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Sixth Circuit Holds “Adjacent” Means Adjacent – Major Blow to EPA’s Interpretation of Emission Source Aggregation for Air Permitting

On October 29, 2012, the U.S. Court of Appeals for the Sixth Circuit dealt the EPA a setback by denying its motion to rehear the court’s August 7, 2012, decision in Summit Petroleum v. EPA, 690 F.3d 733 (6th Cir. 2012). In Summit Petroleum, the court rejected the agency’s interpretation of its own regulations concerning when multiple emission sources are to be treated as a single source for air permitting under the Title V program. Consequently, when evaluating whether to aggregate multiple air emission sources based on if those sources are “adjacent” to one another, the agency is required to consider the ordinary meaning of the term adjacent (e.g., physical and geographical proximity), and not the functional interrelatedness of those sources as argued by EPA.

Businesses with air emission sources are generally familiar with EPA’s requirement that a “major source” of air emissions must obtain a Title V Operating Permit under 40 CFR Part 70 and Part 71, if the stationary source emits, or has the potential to emit, one hundred tons per year or more of any conventional pollutant. The dilemma facing companies, however, often focuses on what emissions constitute a single stationary source and whether EPA can aggregate multiple emission sources to trigger major source air permitting requirements.

For purposes of aggregating multiple emission sources and treating them as a single major source under the Title V program, EPA’s regulations at 40 CFR 71.2 look at whether the multiple sources:

  • are under common control;
  • “are located on one or more contiguous or adjacent properties” and
  • belong to the same major industrial grouping.
In Summit Petroleum, the EPA aggregated the emissions from a natural gas processing plant (that had emissions below the major source threshold) with more than 100 natural gas production wells connected by pipeline with the plant. In so doing, the EPA concluded that the commonly owned system was one stationary source; hence the need for a Title V Permit. Despite the fact that the wells were located over a 43 square mile area at varying distances from the processing plant (500 feet to eight miles), and despite the fact that the company did not own the property between the wells and that none of the wells shared a common boundary, EPA focused on the “common sense” notion of a single source and the functional interrelationship of the sources, looking predominantly at the purpose of the sources.

The Sixth Circuit disagreed with EPA’s interpretation, writing, “we hold that the EPA has interpreted its own regulatory term in a manner unreasonably inconsistent with its plain meaning and vacate the EPA’s stationary source determination hereby directing the EPA to reassess the aggregation of Summit’s facilities under the ordinary understanding of its requirement that Summit’s plant and wells be located on adjacent, i.e., physically proximate, properties.” Id. at 744. Leaving no room for error, the Sixth Circuit went on to write that even if the term adjacent was ambiguous, that EPA’s action was entirely inconsistent with the regulatory history of the Title V program and prior EPA guidance.

Oil and gas production companies, particularly those with operations in the geographic jurisdiction of the Sixth Circuit (Michigan, Ohio, Kentucky, and Tennessee), are apt to be the first entities to leverage the decision to their advantage. The decision, however, has other potentially significant air permitting and regulatory consequences.

First, there is nothing within the scope of the decision, itself, that exclusively limits the application of the court’s “adjacent” interpretation to the oil and gas industry. Accordingly, other companies and industries may seek to rely on Summit Petroleum in “aggregation” determinations in Title V Permits by limiting the EPA’s focus to only geographically proximate sources. Second, and equally notable, the PSD/NSR definition of “Building, structure, facility or installation” at 40 CFR 52.21(b)(6) is virtually identical to the Title V provision at 40 CFR 71.2, meaning that some companies may attempt to use Summit Petroleum in the context of challenging PSD/NSR permits based on aggregation of multiple sources.

The Summit Petroleum decision also serves as a timely reminder that an administrative agency is not entitled to any deference of its own regulatory interpretation if such an interpretation is at odds with the plain language and meaning of the text. And finally, simply because an agency interpretation is longstanding is irrelevant for purposes of deference, according to the Sixth Circuit, because “an agency may not insulate itself from correction merely because it has not been corrected soon enough, for a longstanding error is still an error.” Id. at 746.