Category: Environmental Law

Re: Gold King Mine – Statement, Photos and Audio from EPA Administrator in Durango, CO

Today, EPA Administrator Gina McCarthy visited Durango, CO to inspect response efforts relating to the release of waste water from Gold King mine, and meet with state, local and tribal officials and community members. Tomorrow, Administrator McCarthy will visit the response efforts in Farmington, NM. More details about the visit will be released as they become available.

EPA

While in Durango, Administrator McCarthy attended a briefing at the Unified EPA Area Command where she discussed promising new data from August 7th, 8th, and 9th that is showing water quality levels in the Animas River near Durango similar to pre-event conditions. EPA is continuing to work with local community officials tasked with making decisions about public health. Later this afternoon EPA scientists will be meeting with those officials to discuss the new data and any decisions moving forward.

Photos: Photos from EPA Administrator Gina McCarthy’s trip to Durango, CO to inspect response efforts relating to the release of waste water from Gold King mine, and meet with state, local and tribal officials and community members.

Audio: Audio from EPA Administrator Gina McCarthy’s remarks and press conference at the Unified EPA Area Command in Durango, CO, on response efforts relating to the release of waste water from Gold King Mine.

Following the briefing, the Administrator held a press briefing at the Unified EPA Area Command in Durango. The following remarks can be attributed to EPA Administrator Gina McCarthy:

No agency could be more upset about the incident happening, and more dedicated in doing our job to get this right. We couldn’t be more sorry. Our mission is to protect human health and the environment. We will hold ourselves to a higher standard than anyone else.

I want to assure the general public as well as the leaders in the states, the counties and the tribal leaders, that we are working hand in hand with our partners to expedite this review, to expedite some return to normalcy in terms of using this river.

The river is returning to pre-event conditions. This is very good news, but we will be working with our partners so they have a chance to review this data thoroughly and have a chance to talk through this data in terms of what it means to their decisions moving forward. We are going to let this high quality and reliable science be our guide.

From this point on, the data will continue to come out. And that’s what’s going to influence decisions on what should happen in this river and in the affected counties.

For additional information on the response to the Gold King Mine release www.epa.gov/goldkingmine

This article first appeared in the EPA Newsroom.

ARTICLE BY EPA of U.S. Environmental Protection Agency
© Copyright 2015 United States Environmental Protection Agency

Supreme Court Decisions Raise Questions about Future Judicial Scrutiny of EPA’s Clean Power Plan

Two of the Supreme Court’s major, end-of-term decisions turn on the deference the Court gives to agency determinations of the meaning of ambiguous clauses in complex regulatory statutes, applying the familiar Chevron framework.  The Court’s less deferential applications of Chevron raise important questions about the deference courts might be expected to give to the scope of EPA’s exercise, in its Clean Power Plan, of its statutory authority to establish carbon dioxide emission reduction standards for existing fossil-fuel power plants under Section 111(d) of the Clean Air Act.

In King v. Burwell, the Court reviewed an Internal Revenue Service regulation that allowed tax subsidies under the Affordable Care Act for insurance plans purchased on either a federal or state-created “Exchange.”  In Michigan v. EPA, the Court reviewed EPA’s threshold determination under Section 112 of the Clean Air Act that it was “appropriate and necessary” to initiate regulation of hazardous air pollutants emitted by power plants, without consideration of costs at that initial stage of the regulatory process.

The outcome in each case depended upon the Court’s review of the regulatory context of the applicable ambiguous statutory clause.  Since the context of Section 111(d) of the Clean Air Act differs markedly from the contexts of the Affordable Care Act and Section 112 of the Clean Air Act, the outcomes in King v. Burwell and in Michigan v. EPA do not likely portend the outcome of future court challenges of the Clean Power Plan.  However, the Court’s application of Chevron deference in these two cases may portend a strikingly less deferential judicial review of EPA’s Clean Power Plan than might have been expected under the traditional two-part test of Chevron.

Under Chevron, courts examine first whether a regulatory statute leaves ambiguity and, if so, courts are directed to defer to a federal agency’s reasonable resolution of the ambiguity in a statute entrusted to administration by that agency.  All of the Court’s majority and dissenting opinions in King v. Burwell and in Michigan v. EPA (except for Justice Thomas’s lone dissenting opinion questioning the constitutionality ofChevron deference) confirm the applicability of the traditional Chevronframework.  What stands out in these cases is that the Court’s majority opinions do not defer to the agency’s resolution of ambiguity.

Chief Justice Robert’s opinion for a 6-3 majority in King v. Burwell grounds Chevron in “the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.”  But, “in extraordinary cases,” the Court states that Congress may not have intended such an “implicit delegation.”  The Court holds the statutory ambiguity before it to be one of those extraordinary cases in which Congress has not expressly delegated to the respective federal agency the authority to resolve the ambiguity and, therefore, seemingly, zero deference is given by the Court to the applicable IRS regulation.  The Court explains that whether billions of dollars in tax subsidies are to be available to insurance purchased on “Federal Exchanges” is a question of “deep economic and political significance,” central to the scheme of the Affordable Care Act, such that had Congress intended to assign resolution of that question to the IRS “it surely would have done so expressly,” especially since the IRS “has no expertise in crafting health insurance policy of this sort.”  Eschewing any deference to the IRS interpretation, the Court assumed for itself “the task to determine the correct reading of” the statutory ambiguity.

King v. Burwell is the rare case in which the Court accords a federal agency zero deference in resolving statutory ambiguity under Chevron.  Notably, the Court left open how appellate courts should determine whether other statutory ambiguities similarly deserve less or no deference to agency interpretations.  The Court, perhaps, offered a hint by citing to its much quoted dicta in its 2014 decision in Utility Air Regulatory Group v. EPA that the Court “typically greet[s] … with a measure of skepticism, … agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”  Many commenters have opined, even before King v. Burwell, as to whether this dicta has implications for judicial review of the Clean Power Plan, which, it may be argued, has “deep economic and political significance” comparable to the Affordable Care Act.  However, EPA surely has longer experience, greater expertise and wider latitude in crafting policy under the Clean Air Act than the IRS has in crafting health insurance policy.  Given the Court’s strong precedent establishing that greenhouse gases are expressly within the scope of the Clean Air Act, appellate courts might distinguish King v. Burwell and apply traditional Chevron deference to the final Clean Power Plan.

