Monthly Archives: September 2013

Mineral Rights May Include Authority to Build Waste Disposal Pits On Site

September 30, 2013.  The federal appeals court for the Fourth Circuit  issued a decision on September 4, 2013 concluding that West Virginia common law gives  the owner of mineral rights authority  to build pits for disposal of drilling waste without  permission from the  property owner.  The decision in  Whiteman v. Chesapeake Appalachia, L.L.C., 2013 U.S. App. LEXIS 18359, 43 ELR 20205, 2013 WL 4734969 (4th Cir. W. Va. 2013), may have implications  beyond West Virginia since the Fourth Circuit Court of Appeals also decides cases from North Carolina and other mid-Atlantic states.

The Facts. Chesapeake Appalachia,  L.L.C. owns the  mineral rights under 101 acres of farmland owned by the Whitemans.  Ownership of the property comes through two deeds.  When Mr. Ellis O. Miller  sold the  property that is now the Whiteman farm,  each deed  retained  “the oil and gas within and underlying the above-described parcels as well as all of the coal not heretofore conveyed, and all other minerals within and underlying the above described property, with the necessary rights and privileges appertaining thereto.”  The deeds did not mention retaining any uses of the surface property.  Chesapeake Appalachia  ultimately acquired the mineral rights  retained by  Mr. Miller.

Chesapeake has three natural gas wells on  10 acres of the Whiteman property.  When Chesapeake applied for  state drilling permits, the company  indicated that drilling waste (including drill water, flow back, and formation cuttings) would be disposed of by land application.  After drilling on the Whiteman property, Chesapeake   put  the drill cuttings into open pits located near the wellheads. At the end of the drilling process, Chesapeake removed the plastic liners from the waste pits, mixed the drilling waste with clean dirt and compacted and covered the pits.

The Whiteman Lawsuit.  The Whitemans sued  to force Chesapeake to remove the waste pits, arguing that Chesapeake’s  ownership of the mineral rights did not give the company authority to put waste disposal pits on the property.   Although the Whitemans admitted that the pits had not caused a significant financial hardship, the family  had  concerns about possible future liability associated with the waste.  The lawsuit originally included a number of  claims under West Virginia common law; the only claim that survived to reach the Fourth Circuit Court of Appeals  alleged that Chesapeake trespassed by building the waste pits without the Whitemans’ permission.

The Legal Issue.  Common law trespass means entering  another person’s property without lawful authority. Leaving a structure  (such as a waste pit) on the property without lawful authority would be considered a continuing trespass. Under West Virginia common law, the owner of mineral rights only enters the  property unlawfully if,  under a  “reasonable necessity” standard, the mineral  owner  goes beyond the mineral rights that have been granted and intrudes on the rights of the surface owner.  So the Fourth Circuit Court of Appeals described the legal issue  in the Whiteman case  as:  “whether Chesapeake’s permanent disposal of drill waste upon the Whitemans’ surface property is “reasonably necessary” for the extraction of minerals.” If creation of the waste disposal pits was reasonably necessary for extraction of the natural gas, Chesapeake did not need the  Whitemans’ permission.

The Decision. The Whitemans argued that building a waste pit  on site was not reasonably necessary to extract  natural   gas because Chesapeake had other waste disposal alternatives.  The  Fourth Circuit admits that Chesapeake could have used a  “closed loop” waste system and offsite disposal of the solid waste instead of open pit disposal. (A closed loop system keeps all liquid drilling waste in pipes or tanks to avoid contact with the ground.)   Although the technique was relatively new when the Whiteman wells were drilled in 2007 and 2009,  Chesapeake had begun using closed loop  systems  in Texas and Oklahoma as early as 2004-2005.  But the  Fourth Circuit  concluded that open pit waste disposal could still be “reasonably necessary” to extract natural gas on the Whiteman property for two reasons: 1.  open pit waste disposal  was  the most common waste disposal technique used in West Virginia at the time Chesapeake drilled the Whiteman wells;  and 2.  state environmental standards allowed use of open pit disposal.  (This part of the court’s analysis led to the kind of statement only a lawyer could love —  “reasonably necessary” does not mean “necessary”.) As a result, the court concluded that Chesapeake’s ownership of  the mineral rights gave the company  authority to dispose of drilling waste on the Whiteman property even though the original reservation of  mineral rights made no mention of that use of the surface property.

The Whiteman decision has to be troubling for surface owners.  Many  cases have  recognized that ownership of mineral rights includes authority to access the property to extract the minerals (by putting in roads, for example).  The Whiteman decision suggests that ownership of mineral rights also gives a drilling company authority  to use the surface property for any number of  auxiliary processes associated with oil and gas extraction. Such an expansive interpretation of mineral rights  virtually eliminates the surface owner’s power to negotiate with the drilling company over  surface impacts.

