EPA Reinstates Project Aggregation Rule

On November 15, 2018, EPA published a final rule entitled “Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR): Aggregation;

Reconsideration,” 83 Fed. Reg. 57324, that brings to an end, at least for now, of the reconsideration of the project aggregation rule announced in the first weeks of the Obama Administration. In effect, EPA’s decision is to restore the rule in effect prior to the reconsideration. The document may be viewed here.

BACKGROUND

Prior to 2006, EPA’s PSD and NNSR rules did not address when multiple projects should be aggregated, or considered together, in assessing PSD and NNSR applicability. What had evolved was a series of guidance interpretations, the best known of which was the 3M -Maplewood decision, that looked at multiple factors including funding decisions and timing to arrive at a determination of whether projects should be aggregated. See, e.g., 71 Fed. Reg. 54235, 54245 (Sept. 14, 2006).

As part of the prior NSR Reform efforts in the 2000s, the Bush Administration proposed a rule follows:

We propose that if a source or reviewing authority determines that a project is dependent upon another project for its technical or economic viability, the source or reviewing authority must consider the projects to be a single project and must aggregate all of the emissions increases for the individual projects in Step 1 of the major NSR applicability analysis.

Id. “Technical dependence” meant that one part of the operation could not work without the other. “Economic dependence” meant that part of the project was not economically viable without the other. EPA also stated that timing was not determinative and solicited comment on whether a presumption that projects three years or more apart were not related.

EPA promulgated its final aggregation rule on January 15, 2009, in the waning days of the Bush Administration. See 74 Fed. Reg. 2376. The final rule basically adopted the test set forth in the proposed rule, but with the caveat that the relationship had to be “substantial.” The final rule also adopted a rebuttable presumption that projects that were three or more years apart were not “substantially related,” although EPA retained the discretion to still find substantial relationship in appropriate cases.

Environmental groups promptly sought reconsideration from the Obama Administration, which was granted on February 9, 2010 followed four days later by a stay of the rule. See 74 Fed. Reg. 7193 (reconsideration), 7284 (stay) (Feb. 13, 2010). Two months later, the Obama Administration proposed to repeal the January 15, 2010 rule. See 74 Fed. Reg. 19567 (Apr. 15, 2010). In language echoing NRDC’s petition for reconsideration, the proposal framed the issues as (1) whether allowing projects to be disaggregated violated the D.C. Circuit decision in New York II and would allow sources to “circumvent” PSD review by splitting projects and (2) cast doubt upon whether “relatedness” of projects is relevant to whether a “change” covered by the statutory definition of “modification” had occurred. In its place, EPA proposed to “revert” to its prior understanding of its policy:

Historically, EPA has analyzed the question of whether nominally-separate changes are one change by using a case-by-case review of all relevant and objective factors that looks for “indicia,” or indicators, of these changes being one common aggregate change.

Id. at 19571. No action was taken on the proposed rule during the Obama Administration, leaving the way clear for the Trump Administration to tackle the issue.

ANALYSIS

EPA begins its final rule with a brief history of the project aggregation interpretation over time. It then distinguishes between legislative rules, which require notice and comment rulemaking; interpretations (“interpretive rules” in Administrative Procedure Act (APA) vernacular), which set forth agency interpretations of existing statute or regulation and which do not require notice and comment rulemaking; and policy statements, which indicate how the agency will exercise its enforcement and permitting discretion, and which similarly do not require notice and comment rulemaking. The EPA states that it had undertaken rulemaking on the project aggregation issue because of the D.C. Circuit’s decision in Paralyzed Veterans, which ostensibly required notice and comment rulemaking to reverse a prior agency interpretation. This line of cases was overruled by the U.S. Supreme Court in Perez v. Mortgage Bankers Ass'n, 135 S. Ct. 1199 (2015), and therefore notice and comment rulemaking is not required. Despite this conclusion, EPA states that because it started addressing the project aggregation issue with notice and comment it believes it is appropriate to conclude with it.