Michigan v. EPA applies Chevron to EPA regulations under a different part of the Clean Air Act.  In this case, the Court reviewed EPA’s threshold determination, under Section 112 of the Clean Air Act, that it was “appropriate and necessary,” without regard to costs, to regulate hazardous air pollutants, such as mercury, from power plants.  The specific mercury emission limits imposed on categories of power plants were established during subsequent phases of EPA’s rulemaking under Section 112 based on EPA’s explicit consideration of costs.  Justice Scalia’s opinion for a 5-4 majority strikes down EPA’s determination that it could find regulation of hazardous air pollutants from power plants to be “appropriate and necessary” without consideration of costs.  The Court states it was applying the traditional Chevron framework, under which it would normally defer to EPA’s choice among reasonable interpretations of the  ambiguous and “capacious” statutory test requiring an EPA finding that regulation be “appropriate and necessary.”  But, the Court finds EPA’s interpretation of this test, as not requiring any consideration of costs, to “have strayed far beyond … the bounds of reasonable [statutory] interpretation.”  Michigan v. EPA may be the first case in which the Court has applied Chevron to find that EPA adopted an entirely unreasonable resolution of statutory ambiguity in its Clean Air Act regulations.

Justice Kagan’s dissent in Michigan v. EPA faults the Court for failing to give due deference under Chevron to EPA’s decision as to when in its regulatory process it gives consideration to the costs involved in regulating hazardous air pollutants from power plants.  While all nine Justices seem to agree that EPA must consider costs in its Section 112 rulemakings, and seem also to agree that EPA gave consideration to costs in later stages of its rulemaking, the dissent criticized the majority’s “micromanagement of EPA’s rulemaking,” emphasizing that EPA reasonably determined “that it was ‘appropriate’ to decline to analyze costs at a single stage of a regulatory proceeding otherwise imbued with cost concerns.”

It is difficult to predict whether, based upon King v. Burwell and Michigan v. EPA, appellate courts might narrow the deference accorded to EPA’s resolution of statutory ambiguities under Section 111(d).  Those ambiguities arise in a quite different context than those considered by the Court.  As one example, critics of the Clean Power Plan have argued that two different versions of Section 111(d) appear to have been signed into law, one of which critics claim should prohibit EPA from issuing regulations under Section 111(d) for sources of pollution already covered by other EPA regulations, such as hazardous pollutant regulation under Section 112.  EPA sharply disagrees with its critics and defends its interpretation of which statutory version applies and the scope of permissible regulation under either statutory text.  A related issue under the statutory version pressed by critics concerns whether the status of the hazardous air regulations under Section 112, during remand after Michigan v. EPA, should alter EPA’s analysis the potentially competing statutory provisions.  It remains to be seen what kind ofChevron deference courts will give to EPA’s reasoned interpretations of the different versions of Section 111(d).

Critics also point to purported ambiguity in Section 111(d) as to whether EPA may prescribe carbon dioxide performance standards based on so-called “outside the fence” measures, and whether those standards may be determined on an average state-wide basis, rather than for individual sources.  EPA’s resolutions of these and related programmatic issues have occasioned widespread commentary and may feature prominently in future court challenges to the Clean Power Plan.  Again, it remains to be seen whether the Court’s recent cases will influence the extent of Chevron deference given by appellate courts to EPA’s well-considered interpretation of its authority to craft the details of the Clean Power Plan under Section 111(d).

On one point, there should be little doubt.  Section 111(d) expressly directs EPA to consider costs in establishing performance standards reflecting “the best system of emission reduction.”  Unlike in Michigan v. EPA, EPA expressly addressed “costs” as a factor considered in its proposed rules.  EPA is expected to elaborate upon the costs (and benefits) of regulation in its final Clean Power Plan.  Michigan v. EPA should, therefore, be inapposite with respect to any possible challenges of the manner in which the Clean Power Plan addresses costs.

The applicability of Chevron deference is, of course, only one among many legal issues that could face the U.S. Courts of Appeals and, ultimately, the Supreme Court, if and when they review the Clean Power Plan.  The precise legal issues to be framed for the courts and the timing of litigation will not begin to come into focus until after the Obama Administration issues the final Clean Power Plan later this summer.  And, Congress could step in and alter the course of judicial review.  Stay tuned.

ARTICLE BY Mark L. Perlis of Covington & Burling LLP
© 2015 Covington & Burling LLP

Draft EPA Study Finds Fracking Has Not Led to Widespread Drinking Water Contamination

The EPA released a draft of its study, U.S. EPA Assessment of the Potential Impacts of Hydraulic Fracturing for Oil and Gas on Drinking Water Resources (External Review Draft), EPA, Washington, DC, EPA/600/R-15/047, 2015, assessing the impact of hydraulic fracturing (fracking) on drinking water in early June (the draft Assessment). According to the EPA’s press release, the study finds that “hydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources,” but “identifies important vulnerabilities.” Fracking opponents, however, argue that the study vindicates their position.

The draft Assessment evaluated the potential impact of fracking at each stage of the Hydraulic Fracturing Water Cycle: water acquisition, chemical mixing, well injection, flowback, and wastewater treatment and waste disposal. The study’s objective was to “assess the potential impacts of hydraulic fracturing on drinking water resources, if any, and to identify the driving factors that may affect the severity and frequency of such impacts.” The draft Assessment “provides a review and synthesis of available scientific literature and data to assess the potential for hydraulic fracturing for oil and gas to impact the quality or quantity of drinking water resources, and identifies factors affecting the frequency or severity of any potential impacts.”

According to Dr. Thomas A. Burke, EPA’s Science Advisor and Deputy Assistant Administrator of EPA’s Office of Research and Development, the draft Assessment “is the most complete compilation of scientific data to date, including over 950 sources of information, published papers, numerous technical reports, information from stakeholders and peer-reviewed EPA scientific reports.”

[H]ydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources . . .

Supporters of fracking, such as American Petroleum Institute Upstream Group Director Erik Milito,say that the evidence gathered by EPA confirms that “[h]ydraulic fracturing is being done safely under the strong environmental stewardship of state regulators and industry best practices.” Meanwhile, opponents note that the EPA’s review found specific instances where well integrity and wastewater management related to hydraulic fracturing activities impacted drinking water resources. “The EPA’s water quality study confirms what millions of Americans already know – that dirty oil and gas fracking contaminates drinking water,” said Sierra Club Executive Director Michael Brune.

Numerous peer-reviewed EPA scientific reports were also released on the same day as the draft Assessment. Those reports were a part of EPA’s overall hydraulic fracturing drinking water study and contributed to the findings outlined in the draft assessment. More than 20 peer-reviewed articles or reports were published as part of this EPA’s draft Assessment.

The draft Assessment will be finalized after review by the Science Advisory Board (SAB) and public review and comment. The Federal Register Notice with information on the SAB review and how to comment on the draft assessment can be found here.