Another concern is that the  Fourth Circuit  decision relied on  common use of  open waste pits in West Virginia  and  consistency with state environmental standards  to  recognize a  right to  build waste pits  without the surface owner’s  permission. The court does not make a particularly strong case for allowing a drilling operator to impose a use on the surface owner simply because the practice is common and has not yet been prohibited by the state. Given the pressures on  environmental programs — particularly in states that rely on revenue from oil and gas–  state acquiescence  in a practice should not be sufficient  reason to force it on the  surface owner.

Implications for North Carolina. North Carolina common law on trespass  is very similar to West Virginia  law, but North Carolina has  few  court decisions on the scope of mineral rights. (With no oil, gas and coal mining to speak of, there have been  few controversies between surface owners and the owners of mineral estates.)  But in 2012, the North Carolina General Assembly  provided some additional protection to surface owners by statute. G.S. 113-423.1  requires an oil or gas operator  to accommodate the surface owner by minimizing intrusion  on  and damage to the surface.  That  means “selecting alternative locations for wells, roads, pipelines, or production facilities, or employing alternative means of operation that prevent, reduce, or mitigate the impacts of the oil and gas operations on the surface, where such alternatives are technologically sound, economically practicable, and reasonably available to the operator.”

But the  N.C. law goes on to say that it should not be interpreted  to “prevent an operator from entering upon and using that amount of the surface as is reasonable and necessary to explore for, develop, and produce oil and gas…” [Emphasis added].  We now know what the Fourth Circuit Court of Appeals believes “reasonably necessary” means in the context of a drilling operator’s construction of a waste disposal pit on a West Virginia drilling site. The question is  whether  the first half of the new North Carolina law  –requiring  minimization of  surface impacts — may lead to a different decision about what  will  be considered  “reasonable and necessary” here.

The Disappearance of the Coastal Resources Commission

September 25, 2013.   Under the state’s Coastal Area Management Act (CAMA), the Coastal Resources Commission (CRC) has responsibility for developing standards needed to balance protection of highly productive  coastal resources, public trust rights, and  economic development.  But  the N.C. Coastal Federation’s Coastal Review Online  reports that  the CRC  has been effectively out of commission since the beginning of August. The question is why.

This year,  the General Assembly  changed the makeup of the  Coastal Resources Commission by  reducing the number of commissioners from 15 to 13;  revising  the categories for appointment; and  giving  legislative leadership the  power  to appoint 4 of the 13 members. (See Sec. 14.24  of Senate Bill 402.) To  make the changes  effective more quickly, the  bill  caused the terms of  all  Coastal Resources Commission members serving on January 1, 2013 to  expire on  July 31, 2013 with four exceptions. Those four seats, specifically identified in the bill, have terms expiring on June 30, 2014. The bill required  the Governor to appoint nine new CRC members by August 1, 2013 to replace the nine whose  terms would end on July 31, 2013.

The problem is that  new appointments have not been made and the CRC webpage now lists only four members  — the four whose terms extend until June 30, 2014.  Those four members alone  participated in a special called meeting of the commission  in August to make a decision  related to litigation over an earlier CRC  variance decision. The regular September  meeting of the CRC scheduled for this week has been canceled.

The reason for the sudden loss of two-thirds of the commissioners  is unclear.  Both the N.C. Constitution and state law  expressly say that state officials can and should serve  until their successor has been appointed or elected.

N.C. Constitution, Article VI, Sec. 10: “In the absence of any contrary provision, all officers in this State, whether appointed or elected, shall hold their positions until other appointments are made or, if the offices are elective, until their successors are chosen and qualified.”

N.C.G.S. § 128-7: “All officers shall continue in their respective offices until their successors are elected or appointed, and duly qualified.”

The term “officers” covers all elected and appointed state officials, including members of boards and commissions. The provisions exist to guarantee that essential government functions continue even as terms of office end.   N.C. judges  have applied  the provisions to find that decisions made by state officials  beyond the end of their appointed term are valid  and enforceable since  those officials legitimately continue in  office until a  successor takes over.

The CRC’s responsibilities go beyond  rule adoption. CAMA also gives the CRC power to grant variances from  coastal development  standards,  issue declaratory rulings (interpreting how  coastal development rules  apply to a particular project), and approve local land use plans in the coastal counties. Those decisions are often time sensitive and important to developers as well as local governments,  community groups and environmental organizations. Right now, the CRC cannot meet those obligations with a membership of four.   Four commissioners may not even  meet CRC quorum requirements unless the remaining nine members resigned or have been individually removed from office. (Neither seems to be the case.)  The remaining four commissioners also cannot represent the broad range of interests and expertise needed to make balanced decisions about protection of the state’s coastal resources.

The Direction of the State’s Water Quality Program

September 19, 2013.  Earlier posts talked about two unusual recent  decisions by the Department of Environment and Natural Resources (DENR) on Section 401 water quality certifications  under the Clean Water Act — one concerning  Cleveland County’s proposal to build a new dam on the First Broad River to create a reservoir and the other for federal relicensing of Alcoa’s existing hydroelectric power dams on the Yadkin River.  You can find the Cleveland County  post here and the Alcoa post here.  The question is what those two decisions  say about the current direction of the water quality program.

