A filing in a California federal court indicates that EPA is planning to apply its new Clean Water Act section 401 certification rule to all certification requests, including those that are currently pending and that were submitted in accordance with the 2020 Certification Rule. If EPA attempts to retroactively apply its new rule to pending certification requests, it will guarantee immediate litigation and the challengers will have a strong likelihood of success.

It is well-settled that agencies like EPA lack authority to apply new rules on a retroactive basis without clear congressional intent that the rule should be applied retroactively. In practice this means that all or nearly all of EPA’s regulations are applied prospectively — they become effective 60 days after publication in the Federal Register and the new rule is applied to conduct or events that occur after the rule’s effective date.

When EPA promulgated the 2020 Certification Rule, the rule itself was silent on whether it would apply only prospectively to new certification requests, or if it would also apply retroactively to then-pending certification requests that were submitted under the prior (1971) certification rule. To provide clarity for states implementing the 401 certification program and permittees seeking certifications, EPA published a FAQ, which explained that the 2020 Certification Rule would only apply prospectively:

The final rule becomes effective 60 days after it is published in the federal register. Certification requests that have been submitted or that are currently being processed by states, authorized tribes, or EPA, should continue to be processed in accordance with existing law. Certification requests submitted after the effective date of the final rule should be processed consistent with the final rule.

EPA’s position in 2020 was consistent with court rulings, including from the U.S. Supreme Court, that the Administrative Procedure Act does not authorize agencies to promulgate rules on a retroactive basis, and from the D.C. Circuit Court of Appeals, that Congress did not expressly grant EPA authority in the Clean Water Act to promulgate rules with retroactive effect. Suffice to say, if EPA attempts to apply its new 401 rule retroactively to pending certification requests, it will not only be a significant change in agency policy but it will also run headlong into very strong legal precedent indicating such application may be unlawful.

What makes us think EPA will apply its new 401 rule retroactively? The agency filed an affidavit in court stating as much.

For context, the merits of the 2020 Certification Rule are still being litigated in California, with California arguing that it is unlawful, the regulated community arguing that it is lawful, and EPA most recently arguing that the litigation should be on hold because the agency intends to finalize a new 401 rule that will render the 2020 Certification Rule obsolete. In that case, California requested expedited briefing on the merits of the 2020 Certification Rule because, it argued, any new rule from EPA will only apply to new certification requests and California will still be forced to process any pending requests under the 2020 Certification Rule. In essence, California seems to understand the general rule against retroactive rulemaking and that the 2020 Certification Rule would normally be applied to then-pending requests even after EPA finalizes its new 401 rule.

In response to California’s motion, EPA filed an affidavit signed by EPA’s Office of Water leadership that states,

[B]ased on my personal knowledge or information supplied to me by EPA employees about EPA’s forthcoming Final 2023 CWA Section 401 Certification Rule… the Agency generally expects that all actions taken as part of the section 401 certification process as of the effective date of the forthcoming Final 2023 Rule will need to comply with that Final Rule, rather than the 2020 CWA Section 401 Certification Rule.

This affidavit, which amounts to sworn testimony before a court, clearly indicates EPA’s intent to apply its new 401 rule retroactively to pending certification requests.

Why does this matter? There are likely hundreds of certification requests currently pending before states, authorized tribes, and EPA. If they were filed while the 2020 Certification Rule is effective, the request was required to include specific information to be considered complete, and the certifying authority is required to process the request within the specific procedural and substantive requirements of that rule. Project proponents and certifying authorities have likely invested time and resources to process those requests, even if they are not yet completed by the time EPA’s new 401 rule is finalized and becomes effective.

If EPA’s 2023 final 401 rule is anything like its 2022 proposed rule, retroactive application to pending requests will likely mean that the original certification requests would no longer be considered “complete” because the 2023 rule is likely to have open-ended information requirements, where the 2020 Certification Rule had a defined set of information requirements. It would also likely mean that certifying authorities would need to restart their review entirely, requesting new and additional information from the project proponent, to ensure that its certification can meet the new (and likely) very broad scope of EPA’s 2023 rule. It probably also means that those pending certification requests will remain so longer than the one-year statutory timeline, raising a host of new questions about whether waiver occurs.

The general rule against retroactive rulemaking is intended to prevent new obligations, new duties, and new liabilities from attaching to pending events or transactions. EPA’s application of its new 401 rule to pending requests will certainly create new obligations and duties on both project proponents and certifying states and authorized tribes, and could very well be considered unlawful by reviewing courts.

EPA’s new 401 rule is currently undergoing interagency review at the Office of Management and Budget and is expected to be finalized this fall.