In the world of the Clean Air Act, being a major source is a big deal. You have to get a Title V operating permit. You probably have to comply with one or more National Emission Standards for Hazardous Air Pollutants (NESHAPs). You have to prepare annual emission inventories, semiannual reports, and compliance certifications-all of which senior management has to sign off on (and you might have to explain to them). And, if you want to make changes to your facility (or aren't currently “major” but want to grow past that threshold), you may need to tackle the highly complex preconstruction permit application process for Prevention of Significant Deterioration (PSD) or Nonattainment New Source Review (NNSR).
Because the stakes are high, it is important to understand the criteria used to determine when a facility is a major source.
In April of this year, the U.S. Environmental Protection Agency (EPA) published a letter that clearly defines its current point of view for one of the major source criteria: common control. It also reinforces the concept of cooperative federalism-a view that federal and state governments are partners in the exercise of governmental authority.
The term “stationary source” is defined in Section 111(a)(3) of the Clean Air Act as “any building, structure, facility, or installation which emits or may emit any air pollutant.” In 1980, in part as a response to the Alabama Power court decision, EPA released final rules for NSR and PSD permitting. In these rules and the associated preamble, EPA defined how the term “stationary source” is used within those permit programs. From the preamble1:
Under today's rules, a PSD source is a grouping of all pollutant emitting activities at one location and owned or under the control of the same person or persons. This generally relates to the common notion of a plant… Therefore, today's rules continue to incorporate the 'dual definition' concept of source which requires consideration of overall emissions from a 'plant' and from each 'installation' within that plant.
Later in the preamble, EPA further states:
In EPA's view, the December opinion of the court in Alabama Power sets the following boundaries on the definition for PSD purposes of the component terms of 'source': (1) it must carry out reasonably the purposes of PSD; (2) it must approximate a common sense notion of 'plant'; and (3) it must avoid aggregating pollutant-emitting activities that as a group would not fit within the ordinary meaning of 'building,' 'structure,' 'facility,' or 'installation.'
This led to a definition of “stationary source” that includes a three-factor test. The boundaries of a major source, for purposes of air quality permitting, shall encompass all of the pollutant-emitting activities that meet all three of the following criteria:
- Belong to the same industrial grouping;
- Are located on contiguous or adjacent properties; AND
- Are under the control of the same person (or persons under common control).
This definition, with some variations and caveats, can be found in construction permitting regulations (40 CFR Parts 51 and 52); Title V operating permit regulations (40 CFR Parts 70 and 71); and NESHAP regulations (40 CFR Part 63; the NESHAP regulations include some important differences - see §63.2). Once you figure out the appropriate group of pollutant-emitting activities (also called “aggregation”), you then compare the potential emissions of that group with a threshold, ranging from 10 to 250 tons depending on the pollutant, type of program, and location of the source. If potential emissions exceed the threshold, the facility is a major source and you're in the associated program.
The interpretation of each of the three factors has been the subject of numerous EPA memos, petitions, and court cases over the years.
Factor One - Industrial Grouping
This may be the easiest of the three factors to evaluate (although it has been interpreted in different ways). Sources meet this criterion if they have the same first two-digit code as described in the Standard Industrial Classification Manual, 1972, as amended by the 1977 Supplement (also known as the “SIC code”). EPA explained the reasoning for the use of this criterion in the 1980 NSR preamble2:
In formulating a new definition of 'source,' EPA accepted the suggestion of one commenter that the Agency use a standard industrial classification code for distinguishing between sets of activities on the basis of their functional interrelationships. While EPA sought to distinguish between activities on that basis, it also sought to maximize the predictability of aggregating activities and to minimize the difficulty of administering the definition … A classification code…offers objectivity and relative simplicity.
Later in this section of the preamble, EPA notes that sources should be classified by their primary activity, such that support facilities (which, if operated by themselves, may have a different two-digit SIC code) are included with the primary activity for purposes of a source grouping. Support facilities convey, store, or otherwise assist in the production of the principal product. A common example is a boiler used to generate process steam for manufacturing operations. Source determination memos issued over the years (available on EPA's website at NSR Policy and Guidance Document Index and Title V Operating Permit Policy and Guidance Document Index) have included discussions of operations that EPA considered to be support facilities, including those summarized below.
