Ruling Stirs New Debateon SellingWater Rights
Bankruptcy court decision reopens dispute over aquifer use

July 29, 2005
Andy Peters
Fulton Co. Daily Report

A debate supposedly settled by the General Assembly two years ago has been reignited by a surprise ruling on state water policy from an unlikely authority: a federal bankruptcy court.

At issue is a decision issued last month by Chief Judge Lamar W. Davis Jr. of U.S. Bankruptcy Court for the Southern District of Georgia. Davis said on June 17 that Durango-Georgia Paper Co. of St. Marys could auction off its state permit to pump up to 44 million gallons of water a day out of the 100,000-square-mile Floridan Aquifer.

The idea of selling the paper mill's water permit came from Macon lawyer Ward Stone Jr., the trustee overseeing the liquidation of Durango's assets.

Stone is not bothered by the Legislature's 2003 rejection of a bill-after intense lobbying between environmental protection groups and business interests-that would have allowed state water permits to be sold like commodities. Nor is Stone troubled by state regulators who say they won't approve the sale of Durango's water permit.

Stone insists that state law is vague, and that the Georgia Environmental Protection Division has indicated it would be willing to approve the transfer of water permits on the coast.

"It's an open issue," says Stone.

"If you own kaolin on your property, you can mine it without a permit," he says, referring to the mineral mined in Middle Georgia that's used for papermaking and other products. "Kaolin rights can be freely sold and severed from the real property, and we see no reason water cannot be severed as well."

Federal Law Cited

More significantly, Stone argues that federal law trumps state law governing groundwater.

"Under federal law once groundwater is pumped out of ground, it's personal property, and it becomes part of interstate commerce," Stone says.

Advocates at environmental conservation groups say water rights are completely different from the rights to minerals in the ground.

"If you take minerals from a property, those minerals aren't going to come back," says Neill Herring, who lobbies at the state Capitol for the Sierra Club of Georgia. "There isn't going to be more kaolin growing where you took it out of the ground in Twiggs County. That's why water is treated different, because it is different."

Herring compares Durango's permit to a driver's license or a fishing license, which can't be sold or transferred to someone else.

Stone, says Herring, is "trying to get a power out of the permit that doesn't exist."

But a water permit isn't the same as a driver's license, Stone says.

"The permit is a right that runs with ownership of land in Georgia," Stone said. "It's just like mineral rights or a peanut allotment."

Challenges Due by December

These arguments could play out in some type of legal action before the December auction, said Michael J. "Jim" Grode, staff attorney of the Southern Environmental Law Center of Atlanta. He pointed out that while the bankruptcy judge ordered the state government to cooperate with Durango, the state retained the right to appeal.

Grode said he expects Attorney General Thurbert E. Baker will file a challenge in federal district court. Grode suggested Baker also could ask a court to enjoin the auction, or the Environmental Protection Division could revoke Durango's water-withdrawal permit.

William Wright Banks Jr. is the lead attorney for the state Attorney General's office on the case. Banks declined to answer questions for this story, referring questions to Baker's spokesman Russ Willard. Willard declined to discuss the state's legal strategy on the case.

Federal Law Cited

But state regulators say the law is very clear: Water permits can't be traded like commodities such as electric power.

Durango's state permit "was issued for a specific amount of water for a specific purpose at a specific location," according to a memo regarding Durango's plans written May 25 by state Environmental Protection Division Director Carol A. Couch.

"EPD would not consider transfer of the permit to other entities for different purposes at different locations," Couch wrote. Gov. Sonny Perdue supports the EPD's position, said a Perdue spokesman on Thursday.

In his order allowing the Durango permit sale, Davis took the EPD's position into account, as he indicated that in the auction bidders be given a "buyer beware" notice that the EPD has said it won't approve the sales.

"Sale and assignment of Water Permit Rights is subject to approval and confirmation by the Georgia Department of Natural Resources," Davis wrote in his June 17 order.

Stone says it's possible another paper company will buy Durango's water permit and restart paper-making operations at the St. Marys plant. If that happens, the new company would use the same amount of water for the same purpose as Durango did in St. Marys.

Herring of the Sierra Club disagrees, saying the pulp-paper industry is in decline.

"You can't expect someone to re-open a plant that needs a new boiler, which is the single biggest expense in a paper mill. That's pouring money down a rat hole."

Problem Started With '02 Blast

Indeed, the Durango situation started with an August 2002 boiler explosion at the plant that killed two employees. The company said in September 2002 that it would close the plant and fire its 900 workers. Then in November, Durango-Georgia Paper Co. filed for reorganization under Chapter 11 of the federal bankruptcy code, No. 02-21669-LWD (U.S. Bankruptcy Court for the Southern District of Georgia, filed Nov. 20, 2002).

Durango-Georgia, owned by Mexican paper giant Corporacion Durango, made grocery bags and other products at its St. Marys plant. It was also one of the area's biggest private employers.

Durango's manufacturing processes required the use of millions of gallons of water, and the company possessed a state permit that allowed the pumping of that much water.

Another issue affecting the debate will be a moratorium in effect since 1997 on issuing new water withdrawal permits on the coast because the U.S. Geological Survey says too many pumping permits have allowed saltwater to creep into the Floridan Aquifer.