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Five Year Investigation Leads to Lawsuit

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Early this summer, the Environmental Protection Agency (EPA) and the Colorado Department of Public Health and Environment (CDPHE) brought a legal action against K.P. Kauffman Company, Inc. (KPK) for violating the Colorado Air Quality Control Commission's regulation.

Numerous Environmental Violations Alleged

Both EPA and CDPHE argued KPK had been releasing illegal emissions of volatile organic compounds (VOCs) from its hydrocarbon liquid storage tanks in violation of the Federal Clean Air Act (CAA), Colorado Air Pollution Prevention and Control Act (APPCA), Colorado’s federally approved State Implementation Plan (SIP), and Colorado’s Air Quality Control Commission Regulation Number 7 (Regulation 7). KPK. moved to dismiss for the state’s failure to state a claim but that motion was denied by the United States District Court of Colorado.

The Colorado Company

KPK is a privately held company that specializes in hydrocarbon liquid and natural oil and gas production and exploration in the Denver-Julesburg Basin. Its operation of oil and gas production in Colorado is extensive. In 2016, it produced 272,643 barrels of hydrocarbon liquids and 1.9 billion cubic feet of natural gas in the D-J Basin. It owns and operates 124 tank batteries in the D-J Basin that it claimed certified as complying with Colorado SIP and Regulation 7’s system-wide VOC reduction requirements.

The Lengthy Investigation

CDPHE and EPA took legal action against K.P. Kauffman Company, Inc. after a lengthy five-year investigation that began in September 2013. The investigation consisted of inspections of 153 tank batteries by state and federal inspectors that discovered VOC emissions 59 times. KPK was informed of its noncompliance with federal and state regulations as early as September 2016. This was followed by formal notices of violation on March 2018. Lawsuit by CDPHE and EPA was filed in October 2018 alleging illegal emission of volatile organic compounds (VOC) from 41 tank batteries.

Claims Made by EPA and CDPHE

The first claim for relief made by both EPA and CDPHE was for KPK failing to conduct a design analysis to determine if the Vapor Control Systems “at one or more of its tank batteries” have the capacity to route all VOC emissions to minimize VOC leakage to the atmosphere. The agencies contend KPK’s tanks were not designed to minimize leakage of VOCs to the maximum extent possible. The District Court concluded the pleading requirements were all satisfied. It noted it was not necessary to specify which of the tank batteries failed the standard in Regulation 7. The Court held KPK was adequately put on notice.

The second claim also was made by both the EPA and CDPHE. It was of a different section of Regulation 7 that provides for air pollution control equipment to be adequately designed, operated, and maintained to ensure it operates properly. The claim made against KPK noted the company failed to ensure the control device pilot lights were lit and the site glasses of enclosed combustors were clean. The District Court again found these pleading requirements were met.

The third claim and fourth claims were made by CDPHE only and were for alleged violations of several sections of Regulation 7. The third claim alleged violations of the requirement oil and gas facilities and equipment be “maintained and operated in a manner consistent with good air pollution control practices for minimizing emissions.” The District Court noted the complaint stated 25 percent of its inspections resulted in observed emissions, allowing for the inference KPK violated provisions in Regulation 7.

Storage Tank Emissions

CDPHE also focused on KPK’s Storage Tank Emission Management (STEM) plan. KPK argued CDPHE improperly attempted to shift the burden to it to prove it developed and implemented a STEM plan. The Court however agreed with CDPHE’s assertion that Regulation 7 shifts the burden to the owner or operator to demonstrate it complies with the regulation once emissions from a storage tank are observed.

KPK argued the third and fourth claims were not ripe for judicial review because CDPHE did not issue a final administrative order prior to filing suit.  The District Court, however, agreed with CDPHE’s rebuttal. It argued Colorado Revised Statutes §§ 25-7-121 and 25-7-122 authorize direct judicial action for injunctive relief and civil penalties without issuing an administrative order. It stated the Colorado legislature intended to allow the State to sue in a court of law without requiring a final order from CDPHE. The Court denied KPK’s motion to dismiss.

We Can Help

Oil and gas companies are required to abide by a multitude of state and federal regulations. Though it may be burdensome, this case demonstrates how state and federal agencies give companies multiple opportunities to correct regulation violations before a lawsuit is issued. As shown in this case, it took several years of inspections, noncompliance of regulations before CDPHE and EPA filed a lawsuit. This demonstrates how companies can save money and headaches by ensuring they are complying or correcting their emissions releases early on. If you want to ensure that your company complies with the state and federal environmental regulations, contact Whitcomb Selinsky PC. Please call (303) 534-1958 or complete an online contact form.

 

About the AuthorRaymundo Ribota

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