Posted on August 8, 2011 by Michael L. Hardy

In a very interesting air pollution control enforcement case, the Court of Appeals of Ohio, Tenth Appellate District (which sits in Columbus, Ohio) issued an opinion that concerns many experienced practitioners:  State ex rel. Ohio Attorney General v. The Shelly Holding Co., et. al., 191 Ohio App. 3d 421, 2010 – Ohio – 6526, 946 N.E. 2d 295.

Shelly owned a number of hot mix asphalt plants.  During stack tests to determine compliance with air pollution permit emission limitations,  several plants failed their tests.  But Shelly continued to operate those hot mix asphalt plants. The Ohio Environmental Protection Agency claimed that the continued operation of the plants after the failed tests constituted  continuing violations even though the state had no monitoring data to prove that point. The Trial Court rejected the state’s contention, stating that it was unwilling to infer a continued violation until Shelly successfully completed a subsequent stack test. “Simply put the Court does not find the requested inference to be reasonable given the fact that the State has the burden .  Further, the Court finds Shelly’s argument that a ‘stack test’ does not represent normal operating conditions to be compelling.  Based on the foregoing, the Court will only consider the day of the ‘stack test’ demonstrating excess emission to be evidence of a violation.” State ex rel. Ohio Attorney General v. The Shelly Holding Co., et. al. (Sept. 2, 2009), Franklin Cty. C. P. No. 07CVH07-9702.

The Court of Appeals reversed the Trial Court, stating that “…in determining the number of days each violation existed, the trial court should have concluded that the violation continued until the subsequent stack test determined that the plant no longer was violating the permit limitations.”  The Ohio Supreme Court has agreed to consider Shelly’s appeal of this ruling.  Shelly also has the amicus curiae support of  a number of trade organizations, including the Ohio Chamber of Commerce.

Arguing that the state has the burden of proof to demonstrate by a preponderance of the evidence each and every day of violation,  Shelly seeks a ruling from the Supreme Court  that would prohibit the state from showing, by mere inference, that there are ongoing violations of permits and regulations after a failed stack test.  Citing the record evidence that stack testing conditions are “snapshots” of operating conditions at the time of the test, typically “maximum, worst-case testing conditions,” Shelly claims there was undisputed evidence that those tests do not represent day-to-day operations. The state offered no evidence to show that stack test conditions are indicative of day-to-day operations.   Thus, Shelly argues, the proof of violation during a stack test does not necessarily show that the hot mix asphalt plant exceeded its permit limits during subsequent, more normal operations. Shelly also argued that the Tenth District incorrectly assumed that another stack test is the only way to show the reestablishment of compliance. Changes in operating conditions, restrictions on output or hours, and repairs may prove to be  easier corrections than awaiting another stack test that requires coordination with state schedules.  If a successful stack test is the only way to show compliance, the facility faces the Hobson’s Choice of shut down or, if it continues to operate, the possible inference of continuing violations (and fines).

In short, this case will be interesting to follow because it highlights the real world difficulties that arise from the regulatory requirement to test under unrealistic, maximum, worst case conditions that do not correspond to day to day operations.   While Shelly may be correct that it is improper to assume non-compliance during continuing, business normal operations after a failed stack test that proceeded under artificial conditions, there remains another difficult question for Shelly:  how to re-establish compliance in a mutually satisfactory way.  There is no doubt that the state regulatory authorities would balk at any ruling that would allow a regulated source unilaterally to change or curtail operations to attain compliance.



A New Twist on Potential to Emit

Posted on February 15, 2011 by Michael L. Hardy

Seasoned Clean Air Act lawyers have grappled with the application of the concept of "potential to emit" in permit applications and in other regulatory settings. In virtually every decade since the 1970's, there has been a significant judicial ruling, codified regulation or guidance document that attempts to elucidate the principles of "potential to emit" for purposes of permitting and enforcement.

A recent decision of the Court of Appeals of Ohio, Tenth Appellate District (which sits in Columbus, Ohio) undertook a review of the significant case and regulatory developments on the topic. State of Ohio ex rel Ohio Atty. Gen. v. The Shelly Holding Co, et. al., resulted from an appeal of a lengthy enforcement case over the alleged failure to secure the proper permits for asphalt plants. The concept of "potential to emit" played a significant role in the enforcement case at the trial court.


Ohio alleged that Shelly violated the air pollution laws at a number of its asphalt plants and portable generators by failing to obtain appropriate Title V "major source" permits before commencement of operations, among other things. Shelly, on the other hand, maintained that these plants were minor sources by reason of the restrictions Shelly voluntarily imposed on operations to keep emission levels below the regulatory triggers. After a lengthy bench trial leading to a record of over 2000 pages, the court found in favor of the State on 13 of 20 counts and assessed a civil penalty of $350,123.52 against Shelly. Nevertheless, Ohio appealed on several grounds, including the trial court's application of the "potential to emit" to the defendants' facilities.

According to Ohio, "potential to emit" requires a stationary source's potential emissions to be calculated on the basis of the source's maximum capacity to generate emissions – that is, worst case conditions 24 hours per day, 365 days per year, or 8,760 hours per year, unless there was a federally enforceable permit that imposed temporal or capacity limits on the operations. The trial court accepted Shelly's self-imposed limits, which it had placed in its permit applications, as effective limits for determining the "potential to emit" and rejected Ohio's insistence that federally enforceable limitations represent the only exception to the maximum design capacity as the basis for "potential to emit." Under Ohio's argument, "federally enforceable" limits as the only exception would arise through a permits issued through Title V notice and comment procedures.

The Court of Appeals reversed on the grounds that a source owner's voluntary restrictions are insufficient. While the restrictions need not be federally enforceable, they must be legally or practically enforceable by the state. Thus, they could arise from a duly granted permit to install or permit to operate under state law. The problem in this case is that Ohio's permit backlog meant there were periods of operation without formal permits to operate. But the Court of Appeals decided that "…an owner cannot be penalized for the Ohio EPA's failure" and delays. The appellate court remanded the case to the trial court to reconsider the scope of the penalties in light of its instructions. The state agency's delay in properly processing the state issued permits could affect the amount of penalties.

Another interesting issue arose from Shelly's failure to pass a stack test. The trial court accepted Shelly's argument that a stack test does not represent normal operating conditions, but rather is "snap test and does not relate to day-to-day operations, so that only the day of the (failed) stack test should constitute a violation and warrant a fine." Failing at high load conditions does not mean that it would fail at lower load levels. Rejecting the trial court's conclusion, however, the appellate court directed the trial court, in determining the number of days of violation, to presume that the violation continued until a subsequent stack test passed. Thus, the appellate court seems to disregard other ways, like engineering calculations, to show compliance during normal day-to-day operations.

Shelly has not sought to appeal this decision to the Ohio Supreme Court, but is currently preparing to do so.