Arco Oil and Gas Co. v. E.P.A.

• Decision Date: 23 December 1993
• Docket Number: No. 90-9545,90-9545
• Citation: 14 F.3d 1431
• Parties: 24 Envtl. L. Rep. 20,191 ARCO OIL AND GAS COMPANY, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1431

14 F.3d 1431

24 Envtl. L. Rep. 20,191

ARCO OIL AND GAS COMPANY, Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent.

No. 90-9545.

United States Court of Appeals Tenth Circuit.

Dec. 23, 1993.

John F. Shepherd of Holland & Hart, Denver, CO (Jane L. Montgomery of Holland & Hart, Denver, Colorado, and William R. Keffer of Arco Oil & Gas Co., Dallas, TX, with him on the brief), for petitioner.

Bradley S. Bridgewater, Atty., Environmental Defense Section, Environment & Natural Resources Div., U.S. Dept. of Justice, Denver, CO (Richard B. Stewart, Asst. Atty. Gen., U.S. Dept. of Justice, Environment and Natural Resource Div., Denver, CO, Nandan Kenkeremath, Atty., Office of Gen. Counsel, U.S. E.P.A., Washington, DC, and Margaret J. Livingston, Atty., Office of Regional Counsel, U.S. E.P.A., Region VIII, Denver, CO, with him on the brief), for respondent.

Before ANDERSON, HOLLOWAY and TACHA, Circuit Judges.

HOLLOWAY, Circuit Judge.

ARCO Oil and Gas Company ("ARCO") petitions for review of a June 14, 1990 finding by the Administrator of the Environmental Protection Agency ("EPA") that EPA Region VIII properly required ARCO to obtain a Class I EPA permit pursuant to the Safe Drinking Water Act ("SDWA"), 42 U.S.C. Secs. 300f to 300j-25 (1988), for operation of ARCO's Garcia # 1 injection well in Colorado. Prior to the EPA's reclassification of the well, the Garcia # 1 had been regulated as a Class II well by the Colorado Oil and Gas Conservation Commission ("COGCC"). We affirm the EPA Administrator's decision and deny ARCO's petition.

I

Since 1982, ARCO has been operating a gas extraction and processing project in Huerfano County, Colorado. The gas extracted by ARCO consists primarily of carbon dioxide (96%) and is used for enhanced oil recovery in Texas. In connection with ARCO's extraction activity, certain waste fluids are brought to the surface and subsequently disposed of in ARCO's Garcia # 1 well, an underground injection well. ¹

On April 12, 1985, the EPA Region VIII directed Arco to apply for a Class I permit for the Garcia # 1 well. I R., Doc. 4. In so doing, the agency relied on its characterization of the waste fluids disposed of in the Garcia # 1 as "hazardous," "industrial" or "municipal" waste within the meaning of 40 C.F.R. Sec. 144.6(a)(1)-(2) (defining Class I wells). Designation of the Garcia # 1 as a Class I well would result in direct--and more burdensome--regulation of the well by the EPA rather than continued regulation by the COGCC. ²

ARCO objected, contending that the Garcia # 1's waste fluids should instead be characterized as fluids "brought to the surface in connection with ... conventional oil or natural gas production" within the meaning of 40 C.F.R. Sec. 144.6(b)(1), resulting in continued Class II designation of the Garcia # 1 and regulation by the COGCC. I R., Doc. 6. ARCO's position was, and is, premised on its interpretation of the phrase "natural gas production" in Sec. 144.6(b)(1) as broadly encompassing carbon dioxide production of the kind undertaken by ARCO in connection with its Huerfano project.

Despite its objection to the EPA's reclassification, ARCO hedged its bets and applied for a Class I permit. Four years later, EPA Region VIII issued the requested Class I permit, indicating that the designation of Garcia # 1 as a Class I well was appropriate because "the definition of 'natural gas' for the purpose of the underground injection control regulations was intended to include only 'energy-related' hydrocarbon series gases such as methane and butane," not carbon dioxide. I R., Doc. 2, Addendum at 2. This reading of the regulations was consistent with the EPA's advice to the COGCC in early 1984 that "the meaning of 'natural gas' in our regulations includes low molecular weight flammable gases and not just any naturally occurring gas." I R., Doc. 15 at 2.

In accordance with applicable administrative procedures (40 C.F.R. Sec. 124.19), ARCO petitioned for review to the EPA Administrator. I R., Doc. 1. The Administrator denied ARCO's petition, concluding ARCO did not demonstrate "that the Region's permit determination [was] either clearly erroneous (legally or factually) or that it involve[d] an important question of policy or exercise of discretion warranting review." Petitioner's Opening Brief, Attach. A.

