A state environmental court sided with the state Department of Environmental Protection in late December in a case over one of the more contested forms of gas field arithmetic.
The Environmental Hearing Board said DEP was right to add together the air emissions for a gas well pad and a compressor station in a Lycoming County tract of state forest and evaluate them as a single pollution source.
But the judges backed DEP’s conclusion while disagreeing with some of the strategies the agency used to get there in a way that could influence how state regulators treat other groupings of gas field equipment throughout Pennsylvania to cap total emissions from the sites.
The decision was the first clear sign of the environmental tribunal’s position on DEP’s approach to aggregating oil and gas emissions, or what one judge called, with evident weariness, “the never-ending struggle to define single sources under federal law.”
Although many other cases have been brought before the board to either challenge DEP’s aggregation decisions or to push the department to group more oil and gas pollution sources together, they were settled or withdrawn before the hearing board could issue a conclusive decision.
What’s behind the law
The idea behind the federal law, and both federal and state environmental regulators’ interpretation of it, is that a linked group of well pads, pipelines and compressor stations controlled by the same companies and built near one another should be considered one pollution source. In some cases, although not this one, the combined emissions are substantial enough to be considered “major” and trigger more regulatory scrutiny and costly pollution controls.
Regulators have to consider several factors when they decide whether separate emissions sources should be evaluated as one source: the facilities must be under the common control of the same company, share the same industrial designation and be located on contiguous or adjacent properties.
On all three of these parameters, the hearing board found that a gas well and compressor station operated by two wholly owned subsidiaries of Williamsville, N.Y.-based National Fuel Gas Co. fit the definition.
“We have determined that each of the three parts of the test are satisfied, although not necessarily in the manner advocated by the department,” Judge Steven Beckman wrote in an opinion joined by all five of the judges.
The judges said the well operated by Seneca Resources Corp. and the compressor station operated by National Fuel Gas Midstream Corp. are in the same industrial grouping because they share the first two digits of their standard industrial classification — or SIC — codes. The judges picked a compressor station SIC code that was different than the competing options submitted by DEP and the companies, neither of which, the judges wrote “appears to us to be a particularly good fit.”
The judges also found that the two sites were under the common control of the same parent company — a contention at the heart of the case and one that National Fuel Gas Midstream and Seneca sharply disputed.
The hearing board said there was “ample evidence” that National Fuel Gas Co. has the power to direct the behavior of its subsidiaries in their decisions regarding the compressor station and well pad, especially through “the power of the purse” and the shared parent’s ability to influence budget and business plans.
Finally, the judges found the two sites are adjacent. They declared that measuring from fence line-to-fence line, not from compressor station to well, was the proper technique for judging distance — in this case, 0.24 miles between the closest edges of developed area at each site. DEP generally considers facilities to be adjacent if they are 0.25 miles apart or closer.
The crucial factor in determining adjacency, the judges said, is not the difference between hundredths of a mile, which they found “of little consequence.” Instead, the judges adopted a vaguer standard, saying that based on physical proximity the well pad and compressor station sites are “close enough” to meet the general definition of adjacent.
Carly Manino, a spokeswoman for National Fuel, said the midstream companies are evaluating their appeal options, which include applying for reconsideration to the hearing board or appealing to the Commonwealth Court.
A DEP spokesman declined to comment.
A grey area
Outside attorneys said the decision clarified some unresolved issues and offered hints for future cases.
“This issue, it’s a grey area. Unfortunately, there are no bright lines,” said Michael Winek, an attorney with Babst Calland who specializes in air quality regulatory issues.
Sprinkled throughout the opinion and its footnotes are indications of the judges’ dim view of alternative arguments the department raised but didn’t rely upon to come to its aggregation determination.
DEP suggested, for example, that a support relationship between the compressor station and well pad could override any difference in industrial classification codes. The judges did not have to take up this issue, they noted, but added, “If we were required to do so, we would likely rule against them on this point.”
The judges similarly frowned upon the department’s early (and later discarded) view that the existence of a service contract between the two companies and a supporting relationship between the well site and compressor station helped justify DEP’s finding that they were under common control. “In general,” the judges said, “we are skeptical about the use of these two approaches.”
The judges specifically declined to opine about a third key issue — whether the functional relationship between emissions sources can be a factor in determining if they are adjacent. Federal courts have reached different conclusions on that issue and the U.S. Environmental Protection Agency is considering clarifying its policy on it now.
Mr. Winek said he suspects DEP will continue making single-source determinations after the ruling much as it had in the past since the board mostly signaled what it doesn’t like in parts of the opinion that are not binding. But those markers will guide arguments in future cases.
“If you read the footnotes, that’s where all the good stuff is,” he said. “That’s the language I have highlighted and I will rely upon if and when I need to next argue an aggregation issue.”
Laura Legere: email@example.com.