Watershed-Based Permitting Case Study

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Rahr Malting Company Point Source-Nonpoint Source Trading

Permitting Authority:

Minnesota Pollution Control Agency (MPCA)

Trading Contact:

Bruce Henningsgaard, P.E.

Principal Engineer
Regional Division, MPCA
520 Lafayette Road North
St. Paul, MN 55155-4194
(651) 757-2427


Permit Writer:

Scott Knowles, P,E.

Principal Engineer
Industrial Division, MCPA
525 Lake Avenue, Suite 400
Duluth, MN 55802
(218) 723-4927
scott. knowles@state. m n. us

Pollutants of Concern in Watershed:

Low oxygen conditions (high biochemical oxygen demand)

Pollutants Addressed in Permit:

CB0D5, nitrogen (NH3-N), phosphorous, sediment
Permit Issued: January 8, 1997, reissued August 23, 2007

Permit Information:

Rahr Malting Company "Trading" Permit Summary:
www. pea .state. m n. us/wate r/pu bs/ra hrtrad. pdf

Lower Minnesota River TMDL - Low Dissolved Oxygen Web site:

(note: permits are not available online)

Overview and Highlights

The Rahr Malting Company (Rahr) in Shakopee, Minne-
sota (about 25 miles southwest of downtown Minneapo-
lis), processes barley for various industries. Rahr had a
National Pollutant Discharge Elimination System (NPDES)
permit for non-contact cooling water and was also an
indirect user, discharging its process and sanitary waste-
water to the Metropolitan Council Environmental Services'
(MCES) Blue Lake wastewater treatment plant (WWTP), a
discharger to the Minnesota River. In 1996, Rahr decided
to expand operations and build its own wastewater treat-
ment plant in order to provide more cost-effective treat-
ment and enable an increase in effluent flow. Rahr applied
for an individual NPDES permit for this new discharge.

A Waste Load Allocation Study (WLA study) for biochemi-
cal oxygen demand (BOD) was developed in 1985 and
revised in 1988 to address low dissolved oxygen condi-
tions in the lower Minnesota River. The WLA Study did
not include any allocation of BOD that would accommo-
date a new direct discharge from Rahr.

in 1997, Rahr received an NPDES permit that included
provisions to allow water quality trading with nonpoint
sources. The water quality trading approach was success-
ful and allowed Rahr to build its wastewater treatment
plant while still meeting the requirements of the 1988
WLA Study. In 2007, the Minnesota Pollution Control
Agency (MPCA) reissued Rahr's NPDES permit and con-
tinued the point source-nonpoint source trading program.
This case study focuses on the trading program incorpo-
rated into Rahr's permit to reduce oxygen demand in the
lower Minnesota River.

Watershed River,
M t h>b\e sctnt.

Key Water Quality Concerns: CBDD d low


Stakeholder Involvement Techniques:

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Concentrated Animal Feeding Operations


Municipal Separate Storm Sewer System Discharges


Construction Site Stormwater Discharges

Watershed-Based Permitting Case Study

River, M

Permitting Background

Rahr processes approximately 2.5 million pounds of barley
per day for various industries. In 1996, Rahr applied for a
permit to discharge from a new wastewater treatment plant
that it wanted to build to treat its process wastewater efflu-
ent. Previously, Rahr had been discharging process waste-
water to the MCES Blue Lake wastewater treatment plant.
The proposed new direct discharge loading from Rahr would
result in 150 pounds per day (lbs/day) of CBOD5 (5-day
carbonaceous BOD) discharged to the Minnesota River.

In 1988, the United States Environmental Protection Agency
(EPA) and MPCA had established a Total Maximum Daily
Load (TMDL) and WLA Study for the Minnesota River below
river mile 25 (at Shakopee) for the seven-day ten year low
flow (7Q10). The allowable loading was set at 53,400 lbs/
day CBOD ultimate. Many factors contribute to the oxy-
gen demand in the lower Minnesota River, including the
upstream demand from the river and its tributaries and exist-
ing loads from two wastewater treatment plants discharging
directly to the non-attainment reach (see sidebar for more on
oxygen demand).

