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NCLM News & Political Report

The League enters the 2013 legislative Long Session with a targeted set of newly-approved member goals, including five priority regulatory goals. This year was the first time the membership developed and approved regulatory goals, which read:

  • Support solutions addressing nutrient impairment in waters that: are based on site-specific data and analysis, demonstrate use impairment, assign responsibility proportionate to the source of impairment, and include measures to equitably hold accountable all contributors to the impairment.
  • Seek policies that provide flexibility when implementing programs guided by water quality standards adopted through the triennial review process.
  • Seek updated regulatory procedures that would provide more openness, transparency, and flexibility for development of the impaired waters list and the system of rating water bodies.
  • Seek legislation that would implement mechanisms requiring state agencies to repeal unnecessary, unduly burdensome, or inconsistent rules.
  • Support legislation that would limit regulation of land application of biosolids to the state and federal governments.

Additionally, the twenty-five approved legislative goals contain numerous stormwater and water supply goals.

The package of policy goals are the culmination of a year-long policy development process by League members. Leading up to the League's day-long Advocacy Goals Conference on January 24, the membership's policy committees held dozens of meetings to sift through goal suggestions and make recommendations for the membership's consideration at the January conference. Two of these committees evaluated environment-related goals: the Regulatory Action Committee and the Planning & Environment Legislative Action Committee.

The League is proud of this robust member-driven goals process, which is rare among advocacy associations in the state. Many thanks to the over 150 individuals serving on these committees who worked to produce a thoughtful set of policy aims for the organization.

Many of the goals approved in January have already seen legislative and regulatory action. From the list of regulatory goals above, the League has pressed for more targeted data collection and analysis to support nutrient impairment designations of water bodies, changes to the state's methodology for declaring waters impaired, and more flexible policies in permit-writing to implement surface water quality standards updated in the triennial review. Further, in legislative debate regarding modifications to the state's administrative procedure last week, legislators indicated an interest in easing the process for repeal of rules.

State Legislature: What's in Store

Given that most of the leadership in the N.C. Department of Environment and Natural Resources (DENR) is new this year, most environmental proposals will likely surface later in the legislative session. For now, stakeholder processes involving the League and its members continue on several important environment issues, including water supply and the Jordan Lake Rules. Those groups are working to ready proposals for introduction by legislators over the next few months. Read more about these efforts in:

In the first three weeks of session, legislators focused on several high-profile and contentious statewide issues, including changes to the state's system of unemployment insurance and options regarding the federal Affordable Care Act. Against that backdrop, they also introduced a package of changes to push the state closer to development of a hydraulic fracturing industry (read more in "As Rulemaking Begins, Legislators Renew Interest in Hydraulic Fracturing," below).

As they continued to work behind the scenes drafting bills and preparing legislation for introduction, legislators held organizational committee meetings and began overview state budget briefings. On the environment front, they also sparked controversy two weeks ago by hosting speaker John Droz for an informational session ("Conservative skeptic warns lawmakers about climate science," WRAL), a briefing encouraged by DENR Secretary John Skvarla.

Federal Updates

Meanwhile, state-level budget preparation will develop over the next month with a wary eye toward Washington, where the U.S. Congress faces a March 1 deadline to avoid the spending cuts of sequestration. If Congress allows sequestration cuts to take effect, federal Environmental Protection Agency (EPA) heads warned that they will implement the agency's $700 million across-the-board cuts in the following priority:

  • Contracts with third parties
  • Grant funds and agency programs, including funding to states to implement water quality standards and the State Revolving Fund programs
  • Staff furloughs or layoffs

These EPA-proposed priorities for cuts were in line with recommendations by the labor union representing EPA employees. In addition to the EPA cuts, in the environmental arena, the U.S. Army Corps of Engineers predicted its staff cutbacks would extend the time taken to issue Section 404 fill permits and would pare back dredging activities to an absolute minimum.

Despite the media focus on sequestration, congressional panels have continued their hearings. The House Energy & Commerce Committee heard testimony Friday on the role of state and local governments in protecting the environment. Testifying on behalf of the National League of Cities, Michael Sesma, Council Vice President of Gaithersburg, MD, highlighted the ways cities partner with states and the federal government to implement federal environmental laws. And North Carolina had representation at this hearing as well when N.C. Rep. Pricey Harrison testified on behalf of the National Caucus of Environmental Legislators, speaking in favor of federal regulation of coal ash ponds and hydraulic fracturing.

