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Breaking bad: The high cost of phosphorus compliance encourages permitted entities to innovate, breaking the old habit of engineered, "end of pipe" solutions

October 10, 2013

Introduction to the phosphorus challenge
At the end of 2010, the DNR (Wisconsin Department of Natural Resources) enacted a stringent phosphorus regulatory program. As part of the new regulatory regime, the DNR has recently begun implementing water quality-based effluent limits in discharge permits. The water quality-based effluent limits may be based on the numeric, phosphorus limit for a water body or on an applicable Total Maximum Daily Load (TMDL).

Permitted entities should expect the new water quality-based effluent limits to be much stricter than previous permit limits. Many permitted entities will be unable to meet the new permit limits with minor facility upgrades. Entities unable to upgrade existing infrastructure will need to consider adding expensive new filtration technology, which frequently costs tens of millions of dollars.

Alternative "treatment" scenarios
The DNR recognizes the substantial costs a permitted entity may face if it is unable to meet new permit requirements with minor facility upgrades. In an effort to reduce pollution in the most efficient and economic manner, the DNR has established two alternative paths to compliance. Instead of implementing filtration technology, permitted entities can indirectly reduce pollutants by: 1) developing and participating in an adaptive management plan or 2) entering into a trade agreement.

Under both adaptive management and nutrient trading, permitted entities can work with farms, municipalities and other non-permitted dischargers to reduce the amount of pollution the non-permitted entity discharges to the water body. The reductions from the non-permitted sources will be attributed to the permitted discharger.
Specific information on the implementation of adaptive management and trade agreements can be found in the DNR guidance documents:

Determining if and how an entity can come into compliance using an adaptive management plan or trade agreement is not straightforward.

Entities conducting trades must calculate potential "pollution credits" using DNR-approved ratios. After calculating potential reductions, entities must ensure their trade partners actually implement the agreed-upon pollution reduction measures. For entities trading with non-point agricultural sources, this means ensuring farmers plant cover crops and buffers early enough to generate pollution reduction by the start of the next permit term. All calculation and verification must be performed before the effective date of the permit cycle during which a permitted entity intends to cash in the credits.

Adaptive management does not require entities to generate "pollution credits" before the start of a permit cycle. However, entities using adaptive management are required to develop comprehensive plans for achieving water quality standards. Instead of generating only enough pollution reduction to meet individual permit requirements, entities must generate enough pollution reduction to ensure that the entire water body will meet water quality standards. Water quality standards must be achieved by the end of the adaptive management plan.

The path to recovery is complex
Forthcoming DNR draft permits will not require permit holders to immediately meet the new stringent effluent limits. Instead, the permits will include detailed compliance schedules. Each compliance schedule will contain numerous milestones. And each milestone will lay out a variety of complex and costly reports and engineering studies permit holders will need to complete. Under the draft compliance schedules, permit holders will be required to complete several of the most complex reports within the first two years after permit issuance.

Draft permits are subject to notice and opportunity to comment by the permit holder as well as members of the public. Because both the effluent limits and the compliance schedules in this round of permit renewals will be new and complex, permit holders should expect to spend significantly more time addressing permit concerns.

Permit holders should not wait for publication of their draft permit to begin discussing feasible effluent limits and timeframes for compliance. The comment period the DNR provides after publication of the draft permit is not likely to give a permit holder sufficient time to draft thoughtful and thorough comments on draft permit provisions.

Permit holders have only 30 days to comment on the draft permit. Following the 30-day comment period and issuance of the final permit, the permit holder will have only 60 days to request an administrative hearing to challenge the reasonableness of permit provisions. After completion of the hearing, if an entity is still unsatisfied with the DNR's decision, the entity has only 30 days to request judicial review of the decision.

Nutrient trading and adaptive management are uncharted "waters" for Wisconsin. However, if planned for in advance and implemented correctly, both programs have the potential to save permitted entities millions of dollars. Entities that take a proactive approach to working within these new programs can minimize the risk posed by the uncertainty and capitalize on the opportunity to save money and benefit the environment.

Some recommendations for success
Permitted entities should consider taking a number of steps to ensure that they are using the regulatory flexibility inherent in adaptive management and nutrient trading to maximize their economic benefit while also ensuring their legal rights are protected:

  • Thoroughly review and discuss the adaptive management and water quality trading regulations and guidance to determine whether either or both strategies can be used to meet permit effluent limits.
  • Establish a list of site specific concerns-both historic and potential future concerns-and strategies for addressing these concerns.
  • Meet with DNR staff on a regular and informal basis well before the issuance of a draft permit and the notice and comment process. Begin a productive dialogue about how permit language could be drafted to take into consideration unique challenges and opportunities facing the permit holder.
  • Hire a qualified technical consultant well-versed in the nuances of the DNR and DATCP (Wisconsin Department of Agriculture, Trade & Consumer Protection) regulations governing both permitted dischargers and non-point runoff. Permitted sources must have a firm grasp on how industrial, municipal, and agricultural sources contribute to pollution issues in the relevant watershed. A good consultant is worth every penny of consulting fees expended in the engagement process. A consultant is key to drafting proposed permit terms that are technically feasible and economically beneficial to the permittee.
  • In the event that the publicly noticed draft permit does not adequately address concerns raised in the permittee's meetings with DNR, the permit holder should file formal comments as part of the notice and comment procedure.
  • Throughout the process, a permit holder needs to carefully monitor deadlines and schedule regular meetings with the DNR, technical consultants and legal representatives. Failure to make comments or request an agency hearing at the appropriate time may preclude a permit holder from contesting permit terms.

Entities will be in the best position to obtain reasonable permit terms if they decide early on what path to compliance makes the most sense. Entities should become familiar with their own unique challenges and opportunities and aim to proactively work with DNR to prepare a realistic and cost-effective plan for compliance. Playing an active role ensures entities will not be locked into a "one-size fits all" compliance schedule with costly and unnecessary studies and reports.

Godfrey & Kahn has devoted much time and energy to developing innovative solutions for a variety of clients facing new water quality and TMDL-based effluent limits. We take pride in helping entities develop innovative plans for navigating the new phosphorus regulatory program. Please feel free to contact any member of the Environment & Energy Strategies team for answers to questions that arise during the compliance process.

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