Being Thankful for Loopholes: Suncor v. EPA

November 9, 2022

The problem with Thanksgiving, is that it stands in the way of Christmas. However, in the spirit of the month, I can give a few things that I am thankful for: sweet potato pie, family, and the continual growth of streaming services. I know of another entity that might be a little thankful this month: Suncor Energy.

Recently, the 10th Circuit vacated EPA’s decision to deny Suncor a Small Refinery Exemption (SRE) and remanded (returned) it back to EPA for further analysis. Very briefly, the facts are Suncor purchased two adjacent refineries from two distinct companies. While they are under the same corporate umbrella, Suncor alleges that it operated both refineries independently of the other. In 2018, Suncor filed an SRE for both refineries. EPA then subsequently denied both petitions and Suncor fought the denial in court, hence the current action.

Essentially, this case hinged on the definition of refinery versus the definition of facility, and which is allowed to file for an SRE. According to Suncor, each refinery had a separate facility ID under the gasoline program, both of which were granted when the refineries were owned and operated by different entities. According to EPA, Suncor had registered the refineries under one facility ID but for the Ultra-Low Sulfur Diesel (ULSD) program.

One key fact to keep in mind here is that the refineries had separate facility IDs when owned by the previous different entities. The facility ID that was registered for the ULSD program and included both refineries was done by Suncor. This is important because it shows that Suncor most likely considered both refineries as integrated, at least in some part, which means the throughput of both refineries should be aggregated.  EPA must have thought so too because, per their analysis, filing for one facility ID is more indicative of an integrated refinery process, which would mean the throughput of 98,000 barrels per day by Suncor would exceed the maximum allowed for an SRE.

On the surface this seems pretty simple. Suncor tried to file for two separate “small” refineries, EPA said no dice, and bummer, the SRE was denied. However, the 10th Circuit then got a hold of this case and noticed a couple of things about EPA’s analysis. To be specific, the court notes that EPA’s own conclusion states that the statutory and regulatory definitions of the word “refinery” and the phrase “average aggregate daily crude oil throughput” are not defined within the context of a small refinery . It also notes that EPA then concluded that since this is the case, EPA has the right to “choose what factors and information it would consider in this evaluation.” In other words, in its own conclusion, EPA admitted that those terms are ambiguous and used factors that it deemed relevant as to whether each refinery was a “refinery” for the purpose of an SRE, which was not sanctioned by statute or the regulations.

Now, why do all those distinctions matter? Because the 10th Circuit didn’t necessarily disagree with EPA. In fact, they goes as far as to say “[w]e agree with the EPA but with one important caveat…”What is that caveat? That the definition of refinery “employs” but does not define the term “facility.” Why does that matter? Because it means that you can have multiple refineries from different locations under one facility ID for the purposes of an SRE. To speak to the point more specifically, it means, in theory, you could have multiple refineries under one facility ID, all having a throughput of less than 75,000 and therefore, each could be considered “small” despite having an overall throughput of well over that number.

Did EPA accidentally give refineries a small loophole here? Undoubtedly yes. By conclusively stating that the definition of “refinery” and the phrase “average aggregate daily crude oil throughput” were ambiguous and then having the 10th Circuit agree, there is a small window of opportunity for refineries to push at those definitions. It could mean, in theory, that refineries could start to piecemeal their operations until they meet the definition of “small.”

Will this loophole be long-standing?  I don’t think so. In the current case EPA argued that “it cannot be the case…that owners of refineries are free under the statute to subdivide their refining operations into smaller and smaller pieces such that each component processes less than 75,000 barrels of crude oil per day and is thus eligible to petition independently for a small refinery exemption.” The 10th Circuit agreed with EPA’s arguments, which means the court didn’t necessarily think EPA’s reasoning was incorrect, rather it just needs more clarification. The ability to “piecemeal” operations into smaller and smaller bits will remain for a time, but I think EPA is probably already working on a solution to clear things up a bit.

Will EPA do something in the future that will make the rest of us non-refineries thankful? Here’s to gobbling up that hope!