Watershed-Based Permitting Case Study

Nev\?e Rf i/er V/ e r s he d,


Neuse River Compliance Association Watershed-Based Permit

Permitting Authority Contact:

Mike Templeton

North Carolina Division of Water Quality
(919) 733-5083 x. 541

Neuse River Compliance Association Point of Contact:

Cynthia Finan
(919) 387-3478

Pollutants of Concern in Watershed:

Nutrients (total nitrogen)

Pollutants Addressed in Permit:

Total nitrogen

Permit Type: Watershed-based permit for co-permittees in an	Permit Issued: December 30, 2002

association	Modified: February 28, 2003 and January 20, 2004

Permit Information:



The Neuse River is classified as a Nutrient Sensitive
Water because of the long-term eutrofication of its estuary.
In 1996, the North Carolina General Assembly passed
House Bill 1339, which set a goal of reducing nitrogen
loads to the estuary by 30 percent by 2003 (with 1995
as the baseline year). In 1997, the Neuse River Nutrient
Sensitive Waters Management Strategy was developed
to meet this goal and included a set of permanent rules
(General Assembly Rules) to support implementation of
the Strategy and meet the reduction goal.

EPA-approved TMDLs (1999 and 2002) established total
nitrogen (TN) allocations for the Neuse River. In addi-
tion, the General Assembly's Wastewater Discharge Rule
allowed point sources to form compliance associations
to meet their combined requirements under the TMDL.
In 2002, the North Carolina Department of Environment
and Natural Resources Division of Water Quality (DWQ)
issued a watershed-based permit to a group of discharg-
ers organized as the Neuse River Compliance Association,
which was formed in 2002, to regulate the discharge of
total nitrogen into the Neuse River. This case study focuses
on the components of the watershed-based permit issued
to the Association and the group compliance mechanisms
used by the co-permittees to meet the terms of the permit.

Permitting Background

The Neuse River Basin is listed as impaired because of
nutrient impacts in the estuary. EPA approved Phase I of
a total nitrogen TMDL for the Neuse in 1999 and Phase
II in 2002. North Carolina General Assembly Rules state
that the TMDL WLA (a total of 1.64 million pounds of
TN at the estuary, equivalent to 3.0 million pounds of TN
per year at point of discharge) was to be allocated among
groups of dischargers and that the group allocation would

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Case Study Issues of Interest



POTW Discharges




Industrial Process/Nonprocess Wastewater Discharges



Concentrated Animal Feeding Operations



Municipal Separate Storm Sewer System Discharges


Construction Site Stormwater Discharges



Industrial Facility Stormwater Discharges


Combined Sewer Overflows

Statewide Watershed Approach


Implementation of Water Quality Standards



Implementation of Total Maximum Daily Loads or Other
Watershed Pollutant Reduction Goals



Permit Coordination/Synchronization

Integrated Municipal Requirements


Point Source - Point Source Water Quality Trading




Point Source - Nonpoint Source Water Quality Trading




Discharger Association


Coordinated Watershed Monitoring


Watershed-Based Permitting Case Study	Nevyse River W*.1l.ershed, North C^rolt

be further divided into individual discharger allocations
based on permitted flows. In this manner, the TMDL WLA
was divided among the 110 existing nitrogen-discharging
facilities as an annual mass loading limitation and incorpo-
rated into NPDES permits as of January 1, 2003.

The Wastewater Discharge Rule (Rule T15 NCAC 2B.0234),
establishes specific nutrient control requirements for point
source dischargers in the watershed and includes a provision
which allows point sources to form a compliance associa-
tion to work collectively to meet the combined total nitrogen
WLA of 1.64 million pounds of total nitrogen per year at the

The Neuse River Compliance Association (Association) was
formed in 2002 as a non-profit corporation. As of January
2005, it included 21 members responsible for 25 private
and public TN dischargers in the Neuse River watershed.
Many of its members also belong to the Lower Neuse River
Association, a monitoring coalition in the watershed, and so
already had a history of cooperation. The Association applied
for a watershed-based group compliance permit to regu-
late the discharge of total nitrogen from all of its member
facilities on June 28, 2002. The permit (NCC000001) was
issued on December 30, 2002 and has been modified annu-
ally since then to reflect changes in membership.

