Location, location, location. This has long been the guiding principle for selling real estate. Now, due to a recent appellate case, the U.S. Environmental Protection Agency (EPA) has learned this concept’s importance in determining under what conditions multiple facilities can be aggregated as a single source under the Clean Air Act (CAA) Title V permitting program.

The Summit Case’s Background

On August 7, in the case Summit Petroleum Corporation v. EPA (Case Nos. 09-4348; 10-4572), the U.S. Court of Appeals, Sixth Circuit, vacated the EPA’s determination that a Michigan natural gas operation’s plant and production wells constituted a single major source and remanded the case to the agency for a reassessment of Summit Petroleum Corp.’s Title V source determination.

The case arose from the EPA’s final action determining that a natural gas sweetening plant near Rosebush, Mich., and various production wells, commonly owned by Summit and separately located, constitute a single stationary source under the Title V permitting program. The EPA had determined that Summit’s plant and wells were “adjacent” to one another, in part, because they are functionally interrelated.

Summit’s plant by itself has the potential to emit just under 100 tons of pollutants per year, which is below the threshold for being considered a major source. On the other hand, if the plant and the nearby wells are considered to be one source, their combined pollution totals exceed 100 tons and they would be classified as a major source under Title V.

Summit’s plant “sweetens” the “sour” gas from approximately 100 sour gas production wells by removing hydrogen sulfide so that the gas can be used. Summit owns all of the production wells and the subsurface pipelines that connect each of the wells to the sweetening plant. The wells themselves are located over an approximately 43-square-mile area at varying distances from the plant—from 500 feet to 8 miles away—and Summit does not own the property between the individual well sites nor the property between the wells and the plant. None of the well sites share a common boundary with each other, nor do any well sites share a common boundary with Summit’s production plant. The closest flare is located approximately 0.5 mile from the plant, while the remaining flares are each over 1 mile away.

Debate over Definition of “Adjacent”

The EPA defines a “stationary source” as “any building, structure, facility, or installation” that emits or may emit a regulated air pollutant under 40 Code of Federal Regulations, Section 52.21(b)(5). Multiple pollutant-emitting activities can be aggregated and considered a single source under a three-prong test (also known as the “Aggregation Factors”) only if they: are under common control, are located on one or more contiguous or adjacent properties, and belong to the same major industrial grouping (such as SIC code).

The EPA explained its reasoning with respect to adjacency in making its Title V source determination for the multiple Summit facilities. Although the Summit plant and wells were separated by large distances, the agency had never established a fixed distance beyond which facilities would not be considered “adjacent.” The EPA also asserted that the “degree of interdependence” between the Summit facilities and the fact that they “together produced a single product” suggested that the facilities were not “truly independent.”

In its decision, the Sixth Circuit ruled that the EPA’s source determination regarding the Summit facilities is contrary to the plain meaning of the word “adjacent.” The court ultimately concluded that the EPA’s interpretation of the aggregation rule “undermines the plain meaning of the text, which demands by definition that would-be aggregated facilities have physical proximity.” The court vacated the EPA’s source determination and remanded the case to the EPA for reassessment “in light of the proper, plain meaning application” of the adjacency prong of the Aggregation Factors.

Moving Forward

Down the road, the EPA may seek a rehearing of the Summit case before the Sixth Circuit en banc or U.S. Supreme Court review. In the meantime, Kentucky, Michigan, Ohio, and Tennessee, located in the Sixth Circuit, are bound by the Summit case. Additionally, the Sixth Circuit’s arguments will no doubt be cited in other parts of the country in ongoing judicial and administrative matters involving Title V source designations.

The Sixth Circuit’s decision will also probably have important consequences for existing and future power plants. The threat of environmental authorities combining widely dispersed yet functionally related emission points, where ownership is the only common factor, into a single point source is unlikely to occur, given this decision.

In her dissent in the Summit case, Circuit Judge Karen Nelson Moore argued that “absent a bright-line rule as to how far is too far for numerous sources to be considered adjacent” source designations based on adjacency may continue to be “subjective.”

How far is too far? This recent ruling shows that, indeed, the EPA went too far in stretching the meaning of “adjacent.” The agency needs to pay more attention to sources’ actual geographical proximity to one another when determining adjacent locations for Title V permit purposes. In the future, the EPA should assume the plain meaning of the word “adjacent” as used in the CAA when aggregating sources under its permitting programs.

Angela Neville, JD, is POWER’s senior editor.