On August 7, 2012, the U.S. Court of Appeals for the Sixth Circuit in Cincinnati vacated a USEPA determination that a natural gas sweetening plant and gas wells supplying it constituted a single “major source” for Title V permitting purposes. The decision focuses solely on the meaning of “adjacent” in the 3-part “major source” definition, which requires:

  • common control;
  • contiguous or adjacent property; and
  • SIC code commonality.

The case involved approximately 100 sour gas production wells spread over a 43 square mile area on separate parcels located 500 feet to eight miles from a natural gas processing plant.  All of the output of the wells is pipelined to the plant. Neither the wells alone nor the plant alone have enough emissions to be classified as a Title V “major source.”  However, the combined emissions of both the wells and the plant together exceed the “major source” threshold (100 tons per year of actual or potential emissions of a regulated air pollutant, such as nitrogen oxides, sulfur dioxide, or carbon monoxide).  There was no dispute that the wells and the plant had common ownership and control, that they belonged to the same two-digit SIC code major industrial grouping, and that they were not on “contiguous” property.  The only disagreement was whether the term “adjacent” in the Title V definition of a “major source” refers to physical proximity, or to functional relationship.

The Court’s 2-judge majority relied upon the dictionary definition, etymology, and case law meanings of “adjacent” to conclude that “adjacency is purely physical and geographical,” and not an ambiguous term.  The Court rejected EPA’s argument that activities can be adjacent so long as they are “functionally related,” irrespective of the distance that separates them.

An interesting aspect of the decision is the Court’s refusal to grant deference to the Agency’s interpretation of its own regulation.  The Court wrote:

“Having determined that the word ‘adjacent’ is unambiguous, we apply no deference in our review of EPA’s interpretation of it.” 

The Court also rejected EPA’s argument that its interpretation of “adjacent” was so longstanding – dating back to 1980 – that it was entitled to deference for that reason alone.  To this argument the Court responded: “An agency may not insulate itself from correction merely because it has not been corrected soon enough, for longstanding error is still an error.”

The victory in the Sixth Circuit is an important milestone in the long, but as yet unfinished, ordeal of the prevailing petitioner, Summit Petroleum Corporation, to establish that its gas wells and production plant are not subject to Title V permitting requirements.  Summit Petroleum filed its request for a Title V “major” versus “minor” source determination in January 2005.  EPA made its final determination that Summit’s gas wells and sweetening plant on Indian territory in Michigan constituted a single “major source” subject to Title V permitting requirements in October 2010.  The Court noted that during that 5-year interval, “[t]he parties engaged in at least twenty-five conference calls and exchanged a ‘small mountain of paper'”.  Almost seven years after the applicability determination request was made, the Sixth Circuit has remanded the matter to EPA “for a reassessment of Summit’s Title V source determination request in light of 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.”  In a dissenting opinion, Judge Karen Nelson Moore expressed her view that on remand, “EPA is free to reach the same conclusion that Summit’s operations should be aggregated as a major source for Title V permitting purposes, so long as it bases that conclusion on the considerations that the majority today deems appropriate.”  On remand, Summit Petroleum will learn whether EPA interprets physical adjacency to mean something more than 500 feet of separation or something less than eight miles.