Piercing the Regulatory Veil: The Need to Expand Federal Clean Water Act NPDES Permit Coverage to Include Municpal "Satellite" Sewer Collection Systems
By Timothy Riley
INTRODUCTION
A fundamental precept in corporate law is that a parent corporation is generally not liable for the actions of a wholly-owned subsidiary company. Yet, when a subsidiary functions as a mere charade for the parent's business enterprise, this liability shield can be pierced. In 1941, Justice Douglas wrote that a “company which assumes to treat the properties of its subsidiaries as its own cannot take the benefit of direct management without the burdens.”
In a thematically parallel circumstance, the present scope of the National Pollutant Discharge Elimination System (NPDES) program as applied by many permitting authorities generally reaches only as far as publicly owned treatment work (POTW) owners operating wastewater facilities that directly discharge to jurisdictional waters; upstream communities that merely convey raw sewage to other systems remain effectively untouched by federal regulations. These “satellite” communities, however, can constitute a serious environmental and public health concern. When a satellite community allows, for instance, excessive infiltration and inflow of water into its system that ultimately overloads a downstream treatment plant, the POTW owner, not the satellite community, is held liable under the Clean Water Act (CWA). If the satellite community permits rampant residential or commercial development but fails to expand its sewage system accordingly, it is under no federal obligation to warn the public or to take immediate responsive measures in the event of a sanitary sewer overflow (SSO).
Consequently, the existing regulatory scheme, as often presented in many states, allows satellite communities to reap the benefit of the often substantial financial expenditures and capital improvements made by downstream POTWs while assuming none of the burdens of compliance. In 2001, the U.S. Environmental Protection Agency (EPA) made an aborted attempt to publish proposed rules that would have required satellite system owners to seek NPDES permit coverage.8 The Bush administration shelved this Clinton-era rulemaking, and it has languished ever since.
This Note argues that the NPDES program should encompass these satellite systems. Although the EPA has never disavowed its statutory authority to regulate satellite systems, it traditionally focuses on POTWs directly discharging effluent to jurisdictional waters. Yet, due to subtle distinctions in the CWA and existing EPA regulations, expanding NPDES coverage to these historically under-regulated communities is not a straightforward matter. Several critical legal and policy questions must be broached and answered.
Part I identifies how improperly managed or undersized satellite systems may pose a threat to public capital infrastructure, human health, and the environment, paying particular attention to the wide-ranging risks associated with SSO events. Parts II and III briefly delve into the purpose of the CWA generally and the background of the NPDES program specifically. Both of these sections show, from a policy perspective, how the CWA should be broadly interpreted to reach any potential pollutant sources that endanger public health or jurisdictional waterways. Part IV chronicles the development of the EPA's 2001 proposed rule governing satellite systems and outlines the basic tenants of the regulation. Part V describes state- and local-level activities regulating satellite systems. Part VI opens with a few examples of how the EPA uses litigation against POTW NPDES permit holders to indirectly regulate satellite systems through negotiated consent decrees. Part VI.B compares and contrasts two different legal theories for regulating satellite systems under the NPDES program. One theory focuses on using potential SSO events, while the other turns on the satellite system's commingled municipal sewage discharged as treated effluent from a regional wastewater treatment plant's (WWTP) permitted outfall. Part VI.C argues that satellite systems are by definition POTWs and thus subject to NPDES coverage. Finally, Part VI.D proposes a permitting scheme that substantively borrows from the existing municipal separate storm sewer system (MS4) NPDES program. Ultimately, this Note concludes that the EPA should redouble its efforts to bring satellite systems within the regulatory fold of the NPDES program.
A fundamental precept in corporate law is that a parent corporation is generally not liable for the actions of a wholly-owned subsidiary company. Yet, when a subsidiary functions as a mere charade for the parent's business enterprise, this liability shield can be pierced. In 1941, Justice Douglas wrote that a “company which assumes to treat the properties of its subsidiaries as its own cannot take the benefit of direct management without the burdens.”
In a thematically parallel circumstance, the present scope of the National Pollutant Discharge Elimination System (NPDES) program as applied by many permitting authorities generally reaches only as far as publicly owned treatment work (POTW) owners operating wastewater facilities that directly discharge to jurisdictional waters; upstream communities that merely convey raw sewage to other systems remain effectively untouched by federal regulations. These “satellite” communities, however, can constitute a serious environmental and public health concern. When a satellite community allows, for instance, excessive infiltration and inflow of water into its system that ultimately overloads a downstream treatment plant, the POTW owner, not the satellite community, is held liable under the Clean Water Act (CWA). If the satellite community permits rampant residential or commercial development but fails to expand its sewage system accordingly, it is under no federal obligation to warn the public or to take immediate responsive measures in the event of a sanitary sewer overflow (SSO).
Consequently, the existing regulatory scheme, as often presented in many states, allows satellite communities to reap the benefit of the often substantial financial expenditures and capital improvements made by downstream POTWs while assuming none of the burdens of compliance. In 2001, the U.S. Environmental Protection Agency (EPA) made an aborted attempt to publish proposed rules that would have required satellite system owners to seek NPDES permit coverage.8 The Bush administration shelved this Clinton-era rulemaking, and it has languished ever since.
This Note argues that the NPDES program should encompass these satellite systems. Although the EPA has never disavowed its statutory authority to regulate satellite systems, it traditionally focuses on POTWs directly discharging effluent to jurisdictional waters. Yet, due to subtle distinctions in the CWA and existing EPA regulations, expanding NPDES coverage to these historically under-regulated communities is not a straightforward matter. Several critical legal and policy questions must be broached and answered.
Part I identifies how improperly managed or undersized satellite systems may pose a threat to public capital infrastructure, human health, and the environment, paying particular attention to the wide-ranging risks associated with SSO events. Parts II and III briefly delve into the purpose of the CWA generally and the background of the NPDES program specifically. Both of these sections show, from a policy perspective, how the CWA should be broadly interpreted to reach any potential pollutant sources that endanger public health or jurisdictional waterways. Part IV chronicles the development of the EPA's 2001 proposed rule governing satellite systems and outlines the basic tenants of the regulation. Part V describes state- and local-level activities regulating satellite systems. Part VI opens with a few examples of how the EPA uses litigation against POTW NPDES permit holders to indirectly regulate satellite systems through negotiated consent decrees. Part VI.B compares and contrasts two different legal theories for regulating satellite systems under the NPDES program. One theory focuses on using potential SSO events, while the other turns on the satellite system's commingled municipal sewage discharged as treated effluent from a regional wastewater treatment plant's (WWTP) permitted outfall. Part VI.C argues that satellite systems are by definition POTWs and thus subject to NPDES coverage. Finally, Part VI.D proposes a permitting scheme that substantively borrows from the existing municipal separate storm sewer system (MS4) NPDES program. Ultimately, this Note concludes that the EPA should redouble its efforts to bring satellite systems within the regulatory fold of the NPDES program.