The  decision to waive the water quality certification for the proposed Cleveland County reservoir — the first deliberate waiver in the history of the N.C. water quality program — cited  a state rule requiring  a decision on a 401 application within 60 days. But  the Cleveland County application was not complete and DENR made no effort to go through the review process (which would have  required an environmental impact statement and a public notice).  As reported in the Charlotte Observer, Division of Water Resources Director Tom Reeder gave a different explanation of the waiver: “The state of North Carolina looked at all of this and said there’s really no value added to us getting involved in this whole thing. Cleveland County would have had to spend more money that would not go to any good purpose.”  The implication was that a state water quality review would add more time and cost when the U.S. Army Corps of Engineers (as the federal permitting agency) opposed the project — even though the state water quality review and the federal permit review usually go hand in hand and rely on the same environmental studies.

Where the Cleveland County project  proposed construction of a new dam;  Alcoa applied for a state water quality certification to cover continued operation of four existing dams on the Yadkin River that were built between 50 and 100 years ago to generate power for the now-closed Alcoa aluminum smelting plant. After nearly a year of review and a public hearing, DENR suddenly denied the Alcoa 401 Certification. The denial letter cited a state rule requiring the  applicant to have title to the project site, the permission of the property owner or the  ability to acquire the property by condemnation.  DENR relied on a lawsuit (filed the same day) claiming state public trust ownership of  the bed of the Yadkin River under the Alcoa dams to conclude that Alcoa  could not show title to the land  under the dams. According to the letter, the lack of either title or permission from the state would make it difficult to assure that Alcoa could meet water quality conditions on operation of the dams.

The earlier posts talked about a number of questions raised by the two decisions. There are also a few things to take away:

DENR has waived a 401 Certification without clearly explaining the reason for the waiver or how waiver decisions will be made in the future.   The decision letter suggests the waiver resulted from DENR’s inability to make a decision within 60 days, but the record shows no attempt to get the additional information needed to make the application complete, provide a public notice of the application or do a complete review.  The  Division of Water Resources director later suggested that  state review would have served no purpose given the Corps of Engineers’ objections to the project. Either reason could also easily apply to other 401 applications.

As to the first explanation,  DENR denied the Alcoa 401 application one month later  after nearly a year of review  with no suggestion that water quality rules required a waiver.  The second reason offered for the waiver (U.S. Army Corps of Engineers opposition) also applies to other projects. The Corps of Engineers often presses federal permit  applicants to look at other alternatives with fewer environmental impacts.   The Corps expressed similar skepticism about the City of Raleigh’s  proposal to build a reservoir on the Little River, but in that case DENR has continued to work with  Raleigh and the Corps of Engineers to look at alternatives and  address the Corps’ concerns.  The same has been true for other large commercial development projects.

DENR treated the Cleveland County reservoir project differently, but has not provided a consistent explanation of the decision or criteria for future 401 Certification waivers.

Denial of  a 401 Certification based on an unresolved claim of public trust ownership of the river bed under the project has implications well beyond Alcoa.   If there is a case to be made for public trust ownership of the upper reaches of the Yadkin River,  the same will be true for  many of the state’s inland rivers. The decision may have implications for  dam  sites proposed by Cleveland County and the City of Raleigh (on the First Broad River and the Little River respectively).

Title to the bed of the Yadkin River under the Alcoa dams  has not yet been determined by the courts, but DENR issues both Individual and general 401 Certifications for a wide range of projects  known to be on state-owned  public trust lands — including mining activities, utility and energy infrastructure, marinas, aquaculture operations, shoreline stabilization projects, water intakes, and dams.  The justification for denial of the Alcoa 401 Certification — that lack of ownership or permission from the state to apply  calls into question the applicant’s ability to comply with water quality conditions — would apply equally to those projects.

DENR has not explained what evidence of title will be required of applicants proposing to construct a project in navigable waters.    A deed to submerged lands may or may not be valid. See the earlier post on public trust doctrine for more explanation of public trust ownership and the way title to state-owned public trust lands can be transferred.   But the existence — or absence — of a state lawsuit claiming title under the public trust doctrine cannot be the deciding factor either.  Public trust ownership does not arise because of a state lawsuit; it is not negated by the absence of one.  Having made public trust ownership a factor in the issuance of 401 Certifications, DENR needs a clear and consistent approach to resolving questions of title to lands under coastal waters and navigable rivers; otherwise the outcomes will be arbitrary and subject to political influence.

The Alcoa denial letter suggests that Alcoa needs specific state permission to apply for a 401 Certification to continue operating the Yadkin hydropower dams, but does not indicate what form that permission must take. Some  activities on state-owned public trust lands have individual submerged lands leases from the State Property Office, but many do not. The state has often relied on environmental permits as the permission to develop on state-owned submerged lands.  It isn’t even clear whether a previous  lease to construct on state-owned public trust lands would be sufficient, since the state’s lawsuit claiming ownership of the Yadkin river admits that Alcoa had permission to build the four dams.

