Key Lessons for Businesses from a Rare State Court Air Regulatory Decision
You don't often get State court decisions on environmental law, especially on air permitting issues. Recently, the 10th Appellate Court in Columbus issued a decision that has at least a few major implications for businesses in Ohio. State of Ohio ex rel Ohio Atty. Gen. v. The Shelly Holding Co, et. al.,
There is a good summary of the facts behind the case and a discussion of the legal conclusions the Court reached on the blog American College of Environmental Lawyers by longtime environmental attorney Mike Hardy. I won't repeat the history of the case here. Rather, let me highlight the major implications from the ruling for businesses that operate air sources within Ohio.
Ohio EPA's Permit Backlog
Up until 2008, air sources were first issued a permit to install (PTI) to construct and start-up. Then the source had to obtain a permit to operate (PTO) for continued operation. With nearly 70,000 regulated air sources Ohio EPA had thousands of backlogged PTO applications.
To address the issue going forward, the law was changed in June 2008 and new sources could obtain a combined PTIO permit. This reduced the need for two permits from 2 to 1 and extended the effectiveness from five years (PTO) to ten years (PTIO). (Click here for Ohio EPA chart on difference between the programs).
This was a good fix going forward, but what about businesses who were stuck with the system that existed prior to 2008? The Court's ruling on potential to emit (see below) shows the danger of the Agency's failure to act on a timely basis. Shelly submitted timely applications, but was placed at a major disadvantage because the Agency failed to act on those applications on a timely basis.
Key Lesson #1: Even if a business fulfills its obligations on a timely basis it still can be placed at a regulatory disadvantage based on the Agency's failure to act.
What is a Source's Potential to Emit
A source of air pollution (boiler, paint line, etc.) must obtain a federal permit if it exceeds certain thresholds (100/250 tons per year). There is a huge incentive for businesses to avoid obtaining a federal permit because they impose more onerous requirements.
In determining whether a sources exceeds federal permitting thresholds, EPA looks at its design capacity, not its actual day-to-day emissions. Design capcity is referred to as "potential-to-emit." (PTE).
Unless enforceable restrictions exist on design capacity, PTE is calculated using worst case assumptions- source operation 7 days a week, 365 days per year and 8,760 hours per year. Enforceable restrictions include:
- air pollution control equipment;
- restrictions on hours of operation; and/or
- restrictions on the type or amount of material combusted, stored or processed.
The 10th Appellate Court rejected Ohio EPA's claim that the restrictions must be federally enforceable (federal rule or permit). The Court held state permits were deemed sufficient for purposes of enforceability.
However, it rejected Shelly's claim that voluntary restrictions were sufficient, even if those restrictions are in permit applications pending Ohio EPA review. Until the permit is actually issued, the Court held they don't have sufficient legal effectiveness to avoid the worst case PTE calculation of 365 days a year.
Key Lesson #2: You can't rely on permit applications as enforceable restrictions to avoid federal permits.
Ohio EPA's Failure to Follow the Law
Shelly was hurt by the failure of Ohio EPA act on its PTO applications. Ohio law imposes an obligation on the Agency to issue permits within 180 days.
The Court noted Ohio EPA failure to act on a timely basis and held that in considering penalties Ohio EPA failure to act "should not be held against the owner or operator." An interesting sentence in the ruling- "After the 180-day deadline passed, the burden falls on Ohio EPA to meet its obligation under law; and owner cannot be penalized for the Ohio EPA's failure."
I can envision that sentence being quoted in future briefs by lawyers whose clients may face penalties partially as a result of Ohio EPA failure to perform its mandated functions on time.
Key Lesson #3: Don't forget Ohio EPA has legal obligations. Their failure to meet those obligations could be a basis for a legal defense.
Stack Testing to Determine Compliance
Stack tests are samples of air emissions what a source is operating. The accuracy of stack tests to determine whether a source is in compliance with its emission standards in a permit has been long debated.
Businesses have argued that stack tests don't represent normal conditions and are only "a snap shot in time." Regulators argue that stack tests are a valid way of determining compliance. Until a source passes a stack test (emissions are within limits), the assumption is the source is operating out of compliance with permit standards and subject to penalties. Any associated penalties should be based on the time from the failed stack test until the source passes a subsequent stack test.
Key Lesson #4: To avoid large civil penalties, business should act very quickly to make adjustments following a failed stack test.
I have been on all sides of the fence relative to environmental enforcement actions. I have represented the State, managed Ohio EPA enforcement program and now I represent companies who find themselves the subject of enforcement. These experiences have given me valuable insight into what things to do and not to do when dealing with compliance oversight.