited. Riverkeeper, 475 F.3d at 99. According to

the Second Circuit, the only limit on what technology

EPA is required to mandate is whether industry can

bear the costs. Yet, in its zeal to “force” technology, the

Second Circuit declined to even define the vague term

“reasonably borne” from its own proposed test. The

Second Circuit simply did not explain whether EPA

would be permitted to reject a regulatory option that

put 5% of an industry out of business, or whether it must

engage in “technology forcing” until it was shown that

only a handful of firms would remain. /d. The Second

Circuit has attempted to push aside thirty years of cost-

benefit analysis and common sense regulatory policy in

favor of forcing the agencies into decades of litigation

on the meaning of the word “reasonable” in the various

circuits.

The sole guidance the Second Circuit gave to a

regulatory agency is to state that the only consideration

24

the agency could give to costs would be to determine

“cost-effectiveness.” The Second Circuit’s decision

appears to continue to mandate each and every

technological upgrade that an agency has determined

the industry could “reasonably” bear. However, if an

agency identified a technological option that had

identical benefits at a lower price, it could opt for the

lower price technology. Here, the court was very clear,

stating that EPA could not reject a regulatory

alternative that saved two additional fish on cost

considerations. /d. at 100. In the Second Circuit’s

opinion, a section of the CWA that is silent on cost-

benefit analysis requires EPA to impose billions of

dollars in regulatory costs for the projected saving of

two fish.

In assessing the unreasonableness of the Second

Circuit’s sweeping holding, it is helpful to examine

current regulatory policy. Currently, in the face of

statutes silent on the question of cost-benefit analysis,

agencies are required by law to consider the impacts of

their actions. Specifically, the Regulatory Flexibility Act

of 1980 (the “RFA”), required EPA to consider the costs

of its CWA § 316(b) rules to small entities.* 5 U.S.C.

§§ 601-612. Though the RFA does not “trump” the

’ In fact, pursuant to section 609 of the RFA, EPA

determined the Phase III cooling water intake rule was likely

to have a significant economic impact on a substantial number

of small entities and conducted a Small Business Review

Enforcement Fairness Act panel prior to publication. See U.S.

Small Business Administration, Office of Advocacy, SBREFA

Panel Support for Cooling Water Phase III Regulations Under

Section 316(b) of the Clean Water Act: Final Report (Jan. 9,

2004) (EPA-HQ-OW 2004-0002-02221).

25

legislative goals EPA is regulating for, Congress clearly

intended that EPA at least consider the costs of the

regulatory burdens it is imposing and alternative

regulatory approaches to reduce those costs. 5 U.S.C.

§ 606 (“The requirements of sections 603 and 604 of this

title do not alter in any manner standards otherwise

applicable by law to agency action.”); see, e.g., A.M.L.

International, Inc. v. Daley, 107 F. Supp. 2d 90, 105 (D.

Mass. 2000) (“The RFA does not command an agency to

take specific substantive measures, but rather, only to

give explicit consideration to less onerous options.”).

However, the Second Circuit appears to have concluded

that a silent statutory section that makes no mention of

consideration of costs must be read to mean that RFA

analysis is meaningless.

Section 604 of the RFA requires EPA to publish

along with their final rules in the Federal Register a

discussion outlining the types of small entities being

regulated, the estimated compliance burdens, as well

as less burdensome regulatory alternatives. 5 U.S.C.

§ 604. EPA must also publish, along with its proposed

and final rules, “a description of the projected reporting,

recordkeeping, and other compliance requirements of

the proposed rule, including an estimate of the classes

of small entities which will be subject to the requirement

and the type of professional skills necessary

for preparation of the report or record.” 5 U.S.C.

§§ 603(b)(4), 604(a)(4). Having determined the likely

regulatory burdens, EPA is then required to provide

with its final rules:

[A] description of the steps the agency has

taken to minimize the significant economic

26

impact on small entities consistent with the

stated objectives of applicable statutes,

including a statement of the factual, policy, and

legal reasons for selecting the alternative

adopted in the final rule and why each one of

the other significant alternatives to the rule

' considered by the agency which affect the

impact on small entities was rejected.

5 U.S.C. § 604(a)(5). EPA decisions to reject less

burdensome regulatory alternatives are subject to

judicial review under the RFA, and challenges to

regulatory actions can be brought by any adversely

affected small entity who believes EPA failed to conduct

the requisite regulatory flexibility analysis. 5 U.S.C.

§ 61l(a), see U.S. Telecom. Ass’n. v. FCC, 400 F.3d 29,

42-43 (D.C. Cir. 2005) (court found substantial

compliance with APA notice and comment requirements,

but still remanded rule based on failure to conduct

regulatory flexibility analysis).

In a legal challenge brought under the

Administrative Procedure Act (the “APA”), EPA would

understandably be hard-pressed to defend the Second

Circuit’s proposed cost-effectiveness test in any other

Circuit Court of Appeals. Though this Court’s Chevron

standard and the “arbitrary and capricious” standard

from the APA generally provide deference to agency

decision making (see Chevron, 467 U.S. at 842-45;

5 U.S.C. § 706), it would be difficult for a court that did

not accept the Second Circuit’s rationale for interpreting

statutory silence as prohibiting cost-benefit

consideration to determine that EPA was not acting

arbitrarily if the agency acted exactly as the Second

27

Circuit urged. First, in determining that a technology

cost could be “reasonably borne,” the Second Circuit

apparently would make no distinction for cases where

the largest company in an industry could reasonably

bear a cost that would force every small competitor out

of business. Consideration of regulatory alternatives

under the RFA would become a meaningless act under

a judicially-created test with no explicit statutory

support.