- In January 20123 , EPA Region III issued an opinion regarding a co-generation (co-gen) facility located on the property of a BASF site. While the facilities would have different two-digit SIC codes as stand-alone operations, the co-gen facility provided 100% of BASF's electrical and thermal energy, and BASF was obligated to purchase electrical and thermal energy from the co-gen facility and no other party. EPA considered the co-gen facility to be a support facility for BASF.
- In August 20074, EPA Region V issued a determination regarding a biodiesel facility co-located with a proposed oil seed extraction plant. While the facilities were planned to utilize some shared resources (including boiler capacity), they did not support each other and had different two-digit SIC codes. EPA deemed them to be separate sources for permitting purposes.
Factor Two - Contiguous or Adjacent
The interpretation of this factor has been the subject of some interesting wrangling over the years. Some state and local agencies use the dictionary definition of the terms “contiguous” and “adjacent,” whereas others have gone well beyond that. EPA has varied in its views on this. From the 1980 preamble5:
EPA is unable to say precisely at this point how far apart activities must be in order to be treated separately. The Agency can answer that question only through case-by-case determinations. One commenter asked, however, whether EPA would treat a surface coal mine and an electrical generator separated by 20 miles and linked by a railroad as one 'source,' if the mine, the generator, and the railroad were all under common control. EPA confirms that it would not. First, the mine and the generator would be too far apart.
Contrast this with an EPA Region 8 letter6 from 1999 that emphasized functional relationships among facilities over 35 miles apart:
…whether two facilities are 'adjacent' is based on the 'common sense' notion of a source and the functional interrelationship of the facilities, and is not simply a matter of the physical distance between two facilities… In the case of American Soda's Piceance and Parachute [Colorado] facilities, we believe that EPA's policy holds that these facilities need to be considered as a single stationary source. The two clearly will be functionally interdependent, as evidenced by the dedicated slurry pipeline and the spent brine return pipeline which will connect the two facilities. Additional evidence is that one facility (the mine) is to produce an intermediate product for processing at the other facility (the processing plant). Given the integral connectedness of these facilities, we believe that the distance alone does not preclude these two being considered adjacent for PSD permitting purposes.
In 2007, then Acting EPA Assistant Administrator William Wehrum issued a memo7 for the oil and gas industry that stated:
Notably, in 1980, we declined to add a specific 'functionality' criteria to the definition of source because we believed that 'assessments of functional interrelationships would be highly subjective' and 'embroil the Agency in fine-grained analysis'…for this industry, we do not believe determining whether two activities are operationally dependent drives the determination as to whether two properties are contiguous or adjacent, because it would embroil the Agency in precisely the fine-grained analysis we intended to avoid, and it would potentially lead to results which do not adhere to the common sense notion of a plant….
After identifying the individual surface site, the permitting authority should consider aggregating pollutant-emitting activities at multiple surface sites, when the surface sites are under common control and located in close proximity to each other. A reviewing authority can consider two surface sites to be in close proximity if they are physically adjacent, or if they are separated by no more than a short distance (e.g. across a highway, separated by a city block or some similar distance).
This memo was withdrawn in 20098, when EPA stated that “the simplified approach provided in the memorandum should not be relied upon by permitting authorities as a sufficient endpoint in the decision-making process.” Further developments for this industry sector continued with the Summit Petroleum decision in October 2010, which aggregated several wells, a sweetening plant, and associated flares located within an area of approximately 43 square miles into a single source for Title V permitting. This decision was petitioned in 2011 and vacated in 2012. EPA's response to this vacature was a memo (sometimes referred to as the Summit Directive) issued in December 20129, which stated, in part:
Because of the Court's decision… the EPA may no longer consider interrelatedness in determining adjacency when making source determination decisions in its title V or NSR permitting decisions in areas under the jurisdiction of the 6th Circuit…
Outside the 6th Circuit, at this time, the EPA does not intend to change its longstanding practice of considering interrelatedness in the EPA permitting actions in other jurisdictions.
