HomeMy WebLinkAbout20081473 Ver 1_Public Comments_20090216111 ?-
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North Carolina Department of Environment and Natural Resources
Beverly Eaves Perdue
Governor
Steven J. Levitas
Kilpatrick Stockton, LLP
3737 Glenwood Avenue, Suite 400
Raleigh, NC 27612
. LevitaDivision of Water Quality
Dear nt Offset Requirements
Subject: .e?9111-
Coleen H. Sullins Dee Freeman
. Director Secretary
February 16, 2009
The Division of Water Quality (DWQ) is in receipt of your letter regarding Nutrient Offset Requirements dated
November 25, 2008. We appreciate that your client faces challenging circumstances, and we appreciated the
opportLinity to meet with you on January 22, 2009 to discuss the complex issues associated with mitigation.
As we discussed during our meeting, with regard to specific sites located within the Neuse River basin where
such a situation has arisen (EBX-Neuse Riparian Buffer Umbrella Mitigation Bank - Westbrook, Nahunta and
Marston Sites), a Mitigation Banking Instrument has already been executed by the Provider and DWQ, and
credit releases have already occurred.
Based on available information regarding mitigation sites located within the Neuse and Tar-Pamlico basins, the
occurrence of the realization of unallocated or unused credits on an existing site would be very limited. Few
existing stream restoration sites located within the above-referenced river basins have unused or unallocated
riparian acreage outside of 50 feet from the stream bank. In the vast majority of cases, buffer credit has already
been allocated from the 50-foot buffer, and few sites have buffers larger than 50 feet where credit has not
already been accounted for.
DWQ acknowledges that you brought up several points during our January 22, 2009 meeting that merit further
discussion. DWQ has decided to review policies and procedures related both to calculation of impacts related
to permitting, as well as generation of credits on the mitigation side. This review will include discussions with
USACE and USEPA regarding 404/401 credit issues, as well as state programs related to riparian buffers and
nutrient offset credit. Upon completion of this review, a policy clarification document will be presented
through Public Notice for review and comments.
1617 Mail Service Center, Raleigh, North Carolina 27699-1617
Location: 512 N. Salisbury St. Raleigh, North Carolina 27604 One
Phone: 919-807-6300 \ FAX: 919-807-6492 \ Customer Service: 1-877-623-6748 N®PhCa trim
Internet: www.ncwaterquality.org Nahmallb,
An Equal Opportunity \ Affirmative Action Employer
In addition, DWQ will not approve any additional banks where unallocated credits are proposed to be generated
from previously approved and permitted sites until the above-described review is completed and policy and
procedures are clarified.
If you have further questions concerning these issues, please contact Matt Matthews, Wetlands and Stormwater
Branch Chief, at (919) 807-6380.
cc:
Matt Matthews
Rich Gannon
Eric Kulz
Amy Chapman
Cyndi Karoly
John Dorney
Suzanne Klimek, EEP
Si rel ,
n . Sullins
RRD
F0
11
Colleen Sullins
NC DENR, Division of Water Quality Dmm
5
512 N. Salisbury Street, Raleigh, NC 27604
LOWER NEUSE
RIVERKEEPERm
Larry Baldwin
220 South Front Street
New Bern, NC 28560
252-637-7972
252-514-0051 fax
riverkeeper@neuseriver.org
UPPER NEUSE
RMRKEEPERO
Alissa Bierma
112 South Blount Street
Suite 103
Raleigh, NC 27601
919-856-1180
919-839-0767 fax
alissa@neuseriver.org
BOARD OF
DIRECTORS
Natalie Bagget
Phil Bowie
James Boyd
Richard Dove
Richard Goodwin
Marilyn Grolitzer
Mary Ann Harrison
David McCracken
William Olah
Sandra Parker
Joanne Somerday
Earth Share
Jf WM11 GMMN
DIVISION OF WATER QUALITY
December 5, 2008 f v"(" DIRECTOR'S OFFICE
Dear Ms Sullins,
In 2007 the North Carolina General Assembly authorized private companies to offer inde-
pendently created nutrient off-set credits for sale in the Neuse River Basin, allowing other
parties to satisfy their mitigation obligations through the purchase of off-site improve-
ments. We understand that the Division of Water Quality (DWQ) is considering the ap-
proval of existing mitigation projects, previously used to satisfy obligations pursuant to
regulations such as §404 and §401 of the Clean Water Act, as a source for nutrient off-
set credits that may be applied to pending stormwater permits. This would allow restora-
tion sites that have been completed for compensatory mitigation-years after their imple-
mentation for other purposes-to retroactively qualify as a source of nutrient off-set cred-
its.
