EPA Adopts Simpler Test for "Common Control"

On April 30, 2018, Assistant Administrator Bill Wehrum issued a letter to Patrick McDonnell, Secretary of the Pennsylvania Department of Environmental Protection, substantially overhauling how EPA looks at “common control” under the NSR and Title V permit programs. In lieu of the old multi-factor test, EPA now directs focusing on “the power or authority of one entity to dictate decisions of the other that could affect the applicability of, or compliance with, relevant air pollution regulatory requirements.” Attachment at 6. The new guidance is discussed in more detail below.

ANALYSIS

The issue arose in a landfill gas context. Meadowbrook Energy stated that it intended to construct a biogass processing facility to convert landfill gas (LFG) and other potential biogas feedstocks into pipeline quality natural gas. Meadowbrook entered into an agreement with Keystone Sanitary Landfill, in which Keystone agreed to deliver LFG to Meadowbrook. Keystone controlled the LFG system up to the metering point and could flare LFG if Meadowbrook did not take it. Meadowbrook is not obligated to take all of Keystone’s LFG, but its needs exceed Keystone's production and it is looking for more sources of supply. Meadowbrook and Keystone do not have any overlapping ownership or operational management. Meadowbrook requested a “separate source” determination so that the responsible official of one operation would not need to certify to the other operation’s compliance.

Administrator Wehrum’s analysis began with the three factors in the NSR and Title V rules: same industrial grouping, location on contiguous or adjacent property, and common control. He agreed that this is a case-by-case decision, but that EPA must be “mindful” of a decision from the D.C. Circuit that the definition “should comport with the ‘common sense notion of a plant.’” He then detailed the evolution of EPA’s analysis of “common control,” starting with the SEC definition, which is “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person (or organization or association) whether through the ownership of voting shares, contract, or otherwise.” EPA has looked at shared workforces, management, administrative functions, equipment, intermediaries or byproducts, pollution control responsibilities, and/or support/dependency relationships. This became known as the “multi-factor” approach. Over time, EPA expanded the support/dependency prong to find that entities that were “economically or operationally interconnected” might have common control.

As a result of the review of the Meadowbrook request, Assistant Administrator Wehrum concluded that the multi-factor approach “has resulted in the potential for inconsistent outcomes in source determinations and an overall lack of clarity and certainty for sources and permitting authorities,” as well as creating “practical difficulties” and “inequitable outcomes.”

Therefore, Assistant Administrator Wehrum articulated a new, case-by-case, test focusing on “the power or authority of one entity to dictate decisions of the other that could affect the applicability of, or compliance with, relevant air pollution regulatory requirements.” Attachment at 6. He then expanded on how to apply this basic test, defining “control” as “the power or authority to dictate decisions” and clarified that “control” does not include “the mere ability to influence.” Control can be shown by ownership or management authority, contract (where a contract allows entity X to direct the action of entity Y) or similar forms of control. Assistant Administrator Wehrum emphasized that “the focus is not on how control is established, but on whether control is established.” The final paragraph of this section is explicit: “EPA will from this point forward interpret the term ‘control’ in its title V and NSR regulations to require more than the ability to influence.” Attachment at 7.

Assistant Administrator Wehrum than evaluated “what” must be “controlled” and concluded that the inquiry should be limited to “control over decisions that affect the applicability of, or compliance with, relevant air pollution regulatory requirements.” Attachment at 8. He outlined a practical test of whether the activities at one source would “control” the permit requirements of the other source. If it would, then the first source likely has the relevant “control” over the second source. The letter also noted that forcing entities in this situation together could result in those entities being legally responsible for actions over which they have no control, which the letter concludes is “inequitable.”

Finally, the letter concludes that “dependency relationships should not be presumed to result in common control.” The letter reemphasizes that “a support facility analysis is only relevant under the SIC-code determination.” The letter makes this point starkly, stating that “the fact that one facility would not profitably exist but for the existence of another entity does not necessarily mean that, at some point after beginning operation, the entities will have the power or authority to dictate the outcome of decisions regarding relevant air-pollution related aspects of each others’s operations.” Attachment at 11.

Based on the foregoing analysis, the letter concludes that in EPA’s view, Meadowbrook and Keystone were separate facilities, but that since the Pennsylvania Department of Environmental Protection had primacy, the final decision was Pennsylvania’s.

COMMENTARY

This is a helpful decision for business because it reinforces that the regulatory definition of source has three separate and independent prongs – contiguity/adjacency, control, and SIC code. The trend has been for EPA, its regions and States to blur the control and SIC code tests. This often results in the “inequitable” situation described in the letter, where two actually independent companies have to try to work together under a single permit. This co-habitation is difficult in the best of times and becomes even more problematic in the NSR context because separate entities typically do not share investment or operational decisions, but the NSR program requires looking at planning to determine whether projects should be aggregated. The new test should help reduce some of these difficulties.

The new test is not a panacea, however. As the letter makes clear, each approved permitting authority retains considerable discretion. How the memo plays out in practice will be interesting to watch.