By Lesley Foxhall Pietras

On August 7, 2012, in a 2-1 decision in Summit Petroleum Corp. v. U.S. Environmental Protection Agency, the United States Court of Appeals for the Sixth Circuit vacated the Environmental Protection Agency’s (EPA) determination that a natural gas sweetening plant and sour gas production wells commonly owned by Summit Petroleum Corporation (Summit) but dispersed over forty-three square miles constituted a single stationary source under the Clean Air Act Title V permitting program. Specifically at issue was EPA’s finding that the plant and the wells were “adjacent” based on their operationally interdependent relationship.

When making single stationary source determinations without the protection of the non-aggregation provision in Section 112 of the Clean Air Act, 42 U.S.C. § 7412(n)(4)(A), multiple pollutant-emitting activities can be aggregated together and considered a single stationary source only if, among other things, they “are located on one or more contiguous or adjacent properties.” See, e.g., 40 C.F.R. §§ 51.166(b)(6); 71.2. The question of what is “contiguous or adjacent” has long been vexing for the exploration and production industry. Under different administrations, EPA has changed its guidance on the meaning of this phrase. In 2007, in guidance specifically addressing oil and gas activities, EPA stated that “proximity is the most informative factor in making source determinations.” See Memorandum from William L. Wehrum, Acting Assistant Administrator, EPA, to Regional Administrators I-X, at 3 (Jan. 12, 2007). Two years later, EPA withdrew that guidance, reemphasizing the criteria set out in the regulations. See Memorandum from Gina McCarthy, Assistant Administrator, EPA, to Regional Administrators I-X (Sept. 22, 2009).

In Summit, the court concluded that the regulatory term “adjacent” is unambiguous and implies only physical proximity, citing the dictionary definition of “adjacent,” the term’s etymological history, and caselaw. In light of this determination, the court applied no deference to EPA’s interpretation of the term. See Summit Petroleum Corp. v. U.S. Environmental Protection Agency, No. 09-4348, slip op. at 15 (6th Cir. Aug. 7, 2012). EPA had argued that because “it has an established history of supplementing the traditional definition of adjacency with the concept of activities’ functional relatedness,” the court must review its interpretation with heightened deference. Id. at 16. The court rejected this argument, noting that “adjacent” is unambiguous and that “an agency may not insulate itself from correction merely because it has not been corrected soon enough, for a longstanding error is still an error.” Id. at 18.

Based on the plain meaning of “adjacent,” the court also rejected EPA’s interpretation “that activities can be adjacent so long as they are functionally related, irrespective of the distance that separates them.” See id. at 15. The court thus vacated EPA’s stationary source determination, directing EPA to reassess the aggregation of Summit’s facilities “under the ordinary understanding of its requirement that Summit’s plant and wells be located on adjacent, i.e., physically proximate, properties.” See id. at 16 (emphasis added).

While EPA performed the single stationary source determination in Summit because Summit’s plant and gas production wells are located on Indian territory, most other stationary source determinations are made by state and local regulators. Nonetheless, Summit should provide more clarity for all relevant permitting authorities, as it teaches that physical proximity must be considered in determining whether activities are “contiguous or adjacent.”