In permitting actions occurring outside of the 6th Circuit, the EPA will continue to make source determinations on a case-by-case basis using the three factor test in the NSR and Title V regulations at 40 CFR 52.21(b)(6) and 71.2, respectively, and consistent with more than three decades of the EPA applicability determinations and guidance letters regarding application of those criteria, which have considered both proximity and interrelatedness in determining whether emission units are adjacent.
This was appealed, and in May 2014 the D.C. Circuit struck down the Summit Directive. The decision was based on a determination that the Directive was contrary to EPA's own regulations, which require EPA to maintain national uniformity and to standardize criteria, procedures, and policies nationwide. Now the issue of how to aggregate sources expanded to the question of overall regulatory consistency. EPA amended its regional consistency regulations in July 201610
These revisions introduce a narrow procedural exception under which an EPA regional office no longer needs to seek headquarters concurrence to diverge from national policy in geographic areas covered by such an adverse court decision. This exception will apply where Federal court decisions concerning the CAA have regional or local applicability.
Not surprisingly, this was petitioned. In June 2018, the DC Appeals Court denied the petition and found EPA's amendments reflected a permissible solution to issues resulting from inter-circuit conflicts. The court determined EPA's construction of the statute to be “eminently reasonable”11.
In parallel with the regional consistency rulemaking, EPA issued rule revisions in June 2016 to 40 CFR Parts 51, 52, 70, and 71 which changed the meaning of the term “adjacent” specifically for the oil and natural gas sector. From the revised definition of major source in §70.2:
For onshore activities belonging to Standard Industrial Classification (SIC) Major Group 13: Oil and Gas Extraction, pollutant emitting activities shall be considered adjacent if they are located on the same surface site; or if they are located on surface sites that are located within 1⁄4 mile of one another (measured from the center of the equipment on the surface site) and they share equipment.
Similar wording changes were made to parts 51, 52, and 71. It is critical to note, however, that EPA did not require state and local authorities with approved permitting programs to adopt these new definitions-and many have not done so.
Factor Three - Common Control
The third factor is the subject of the latest line to be drawn in the sand regarding source aggregation.
On April 30, 2018, EPA published its current interpretation of the “common control” factor for source determinations. This policy decision was conveyed via letter from EPA to the Pennsylvania Department of Environmental Protection (PADEP) in response to a PADEP request for EPA review. The question was whether a biogas facility owned by Meadowbrook Energy, LLC (Meadowbrook) should be aggregated with an existing landfill owned by Keystone Sanitary Landfill Inc. (KSL) for air quality permitting purposes.
The letter focuses on the issue of common control and recognizes that determining control can be a difficult decision that must be made on a case-by-case basis. In prior source determinations, EPA identified a number of factors that should be considered, including shared workforces, management, administrative functions, equipment, or intermediates/byproducts, as well as dependency relationships12-an approach referred to as the “multi-factor” approach.
EPA has relied on the presence of support or dependency relationships to determine if a facility is wholly or partially dependent on another facility for operational or monetary reasons. These dependency relationships were typically characterized by contract agreements, which included both output contracts (contracts to purchase all or part of another entity's output) and requirement contracts (contracts to produce all or part of another entity's requirement). EPA has used these contracts as measures of the operational or economic influence of one entity on another. However, arguments have also been made that there can be a common control scenario where one facility is not entirely dependent on the other for operation and the facilities do not share workforces, management, administrative functions, equipment, or pollution control responsibilities.
During its review of the Meadowbrook case, EPA noted it was apparent that differing considerations have been used to evaluate control, which have resulted in inconsistent outcomes in source determinations and regulatory uncertainty. The April letter re-evaluates the concept of common control to better align it with a “common sense notion of a plant” and asserts that a greater sense of clarity can be applied to source determinations if the assessment of control is focused on “authority of one entity to dictate decisions of the other that could affect the applicability of, or compliance with, relevant air pollution regulatory requirements.” There are three key points that EPA expounds on: “dictating decisions,” “decisions that affect air pollution requirements,” and “dependency does not always equate to common control.”
