Julie A. Rosen
On February 23, 2015, the U.S. District Court for the Middle District of Pennsylvania issued a decision finding eight compressor stations to be "separate sources" under the Clean Air Act and State of Pennsylvania regulations. Citizens for Pennsylvania's Future v. Ultra Resources, Inc., 4:11-CV-1360, 2015 WL 769757 (M.D. Pa. Feb. 23, 2015). This case addresses a concept known as "source aggregation," also referred to as "single source" or "co-location." This is the concept where a regulatory agency views multiple facilities or activities as a "single source," air emissions from which must be aggregated to determine whether certain permitting thresholds are met, such as the Clean Air Act's Title V or New Source Review major source programs.
As discussed in detail in the following sections, there are many EPA determinations, advisory letters and memoranda discussing whether certain facilities are "adjacent" under the source aggregation test, but there have not been many court decisions. Thus, this District Court decision in Citizens for Pennsylvania's Future is notable because it is one of only a few cases that provide guidance on this issue. In addition, the Court decision itself is important in that there are now two federal court decisions holding that the plain meaning of the term "adjacent" is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.
With these insights, read on to see why facility operators need to be aware of how states in which they operate interpret the "adjacency" element of the source aggregation test and why possibilities for controversy remain.
Underlying Facts in Citizens for Pennsylvania's Future
In Citizens for Pennsylvania's Future, the operator of eight compressor stations, Ultra Resources, Inc., obtained eight separate minor source permits for each of its compressor stations. The compressor stations were scattered across two counties. The shortest linear distance between any two of the compressor stations was more than ¾ mile apart, and the furthest linear distance was nearly 4½ miles apart. If lines were drawn between all of the compressors, the total area within the lines would be less than 5 square miles.
Each compressor station was connected to a central metering and regulating station, but the compressor stations were not connected to each other. While none of the compressor stations individually had the capacity to emit more than 100 tons per year (tpy) of nitrogen oxide (NOx), collectively the eight compressor stations could potentially emit more than 100 tpy of NOx. The applicable major source permitting threshold for NOx discussed in Citizens for Pennsylvania's Future was 100 tpy.
An environmental group, Citizens for Pennsylvania's Future (known as "PennFuture") filed a citizen suit against Ultra Resources, claiming that the eight compressor stations should be considered a single source of air emissions; and therefore, emissions from the eight stations should be aggregated. PennFuture argued that because the aggregated NOx emissions would exceed major source thresholds, Ultra Resources was in violation of the Clean Air Act and certain Pennsylvania regulations for not having obtained a major source permit under the nonattainment New Source Review program.
Ultra Resources filed a Motion for Summary Judgment, arguing that the compressor stations were separate sources and that it properly obtained separate minor source permits for each of the compressor stations. The February 23, 2015 Court decision was issued in response to Ultra Resources' Motion for Summary Judgment. The contested issue addressed by the Court decision was whether the eight compressor stations were properly considered to be separate sources or whether they should be deemed a single source.
Source Aggregation Test and the "Adjacent" Element
The federal New Source Review program defines a single source using a three-part test, under which facilities are a single source if they: (1) are under common control; (2) have the same two-digit, i.e., major industry grouping, SIC code; and (3) are co-located, i.e., they are located on adjacent or contiguous properties. 40 C.F.R. § 51.166(b)(5) and (6) (defining a "stationary source" under the New Source Review program); 40 C.F.R. § 52.21 (b)(5) and (6) (defining a "stationary source" under the New Source Review program, as applied to delegated state programs). Each element must exist to be deemed a single source.
The State of Pennsylvania adopted a similar test in its regulation, defining a "facility" as "[a]n air contamination source or a combination of air contamination sources located on one or more contiguous or adjacent properties and which is owned or operated by the same person under common control." 25 Pa. Code § 121.1.
In Citizens for Pennsylvania's Future, the Court explained that it was undisputed that the compressor stations were under common control and that they were not located on contiguous properties. Because Pennsylvania's regulatory definition of a source, quoted above, does not contain the SIC code element, that element was not discussed in the case. Thus, the Court's inquiry focused on whether the compressor stations were "adjacent."
The term "adjacent" is not expressly defined in the Clean Air Act or in the U.S. Environmental Protection Agency (EPA) regulations. Over the many years of Clean Air Act implementation, EPA has interpreted the term to entail a review of not only whether facilities are physically proximate, but also whether the facilities are functionally interrelated.
EPA's assessment of whether facilities are functionally interrelated has been controversial. Some have touted the consideration of functional interrelatedness as useful to assess whether the subject facilities approximate the "common sense notion of a plant," which EPA has described as a fundamental feature of a single source. See EPA, Final Rule, Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52676, 52695 (Aug. 7, 1980). Others have opposed the consideration of functional interrelatedness as inserting too much subjectivity to the source aggregation test and as varying from the plain meaning of the language used in the regulatory definition of a source.
