By Jonathan Stempel


NEW YORK (Reuters) - A divided U.S. appeals court on Wednesday revived an Environmental Protection Agency rule permitting government agencies to transfer water between different bodies, such as rivers and lakes, without needing to safeguard for pollution.


Reversing a lower court ruling in the widely followed case, a 2-1 panel of the 2nd U.S. Circuit Court of Appeals in New York said the EPA acted reasonably in 2008 in adopting its "Water Transfers" rule, over the objections of environmental groups.


The decision is a victory for New York City, and will help it provide its 8.5 million residents with "a reliable supply of clean and safe drinking water," said Hilary Meltzer, deputy chief of the New York City Law Department's environmental law division.


At issue was whether the EPA, citing Congressional intent, properly exempted the city from needing a Clean Water Act permit to draw water from the upstate Schoharie Reservoir, through an 18-mile tunnel discharging sediment-laden water into the Esopus Creek popular with trout fishers, and later to city faucets.


Writing for Wednesday's majority, Circuit Judge Robert Sack said federal courts should not second-guess the EPA view that the rule properly balanced the need to improve water quality with the potentially high cost of permits.

"While we might prefer an interpretation more consistent with what appear to us to be the most prominent goals of the Clean Water Act," Sack wrote, "so long as the agency's statutory interpretation is reasonable, what we might prefer is irrelevant."

The 85-page decision reversed a March 2014 ruling by U.S. District Judge Kenneth Karas in White Plains, New York.

Circuit Judge Denny Chin dissented. He called the EPA's position "unreasonable, arbitrary and capricious," and said Congress "did not intend to give a pass to interbasin transfers of dirty water."

New York and eight other states, the Canadian province of Manitoba, and groups including the National Wildlife Federation and Waterkeeper Alliance opposed the EPA rule.

California and 11 other Midwestern and Western states joined New York City in supporting the rule.

Also supporting it was the South Florida Water Management District, which oversees an area where polluted water has been pumped from canals into Lake Okeechobee.

Daniel Estrin, Waterkeeper Alliance's general counsel, said his group is disappointed that the court accepted the "harmful and misguided" EPA rule, and will review its next steps.

A spokesman for New York Attorney General Eric Schneiderman declined to comment. The EPA and the South Florida district had no immediate comment.

The case is Catskill Mountains Chapter of Trout Unlimited Inc et al v. EPA et al, 2nd U.S. Circuit Court of Appeals, Nos. 14-1823, 14-1909, 14-1991, 14-1997, 14-2003.

(Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz and David Gregorio)