ARTICLE BY Edward Casmere of Schiff Hardin LLP

© 2015 Schiff Hardin LLP

EPA and U.S. Army Corps of Engineers Approve New Definition of “Waters of the United States”

The U.S. EPA and the U.S. Army Corps of Engineers announced today that they have jointly approved a new definition of the key term “waters of the United States,” a term that defines the limits of federal jurisdiction over surface waters under the Clean Water Act and several other federal laws. The rule containing the new definition will become effective 60 days after its publication in the Federal Register, which typically occurs within a week or so of the agencies’ public announcement of a new rule.

The agencies announced the new rule after several years of wrestling with this regulatory definition, which establishes the scope of federal wetlands permitting authority, federal discharge limitations, and other important programs. EPA and the Corps assert in the preamble to the rule that this new definition is “narrower” than the existing regulatory definition, and that “fewer waters will be defined as ‘waters of the United States'” than under existing regulations. In the debate leading up to today’s announcement, however, a variety of affected parties – landowners, developers, farmers, manufacturers and others – have argued that the agencies’ effort to redefine “waters of the United States” will lead to a broadening of federal jurisdiction.

Several features of the new rule are of particular importance to interested parties in California and other western arid states:

  • All “tributaries” are jurisdictional (i.e., subject to federal regulation) “by rule” if they have an ordinary high water mark and a “bed and bank” and if those features can be shown to be hydrologically linked to navigable waters or interstate waters. The “by rule” designation means that it will no longer be necessary for the agencies to establish that a tributary has a significant link to a navigable water, regardless of how attenuated that connection might be. There are no threshold requirements for volume of water nor for frequency of flow. By way of example, it appears that a “tributary” that is miles removed from the closest river, lake or ocean, with only a trickle of flow that occurs once every 10 years or more, will nevertheless be deemed jurisdictional as long as there is physical evidence of a “bed and bank” and an ordinary high water mark.

  • Certain “adjacent wetlands” are now also jurisdictional “by rule” if, for example, they are located in a 100-year floodplain and are within 1,500 feet of a “traditional navigable water” (e.g., a river, lake, or ocean) or of a tributary.

  • Case-by-case determinations of whether an aquatic feature has a “significant nexus” to a navigable water – thereby rendering it jurisdictional – will continue to be made for a variety of different waterbody types, including “western vernal pools in California” and any surface water feature within the 100-year floodplain or within 4,000 feet of a navigable water or covered tributary that is not already defined as jurisdictional by the “by rule” standard. The term “significant nexus” is given some definition in the final rule by reference to a familiar list of functional ecosystem values served by wetlands and other water bodies.

The final rule does call out a narrow class of “waters” that are determined not to be jurisdictional as “waters of the United States,” including, but not limited to,

  • certain types of ditches;

  • artificially irrigated areas that would revert to dry land should the irrigation cease;

  • erosional features, including gullies, rills, non-wetland swales;

  • groundwater, including groundwater drained through subsurface drainage systems;

  • stormwater control features

  • swimming pools, ornamental waters created in dry land, “puddles.”

Added to this list is a statement in the preamble to the final rule that it does not “regulate shallow subsurface connections nor any type of groundwater.”

Importantly, this rule applies only to new jurisdictional determinations that are required after the rule’s “effective date.” The agencies will not reopen existing approved jurisdictional determinations unless the usual conditions apply for a revision of the determination.

Implementation of this rule will be far more complicated and detail-driven than what can possibly be captured here in this very brief synopsis. It is hard to calculate its impact on the regulated community, especially in places like California where the Corps and EPA have traditionally taken a very aggressive approach to their claims of jurisdiction. At the very least, this rule will bolster those claims by giving the agencies a formal regulation to rely upon. Litigation challenging this rule has been threatened for months, and certain Members of Congress have vowed to do what they can to take legislative action.

ARTICLE BY James T. Burroughs & David D. Cooke of Allen Matkins Leck Gamble Mallory & Natsis LLP

© 2010-2015 Allen Matkins Leck Gamble Mallory & Natsis LLP

EPA and U.S. Army Corps of Engineers Approve New Definition of "Waters of the United States"

The U.S. EPA and the U.S. Army Corps of Engineers announced today that they have jointly approved a new definition of the key term “waters of the United States,” a term that defines the limits of federal jurisdiction over surface waters under the Clean Water Act and several other federal laws. The rule containing the new definition will become effective 60 days after its publication in the Federal Register, which typically occurs within a week or so of the agencies’ public announcement of a new rule.

The agencies announced the new rule after several years of wrestling with this regulatory definition, which establishes the scope of federal wetlands permitting authority, federal discharge limitations, and other important programs. EPA and the Corps assert in the preamble to the rule that this new definition is “narrower” than the existing regulatory definition, and that “fewer waters will be defined as ‘waters of the United States'” than under existing regulations. In the debate leading up to today’s announcement, however, a variety of affected parties – landowners, developers, farmers, manufacturers and others – have argued that the agencies’ effort to redefine “waters of the United States” will lead to a broadening of federal jurisdiction.

Several features of the new rule are of particular importance to interested parties in California and other western arid states:

  • All “tributaries” are jurisdictional (i.e., subject to federal regulation) “by rule” if they have an ordinary high water mark and a “bed and bank” and if those features can be shown to be hydrologically linked to navigable waters or interstate waters. The “by rule” designation means that it will no longer be necessary for the agencies to establish that a tributary has a significant link to a navigable water, regardless of how attenuated that connection might be. There are no threshold requirements for volume of water nor for frequency of flow. By way of example, it appears that a “tributary” that is miles removed from the closest river, lake or ocean, with only a trickle of flow that occurs once every 10 years or more, will nevertheless be deemed jurisdictional as long as there is physical evidence of a “bed and bank” and an ordinary high water mark.

  • Certain “adjacent wetlands” are now also jurisdictional “by rule” if, for example, they are located in a 100-year floodplain and are within 1,500 feet of a “traditional navigable water” (e.g., a river, lake, or ocean) or of a tributary.

  • Case-by-case determinations of whether an aquatic feature has a “significant nexus” to a navigable water – thereby rendering it jurisdictional – will continue to be made for a variety of different waterbody types, including “western vernal pools in California” and any surface water feature within the 100-year floodplain or within 4,000 feet of a navigable water or covered tributary that is not already defined as jurisdictional by the “by rule” standard. The term “significant nexus” is given some definition in the final rule by reference to a familiar list of functional ecosystem values served by wetlands and other water bodies.

The final rule does call out a narrow class of “waters” that are determined not to be jurisdictional as “waters of the United States,” including, but not limited to,

  • certain types of ditches;

  • artificially irrigated areas that would revert to dry land should the irrigation cease;

  • erosional features, including gullies, rills, non-wetland swales;

  • groundwater, including groundwater drained through subsurface drainage systems;

  • stormwater control features

  • swimming pools, ornamental waters created in dry land, “puddles.”