All the while, EPA no longer has a lead administrator. Former EPA Administrator Lisa Jackson left the agency Thursday. Speculation for a replacement has focused in recent weeks on two career environmental regulators: EPA Acting Administrator and Deputy Administrator Bob Perciasepe and EPA air chief Gina McCarthy.

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League Stresses Flexibility for Nutrient Standards

In written comments submitted in advance of development of the state's Nutrient Criteria Implementation Plan (NCDP), the League stressed the need for flexibility in setting nutrient standards.

The N.C. Division of Water Quality (DWQ) has begun revision of the plan, required as part of an agreement with the U.S. Environmental Protection Agency (EPA) that outlines a work plan for regulators to use in addressing nutrient impairments across the state. Similar work plans, negotiated for all states receiving EPA funding, contain a description of an agency's tasks, timelines, and milestones for development of nutrient criteria.

EPA is driving this latest push toward the so-called "numeric nutrient criteria" that have caused extreme controversy in Florida and elsewhere over the past two years. In North Carolina and across the country, pollution from two nutrients, nitrogen and phosphorus, presents the most urgent yet difficult water quality issue to address. Past N.C. regulations to control nutrients include the Jordan Lake Rules, Falls Lake Rules, Neuse Rules, Tar-Pamlico Rules, and Randleman Rules.

According to DWQ, the NCDP must provide a way for the state to justify why it chose a particular path for nutrient regulation. Therefore, the plan will contain "projects" to move the state toward development of a method to limit the amount of nutrients in the state's waters.

League Comments

Because the causes of nutrient impairment of waters vary widely between different water systems, as explored at the DWQ-sponsored N.C. Forum on Nutrient Over-Enrichment last May, an overriding theme of the League's comments, from criteria development to other aspects of nutrient control, was to make allowances for these different causes.

With respect to development of nutrient criteria, the League focused on these priorities:

  • Blend of variables: urging regulators not to limit their inquiry to only numeric nitrogen and phosphorus standards, instead encouraging the state to also account for the health of aquatic life in the stream
  • Avoid a one-size-fits-all approach: suggesting that the state study scientifically-defensible ways to break the state into smaller units with shared ecological characteristics, each with its own unique criteria
  • Perform site-specific analyses: asking for the criteria to include a site-specific verification component, recognizing that because site-specific analysis is so intense, DWQ should prioritize water bodies for measurement
  • Integrate flexibility into criteria: following the example of other states that wrote flexibility into their nutrient criteria, including by setting a range of minimum and maximum levels for criteria, or setting the same criteria but including an option for site-specific analysis
  • Incorporate cost-benefit analysis: recognizing that cost-benefit analysis is already required by the N.C. Administrative Procedures Act's fiscal note requirement for all rulemaking
  • Conduct further research: drawing on presentations from last year's nutrient forum, suggesting possible areas of further research, including exploration of the legacy nutrient contributions from groundwater
  • Examine alternatives to the threshold "protection" approach: reiterating League members' objections to the failed "threshold" approach to nutrient management offered by DWQ in 2010, which would have set a de facto water quality standard for chlorophyll-a that, once exceeded, would have required additional and expensive control measures

In addition to making suggestions for the state to use as it considers the projects in the NCDP, the League also offered comments on other aspects of nutrient control, such as impairment decisions and implementation measures.


League members selected the issue of nutrient management as their highest regulatory priority because municipalities assume a primary responsibility for implementing the requirements of the federal Clean Water Act (CWA).

This responsibility comes because many municipalities hold federal wastewater and/or stormwater permits, which allows them to discharge into various waters of the state. When one of those water bodies exceeds the numerical criteria measuring the effects of nutrients on those waters and is determined to be impaired, the CWA requires clean-up plans. In those instances, permitted dischargers to impaired waters, like municipalities, receive new permit limits and program directives as they become subject to nutrient management strategies. Implementation of those strategies is expensive and drives up compliance costs for the municipality as well as rates paid by system customers.