Permit Strategy

The Association group permit is based on the General As-
sembly Rules that implement the Neuse River Nutrient
Sensitive Waters Management Strategy. These implementa-
tion rules establish how nitrogen loads are allocated among
dischargers and provide for a group compliance approach.
The permitting strategy for the Neuse River involves imple-
menting this application approach and group compliance
option as described below.

TN delivery to the estuary varies with the point of discharge;
therefore, the watershed was divided into four transport
zones - 10, 50, 70 and 100 percent delivery. The point of
discharge allocations established in the Neuse

River TMDL and the equivalent estuary allocations are as

4 Existing dischargers with permitted flows greater
than or equal to 0.5 million gallons per day (MGD)
(500,000 gallons per day) downstream of Falls Lake
dam have a combined limit of 2.45 million pounds
of TN per year at point of discharge (1.51 million
pounds of TN per year at the estuary).

4 Existing dischargers with permitted flows greater than
or equal to 0.5 MGD upstream of the dam have a
combined limit of 444,000 pounds of TN per year at
point of discharge (44,368 pounds of TN per year at
the estuary).

4 Existing dischargers with permitted flows less than
0.5 MGD have a combined limit of 138,000 pounds
of TN per year at point of discharge (83,591 pounds
of TN per year at the estuary).

A new or expanding facility must purchase an adequate nitro-
gen allocation from an existing discharger or make an offset
payment to the Wetland Restoration Fund equivalent to twice
the standard offset rate required ($22/lb) to pay for nonpoint
source controls necessary to remove the increased nitrogen
loading. The discharge limit for new or expanding dischargers
cannot exceed the mass equivalent of 3.5 mg/L TN for mu-
nicipal dischargers and 3.2 mg/L for industrial dischargers.
This requirement is intended to ensure application of best
available technology for new and existing dischargers. The
DWQ can also set more stringent limits to protect the river
and its tributaries from any local water quality impacts.

Dischargers with permitted flows greater than 0.5 MGD are
subject to TN limits either in their individual permit or in a
group permit and can meet these requirements in one of two
ways—individually or by joining a trading coalition and being
covered under a watershed-based group compliance permit.
If a discharger chooses to meet the requirement individu-
ally, the TN limit is the same fraction of the group's total
allocation (2.45 million or 440,000 pounds of nitrogen per
year at point of discharge, depending on the location) as the
discharger's permitted flow is of the group's total flow. If a
discharger chooses to join a nitrogen trading coalition, the fa-
cility would be covered under a group compliance permit and
the coalition would be required to collectively meet the com-
bined TN limit of all members. Dischargers below the 0.5
MGD threshold may also join a trading coalition and would
be required to meet the collective limit even though they do
not have existing nitrogen limits in their NPDES permits.

Where a trading coalition (group compliance) option is cho-
sen, individual limits still apply, but the facilities are deemed
"in compliance" with individual limits as long as the group
remains in compliance with the combined limit. If the group
exceeds the combined TN limit, then the group must make
an offset payment to the Wetland Restoration Fund and any
facility which has exceeded its individual TN limit is in viola-
tion as well.

Permit Highlights

The Association's group permit was the first watershed-
based group compliance permit issued under the Wastewater
Discharge Rule. Each of the co-permittees had existing NP-
DES permits with TN effluent limitations and requirements.

The group permit was issued as a supplement to the dis-
chargers' existing NPDES permits. The group compliance
permit regulates the combined discharge of TN from all
covered facilities using a group effluent limit, but does not
replace other individual permit requirements. The require-


Watershed-Based Permitting Case Study	Nevyse River W*.1l.ershed, North C^rolt

ments under each individual permit remain in effect for other

The combined TN allocation for all Association members
covered by the group compliance permit is 1,137,171
pounds TN/year at the estuary.

Permit Components
Effluent limits

Part I, Section A.(3.) of the permit describes the method for
determining the Association's group estuary allocation and
each co-permittee's individual estuary allocation. Appendix
A of the Association's permit contains the list of co-permit-
tees covered (members of the Association), the discharge
allocation (i.e., allocation at the point of discharge) and the
equivalent estuary allocation (i.e., allocation at the estuary)
for each member. Appendix A also lists the transport factor
for each facility which is used to convert between the dis-
charge allocation and the estuary allocation. The transport
factors are the fraction of the TN in a facility's discharge that
is expected to reach the estuary. The transport factors ap-
plied are taken from the allocation method described in the
Wastewater Discharge Rule

The TN allocations are annual mass limits established on
January 1 of each year. They are reevaluated annually and

are revised if needed. As noted above, the current estuary
TN allocation for the Association is l,137,171pounds TN/
year (1.137 million pounds TN/year).

