March 01, 2014

Rapanos and the Clean Air Act: Linking Wetland and Single Source Determinations

Lauran M. Sturm

Seven years later, the impact of United States v. Rapanos, 547 U.S. 715 (2006), is clear in at least one respect: the decision did little to clarify the meaning of “waters of the United States,” especially with respect to “adjacent wetlands.” In Rapanos, a four-justice plurality, led by Justice Scalia, determined that such wetlands are subject to Clean Water Act (CWA) jurisdiction only if they have a “continuous surface connection” to bodies that are “waters of the United States” in their own right, such as navigable rivers. In contrast, wetlands with only an intermittent, physically remote hydrological connection to “waters of the United States” are not jurisdictional.

Justice Kennedy concurred with the plurality to vacate and remand the lower decision, but he presented a different test for determining whether an adjacent wetland is jurisdictional. His test requires a “significant nexus” between the wetland and “other covered waters more readily understood as ‘navigable.’” A wetland will meet this test if it significantly affects the chemical, physical, and biological integrity of these more traditional “waters of the United States.”

The Circuits have divided on which Rapanos test applies in wetlands determinations. The First, Third, and Eighth Circuits have held that a wetland falls within CWA jurisdiction if it meets either the “continuous surface connection” test or the “significant nexus” test. United States v. Donovan, 661 F.3d 174 (3d Cir. 2011); United States v. Bailey, 571 F.3d 791 (8th Cir. 2009); United States v. Johnson, 467 F.3d 56 (1st Cir. 2006). The Seventh and Eleventh Circuits have concluded that only Justice Kennedy’s “significant nexus” test applies in wetland determinations. United States v. Robison, 505 F.3d 1208 (11th Cir. 2007); United States v. Gerke Excavating, Inc., 464 F.3d 723 (7th Cir. 2006). The Fourth and Ninth Circuits have applied the Kennedy test without ruling out potential applicability of the plurality’s test. N. Cal. River Watch v. Wilcox, 2011 WL 238292 (9th Cir. Jan. 26, 2011); Precon Dev. v. U.S. Army Corps, 2011 WL 213052 (4th Cir. Jan. 25, 2011). The Fifth and Sixth Circuits have chosen to apply both tests without endorsing either. United States v. Cundiff, 555 F.3d 200 (6th Cir. 2009); United States v. Lucas, 516 F.3d 316 (5th Cir. 2008). These inconsistencies, combined with a revolving set of wetlands guidance documents from the Corps, have led to considerable confusion about the jurisdictional status of adjacent wetlands.

Rapanos has, however, offered some surprising clarity in another context: single source determinations under the Clean Air Act (CAA). Last year, the Sixth Circuit relied on the Rapanos plurality opinion in evaluating what makes individual emitting facilities sufficiently “adjacent” to constitute one source for purposes of Title V permitting. In this opinion, Summit Petroleum v. EPA, 690 F.3d 733 (6th Cir. 2012), the court rejected the U.S. Environmental Protection Agency’s (EPA’s) insistence that multiple facilities may be aggregated as a single source if they are “functionally interrelated.” EPA has since issued guidance that it will continue to apply its “functional interrelationship” test for single source determinations outside the Sixth Circuit, an action currently being challenged in the D.C. Circuit Court of Appeals. Nat’l Envtl. Dev. Ass’n’s Clean Air Project v. EPA, No. 13-1035 (D.C. Cir. filed Feb. 19, 2013). If EPA’s position fails, or if other circuits follow Summit, Rapanos may end up having a more definitive influence on CAA determinations than CWA ones. On the other hand, Summit’s treatment of Rapanos could impact undecided circuits’ choice of a Rapanos test.

In Summit, the Sixth Circuit vacated EPA’s decision that Summit’s facilities were “adjacent” and sided with Summit’s position that “EPA’s determination that the physical requirement of adjacency can be established through mere functional relatedness is unreasonable and contrary to the plain meaning of the word ‘adjacent.’”

