The DEP Guidance document is a discussion of and elaboration on a September 22, 2009 guidance document by EPA Assistant Administrator Gina McCarthy. The McCarthy guidance withdrew a previous EPA memo dealing with source determinations for oil and gas industries, and substituted a standard emphasizing a fact-specific, case-by-case approach for single source determinations. The September 22, 2009 McCarthy memo cited the three regulatory criteria for determining whether or not separate sources should be considered as a single source for permitting purposes. The three criteria are: "(1) whether the activities are under the control of the same person (or person under common control); (2) whether the activities are located on one or more contiguous or adjacent properties; and (3) whether the activities belong to the same industrial grouping."1

In discussing the EPA policy in light of prior and subsequent EPA guidance memoranda, and applying that guidance to the Marcellus Shale operations, the DEP Guidance document recommends to the program staff the use of the "wagon wheel" model. Under this model, gas processing facilities are considered "hubs" of the wheel; compressor stations are the spokes; and the wheel itself comprises the well fields, thus illustrating the "functional inter-relationship" of the facilities. Under this model, all of the wells and facilities feeding a common processing facility would be considered a single source. Well sites, dehydration units, and compressors located miles apart from each other could be determined to constitute "contiguous" or "adjacent" sources.

The DEP Guidance also puts forward a broad interpretation of the concept of common control and ownership notwithstanding whether the activities belong to the same SIC code. It cites the Security and Exchange Commission ("SEC") definition of control "as the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise."

DEP also pointed out that where there is a support relationship that exists between two or more facilities, any difference in SIC codes becomes irrelevant, and the only factors remaining to be considered are whether the facilities are contiguous or adjacent and under common control.

The DEP Guidance purports to be only a discussion and summarization of existing EPA policies, but while stressing a case-by-case, fact-specific criteria to be applied in each instance, the DEP Central Office has advised state regional air program staff that where interdependency exists, they should consider all air contaminant sources, not otherwise exempt, which connect to a single processing facility, as a single source. Aggregating these sources could push the source into the "major source" category for Title V and PSD/NSR purposes.

Note that while DEP Guidance documents are authoritative as to the DEP's Air Program Staff, they do not have the force and effect of law or of regulations adopted through a rule-making process. Therefore, their applicability to a particular situation must meet the test of reasonableness, as well as be consistent with the plain meaning of applicable statutory and regulatory provisions.

The aggregation of smaller sources into the "major source" category will cost permit applicants significant increases in time and expense, and enhance the possibility of permit denials being issued. Understanding and competently addressing this issue in the context of the evolving history of past EPA policy guidance documents and decisions is essential in developing permit applications that can reduce the likelihood of a major source determination.

For more information please contact a member of the Marcellus Shale/Oil & Gas Group of Buchanan Ingersoll & Rooney PC

140 C.F.R. § 52.21(b)(6)