In its petition to this court, ARCO requests that we set aside the EPA's construction of the SDWA and its regulations. In the alternative, if the EPA's construction is upheld and the reclassification of the Garcia # 1 as a Class I well is affirmed, ARCO urges us to invalidate the reclassification pursuant to the Administrative Procedures Act as "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law...." 5 U.S.C. Sec. 706. According to ARCO, "there is no rational basis for regulating the disposal of produced water from carbon dioxide operations more stringently than the disposal of produced water from hydrocarbon operations." Petitioner's Opening Brief at 20-21.

Our jurisdiction is based on 42 U.S.C. Sec. 300j-7(a)(2).

II

Here, as in Exxon Corp. v. Lujan, 970 F.2d 757, 759 (10th Cir.1992), and Aulston v. United States, 915 F.2d 584, 588-89 (10th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 2011, 114 L.Ed.2d 98 (1991), we review the EPA's administrative findings under the deferential test established in Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984):

When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

Id. at 842-43, 104 S.Ct. at 2781-82 (emphasis added; footnotes omitted). Accord Sullivan v. Everhart, 494 U.S. 83, 89, 110 S.Ct. 960, 964, 108 L.Ed.2d 72 (1990); Rives v. ICC, 934 F.2d 1171, 1174 (10th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1559, 118 L.Ed.2d 207 (1992). The standard of review is the same whether the agency interpretation is performed through rulemaking or, as here, informal adjudication. See Midtec Paper Corp. v. United States, 857 F.2d 1487, 1496 (D.C.Cir.1988).

III

A

We first address whether the EPA properly characterized waste fluids disposed of in ARCO's Garcia # 1 injection well as "hazardous," "industrial" or "municipal" waste within the meaning of 40 C.F.R. Sec. 144.6(a)(1)-(2), or whether the waste fluids should have been characterized as fluids "brought to the surface in connection with ... conventional oil or natural gas production" under Sec. 144.6(b)(1).

The initial step in our analysis is to determine "whether Congress has directly spoken to the precise question at issue," i.e., whether Congress itself has defined the term "natural gas" in the context of the SDWA and its regulations. Chevron, 467 U.S. at 842, 104 S.Ct. at 2781; accord Good Samaritan Hospital v. Shalala, --- U.S. ----, 113 S.Ct. 2151, 2157, 124 L.Ed.2d 368 (1993) ("[t]he starting point in interpreting a statute is its language"). In so doing, we must consider the language of the relevant statutory scheme as illuminated by "the provisions of the whole law, and ... its object and policy." Aulston, 915 F.2d at 589. See also Sullivan v. Everhart, 494 U.S. 83, 89, 110 S.Ct. 960, 964, 108 L.Ed.2d 72 (1990) (" '[i]n ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole' ") (quoting K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 108 S.Ct. 1811, 1817, 100 L.Ed.2d 313 (1988)).

The SDWA makes reference to "natural gas" in two sections, neither of which provides any clear insight into the intended meaning of that term. First, concerning underground injection of fluids brought to the surface in connection with oil and natural gas production, Sec. 300h(b)(2) of the statute provides:

Regulations of the Administrator under this section for State underground injection control programs may not prescribe requirements which interfere with or impede--

(A) the underground injection of brine or other fluids which are brought to the surface in connection with oil or natural gas production or natural gas storage operations, or

(B) any underground injection for the secondary or tertiary recovery of oil or natural gas,

unless such requirements are essential to assure that underground sources of drinking water will not be endangered by such injection.

(Emphasis added.) Second, with respect to the kinds of underground injection covered by the SDWA, Sec. 300h(d)(1) of the statute (a 1980 amendment) excludes injection of "natural gas for purposes of storage." (Emphasis added.) ³

Apart from simply employing the term "natural gas," the SDWA does not elaborate on the term's intended meaning or scope. As we recognized in Exxon, "[i]n the absence of more specific linguistic evidence of Congress's intention than the [mere] use of the term 'natural gas,' we cannot say on the basis of the statute's plain language that Congress has spoken directly to the question at issue." 970 F.2d at 761. Accordingly, in order to discern the intended meaning of the term used, we consult relevant secondary authorities, a task we previously undertook in both Exxon, 970 F.2d at 760-61, and Aulston, 915 F.2d at 589-90. However, because our...