Pennaco Energy v. Bd. of Environmental Rev.

• Decision Date: 16 December 2008
• Docket Number: No. DA 07-0755.,DA 07-0755.
• Citation: 199 P.3d 191,2008 MT 425,347 Mont. 415
• Parties: PENNACO ENERGY, INC., Marathon Oil Company, St. Mary's Land & Exploration Company, and Yates Petroleum Corporation, Plaintiffs and Appellants, v. MONTANA BOARD OF ENVIRONMENTAL REVIEW, Montana Department of Environmental Quality, Northern Plains Resource Council, and Tongue River Water Users' Association, Defendants and Appellees.
• Court: Montana Supreme Court

199 P.3d 191

2008 MT 425

347 Mont. 415

PENNACO ENERGY, INC., Marathon Oil Company, St. Mary's Land & Exploration Company, and Yates Petroleum Corporation, Plaintiffs and Appellants, v. MONTANA BOARD OF ENVIRONMENTAL REVIEW, Montana Department of Environmental Quality, Northern Plains Resource Council, and Tongue River Water Users' Association, Defendants and Appellees.

No. DA 07-0755.

Supreme Court of Montana.

Submitted on Briefs October 16, 2008.

Decided December 16, 2008.

For Appellants: Ronald F. Waterman, Gough, Shanahan, Johnson & Waterman, Helena, Montana, L.B. Cozzens, Cozzens Law Office, Billings, Montana, John C. Martin, Duane A. Siler, Michele L. Walter, Patton Boggs, LLP, Washington, D.C.

For Appellees Montana Board of Environmental Review and Montana Department of Environmental Quality: Hon. Mike McGrath, Montana Attorney General, Jennifer Anders, Sarah A. Bond, Assistant Attorneys General, Claudia Massman, Department of Environmental Quality, Helena, Montana.

For Appellee Northern Plains Resource Council: Jack R. Tuholske, Tuholske Law Office, P.C., Missoula, Montana.

For Appellee Tongue River Water Users Association: Brenda Lindlief Hall, Reynolds Motl & Sherwood, PLLP, Helena, Montana.

Justice PATRICIA O. COTTER delivered the Opinion of the Court.

¶ 1 The Plaintiffs and Appellants in this matter are Pennaco Energy, Marathon Oil, Nance Petroleum and Yates Petroleum (collectively Pennaco). The Defendants and Appellees are Montana Board of Environmental Review (BER or the Board) and Montana Department of Environmental Quality (DEQ). Defendant Intervenors are Northern Plains Resource Council (NPRC) and Tongue River Water Users' Association (TRWUA).

¶ 2 This case arises from the regulation of the discharge into state waterways of salty water produced from coal bed methane (CBM) production. This water is called "CBM produced water." CBM produced water, which contains naturally high levels of sodium and salts, is frequently discharged by industries to surface waters. As a result, the water quality of the receiving waters can be degraded. Additionally, when land is subsequently irrigated with surface water mixed with CBM produced water, there is a potential threat to the irrigated agriculture as the salt from the water may accumulate in the plants' root systems and impair plant growth. In recognition of this potential impact, the State regulates the discharge of two harmful components of CBM produced water—sodium adsorption ratio (SAR¹) and electrical conductivity (EC²). The EPA is currently studying the coal bed methane sector to determine if federal effluent guidelines for these parameters are appropriate. 71 Fed. Reg. 76644, 76656 (Dec. 21, 2006).

¶ 3 In both 2003 and 2006, BER revised its rules regulating EC and SAR. Pennaco challenged these revised rules in the Twenty-Second Judicial District Court. BER filed a motion for summary judgment and Pennaco filed a cross-motion for summary judgment. The District Court granted BER's motion and denied Pennaco's. On appeal, Pennaco challenges the standard of review applied by the District Court, as well as the court's conclusions that BER did not fail to comply with relevant rules in promulgating new standards for EC and SAR. We affirm.

ISSUES

¶ 4 A restatement of the issues presented on appeal is:

¶ 5 Did the District Court erroneously apply a standard of review that was too deferential and inapplicable to agency rulemakings?

¶ 6 Did the District Court err in concluding that BER was authorized to designate EC and SAR harmful in 2006 when BER had refused to do so in 2003?

¶ 7 Did the District Court err in concluding that BER's revised rule was not "more stringent" than federal law, and therefore BER was not statutorily required to issue written findings of fact?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 8 Marathon Oil Company, a Delaware corporation with headquarters in Houston, Texas, engages in worldwide exploration and production of crude oil and natural gas, as well as domestic refining, marketing, and transportation of petroleum products. Marathon holds leases for oil and gas production in Montana. Pennaco is a wholly owned subsidiary of Marathon and is actively pursuing coal bed natural gas development in the Powder River Basin (the Basin) in Wyoming. Nance Petroleum and Yates Petroleum are out-of-state corporations also pursuing coal bed natural gas development in the Basin in Montana and Wyoming.