The precedent set by the Alcoa denial could apply to a number of  ongoing commercial activities in coastal waters and state rivers.  One of the (several) interesting things about the Alcoa decision is that it dealt with renewal of an operating license for dams built decades ago with state permission. The DENR denial letter suggests that the state must give express permission for the renewal of licenses and permits for ongoing operations on state-owned public trust lands — activities that could include aquaculture, marina operations, sand mining and other commercial activities. The criteria for granting or denying permission will be another question.

The troubling thing about the Cleveland County and Alcoa decisions is the reliance on rule interpretations that not only break with past practice, but are inconsistent with each other.  With respect to the waiver of a 401 Certification under the 60-day rule, DENR needs to reconcile the Cleveland County and Alcoa decisions. If opposition by the Corps of Engineers was the real reason for the Cleveland County waiver, DENR should explain the criteria for waiver in situation where the Corps has pressed an applicant for alternatives. DENR also needs to  provide  guidance to applicants proposing projects in coastal waters and inland rivers.  Otherwise,  applicants will have little assurance of a clear, consistent and predictable water quality review.

More on the Public Trust Doctrine

Several people responded to the  post about  denial of Alcoa’s 401 Certification  with questions or comments about public trust law and ownership of the bed of the Yadkin River.  Based on the comments, some additional explanation  of public trust law (and clarification of the earlier post)  may be helpful. Note: I did not intend to address the merits of the State’s claim to the bed of the Yadkin River under the Alcoa dams in the earlier post  and will not do that here — I don’t have all of the facts available to Alcoa and the state’s lawyers.

Both state and federal court decisions have recognized state ownership of lands under waters that are navigable for trade and commerce. The American colonies inherited English common law recognizing  the King’s ownership of lands under waters subject to the ebb and flow of the tides. After independence,  state courts quickly recognized that using the tides to identify navigable waters did not work well  in American where large, navigable rivers extended far inland. In Wilson v. Forbes, 13 N.C. 30  (1828),  North Carolina became one of the first states to recognize  public trust ownership of  lands under all commercially navigable rivers.  The case marked the beginning of North Carolina’s use of the “sea vessel” test for state public trust ownership.

By the late 19th century, the U.S. Supreme Court  joined  state courts  in recognizing public trust ownership of lands under  rivers that were not tidal but were “navigable in fact”.  The U.S. Supreme Court has said that waters are navigable in fact if they are  “used, or are susceptible of being used, in their ordinary condition, as highways for commerce, over which trade and travel are or may be conducted in the customary modes of trade and travel on water.” (From an 1871 U.S.  Supreme Court decision in The Daniel Ball.)   Under both state  and federal court decisions,  lands under other rivers and streams can be privately owned but  there may be a public right of navigation.

A 2012 U.S. Supreme Court (PPL Montana, LLC v. Montana)  highlighted two limitations on finding  state ownership of a river bed under the “navigable in fact” test:

1. For the state to own the bed of a river, the river had to be navigable for commerce at the time of statehood.  Later improvements that make a river segment navigable do not  give   the state title to the river bed. (So admiralty jurisdiction may be broader than state public trust ownership.)

2. The navigability test  must be applied to each discrete  segment  of the river.  The state does not have public trust ownership of the river bed  in  river segments that were not navigable for commerce at the time of statehood  — even if most of the river would be considered “navigable in fact”.  So the need to portage for a significant distance around a natural feature, such as a fall,   may cause a segment of river to fail the test for state ownership of the river bed.

You can find the full U.S. Supreme Court decision in the Montana case  here. The case resulted from the State of Montana’s   claim of ownership to the bed of several rivers where a company, PPL Montana,  had operated hydroelectric power generation facilities for decades. The Montana Supreme Court ruled in the state’s favor, but the U.S. Supreme Court reversed the state court decision.  The U.S. Supreme Court directed the Montana court to reconsider the case  based on the two limitations mentioned above – for  purposes of state ownership, the river had to be navigable for commercial purposes  when Montana became a state  and  navigability  must  be determined for each discrete  stretch of river.

A few other points about public trust law:

For the most part,  public trust law has been developed by the states.  A number of the original 13 states extended public trust ownership to non-tidal commercially navigable rivers well before the U.S. Supreme Court addressed the issue.  Since then, the role of the U.S. Supreme Court has largely been to define the property interest in navigable waters that states joining the Union  after independence acquired at statehood.  Once public trust  ownership of  a river bed has been established under the “navigable in fact” standard,  state law takes over. The individual states  identify the uses allowed and protected on public trust lands. State law also governs the sale of  public trust lands.