Facilities are responsible for complying with the estuary al-
locations in the permit rather than the discharge allocations.
An individual facility is in compliance with its estuary alloca-
tion if one of two conditions is met:

1)	The Association's estuary load complies with the
Association's estuary allocation (which is the com-
bined total of the individual estuary allocations for all
members) or,

2)	In the event that the Association estuary load exceeds
the Association's estuary allocation, the individual

facility's estuary load does not exceed that individual
facility's estuary allocation.

The current permit (modified December 29, 2005) estab-
lishes estuary allocations for 21 co-permittees and 25 facili-
ties. If a co-permittee terminates membership in the NRCA,
the member is no longer covered by the group compliance
permit and is then subject to the TN limits included in its
existing individual NPDES permit. In addition, the alloca-
tions of co-permittees can change as a result of purchases,
sales, trades, leases, etc., however, these changes must
be recognized in the individual permit and reflected in the
permit limits before being incorporated into the Association's

Monitoring and Reporting Requirements

The group compliance permit does not contain any monitor-
ing requirements. Each member is required to monitor under
its existing individual NPDES permit. The group compliance
permit requires that the NRCA compile all monitoring results
obtained by each member to submit in the mid-year and
annual reports.

Each facility's individual NPDES permit requires that they
submit discharge monitoring reports (DMRs) and the group
compliance permit does not duplicate that requirement.
However, annual, mid-year, and 5-year reports are required
of the Association.

Annual reports are required to provide the State with a re-
port on compliance and program status. The permit requires
that the annual report include, at a minimum:

4 Summary of DMRs that outline each co-permittee's
discharge and estuary TN loads as well as the Associ-
ation's group estuary TN load;

4 Summary of change in membership;

4 Summary of allocation transactions affecting alloca-
tions of the NRCA or its members;

4 Description of the Association's TN control strategy for
the previous year and any changes upcoming year;

4 Detailed description of measures taken to control TN

4 Assessment of progress made; and

4 Description of efforts planned for upcoming year.

All changes in roster or allocations are made through a
minor permit modification procedure and the state must be
notified of any changes in a mid-year report (Part I, Section
A.(2.) of the permit). The 5-year report must be submitted to
verify that the individual and group allocations are appropri-
ate and adequate.

Town of Apex, Middle Creek Wastewater
Treatment Plant TN Allocations

Discharge Allocation (DA) = 40,547 pounds/year

Transport Factor (TF) = 50%

Estuary Allocation (EA) = 20,274 pounds/year

Where, DA(TF) = EA


Watershed-Based Permitting Case Study	NetASe River W filter shed, North C^rolih-ia

Compliance Conditions

Part I Section A.(6.) of the permit details compliance condi-
tions for the co-permittees. The Association is required to
pay $11/lb for each pound the group estuary allocation
is exceeded. In addition, the DWQ may take enforcement
action against the NRCA for an exceedance. If the Associa-
tion exceeds its allocation, any facility which exceeded its
individual estuary allocation will aiso be in violation of the
group compliance permit. The permit also states that "No
Co-permittee Member shall be liable for any other Co-Per-
mittee Member's non-compliance with this permit" (section

The NRCA requires members to pay a fee for individual
exceedances of their limits on a graduated scale during

Offset payments to the Wetland Restoration Fund are
required when the NRCA exceeds the group TIN limit
established in the permit. The payment rate is $11/lb TN.
This offset capability was established in the Wastewater
Discharge Rule.

2004-2008. This funding is to pay for any offsets necessary
due to group limit exceedances or to pay for improve treat-
ment technologies at individual facilities.