¶ 9 To produce coal bed natural gas, a well is drilled into the selected coal seam. On the surface of the coal are molecules of methane gas, held in place by water pressure from a coal seam aquifer. In order to release the natural gas, the water pressure must be released. This is accomplished by pumping water out of the coal seam which causes the methane to detach from the coal and rise to the surface. The regulations imposing restrictions on the discharge of this pumped water are the source of this dispute.

¶ 10 The federal Clean Water Act, enacted in 1972 (the Act), delegates the responsibility for enforcing the Act to states that meet specific criteria. States are required to enact water protection laws consisting of three elements: establishment of a "designated use" for each water body—e.g., recreation, irrigation, etc.; establishment of numeric or narrative water quality standards for each water body designed to prevent impairing the water quality for that particular use; and adoption of a nondegradation policy to maintain and protect a state's water resources. 40 C.F.R. § § 131.10, 131.11, and 131.12.

¶ 11 Between 1972 and 2003, EC and SAR, among other parameters, were regulated in Montana exclusively by narrative standards, as opposed to numeric standards. The Administrative Rules of Montana (ARMs) set forth a general prohibition against discharging substances that create concentrations or combinations of materials which are toxic or harmful to human, animal, plant or aquatic life, or that would produce undesirable aquatic life. Admin. R.M. 17.30.637(1)(d)-(e). The State also established a nondegradation policy for its water. Admin. R.M. 17.30.705. "Degradation" is "a change in water quality that lowers the quality of high-quality waters for a parameter. The term does not include those changes in water quality determined to be nonsignificant pursuant to 75-5-301(5)(c)." Section 75-5-103(5), MCA. Additionally, the ARMs specify that "degradation" "is defined in 75-5-103, MCA, and also means any increase of a discharge that exceeds the limits established under or determined from a permit or approval issued by the department prior to April 29, 1993." Admin. R.M. 17.30.702(3). "High-quality waters" are defined as "all state waters, except: ... surface waters that: are not capable of supporting any one of the designated uses for their classification...." Section 75-5-103(10)(b)(i), MCA. The State established specific criteria for determining whether an activity would result in nonsignificant changes in existing water quality. Admin. R.M. 17.30.715. With some exception for changes in the quality of water for any parameter for which there were only narrative water quality standards (i.e., EC and SAR before 2003), any changes that would not have a measurable effect on any existing or anticipated use or cause measurable changes in aquatic life or ecological integrity were viewed as insignificant and would not trigger a nondegradation review. Admin. R.M. 17.30.715(1)(g) and (2).

¶ 12 In early 2000, at the behest of the Water Pollution Control Advisory Council, DEQ began investigating the effect of CBM produced water on soils and stream life to determine whether to implement numeric standards for this type of discharge. In May 2002, DEQ completed two alternative draft rules, both of which set a range of numeric water quality standards for EC and SAR on the rivers and streams in the Powder River Basin. Both proposals were accompanied by technical support documents explaining the rationale and scientific basis for the proposed rules.

¶ 13 In early June 2002, NPRC, TRWUA and other Powder River Basin water rights holders filed a petition for rulemaking urging BER to adopt numeric standards for EC and SAR. BER put out three proposals for public comment and held two public meetings. Industry opposed the numeric standards arguing that the existing narrative standard was sufficient. While the public comment period was open, BER received extensive information from scientists and technical people, the EPA, environmental groups and irrigators.

¶ 14 In 2003, BER adopted numeric standards for EC and SAR for three rivers and a creek making up the Powder River Basin. Admin. R.M. 17.30.670. These standards established specific levels for EC and SAR discharges into the waters of the Basin from November 1 through March 1 each year. They also established lower levels of allowable discharges from March 2 through October 31. In addition, the Board expressly provided that the nonsignificance criteria that were in place at that time and applied to parameters regulated by narrative standards only, would continue to apply to EC and SAR, despite the fact that EC and SAR would now have numeric standards. It rejected irrigators' requests to designate EC and SAR as "harmful" parameters at that time but agreed to explore a method of tracking natural EC to address nondegradation issues. The effect of employing numeric criteria for the discharge of EC and SAR but retaining the narrative "nonsignificant" criteria for nondegradation review of these parameters was to potentially allow discharges that could degrade water quality up to the numeric water quality standard.

¶ 15 In 2005, NPRC and a group of irrigators filed another petition for rulemaking asking BER to adopt rules to require treatment of CBM produced water. They also requested again that BER designate EC and SAR as "harmful" parameters. BER put this out for public comment and held three hearings and a public...