Maximum Capacity Allowed Under Prior Equipment Permits Should Not Be Used As The Baseline To Determine Whether A New Project Using That Equipment Will Have A Significant Environmental Effect

March 24, 2010 | Bulletin No. 936464.1

In Communities For A Better Environment v. South Coast Air Quality Management District, (--- Cal.Rptr.3d ----, Cal., March 15, 2010), the California Supreme Court considered whether existing physical conditions at the time of an environmental analysis, or the maximum permitted operating capacity of equipment to be used in a new industrial process at a petroleum refinery, should be used as a baseline for determining whether the new project will have a significant environmental effect. The Court held that an air district abused its discretion in determining that the project would have no significant environmental impacts because it used a baseline of maximum permitted capacity allowed under existing permits, instead of the physical conditions existing at the time of the analysis.

Facts

ConocoPhillips Company ("ConocoPhillips") operates a petroleum refinery in Los Angeles. The South Coast Air Quality Management District ("District") and other federal and state agencies issued regulations to require a reduction in the sulfur content of motor vehicle diesel fuel. In response, ConocoPhillips developed plans for the "Ultra Low Sulfur Diesel Fuel Project" ("Diesel Project") at its refinery. The Diesel Project involved replacing or modifying existing equipment at the refinery "and substantially increasing operation of the existing cogeneration plant and four boilers, which provide steam for refinery operations." Prior permits for the steam generating equipment "state a maximum rate of heat production for each piece of equipment."

ConocoPhillips applied to District for a permit to construct its planned modifications. District concluded that an environmental impact report ("EIR") was not required because ConocoPhillips' "project did not have the potential to adversely affect the environment." District prepared a draft negative declaration. Communities for a Better Environment and other organizations and individuals (collectively, "Communities") submitted comments on the draft declaration in which they claimed an EIR should be prepared because ConocoPhillips' project would have significant adverse impacts on the environment.

District found that increased steam generation and other activities "would create an additional 237 to 456 pounds per day of NOx emissions, of which between 201 and 420 pounds would be caused by the increased operation of the steam generating equipment." Although District noted the increased NOx emissions due to operation of the steam generating equipment, it did not consider these increases as part of ConocoPhillips' "Diesel Project because they did not exceed the maximum rate of heat production allowed under existing permits." District instead "treated any additional NOx emissions stemming from increased plant operations within previously permitted levels as part of the baseline measurement for environmental review, rather than as part of the proposed Diesel Project." District concluded "ConocoPhillips had permits to operate the equipment, the refinery was an established use with operations fluctuating over time, and the proposed Diesel Project did not call for any equipment to exceed its permitted capacity." District approved the Diesel Project and issued a permit to ConocoPhillips to construct the modifications at its refinery.

Communities filed a lawsuit alleging District violated the California Environmental Quality Act ("CEQA") when it failed to prepare an EIR prior to approving ConocoPhillips' Diesel Project. The trial court entered judgment for District and ConocoPhillips. A Court of Appeal held that ConocoPhillips' increased use of its existing equipment should not have been considered as part of the baseline, but instead should have been evaluated as part of the Diesel Project. The Court of Appeal directed District to prepare an EIR.

Decision

An EIR need not be prepared unless the project at issue will have a significant environmental effect. In order to decide whether a project’s environmental effects will likely be significant, “an agency must use some measure of the environment’s state absent the project.” This state is known as the “baseline.” Under the CEQA’s administrative guidelines “the baseline ‘normally’ consists of ‘the physical environmental conditions in the vicinity of the project, as they exist at the time . . . environmental analysis is commenced.’”

The Supreme Court concluded “District’s choice of a baseline for NOx emissions was inconsistent with CEQA and the CEQA Guidelines” and “District should have looked to the existing physical conditions, rather than to the maximum permitted operations of the boilers.” The Court found that, under the circumstances, prior operating permits for the steam generating equipment do not establish a baseline for environmental review of the Diesel Project.

The Court noted that the District’s threshold of significance for NOx emissions from proposed projects was 55 pounds per day. The increased operation of the steam generators for the Diesel Project would create between 201 and 420 pounds per day, although the increase operation would not exceed the existing combined maximum permitted levels for the equipment. The CEQA Guidelines provide, “An EIR must include a description of the physical environmental conditions in the vicinity of the project either, as they exist at the time the notice of preparation is published, or if no notice of preparation is published, at the time environmental analysis is commenced, from both a local and regional perspective.” According to the Guidelines, “This environmental setting will normally constitute the baseline physical conditions by which a lead agency determines whether an impact is significant.”

The Court concluded “District erred in using the boilers’ maximum permitted operational levels as a baseline.” In doing so, “District ensured that no emissions from increased boiler operation would be considered an environmental impact so long as no single boiler operated beyond its capacity.” Under District’s analysis, all four of the refinery’s steam generating boilers could run simultaneously at maximum capacity without creating any potential environmental impact. However, District acknowledged that “operation of the boilers simultaneously at their collective maximum was not the norm.” Therefore, “simultaneous maximum operation” was “not a realistic description of the existing conditions without the Diesel Project.” The Court stated, “By comparing the proposed project to what could happen, rather than to what was actually happening, the District set the baseline not according to ‘established levels of a particular use,’ but by ‘merely hypothetical conditions allowable’ under the permits.”

The Court found that using the baseline that included the boilers’ actual preproject NOx emissions will not impinge on any vested rights ConocoPhillips has to operate the boilers at permitted levels. It further found that use of the baseline based on existing conditions does not violate the statute of limitations to challenge the existing permits. Finally, the Court distinguished a line of cases supporting the use of existing permitted operational levels as the baseline, including Fairview Neighbors v. County of Ventura (1999) 70 Cal.App.4th 238, holding that unlike the projects at issue in those cases, the Diesel Project “cannot be characterized as merely modification of a previously analyzed project to operate refinery boilers or the continued operation of the boilers without significant expansion of use.” The Court emphasized that the Diesel Project proposed adding a new refining process, installing new equipment, and modifying existing equipment at the refinery. The Court also noted that the District had considered the Diesel Project to be a new project under CEQA, rather than as a modification of an existing project.

The Court also concluded that the record before it supports a fair argument that ConocoPhillips’ Diesel Project will have significant adverse environmental effects. The estimate of increased NOx emissions constitutes substantial evidence that supports a fair argument for a significant adverse impact. The Court held the appropriate remedy is to order District to set aside the negative declaration and its approval of the Diesel Project and to prepare an EIR that compares “existing physical conditions without the Diesel Project and the conditions expected to be produced by the project.” However, the Court provided only minimal guidance as to how to calculate the proper CEQA baseline where existing operations fluctuate through time.

Questions

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Mona G. Ebrahimi or Andrew P. Tauriainen | 916.321.4500