TO LITIGATE OR TO SETTLE, THAT IS THE QUESTION

In my prior post, I discussed a challenge facing a utility's lawyer in litigation- whether to cross-examine an adverse witness. Along similar lines, water and wastewater utilities may confront a question whether to defend claims filed against them by environmental agencies or to challenge the application of rules deemed unreasonable.

When a utility is sued by an agency for alleged non-compliance with a rule or standard, frequently there is a temptation to settle the litigation. Settlement is sought not necessarily because of admission. Rather, settlement likely may be rationalized based on the costs of litigation. However, in disregarding possible defenses or alternative remedies, a utility may actually wind up incurring greater costs for penalties and for installation of new facilities which are not necessarily needed or cost effective.

For example, some courts have held that rules and standards are arbitrary and unreasonable where not sufficiently specific or where enacted without regard to scientific data. In one case, the Illinois Supreme Court held that a state rule revision regarding wastewater water quality and effluent standards for bacteria was arbitrary and capricious. The Court stated that the state agency's action had no appreciable scientific support, and that the agency had ignored scientific testimony and had made only a limited examination of any health risks of its rules revision. (People v. Pollution Control Board, 103 Ill.2d 441 (1984)).

In another case, a wastewater utility was accused of violating operation and maintenance standards because a portion of the treatment facility went out of service due to ice breakage. The court reversed a finding of violation by the state agency. It stated that the evidence was insufficient to support a finding of violation, and that there was no evidence that any mechanical breakdown had ant adverse environmental impact. (Citizens Utilities Company of Illinois v. Pollution Control Board, 127 Ill. App.3d 504 (3rd Dist. 1984)).

Courts also have held that environmental regulations must be premised upon economic accountability based upon cost/ benefit analysis. (see Citizens Utilities Company of Illinois v. Pollution Control Board, 134 Ill. App. 3d 111 (3rd Dist. 1985); Citizens Utilities Company of Illinois v. Pollution Control Board, 216 Ill. App. 3d 629 (3rd Dist. 1991)).

Apart from defending claims or challenging regulations in court litigation, utilities may have options before federal and state administrative agencies. Under various provisions of the federal Safe Drinking water Act and the federal Clean Water Act, and comparable state statutes, utilities may seek variances, exemptions, general rules revisions, permit revisions, site specific
standards and adjusted standards. At least one court has acknowledged the importance of such options. Where improvements to a wastewater treatment facility would be a needless expenditure if a pending change in the standards were allowed, then compliance with the then current more stringent standard should be stayed. (See Citizens Utilities Company of Illinois v. Pollution Control Board, 152 Ill. App. 3d (3rd Dist. 1987)).

Customers of water and wastewater utilities will bear, in rates, the reasonable costs of environmental compliance. These costs are part of the costs of service. As more and more regulations and standards are established, more and costs will be incurred; and as more and more compliance litigation is initiated, more and more costs will be incurred. Utilities will have the responsibility to their customers and shareholders to balance unquestioned compliance with rational challenge and affordability. Intelligent decisions must be based upon a complete understanding of each situation: the applicable regulations, the reasonableness of the regulations, the underlying facts, the available alternatives and remedies, and the costs and benefits of any course of action.