Regulatory Developments

O&G Rule Cannot Be Stayed, Says D.C. Circuit

In a 2-to-1 majority ruling, the U.S. Court of Appeals for the D.C. Circuit vacated the Trump EPA’s June 2, 2017, 3-month stay of four Clean Air Act (CAA) provisions to control fugitive emissions (leaks) from oil and natural gas (O&G) facilities.

The provisions were included in the Obama EPA’s New Source Performance Standards (NSPS) (June 3, 2016, FR) governing O&G emissions of methane and other air pollutants. Six environmental groups had petitioned the court to overturn the stay, asserting that EPA’s rationale for the action—that parts of the final NSPS were not adequately noticed when the regulation was proposed—had no foundation. The majority agreed.

The decision is the first rejection by the courts of a major deregulatory action by the EPA, which is now headed by Administrator Scott Pruitt, who has been portrayed by congressional Democrats as a staunch defender of the O&G sector in his previous job as Oklahoma’s attorney general. With the court’s ruling, affected O&G facilities must now comply with the stayed provisions.

Disagreement Over Jurisdiction

Much of the majority opinion and all of the dissent focused on whether the court had jurisdiction to rule on the case. According to the Pruitt EPA and industry intervenors, CAA Section 7607(b)(1) provides that the courts may only rule on a final agency action. According to Justice Janice Rogers Brown, who wrote the dissent, the stay is not a final agency action, which the U.S. Supreme Court defines as the “consummation of the agency’s decision-making process.” Brown points out that the stay was accompanied by an EPA proposal to reconsider the O&G NSPS over a 2-year period. As such, writes Brown, “A temporary stay facilitates reconsidering these discrete issues; it does not resolve them. This is not the kind of agency action considered ‘final.’”

But the majority notes that in a previous case (Friedman v. FAA, 2016), the D.C. Circuit ruled “the applicable test is not whether there are further administrative proceedings available, but rather whether the impact of the order is sufficiently final to warrant review in the context of the particular case.”

“Here, because the stay relieves regulated parties any obligation to meet the June 3 deadline—indeed EPA has proposed to extend the stay for years, the ‘order is sufficiently final to warrant review,’” the majority continues.

The majority also points out that the CAA provides the EPA and the courts the authority to issue stays. “Given that Congress granted this court the power to enter a stay, it seems quite anomalous that it did not also confer upon us the lesser power to review the Administrator’s decision to issue a stay,” said the majority.

Provisions Were Properly Noticed

Having established its jurisdiction to issue an opinion, the majority goes on to reject all of EPA’s reasons for staying the NSPS. In issuing the stay, the agency stated that industry had raised credible objections to the four NSPS provisions: (1) the decision to regulate low-production wells; (2) the process for proving compliance by alternative means; (3) the requirement that a professional engineer (PE) certify proper design of vent systems; and (4) the decision to exempt pneumatic pumps from regulation only if a PE certified that it was technically infeasible to route such pumps to a control device or a process.

In each instance, the EPA and industry had asserted that these issues were not noticed in the proposed NSPS, thereby denying the public the opportunity to comment on them. But the majority responds that the provisions in the final rule needed only to meet the “logical outgrowth test,” which the D.C. Circuit defined in a 2009 case (CSX Transportation, Inc. v. Surface Transportation Board).

“A final rule is the ‘logical outgrowth’ of a proposed rule if ‘interested parties should have anticipated that the change was possible, and thus reasonably should have filed their comments on the subject during the notice-and-comment period,’” wrote the majority.

Conversely, continued the majority, “A final rule ‘fails the logical outgrowth test’ if ‘interested parties would have had to divine the agency’s unspoken thoughts, because the final rule was surprisingly distant from the proposed rule.’”

The majority proceeds through each of four challenged provisions and, in each instance, found that the proposal provided industry with an opportunity to comment on the provisions it subsequently claimed were absent from the proposal.

The D.C. Circuit’s opinion in Clean Air Council et al. v. EPA is here.