April 1, 2015

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Source Aggregation: When Are Multiple Facilities Considered One by EPA?

 

Author:
Julie A. Rosen
303.813.6725
jrosen@rcalaw.com

Source aggregation, single source, and co-location are phrases used to describe the Clean Air Act (CAA) concept where the US Environmental Protection Agency (EPA) or a state agency considers multiple activities or facilities to be collectively permitted as one single source. Emissions of air pollutants from such a single source must be aggregated. The aggregated emissions will be used to determine permitting requirements and whether emission thresholds have been met for CAA programs such as Title V, Prevention of Significant Deterioration (PSD) and National Emission Standards for Hazardous Air Pollutants (NESHAP). With these CAA programs come more stringent permitting and operating requirements.

Source aggregation is not a new CAA concept. It was first developed in the context of the PSD program in the late 1970s to early 1980s and later extended to other CAA programs. Over the years, the source-aggregation concept has been applied in various industries and to various types of sources. While all permittees should be alert to the source-aggregation issue, it is especially relevant to a permittee with activities that may constitute minor sources when viewed separately, but when emissions from all the activities are aggregated, the cumulative emissions would trigger Title V, PSD, and/or NESHAP permitting requirements.

Source aggregation can occur at any time and can surprise a permittee. The source-aggregation assessment most often occurs during the initial permitting phase for a new activity or during a permit modification process. However, at any time when an agency is focused on the particular facilities, such as during an enforcement action, the agency may initiate a source-aggregation analysis. Therefore, even when there has not been a change in operations and even when facilities have been historically permitted as separate, the agency believes that it may determine that the facilities are a single source and aggregate emissions therefrom.

WHAT CONSTITUTES A SINGLE SOURCE?

The test for whether facilities are a single source is embedded within the definition of a "stationary source" and a "major source" in the PSD and Title V regulations, respectively.1 Under the three-part test, 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. Each element must exist to be deemed a single source.

Despite the seemingly straightforward three-part test, in practice EPA's analysis of what constitutes a single source has been murky since the early days of the CAA. The EPA's various interpretations of the test elements have been criticized as impermissible extensions of the single source test.2 In the oil and gas context, for example, the EPA concluded that a gas sweetening plant and approximately 100 gas wells scattered across 43 square miles and ranging from 500 feet to 8 miles in distance from the sweetening plant were a single source.3 In the mining arena, the EPA considered a mine and mill situated approximately 40 miles apart and connected by pipeline to be a single source. And the EPA determined that a brewery and a landfarm that served as the disposal site for the brewery's process water, located 6 miles apart and connected by pipeline, were a single source.4

One could write a dense textbook describing the three elements and the controversies attendant to each element. As an example of the associated complications, let's review Element (3), pertaining to whether the facilities are adjacent or contiguous, perhaps the most controversial factor under the source-aggregation test.

FACILITIES MUST BE ADJACENT OR CONTIGUOUS (OR FUNCTIONALLY INTERRELATED?)

There are two main areas of controversy that blur analysis of the adjacent or contiguous element. First, what is physically adjacent or contiguous has been subjected to different interpretations. Second, the EPA has sometimes (and sometimes not) interpreted this test element to include a review of whether the facilities are "functionally interrelated," in addition to whether they are physically adjacent or contiguous to one another.

Physical Proximity
With respect to what is physically adjacent or contiguous, no specific proximity or distance has been applied in all cases. Rather, the EPA and states have decided what is adjacent or contiguous in case-by-case assessments. The EPA's preamble to the 1980 revisions to the PSD definition of a "source," states that the distance of 20 miles is "too far apart."5 The EPA further described that its intent in revising the definition of a source was that a "source" not encompass activities that would be located many miles apart, even if along a "long-line operation" (such as a multistate pipeline with multiple pumping stations). However, following these early EPA statements is a myriad of contrary EPA single source findings for facilities located between less than 1 mile and up to 40 miles apart. For example, the EPA opined that the Great Salt Minerals plant and a pump station, separated by the Great Salt Lake, 21.5 miles apart and connected by pipeline, were not too far apart to be deemed a single source.6

Some states, such as Oklahoma and Pennsylvania, have attempted to establish guidance providing that facilities will be considered adjacent or contiguous if they are located within a certain distance of one another, such as one-quarter mile. Generally, however, such guidance does not preclude a single source finding where the facilities are further apart.