Added to this list is a statement in the preamble to the final rule that it does not “regulate shallow subsurface connections nor any type of groundwater.”

Importantly, this rule applies only to new jurisdictional determinations that are required after the rule’s “effective date.” The agencies will not reopen existing approved jurisdictional determinations unless the usual conditions apply for a revision of the determination.

Implementation of this rule will be far more complicated and detail-driven than what can possibly be captured here in this very brief synopsis. It is hard to calculate its impact on the regulated community, especially in places like California where the Corps and EPA have traditionally taken a very aggressive approach to their claims of jurisdiction. At the very least, this rule will bolster those claims by giving the agencies a formal regulation to rely upon. Litigation challenging this rule has been threatened for months, and certain Members of Congress have vowed to do what they can to take legislative action.

ARTICLE BY James T. Burroughs & David D. Cooke of Allen Matkins Leck Gamble Mallory & Natsis LLP

© 2010-2015 Allen Matkins Leck Gamble Mallory & Natsis LLP

No Bright Lines for Pipelines

The United States Supreme Court recently issued a 7-2 decision that dismantled almost 70 years of bright-line jurisprudence in the energy industry and, instead, instituted a “make-it-up-as-you-go-along” approach. The decision upholds states’ rights to regulate conduct under antitrust principles in the energy industry even though the same conduct is concurrently subject to federal regulation. While some may consider the case to be isolated and insignificant, perhaps the better view is that the decision signals a shift toward greater tolerance for state regulation of conduct that would otherwise fall under federal province. The impact may be to subject businesses in a host of industries, many of whom rely heavily on the uniformity that federal regulation provides, to inconsistent regulation across all 50 states.

The Issue Before the Supreme Court

In Oneok, Inc. v. Learjet, Inc., a class of retail natural gas purchasers sued the provider-pipeline under state antitrust laws. The pipeline defended on the basis that the Natural Gas Act, which governs wholesale providers such as the pipeline, preempted state antitrust regulation of the same transaction. The district court agreed and dismissed the buyers’ claims, but the Supreme Court concluded that states could properly regulate practices in the energy industry, even when those same practices are concurrently regulated at the federal level.

By way of background, the natural-gas-purchasing cycle has three steps. A producer extracts the gas from a well and provides it to a pipeline for transport. The pipeline carries the gas across state lines and sells it wholesale to distributors, and the distributors provide the gas to retail purchasers. States have historically been allowed to regulate the process at steps one and three—extraction by the producer and retail sale to the consumer. The second step—the interstate transportation and wholesale transaction—is left squarely and exclusively to federal regulation. However, in the Oneok case, the retail purchases were made directly from the pipeline, meaning that the same conduct affected both wholesale and retail sales pricing. Thus, the issue became a question of whether a practice that affects both wholesale and retail sales was subject to federal, state, or concurrent regulation.

Was State Regulation Preempted?

Conflicts between concurrent state and federal regulation occur frequently and can be seen in all kinds of industries. In this case, the Court considered only whether the Natural Gas Act preempted state antitrust law under the theory of “field preemption.” Field preemption applies when Congress has intended to “occupy the field” in a particular regulatory subject. This theory of preemption is only one among several others.

The Oneok Court expressly declined to look at the issue from a “conflict preemption” perspective, when courts look at whether it is impossible to comply with both state and federal law on an issue or whether a state law interferes with or is an obstacle to the federal counterpart. The Court certainly could have analyzed the issue under conflict-preemption principles, which might have provided greater clarity for businesses operating in these areas, but it declined to do so.

From Bright Line to No Line

Instead, the Court took what was widely considered, for almost 70 years, to be a bright-line jurisdictional test for Natural Gas Act cases and “smudged” that line, to quote Justice Scalia’s scathing dissent. Indeed, in previous cases assessing practices under the Natural Gas Act, the Court had used the term “bright line” to describe the divide between state regulation of retail sales and federal regulation of wholesale transactions. As such, the “line” analogy has long functioned in these cases.

However, not only did the Oneok Court blur the line, it also reasoned that there was no line to be drawn at all, stating, “[The pipeline] and the dissent argue that there is, or should be, a clear division between areas of state and federal authority in natural gas regulation, but that platonic ideal does not describe the natural gas regulatory world.” In the end, the Court settled on a new metaphor: Courts will disregard how the parties have styled their causes of action in litigation and will look at the target the state law aims to regulate. If the target is one historically left to state regulation, it will not be preempted. Justice Scalia’s dissent termed the majority’s new approach the “make-it-up-as-you-go-along approach to preemption.”

How Far Will the Oneok Holding Reach?

Again, on its face, this case has a fairly limited impact, reserved for natural-gas cases involving practices that simultaneously impact wholesale and retail transactions. However, as a practical matter, the holding has a much broader potential to be impactful. First of all, the case is not limited only to claims involving natural gas. It could apply much more generally to energy-industry cases under the Federal Power Act, which also draws a line between retail and wholesale.

Furthermore, there is potential for the decision to extend to virtually every case during which preemption might be raised as a jurisdictional defect. In particular, businesses operating in an industry primarily regulated under a single statutory scheme should be concerned that the opinion will subject them to state regulation even though they have traditionally relied on federal governance. Because antitrust laws are geared toward the marketplace in general, and certainly not toward natural-gas companies alone, a host of industries may be impacted. In the antitrust context specifically, any entity engaging in a purely wholesale practice that has some attenuated impact on retail pricing might become subject to state regulation.

The Trouble with Concurrent State Regulation

If such is true, then what is the problem with allowing concurrent state regulation in these matters? The answer is that businesses face the loss of predictability and uniformity that exclusive federal regulation provides. As Justice Scalia summarized, “Before today, interstate pipelines knew that their practices relating to price indices had to comply with one set of regulations promulgated by the [Federal Energy Regulatory] Commission. From now on, however, pipelines will have to ensure that their behavior conforms to the discordant regulations of 50 States—or more accurately, to the discordant verdicts of untold state antitrust juries.”

To illustrate, let’s consider a scenario in which a company engages in a practice that illegally sets wholesale pricing. That practice would, undeniably, be subject to federal regulation. However, the practice also impacts retail pricing for consumers in five different states. Consumers file suit in State A in state court, alleging violations of state antitrust statutes. In the meantime, the Federal Energy Regulatory Commission (FERC) determines that the practice is lawful, and the attorneys representing a class of potential plaintiffs in State B decide against filing suit because State B has no concurrent regulation. State C also has no such antitrust regulation, but it recognizes common law claims for unfair business practices and upholds a duty to refrain from making fraudulent statements.

Despite the FERC’s decision, the court in State A determines that the practice is unlawful. As such, the company is still subject to civil liability for the suits in States A and C on different theories. There are also potential claims in States D and E, but suits have not yet been filed. That means that the company has to wait out statutes of limitations in each of those states for both state statutory and common law claims.