Neuse River Point Source Dischargers

Appendix B of the Association's permit lists all facilities in
the Neuse River basin holding an individual NPDES permit
(as of 1995). These facilities are assigned a portion of the
TN WLA under the Neuse River Basin Nutrient Sensitive Wa-
ter Management Strategy (confirmed by the TMDL approved
in 1999). Appendix B lists the transport factors that apply to
each facility's discharge. The totai estuary allocation of 1.64
million pounds of TN/year is divided among the existing
point source dischargers.

Permit Effectiveness

Environmental Benefits

Since 1995, the NRCA members have achieved a 69%
reduction of TN loading at estuary. In addition, the combined
estuary loading was approximately 50 percent of the alloca-
tion in 2004.

Figure 1. NRCA Performance 1999-2004

(NCDWQ 2005)

Benefits to the Permittee

According to the Executive Director of the NRCA, the group
compliance approach allowed the larger municipalities
to assist the smaller municipalities that did not have the
resources or the ability to make capital improvements to
their plant quickly. The collective limit has allowed the larger
dischargers to make necessary improvements, reducing their
nitrogen loadings to accomplish the necessary reductions
and providing a cushion in the form of excess allocation for
use by the smaller dischargers until they can make neces-
sary improvements. This allows the smaller dischargers time
to assess their plants and develop cost effective ways to
reduce their nitrogen loadings. As time goes on, however, the
smaller dischargers will be under pressure from the larger
facilities to make necessary improvements to add to the suc-
cess of the group approach.

Other members have joined the group specifically to lease
nitrogen to improve a noncompliant situation. In these cases,
the group provides experienced operators to help them
optimize their plant processes and reduce nitrogen loadings
far below what they had previously achieved (even without

In addition, the group "polices" members, to avoid unwanted
negative publicity or state scrutiny. The NRCA has an inter-
nal enforcement policy where members pay an assessment
if they exceed their own individual allocation. These assess-
ments are held in escrow until such time that the plant is
compliant, when the member can receive 80% of the as-
sessment to pay for plant improvements. These assessments
can escalate to provide further incentive for the member to

Further, the members of the NRCA share information at
meetings and through association communications. The


Watershed-Based Permitting Case Study	Nevyse River W*.1l.ershed, North C^rolt

collective wisdom and experience of the group is price-
less in a time when technology and regulations can change
rapidly. The group enjoys the collective bargaining power
of any professional organization, in lobbying for legislation,
regulations and resolution of permitting issues. With nitrogen
allocations fast becoming a major issue in limiting growth,
the group has been able to negotiate with the state for addi-
tional consideration in requesting additional flow for member
plants. The group has been able to document that many
facilities are able to treat well below the BAT (Best Available
Technology) limits used by the state for total nitrogen. This
collected has been effective if in presenting growth issues to
the permitting authority.

Finally, the group has a monitoring component that pro-
vides consistent monthly data to the state on the entire
lower Neuse Basin. The group has just recently engaged in
coordinated research with the University of North Carolina to
provide funding to monitor the Neuse River and the estuary.
In addition, the group has contracted with North Carolina
State University to conduct research into appropriate nutrient
offset projects that could be done by members and the costs
associated with these projects.

Benefits to the Permitting Authority

According to the NCDWQ contact, Mike Templeton, the
Association's watershed-based permit has provided an op-
portunity for dischargers to work collaboratively and com-
municate more effectively to meet broad water quality goals.
This has been accomplished without substantial oversight by

In addition, the Neuse group permitting approach now being
applied in Jordan Reservoir watershed Reservoir watershed.
A TMDL has been submitted and rulemaking has begun.

Lessons Learned

The NRCA Executive Director, Ms. Cynthia Finan, was asked
several questions about "lessons learned" from the Neuse
River Compliance Association group permitting effort.

4 What have been the most challenging parts of the

1) Public relations issues. There have been some
truly significant improvements in point source TN
loadings (69% reduction over 1995 loadings),
but the Association is constantly under scrutiny
from the outside (e.g., media and environmental
groups) and remains subject to criticism. The
media does not understand trading, and environ-
mental groups would like to see all removal of
loadings be permanent. Also, although nonpoint
sources contribute significantly more loading
(80%) than point sources, nonpoint sources get
little attention.

2)	Equity in nitrogen allocation. The original al-
locations included in the TMDL were based on
the permits that were held by the dischargers
at that time. Some dischargers received larger
allocations their permits provided for much more
excess flow than others.

