EPA Limits Meadowbrook and Ameresco Scope

In a July 12, 2019 letter to Commissioner Catherine McCabe of the New Jersey Department of Environmental Protection (NJDEP), EPA Acting Assistant Administrator for Air Anne Idsal appeared to limit the scope of future expansion of the Meadowbrook and Ameresco decisions on when facilities are under "common control" and to provide greater latitude to state and local permitting authorities in their decisions on common control and co-location issues.

ANALYSIS

Ocean County Landfill Corp. (OCLC) operates a landfill that provides landfill gas to Manchester Renewable Power Corp. (MRPC) or Ocean Energy Corp. (OEC), which use the gas to produce energy to sell to their customers. MRPC and OEC are both owned by a common parent. OCLC and MRPC/OEC are all leaseholders on contiguous properties owned by OCLC’s parent, Atlantic Pier Company (APC). OCLC and MRPC/OEC share a common SIC code.

NJDEP had initially permitted the OCLC and MRPC/OEC facilities separately. In 2005, however, EPA objected to the proposed Title V permit for the MRPC facility on the basis that NJDEP had not justified its conclusion that MRPC’s engines were not under common control with OCLC’s landfill. Extensive discussions followed, resulting in a 2009 EPA letter determining that OCLC and MRPC/OEC were under common control and that this determination “concluded” EPA’s objection to the MRPC Title V permit. For a variety of reasons, the Title V permit was not issued at that time and its imminent issuance now led to a letter from OCLC’s attorney seeking reconsideration of the 2009 EPA “single source” determination in light of the Meadowbrook and Ameresco letters. Because OCLC and MRPC/OEC share contiguous properties and a common SIC code, the question of whether they are a single source turns on whether they are under common control or under the control of persons under common control.

The first substantive point made by Assistant Administrator (AA) Idsal is that:

[A]s a general matter, the guidance contained in EPA’s recent documents concerning common control was intended to assist with future source determinations and was not intended to prompt permitting authorities to revisit prior permitting determinations. EPA does not believe it would be appropriate in most instances for permitting authorities to reevaluate prior source determinations based solely on the change in EPA policy on which the [2018 OCLC attorney’s letter] relies, especially where, as is the case with the OCLC request, relevant facts have not changed.

Nonetheless, AA Idsal explained that because EPA had been extensively involved in the prior determination, EPA would give its opinion that NJDEP could continue to apply its prior determination and that NJDEP was not bound by either EPA’s 2009 determination nor this 2019 determination. As AA Idsal stated:

[A] key purpose of this letter is to clarify that NJDEP is not bound by the 2009 EPA Letter (or the reasoning contained therein), nor, for that matter, by the reasoning contained in Section II of this letter. … [S]ource determinations are fact-specific and should be made by permitting authorities on a case-by-case basis.

2018 Ocean County letter, at 2 (emphasis in original). AA Idsal cautioned, however, that it remained important that “NJDEP provides a reasoned basis for its permitting decisions.” Id.

Turning to the merits of OCLC’s request, AA Idsal noted that “if EPA were to examine the relationship between OCLC and MRPC/OEC today in order to determine whether their operations are under common control, we would approach the facts differently than we did in the 2009 EPA Letter.” Nevertheless, AA Idsal cited additional facts that EPA believed made is “reasonable” for NJDEP to determine that OCLC and MRPC/OEC are under common control.

AA Idsal then discussed the historic “multi-factor” approach that the EPA had used prior to Meadowbrook and Ameresco and then the new, "power to decide” approach set forth in Meadowbrook and Ameresco. She reiterated that EPA no longer followed the September 18, 1995 Spratlin letter that allowed agencies to “presume” common control “where one company’s operations was located on another company’s property.” She stated that the original Spratlin presumption was too broad and that there mere fact that there may be some agreements between the company does not mandate a conclusion of common control. Nevertheless, she indicated that aspects of those agreements, where they exist, as they did between OCLC and MRPC/OEC, they should be examined to see if the appropriate power to decide exists: “Thus, one should look to the specific terms of such agreements to assess whether one company has the power or authority to dictate decisions of the other company in such a way that could affect the applicability of, or compliance with, relevant air pollution control requirements.” Ocean County letter, at 5.

Turning to these agreements, AA Idsal found that “two lease agreements and a stock purchase agreement seem to provide the company that also controls OCLC with some level of control over MRPC/OEC’s acquisition of air permits and construction-related activities, in a manner that could have a direct bearing on the applicability of air permitting requirements to MRPC/OEC.” Id. at 6. AA Idsal evaluated these agreements as follows:

two agreements state the following: “All permitting and approval activity of MRPC, including but not limited to, filing permits and agreements with regulatory agencies, shall be coordinated with and be subject to the prior approval of [OCLC affiliate], which approval shall not be unreasonably withheld.” Another agreement explicitly refers to the OCLC affiliate’s approval of permits for “construct[ing] and install[ing] Improvements” at MRPC/OEC. The OCLC affiliate’s power to “reasonably” withhold approval of MRPC/OEC’s environmental permits and related construction activities appears to effectively give the OCLC affiliate the power to dictate the contents of MRPC/OEC’s permit applications, and accordingly MRPC/OEC’s choices on whether to construct or install certain air pollution equipment or controls. Naturally, it follows that the ability to dictate these decisions could result in impacts on the applicability of permitting requirements applicable to MRPC/OEC. Under EPA’s approach, articulated in the Meadowbrook and Ameresco Letters, these facts appear sufficient to establish the OCLC affiliate’s “control” over a substantial portion of MRPC/OEC’s air pollution-related decisions.

Ocean County, at 6. Accordingly, AA Idsal opined that it would be “reasonable” for NJDEP to teat the OCLC and MRPC/OEC operations as a single source for permitting purposes.

COMMENTARY

Ocean County signals two major policy determinations by the EPA. First, the EPA is not interested in its new interpretation of “source” overturning prior determinations where those determinations were explicitly made by earlier EPAs or, possibly, formally made by a state permitting authority. This decision will likely be a relief for permitting authorities concerned about a possible raft of requests for reconsideration. It will doubtless disappoint those permittees who feel wrongly consolidated by prior EPA decisions.

Second, Ocean County appears to serve notice that EPA will go no further in narrowing the scope of “common control” and will continue to look at the entire scope of the contractual relationship between the parties to determine whether the new test – ability to decide or direct – exists. Those who favor a narrower interpretation, consistent with Meadowbrook and Ameresco, will be alarmed by some aspects of Ocean County. Meadowbrook seemed to define the ability to direct or control in the affirmative – to cause the “controlled” facility to take some affirmative action, such as install equipment, install air pollution controls, or take similar actions. Ocean County states that purely negative controls – such as preventing an expansion – are sufficient. This is a significant development because negative controls are much more significantly used in large industrial complexes to ensure orderly development and that peripheral facilities do not threaten the principal source. Bottom line: Careful drafting of agreements to achieve the proper balance will be critical post-Ocean County.

It will be interesting to watch how the EPA further develops its “control” doctrine.