Because the elements of the NCDP have the potential to commit the state and permit-holders to large public expenditures, the N.C. Environmental Management Commission (EMC) will consider and vote to accept the plan. That vote is planned for May, where both the Commission's Water Quality Committee and then the full Commission will consider the proposal. A public feedback period is planned prior to EMC consideration of the plan.

The League has reported extensively on the efforts leading up to the NCDP comment period. A selection of articles on those efforts includes:

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Municipal Energy Group Intervenes in Progress Rate Case

The newly-formed NC Municipal Energy Group (NC-MEG) gained approval for its intervention in the Progress Energy rate case last week. NC-MEG is a group of over one hundred League members who have supported the League to contract with specialized outside legal counsel that will represent cities and towns in negotiations with the state's investor-owned utilities and the North Carolina Utilities Commission (NCUC).

The goal of the League’s intervention is to reduce the financial burden that an increase in Progress Energy’s electricity rates would bring upon municipal governments served by the utility. Increases in electricity rates can significantly impact municipal budgets, particularly in those cities and towns providing such services as water and wastewater treatment, street lighting, and recreational facilities.

Intervention in a rate case is the only way to advocate for reduced increases. Cities and towns may still join NC-MEG; to learn about participation details, email Sarah Collins.

Prelude to Intervention

The League formed NC-MEG because a number of municipal governments reached out to the League in recent months and asked how to minimize impacts of the rate increases to their budgets. In the Progress case, various municipal operations are likely to be affected by changes to the following categories of rates, or "rate schedules": Large General Service, Traffic Signal Service, and Street Lighting Service.

Progress filed this rate case in October (see "Progress requests 14% rate increase for residential customers," Charlotte Observer), its first in almost 25 years. The company stated that it had spent $1.3 billion since mid-2011 on facility upgrades.

Future NC-MEG Projects

The League’s intervention thus far is limited to the Progress Energy rates filing, but Duke Energy has also recently filed for a rates increase that would impact the municipal governments served by Duke (see "Duke Energy seeks 9.7 percent rate hike," Charlotte Observer). This rate case is Duke Energy's third since 2009.

The utility called the rate increases necessary to pay for, among other things, upgrades to power plants, transmission lines, and pollution controls. Duke has spent $3.8 billion on capital projects since its last rate case in 2011. That case is still on appeal to the N.C. Supreme Court in a case brought by N.C. Attorney General Roy Cooper.

The League expects NC-MEG to continue operating for as long as its membership supports the program, and engaged Raleigh law firm Styers, Kemerait & Mitchell to represent it in the Progress Energy intervention. The firm has a long-standing NCUC practice.

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State Lawmakers Target Boards, Procedure for First Regulatory Reforms

Even before the 2013 General Assembly gaveled into session three weeks ago, legislators forecast their plans to tackle regulatory reform in a big way this session. In the weeks leading up to the session, leaders made public comments to indicate that they would take their cue for reforms from the state's business community.

The N.C. House made perhaps the biggest splash by creating the House Committee on Regulatory Reform, an enormous committee with over half of House members sitting on the committee. The work of this active committee will take place in three subcommittees (chair in parentheses):

A number of the first bills introduced in both chambers take up topics related to the regulatory process, including proposals to modify membership on major state boards and commissions as well as the administrative process itself.

Boards & Commissions

The Senate kicked off the regulatory reform debate with a major overhaul of some of the state's most powerful boards in S 10--Government Reorganization and Efficiency Act (Sens. Apodaca, Hunt, Rabon). The bill, which passed the Senate in just three days, proposes to eliminate the current membership of boards such as the Environmental Management Commission, the Coastal Resources Commission, and the N.C. Utilities Commission. In place of the current board members, the bill would designate new qualifications for board members. Also, in many cases, the bill would change the number of board members sitting on the various commissions. These changes would allow Gov. McCrory to select more board members than under the status quo.

Other state boards affected by this bill include the Industrial Commission, N.C. State Lottery Commission, State Board of Elections, Wildlife Resources Commission, State Board of Education, and Board of Transportation. In addition, the bill would also eliminate twelve special Superior Court judges, and senators originally offered -- and then withdrew -- an amendment to expand the membership of the N.C. Supreme Court by two seats.