This is an extreme example to be sure. However, it highlights the problems inherent in operating a business that relies heavily on the uniformity of federal regulation when establishing its business practices and subsequently becomes subject to varying and discordant state regulation.

To date, states have been vigilant in defending their rights to regulate in these areas. The attorney generals in 21 states filed amicus briefs defending state regulation in the Oneok case. As a result, businesses now need to be concerned with a host of problems including inconsistencies between state and federal regulations, inconsistencies from state to state within individual state regulations and common law issues, varying statutes of limitations on claims, and variances between class action rules from state to state and in federal court.

There is also the possibility, as noted, that the holding in this case could extend to preemption concepts more generally. If that is the case, where once we had bright lines between state and federal regulation, we may see far more “smudges.” Instead, litigators may find themselves looking at the “make-it-up-as-you-go-along approach” that requires examination of the state regulation’s target in assessing field preemption. While some clarity may be reached in the Oneok case on remand, or in other cases looking at conflict preemption, the likelihood is that concurrent state regulation just gained a major foothold in many industries.

Does the Oneok decision make sense to you? Are there other areas or industries into which you can see the decision extending? Do you think it’s a more limited decision or one with broader implications? Let us know your thoughts.

Authored by: Ryan Thompson  of IMS ExpertServices

New York Lawmakers Agree on Brownfield Law Extension With Less Drastic Changes to Tax Credits

Greenberg Traurig

In a departure from his budget proposal, the Legislature negotiated changes with the Governor to extend the tax credits for New York’s Brownfield Cleanup Program (BCP) with relatively modest changes to BCP eligibility requirements.  The Governor’s budget proposal would have limited the lucrative “tangible property” tax credit, which is the credit based on a percentage of the cost of constructing a new development on a Brownfield site, to (i) properties located in an environmental zone, (ii) properties to be utilized for affordable housing, or (iii) “upside down” properties – where the remediation of the property is projected to cost more than the value of the remediated property.  Under the bill agreed to with the Legislature, however, those limits (with modifications) will apply only to properties located in New York City.  In other words, outside of New York City, eligibility for the tangible property tax credit will remain available to all developers that otherwise qualify under the BCP, as per existing law.

The news for New York City-based developments is also not all bad. The final bill adds a fourth category of properties eligible for the tangible property tax credit for “underutilized” properties – to be defined by regulation, and the criteria for upside down properties were loosened so that a property can qualify if the remediation is projected to cost over 75 percent – rather than 100 percent – of the value of the remediated property. Despite these revisions, the New York BCP will continue to provide significant tax incentives to developers seeking to clean up and redevelop contaminated sites and the extension will resolve the uncertainty over the future of the program that existed for several years.

Other changes include:

  • “Grandfathering” of Existing Tax Credits: Amendments to the law as they relate to all eligible tax credits are tied to the dates by which a Brownfield site is accepted into the BCP and obtains a Certificate of Completion (COC) from the Department of Environmental Conservation (DEC).

    • Existing provisions related to the tax credits would remain applicable to those sites that either (i) were admitted into BCP prior to June 23, 2008 and obtained their COC by December 31, 2017, or (ii) were admitted into the BCP between June 23, 2008 and July 1, 2015 (or the date by which DEC proposes regulations defining “underutilized,” whichever is later) and obtained a COC by December 31, 2019.

    • Amendments related to the tax credits are applicable to those sites that are accepted into the BCP between July 1, 2015 (or the date by which DEC proposes regulations defining “underutilized,” whichever is later) and December 31, 2022, so long as they obtain a COC on or before March 31, 2026.

  • Definition of “Brownfield Site”: The amendments redefine “Brownfield Site” to mean “any real property where a contaminant is present at levels exceeding the soil cleanup objectives or other health-based or environmental standards, criteria or guidance adopted by [DEC] that are applicable based on the reasonably anticipated use of the property.” This is a welcome change which ties eligibility to cleanup objectives and moves away from the prior vague definition that required the presence of contamination that “complicates” redevelopment.

  • Creation of a New EZ Program: The amendments empower DEC to adopt regulations to implement a program for “the expedited investigation and/or remediation” of brownfield sites (BCP-EZ program) provided the developer agrees to take no tax credits associated with the program. The EZ Program, however, appears to provide a minimal departure from existing remediation and public notice requirements, and thus may not actually provide for an expedited investigation as advertised. One area where a more expedited process may work is for Track 4 – restricted use – cleanups where the applicant the applicant would be allowed to use site-specific data to demonstrate that the concentration of the contaminant in the soils reflects background conditions and, in that case, a contaminant-specific action objective for such contaminant equal to such background concentration may be established.

  • Inclusion of Class 2 Sites: The amendments allow in class 2 Superfund sites that are being remediated by non-culpable volunteers.  Previously, such sites were deemed ineligible even if the party seeking to remediate the site had no role in the contamination.

  • Change In DEC Oversight Costs: The amendments eliminates the payment of DEC oversight costs for volunteers, and permits a flat fee charge to participants.

  • Related Service Fee: The amendments address a perceived problem related to the computation of service fees charged to the Brownfield applicant by a related party and the calculation of tax credits. The concern was that these service fees could be inflated as a way to increase the remediation or site preparation costs, and result in associated increases in the ceiling of eligible tangible property credits.  The amendments provide that such service fees cannot be claimed as eligible site preparation or remediation costs until they are earned and actually paid, and the portion of the tax credits related to such fees cannot be claimed until the taxable year when the subject property is placed into service. This limits the use of such fees as a way to inflate costs that are used to calculate the ceiling for tangible property credits. That ceiling is deemed to be the lesser of $35 million for residential/commercial projects ($45 million for industrial projects) or three times the amount of eligible site preparation and onsite groundwater remediation costs.

  • Definition of Eligible Site Preparation Costs and Groundwater Remediation Costs: The definition of eligible “site preparation” and “onsite groundwater remediation” costs is critical because these costs are eligible for tax credits that range from 28 to 50 percent of such actual costs, and, as noted, those costs are often used as the basis for calculating the ceiling for a project’s tangible property tax credits. The amendments provide a more specific and detailed description of eligible costs, requiring such costs to be necessary to implement a site investigation or remediation, or to qualify for a COC.  Eligible costs include those related to excavation, demolition, engineering and environmental consulting costs, legal costs, transportation and disposal of contaminated soil, physical support of excavation, and dewatering.

