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Sixth Circuit Rejects EPA’s Test for Making Single Source Determinations Under Title V of the Clean Air Act

11.02.2012

By Kelly D. Bartley, Attorney, Bingham Greenebaum Doll LLP

In a two to one decision rendered August 7, 2012, the Sixth Circuit Court of Appeals has rejected EPA’s interpretation of the term “adjacent” for purposes of determining whether a group of air emission sources constitute a single stationary source under Clean Air Act Title V program requirements.  In Summit Petroleum v. EPA, the Sixth Circuit vacated  EPA’s determination that emissions from sour gas production wells owned and operated by Summit Petroleum must be aggregated with emissions from the company’s natural gas sweetening plant such that Summit was required to obtain a Title V operating permit.  The court remanded the matter back to EPA for a reassessment of the source determination with the instruction that Summit’s activities be aggregated “only if they are located on physically contiguous or adjacent properties.”

EPA regulations define stationary source for purposes of Title V as “any building, structure, facility, or installation which emits or may emit a regulated pollutant.”  Under this definition, a group of buildings, structures or facilities may be considered a single stationary source, and thus their emissions aggregated for purposes of determining whether emission levels trigger Title V permitting requirements, only when the sources 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 (i.e., have the two digit SIC code).  40 CFR 70.2.  If the pollutant emitting activities fail to satisfy any one of these criteria, they are considered separate stationary sources and their emissions cannot be aggregated to meet the Title V major source threshold.

Summit owned a natural gas sweetening plant in Rosebush, Michigan.  Summit also owned area sour gas production wells as well as the pipelines conveying the gas to the plant.  Summit did not own the property between the individual well sites or the wells and the plant.  Further, none of the well sites shared a common boundary with each other or with the plant.  In addition to the wells, Summit owned and operated flares to relieve pressure on the gas collection equipment.  The closest flare was located one half mile from the plant.  Emissions from the sweetening plant alone were below thresholds for Title V permitting.  However, if emissions from the wells were aggregated with plant emissions, the Title V threshold for sulfur dioxide was met.  It was undisputed that the plant and wells were commonly owned, shared the same two digit SIC code, but that they were not contiguous.  The only issue was whether the wells and plant were “adjacent.”

In 2009 and 2010, EPA Region V issued letters determining that Summit’s plant and wells must be considered a single stationary source under the Title V permitting program.  Citing EPA memoranda providing guidance regarding single source determinations in the oil and gas industry, EPA determined that physical proximity was not the only factor to consider in an adjacency determination, stating that it “determines whether two facilities are adjacent based on a common sense notion of a source and the functional interrelationship of the facilities….”  In its 2010 determination on the issue, EPA further explained that when determining whether facilities are adjacent it would look to “the nature of the relationship between the facilities” and “the degree of interdependence between them” regardless of physical proximity.  EPA determined that Summit’s wells, flares and plants “together produced a single product” and were not “truly independent” and accordingly, were adjacent and thus a single source.

In the ensuing litigation, EPA argued that the term “adjacent” was ambiguous and that therefore, the agency was entitled to deference in its interpretation that it was proper to rely on a functional or contextual, rather than physically proximate, relationship between the facilities to determine adjacency.  The court disagreed, finding that the term “adjacent” is not ambiguous and by its plain meaning, refers to purely physical and geographical qualities.  The court found that in light of this plain meaning, EPA’s interpretation was unreasonable, even in the face of EPA’s past practice of supplementing the traditional definition of adjacency with the concept of activities’ functional relatedness.  The court further found EPA’s interpretation inconsistent with the regulatory history of its Title V program and the agency’s own guidance memoranda.  Kentucky is located within the Sixth Circuit and therefore the decision has precedential value in Kentucky.


To view a complete PDF of the Third Quarter 2012 issue of the Air Quality Letter, click HERE.

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