Federal regulatory definitions of “navigable waters” do not determine state public trust ownership. The term  “navigable waters”   has also been used to describe federal regulatory jurisdiction under the Clean Water Act and  the Rivers and Harbors Act of 1899, but the regulatory definition of “navigable waters”  does not determine state ownership of the river bed. Many water bodies considered navigable waters under the Clean Water Act  do not meet the “navigable in fact”  test for public trust ownership. Public trust decisions  recognize two categories of navigable waters — 1.  those that were navigable for purposes of commerce at the time of independence (or statehood);  and 2. those that  were not.  Waters that were not commercially navigable at statehood, may be  commercially navigable now  because of later improvements. Or those waters may be navigable for more limited purposes (i.e., floatable by a canoe, but not by  larger vessels or navigable for only short distances because of obstructions).

The states own the beds of rivers that fall into the first category. The beds of rivers (or river segments) that fall into the second category can be privately owned. But Clean Water Act regulatory jurisdiction applies  to navigable waters in both categories and there may be waters in both categories that also fall  under admiralty jurisdiction. The simple rule to remember — public trust doctrine only gave the state ownership of lands under water bodies that were navigable for commerce in their natural condition at statehood.  (Simple to state, but open to some interpretation — and then there is the problem of applying the simple rule to the specific history and condition of each river.)

Having a deed to land under coastal waters or under a river does not necessarily  establish private ownership.  If  N.C. acquired  public trust ownership at independence (and that will be a question to be decided based on the “navigable in fact” test), only a colonial grant or  express authorization by the General Assembly   could   transfer title of those lands to a private property owner.

More than you ever wanted to know about the public trust doctrine…

The Uses of a Water Quality Certification: Alcoa

September 9, 2013.   On August 2, 2013, DENR’s Division of Water Resources denied a Section 401 water quality certification for the relicensing of Alcoa’s four hydroelectric dams on the Yadkin River.   (See an  earlier post  for background on  401 Certifications.) The denial letter did not cite any water quality basis for denying the 401 Certification. Instead, the letter  referred to a lawsuit filed the same day by the N.C. Department of Administration  that: 1.  claimed title to the bed of the Yadkin River under the Alcoa dams as public trust land;  and 2. asked the court to   recognized State ownership of the Alcoa dams  based on public trust ownership of the riverbed under the dams.  The significance of the Alcoa 401 Certification denial is that  many projects requiring 401 Certifications are located  in waters that may be covered by the public trust doctrine. The Alcoa  denial raises  some interesting questions about   issuance of  401 Certifications for  activities in rivers and streams in particular.   First, some history on Alcoa’s dams and  the public trust doctrine.

History.  Alcoa operates four dams on the Yadkin River to generate electricity.  Alcoa bought an  unfinished aluminum smelting plant in the town of Badin from a French company in 1915, completed the plant and began operation in 1917 powered by the newly constructed Narrows Dam on the Yadkin River.  As power demand increased, Alcoa  built three more hydroelectric dams on the Yadkin  —  at the Falls (1919),  High Rock (1927)  and Tuckertown (1962).   After Congress strengthened the federal role in permitting hydroelectric power projects,  Alcoa received  a 50-year federal  license to operate the dams (together  known as the “Yadkin Project”) in 1958.  In 2002, Alcoa  began the process of renewing the federal license.

For two years, a group  of North Carolina local governments, state agencies (including DENR), federal  agencies, lakefront homeowners associations, and environmental organizations met  to develop recommended license conditions for the Yadkin Project.  The   group  reached agreement on measures to protect water quality and habitat; provide public access; maintain lake levels and adequate  downstream flows; and create a drought management system for the area affected by the Yadkin Project.  The group submitted the proposed conditions to the Federal Energy Regulatory Commission (FERC) in 2007.  You can find a description of the 2007  relicensing settlement agreement  here.

Shortly after the settlement agreement had been signed,  Alcoa stopped all production at the Badin aluminum works and eliminated the last 30 jobs at the plant.  At its height, the Badin aluminum works employed about 1,000 people, but production had declined over a ten-year period.  As the demand for power at the Badin works lessened, Alcoa  started selling electricity from the Yadkin Project on the wholesale market.  Complete shutdown of the Badin plant set off a backlash. Stanly County, which  did  not sign the relicensing settlement agreement, demanded that Alcoa compensate the county for jobs lost  in the  shut down of the  Badin works and raised concerns about industrial contamination in the area of Alcoa’s Badin plant.  Stanly County  and others opposed to  renewal of Alcoa’s  FERC license  persuaded Gov. Beverly Perdue to intervene in the FERC relicensing and  request transfer of the  Alcoa  license to the State of North Carolina. FERC’s decision on relicensing of the Yadkin Project has now been on hold for several years waiting for the state to make a decision on issuance of a  401 Certification for operation of the dams.

