For the third time in the past 10 months, a federal court has declared that the Environmental Protection Agency (EPA) has violated the law through its efforts to impose additional restrictions on coal operations in the Appalachian States. On July 31, 2012, the federal District Court for the District of Columbia struck down EPA’s “guidance memorandum” for coal-related water permitting actions. The guidance purports to establish a number of “recommendations” and “suggestions” for the Corps of Engineers and State agencies like the West Virginia Department of Environmental Protection (WVDEP) to “consider” when processing applications for mining related permits. One of the recommendations is that permits should place limitations on conductivity levels in discharges from mining operations to ensure compliance with “narrative water quality standards,” such as the requirement that discharges into State waters do not cause a “significant adverse impact” to aquatic ecosystems. Conductivity is a measurement of how well water conducts electricity and is considered to be a rough surrogate for the concentration of total dissolved solids (TDS) present in water. Neither EPA nor the Appalachian States have adopted a water quality standard for conductivity. Nonetheless, for more than two years the State agencies have been effectively prevented from issuing new water discharge permits for mining-related projects unless they included conditions that implemented the views expressed in EPA’s “guidance.”

The National Mining Association and the States of West Virginia and Kentucky sued EPA on the grounds that EPA’s “suggestions” and “recommendations” were effectively binding obligations, and therefore constituted a rulemaking action that EPA undertook without following the procedures required by law for issuing new regulations. U. S. District Court Judge Reggie Walton agreed. “Review of the Final Guidance itself and of the post-implementation evidence before the Court makes clear that the Final Guidance, whether intentionally or not, has caused EPA field offices and the State permitting authorities to believe that permits should and will be denied if its ‘suggestions’ and ‘recommendations’ are not satisfied.” Judge Walton further found that the guidance improperly interjected EPA into the permitting process for “dredge and fill” permits issued by the Army Corps of Engineers under Section 404 of the Clean Water Act, as well as the mining-related permits issued by State agencies like WVDEP, which have obtained federal approval to administer those permitting programs.

Judge Walton’s decision invalidating EPA’s guidance is only the latest in a string of court defeats for the EPA. In October 2011, as part of the same lawsuit, Judge Walton declared that EPA’s efforts to develop a new procedure for processing and evaluating “dredge and fill” permit applications for coal mining projects in Appalachia exceeded EPA’s authority under the Clean Water Act. Following that decision, federal Judge Amy Berman Jackson, an Obama appointee, ruled on March 23, 2012 that EPA violated the Clean Water Act in January 2011 by attempting to retroactively “veto” a permit that was granted to Mingo Logan Coal Company in January 2007.

What does this latest decision mean for the coal industry in West Virginia?

The upshot is an affirmation that the Corps of Engineers and WVDEP are the lead regulatory agencies responsible for determining the terms of mining-related permits. More importantly, Judge Walton’s decision invalidating EPA’s guidance should mean that WVDEP is free to interpret and apply West Virginia law to determine the appropriate terms to include in mining-related permits, including what requirements are necessary to ensure compliance with West Virginia’s narrative water quality standards. Earlier this year, the West Virginia Legislature passed a bill making clear that WVDEP has the authority to interpret and apply those standards, and established a number of specific factors for WVDEP to consider. Through its guidance, EPA had effectively arrogated to itself the role of interpreting and applying the narrative water quality standards in West Virginia and the other Appalachian States.

The practical effect of the decision may be negligible, or at least short-lived. EPA has a right to review and comment on all proposed water discharge permits issued by WVDEP. EPA can formally object to those permits, and if the grounds for those objections are not resolved to its satisfaction, EPA can prevent WVDEP from issuing the permits. EPA could undertake the required rulemaking process to formally implement the invalidated guidance. EPA is also in the process of developing a water quality standard for conductivity that could potentially be forced on the States. That would present a substantial regulatory burden on all West Virginia businesses because virtually all industrial discharges, particularly from publicly owned water treatment plants and any activity entailing even temporary earth disturbance, have conductivity levels in excess of background levels, and treatment is very expensive. Right now, EPA’s focus is on the coal industry. But other industries beware. You could be next.