In December 2010, the Wisconsin Department of Natural Resources (WDNR) put into place new rules to control phosphorus discharges to the state’s waterways. In two prior client alerts, Wisconsin DNR’s New Phosphorus Rules: Are They in Effect? and Wisconsin DNR’s New Phosphorus Rules: They Are in Effect, we discussed the history and citizen suit notice of intent that led to the enactment of these rules, the basic framework of the rules, and the initial skirmish over whether the rules would go into effect as scheduled. They did. This third client alert is intended to bring that story forward in time.

Phosphorus Rules: Overview

The "phosphorus rules" are actually revisions to three existing rules which establish numerical criteria for phosphorus and implementation procedures for point sources, and performance standards for agriculture:

1. NR 102 Water Quality Standards for Wisconsin Surface Waters: the long-standing "narrative standard" has been replaced with numerical in-stream criteria for phosphorus:

• For 46 specifically identified rivers - 100 micrograms per liter (ug/L) also expressed as .1 milligrams per liter (mg/L)
• For all other streams, unless they are exempted - 75 ug/L (.075 mg/L)
• For lakes and reservoirs - from 15 ug/L (.015 mg/L) to 40 ug/L (.04 mg/L); the lower criterion applies to lakes that support a cold water fishery in the lower portions of the lake; the higher criterion applies to shallow lakes and reservoirs
• For the open and near shores of Lake Superior – 5 ug/L (.005 mg/L); for the open and near shore waters of Lake Michigan (with the exception of a limited segment near the mouth of the Fox River) – 7 ug/L (.007 mg/L)
• A criterion for a specific river segment or waterbody can be modified by adopting a site-specific rule.

2. NR 217 Effluent Standards and Limitations:

a. Adds water quality based effluent limitations (WQBELs) for phosphorus derived from the numerical criteria in NR 102 or a total maximum daily load (TMDL) for the specific waterbody, applicable to the following dischargers of phosphorus:

• Industrial
• Municipal
• Concentrated animal feeding operations (CAFOs) that discharge through a treatment system
• Municipal stormwater systems if necessary to meet phosphorus criteria
• Noncontact cooling water unless 100% of the phosphorus is from intake water

b. Establishes four compliance mechanisms (described more fully below):

• Traditional "bricks and mortar" treatment facility construction
• Variances
• Water quality trading
• Adaptive manageme

3. NR 151 Runoff Management: adds Phosphorus Index (P-Index) performance standards for agricultural sources to address runoff from agricultural lands:

• Applicable to croplands, pastures and winter grazing areas
• Requires a P-Index averaging 6 or less over the accounting period and less than 12 in any individual year
• Implemented through a nutrient management plan
• Became effective July 1, 2012

The balance of this Client Alert discusses the implementation tools and issues arising for point source dischargers.

Compliance Options: What are they?

"Bricks and mortar" and variances:

Industrial and municipal dischargers are familiar with the traditional approach to meeting new, more stringent effluent limitations – maximize the operation of your existing treatment system and, if that won’t do it, install new treatment technology. If you can’t afford it, seek a variance. Both the traditional "bricks and mortar" construction and variance options are available under the phosphorus rules. However, "bricks and mortar" construction is expected to be extremely expensive to meet these stringent phosphorus limitations, and the statutory standard for granting a variance – "the standard, as applied to the permittee, will cause substantial and widespread adverse social and economic impacts in the area where the permittee is located" (Wis. Stat. s. 283.15(4)f.) – is tough to meet. Indeed, the current WDNR view is that a permittee seeking a variance will need to demonstrate that treatment upgrades, water quality trading and adaptive management are all cost-prohibitive.

WDNR’s rule of thumb: if your water quality based effluent limitation for phosphorus is equal to or less than 0.6 mg/L, then it is likely your facility will require significant upgrades.

So, WDNR has included two other options for compliance as a way of providing less expensive alternatives. One, water quality trading, is more fully developed and better understood than the other, adaptive management, but both are largely unfamiliar to Wisconsin industrial and municipal permittees.

Water quality trading:

EPA has actively supported the option of water quality trading to meet water quality goals for several years and has developed a written framework and handbook to assist in its implementation.