In 2009, DENR   issued a  401 Certification for the Yadkin Project. The certification required   Alcoa to upgrade the hydroelectric generation facilities and make operational changes to improve downstream water quality and  restore flow to streams affected by operation of the dams.  DWQ revoked that  401 Certification in late 2010 after discovering that  information submitted by  Alcoa during the application review  may have been misleading.  After resolving DWQ’s  concerns, Alcoa reapplied for a 401 Certification last  year.   DWQ was  moving toward issuing a new 401 Certification  for the Alcoa dams — there was  a public hearing on a draft 401 Certification  in  May  — when DENR suddenly reversed direction and denied the 401 Certification on August 2, 2013 citing the McCrory administration lawsuit filed the same day. You can find documents related to Alcoa’s recent 401 application (including the denial letter and the complaint in the McCrory administration lawsuit) here.

Public Trust Doctrine. Under ancient law brought to the American colonies from England,  lands under navigable waters are owned by the sovereign and held in trust for the public.  The “public trust doctrine” protects the right of  the public to use the  waters for navigation, fishing, and recreation.  After independence, the states acquired title to public trust lands previously held by the King. Since the state holds lands under navigable waters in trust for the use of the public,  the state rarely transfers ownership of  those lands  outright.  On the other hand, the state  allows many private activities on  state-owned public trust lands — both commercial and non-commercial. Most of the docks, piers, marinas, and fish houses in  coastal waters have been built on state-owned public trust lands.   You will  find  other commercial activities in  coastal waters, rivers and streams including  aquaculture operations,  mining,  commercial recreation facilities,  and  dams (used for various purposes).

The  McCrory administration lawsuit admits  that  Alcoa had state permission to build hydroelectric dams on the Yadkin River. In the late 18th and early 20th century,  the General Assembly allowed a number of companies to build hydroelectric dams and mill dams on state rivers by  special legislation.  It is not clear that the state claimed ownership of the bed of the Yadkin River at the time.  Some early laws authorizing construction of dams on the Yadkin  refer to construction on “non-navigable” sections of the  Yadkin River  and a number of  state court decisions  recognized private ownership  of the bed of the Yadkin River  at  specific locations.   In Rose v. Franklin, 216 N.C. 289, 4 S.E.2d 876 (N.C., 1939), the N.C. Supreme Court noted that the parties to a title dispute admitted that the Yadkin River was a non-navigable stream as it passed through the town of Elkin and found that the plaintiff owned to the center of the river.

Until the 1990s,  court decisions recognized state ownership of lands under: 1. tidal waters (like the waters of the Atlantic Ocean and the coastal bays and sounds); and 2.   other waters that were navigable by sea-going vessels. The second category covered rivers that were below the fall line and deep enough to  be navigated  by large boats.    The public trust cases  appeared to allow private ownership of  the beds of  other rivers and streams,  but recognized a public trust easement on those that could be navigated by  shallow-draft boats or used to float logs downstream.   Decisions like Rose v. Franklin  fit this understanding of the law.

A  1995 N.C. Supreme Court decision, Gwathmey v. State, 464 S.E.2d 674, 342 N.C. 287,   abandoned the use of tidal influence as a factor and stated a simple rule: the public trust doctrine applies to any water body that, in its natural condition, can be navigated by “useful vessels, including small craft used for pleasure”.   It isn’t clear whether  Gwathmey completely abandons the old distinction between waters navigable by sea-going vessels and those  floatable by canoe for purposes of state ownership of the bed. One  problem with the Gwathmey case is that it  involved tidal  waters and marsh where public trust ownership had historically been recognized. The court just substituted one grounds for public trust ownership (navigability) for another (tidal influence).  The decision never  addressed the  impact of the  new rule  on  inland rivers where state courts had  recognized  private ownership of the river bed.  The McCrory administration lawsuit claiming title to the Alcoa dams may require the court to explain how the Gwathmey decision  applies to  interior rivers and streams.

The 401 Certification Decision.  The letter denying the Alcoa 401 Certification offers only one grounds for the denial — the state’s claim of ownership of the Yadkin River bed and the Alcoa dams built there. Citing a water quality rule, 15A NCAC 02H.0502 (f),  the letter says that “signature on the [401] application ‘certifies that the applicant has title to the property, has been authorized by the owner to apply for certification or is a public entity and has the power of eminent domain’. The required ownership certification ensures that the applicant owns the project’s dams and powerhouses and is fully capable of implementing all protections of water quality that may be imposed as conditions in a 401 Certification.”

The  rule applies to  all 401 applicants, raising the question of what will  now be required of applicants proposing development in public trust waters or in rivers and streams where public trust ownership may be in question.   It  is not a standard that seems to have been applied before to projects  on rivers and streams– even in the very recent past.  Just one month earlier, DENR waived a 401 Certification for the proposed Cleveland County dam without requiring the county to  show ownership of the bed of the First Broad River or obtain state permission to apply for a federal Clean Water Act permit  to build a dam.  Beyond dam construction,   a  401 Certification may be required for other commercial activities like in-stream mining; aquaculture;  construction of recreation facilities;  and  water intake structures for industry or agriculture.  Having invoked the requirement for Alcoa’s hydroelectric dams, DENR will need to  explain how the requirement applies to other applicants and permit holders:

— Does the standard set in the Alcoa denial letter apply to all  projects  in navigable  waters that require a 401 Certification?  This is not a trick question;  the letter indicates that  ownership  or  some form of state permission  will be necessary to satisfy DENR that  the applicant  has  sufficient control over  a project  on public trust lands  to  meet water quality conditions on a 401 Certification.