In some cases, such as Summit’s, a finding of adjacency can be determinative for Title V permitting purposes. As a brief overview, under the CAA, all “major sources” must obtain a Title V operating permit. 42 U.S.C. § 7661a(a). A “major stationary source” means “any stationary facility or source of air pollutants which directly emits, or has the potential to emit, one hundred tons per year or more of any air pollutant.” 42 U.S.C. § 7602(j); 40 C.F.R. § 71.2. A “stationary source” includes “any building, structure, facility, or installation which emits or may emit a regulated NSR pollutant.” 40 C.F.R. § 52.21(b)(5). Multiple facilities can be considered one stationary source for Title V purposes if they (1) are under common control; (2) are located on one or more contiguous or adjacent properties; and (3) belong to the same major industrial grouping (i.e., share the same SIC code). 40 C.F.R. § 71.2.

In Summit, the facilities at issue consisted of a Michigan plant that “sweetens” sour gas from approximately 100 production wells located over an area of roughly 43 square miles. The wells ranged from 500 feet to 8 miles in distance from the plant and were located on property not owned by Summit. None of the well sites shared a common boundary with each other, and none shared a common boundary with Summit’s production plant. Because the plant and the wells were all located on Indian territory, EPA had permitted jurisdiction.

By itself, the sweetening plant emitted, or had the potential to emit, just under 100 tons per year (tpy) of sulfur dioxides and nitrous oxides. Each well site was far below the 100 tpy threshold. However, if the emissions from the plant and any one production well were aggregated, they would exceed 100 tpy.

Summit submitted an applicability determination to EPA, requesting a determination on whether the facilities would, collectively, meet the Title V definition for “major source.” Summit argued that aggregation of the facilities would be improper because the wells were “located at great distances from its production facility on entirely different tracts, leases, and surface sites,” meaning they were neither adjacent nor contiguous. In its response, EPA referenced a 2007 memorandum authored by Acting Administrator William Wehrum. EPA Memorandum, “Source Determinations for Oil and Gas Industries” (Jan. 12, 2007). The Wehrum memorandum specifically addressed single source determinations for the oil and gas industry and provided that “proximity is the most informative factor in making a source determination involving oil and gas activities.” Nonetheless, EPA said it could not determine—without more information—whether Summit’s facilities constituted a single source. It asked Summit for additional information (a map and schematic showing the connection between Summit’s “exploration and production activities”) to assist in the determination.

After Summit submitted the requested information, EPA punted the determination a second time, now claiming that physical proximity was but one factor in making adjacency determinations: “[G]enerally, the EPA determines whether two facilities are ‘adjacent’ based on a ‘common sense’ notion of a source and the functional interrelationship of the facilities, rather than simply on the physical distance between the two facilities.” Summit, 690 F.3d at 739.

EPA and Summit then discussed the issue in a conference call, with EPA indicating its intention to back away from the Wehrum Memorandum. A few months later, EPA issued its determination that Summit’s facilities did in fact constitute a single stationary source and were therefore a Title V major source. EPA offered no explanation for this decision. It later forwarded Summit a September 22, 2009, guidance memorandum entitled, “Withdrawal of Source Determinations for Oil and Gas Industries,” which renounced the Wehrum Memorandum’s emphasis on proximity and reiterated that EPA would consider the three regulatory criteria outlined in 40 C.F.R. § 72.1 and make its determinations on a case-by-case basis.

Summit then filed a petition of review with the Sixth Circuit, and EPA agreed to Summit’s request for a stay of its Title V permitting deadline until Summit could provide EPA with more information to consider. After consideration of this additional information, EPA informed Summit that it still considered Summit’s facilities a single stationary source. In explanation, EPA said, “it had never established a specific distance between pollutant-emitting entities at which they were no longer adjacent” and that “historically, factors such as ‘the nature of the relationship between the facilities’ and the ‘degree of interdependence between them’ had been important to the question of whether two facilities were adjacent.” EPA indicated that “Summit’s plants, wells, and flares worked together as a single unit that ‘together formed a single product’ and found that Summit had failed to provide any evidence to demonstrate that the emissions sources were not ‘truly interdependent.’” Given this functional relationship among the facilities, EPA determined that they should not be considered separate emission sources.

