The correct answer is C. The Pollution Prevention Regulations, as outlined by the US Coast Guard, state that the proper procedure for handling oily water discharges from machinery spaces is to discharge the water through an oil water separator. This ensures that the oil content of the discharge is below the legal limit, as required by regulation. Options A, B, and D do not accurately reflect the proper procedures for handling oily water discharges, which is why C is the correct answer.