EPA emphasizes the distinction between “dictate” and “influence”in making assessments of common control: “this concept includes only the power to dictate a particular outcome and does not include the mere ability to influence.” The letter defines “control” as “when one entity has the power or authority to restrict another entity's choices and effectively dictate a specific outcome, such that the controlled entity lacks autonomy to choose a different course of action.” EPA also states that distinguishing “control” from merely the “ability to influence” will vary from case to case, and the focus of this evaluation is not on how control is established (ownership, contract, etc.), but on whether “control,” as defined above, is established. The letter acknowledges that prior definitions of “control” included the ability to influence13, but EPA currently believes that even if an entity is influenced or constrained by contractual relationships, that does not necessarily mean that it is controlled by those influences in making a given decision. Therefore, EPA asserts that interpreting the term “control” between two entities will require more than merely the “ability to influence.”
Decisions that Affect Air Pollution Requirements
The focus on “control” for source determinations should be restricted to matters concerning air pollution and the ability to comply with permitting or compliance requirements. EPA states that since the very discussion of “control” is being made with reference to source determinations for NSR/Title V programs, it makes sense that it is directed towards air pollution emitting activities. An example is a facility where a responsible official from one entity cannot certify the completeness of a permit application for the entire composite facility, as he/she does not have authority over or knowledge of the other entity's portion of the composite facility. EPA also raises the issue of an inequitable scenario where two without “control” share a Title V permit; entity 1 could face liability for the actions of entity 2 in such a scenario, purely due to the negligence of entity 2.
EPA rounds off this discussion by stating that common control discussions should not focus on options that have no impact on air pollution permitting/compliance activities and that “control” should focus on power to direct decisions over air pollution related obligations.
Dependency Does Not Always Equate to Common Control
In its April 2018 letter, EPA clarifies that common control determinations using dependency relationships should not be confused with the separate issue of whether one entity is a “support facility” for another entity. As stated earlier in this article, a support facility analysis is required as a part of the industrial grouping factor of the three-factor analysis. The letter reiterates that a dependency relationship should not be presumed to result in common control and that evaluations are needed to determine whether one entity has the power and authority to dictate decisions of another entity. Economic dependencies do not necessarily mean that an entity will have the power or authority to dictate decisions related to air permitting or compliance for the other entity.
The updated interpretation of common control presented in the April 2018 letter directs focus on the authority or power of one entity to dictate the specific outcome for the other entity for matters related to air permitting and compliance. This shift in the interpretation of common control could have a significant impact on interdependent facilities owned by separate entities, as in this case where EPA determined that there was no common control of the Meadowbrook biogas facility and Keystone landfill. Besides landfill/biogas, the oil and gas sector, power generation, chemicals, and other industries could be affected by this approach.
EPA's April 2018 letter clearly assigns the responsibility and authority for making source determinations to Pennsylvania “given that Pennsylvania's Title V and NSR programs have been approved by EPA.” The cover page frames EPA's memo as an explanation that “should be helpful to PADEP as it makes its final permitting decision.” This is consistent with EPA's recent focus on cooperative federalism, considered to be a more collaborative partnership with states compared to past practices that some found to be more prescriptive in nature.
In a review of several source determination memos issued from 1981 forward, a cooperative approach prevailed with a few notable exceptions14. The Environmental Council of States (ECOS) has been strongly advocating for reframing the roles of state and federal regulators to make states the preferred implementing entities for national environmental programs.
Giving more discretion to states and other entities with approved implementation plans has mixed benefits, particularly for companies with operations in multiple locations around the country. It allows agencies to develop programs and systems that they believe best suit the circumstances they face in their jurisdiction, but it can also result in similar situations being handled differently in two different locations.
What Does It All Mean?
