In a broadly reasoned opinion, the Sixth Circuit Court of Appeals found in favor of Summit Petroleum and determined that the USEPA could not aggregate emissions from a natural gas processing plant and an associated complex of production wells covering forty-three square miles into a stationary source under Title V of the Clean Air Act.  The decision upends the USEPA’s longstanding predisposition to evaluate the nature and degree of interdependence between facilities as an essential factor in determining whether a group of facilities is permitted as single source or separate sources under Title V.  The Court expressed “little hesitation” in rejecting US EPA’s history of “entrenched executive error” and vacated the agency’s unreasonable interpretation of its Title V permitting requirements with instructions to aggregate activities “only if they are located on physically contiguous or adjacent property.” 

Summit Petroleum operated a natural gas processing plant and approximately one hundred production wells in Michigan, all of which were connected to the plant by subsurface pipelines.  The wells are located over an area of approximately forty-three square miles and located from five hundred feet to eight miles from the plant.  None of the wells were on property immediately contiguous to the processing plant property.  Emissions from the processing plant were less than one hundred tons per year; however, if these emissions were added with to the emissions from the wells and flares, total emissions would exceed one hundred tons per year and would be considered a major stationary source subject to Title V permitting. 

USEPA defines a single stationary source under Title V as a building, structure, facility or installation which (1) are under common control; (2) located on one or more contiguous or adjacent properties; and (3) belong to the same major industrial grouping.  See 40 C.F.R. § 71.2.  If the pollutant-emitting sources fail to satisfy any one of these three criteria, they are considered separate stationary sources and their emissions cannot be aggregated to meet the major source threshold for which a Title V permit is required. 

USEPA and Summit discussed for over five years whether the processing plant and wells would be considered a single source under Title V.  USEPA ultimately concluded that Summit failed to provide sufficient evidence to demonstrate that the emissions sources were not “truly interdependent.”  Based on the perceived functional interrelationships, USEPA determined that Summit’s processing plant, wells and flares should be considered a single stationary source of emissions and required Summit to apply for Title V permit.  Summit filed a petition for review with the Sixth Circuit. 

The Court wasted no time in concluding that the term “adjacent” in USEPA rules is unambiguous and does not involve an assessment of the functional relationship between two or more activities or sources.  Adjacency can only be determined based on physical proximity.  Accordingly, the Court determined that USEPA’s interpretation was arbitrary and capricious and required no deference.  Similarly, despite USEPA’s demonstration that it had evaluated functional interdependence in other Title V permitting determinations, the agency’s prior unreasonable interpretation did not deserve deference. 

After a thorough review of Title V’s regulatory history and a “common sense” interpretation of the term adjacent the Court found US EPA’s position wholly untenable, vacated the Agency’s determination aggregating the processing plant, wells and flares into a single major source under the Title V permitting program and remanded the case to USEPA for reassessment of Summit’s Title V source determination in light of the “plain meaning” application of the requirement that Summit’s activities be aggregated only if they are located on physically contiguous or adjacent properties.

The Sixth Circuit’s decision has significant implications for petroleum, natural gas  and other industries which are often dependent on far flung, but interconnected operations.  This decision provides substantial support for permit applicants’ contention that separate facilities should be permitted as separate sources.