While various EPA guidance materials discuss whether certain facilities are "adjacent," such as EPA decisions, opinions and memoranda, and while some states have developed their own such guidance materials, there have not been many court decisions. Thus, Citizens for Pennsylvania's Future is one of the few court cases addressing this controversial topic.
District Court's Analysis of Whether the Compressor Stations were "Adjacent"
The Citizens for Pennsylvania's Future Court reviewed several resources to guide its analysis of whether the eight compressor stations were "adjacent." The Court discussed the 2012 U.S. Court of Appeals for the Sixth Circuit decision in Summit Petroleum Corp. v. EPA, 690 F.3d 733, which directed EPA to apply the plain meaning of the term "adjacent" as determinative. Summit Petroleum involved a gas sweetening plant and approximately 100 sour gas wells scattered across 43 square miles and ranging from 500 feet to 8 miles in distance from the sweetening plant. EPA had concluded the sweetening plant and gas wells were a single source, based on EPA's consideration of the functional interrelatedness of the plant and wells.
On appeal filed by the operator, the Sixth Circuit held that EPA's consideration of functional interrelatedness was improper and, under the Clean Air Act's definition of a source, EPA must determine whether the sweetening plant and gas wells are "close to," "next to," "adjoining," or "physically proximate." The District Court in Citizens for Pennsylvania's Future acknowledged that the Sixth Circuit decision in Summit Petroleum was non-binding; however, the District Court ultimately followed the Sixth Circuit's conclusion that the plain meaning of the term adjacent is determinative in the source aggregation analysis.
The District Court also reviewed relevant Pennsylvania decisions and guidance interpreting Pennsylvania's definition of a source. Unlike most other states in the U.S., Pennsylvania has adopted guidance to help address the question of what is adjacent. The Pennsylvania guidance reviews the dictionary definition of "adjacent" and provides that the plain meaning of the term "adjacent" should be the dispositive factor when determining whether sources are located on adjacent properties. However, the guidance also states that functional interrelatedness may be considered when performing a source aggregation analysis. The guidance further provides that properties located within ¼ mile are considered adjacent. For properties located further than ¼ mile apart, a case-by-case review must be performed. Thus, the guidance does not foreclose the possibility that facilities located further than ¼ mile apart may be deemed adjacent based on a case-by-case consideration of functional interrelatedness.
Following its review of Summit Petroleum and the Pennsylvania guidance, the District Court applied the plain meaning of "adjacent" and concluded that the Ultra Resources' compressor stations were not sufficiently "close to" or "near" enough to each other to be considered "adjacent." Although the Court held that the plain meaning of "adjacent" should be determinative, the Court noted that, given the Pennsylvania guidance, functional interrelatedness could be considered on a case-by-case basis.
Even looking at functional interrelatedness, the Court concluded that because the compressor stations were not connected to each other and they operated independently of one another, and despite the fact that each station was connected to a metering and regulating station for ultimate deposit into a transmission pipeline, the compressor stations were not functionally interrelated anyhow. Therefore, the Court granted Ultra Resources' Motion for Summary Judgment concluding that the compressor stations were not adjacent and, as such, were not a single source and were properly permitted as separate sources.
Import of Citizens for Pennsylvania's Future
The recent District Court decision in Citizens for Pennsylvania's Future is noteworthy as one of the few court cases that offers guidance on this controversial topic. The outcome of the Court decision itself is also significant because there are now two federal court decisions that reached similar conclusions that the plain meaning of the term "adjacent" is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test. Though, unlike the Sixth Circuit's decision in Summit Petroleum, there was a Pennsylvania policy which was relevant in the District Court's analysis of adjacency in Citizens for Pennsylvania's Future and the District Court acknowledged that pursuant to the Pennsylvania policy the consideration of functional interrelatedness may be appropriate on a case-by-case basis.
Thus, Citizens for Pennsylvania's Future highlights that facility operators need to be aware of how states in which they operate have interpreted the "adjacency" inquiry of the source aggregation test and be alert to any future guidance and court decisions on this controversial topic.
Please contact Julie Rosen for a complimentary copy of this article as published in the April issue of the Natural Gas and Electricity Journal. Julie Rosen is an attorney in the Denver office of Ryley Carlock & Applewhite. Julie focuses her practice in the areas of environmental, energy resources and related litigation. She represents a wide variety of clients, including manufacturing companies, electric utilities, mining operations, agricultural operations, municipalities, individual landowners, real estate developers and financial institutions.