American Oil and Gas Reporter - April 2015 - 35

WASHINGTONWATCH
Another Court Says
Adjacency Is Key Factor
In CAA Aggregation
This column previously has discussed efforts by environmental
groups and the Environmental Protection Agency to aggregate
exploration, extraction or production activities to create a larger source for stricter regulation under the Clean Air Act (See November 2009 and June 2013). While such efforts will continue,
it's nice to point to a victory.
On Feb. 23, the U.S. District Court for the Middle District of Pennsylvania ruled against a consolidation argument when the judge granted Ultra Resources Inc.'s motion for summary judgment in a lawsuit brought by Citizens for Pennsylvania's Future (PennFuture).
PennFuture brought a citizen suit under the CAA, arguing that
emissions from eight Ultra compressor stations in the Marcellus
region should be considered a single major emission source, rather
than subject to separate general permits. The suit came on the heels
of an important 2014 decision in National Environmental Development Association's Clean Air Project v. EPA (NEDACAP), in
which the U.S. Court of Appeals for the D.C. Circuit ruled that EPA
must apply regulations uniformly in all regional offices. This ruling referred specifically to findings by the U.S. Court of Appeals
for the 6th Circuit in a case involving Summit Petroleum Corp.
One might have thought NEDACAP would preclude a challenge
similar to PennFuture's, since regionwide application of the Summit decision would leave unambiguous the meaning of "adjacent"
in determining whether facilities could be aggregated. While the
district court decision is not a whole-hearted endorsement of NEDACAP, the motion for summary judgment is a victory, nonetheless.
The facts in Summit Petroleum Corp. v. EPA revolved
around Summit's sweetening plant and 100 sour gas wells in
Michigan. EPA ruled the facilities, which were located over 43
square miles with distances between the wells and the sweetening plant ranging from 500 feet to eight miles, met the criteria to
be classified as a stationary source under the CAA. Those criteria consist of whether the facilities:
* Are under common control;
* Are located on one or more contiguous or adjacent properties; and
* Belong to the same major industrial grouping.
The court rejected EPA's finding. Focusing on the second criteria, the 6th Circuit stated, "Having determined that the word 'adjacent' is unambiguous, we apply no deference in our review of
the EPA's interpretation of it."
NEDACAP's challenge arose when EPA limited the court's
finding to only those areas under the 6th Circuit's jurisdiction,
i.e., Michigan, Ohio, Tennessee and Kentucky. However, NEDACAP's success did not preclude states from adopting standards
more stringent than EPA.
In Pennsylvania, the Department of Environmental Protection authorized Ultra's eight compressor stations individually. In general
under DEP guidance, a distance of 0.25 miles between facilities is
a factor that weighs against aggregation. However, DEP's guidance
also considers interdependence of facilities that could expand adjacency beyond 0.25 miles, based on case-by-case consideration. Thus,
the findings in Summit and NEDACAP were not considered ironclad.

"To find properties separated by

considerable physical distance adjacent

"

requires a 'unique factual scenario.'

Ultra prevailed, but the summary judgment is not likely to put
the aggregation issue to rest. The court found that the Ultra's properties, with miles separating some of the compressors, could not
reasonably be considered "adjacent" under Summit or DEP guidance. However, the court would not go so far as to hold that functional interrelatedness could never be used in finding properties
to be contiguous or adjacent.
But to find properties separated by considerable physical distance adjacent requires a "unique factual scenario," which
PennFuture did not establish in its lawsuit. The court deferred to
DEP's guidance and the need to allow the agency to consider functional interrelatedness so as to avoid instances where oil and natural gas exploration and production companies could "manipulate or structure their wells and compressors in such a technical
way as to avoid being deemed a 'major' source, including by
avoiding the aggregation of their wells and compressors."
Such deference creates uncertainty as to the permissible stringency of DEP's guidance, or guidance from other state environmental agencies. Aggregation will remain an area of concern
for oil and gas producers as they comply with increasingly more
stringent environmental regulations.
Compliance with federal regulations also may become more
difficult as a result of a March 10 U.S. Supreme Court decision
in Perez v. Mortgage Bankers Association. While seemingly outside the regulatory arena of the oil and natural gas industries, the
decision clarifies that interpretative rules do not require notice
and comment, as do legislative rules.
Given legislative gridlock and the increasing use of interpretative rules by federal agencies, this ruling has the potential to allow significant policy changes without an opportunity for affected
parties to weigh in. The lack of notice and comment, in theory,
can affect everyone equally: industry as well as parties on the other side. However, under today's regulatory environment, America's energy producers may have drawn the short straw.
Ì

SUSAN GINSBERG is vice
president of crude oil and natural gas regulatory affairs for
the Independent Petroleum
Association of America. She
covers legislation and regulation, focusing on the CFTC
and FERC. Her experience in
natural gas regulatory affairs
spans 25 years.

APRIL 2015 35



American Oil and Gas Reporter - April 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2015

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