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U.S. EPA Creates Uncertainty in Appalachia with Air Quality Permitting Memorandum

By Armando F. Benincasa

In the face of the Sixth Circuit Court of Appeals decision in late 2012 which struck down United States Environmental Protection Agency's (USEPA) use of "functional relatedness" in determining whether sources of air emissions should be aggregated for purposes of making permit determinations under the Clean Air Act, the agency announced that while it would amend its policy in the states covered by the Sixth Circuit, it would continue using its historic interdependency analysis in the rest of the states. As a result, industry operations subject to air permitting will find potentially diverging air aggregation decisions in Ohio where the Sixth Circuit ruling will control, and Pennsylvania and West Virginia where the traditional USEPA policy will continue.

The Clean Air Act mandates that certain sources be aggregated for purposes of making a source determination if the sources are: (1) under common control of the same person (or persons under common control); (2) located on one or more contiguous or adjacent properties; and (3) within a single major industrial grouping (the same two-digit SIC code). See, 40 CFR 52.21(b)(6).

The dispute in Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012) [enhanced version available to subscribers] centered upon the USEPA's use of functional relatedness in determining whether sources were contiguous or adjacent - part two of the analysis above. While the wells and the processing facility at issue in Summit Petroleum were literally miles apart, USEPA found that the sources were "adjacent" to each other because they were functionally related to and dependent upon each other. USEPA essentially argued that since the sources were dependent on each other for operations and would not otherwise exist without the other, the sources were "functionally interrelated" and met the criteria for being located in an adjacent or contiguous manner, thus requiring that the sources be aggregated and requiring that Summit obtain a Title V permit.

The Sixth Circuit Court of Appeal's decision in Summit rejected USEPA's use of functional relatedness in determining whether the sources were "adjacent" or "contiguous." The Sixth Circuit found the agency's use "functional relatedness" without regard to physical proximity inconsistent with the plain meaning of the term "adjacent." The court remanded the matter to the district court to review the Title V determination given the "proper, plain-meaning application of the requirement that Summit's activities be aggregated only if they are located on physically contiguous or adjacent properties, i.e., physically proximate properties." Id. at 744 & 751.

In response to the Summit Petroleum decision, USEPA issued a December 2012 memorandum, recognizing that it may no longer consider interrelatedness in determining adjacency when making source determination decisions in Michigan, Ohio, Tennessee and Kentucky which are under the jurisdiction of the Sixth Circuit. However, outside the Sixth Circuit, which includes West Virginia and Pennsylvania, USEPA will not apply the Sixth Circuit's decision in source determinations for the oil and gas industry. USEPA stated that it did not intend to change its practice of considering interrelatedness (functional relatedness) in its permitting actions in other jurisdictions and stated that "[i]n permitting actions occurring outside of the Sixth Circuit, the EPA will continue to make source determinations on a case-by-case basis using the three factor test in the NSR and Title V regulations . . . which have considered both proximity and interrelatedness in determining whether emission units are adjacent."

Further, USEPA stated that with regard to the states in the Sixth Circuit, the agency was still unsure how it would implement the Summit Petroleum decision.

Armando Benincasa concentrates his practice in the areas of energy law, environmental law, environmental litigation, administrative law, government affairs and lobbying.

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