The Neuse River is one of the nations most threatened and polluted waters and innovative
approaches to pollution reduction must continue to be a part of the effort to protect and
restore the river and surrounding watershed. However, a policy of retroactive credit con-
tradicts the intent of this program's enabling legislation which was designed to support the
General Assembly's goal for the reduction of nutrients in the Neuse and Tar River basins.
The use of existing projects to provide nutrient off-set credits does not proactively address
this directive; it will-at minimum-do nothing to alter the total nitrogen load to the
Neuse, and-more likely-will result in a net gain in nitrogen inputs. Therefore, the
Neuse River Foundation and the Neuse Riverkeepers strongly oppose the retroactive
award of nutrient off-set credits from existing projects, allowing applicants to "double
dip," and receive credit for fulfilling permit obligations, as well as payment for assisting
others in the fulfillment of theirs.
Retroactive award of off-set credits would allow additional negative water quality
impacts to occur without any corresponding mitigation being performed, meaning
that the Neuse River will receive more pollutants while credited "off-sets" provides no
effective benefit; this is simply unacceptable and will only harm the health of our waters.
As the effort goes forward, I would be happy to discuss the types of policies which are
appropriate to support improving water quality in the Neuse River. Should you have any
questions, please feel free to contact myself or Larry Baldwin-our Lower Neuse
RIVERKEEPER-at the addresses listed on the left side of this letter.
Sincerely,
Alissa Bierma
Upper Neuse RIVERKEEPER®
oll A17e Speak- For '27i.e River!
KILPATRICK
1%h6 STOCKTON LLP
Attorneys at Law
November 25, 2008
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NOV 2 62008
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GII?tC10R'S 0, i ICE
Suite 400 3737 Glenwood Avenue
Raleigh NC 27612
t 919 420 1700 f 919 420 1800
www.KilpatrickStockton.com
Steven J. Levitas
direct dial 919 420 1707
direct fax 919 510 6145
SLevitas@KilpatrickStockton.com
Ms. Coleen H. Sullins, Director
North Carolina Department of Environment and Natural Resources
Division of Water Quality
1617 Mail Service Center
Raleigh, NC 27699-1617
Re: Nutrient Offset Requirements
Dear Coleen:
I am writing on behalf of our client Restoration Systems, LLC (Restoration
Systems) to address the use of pre-2007 stream mitigation projects for nutrient offsets
under the Neuse River Basin Nutrient Sensitive Water Management Strategy
regulations (15A NCAC 02B .0234) and the corresponding Tar-Pamlico River Basin
regulations (15A NCAC 02B .0258) (Nutrient Offsets).'
As you know, there are numerous existing stream mitigation projects in North
Carolina, many of which have been carried out by Restoration Systems. In addition
to the required restoration, enhancement, and/or preservation of streams, these
projects have typically included the restoration or enhancement of riparian buffers
(collectively referred to herein as "buffer restoration"). For stream mitigation
projects, the U.S. Army Corps of Engineers (and I believe DWQ as well) requires that
at least a 50-foot riparian buffer be restored or enhanced if necessary. In some cases,
the mitigation project sponsor has developed and implemented a mitigation plan that
has included the restoration or enhancement of riparian buffers greater than 50 feet.
DWQ has adopted a policy allowing the same unit of buffer restoration to be
used for both stream mitigation and Riparian Buffer Mitigation (See Memorandum by
John R. Dorney dated January 2, 2007 entitled Buffer Interpretation/Clarification
' We use the phrase "pre-2007" as shorthand to mean prior to September 1, 2007 - the effective date of
S.L. 2007-438, which for the first time allowed the sale of Nutrient Offsets from private mitigation
projects. In addition, we intend the phrase "stream mitigation" to include riparian wetland restoration as
well. We do not herein express a view on whether stream mitigation projects implemented after September
1, 2007, should be available to satisfy Nutrient Offset requirements.
