On August 23, 2013, the Texas Supreme Court issued a significant decision affirming the administrative discretion of the Texas Commission on Environmental Quality ("the Commission") to decide whether or not to grant a downstream protestor a contested case hearing on a water-quality permit application. While the decision involved the City of Waco's protest against the small O-Kee Dairy located in the North Bosque River watershed, the decision has far-reaching implications for the Commission's processing of water-quality permit applications throughout the State. Specifically, the Court concluded that, even if the City would otherwise have qualified as an "affected person" with the right to a hearing, the Commission had the discretion to deny the request where there was evidence in the administrative record to support the Commission's determination that the proposed permit would maintain or improve the quality of water associated with any discharges.
FACTUAL AND PROCEDURAL BACKGROUND
O-Kee Dairy is a concentrated animal feeding operation (CAFO) located approximately 80 river miles from Lake Waco, which serves as the municipal water supply for the City of Waco. In March 2004, the operators of O-Kee Dairy applied to the Commission to amend their water-quality permit to expand their herd from 690 to 999 cows and total waste application acreage from 261 to 285.4 acres.
Despite the increases to herd size and total waste application acreage, the Commission's executive director issued a preliminary decision that the proposed permit met all statutory and regulatory requirements for CAFOs because it also proposed new measures to strengthen the overall water-quality protections at the facility.
During the period of public notice and comment that followed the executive director's preliminary decision, the City of Waco submitted comments and requested a public meeting. The City was concerned that the dairy's operations under the amended permit would adversely affect the quality of Waco's municipal water supply. The executive director rejected the City's complaints to the draft permit, and, in response, the City filed a written request for a contested case hearing.
While anyone may publicly comment on a pending water-quality permit, only those commentators who are also "affected persons" may obtain a public hearing under Chapter 26 of the Texas Water Code. Chapter 5 of the Water Code defines an "affected person" as:
[A] person who has a personal justiciable interest related to a legal right, duty, privilege, power, or economic interest affected by the administrative hearing. An interest common to members of the general public does not qualify as a personal justiciable interest.
Although the Water Code generally provides an "affected person" the right to a public hearing, there are notable exceptions. Section 26.028(d) exempts an application to amend or renew a water-quality permit that does not seek to either "increase significantly the quantity of waste authorized to be discharged" or "change materially the pattern or place of discharge," if "the activities to be authorized . . . will maintain or improve the quality of waste authorized to be discharged," and meet certain other requirements.
After a public meeting at which O-Kee Dairy's permit application and the City's hearing request were considered, the Commission denied the City's request for a contested case hearing and issued the permit as the executive director had proposed.
The City sought judicial review of the Commission's decision in district court, which affirmed the Commission's decision. The City appealed, this time receiving a favorable result. The court of appeals reasoned that the relative protectiveness of the amended permit was irrelevant, and concluded that the Commission had "acted arbitrarily and abused its discretion in concluding" that the City was not entitled to a contested case hearing.
THE TEXAS SUPREME COURT'S DECISION
On appeal, the Texas Supreme Court reversed and rendered judgment affirming the Commission's decision to deny the City of Waco's request for a contested case hearing.
Even assuming that the City might otherwise have qualified as an "affected person" under the statute's definition, the Court found that the exceptions in Section 26.028(d) reasonably applied to O-Kee's amended permit application. The Supreme Court concluded that an "affected person" has the right to request a hearing, but "the Commission has the discretion to deny the request when the proposed permit is an amendment or renewal and (1) the applicant is not applying to significantly increase the discharge of waste or materially change the pattern or place of discharge, (2) the authorization under the permit will maintain or improve the quality of the discharge, (3) when required, the Commission has given notice, the opportunity for public meeting, and considered and responded to all timely public comments, and (4) applicant's compliance history raises no additional concerns." The Court found that because there was evidence in the permit application record to support the Commission's determination that the proposed amended permit would maintain or improve the quality of water associated with any discharges, the Commission did not abuse its discretion in denying the City's request.
The Texas Supreme Court's decision has a significant impact on the availability of contested case hearings in the context of water-quality permit applications. Following the Court's decision, if an "affected person," such as a downstream city or landowner, wants to request a contested case hearing, it will not be enough to show that, if granted, the amended permit will result in some discharge or runoff. Rather, the amended permit must significantly increase or materially change the pattern or place of the discharge or runoff or otherwise foreclose the Commission's discretion to deny the contested case hearing under Section 26.028(d). Moreover, and importantly, the Commission's decision regarding whether the exemption applies does not require a hearing, and instead may be based on staff recommendations and less formal proceedings, such as public meetings. Thus, the Court's decision strengthens the Commission's discretion and represents a clear and reasonable limitation on when an "affected person" has a statutory right to a contested case hearing.