— What  will an applicant have to do to show  private ownership of land under a river or stream? Deciding whether a river or stream is navigable can require a boat trip — literally.  Answering the question of public trust ownership  will be  further complicated by uncertainty about how  the Gwathmey decision  applies to  rivers (or parts of rivers)  that  had  never been considered navigable by sea-going vessels.  In the past, many of those riverbeds had been recognized as  private property subject to a public trust easement for  navigation.

— Without proof of private ownership of the river or stream bed, what  kind of  state permission will be needed?  In the 19th and early 20th century, the General Assembly  often authorized activities in rivers and streams by special legislation  — as it did for  construction of  hydroelectric dams on the Yadkin River.  The state issues leases and easements in public trust lands for some purposes, but  those   programs developed fairly late in the 20th century and have been used for the most part in coastal waters.  The easement criteria in G.S. 146-12  lend themselves more readily to piers and docks  than to more intensive uses such as mining or dam construction.

In something of a reverse of the Alcoa 401 denial,  the state has   often relied on environmental permits as the vehicle for approving  activities in public trust waters.  Under G.S. 146-12, issuance of a  Coastal Area Management Act (CAMA) permit for development in  coastal waters  also  gives  the applicant a state  easement.  (The State Property Office  has an opportunity to review those CAMA applications.)   Outside the coastal counties, it is hard to find consistent application of the easement requirement.  For projects that don’t require a CAMA permit,  there will likely be more uncertainty about  public trust ownership and a less well-trod  path to state approval if the state does own the submerged lands.

— What standards will be applied in granting or denying state permission for activities on public trust lands?  The McCrory administration lawsuit suggests an intent to tie Alcoa’s operation of the Yadkin dams to generate electricity for sale on the wholesale market to compensation for use of the public trust resources.  Outside of leases to mine on  submerged lands, state law has not generally taxed  revenue from commercial  use of public trust resources.

— What happens when Congress has given a federal agency authority  to permit an  activity in navigable waters?  Under the Federal Power Act, FERC  has the authority to license hydroelectric projects in navigable waters of the United States. The U.S. Army Corps of Engineers has authority to permit other types of structures in navigable waters under the  Rivers and Harbors Act of 1899 and  issues Clean Water Act permits to fill navigable waters.  The Section 401 Certification has generally served as the state approval for  federally permitted projects in navigable waters. I don’t know that  the state has previously required a separate easement or lease. I also don’t know whether the federal  agencies believe any other state approval is needed given  Congressional authority  to permit these activities in navigable waters.

Many questions. The answers will be interesting.

The Uses of a Water Quality Certification: Cleveland County Reservoir

September 3, 2013.  First a disclaimer: This post will be the first of  a series  on two recent decisions by the Department of Environment and Natural Resources (DENR)  on water quality certifications requested under  Section 401 of the Clean Water Act.   Both  decisions  have been appealed; these posts should not be taken as legal advice to  parties  in these or other cases.

This post explains  how  Section 401  of the Clean Water Act works  and describes DENR’s decision to waive the 401 Certification for a Cleveland County reservoir project. The next  post will cover DENR’s denial of a 401 Certification for Alcoa’s hydroelectric dams on the Yadkin River. The last  post in the series will  talk about the implications of the  Cleveland County and Alcoa decisions for  DENR’s water quality certification program.  Individually, the decisions are unprecedented; together, the decisions send a very confusing message about DENR’s implementation of Section 401 of the  Clean Water Act.

First, a little background on water quality certifications. Under Section 401 of the Clean Water Act, an applicant for a federal license or permit that involves any discharge to navigable waters   must  provide the federal  agency with a certification that the activity  will comply with the water quality standards of the state where the project will be built.  Examples of a “discharge” include piping  wastewater  to a stream or river;  putting fill material in the water to build a structure like a dam or bulkhead; and releasing water through a hydroelectric dam.  A number of  federal permits can trigger the need for a “401 Certification”; the most common may be permits under Section 404 of the Clean Water Act to  fill navigable waters;  permits issued under Section 10 of  the Rivers and Harbors Act of 1899  for structures in navigable waters; and Federal Energy Regulatory Commission (FERC) licenses  to build or operate  hydroelectric dams.