ATLANTA AUGUSTA CHARLOTTE LONDON NEW YORK RALEIGH STOCKHOLM WASHINGTON WINSTON-SALEM
Ms. Coleen Sullins
November 25, 2008
Page 2
#004.). While Restoration Systems has concerns about (i) the merits of that policy,
(ii) whether it should be applied to stream mitigation projects that pre-date the policy,
and (iii) whether the adoption of the policy complies with the rulemaking
requirements of the Administrative Procedure Act, N.C.G.S. 150B, Article 2A, the
purpose of this letter is not to challenge that policy. Our focus here is on Nutrient
Offsets. It is unclear what DWQ's position is as to whether buffer restoration carried
out as part of a stream mitigation project may also be used for Nutrient Offsets.2
A case could be made that a single unit area of buffer restoration should never
be available to satisfy both stream mitigation and Nutrient Offset requirements.
Under this view, one would argue that (i) there is no reason to facilitate adverse
environmental impacts by making mitigation and offsets more readily available; and
(ii) there is enough uncertainty regarding the long-term efficacy of mitigation projects
to cause policy makers to err on the conservative side. However this issue may be
addressed by DWQ and other North Carolina policy makers, Restoration Systems
strongly believes that DWQ may not and should not allow riparian buffer restoration
that is part of a stream mitigation project that was implemented prior to September 1,
2007 to be used for Nutrient Offsets. The reasons for this position are set forth
below.3
1. The General Assembly has not authorized the use of pre-2007 stream
mitigation projects to satisfy Nutrient Offset requirements.
In 2007, the North Carolina General Assembly (NCGA) enacted legislation
that for the first time allowed parties requiring Nutrient Offsets to satisfy that
obligation not only by making payments to the Ecosystem Enhancement Program
(EEP) but also by purchasing qualified offsets from private parties. (See S.L. 2007-
438.) This legislation, which became effective September 1, 2007, in no way
suggests that projects undertaken for other mitigation purposes prior to the passage of
this law may be used to satisfy Nutrient Offset requirements. Had the General
Assembly intended such an outcome, it could have said so in the legislation. Nor did
the General Assembly authorize DWQ to adopt its own policies in this area. In the
absence of clear authority from the General Assembly for such a policy, projects that
pre-date the 2007 legislation should not be eligible to satisfy Nutrient Offset
obligations.
z Since both the Nutrient Offset requirements and the Riparian Buffer Mitigation requirements are driven
by the need to compensate for actual or potential increases in nutrient loads, we assume no one would
suggest that the same unit of buffer mitigation should be available for both Nutrient Offsets and Riparian
Buffer Mitigation.
3 These arguments apply with equal force to any use of pre-existing stream mitigation projects for
prospective Nutrient Offsets, regardless of the dimensions of the riparian buffer restoration that may have
been included in the project.
US2000 11143000. I
Ms. Coleen Sullins
November 25, 2008
Page 3
In addition, the 2007 legislation also established fixed fees for Nutrient Offsets
purchased from EEP. These fees were based on exhaustive research and analysis
performed by Research Triangle Institute (RTI) on behalf of the NCGA's
Environmental Review Commission. Nothing in RTI's analysis or recommended fees
presumed that Nutrient Offsets could be purchased from pre-existing stream
mitigation projects. Rather, RTI's numbers were based on the estimated cost of
purchasing rights to land and constructing new mitigation projects to serve as Nutrient
Offsets.
2. Allowing the retroactive use of pre-2007 stream mitigation projects for
Nutrient Offsets contradicts prior DWQ statements on this issue.
During the legislative process leading to the passage of S.L. 2007-438, DWQ
assured Restoration Systems that the use of pre-2007 stream mitigation projects for
Nutrient Offsets would not be allowed. In direct reliance on this information from
DWQ, and to meet anticipated market needs, Restoration Systems expended
considerable time and expense creating more than 73,000 pounds of Nutrient Offsets
at its Wellons Farm Bank Parcel in Johnston County for offsets in HUC 03020201
(Wellons Bank). If a developer is now allowed to purchase Nutrient Offsets from
pre-2007 stream mitigation projects, it could be years or even a decade before there is
a market for the Wellons Bank, resulting in substantial damage to Restoration
Systems. For example, if this approach is utilized by EEP, which holds more that
228,000 linear feet of stream mitigation in the Neuse River basin, there would be
more than one million pounds of Nutrient Offsets unexpectedly available for sale.4
To put this in context, the EEP has accepted payments for -1.3 million pounds of
Nutrient Offsets since the program's inception in 2001.