3)	Setting up trading mechanisms. The state regula-
tory agency and the association are creating this
system as we go along. There was little actual
framework for trades and leases at the time the
association was formed. We are working through
these issues as these transactions occur. This
leads to concern among members that acquired
allocations may not be permanently acknowl-
edged which tends to discourage trading.

4)	Lack of incentives for performance. There is
no reward for the facilities that have complied
and have installed the best available technol-
ogy. While they have an excess allocation, it
is enjoyed by the whole group and they do not
receive any incentive for maintaining that level of
treatment, unless another member pays to lease
or buy nitrogen from them.

5)	Compliance assessed annually. The state regu-
latory agency wants any trade, sale or lease
agreements to be negotiated at least 6 months
in advance of the annual modification of the per-
mit. Members cannot possibly know how much
TN they will need to lease or trade that far in

6)	Educating the elected officials from member
cities. The concept of a compliance association
and nutrient trading requires quite a bit of un-
derstanding of the regulatory framework and the
technical aspects of the permit. The delegates on
our board must keep their elected decision-mak-
ers apprised of what the association is and the
benefits of membership.

7)	Allowing for growth. Ultimately, the biggest chal-
lenge facing this association is how to allow for
growth in the watershed. Point source trading will
not solve this problem and the current system
for buying additional nitrogen from the wetland
restoration fund (EEP-Ecosystem Enhancement
Program) is cost-prohibitive. Point source to
nonpoint source trading might help this problem
to some extent.

4 What could have been done differently to resolve the
challenges more easily?

1) In North Carolina, compliance with the permit
is assessed on an annual basis. Other programs


Watershed-Based Permitting Case Study	Nevyse River W*.1l.ershed, North C^rolt

have established trading programs where trad-
ing is allowed on a month to month basis. This
makes it easy for a member to make a withdrawal
from "the bank" when nitrogen is needed. Trades
in NC are more cumbersome due to the fact that
they must be permanent or "leased" on an an-
nual basis.

2)	More detail regarding the procedures and imple-
mentation mechanisms should be determined up

3)	Allow point source to non-point source trading in
the basin.

4)	Limit membership in the association to elimi-
nate the effects of local water quality impacts
from trades. We have one member that is above
a dam and discharges into a major lake in the
watershed. Water quality issues make trading in
this type of situation difficult, and have caused
considerable repercussions.

4 Would this approach be applicable to other water-
sheds? What characteristics would define other candi-
date watersheds?

There needs to be a TMDL to drive the need for
membership. The group needs to have an altruistic
attitude and must truly want to do what is best for
the watershed. Diversity among the members seemed

to have helped our group, with the larger discharg-
ers having a desire to help the smaller dischargers
who did not have the resources to add TN removal
immediately. And, it might be wise to make sure that
the membership of the group shares a geographical
area that makes sense for trading and eliminates
local water quality impacts that may require different
limits than those given under the TMDL.

4 If the approach were to be applied in another area,
what changes should be made?

1)	Shorter term trading with an easy mechanism for
reporting to the regulatory agency, as is used in
other programs.

2)	Some reward for compliant members who treat
below best available technology limits.

3)	Limitations on membership based on water qual-
ity concerns and geographical limitations that will
affect trades.

Mike Templeton added that NCDWQ has determined that
trades and other changes must be established in the affected
individual permits before being reflected in the group permit.
This approach will ensure that the facility has addressed all
individual permit requirements necessary for the trade or
change (e.g. plant improvements) before the group permit is
revised. If all individual permit requirements are met, then
the group permit can be changed using a minor modification.


North Carolina Division of Water Quality. 2004. Fact Sheet: Neuse River Compliance Association, NCC000001.

North Carolina Division of Water Quality. Permit No. NCC000001, issued to the Neuse River Compliance Association and Its
Co-Permittee Members. Issued on December 30, 2002.

http://h2o.enr.state.nc.us/NPDES/documents/00001 nrcapermit-ptl mod200401 .pdf

North Carolina Division of Water Quality. 2005. Presentation given to the Virginia Department of Environmental Quality's
VPDES Technical Advisory Committee. Presented by Mike Templeton. August 31, 2005. Richmond, Virginia.

Note: All Web references current as of July 6, 2007.