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Home My WebLink About20081473 Ver 2_Public Comments_20090216111 ?- 1 17A CEN 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 i t NOV 2 62008 &!C 01F VV'Ai El:, QUALITY 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