In its simplest form, water quality trading is a voluntary exchange of pollutant reduction credits. A facility with a higher control cost can buy a reduction "credit" from a facility with a lower control cost thus reducing their cost of compliance. Trading can take place between two or more point sources, between point and nonpoint sources or between two or more nonpoint sources; it can be done directly or through a third party "broker," such as a watershed organization or county conservation office. Any discharger required to meet water quality based effluent limitations is eligible to participate in a water quality trade and the pollutants are not limited to phosphorus.

Wisconsin has some, albeit quite limited, actual experience with water quality trading. Wis. Stat. s. 283.84 authorized WDNR to implement pilot water quality trading programs. Three such programs were initiated in the Red Cedar, Fox-Wolf and Rock Rivers. They resulted in one trade – between the City of Cumberland and agricultural operations in the Hay River Watershed of the Red Cedar River study area. The City of Cumberland needed to remove 4,400 lbs. of phosphorus. It entered into a trade agreement with local nonpoint source operations. The City paid the agricultural operators $3.85/lb. of phosphorus removed based on credits generated through the conversion from conventional tillage to no-till.

From that experience, WDNR identifies several lessons learned, including:

• A stringent water quality based effluent limitation or TMDL limit is necessary to "drive" the trade; less stringent limitations are insufficient incentive;
• Trading is more likely to be economical if the phosphorus load to be traded is relatively small;
• To make the system work, a broker such as the County Land Conservation Department or the WDNR may need to assume administrative costs and incorporate those into the price of the credits; to do this work, the broker may need a source of funding;
• Selecting management practices that are easily calculated and verified will help keep administrative/brokerage costs down;
• The Cumberland conversion to no-till worked because it could be visually verified quite easily; tracking compliance of something like nutrient management is labor intensive, expensive and less likely to be a good fit;
• An agreed-upon set of tools to quantify phosphorus reduction loads from nonpoint sources with a single application of an established model is needed.  A Water Quality Trading Framework for Wisconsin; A Report to the Natural Resources Board (July 1, 2011); pp. 6-7

Adaptive Management:

Similar in some ways, meaningfully different in others, adaptive management is still a concept waiting for its first practical application. WDNR describes adaptive management this way:

Adaptive management is a phosphorus compliance option that allows point and nonpoint sources (e.g. agricultural producers, storm water utilities, developers) to work together to improve water quality in those waters not meeting phosphorus water quality standards. This option recognizes that the excess phosphorus accumulating in our lakes and rivers comes from a variety of sources, and that reductions in both point and nonpoint sources are frequently needed to achieve water quality goals.

By working in their watershed with landowners, municipalities, and counties to target sources of phosphorus runoff, point sources can minimize their overall investment while helping achieve compliance with water quality-based criteria and improve water quality.

Available only to address phosphorus and possibly Total Suspended Solids (TSS), the eligibility requirements for adaptive management are:

• The receiving water is exceeding the applicable phosphorus criteria;
• Meeting the phosphorus limit will require filtration or equivalent technology;
• At least 50% of the total phosphorus entering the waterway comes from nonpoint sources.

A permittee opting for adaptive management will need to develop an adaptive management plan. That plan may cover one or multiple WPDES permitted facilities and requires nine key elements:

1. Identify partners
2. Describe the watershed and set load reduction goals
3. Conduct a watershed inventory
4. Identify where reductions will occur
5. Describe management measures
6. Estimate load reductions expected by permit term
7. Measuring success
8. Financial security
9. Implementation schedule with milestones

WDNR identifies the following key features for consideration:

• Potential for meaningfully lower cost of compliance;
• The permittee receives a less restrictive interim phosphorus limit while working to improve water quality under adaptive management; if the in-stream water quality criteria are met, these interim limits may become the final permanent limits;
• To provide time for the partnerships to form and produce results, adaptive management may be implemented over several WPDES Permit terms – potentially up to three additional 5-year permit terms – to achieve the water quality goals.

Comparing Water Quality Trading (WQT) and Adaptive Management (AM):

While these two options have much in common – cooperation and partnership among sources of phosphorus to achieve water quality goals – comparing them on several key elements helps further define them both.