  • Increased Tangible Property Tax Credit Percentage and Changed Definition: The amendments limits the tangible property credit to only costs for tangible property with a useful life of at least fifteen years. Certain projects, however, will be eligible for a higher percentage tangible property credit, which in a general sense is a tax credit calculated based on a percentage of the cost of constructing the building on the Brownfield site.  Under existing law, that percentage is either 10 or 12 percent.  Under the amendments, that percentage can be increased in five percent increments, and total as much as 24 percent of the development costs, with five percent bonuses for sites that are cleaned up to Track 1 standards (highest level of cleanup), located in En-zones or a Brownfield Opportunity Area (BOA), or developed for manufacturing or affordable housing.

ARTICLE BY

Steven C. Russo
Robert M. Rosenthal
Greenberg Traurig, LLP

Source Aggregation: Recent Court Decision Addresses Whether Certain Facilities are “Adjacent”

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On February 23, 2015, the U.S. District Court for the Middle District of Pennsylvania issued a decision finding eight compressor stations to be “separate sources” under the Clean Air Act and State of Pennsylvania regulations.  Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., 4:11-CV-1360, 2015 WL 769757 (M.D. Pa. Feb. 23, 2015).  This case addresses a concept known as “source aggregation,” also referred to as “single source” or “co-location.”  This is the concept where a regulatory agency views multiple facilities or activities as a “single source,” air emissions from which must be aggregated to determine whether certain permitting thresholds are met, such as the Clean Air Act’s Title V or New Source Review major source programs.

As discussed in detail in the following sections, there are many EPA determinations, advisory letters and memoranda discussing whether certain facilities are “adjacent” under the source aggregation test, but there have not been many court decisions. Thus, this District Court decision in Citizens for Pennsylvania’s Future is notable because it is one of only a few cases that provide guidance on this issue. In addition, the Court decision itself is important in that there are now two federal court decisions holding that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.

With these insights, read on to see why facility operators need to be aware of how states in which they operate interpret the “adjacency” element of the source aggregation test and why possibilities for controversy remain.

Underlying Facts in Citizens for Pennsylvania’s Future

In Citizens for Pennsylvania‘s Future, the operator of eight compressor stations, Ultra Resources, Inc., obtained eight separate minor source permits for each of its compressor stations. The compressor stations were scattered across two counties.  The shortest linear distance between any two of the compressor stations was more than ¾ mile apart, and the furthest linear distance was nearly 4½ miles apart.  If lines were drawn between all of the compressors, the total area within the lines would be less than 5 square miles.

Each compressor station was connected to a central metering and regulating station, but the compressor stations were not connected to each other.  While none of the compressor stations individually had the capacity to emit more than 100 tons per year (tpy) of nitrogen oxide (NOx), collectively the eight compressor stations could potentially emit more than 100 tpy of NOx.  The applicable major source permitting threshold for NOx discussed in Citizens for Pennsylvania’s Future was 100 tpy.

An environmental group, Citizens for Pennsylvania’s Future (known as “PennFuture”) filed a citizen suit against Ultra Resources, claiming that the eight compressor stations should be considered a single source of air emissions; and therefore, emissions from the eight stations should be aggregated.  PennFuture argued that because the aggregated NOx emissions would exceed major source thresholds, Ultra Resources was in violation of the Clean Air Act and certain Pennsylvania regulations for not having obtained a major source permit under the nonattainment New Source Review program.

Ultra Resources filed a Motion for Summary Judgment, arguing that the compressor stations were separate sources and that it properly obtained separate minor source permits for each of the compressor stations.  The February 23, 2015 Court decision was issued in response to Ultra Resources’ Motion for Summary Judgment.  The contested issue addressed by the Court decision was whether the eight compressor stations were properly considered to be separate sources or whether they should be deemed a single source.

Source Aggregation Test and the “Adjacent” Element

The federal New Source Review program defines a single source using a three-part test, under which facilities are a single source if they: (1) are under common control; (2) have the same two-digit, i.e., major industry grouping, SIC code; and (3) are co-located, i.e., they are located on adjacent or contiguous properties. 40 C.F.R. § 51.166(b)(5) and (6) (defining a “stationary source” under the New Source Review program); 40 C.F.R. § 52.21 (b)(5) and (6) (defining a “stationary source” under the New Source Review program, as applied to delegated state programs).  Each element must exist to be deemed a single source.

The State of Pennsylvania adopted a similar test in its regulation, defining a “facility” as “[a]n air contamination source or a combination of air contamination sources located on one or more contiguous or adjacent properties and which is owned or operated by the same person under common control.”  25 Pa. Code § 121.1.

In Citizens for Pennsylvania’s Future, the Court explained that it was undisputed that the compressor stations were under common control and that they were not located on contiguous properties.  Because Pennsylvania’s regulatory definition of a source, quoted above, does not contain the SIC code element, that element was not discussed in the case.  Thus, the Court’s inquiry focused on whether the compressor stations were “adjacent.”

The term “adjacent” is not expressly defined in the Clean Air Act or in the U.S. Environmental Protection Agency (EPA) regulations.  Over the many years of Clean Air Act implementation, EPA has interpreted the term to entail a review of not only whether facilities are physically proximate, but also whether the facilities are functionally interrelated.

EPA’s assessment of whether facilities are functionally interrelated has been controversial.  Some have touted the consideration of functional interrelatedness as useful to assess whether the subject facilities approximate the “common sense notion of a plant,” which EPA has described as a fundamental feature of a single source.  See EPA, Final Rule, Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52676, 52695 (Aug. 7, 1980).  Others have opposed the consideration of functional interrelatedness as inserting too much subjectivity to the source aggregation test and as varying from the plain meaning of the language used in the regulatory definition of a source.

While various EPA guidance materials discuss whether certain facilities are “adjacent,” such as EPA decisions, opinions and memoranda, and while some states have developed their own such guidance materials, there have not been many court decisions.  Thus, Citizens for Pennsylvania’s Future is one of the few court cases addressing this controversial topic.

District Court’s Analysis of Whether the Compressor Stations were “Adjacent”

The Citizens for Pennsylvania’s Future Court reviewed several resources to guide its analysis of whether the eight compressor stations were “adjacent.”  The Court discussed the 2012 U.S. Court of Appeals for the Sixth Circuit decision in Summit Petroleum Corp. v. EPA, 690 F.3d 733, which directed EPA to apply the plain meaning of the term “adjacent” as determinative.  Summit Petroleum involved a gas sweetening plant and approximately 100 sour gas wells scattered across 43 square miles and ranging from 500 feet to 8 miles in distance from the sweetening plant.  EPA had concluded the sweetening plant and gas wells were a single source, based on EPA’s consideration of the functional interrelatedness of the plant and wells.

