The Sixth Circuit Court Of Appeals Rejects U.S. EPA's Functional Interrelatedness Test For Air Aggregation

Introduction

On August 7, 2012, the United States Court of Appeals for the Sixth Circuit, in a 2 to 1 decision,1 vacated the United States Environmental Protection Agency's (U.S. EPA) final determination that Summit Petroleum Corporation's (Summit) commonly owned natural gas production wells and processing plant, located over a 43 square mile area, were a single major stationary source for Title V permitting purposes.2 The Court also remanded the case to U.S. EPA for a determination of whether these facilities "are sufficiently physically proximate to be considered 'adjacent' within the ordinary, i.e., physical and geographical, meaning of that requirement."3 In so doing, the Court unqualifiedly rejected U.S. EPA's functional interrelatedness test for determining whether facilities are "adjacent" for air aggregation purposes.4 Under the functional interrelationship test, which is neither a regulation nor guidance, but an agency interpretation of a regulation, multiple sources can be combined and treated as a single source regardless of the physical distance separating them if they are "functionally interrelated."

The Court's decision is important for industry because the aggregation or combination of emissions from multiple facilities can result in the aggregated source being subject to the stringent permitting requirements of the Prevention of Significant Deterioration (PSD), Nonattainment New Source Review (NNSR) and Title V permitting programs of the Clean Air Act (CAA). Industry is well advised to track the progress of the case to determine if the Sixth Circuit grants U.S. EPA's anticipated Motion for Rehearing en banc.5Industry should also closely monitor the progress of the case on remand. U.S. EPA could apply the definition of "adjacent" as directed by the Court, abandon its functional interrelatedness test or take other significant action to be determined. Although the decision is not binding outside the Sixth Circuit,6 it is a very significant legal authority that courts and administrative agencies will no doubt consider7,8 in making or reviewing source aggregation determinations. Lastly, all industry in general should take note of the decision because U.S. EPA has used the same "functional interrelatedness" test rejected by the Sixth Circuit in Summit to make many source determination decisions in industries other than natural gas production. In light of the Court's decision in Summit and other possible future developments, the validity of these decisions may at some point be called into question.9

Facts

Summit owns natural gas production wells and a natural gas sweetening plant located over a 43 square mile area primarily in the territory of the State of Michigan's Saginaw Chippewa Indian Tribes Isabella Reservation. The distance between the wells and the plant varies from one-half mile to eight miles. Summit does not own the land between the wells or the land between the wells and the plant. Summit also uses flares to burn off natural gas waste. The closest flare is one-half mile from the plant and the remaining flares are each over one mile away.

The plant, the wells, and the flares emit sulfur dioxide (SO2) and nitrogen oxides (NOX). The plant emits just under 100 tons of each per year. However, if the emissions of the plant are combined with the emissions of one well, the combined emissions would exceed 100 tons per year.

In January of 2005, Summit, with the Michigan Department of Environmental Quality (MDEQ), submitted a request to U.S. EPA for a determination of whether Summit's combined facilities could be deemed a single major source for Title V Operating Permit purposes.

On October 18, 2010, nearly six (6) years after the initial request and following several requests for information from U.S. EPA and responses by Summit, U.S. EPA issued its final determination that Summit's plant, wells, and flares worked together as a single unit that "together...