Turning to the merits, EPA first addressed NRDC’s concern about how state and local permitting authorities should address its action. EPA states that because it is not amending the rule text, but only explaining its interpretation of how the existing term “project” should be interpreted, most state and local agencies should not need to amend their rules. It encourages, but does not require, state and local permitting authorities to follow the interpretation announced in the final action, but specifically states that state and local permitting authorities may use a different interpretation (at least where it is a SIP-authorized program).

Second, EPA addressed whether the post-hoc enforcement test for circumvention should be used. It determines that it should not be used because “a post hoc determination is often very specific to the industry and the individual fact pattern under consideration, and therefore applying the determination’s rationale prospectively, while potentially informative, could be misapplied to situations involving different industries or having different fact patterns.” 83 Fed. Reg. at 57330. EPA also found that there was sufficient evidence of confusion, anecdotal or not, to warrant providing a clarification.

Third, EPA determined that “substantially related” is an appropriate test for aggregation. It states that basically the term is an “umbrella” that covers its prior interpretations about “intrinsic relationships” and similar wording. It emphasizes that its primary concern is to clarify that the 3M memorandum could be misinterpreted as requiring aggregation for projects close in time or that are related in some way to the source’s overall purpose. EPA states that it is rejecting this reading of project aggregation and that while timing is relevant, it is not determinative.

Fourth, EPA reviewed NRDC’s argument that the D.C. Circuit decision in New York II required aggregating nominally separate changes if, in the aggregate, they met the ordinary meaning of “any physical change.” EPA rejected this approach, stating

Upon further consideration, we do not view New York II, properly understood, as providing support for the proposition that a “common meaning” of a single “change” would include multiple changes, much less multiple, separate changes that are not substantially related, such as changes which are undertaken at a source at different times, or undertaken for different purposes, or which are otherwise unrelated to each other. That is, the EPA’s current view is that nothing in New York II supports, much less compels, a reading of the CAA under which all “nominally-separate changes” are deemed to “comprise” a single “project,” where those changes are not substantially related.

Id. at 57332. EPA went on to state that multiple changes that are substantially related are aggregated.

EPA thus reaffirmed its 2010 final action and lifted the stay of that action effective November 15, 2018. It noted that it would review possible “excessive aggregation” to bring unrelated emissions decreases into Step 1 of the NSR analysis in the planned rulemaking on project emissions accounting.

COMMENTARY

As a result of EPA’s November 15, 2018 action, the “substantially related” test is back in place for determining project aggregation. As stated in the final 2010 rule, this test:

Activities at a source should be aggregated when they are substantially related. To be “substantially related,” there should be an apparent interconnection—either technically or economically—between the physical and/or operational changes, or a complementary relationship whereby a change at a plant may exist and operate independently, however its benefit is significantly reduced without the other activity.

74 Fed. Reg. at 2378. Projects are not substantially related merely because they are close in time, although such projects may deserve closer case-by-case review. Similarly, projects that merely relate to the “overall purpose” of a plant are not substantially related. Finally, the rule reinstates the rebuttable presumption that projects separated by more than three years (by minor NSR permit, if permitted, or from date of construction, if not) are not substantially related. State and local permitting authorities operating their own programs may follow their own interpretation, although EPA encourages them to follow this one.

The reinstatement of the project aggregation interpretation and policy is a helpful step. It provides useful guidance on separating projects that are legitimately unrelated, such as improvements in unrelated operations at a single, large facility. It eases the compliance problems occurring when EPA or state/local permitting authorities have made “single source” determinations for functionally independent operating units/entities because the new guidance helps show that projects planned by the separate entities are most likely not “substantially related” except by time, which EPA has clearly restated is not determinative in and of itself. Finally, by disavowing the former case-by-case test which considered “all factors” and hence effectively provided no guidance, the new test enunciates an approach that private sector parties can use to communicate EPA's expectations and arrive at internal understanding that will likely facilitate compliance in the long term.