On appeal filed by the operator, the Sixth Circuit held that EPA’s consideration of functional interrelatedness was improper and, under the Clean Air Act’s definition of a source, EPA must determine whether the sweetening plant and gas wells are “close to,” “next to,” “adjoining,” or “physically proximate.”  The District Court in Citizens for Pennsylvania’s Future acknowledged that the Sixth Circuit decision in Summit Petroleum was non-binding; however, the District Court ultimately followed the Sixth Circuit’s conclusion that the plain meaning of the term adjacent is determinative in the source aggregation analysis.

The District Court also reviewed relevant Pennsylvania decisions and guidance interpreting Pennsylvania’s definition of a source.  Unlike most other states in the U.S., Pennsylvania has adopted guidance to help address the question of what is adjacent.  The Pennsylvania guidance reviews the dictionary definition of “adjacent” and provides that the plain meaning of the term “adjacent” should be the dispositive factor when determining whether sources are located on adjacent properties.  However, the guidance also states that functional interrelatedness may be considered when performing a source aggregation analysis. The guidance further provides that properties located within ¼ mile are considered adjacent.  For properties located further than ¼ mile apart, a case-by-case review must be performed.  Thus, the guidance does not foreclose the possibility that facilities located further than ¼ mile apart may be deemed adjacent based on a case-by-case consideration of functional interrelatedness.

Following its review of Summit Petroleum and the Pennsylvania guidance, the District Court applied the plain meaning of “adjacent” and concluded that the Ultra Resources’ compressor stations were not sufficiently “close to” or “near” enough to each other to be considered “adjacent.”  Although the Court held that the plain meaning of “adjacent” should be determinative, the Court noted that, given the Pennsylvania guidance, functional interrelatedness could be considered on a case-by-case basis.

Even looking at functional interrelatedness, the Court concluded that because the compressor stations were not connected to each other and they operated independently of one another, and despite the fact that each station was connected to a metering and regulating station for ultimate deposit into a transmission pipeline, the compressor stations were not functionally interrelated anyhow. Therefore, the Court granted Ultra Resources’ Motion for Summary Judgment concluding that the compressor stations were not adjacent and, as such, were not a single source and were properly permitted as separate sources.

Import of Citizens for Pennsylvania’s Future

The recent District Court decision in Citizens for Pennsylvania’s Future is noteworthy as one of the few court cases that offers guidance on this controversial topic.  The outcome of the Court decision itself is also significant because there are now two federal court decisions that reached similar conclusions that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.  Though, unlike the Sixth Circuit’s decision in Summit Petroleum, there was a Pennsylvania policy which was relevant in the District Court’s analysis of adjacency in Citizens for Pennsylvania’s Future and the District Court acknowledged that pursuant to the Pennsylvania policy the consideration of functional interrelatedness may be appropriate on a case-by-case basis.

Thus, Citizens for Pennsylvania’s Future highlights that facility operators need to be aware of how states in which they operate have interpreted the “adjacency” inquiry of the source aggregation test and be alert to any future guidance and court decisions on this controversial topic.

Source Aggregation: Recent Court Decision Addresses Whether Certain Facilities are "Adjacent"

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On February 23, 2015, the U.S. District Court for the Middle District of Pennsylvania issued a decision finding eight compressor stations to be “separate sources” under the Clean Air Act and State of Pennsylvania regulations.  Citizens for Pennsylvania’s Future v. Ultra Resources, Inc., 4:11-CV-1360, 2015 WL 769757 (M.D. Pa. Feb. 23, 2015).  This case addresses a concept known as “source aggregation,” also referred to as “single source” or “co-location.”  This is the concept where a regulatory agency views multiple facilities or activities as a “single source,” air emissions from which must be aggregated to determine whether certain permitting thresholds are met, such as the Clean Air Act’s Title V or New Source Review major source programs.

As discussed in detail in the following sections, there are many EPA determinations, advisory letters and memoranda discussing whether certain facilities are “adjacent” under the source aggregation test, but there have not been many court decisions. Thus, this District Court decision in Citizens for Pennsylvania’s Future is notable because it is one of only a few cases that provide guidance on this issue. In addition, the Court decision itself is important in that there are now two federal court decisions holding that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.

With these insights, read on to see why facility operators need to be aware of how states in which they operate interpret the “adjacency” element of the source aggregation test and why possibilities for controversy remain.

Underlying Facts in Citizens for Pennsylvania’s Future

In Citizens for Pennsylvania‘s Future, the operator of eight compressor stations, Ultra Resources, Inc., obtained eight separate minor source permits for each of its compressor stations. The compressor stations were scattered across two counties.  The shortest linear distance between any two of the compressor stations was more than ¾ mile apart, and the furthest linear distance was nearly 4½ miles apart.  If lines were drawn between all of the compressors, the total area within the lines would be less than 5 square miles.

Each compressor station was connected to a central metering and regulating station, but the compressor stations were not connected to each other.  While none of the compressor stations individually had the capacity to emit more than 100 tons per year (tpy) of nitrogen oxide (NOx), collectively the eight compressor stations could potentially emit more than 100 tpy of NOx.  The applicable major source permitting threshold for NOx discussed in Citizens for Pennsylvania’s Future was 100 tpy.

An environmental group, Citizens for Pennsylvania’s Future (known as “PennFuture”) filed a citizen suit against Ultra Resources, claiming that the eight compressor stations should be considered a single source of air emissions; and therefore, emissions from the eight stations should be aggregated.  PennFuture argued that because the aggregated NOx emissions would exceed major source thresholds, Ultra Resources was in violation of the Clean Air Act and certain Pennsylvania regulations for not having obtained a major source permit under the nonattainment New Source Review program.

Ultra Resources filed a Motion for Summary Judgment, arguing that the compressor stations were separate sources and that it properly obtained separate minor source permits for each of the compressor stations.  The February 23, 2015 Court decision was issued in response to Ultra Resources’ Motion for Summary Judgment.  The contested issue addressed by the Court decision was whether the eight compressor stations were properly considered to be separate sources or whether they should be deemed a single source.

Source Aggregation Test and the “Adjacent” Element

The federal New Source Review program defines a single source using a three-part test, under which facilities are a single source if they: (1) are under common control; (2) have the same two-digit, i.e., major industry grouping, SIC code; and (3) are co-located, i.e., they are located on adjacent or contiguous properties. 40 C.F.R. § 51.166(b)(5) and (6) (defining a “stationary source” under the New Source Review program); 40 C.F.R. § 52.21 (b)(5) and (6) (defining a “stationary source” under the New Source Review program, as applied to delegated state programs).  Each element must exist to be deemed a single source.

The State of Pennsylvania adopted a similar test in its regulation, defining a “facility” as “[a]n air contamination source or a combination of air contamination sources located on one or more contiguous or adjacent properties and which is owned or operated by the same person under common control.”  25 Pa. Code § 121.1.