Notably, the agencies' discussions supposedly focusing only on physical proximity tend to also relate to function. In addition to the distance apart, agencies have considered whether there are certain physical features between the facilities and whether there is a physical link. For example, in the St. Lawrence Cement case, EPA opined that two manufacturing facilities under common control were separate sources, mostly because they were 6 miles apart, separated by the Hudson River and without a dedicated pipeline or conveyor linking the facilities.7 In its opinion, the EPA noted that while the EPA has previously deemed facilities further apart than 6 miles to be co-located, in many of those cases the facilities were connected by a physical link, which was absent in the St. Lawrence Cement instance.

With respect to facilities separated by a road or right of way, the EPA and states have indicated that such division of properties does not necessarily mean the sources are separate. In a case involving a wood processing facility and a biomass plant located 3 miles apart, where there was no dedicated connection and the recycled wood product was transported by truck on public roadways to the biomass plant, the EPA determined the facilities to be a single source.

Functional Interrelatedness Enters Subjectivity Despite the EPA's Rejection of It
As to the second area of controversy, the EPA has historically interpreted the adjacent or contiguous element to include a review of whether facilities are functionally interrelated or interdependent. Some have argued that the EPA's consideration of functional interrelatedness flies in the face of statements made by the EPA in its 1980 preamble adopting the revised source definition, wherein the EPA rejected a definition requiring it to consider the "function" of the facilities. The EPA explained as follows:

To have merely added function to the proposed definition as another abstract factor would have reduced the predictability of aggregating activities under that test definition dramatically, since any assessment of functional interrelatedness would be highly subjective. . . . any attempt to assess those interrelationships would have embroiled the [EPA] in numerous fine-engrained analyses. (45 Fed. Reg. 52676, 52695)

And yet, since 1980, the EPA has looked at function in nearly all of its source-aggregation evaluations, which have been subjective case-by-case analyses. In considering function in the adjacency analysis, agencies inquire as to whether there is a dependency relationship between the facilities and, if so, to what extent. For instance: Does one facility process an intermediate product requiring further processing at the other facility? Was the location of one facility selected primarily because of the proximity to the other? Will materials be routinely transferred between the facilities? Will production line staff or maintenance personnel be involved in both facilities? These inquiries were described by the EPA in 1998 to serve as guidance, and they have been cherry-picked for application by the EPA and state agencies in subsequent cases.8

Functional Interrelatedness Inquiry May be Nearing Its End
However, the long ride of the interrelatedness feature may be reaching its end. In 2012, in what is known as the "Summit Petroleum case," the U.S. Court of Appeals for the Sixth Circuit interpreted Element (3) to entail consideration of only the literal meaning of the terms "adjacent" and "contiguous."9 The Summit Petroleum case involved a single natural gas sweetening plant and up to 100 gas wells, all located on 43 square miles of property, each well ranging from 500 feet to 8 miles in distance from the sweetening plant, and connected by pipeline. Summit, the operator of the plant and wells, did not own the property between the wells or property between the plant and the wells.

The EPA determined the sweetening plant and the gas wells were a single source based on their functional interrelatedness. On review, the court concluded that the EPA's consideration of functional interrelatedness was improper, and, under the CAA, the EPA must determine whether the sweetening plant and gas wells are "close to," "next to," "adjoining," or "physically proximate." In reaching its decision, the court referenced the 1980 preamble in which the EPA specifically rejected inclusion of functional relatedness in the single source definition.

