Originally published in V&E Shale Insights — Tracking Fracking E-communication, August 10, 2012
In a 2-1 decision, the United States Court of Appeals for the Sixth Circuit held that EPA erred in issuing a final determination that Summit Petroleum Corporation's natural gas sweetening plant's emissions had to be aggregated for Title V permitting purposes with gas well and flare emissions occurring over an area of approximately 43 square miles.1 Aggregation sometimes is sought by industry, for example, to net emissions, and sometimes is sought to be avoided (as in the Summit case just decided). As the first judicial decision to directly address how "adjacent" equipment needs to be in order to be aggregated, the ruling may bring more discipline to EPA "source" determinations, not only in the upstream oil and gas space, but in all industry categories.
Although the decision does not draw a bright line regarding reasonable distances for determining if sources are "adjacent," the majority held that EPA cannot interpret "adjacent" to mean only "functionally related," as the court concluded it did in issuing a determination that gas wells connected by a pipeline network to a single treatment unit are adjacent, and thus a single source, regardless of the distances between all of this equipment.2 It remains to be seen whether EPA will seek further appellate review, how EPA will implement the decision on remand, and if the holding will be applied in other jurisdictions.
The case was decided more than five years after the beginning of the EPA determination under review. The Michigan Department of Environmental Quality and Summit had petitioned EPA for a determination of whether Summit's sweetening plant, gas production wells, and flares (the majority of which are located on the Saginaw Chippewa Indian Tribe's Isabella Reservation) should be aggregated as a single source. The more than one hundred natural gas wells at issue are in three distinct fields, located far from each other and the plant, and are connected only by a common pipeline. Neither the plant nor the wells individually would be considered major sources under the Clean Air Act, but, if aggregated, the "source" would exceed the "100 tons per year of any pollutant" threshold. EPA ultimately determined that all of the wells, flares, and the plant should be considered a single facility under the Title V permitting requirements of the Clean Air Act.
Pursuant to 40 C.F.R. § 71.2, multiple pollutant-emitting facilities can be aggregated and considered a single stationary source under Title V only if they are (1) under common control; (2) "are located on one or more contiguous or adjacent properties;" and (3) belong to the same major industrial grouping.3 The Summit dispute revolved solely around whether there is a geographic proximity requirement for facilities to be "adjacent."4
The Sixth Circuit majority held that "both the dictionary definition and etymological history of the term 'adjacent,' as well as applicable case law" indicate that the term is unambiguous in requiring physical proximity.5 Finding no ambiguity in the term, the majority rejected EPA's argument that its longstanding interpretation of "adjacent," which includes an analysis of the "functional relatedness" of the sources, requires deference, reasoning that such an interpretation is at odds with the plain regulatory language.6
Judge Moore, in dissent, concluded that EPA's interpretation of "adjacent" is entitled to deference, and would have upheld EPA's aggregation of the Summit facilities. Judge Moore reasoned that a functional relatedness analysis provides the context against which it can be determined if facilities are sufficiently proximate to be considered adjacent. Judge Moore also reminded EPA that, though the majority opinion deems it impermissible to consider the functional relatedness of the Summit facilities, it is nonetheless "free to reach the same conclusion that Summit's operations should be aggregated as a major source for Title V permitting purposes, so long as it bases that conclusion on the considerations that the majority today deems appropriate."7
This decision implicates not only Title V, but the New Source Review requirements and Prevention of Significant Deterioration permitting under the Clean Air Act, which use the same criteria for source determinations. It remains to be seen whether EPA will seek further appellate review and how EPA will implement the decision on remand. To the extent that other jurisdictions are called upon to address EPA's interpretation of adjacency under an aggregation analysis, the competing interpretations set forth in the majority and dissenting opinions in Summit will serve as models for litigants' arguments going forward.
1 Summit Petroleum Corporation v. EPA, No. 09-4348/10-4572, slip op. at 13 (6th Cir. August 7, 2012).
2 Id. at 13.
3 Id. at 4.
4 In Summit, there was no dispute that the Summit facilities are under common control and belong to the same major industrial grouping; there was no dispute that the facilities are not on contiguous properties. Id. at 11.
5 Id. at 11.
6 Id. at 18.
7 Id. at 36.
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