The Colorado Department of Public Health and Environment, Air Pollution Control Division (“APCD”), recently issued an addendum to a technical review document in support of a renewal operating permit that it issued in January 2007 that will be of interest to EHS professionals in the oil and gas industry. 

The Addendum applies a recent EPA guidance document, and clarifies how the State of Colorado will approach the issue of “source aggregation” when permitting oil and gas production and gathering facilities.  This Addendum was prepared in response to a Clean Air Act (“CAA”) petition filed by Rocky Mountain Clean Air Action (“RMCAA”) which was granted by EPA Administrator Stephen L. Johnson last February.  In its decision to grant the petition of RMCAA, EPA did not express any view as to whether source aggregation would be required, as argued by RMCAA in its draft permit comments, and later in its petition to EPA.

Background

In September 2006, RMCAA submitted a single comment on the renewal application for a Title V operating permit submitted by the operator of a natural gas compressor station, and then requested that Colorado APCD deny the permit.  RMCAA asserted in its comment that the compressor station in question, presumably along with other compressor stations and thousands of natural gas wells and other equipment located in the Wattenberg Field under control of the same operator, should all be aggregated and permitted as a single source subject to a single operating permit.  The APCD, which is responsible for evaluating and issuing Title V operating permits and PSD construction permits in Colorado, rejected the comment, with the caveat that it might re-evaluate source aggregation for oil and gas facilities “upon further action relating to this interpretation, for example, by the U.S. EPA.”  The APCD also confirmed for RMCAA that it “will issue permits in a manner consistent with how it has historically made single source determinations for oil and gas operations, which in this case would be to consider the listed facilities as separate sources for both Title V and PSD purposes.”

After Colorado APCD rejected RMCAA’s source aggregation argument, and issued a final operating permit, RMCAA petitioned EPA on or about January 3, 2007, to object to the Division’s issuance of a renewal Title V operating permit on the same source aggregation ground that it had unsuccessfully raised in its lone comment to Colorado APCD. [1]   Perhaps ironically, RMCAA’s petition was filed roughly two weeks before EPA issued a long-awaited policy on source determination for the oil and gas industry, discussed in more detail below.

On February 7, 2008, EPA issued an order granting RMCAA’s Petition (“EPA Order”).  The EPA Order indicates that while CDPHE has a responsibility to respond to significant comments, it should respond more fully to the Petitioner’s comments regarding source aggregation and, as necessary, supplement the permit record and make appropriate changes to the permit.  EPA did this without concluding that the source must be defined to include any of the operator-permittees wells or other facilities, as argued by RMCAA.

Source Aggregation Fundamentals

Under both the CAA Act and Colorado’s federally-approved State Implementation Plan (“SIP”), different air pollutant-emitting facilities can be “aggregated” and considered a single stationary source for PSD and Title V operating permit purposes only if they (1) belong to the same industrial grouping, (2) are located on contiguous or adjacent properties, and (3) are under the control of the same person.  See, e.g., 40 C.F.R. § 52.21(b)(5).  All three of these criteria must be met in order to consider otherwise separate facilities as a single source.  The “contiguous or adjacent” requirement is often at issue when the source aggregation question is raised.

For years EPA and the federal courts have emphasized that the contiguous or adjacent requirement is a location-based requirement, such that a facility is defined based on a “grouping of all pollutant emitting activities at one location.”  45 Fed. Reg. 52,676, 52693 (August 7, 1980) (emphasis added).  In Alabama Power Co. v. Costle, which prompted the 1980 amendments to the CAA, the D.C. Circuit likewise referred to the contiguous or adjacent requirement as a proximity requirement.  636 F.2d 323, 397 (D.C. Cir. 1979) (emphasis added).  More specifically, during the 1980 PSD rulemaking process, public commenters argued, and EPA agreed, that it would be inappropriate to treat a “long-line” operation, such as a pipeline or electrical power line, as a single “source,” because “the properties for such operations are neither contiguous nor adjacent.”  45 Fed. Reg. 52,676, 52,695 (August 7, 1980).

EPA’s Recent Source Determination Guidance for Oil & Gas

EPA recently reaffirmed this proximity requirement specifically for the oil and gas industry by issuing its January 12, 2007, guidance document entitled “Source Determinations for Oil and Gas Industries” (“Source Guidance”) .  As the Source Guidance indicates, the “foremost principle that guides our EPA decision-making is that we should apply a ‘common sense notion’ of a plant.”  Id. at 2.  The Source Guidance further notes that “unlike many industries, land ownership and control are not easily distinguished in this industry ... [and] owners or operators of production field facilities typically control only the surface area necessary to separate the physical structure used in oil and gas production, and not the land between well drill sites.”  Id. at 3.  In light of these and other factors, EPA concludes in the Source Guidance that “the surface site is a reasonable place to begin the source determination analysis,” and further recommends that permitting authorities first look at the Act’s § 112 approach of segregating each individual oil and gas surface site.  This is how Colorado has approached permitting of oil and gas facilities since it was delegated Clean Air Act authority, as was explained by Colorado APCD in its first response to RMCAA’s comment on the subject compressor station operating permit renewal, noted above.

Addendum to Technical Review Document

On April 29, 2008, APCD responded to the EPA Order by issuing the noted Addendum to the January 1, 2007, Technical Review Document ("Addendum") for the renewal operating permit that was issued in final form in January 2007. The Addendum carefully goes through the procedural history of APCD’s response to comment and permit issuance, the language of the EPA Order of February 2008, and APCD’s subsequent application of EPA’s January 2007 Source Guidance.  In considering the various factors in the noted guidance, as well as the operative terms of the Clean Air Act and its implementing regulations relevant to source determination, APCD concluded that other compressor stations miles away from the one in question, yet under common control, and numerous wells also separated by miles from the subject compressor station, were not “contiguous or adjacent” within the meaning of the CAA and applicable regulations.  Because APCD concluded that its original source determination was correct, no permanent revisions were deemed necessary and the final renewal operating permit issued in January of 2007 remains in effect as issued.

EPA’s latest regulatory guidance supports Colorado’s rejection of RMCAA’s comments on the Frederick permit, specifically, and its concern about aggregation of numerous sources with other D‑J Basin Facilities, more generally.  The Source Guidance also underscores the discretion EPA affords state permitting authorities in making such case-by-case source determinations.  Source Guidance at 5.

This recent Addendum to Technical Review Document is a helpful reference for operators of oil and gas facilities who may be faced with uncertainty or challenges regarding when and whether emissions from separate facilities should be aggregated for permitting purposes.  This particular application of the January 2007 EPA Source Determination Guidance is especially helpful to operators in Colorado, and underscores the utility of that guidance in making source determinations for air quality permitting purposes.