It is instructive to note that the Second Circuit

failed to explain how its cost-effectiveness test would

work in reality. The Second Circuit stated that EPA

would not be permitted to adopt a technology that failed

to save two fish more than a test with even significantly

less costs, provided EPA had made a prior determination

that the industry could “reasonably bear” the costs of

the technology. Riverkeeper, 475 F.3d at 100. This test

is profoundly disconnected with the real world impacts

of regulation, as no reasonable, uninterested party

would dare to say that an EPA decision to destroy every

smaller competitor in a market on behalf of two fish was

not arbitrary and capricious. Yet, the Second Circuit’s

choice of example explicitly puts EPA agencies on notice

that even reasonable regulatory alternatives will be

overturned as impermissible under the court’s new cost-

effectiveness test.

In addition, the Second Circuit’s decision

contravenes almost thirty years of regulatory policy.

Since 1981, Federal agencies have been required by

Executive Order to apply a cost-benefit analysis of to

some degree to their regulatory decisions. On February

17, 1981, one of President Reagan’s first acts of office

28

was to sign Executive Order 12,291 requiring Federal

agencies to use the common sense principle that,

“Regulatory action shall not be undertaken unless the

potential benefits to society for the regulation outweigh

the potential costs to society.” Exec. Ord. 12,291, at §2(b),

46 Fed. Reg. 13,193 (1981). In a display of the bipartisan

nature of this common sense measure, in his first year

in office, President Clinton signed Executive Order

12,866, continuing cost-benefit analysis in regulation and

even creating an oversight mechanism to ensure this

occurred. Exec. Ord. 12,866, 58 Fed. Reg. 51,735 (1993).

The Second Circuit’s decision steps squarely into the

realm of the Executive, ordering the President to

interpret statutes that are silent on cost-benefit analysis

in the manner that the court prefers.

Given the serious potential for regulatory confusion

and legal difficulties present in implementing the Second

Circuit’s decision, this Court should refrain from

upholding the Second Circuit decision to the extent that

it purports to prohibit cost-benefit analysis unless

specifically granted in the authorizing statute. To the

extent that this Court finds the Second Circuit’s analysis

and interpretation of CWA § 316(b) acceptable, API

urges the Court to limit its holding to only

implementation of CWA § 316(b).

29

IV. A general prohibition on regulatory decisions

based on cost-benefit analysis would destroy the

ability of regulatory agencies to regulate in an

orderly and efficient fashion.

Though API believes the Second Circuit’s

interpretation of the CWA was not proper under this

Court’s prior decisions, API strongly urges this Court

to limit any decision upholding the Second Circuit’s

decision to the confines of CWA § 316(b) only. API’s

members are regulated not only under the CWA, but

under the numerous other environmental, health, safety,

and economic statutory schemes. If this Court accepts

the general holding of the Second Circuit on cost-benefit

analysis and proper statutory interpretation, without

limitation to the CWA, there is no limit to the disruption

that such a rule could cause. Two outcomes would

necessarily occur, should this Court accept the Second

Circuit’s rationale and adopt the general rule that unless

a statute mandates cost-benefit analysis, such analysis

is prohibited: (1) regulatory agencies will interpret the

Second Circuit’s “reasonably borne” cost limitation as

an order to regulate such that industry spend every

penny of profit to reach that particular agency’s

narrow regulatory goal; and/or (2) executive authority

to implement statutes will be taken over by the courts,

as there will be endless litigation by special interest

groups claiming that agencies do not have authority to

give industry a break for any marginal cost, where

regulatory benefits are potentially available. In 2005

alone, the Federal government published 3,980

final rules, many of which are silent as to cost factors

and may have to ignore cost considerations under the

Second Circuit’s rationale. See Office of Management

30

and the Budget, Office of Information and Regulatory

Affairs, 2006 Report to Congress on the Benefits and

Costs of Federal Regulations and Unfunded Mandates

on State, Local, and Tribal Entities, at 7 (2006) (visited

on July 18, 2008) <http://www.whitehouse.gov/omb/

inforeg/2006_cb/2006_cb_final_report.pdf>. Just the

2005 final rules imposed annual regulatory costs of

between $4,329,000,000 to $6,597,000,000, even after the

agencies were forced to consider costs and regulate in

a common sense manner. /d. If the Second Circuit

decision was followed, those costs would likely have been

much higher.

Regulated companies have few choices when faced

with regulatory costs. They can try to absorb the costs,

or, in cases like this where the entire industry is being

regulated, they can raise prices and pass costs to

consumers. Yet, there,is a limit to what the market will

bear. When one reviews just how many statutory grants

of regulatory authority are silent on the issue of cost-

benefit analysis, the inevitable conclusion is that there

simply is not enough money to satisfy all of the agencies’

regulatory priorities without comparing costs and

benefits. This Court’s decision has the potential to

influence outcomes far beyond the scope of the minor

statutory section of CWA § 316(b), and API urges this

Court to tailor its final opinion in a way that takes into

account the sheer size of the regulatory state.

31

CONCLUSION

For the foregoing reasons, the judgment below

should be reversed.

Respectfully submitted,

DANIEL P. ALBERS

F'REDRIC P ANDES

Davio T BALLARD

BARNES & THORNBURG LLP

One North Wacker Drive, Suite 4400

Chicago, IL 60606-2809

(312) 357-1313

Of Counsel:

Harry Nc

General Counsel

MICHAEL SEF

American Petroleum Institute

1220 L Street, N.W.

Washington, DC 20005-4070

Counsel for Amicus Curiae