The 53,400 lbs/day load of CBOD in the reach was fully
allocated to existing sources with no allocation available
for new dischargers, such as Rahr. Although Rahr's CBOD
loading from its process wastewater discharge to the MCES
Blue Lake WWTP was removed, the CBOD allocation to the
WWTP was not reduced and was reserved for future growth.
Furthermore, Rahr could not achieve zero discharge of
CBOD. To reduce the oxygen demand in the non-attainment
reach of the Minnesota River and to compensate for the new
CBOD loading proposed by Rahr, the permit for Rahr's new
discharge included effluent limitations combined with non-
point source reductions that could be gained through point
source-nonpoint source water quality trading.

Permit Strategy

Rahr proposed a plan to trade the impacts of its new point
source discharge to the Minnesota River with a reduction
in nonpoint source pollutant loadings upstream in order to
reduce costs while still complying with the requirements
from the WLA Study. With input from Rahr and the Min-
nesota Center for Environmental Advocacy (MCEA), MPCA
crafted an NPDES permit that included provisions to allow
point source-nonpoint source water quality trading. MPCA
issued the permit on January 8, 1997. This permit required
Rahr to obtain 150 lbs/day of CBOD5 "equivalent credits"
(see discussion of trading under "Permit Components"

Through five projects in four locations, Rahr achieved a
total of 212.8 equivalent credits during the permit term,
which was 62.8 lbs/day more than required. The additional
62.8 lbs/day in trading credits generated has enabled Rahr

to increase its discharge to the Minnesota River. Rahr has
expanded its current treatment from 1.5 million gallons
per day (mgd), using an existing sequencing batch reac-
tor (SBR), to a peak hourly wet weather flow of 2.41 mgd,
using combined and parallel treatment trains of the existing
SBR and a new membrane bioreactor system.

The first permit with point source-nonpoint source water
quality trading expired in 2002; however, Rahr legally con-
tinued to operate under the requirements of the expired per-
mit until the new permit was issued on August 23, 2007.
The new permit continued the water quality trading program
from the 1997 permit, updated water quality trade credit-
ing calculations, modified permit limitations, and appended
requirements concerning replacements for existing and future

Oxygen Demand

Dissolved oxygen is the amount of oxygen present in the
water. Oxygen is required to support fish and other aquatic
life, and can be reduced by the effects of pollutants such
as nutrients and sediment. Oxygen demand is measured by
tests such as the 5-day biochemical oxygen demand (B0D5)
test. In the wasteload allocation study for the lower Min-
nesota River, Carbonaceous Biochemical Oxygen Demand
(CBOD) is the parameter of concern and a 5-day CBOD test
(CB0D5) test, which inhibits nitrification, is specified in Rahr
Malting's permit for measuring oxygen demand.

Permit Highlights

Point Source-Nonpoint Source Trading

Point source-nonpoint source pollutant trading refers to the
substitution of nonpoint source pollutant load reductions
for point source pollutant load reductions by a discharger
permitted under the NPDES program. Trading for phospho-
rous, nitrogen, CBOD5, and sediment was authorized in the
1997 and 2007 Rahr permits to reduce the oxygen demand
in the lower Minnesota River. In order to address the relative
persistence of these compounds in the river system and the
spatial variability of best management practice (BMP) sites,
nonpoint source load reductions are converted to pollutant
trading units. The trading program is described in Attach-
ment 2 of the permit and summarized below under "Permit

Trade Funding

The 1997 permit required Rahr to spend $250,000 dedi-
cated to projects that encourage adoption of nonpoint source
reduction practices. A nonprofit organization was established
to administer the funds as part of the initial permit; however,
it has been dissolved and the requirement was removed


Watershed-Based Permitting Case Study

River, M

from the 2007 permit. Rahr exceeded the full amount of the
fund implementing projects to achieve the 212.8 lbs/day of
CB0D5 discharge credits. For future projects, the credit value
for the project will be based on the ratio of Rahr's financial
contributions to the contributions from public sources. Rahr
will only receive credits for portions financed by its contri-
butions. Specific requirements for replacement trades are
specified in the 2007 permit.