After Summit Petroleum, in December 2012, the EPA issued guidance providing that in all jurisdictions except areas within the Sixth Circuit the EPA will continue to consider the interrelatedness of emission units and will not strictly adhere to the Summit Petroleum court's literal meaning of "adjacent" or "contiguous" (Summit Directive). In its guidance, the EPA indicated it is still considering how it will issue permitting decisions in areas within the Sixth Circuit, which includes Michigan, Ohio, Tennessee, and Kentucky.

In response to the Summit Directive, an association of resource extraction and manufacturing companies, the National Environmental Development Association's Clean Air Project ("NEDA/CAP"), challenged the Summit Directive.10 NEDA/CAP claimed the Summit Directive created a competitive disadvantage for facilities outside of the Sixth Circuit by establishing inconsistent permitting criteria for different parts of the United States. In May 2014, the U.S. Court of Appeals for the District of Columbia Circuit vacated the Summit Directive as contrary to the EPA's regulations requiring consistent policy application nationwide.11 As the court reviewed, the EPA regulations titled "Regional Consistency," require that an EPA policy "[a]ssure fair and uniform application by all Regional Offices of the criteria, procedures, and policies employed in implementing and enforcing the [CAA]."12 The DC Circuit held that the EPA failed to comply with the Regional Consistency regulations.

The court did not address the underlying substantive issue of whether the CAA allows for consideration of interdependency in the source-aggregation test.

Where Things Stand

The recent Sixth Circuit decision requiring a literal application of the test, combined with the D.C. Circuit decision requiring a nationwide consistent application of the test, may be argued to mandate elimination of the functional interrelatedness factor. However, EPA has not announced plans to release any guidance explaining its interpretation of the court decisions and the adjacent and contiguous analysis.

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.

[1] 40 C.F.R. § 70.2 (defining a "major source" under Title V); 40 C.F.R. § 51.166(b)(5) and (6) (defining a "stationary source" under the PSD program); 40 C.F.R. § 52.21 (b)(5) and (6) (defining a "stationary source" under the PSD program, as applied to delegated state programs).  The NESHAP program defines an "affected source" and "major source" similarly.  See 40 C.F.R. § 63.2.

[2] Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012), reh'g denied (Oct. 29, 2012). 

[3] Letter from Richard R. Long, Director, EPA Region 8 Air and Radiation Program, to Dennis Meyers, Construction Permit Unit Leader, Colorado Air Pollution Control Division, dated Apr. 20, 1999.

[4] Memorandum from Robert G. Kellam, Acting Director, Information Transfer and Program Integration, Office of Air Quality Planning and Standards, EPA Research Triangle Park, to Richard R. Long, Director, Region 8 Air Program, dated Aug. 27, 1996.

[5] 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).  This EPA statement was in response to a commenter's question about a surface coal mine and mill located 20 miles apart and linked by a railroad.  EPA indicated it would conclude that the mine and mill would not be co-located because they are too far apart and they would have different two-digit SIC codes.

[6] Letter from Richard R. Long, Director, EPA Region 8 Air Program to Lynn R. Menlove, Manager, New Source Review Section, Utah Division of Air Quality, dated Aug. 8, 1997.

[7] Letter from Steven C. Riva, Chief, Permitting Section, EPA Region 2Air Programs Branch to John T. Higgins, Director, Bureau of Application Review and Permitting, New York Division of Air Resources, dated Oct. 11, 2000.

[8] Letter from Richard R. Long, Director, Region 8 Air and Radiation Program to Lynn Menlove, Manager, New Source Review Section, Utah Division of Air Quality, dated May 21, 1998. 

[9] Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012), reh'g denied (Oct. 29, 2012).

[10] National Environmental Development Association's Clean Air Project v. EPA, 752 F.3d 999 (D.C. Cir. 2014).

[11] Ibid.

[12] Ibid. at 1009; 40 C.F.R. § 56.3(a).

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