As described throughout this article, there is significant variability in how this subject has been handled over the years. As national administrations change and air quality programs evolve, agency priorities and interpretations change and evolve as well. This can make it difficult for companies that seek regulatory certainty as they adapt and restructure operations in response to business needs. One element that has remained relatively constant is deference to the permit authority with an approved program. This is consistent with the direction of current EPA leadership.
When faced with an aggregation decision that will affect permitting, the following considerations are advisable:
- Learn your permit authority's position on source determinations in the past.
- If in doubt over the common control element of the three-factor test, take some time to look carefully at the April common control letter from EPA.
- Consider reviewing source determinations made in other parts of the country if they relate to your situation.
- Be prepared to give as much support as possible to your position, and expect to spend some time with your permit authority to understand its perspective. That authority has likely given this matter a great deal of consideration over the years, and you will be better able to negotiate with permitting staff if you have an appreciation of their approach and rationale.
Late breaking news: On September 4, EPA released draft guidance for review and comment on the interpretation of "adjacent" for Clean Air Act permitting. See https://www.epa.gov/nsr/draft-guidance-interpreting-adjacent-new-source-review-and-title-v-source-determinations-all .
1 45 FR 52680, 52695 (August 7, 1980)
2 45 FR 52695 (August 7, 1980)
3 Letter from Kathleen Cox, Associate Director, Office of Permits & Air Toxics, EPA Region 3, to Troy Breathwaite, Air Permits Manager, Virginia Department of Environmental Quality (January 10, 2012)
4 Letter from Pamela Blakley, Chief, Air Permits Section, EPA Region 5, to Don Smith, Supervisor, Minnesota Pollution Control Agency (August 14, 2007)
5 45 FR 52695 (August 7, 1980)
6 Letter from Richard Long, Director, Air and Radiation Program, EPA Region 8, to Dennis Myers, Construction Permit Unit Leader, Colorado Department of Public Health and Environment (April 20, 1999)
7 “Source Determination for Oil and Gas Industries”, William Wehrum, EPA Acting Assistant Administrator, (January 12, 2007)
8 “Withdrawal of Source Determination for Oil and Gas Industries”, Gina McCarthy, EPA Administrator (September 22, 2009)
9 “Applicability of the Summit Decision to EPA Title V and NSR Source Determinations”, Stephen D. Page, Director OAQPS (December 21, 2012)
10 Fact Sheet, Amendments to Regional Consistency Regulations, EPA (July 21, 2016)
11 National Environmental Development Association's Clean Air Project v. EPA, Case No. 16-1344 (DC Circuit June 8, 2018)
12 Many of these factors, as well as others-including responsibility for violations of air quality requirements-are discussed in a September 18, 1995 letter from William Spratlin, EPA Region VII, to Peter Hamlin, Iowa Department of Natural Resources. This letter includes a list of several previously issued letters and other references regarding common control.
13 “Major Source Determinations for Military Installations under the Air Toxics, New Source Review, and Title V Operating Permit Programs of the Clean Air Act”, John Seitz, EPA OAQPS Director (August 2, 1996)
14 In a May 11, 2009 EPA Region 2 letter to Manchester Renewable Power Corporation and Ocean County Landfill Corporation (“Common Control Determination for Ocean County Landfill and the Manchester Renewable Power Corp./LES”), EPA disagreed with the New Jersey Department of Environmental Protection's assessment that the two facilities were not under common control. EPA required that the NJDEP reopen and reissue the Title V permits for these facilities “to both companies as a single source.” In a September 13, 2000 EPA Region 8 letter to the Colorado Department of Public Health and the Environment (CDPHE) (“EPA Review of Proposed Title V Operating Permit for TriGen-Colorado Energy Corporation”), EPA objected to the issuance of the Title V permit for a number of issues, including CDPHE's treatment of TriGen and Coors as separate entities for permitting. In an April 20, 1999 EPA Region 8 letter to CDPHE regarding proposed PSD construction permits for the American Soda Commercial Mine and processing plant, EPA disagreed with the state's determination that the facilities were separate for PSD permitting.