Permit Components
Surface Discharge Limits

The Limits and Monitoring Requirements section of the
2007 NPDES permit provides effluent limitations for dis-
charges to surface water from two stations, one for Rahr's
non-contact cooling water and one for the discharge from its
wastewater treatment plant. The permit also requires Rahr to
monitor influent to both the SBR and the membrane bioreac-
tor. Effluent limitations are established for CBODR, ammonia


nitrogen (May-November), phosphorus, total suspended sol-
ids, pH, and dissolved oxygen (when the river flow at Jordan
United States Geological Survey gauging station is less than
20,000 cubic feet per second). The 2007 permit contains
a CBOD5 monthly average effluent limit of 12 mg/l year-
round, ammonia nitrogen limits that vary by month, and a
phosphorous monthly average limit of 1.0 mg/l (a reduction
from the 2.0 mg/L limit in the 1997 permit) in accordance
with MPCA's phosphorus strategy. The phosphorus strategy
was published in 2000 to address the negative impacts of
phosphorus on Minnesota's lakes, rivers, and streams.

As noted above, the 1997 permit specified requirements for
Rahr's nonpoint CBOD5 reductions and provided a schedule
to achieve the initially required 150 lbs/day loading reduc-
tion. This reduction was achieved and exceeded during
the permit term. The 2007 permit increased the allowable
monthly average CBOD5 mass loading limit to 212.8 lbs/day
to account for the increased 62.8 lbs/day in additional trad-
ing credits achieved during the previous permit term.

Point Source-Nonpoint Source Trading

The Point-Nonpoint Source Trading Summary,

Attachment 2 of the permit, explains the premise
for Rahr's point-nonpoint source trading process.
The summary was included in the 1997 permit
and updates were added for the 2007 permit
(presented in italics in the permit). The summary
describes trading eligible BMPs, including soil
erosion control, livestock exclusion, rotational
grazing with livestock exclusion, critical areas
set aside, wetland treatment systems, alterna-
tive surface tile inlets, cover cropping, and BMPs
installed for reduction of CBOD5. It also presents
the concepts involved in developing the trading

program, including how the ratios were developed to assess
the impact of phosphorus and nitrogen loading on oxygen
demand in the river and assumptions for BMP load reduction
determinations. In addition, the summary document high-
lights methods used to minimize the risks associated with
point source-nonpoint source trading. These methods include
conservative pollutant equivalency ratios, safety factors for
estimating phosphorus content in loading from soil erosion,
calculation of a "field loss factor" for nitrogen to account for
volatilization of ammonia and the assimilation of nitrogen
prior to entering a surface water, and "delivery ratios" to
account for the distance a nonpoint source site is located
from the stream. Finally, the summary document explains
how the trading agreement and administration of the trades
would occur during the permit term.

Pollutant Equivalency Credits are used to calculate the
number of trading units achieved by a lb/day reduction of
phosphorus, CBOD5, or nitrogen or a ton/day reduction of
sediment in each area of the River. MPCA establishes Pollut-
ant Equivalency Credits using the standard that one lb/day of
CBOD5 in the Metro reach (the area of the river where reduc-
tions are needed) equals one trading unit. Loading reduc-
tions of the other tradable pollutants (nitrogen, phosphorus,
and sediment) were converted to BMP CBOD5 units using
the pollutant-specific ratios provided in Attachment 2 of the
permit. Table 1 presents the Pollutant Equivalency Credits
for the tradable pollutants based on parameter and location
of the reduction on the Minnesota River.

The amount of CBOD5 discharge credits generated by a
CBOD5 load reduction depends on where the reduction is
obtained. If the reduction is at Shakopee (River Mile 25),
100% of the credit is applied (e.g., a 1-pound reduction
of CBOD5 equals 1 credit). MPCA also established a "BOD
trading zone" that extends upstream from Shakopee to
River Mile 107. The number of credits available for each
pound reduction in CBOD5 loading in the trading zone is
based on the exertion of oxygen demand downstream in the
Metro reach during the 7-day, 10 year low flow (7Q10). For

Table 1. Pollutant Equivalency Credits



Metro reach BMP
CBOD. credit


Upstream BMP CBOD5


1 pound

1 unit

Percent of 1 trading
credit determined by
distance of the location

where reduction is
achieved from Shakopee


1 pound

4 units

1 unit


1 pound

8 units

8 units


1 ton

0.5 units

0.5 units


Watershed-Based Permitting Case Study

River, M

example, for a reduction at River Mile 107, only 11% of the
pounds removed is credited. Outside of the "BOD trading
zone" upstream, only 1% of the pounds removed is credited
because most of the oxygen depletion will already have been
exerted prior to the Metro reach.