Many media outlets reported on this proposal and the objections raised by opponents:

Another Senate bill, S 34--Eliminate Obsolete Boards and Commissions (Sen. Hartsell), was recommended by an interim committee studying administrative procedure and does not contain substantial overhauls like in the Government Reorganization and Efficiency Act. It has not received a committee hearing yet.

Administrative Process

The House took the lead on introduction of proposals to modify the state's administrative process itself. That process results in rules and governs other regulatory actions undertaken by state agencies.

The most significant proposal, H 74--Periodic Review and Expiration of Rules (Reps. Murry, Moffitt, Samuelson, Bryan), received a hearing in the House last week but not a vote. The bill would mandate that all rules expire within ten years of their effective dates, unless readopted. The bill also would subject current rules to a schedule for expiration; most environment rules would expire December 31, 2017, unless readopted.

Bill sponsors presented this proposal as a starting point for discussion, saying they intended to implement a rigorous agency review of all the rules currently in the N.C. Administrative Code. They asked for input on the proposal and received an immediate suggestion for a contrasting rule review process from the N.C. Department of Environment and Natural Resources (DENR). The DENR proposal would extend statewide a program currently in place for water quality rule reviews.

In this committee discussion, legislators also appeared receptive to suggestions that would make repeal of rules easier. Currently, rule repeals must follow the same rulemaking procedures as when an agency proposes a new rule. The League included easing repeal of rules as one of its top regulatory priorities.

Read more on the legislative discussion of the proposal to allow rules to expire in the Wilmington Star News, "N.C. bill on regulation reform targets 22,500 administrative rules."

So far, legislators introduced two other bills affecting the state's administrative process, though neither has received a hearing yet. Both bills came upon recommendation from interim legislative committees. The first, H 94--Amend Environmental Laws 2013 (Reps. McElraft, Samuelson, McGrady), clarifies that local governments with delegated sedimentation and erosion control programs would process appeals of their enforcement actions through their own appeals process, not the state's. And the second, S 36--APA/Technical Clarifying Chgs (Sen. Hartsell), makes minor changes to the N.C. Administrative Procedure Act.

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As Rulemaking Begins, Legislators Renew Interest in Hydraulic Fracturing

State senators considered a new proposal last week that would move the state more quickly toward the start of hydraulic fracturing operations. After accepting amendments, the Senate Finance Committee gave its approval to SB 76--Domestic Energy Jobs Act (Sens. Newton, Rucho, Brock), sending the bill next to the Senate Commerce Committee.

This renewed legislative push to hasten development of natural gas extraction in the state comes as the N.C. Mining & Energy Commission (MEC) has begun its work in earnest to write regulations for the industry. Last summer, the legislature tasked the MEC with developing the regulatory and permitting framework for the industry. After holding largely organizational meetings last fall, the Commission in late January began debating the rules for substantive topics such as disclosure of the constituents in hydraulic fracturing fluid (see "Fracking board set to propose nation's toughest rules" from the News & Observer).

Domestic Energy Jobs Act

Rumored at the beginning of the legislative session, the new legislative proposal would make numerous changes to the state's current laws on hydraulic fracturing and other in-state energy development activities. Some of these changes would override tasks the legislature delegated to the MEC last session, though House Speaker Thom Tillis stated his preference to allow the rulemaking process to run its course.

Legislative proponents of these changes expressed their desire to remove as many barriers as possible to attract the hydraulic fracturing industry to North Carolina, including streamlined permitting and minimal taxation. Highlights of the bill include:

  • Lifts the de facto moratorium on hydraulic fracturing by allowing permits to be issued after March 1, 2015. Read more in "Energy bill that would lift fracking moratorium advances" (News & Observer).
  • Deletes the prohibition on issuance of permits until after the rulemaking process is complete.
  • Directs the MEC to study whether a single, coordinated permit may be issued for hydraulic fracturing activities, with a report due to the legislature October 1.
  • Removes two ex officio members of the MEC: the state geologist and the Assistant Secretary of Energy for the Department of Commerce.
  • Allows the individuals serving on the MEC in the county commissioner and city council slots to continue serving even if they are no longer elected officials, including re-appointment to a second term.
  • Repeals the landmen registry, which is a registration requirement for persons who acquire oil or gas rights, perform title or contract functions related to oil and gas activities, negotiate for the acquisition or divestiture of oil and gas rights, or negotiate business agreements for the exploration and development of oil and gas.
  • Sets out a system of severance taxes levied and collected by the state on activities related to both onshore and offshore extracted gas, oil, and condensates. Allocates the tax proceeds to various state government functions, including environmental program administration and emergency response.
  • Restricts city and county taxation of the many activities associated with hydraulic fracturing to ad valorem (property) taxes. The initial version of this bill barred all local government taxation, but the Senate Finance Committee amended that language to allow local property tax levies.
  • Gives $22,900 to the MEC from the state’s existing Mineral Interest Fund to pay for expenditures related to the MEC’s implementation of last year’s law, including the hiring of temporary or contract employees to assist with policy development and rulemaking.
  • Encourages the Governor to undertake activities that would pursue development of offshore oil and gas production.
  • Reworks the Energy Policy Council by renaming it the “Energy Jobs Council” and giving it additional non-regulatory responsibilities related to development of energy supplies within the state.

Study Group Work Impacted?

One topic dealt with in the Senate proposal, taxation of hydraulic fracturing activities by the state and local governments and distribution of those revenues, overlapped with the charge of the MEC Funding Levels & Potential Funding Sources Study Group. The League participates as a member of this study group, which is tasked with recommending sources of revenue to address impacts from development of this industry. During the Senate committee discussion, several committee members expressed a desire to wait on the study group's recommendation (due October 1) before considering a statewide revenue structure.

The question of whether cities and counties should have the authority to impose various taxes or fees on this industry has been flagged by another study group with League participation, the MEC Local Government Regulation Study Group. This group must also make recommendations to the legislature by October 1.

The League has presented to this group three times since December, focusing on realms of traditional local control over heavy industry such as zoning, noise and light impacts, enforcement of state and federal environmental laws, and taxation or financial assurance authority. In addition, one presentation gave an overview of city and town extra-territorial jurisdiction authority.

Media reports on the local government regulation study group include:

Advisory Group Draws Criticism

Meanwhile, a stakeholder group formed to provide input to the MEC as it considers various rulemaking proposals has drawn criticism of its own. The group, which includes representatives of the League as well as over a dozen other interests, has met once so far. At that meeting, the group discussed proposed rule language regarding disclosure of the constituents in hydraulic fracturing fluid, eventually arriving at seventeen recommendations for the MEC's consideration (reported by WRAL in "Group says DENR's drilling disclosure recommendations not tough enough"). The MEC declined to take some of those recommendations. Reports on this first stakeholder group meeting include:

Criticism of the stakeholder group followed a pattern of controversy surrounding many aspects of the regulatory process for hydraulic fracturing. The League reported extensively on those past controversies:

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Regulatory Briefs

The N.C. Supreme Court rejected a petition for rehearing in the PTRWA municipal water rights case, ending all options for appeal of the lower court's decision...DWQ has released its model mercury minimization plan, a requirement for wastewater treatment plants in light of the statewide mercury TMDL approved last year...To apply for CWSRF funds for wastewater and stormwater projects, submit an application by March 1 and compete for the $100 million in available funds...DWQ has preliminary plans for an LID stormwater controls statewide conference later this year...Following EPA's approval of electronic delivery of CCR reports, DWR released guidance to public water supply systems that wish to take advantage of the change in distribution methods for this report...EPA has engaged in discussions with local government representatives to determine whether to change its policy of measuring community affordability for water and sewer rates...The state will host a public hearing on Charlotte's request for an interbasin transfer certificate modification March 4 in the Mint Hill Town Hall at 7:00 pm...The state will issue final Phase I stormwater permits in the next few weeks, capping a renewal process that has lasted for much of the past year...Virginia legislators did not support a bill to open an area upstream of N.C. water supplies such as Kerr Lake for uranium mining, thus leaving the issue to Governor McDonnell...Two U.S. House members introduced a bill that would eliminate the double-permitting requirement for pesticide applications...EPA is taking comments on keeping its national federal environmental enforcement priorities through 2016, including addressing combined sewer overflows, CAFOs, and oil/gas extraction activities.
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