Anadarko Petroleum Corp. Finally Wins Aggregation Battle Over Permit For Natural Gas Compressor Station

Posted on April 26, 2011 by Donald Shandy

On February 2, 2011, the U.S. Environmental Protection Agency (“EPA”) issued an “Order Denying Petition for Objection to Permit” in In re Anadarko Petroleum Corp., Frederick Compressor Station, a decision that should finally pave the way for Anadarko Petroleum Corporation (“Anadarko”) to continue to operate its Frederick Compressor Station in Colorado under a minor source operating permit. The EPA’s Order is the latest in a contentious and lengthy struggle that began when the Colorado air permitting agency (“CDPHE”) renewed the Title V operating permit for the Frederick Compressor Station on January 1, 2007. Four years, three challenges by an environmental group (WildEarth Guardians), and two EPA objections later, Anadarko appears to have jumped over all the hurdles.

The main issue before the EPA was whether CDPHE should have aggregated the emissions from the Frederick Compressor Station and various oil and gas wells and other pollutant emitting activities in the Wattenburg Field and treated them all as a single “source” for permitting purposes. Although oil and natural gas facilities are typically regulated independently as “minor sources,” this is not the first time a regulatory agency has aggregated interrelated oil and natural gas facilities into a “major source” to require more rigorous permitting of these sources than would otherwise be required if they were treated individually.

Under the Prevention of Significant Deterioration (“PSD”) program, for example, a “major stationary source” is a “stationary source” that emits or has the potential to emit a certain quantity of pollutants. 42 U.S.C. §§ 7479(1), 7602(j). In turn, a “stationary source” is any building, structure, facility, or installation which emits or may emit a regulated pollutant. 40 C.F.R. § 51.166(b)(5). The federal regulations define “building, structure, facility, or installation” as all of the pollutant-emitting activities which: (1) belong to the same industrial grouping; (2) are located on one or more contiguous or adjacent properties; and (3) are under the control of the same person. Id. § 51.166(b)(6). From a legal perspective, the regulatory agencies must determine whether the oil and natural gas facilities meet the three factors listed above.

On January 12, 2007, the Acting Assistant Administrator of the EPA, William Wehrum, issued a memorandum entitled Source Determinations for Oil and Gas Industries, which indicated that proximity was the most informative factor in making source determinations for the oil and natural gas industries, suggesting that sites separated by more than a short distance (such as ¼ mile) are not “contiguous or adjacent” – and should generally not be treated as a single source. However, on September 22, 2009, Assistant Administrator Gina McCarthy issued a memorandum entitled Withdrawal of Source Determinations for Oil and Gas Industries. The McCarthy memorandum withdrew the Wehrum memorandum and specifically de-emphasized proximity as the determining factor in these determinations.

With regard to the Frederick Compressor Station, WildEarth Guardians twice petitioned the EPA to object to the permit renewal. Both times, the EPA objected and required the CDPHE to provide additional support for its permitting decision. On July 14, 2010, the CDPHE submitted a third and lengthy argument in favor of renewing the Title V permit for the compressor station. The environmental group subsequently petitioned the EPA to object for a third time. Finally, in the February 2, 2011 Order (set down more than four years after the initial Title V renewal was issued), the EPA denied the environmental group’s petition. The EPA conducted a thorough analysis of previous statements and determinations involving aggregation and determined that the CDPHE had properly determined the Frederick Compressor Station was a single source for purposes of PSD and Title V permitting. The EPA’s Order made two findings of particular interest relating to the issue: (1) despite the de-emphasis on proximity under the McCarthy memorandum, the CDPHE properly used distance as an important factor in the contiguous/adjacent analysis, when it was not “the determining factor” in its source determination; and (2) decisions regarding support facilities, while instructive in the aggregation analysis, are really significant only to determining whether two facilities should be treated as belonging to the same SIC code – and there is no reason to analyze them when the two facilities share the same SIC code.

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