The conversion of load reductions to trading units for other
parameters also takes into account the relative persistence
of the pollutant and the spatial variability of BMP sites. For
example, for every pound of nitrogen reduced in the Metro
reach, Rahr would receive 4 units of CBOD5 discharge cred-
its; however, for every pound of nitrogen reduced upstream
of the Metro reach, Rahr would receive only 1 unit of CBOD5
discharge credit.

The conversion of nonpoint source load reductions to credits
is also conservative. For example, for every pound of phos-
phorus reduced upstream Rahr receives eight units of CBOD5
discharge credits. This exchange rate is conservative in that
one pound of phosphorus would actually generate approxi-
mately 16 equivalent CBOD5 credits (rather than only 8)
when the river is at attainment. This conservative conver-
sion factor and others that were used in the credit calcula-
tion process produce an overall trading ratio of greater than
2:1 (i.e., it takes two units of nonpoint source reductions to
equal one unit of point source reduction) in order to account
for uncertainty and assure a net environmental benefit.

The nonpoint sources eligible to participate in trading must
be within the watershed boundaries and upstream of the
Rahr point source discharge. As noted above, MPCA identi-
fied a menu of approved BMP projects and credit calcula-
tion procedures. These provisions became a part of the
1997 NPDES permit and were updated in the 2007 permit.
Table 2 provides the active sites participating in trading as
detailed in Attachment 1 of the 2007 permit.

Water Quality Trade Crediting Calculations

The Rahr Malting Water Quality Trade Crediting Calculations
are provided in Attachment 1 of the permit. Various trade
calculations are necessary to determine loading reduction
units for all point source and nonpoint source trades. For
each type of BMP identified for point source-nonpoint source
trading in the watershed, the document details the calcula-
tion procedures necessary to estimate pollutant reductions
and requires that these calculations be used and submitted
to MPCA for approval by the Commissioner. Attachment 1
also details new pollutant trading credit calculations for May
through September and for October through April of each
year for both point source and nonpoint source trades in
the event that one of the existing BMP sites providing the
212.8 lbs/day credit becomes inactive or revoked for any
reason or if Rahr requests additional credits.

Reporting Requirements

In addition to submitting monthly Discharge Monitor-
ing Reports, Rahr is required to submit an Annual CBOD5
Nonpoint Load Reduction Monitoring Report that verifies
compliance with the effluent limitation for CBOD5 nonpoint
load reduction and certifies that the active sites that were
approved for trade credits remain active. The report requires
photographs of each site taken during the previous year for
comparison to the initial photographs provided to MPCA or
the landowner's certification that the project is ongoing and

Permit Effectiveness
Environmental Benefits

Five projects (i.e. two bank stabilization projects, two ripar-
ian vegetation restoration projects and one cattle exclu-
sion project) were completed during the
previous permit term and, as previously
noted, all trading obligations were met for
a total of 212.8 lbs/day loading reduc-
tion achieved. The Rahr permit required a
monthly average 150 lb/day reduction, so
the permit and trading program achieved
30 percent more reduction than required.
In addition, the completed projects
restored native vegetation to the Minne-
sota River riparian corridor and demon-
strated the variety of plants that can be
successfully used for such projects.

The impact of Rahr's relocated discharge
was not predicted to occur until the
allocated MCES Blue Lake wastewater
treatment plant and Seneca wastewater
treatment plant capacities were reached

Table 2. Approved CBOD Trades

Site Name

Type of project

Location in

CBOD equivalent
credits (lbs/day)


Riparian area natural and woody
vegetation establishment

New Ulm



Riparian area natural and woody
vegetation establishment

New Ulm



Livestock exclusion and bank

New Ulm



Bluff stabilization



212.8 total


Watershed-Based Permitting Case Study

River, M

through replacement of additional wastewater sources.