One important thing to know about a 401 Certification: the state water quality  review does not simply duplicate the federal  permitting process.  The federal  permit decision often focuses on one part of the  project and may or may not include consideration of water quality impacts.  Under Section 401 of the Clean Water Act,   the state is charged to look at all of the  activity’s   water quality impacts — including impacts beyond the scope of the federal permit — in deciding whether  the activity will meet water quality standards.  The U.S. Supreme Court  confirmed  the broad scope of a state  401 Certification  in  PUD #1 of Jefferson County v. Washington State Dept. of Environmental Quality, 114 S.Ct. 1900, 128 L.Ed.2d 716 (1994).    The state rarely stamps a 401 application “approved” as submitted. More often, the  state’s 401 Certification identifies operating conditions and mitigation measures needed to prevent  a water quality violation. The federal permit then incorporates  the state’s water quality conditions and mitigation requirements.

Cleveland County Reservoir.   Cleveland County has been  trying to get a  Section 404 permit from the U.S. Army Corps of Engineers to  dam the First Broad River and create a reservoir since at least 2005.  To  issue a  Section 404 permit,   the Corps of Engineers has to find that there is no less environmentally damaging alternative that can  meet the project’s intended purpose. Cleveland County has  argued that the reservoir project is necessary to supply drinking water for the county, but the  Corps of Engineers has not been persuaded that a reservoir is the least environmentally damaging alternative.  There appear to be other drinking water sources available to Cleveland County —  including the purchase of water from existing water systems with excess supply.

The Corps expressed  concerns about the Cleveland County reservoir project from the beginning, but entered into an agreement with the county describing how a  federal permit application would be processed.  An early step would have to be preparation of an Environmental Impact  Statement (EIS) in consultation with the Corps of Engineers to satisfy  the National Environmental Policy Act (NEPA).  Since 2005,  little progress has been made on the federal permit application and EIS, but in late April Cleveland County sent DENR’s Division of Water Quality an application for a 401 Certification for the reservoir project.

Soon after receiving the Cleveland County  application on May 2, DENR’s water quality  staff  concluded that the application was incomplete; among other things, the application  did not identify mitigation  for stream and wetland impacts.  The state also has an  environmental  law  similar to NEPA.   The state Environmental Policy Act (SEPA)  requires an  EIS before  a state agency approves a project involving: 1. expenditure of public money or use of public land; and 2. the potential for significant impacts on the environment.  See N.C.G.S. 113A-4.  Although the Cleveland County reservoir project met all of the SEPA triggers,  the county did not submit an EIS with the permit application –another reason to find the application incomplete.  (Usually,  the state and federal reviews  are  coordinated so a single  EIS can be used for both. )

Although water quality staff  decided that the Cleveland County application was incomplete,  DENR  did not notify  Cleveland County of deficiencies in the application. On the other hand, DENR    did not  acknowledge the application as complete and  publish  notice of the application as required under federal law. After the  early  exchange  of emails among DENR staff about the incomplete application,  radio silence (at least in terms of email communication) for several weeks. Then, on  July 2, 2013 the new  director of DENR’s reorganized water programs, Tom Reeder,  sent a letter  to Cleveland County  waiving the requirement for a 401 Certification on the reservoir project. The letter gave one reason: under state rules, DENR  must act on an application for a  401 Certification within 60 days or the certification is waived. (See 15A NCAC 02H.0507.

You can find  DENR documents on the Cleveland County reservoir project, including the waiver letter,   here. (Be prepared to try  the link more than once; the connection sometimes sends an error message.)

Several things about DENR’s decision on the Cleveland County 401 Certification:

—  DENR has always interpreted the  60-day time period in state rules as  starting when DENR receives a complete application for the 401 Certification and in this case it seems clear that the Cleveland County application was not complete.

— The Clean Water Act  only assumes the 401 Certification has been waived if the state fails to act within  one year after receiving a 401 application.

— Starting the review time based on an incomplete application is inconsistent with DENR’s past interpretation of the rule and inconsistent with DENR’s  application of the rule to other projects currently under review.

— Given the inconsistency with past interpretation, current practice  and the absence of any effort to put the Cleveland County application through a normal 401 Certification review,  DENR seems to have made a deliberate decision to waive the state’s 401 authority for this particular project. The waiver did not happen by operation of  either state or federal law.

—  A deliberate waiver of a 401 Certification appears to have  no precedent in the N.C. water quality program and means the state has  forfeited the opportunity to influence permit conditions and  mitigation requirements for the Cleveland County reservoir project to protect water quality.

—  Other applicants will  question the  criteria for  a state waiver of the 401 Certification.  (The City of Raleigh, which has also proposed a controversial reservoir project, has already asked for a copy of the Cleveland County waiver letter.) Unfortunately, the waiver letter raises more questions than it answers, since it cites the 60-day rule to waive the 401 Certification for an incomplete application.

On August 21, 2013, Southern Environmental Law Center (SELC) sent a letter asking the U.S. Environmental Protection Agency  to designate the  area  of the First Broad River in Cleveland County proposed for reservoir construction as unsuitable under Section 404(c) of the Clean Water Act. Since then, SELC has filed an appeal of the state’s waiver of the 401 Certification on behalf of American Rivers.