In Citizens for Pennsylvania’s Future, the Court explained that it was undisputed that the compressor stations were under common control and that they were not located on contiguous properties.  Because Pennsylvania’s regulatory definition of a source, quoted above, does not contain the SIC code element, that element was not discussed in the case.  Thus, the Court’s inquiry focused on whether the compressor stations were “adjacent.”

The term “adjacent” is not expressly defined in the Clean Air Act or in the U.S. Environmental Protection Agency (EPA) regulations.  Over the many years of Clean Air Act implementation, EPA has interpreted the term to entail a review of not only whether facilities are physically proximate, but also whether the facilities are functionally interrelated.

EPA’s assessment of whether facilities are functionally interrelated has been controversial.  Some have touted the consideration of functional interrelatedness as useful to assess whether the subject facilities approximate the “common sense notion of a plant,” which EPA has described as a fundamental feature of a single source.  See EPA, Final Rule, Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52676, 52695 (Aug. 7, 1980).  Others have opposed the consideration of functional interrelatedness as inserting too much subjectivity to the source aggregation test and as varying from the plain meaning of the language used in the regulatory definition of a source.

While various EPA guidance materials discuss whether certain facilities are “adjacent,” such as EPA decisions, opinions and memoranda, and while some states have developed their own such guidance materials, there have not been many court decisions.  Thus, Citizens for Pennsylvania’s Future is one of the few court cases addressing this controversial topic.

District Court’s Analysis of Whether the Compressor Stations were “Adjacent”

The Citizens for Pennsylvania’s Future Court reviewed several resources to guide its analysis of whether the eight compressor stations were “adjacent.”  The Court discussed the 2012 U.S. Court of Appeals for the Sixth Circuit decision in Summit Petroleum Corp. v. EPA, 690 F.3d 733, which directed EPA to apply the plain meaning of the term “adjacent” as determinative.  Summit Petroleum involved a gas sweetening plant and approximately 100 sour gas wells scattered across 43 square miles and ranging from 500 feet to 8 miles in distance from the sweetening plant.  EPA had concluded the sweetening plant and gas wells were a single source, based on EPA’s consideration of the functional interrelatedness of the plant and wells.

On appeal filed by the operator, the Sixth Circuit held that EPA’s consideration of functional interrelatedness was improper and, under the Clean Air Act’s definition of a source, EPA must determine whether the sweetening plant and gas wells are “close to,” “next to,” “adjoining,” or “physically proximate.”  The District Court in Citizens for Pennsylvania’s Future acknowledged that the Sixth Circuit decision in Summit Petroleum was non-binding; however, the District Court ultimately followed the Sixth Circuit’s conclusion that the plain meaning of the term adjacent is determinative in the source aggregation analysis.

The District Court also reviewed relevant Pennsylvania decisions and guidance interpreting Pennsylvania’s definition of a source.  Unlike most other states in the U.S., Pennsylvania has adopted guidance to help address the question of what is adjacent.  The Pennsylvania guidance reviews the dictionary definition of “adjacent” and provides that the plain meaning of the term “adjacent” should be the dispositive factor when determining whether sources are located on adjacent properties.  However, the guidance also states that functional interrelatedness may be considered when performing a source aggregation analysis. The guidance further provides that properties located within ¼ mile are considered adjacent.  For properties located further than ¼ mile apart, a case-by-case review must be performed.  Thus, the guidance does not foreclose the possibility that facilities located further than ¼ mile apart may be deemed adjacent based on a case-by-case consideration of functional interrelatedness.

Following its review of Summit Petroleum and the Pennsylvania guidance, the District Court applied the plain meaning of “adjacent” and concluded that the Ultra Resources’ compressor stations were not sufficiently “close to” or “near” enough to each other to be considered “adjacent.”  Although the Court held that the plain meaning of “adjacent” should be determinative, the Court noted that, given the Pennsylvania guidance, functional interrelatedness could be considered on a case-by-case basis.

Even looking at functional interrelatedness, the Court concluded that because the compressor stations were not connected to each other and they operated independently of one another, and despite the fact that each station was connected to a metering and regulating station for ultimate deposit into a transmission pipeline, the compressor stations were not functionally interrelated anyhow. Therefore, the Court granted Ultra Resources’ Motion for Summary Judgment concluding that the compressor stations were not adjacent and, as such, were not a single source and were properly permitted as separate sources.

Import of Citizens for Pennsylvania’s Future

The recent District Court decision in Citizens for Pennsylvania’s Future is noteworthy as one of the few court cases that offers guidance on this controversial topic.  The outcome of the Court decision itself is also significant because there are now two federal court decisions that reached similar conclusions that the plain meaning of the term “adjacent” is determinative in the inquiry of whether multiple facilities are co-located under the source aggregation test.  Though, unlike the Sixth Circuit’s decision in Summit Petroleum, there was a Pennsylvania policy which was relevant in the District Court’s analysis of adjacency in Citizens for Pennsylvania’s Future and the District Court acknowledged that pursuant to the Pennsylvania policy the consideration of functional interrelatedness may be appropriate on a case-by-case basis.

Thus, Citizens for Pennsylvania’s Future highlights that facility operators need to be aware of how states in which they operate have interpreted the “adjacency” inquiry of the source aggregation test and be alert to any future guidance and court decisions on this controversial topic.

New Pennsylvania Department of Environmental Protection Well Transfer and Status Change Procedures Detailed

Steptoe Johnson PLLC

The Pennsylvania Department of Environmental Protection has developed new instructions for handling oil and gas well transfers and status and ownership changes. DEP is asking operators that as they update their well inventories that they be aware of these requirements when they submit information back to the appropriate DEP district office. The instructions summarized here are in a Power Point presentation distributed by the DEP’s Seth Pelepko and readers are advised to contact Seth directly for a copy of his detailed presentation.

The presentation lists four areas of focus. They are:

1) Well Transfers;

2) Well Status Changes;

3) Well Type Changes and

4) All Other Changes.

Well transfer details consume the largest portion of the presentation. Here operators are directed to complete the DEP’s Application for Transfer of Well Permit (5500-PM-OG0010) and to use the presentation’s checklist to ensure all necessary information is included. The checklist identifies the 7 steps operators must complete in addition to a permit holder resolution document. It is noted that the Department has 45 days from the date of receipt to approve or deny the transfer request. Part of this process involves the DEP completing a compliance history analysis of both parties involved in the transfer.

Well status changes require the operator determine the actual status of the well (plugged, inactive, active or never drilled) and to submit the proper documentation to DEP so they can make the necessary changes to their database.

Well types beyond production are storage, injection or observation. Any changes in the type classification must be submitted to the DEP along with the necessary documentation.

ARTICLE BY

Gary E. Slagel
Steptoe & Johnson PLLC