3. Allowing the retroactive use of pre-2007 stream mitigation projects for
Nutrient Offsets would be disruptive to environmental mitigation markets and
create serious equity concerns.
Private environmental mitigation projects involve several multi-party market
transactions. When mitigation needs are identified or anticipated, numerous
mitigation providers seek to negotiate with multiple private landowners regarding the
acquisition of interests in potential mitigation lands. Sometimes multiple providers
negotiate with the same landowners. Similarly, at the other end of the process,
4 This calculation assumes a 50-foot buffer on both sides of the 228,000 linear feet of Neuse basin stream
mitigation thus far provided by the EEP. 228,000 feet x 100 feet = 22,800,000 square feet of buffer.
22,800,000 square feet / 43,560 (square feet per acre) = 523 acres of buffer, or 1.1 million pounds of
nitrogen offsets (2273 pounds per acre of buffer).
US2000 11143000.1
Ms. Coleen Sullins
November 25, 2008
Page 4
mitigation providers may negotiate with multiple developers for the sale of mitigation
or offset credits, and buyers of those credits may negotiate with multiple potential
sellers.
In order for these markets to function effectively, all participants need
certainty as to the rules of the market, which are established by governmental
policies. For example, the price expected by a farmer for prospective mitigation lands
might be very different if the farmer understood that the mitigation provider may
receive multiple payments for different mitigation attributes. The site selected by a
mitigation provider and the price it would be willing to pay could be similarly
affected. Changing the rules of the game after the fact would be highly disruptive to
this sort of environmental market. It sends the message to all participants that there is
no certainty in the market and requires them to engage in complex speculation about
how the rules may change in the future. The uncertainty and speculation does not
serve the interest of having stable long-term markets for environmental mitigation.
In addition, changing the rules retroactively to allow a mitigation project
sponsor to extract additional value (in the form of Nutrient Offsets) from an existing
mitigation project would be tantamount to DWQ printing money and making a
decision about how to distribute that money. The parties to the initial mitigation
transaction - the developer, the landowner, and the mitigation provider - valued the
transaction based on the mitigation being provided for the developer's impacts. If at
the time of the transaction, the parties contemplated that there would be excess
mitigation credit in the project, the permits and approvals should have reflected this
and the parties to the transaction would have priced the transaction accordingly and
allocated the excess credits to the appropriate party. If DWQ were to create a
windfall by recognizing the availability of new value from pre-existing projects, who
is to say that that windfall shouldn't go to the farmer who conveyed the land for the
stream mitigation project or to the purchaser of the stream mitigation credits, who
likely paid for the full cost of purchasing the land and constructing of the project?
4. DWQ may not implement a policy that allows for the retroactive use of
pre-2007 stream mitigation projects for future Nutrient Offsets without
rulemaking.
We believe and have argued above that DWQ does not have statutory
authority to allow pre-2007 stream mitigation projects to be used for Nutrient Offsets.
If, however, DWQ believes it does have such authority and wishes to adopt a policy
on this subject, such policy requires formal rulemaking pursuant to the Administrative
Procedures Act See N.C.G.S. § 15013-18 et seq. The eligibility of pre-2007 stream
mitigation projects to satisfy Nutrient Offset requirements is a policy decision of
US2000 11143000.1
Ms. Coleen Sullins
November 25, 2008
Page 5
general statewide applicability that cannot be adopted by DWQ without formal
rulemaking. It is not the type of non-binding, interpretive guidance that is exempt
from the definition of a rule. See N.C. G.S. § 150B-2(8a).
For all of the foregoing reasons, we urge DWQ not to allow pre-2007 stream
mitigation projects to be used for Nutrient Offsets. We look forward to discussing
this matter further with you and your staff at your earliest convenience.
With best wishes,
Sincerely yours,
KILPATRICK STOCKTON LLP
Steven J. Levitas
cc: Tom Reeder
Matt Matthews
Eric Kulz
George Howard
John Preyer
US2000 11143000.1