DC Circuit Strikes Down EPA “Aggregation” Policy for Regions Outside the Sixth Circuit

Introduction

On May 30, 2014, the U.S. Court of Appeals for the District of Columbia Circuit nullified an EPA Directive that attempted to reassert its "functional interrelationship" standard for aggregating air pollution sources. This EPA policy allowed for treating geographically disparate sources as one source, making that source, in many cases, a major source subject to Title V permitting. The case is National Environmental Development Association's Clean Air Project v. EPA, _____ F.3d ______ (C.A.D.C. 2014) 2014 WL 2219065 (No. 13-1035, decided May 30, 2014). The EPA policy struck down by the Court was EPA's attempt to reassert its functional relatedness criteria in all areas except in those four states within the jurisdiction of the Sixth Circuit Court of Appeals (Ohio, Tennessee, Kentucky and Michigan). This EPA policy was an attempt to limit the effect of the Sixth Circuit's 2012 Opinion in Summit Petroleum v. EPA, 690 F.3d 733 (6th Cir. 2012), which had previously struck down the EPA "functional relatedness" criteria.

Who is Affected?

All oil and gas owners and operators, not just those located in the Sixth Circuit states, applying for permits to operate production sources (e.g. wells, compressor stations, dehydrators, etc.) are affected by this ruling. If these sources are geographically distant from each other, they can no longer be aggregated together by EPA or the delegated state agencies based on functional interrelatedness.

What This Means

EPA and the delegated state agencies adopting the federal regulation in this area, may not lawfully aggregate commonly owned sources which are not geographically "contiguous or adjacent" to each other, i.e., sharing property boundary lines or otherwise located in close proximity to each other. Such sources will, therefore, in many cases, not constitute major sources subject to the more stringent, time-consuming and expensive process of obtaining a Title V permit. State only permits may still be necessary for such individual sources.

More Information

The federal regulation implementing the Title V permit program lists three criteria in the definition of "major source." They are:

"Major source means any stationary source (or any group of stationary sources that are located on one or more contiguous or adjacent properties, and are under common control of the same person (or persons under common control)), belonging to a single major industrial grouping and that are described in paragraph (1), (2) or (3) of this definition." [40 CFR §71.2; emphasis added]

EPA's policy of aggregating geographically distant air emission sources, considering them as a single source, resulted, in many cases, in unreasonably making the aggregated sources a "major" source and, therefore, subject to Title V permitting requirements. The EPA policy mandated that states consider the "functional relationship" of the sources, so that multiple sources, which may have been located miles apart from each other, were nevertheless grouped together into a single source for permitting.

This EPA policy was definitively struck down by the Sixth Circuit in 2012 in the Summit Petroleum case. In Summit, pollutants from a natural gas sweetening plant and several commonly owned sour gas production wells were added together by EPA as a single source, and thereby made subject to Title V permitting requirements. The wells that were connected to the plant were located in a 43-square-mile area, with some wells located as far as eight miles distant from the plant. If the plant were to be considered individually, it would not have qualified as a major source. The Summit Opinion held that the term "adjacent" as used in the regulation related only to a sources' geographic location, and not to the functional relationship of the sources.

The Court in National Environmental Development ruled that the EPA action, in establishing two different criteria – one for the Sixth Circuit states and another for everywhere else – violated EPA's own regulations requiring national uniformity in setting air emission standards.¹

States approved to administer the Title V permitting requirement may have standards and criteria that are more stringent than those imposed by the Federal regulation. As such, individual state regulations on this issue should be checked to determine whether a different standard has been adopted. To the extent the federal regulation is incorporated by reference into the state program, the D.C. Circuit Courts interpretation would apply.

Pennsylvania's Rule

In Pennsylvania, the federal regulation in this area is adopted by reference as the state regulation.² In an Opinion of the Pennsylvania Environmental Hearing Board dealing with this issue, the Board cited the Summit Petroleum Opinion, and, while stating that the Board wasn't bound by the decision, it stated also that the Board found it to be persuasive.³ This Opinion was in response to a Motion for Summary Judgment filed by the permittee, Laurel Mountain Midstream, via its counsel, a team of our attorneys headed by Brian Clark. The Opinion did not resolve the Motion because the Board decided it required more evidence to establish all the relevant facts in the case. Its ruling on the legal interpretation of the term "adjacent," however, accepting the Summit Petroleum holding as being "persuasive," was followed by the appellant withdrawing the appeal. The National Environmental Development Opinion reinforces the Summit rule and makes it applicable in Pennsylvania, as well as other jurisdictions.

Conclusion

The EPA directive that was overturned had attempted an end run around the Sixth Circuit's clear 2012 holding in Summit Petroleum.

That attempt was blocked by the D.C. Circuit's affirmation of the Summit holding that the word "adjacent" unambiguously refers to geographic proximity only. As a result, the Summit interpretation now applies in every jurisdiction of the United States where the federal regulation applies directly or has been adopted by the relevant state.