Source Aggregation and the Plain Meaning of “Adjacent”

An interesting Court of Appeals decision was made by a three member panel of the Sixth Circuit this week (the Sixth Circuit is in Cincinnati and serves Michigan, Ohio, Kentucky and Tennessee).  The case involves aggregation of sources for purposes of Title V and pertains to a gas sweetening plant and surrounding sour gas production wells.  In 2005, Summit Petroleum Corporation, the owner and operator of the plant and gas production wells, and the Michigan Department of Environmental Quality (MDEQ) requested a U.S. EPA determination concerning whether the sour gas production wells and ancillary operations should be aggregated with the gas sweetening plant thereby making the combined entity subject to Title V air permitting as a “major” source (emissions greater than 100 ton per year).  It took about four years (and several U.S. EPA guidance memorandums) for U.S. EPA to make a final decision in September 2009 that Summit Petroleum Corporation should combine the emissions from the wells and thus should be a major source for Title V purposes.  The decision was appealed in 2010 and this week the Sixth Circuit Court of Appeals decided in a 2 to 1 rendering that the sweet gas plant and surrounding production wells should not be aggregated based upon the reasoning that U.S. EPA applied in September 2009. 

The Court’s position was based on the dictionary definition of “adjacent”, case law, and a disinclination to allow U.S. EPA to use a term in a fashion that, although is longstanding, is ultimately incorrect.  Specifically, the Court found the plain English definition of “adjacent” meaning “close to,” “next to,” or “adjoining” should be a primary condition for assessing aggregation, not as U.S. EPA has historically argued that “functionally related” facilities can be adjacent irrespective of the distance between them.  With respect to Summit Petroleum Corporation, the Court majority told U.S. EPA to reassess the operations in context of an unambiguous definition of “adjacent.”

This ruling has impact on both the Title V and New Source Review (NSR) permitting program.  Especially interested in the decision is the shale gas/oil drilling and transmission industry.  Moving forward, U.S. EPA’s options are to accept the ruling, request an en banc hearing, or to appeal the case to the Supreme Court.