Summit then filed a second petition for review with the Sixth Circuit. Under the Administrative Procedures Act’s limited standard of review, the court could reverse EPA’s determination only if it was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. The court also had to defer to EPA’s interpretation of its own rules unless that interpretation was plainly erroneous or inconsistent with the regulations.

On appeal, Summit argued that “adjacent” in 40 C.F.R. § 70.2 was unambiguous and “EPA’s interpretation of it defies its plain and ordinary meaning.” EPA disagreed and argued that “adjacent” was ambiguous because EPA had never decided upon a specific physical distance to meet the definition.

The court began its analysis by looking to the dictionary definitions of “adjacent”: “[c]lose to, lying near. . . [n]ext to, adjoining.” The court noted that “EPA does not cite, nor could we locate, any authority suggesting that the term ‘adjacent’ invokes an assessment of the functional relationship between two activities.” EPA argued that, while correct, the dictionary definitions were not sufficient because physical distance must be evaluated in context. The court agreed to an extent but found that “EPA makes an impermissible and illogical stretch when it states that one must ask the purpose for which two activities exist in order to consider whether they are adjacent to one another.” In the court’s view, “[w]hether the distance between two facilities enables a given relationship to exist between them is immaterial to the concept of adjacency—it merely answers the question of whether a certain activity can or cannot occur between two locations that were, and will continue to be regardless of whether they host the activity, physically distant or physically adjacent.”

The court then turned to case law, finding that “[w]hile some courts conclude that ‘adjacent’ is ambiguous in the limited sense of lacking an abstract definition, there is common recognition of the fact that adjacency is a purely physical and geographical, even if case-by-case, determination.” On this point, the court noted that “[t]he most persuasive authority comes from the Supreme Court’s decision in Rapanos v. United States, 547 U.S. 715 (2006).”

In Rapanos, of course, the Court addressed the Corps’ regulations interpreting the CWA’s prohibition of the discharge of pollutants in “navigable waters,” defined as “the waters of the United States.” In the Corps’ regulations, it interpreted “waters of the United States” to include “wetlands adjacent . . . to waters [and tributaries].” The Corps in Rapanos had determined that it had jurisdiction over a “sometimes saturated” parcel of land located 11 to 20 miles from the nearest body of navigable water. At this distance, the Corps deemed the parcel sufficiently adjacent to constitute “waters of the United States.”

As the Summit court noted, the Supreme Court reversed the Sixth Circuit in Rapanos, with the plurality finding that deference to the Corps’ interpretation of its own regulation was not appropriate for “the Corps’ definition of ‘adjacent’ which . . . has been extended beyond reason. . . .However ambiguous the term may be in the abstract, ‘adjacent’ . . . is not ambiguous between ‘physically abutting’ and merely ‘nearby.’” Summit, 690 F.3d at 743 (quoting Rapanos, 547 U.S. at 748).

The court thus found that the requirement that aggregated activities be “located on contiguous or adjacent properties” was unambiguous. It therefore gave no deference to EPA’s interpretation and determined that EPA’s position “that activities can be adjacent so long as they are functionally related, irrespective of the distance that separates them, undermines the plain meaning of the text, which demands, by definition, that would-be aggregated facilities have physical proximity.” Summit, 690 F.3d at 744.