MPCA had estimated that capacity would be reached in ten
years from 1997, but by the time of the 2007 permit issu-
ance, the load from the treatment plants was still within the
amount authorized by the TMDL.

Benefits to the Permittee

The Rahr permit required that trading with nonpoint sources
be used to offset the loading from the plant's direct dis-
charge to the Minnesota River. This approach enabled the
permittee to discharge to the lower Minnesota River, even
though it was not assigned a wasteload allocation to dis-
charge to this receiving water. Rahr was able to minimize
costs because the capital and operation costs were less for
the nonpoint source projects than the fees paid to MCES
for discharge to the Blue Lake WWTR Also, the additional
credits generated by the projects enabled Rahr to increase
its discharge flow.

Benefits to the Permitting Authority

The original development costs and trade site review costs
were high since there were no national models to assist in
implementation and the project was an archetype. MPCA
has recognized that there was very little overhead associ-
ated with the existing four trade sites and that issuing the
2007 permit required much less effort than the initial permit

Point source-point source trades are easier to implement for
quantification and calculation purposes than point source-
nonpoint source trades. MPCA is developing statewide water
quality trading rules pertaining to water quality trading
between point sources, between point sources and nonpoint
sources, and potentially between nonpoint sources. Min-
nesota's Water Quality Trading Rule Development Web site
provides more information about the program.

Lessons Learned

The 1997 permit was the prototype; therefore it was difficult
to balance the needs of the discharger, MCEA, and MPCA.
Although all the stakeholders were in agreement about work-
ing on the project, the details of what should be included in
the permit (e.g., negotiation of the details for expenditure
requirements, inclusion of the specific trading eligible BMPs)
were difficult to negotiate.

It also is important for the permitting agency to have a
mechanism for developing trades. As noted, Minnesota is
developing water quality trading rules to help facilitate future
trades. Developing the actual calculations for the trades
was also a challenge because there was no national model
for measures or guidance for developing trades of this type.
Now that other states and watersheds have implemented
trades, point source-nonpoint source trade calculations can
serve as models for new projects.


Henningsgaard, Bruce. Email and phone communications.
December 16, 2008.

Minnesota Pollution Control Agency. National Pollutant
Discharge Elimination System and State Disposal System
Permit MN0031917. August 23, 2007.

Minnesota Pollution Control Agency. Fact Sheet for National
Pollutant Discharge Elimination System and State Disposal
System Permit MN0031917. July 17, 2007.

Minnesota Pollution Control Agency. Rahr Malting Water
Quality Trade Crediting Calculations: Attachment #1.
August 27, 2007.

Minnesota Pollution Control Agency. Lower Minnesota River
Dissolved Oxygen Total Maximum Daily Load Report. May

Minnesota Pollution Control Agency. MPCA Phosphorus Per-
mitting Strategy: NPDES Permits. March 2000.

< www. pea .sta te. m n. us/wa ter/p u bs/p hos- n pdes. pdf >

Minnesota Pollution Control Agency. Point-Nonpoint Source
Trading Summary.- Finalized For Rahr Malting Permit on
January 8, 1997, Updated On July 5, 2007, See Italics
Text: Attachment #2. August 27, 2007.

Minnesota Pollution Control Agency. National Pollutant
Discharge Elimination System and State Disposal System
Permit MN 0031917. January 8, 1997.

Minnesota Pollution Control Agency. Nonpoint Source Trade
Crediting Calculations.- Finalized For Rahr Malting Permit
on January 8, 1997. January 8, 1997.

Minnesota Pollution Control Agency. Point-Nonpoint Source
Trading Summary.- Finalized For Rahr Malting Permit on
January 8, 1997. January 8, 1997.

United States Environmental Protection Agency. Watershed-
Based Permitting Case Study: Final Permit Rahr Malting
Company. Accessed December 11, 2009.

Note: All Web references current as of December 11, 2009.