1.    Goals:

• WQT: compliance with end-of-pipe discharge limit
• AM: compliance with in-stream concentration (phosphorus criteria)

2.    Implementation Area:

• WQT: strategies limited to upstream of the point source
• AM: strategies include entire watershed

3.    Offsets:

• WQT: requires trade ratios and margins of safety
• AM: no ratios or safety margins required

4.    Timing:

• WQT: must generate credits before permit is issued
• AM: effluent phosphorus can be reduced over several permit terms

5.    Monitoring:

• WQT: instream monitoring/annual report not required
• AM: instream monitoring and annual report required

6.    Pollutants:

• WQT: all (except bioaccumulative chemicals of concern)
• AM: limited to phosphorus (possibly TSS)

7.    Participation:

• WQT: voluntary; permittee takes lead to find partners
• AM: same

8.    WDNR Role:

• WQT: will not serve as broker
• AM: same

9.    EPA View:

• WQT: familiar with/supportive of this option
• AM: not familiar with/concerned about the amount of time this option may take to implement

10.    Certainty:

• WQT: high, permittee’s obligation is to comply with permit limit
• AM: questionable; permittee is dependent on performance of partners and success of chosen measures to reach in-stream water quality criteria

What else and now what?

EPA:

Before the phosphorus rules went into place in December 2010, the United States Environmental Protection Agency (EPA) approved them. That approval notwithstanding, WDNR and EPA have only recently (December 2012) reached agreement on exactly what language will go into the WPDES Permits for the phosphorus limitations and compliance schedule. The key issue was the implementation schedule for adaptive management. It is apparent from that negotiation that EPA is far more comfortable with the predictable nature of water quality trading than it is with the as-yet-untested adaptive management. This has raised issues of timing and enforceability that have yet to be resolved and may well affect the likelihood of success WDNR has in seeing this option actually implemented.

ENGOs:

This is a mixed bag. One environmental advocacy group and pro bono publico law firm are challenging WDNR’s implementation of the phosphorus rules through circuit court challenges to the WPDES Permits. The outcomes of those cases will tell us more about how this will all play out. At the same time, another environmental advocacy group supportive of adaptive management is working with a local proactive municipality to develop an adaptive management plan. That ENGO, Clean Wisconsin, has developed its own guidance document for adaptive management directed to municipal treatment plants. Clean Wisconsin’s Guide to the Adaptive Management Option for Phosphorus Reduction in Wisconsin.

WDNR:

WDNR has built up a significant backlog of expired WPDES Permits that require phosphorus limits. At the time of this writing, WDNR is starting to reissue those permits in earnest. WPDES permittees are receiving permits that include interim technology based phosphorus limits (typically 1.0 mg/L), and target water quality based phosphorus limitations derived from the phosphorus criteria in NR 102 and calculated using the formula in NR 217. These permits include a standardized table of compliance schedule steps that incorporate all four compliance options – construction, water quality trading, adaptive management, and variances – with time frames for evaluating each, committing to a choice and implementing that choice. If the permittee opts for conventional construction upgrades or water quality trading, the compliance schedule will be 7 to 9 years (initial 5 year permit plus part of reissued permit term); if the permittee opts for adaptive management, the compliance schedule may be as long as 20 years (initial 5 year permit plus up to three more five year permit terms).

Note that WPDES permittees whose WPDES Permit was reissued before WDNR and EPA resolved their language differences in December 2012 may have different provisions in their permit – differences worth paying attention to as they consider implementation.

WDNR has also been at work drafting guidance documents to help guide permittees in assessing the water quality trading and adaptive management options. WDNR’s website lists a variety of resources, including

1. Water Quality Trading:

A Water Quality Trading Framework for Wisconsin; A Report to the Natural Resources Board (July 1, 2011)

2. Adaptive Management:

WDNR Adaptive Management Fact Sheet

WDNR Guidance for Implementing Wisconsin’s Phosphorus Water Quality Standards for Point Source Discharges (January 3, 2012)

WDNR Adaptive Management Technical Handbook: A Guidance Document for Stakeholders (January 7, 2013)

Yet, what we still don’t have in place is important: no rules, guidance or trading infrastructure to implement water quality trading; and no experience, rules or brokerage infrastructure to implement adaptive management. Much more work needs to be done and detail developed before we will know whether these innovative approaches to reducing phosphorus discharges to Wisconsin waterways can successfully go from the drawing board to the landscape.