EPA argued that its interpretation was nonetheless entitled to deference due to “an established history of implementing the traditional definition of adjacency with the concept of activities’ functional relatedness.” On this point, the court conceded that history was on EPA’s side; it cited numerous EPA guidance documents outlining interdependence as a basis for aggregating facilities into a single source, noting that “even a cursory overview demonstrates that the agency has rarely, if ever, considered physical proximity the sine quo non of two pollutant-emitting activities being ‘adjacent’ to one another.” However, again relying on Rapanos, the court rejected EPA’s position due to the unambiguous meaning of “adjacent”:

Like Rapanos, we conclude 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. We thus reject the EPA’s argument to the contrary and have little hesitation in taking this opportunity—the first our Court has been given in the EPA’s own history of “entrenched executive error”—to vacate the agency’s unreasonable interpretation of its Title V permitting plan.

Summit, 690 F.3d at 746 (quoting Rapanos, 547 U.S. at 752).

After the Summit decision, EPA issued a guidance memorandum outlining its plans for future source determinations. EPA Memorandum, “Applicability of the Summit Decision to EPA Title V and NSR Source Determinations” (Dec. 21, 2012) (Summit Memorandum). In this memorandum, EPA states that it “has a longstanding practice of interpreting ‘adjacent’ to include a consideration of the functional interrelatedness of two emission units, in addition to the physical distance between them, in making source determinations in both the title V and new source review (NSR) programs.” EPA then admits it “is still assessing how to implement [Summit] in its permitting decisions in the 6th Circuit.” However, EPA “does not intend to change its longstanding practice of considering interrelatedness in the EPA permitting decisions in other jurisdictions. In permitting actions outside of the 6th Circuit . . . EPA will continue to make source determinations on a case-by-case basis . . . consider[ing] both proximity and interrelatedness in determining whether emission units are adjacent.” EPA also asks for the conveyed information to be shared “with potential permit applicants, as well as the state and local agencies.” Summit Memorandum at 2.

On February 19, 2013, the National Environmental Development Association’s Clean Air Project filed a Petition for Review of EPA’s post-Summit position. Nat’l Envtl. Dev. Ass’n’s Clean Air Project v. EPA, No. 13-1035, Doc. 1442708 (D.C. Cir.). In its opening brief, the Clean Air Project argues that EPA has provided “no reasoned explanation for continuing to apply a definition of ‘adjacent’ that was thoroughly rejected by the Sixth Circuit. As the Sixth Circuit persuasively explained, EPA’s interpretation of ‘adjacent’ to encompass the murky concept of ‘functional interrelatedness’ is inconsistent with (1) dictionary definitions of ‘adjacent’ . . .; [and] (2) Supreme Court case law interpreting the term ‘adjacent.’” Doc. 1442708 at 30.

The Clean Air Project also challenges the inconsistency of EPA’s position, claiming that the memorandum “is inherently suspect given the statutory and regulatory demands under [the Clean Air Act] to ‘assure fair and uniform application by all EPA Regional Offices of the criteria, procedures, and policies employed in implementing and enforcing the act.’” The Clean Air Project claims that the memorandum “expressly contravenes this ‘uniformity’ mandate” because it “unambiguously establishes one set of permitting criteria in the jurisdictions within the Sixth Circuit and another set of permitting criteria for jurisdictions ‘outside the 6th Circuit.’ Within the Sixth Circuit, ‘adjacent’ is given its plain meaning (i.e., physical proximity) in making permit applicability decisions. . . . But outside the Sixth Circuit, EPA interprets ‘adjacent’ to include the elastic and inherently subjective concept of ‘functional interrelatedness.’” Id. at 27.

On this note, EPA has made subsequent statements that it will implement the Summit holding only within the Sixth Circuit. As the Clean Air Project indicates in its brief, EPA rejected Summit-based comments on a Federal Implementation Plan to regulate emissions from North Dakota oil and natural gas facilities. 78 Fed. Reg. 17,836, 17,842 (Mar. 22, 2013). Commenters asked EPA “to clarify that geographically separated ‘well pads and related operations’ should not be aggregated into one stationary source simply because they are connected by gathering or production lines.” They cited Summit “as an example of the EPA incorrectly aggregating multiple wells, well pads and related facilities that were geographically widespread into one single facility for the purposes of the [Clean Air Act].” In response, EPA stated, “This action affects facilities operating on the [Fort Berthold Indian Reservation] in North Dakota, and thus the 6th Circuit’s Summit Petroleum decision cited by the commenters does not apply.”

