Companies seeking air quality permits or permit amendments for construction of new projects under the Texas Clean Air Act’s New Source Review (NSR) program should note recent court decisions at federal, state, and administrative levels that likely have potentially significant procedural and substantive legal implications. Taken together, these cases open the doors to a much larger group of persons who can be granted contested case hearing standing to challenge a permit application and well beyond the one-mile geographic radius from the facility that has been the default threshold for many years. They also demonstrate the effectiveness of coordinated and sophisticated campaigns by individuals and environmental non-governmental organizations (ENGOs) to leverage the legal process to overturn technically complex NSR permitting decisions on significant projects. In just the past few weeks:

1. The Fifth Circuit vacated a TCEQ Prevention of Significant Deterioration (PSD) permit to construct a new natural gas liquefaction plant and export terminal, reversing the TCEQ’s application of Best Available Control Technology (BACT) while affirming that a person within four miles of the proposed facility had Article III standing to challenge the decision. See Port Arthur Community Action Network v. TCEQ, No. 22-60556 (5th Cir. Nov. 14, 2023).

2. A Travis County District Court reversed and remanded TCEQ’s decisions to deny a contested case hearing to commercial fisherman and shrimpers and issue an NSR permit authorizing expansion of a crude terminal, directing TCEQ to hold a contested case hearing, even though the nearest potentially affected person was located approximately two miles near the proposed facility. See Final Judgment (Nov. 30, 2023), San Antonio Bay Estuarine Waterkeeper and Texas Campaign for the Environment v. TCEQ & Max Midstream, LLC, Cause No. D-1-GN-22-002153 (201st Judicial District Court, Travis County, TX); see also TCEQ Docket Number 2022-0157-AIR.

3. Two administrative law judges (ALJs) from the State Office of Administrative Hearings (SOAH) reversed the TCEQ’s BACT decision to amend an air quality permit that would have authorized a new crude terminal expansion project. See Proposal for Decision (Nov. 20, 2023), SOAH Docket No. 582-23-14975; TCEQ Docket No. 2023-0203-AIR; Application of Valero Refining-Texas, LP for Modification to State and Prevention of Significant Deterioration Air Quality Permit Nos. 38754 and PSDTX324M15.

The implications of these cases may be far-reaching for the viability and project timelines for the many planned petroleum and petrochemical projects in Texas.

Interpretation of Standing to Challenge Projects

The difference between a one-mile geographic radius and a four- or five-mile geographic radius for standing purposes can be exponential, depending upon the location in question. Long-standing TCEQ rules and state court cases that require a “personal justiciable interest” that is not otherwise common to members of the public (like generalized pollution and contamination concerns) to demonstrate standing seem to be in question. 30 Tex. Admin. Code § 55.201(d)(2); see also id. § 55.203(a); accord Tex. Water Code § 5.115(a); Sierra Club v. Texas Comm'n on Envtl. Quality, 455 S.W.3d 214, 225 (Tex. App.—Austin 2014).^[1] Industry can expect to see more contested case hearing requests and more contested cases -- creating the potential for years of delay and high legal costs even when the permits are ultimately granted.

Complex Technical Decisions as Pathways To Challenge

Moreover, highly technical permitting issues, for example, the applicability of Tier III BACT determinations, that may have seemed remote and arcane issues with little prospect for challenge only a few years ago, are up for grabs and in a way that even erosion and perhaps reversal of Chevron deference standards cannot cure. SOAH ALJs act in the stead of the TCEQ Commission and hold evidentiary hearings on the draft permits issued by the TCEQ Executive Director. Accordingly, ALJs are not held to any kind of Chevron deference standard. While SOAH itself is limited to issuing proposals for decision (PFD) and proposed findings of fact and law that the TCEQ Commission then independently considers, those proposals are built on what can be a hefty administrative record that includes a permit application, prefiled testimony and affidavits, expert testimony, and a record of the hearing. As these cases may show, the TCEQ Commission’s decision to reject a PFD is opportune for judicial review – and reversal.

ENGO Backing and Funding for Challenges

Finally, it is clear that ENGOs are leveraging the contested case hearing process in earnest and successfully. While each of these cases has an individual member in a group that has been granted standing, the legal strategy and acumen behind the scenes are national ENGOs with deep experience and bench, including Environmental Integrity Protect, Citizens for Environmental Justice, and San Antonio Bay Estuarine Waterkeeper, among others. The funding is coming from somewhere. For protestants and applicants alike, the costs to mount a contested case hearing, expert witness, legal fees, and judicial appeals can be quite significant. These cases are no longer local disputes between an individual and a company in a town in Texas, but are projects caught in the crossfire of the larger national existential dialogue about the petroleum and petrochemical industry in the US.

Tips for Successful Project Permitting/Overcoming Challenges

To protect against the potential for an NSR construction permit from being overturned on appeal and to avoid potential delays in project development, permit applicants should consider the following steps:

1. Familiarize your project teams with the TCEQ contested case hearing process. Certain permit applications, including air quality NSR construction permits, are subject to contested case hearings, which are evidentiary trials on the application’s merits. So are other types of permits, like water quality (TPDES) and hazardous waste disposal permits.
2. Prepare your permit applications, especially those for significant petroleum sector projects, for possible litigation. Include legal teams early in the process, identify and prepare the record to address potential technical vulnerabilities, and prepare a robust administrative record to support the decision-making in your favor by the agency and a reviewing court.
3. Know your community through meaningful engagement with members of the public who raise issues, taking an expansive geographic view of community members who may feel impacted by the project. Proactively plan for opposition and how to avoid resolution through the legal process. Plan that opposition may be on principle and that the opposition’s goal is to delay and stop the project altogether.
4. Manage internal stakeholder expectations about timelines and costs for permit issuance and possible delays. The contested case hearing and judicial review process can take several years to resolve, bring unwanted media attention, and be costly. Timelines for projects that may have been generally correct a few years ago may well need to be adjusted.

With an office in Austin, B&D assists clients in heavy industry, including the petroleum and petrochemical manufacturing sectors, to successfully develop new projects in Texas and nationwide. We help clients aggressively defend project approvals and defeat challenges in litigation and contested cases. Our multidisciplinary teams use regulatory expertise with state and federal air and chemical policies to help clients chart strategies to obtain permits in the most legally defensible way possible, including managing stakeholder engagement on evolving environmental justice issues. For more information, please contact the authors.