In disapproving Utah’s State Implementation Plan submission for PM2.5, EPA likewise limited the reach of Summit. 78 Fed. Reg. 48,615, 48,616 (Aug. 9, 2013). EPA received comments that the EME Homer City Generation v. EPA decision, 696 F.3d 7 (D.C. Cir. 2012), should not impact EPA’s decision on a plan “that only impacts sources in Utah, a state within the jurisdiction of the Tenth Circuit of Appeals rather than the D.C. Circuit Court of Appeals.” EPA rejected this argument because

the D.C. Circuit’s decision in EME Homer City . . . is . . . nationally applicable. In this respect, the . . . decision is distinguishable from decisions of other Courts of Appeal involving petitions for review of EPA actions under the [Clean Air Act] that are ‘regionally or locally applicable’ within the meaning of section 307(b)(1).

E.g., Summit Petroleum Corp v. EPA.

EPA relies on this point in its response brief in the National Environmental Development Association case. Nat’l Envtl. Dev. Ass’n’s Clean Air Project v. EPA, No. 13-1035, Doc. 1462976 (D.C. Cir.). EPA argues that the petitioner’s “uniformity” claim is undercut by the CAA’s differing avenues for review of “nationally applicable” versus “locally or regionally applicable” agency actions. Doc. 1462976 at 32.

(“By consolidating review of nationally applicable final agency actions in this Court, Congress advanced the objective of ‘even and consistent national application’ of certain EPA regulations . . . that are national in scope. . . . At the same time, Congress left the door open to intercircuit conflicts by granting jurisdiction over locally or regionally applicable ‘final actions’—like the applicability determination challenged in Summit—to the regional courts of appeal.”)

EPA also claims that the petitioner lacks standing, that the Summit Memorandum does not constitute “final agency action,” and that the challenge is not ripe “because it is entirely unclear what legal consequences the memorandum may cause.” Id. at 1. As to the arbitrary and capricious claim, EPA argues that its “adherence to its longstanding interpretation of its regulations in the face of a single adverse opinion is [not] unreasonable.” Id. at 30. EPA also claims that it did not have to explain its unaltered view of “adjacency” after Summit because “EPA is not required to reiterate its reasoning each time it adheres to an existing policy.” Id. at 37.

The relationship between Rapanos and Summit may have substantial impacts on both wetlands and single source determinations. As noted earlier, the Sixth Circuit has yet to issue a definitive ruling on which Rapanos test controls. United States v. Cundiff, 555 F.3d 200, 208 (6th Cir. 2009) (“Fortunately, as the following section explains, jurisdiction is proper here under each of the primary Rapanos opinions and therefore we do not have to decide here, once and for all, which test controls in all future cases.”). Summit’s emphasis on language from the Rapanos plurality opinion may signal a future adoption of the “continuous surface connection test.” After all, EPA’s emphasis on “functional interrelationship,” rejected in Summit, echoes Justice Kennedy’s “significant nexus” test under Rapanos; in both cases, the agency determines “adjacency” not merely by proximity but by some relationship (e.g., whether via connected pipelines or hydrologic connection) between the two bodies in question. The similarity in the two approaches may affect how other, undecided courts view the plurality and Kennedy tests from Rapanos.

As for source determinations, if EPA’s post-Summit position fails for arbitrariness or lack of uniformity, EPA will have to grapple with how it defines “adjacent” and how to handle adjacency determinations outside of the Sixth Circuit. And if other courts follow Summit’s lead, EPA may no longer be able to consider functional interrelationship in determining whether two facilities are “located on one or more contiguous or adjacent properties,” notwithstanding its “established history” of doing so.

Lauran M. Sturm

Ms. Sturm is an associate at Waller Lansden Dortch & Davis, LLP.