Indep. Petroleum Ass'n of N.M. v. N.M. Envtl. Improvement Bd.

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INDEPENDENT PETROLEUM ASSOCIATION OF NEW MEXICO, Appellant, v. NEW MEXICO ENVIRONMENTAL IMPROVEMENT BOARD, Appellee, and CLEAN AIR ADVOCATES, ENVIRONMENTAL DEFENSE FUND, CENTER FOR CIVIC POLICY, NAEVA f/k/a NAVA EDUCATION PROJECT, NATURAL RESOURCES DEFENSE COUNCIL, and NEW MEXICO ENVIRONMENT DEPARTMENT, Intervenors-Appellees, IN THE MATTER OF PROPOSED NEW REGULATION 20.2.50 NMAC OIL AND GAS SECTOR-OZONE PRECURSOR POLLUTANTS.

No. A-1-CA-40546

Court of Appeals of New Mexico

November 27, 2024

Corrections to this opinion/decision not affecting the outcome, at the Court's discretion, can occur up to the time of publication with NM Compilation Commission. The Court will ensure that the electronic version of this opinion/decision is updated accordingly in Odyssey.

APPEAL FROM THE NEW MEXICO ENVIRONMENTAL IMPROVEMENT BOARD Pamela Jones, Administrative Hearing Officer

Montgomery & Andrews, P.A., Louis W. Rose, Kari E. Olson Seth C. McMillan, Mountain States Legal Foundation, Ivan London, Pro Hac Vice for Appellant.

Raul Torrez, Emily Bowen, for Appellees.

Western Environmental Law Center, Tannis Fox, deLone Law Inc., Elizabeth Paranhos, Baake Law, LLC, David R. Baake, University of New Mexico Law School, Natural Resources and Environmental Law Clinic, Gabriel Pacyniak, Michelle Reitz, Clinical Law Student, Andy Lantz, Clinical Law Student for Intervenors-Appellees Clean Air Advocates, Environmental Defense Fund, Center for Civic Policy, Naeva f/k/a NAVA Education Project, and Natural Resources Defense Council

Andrew P. Knight, Assistant General Counsel for Intervenor-Appellee New Mexico Environment Department

Eric Ames for Amicus Curiae Center for Methane Emissions Solutions

MEMORANDUM OPINION

KRISTINA BOGARDUS, Judge

{¶1} Independent Petroleum Association of New Mexico (Appellant) appeals the Environmental Improvement Board's (the Board) final order adopting 20.2.50 NMAC (Part 50), which regulates the emission of ozone precursors pursuant to NMSA 1978, Section 74-2-5(C) (2021). On appeal, Appellant argues that certain sections of the new regulation should be stricken from Part 50 because those provisions are contrary to law. Specifically, Appellant argues that: (1) the Board exceeded its statutory authority by regulating Chaves County and Rio Arriba County under the new rule; (2) the Board's inclusion of the gross annual revenue prong of the small business facility definition in 20.2.50.7(S)(1) NMAC was arbitrary; (3) the Board exceeded its authority in adopting 20.2.50.125(G) NMAC; (4) the proximity monitoring requirements included in 20.2.50.116(C)(3)(C) NMAC are outside the scope of the noticed rulemaking proceeding; and (5) the Board's adoption of Part 50 was unlawful because the Board failed to consider the impacts of the proposed rule. We affirm.

BACKGROUND

{¶2} This appeal involves the Board's adoption of a new rule-Part 50-that regulates ozone emissions in New Mexico. The objective of Part 50 "is to establish emission standards for volatile organic compounds . . . and oxides of nitrogen . . . (ozone precursors) for oil and gas production, processing, compression, and transmission sources." 20.2.50.6 NMAC. The rule is the product of two environmental initiatives in New Mexico: the New Mexico Environmental Department's (NMED) "Ozone Attainment Initiative," which strives to make certain that New Mexico "maintain[s] compliance with the National Ambient Air Quality Standards (national standards) for ozone," and Executive Order 2019-003 that directed New Mexico agencies to "develop a statewide, enforceable regulatory framework to secure reductions in oil and gas sector methane emissions and to prevent waste from new and existing sources." The Board's goal in adopting Part 50 is to ensure New Mexico reduces human-caused ozone precursor emissions.

{¶3} The federal Clean Air Act (Clean Air Act), requires the Environmental Protection Agency (EPA) to set national standards to combat ozone and other air pollutants. See 42 U.S.C. § 7409; 42 U.S.C. § 7408. Each state must implement its own measures to meet the EPA's standards. See U.S.C. § 7410(a)(1); 40 C.F.R. §§ 50.9, 50.10, 50.11, 50.15, 50.19. New Mexico enacted the Air Quality Control Act (AQCA) to ensure it complied with the Clean Air Act and met national standards for ozone and other air pollutants. See § 74-2-5. {¶4} New Mexico is divided into eight Air Quality Control Regions (AQCRs) to monitor ozone and other pollutant levels so that New Mexico meets national standards. See 42 U.S.C. § 7410(a)(1); 40 C.F.R pt. 81(B). NMED operates ozone monitoring stations in each of the AQCRs and submits the collected data to the EPA, which then determines whether a specific AQCR complies with its standards. 42 U.S.C §§ 7407(b), (d). Section 74-2-5(C) of the AQCA requires the Board to "adopt a plan, including rules, to control emissions of [ozone precursors] . . . [when] ozone concentrations exceed ninety-five percent of the primary [national standards]" in order to meet EPA standards.

{¶5} In 2021, pursuant to Section 74-2-5, NMED filed its Petition for Regulatory Change asking the Board to adopt Part 50. The Board published notice of rulemaking and attached NMED's proposed version of the rule. A hearing was held on the proposed rule, the hearing officer submitted a report to the Board, and the Board adopted the final rule. Appellant appeals.

DISCUSSION

{¶6} On appeal, Appellant asks us to strike certain provisions of Part 50 from the final rule. Appellant first asserts that Chaves County and Rio Arriba County should be removed from the regulation because the Board exceeded its authority under Section 74-2-5(C) when it included these counties in those regulated by the new rule. Next, Appellant argues that we should strike the gross annual revenue prong of Part 50's definition of a small business facility from subsection 20.2.50.7(S)(1) NMAC because it is arbitrary and unpredictable. Appellant then contends we should strike subsection 20.2.50.125(G) NMAC from the final regulation because it grants NMED enforcement authority to revoke the small business facility exemption from an otherwise qualified small business, thereby exceeding the Board's authority. Appellant also argues that the proximity monitoring requirements included in subsection 20.2.50.116(C)(3)(c) NMAC should be stricken because they fall outside the scope of the noticed hearing. Finally, Appellant claims that Part 50 should be set aside because the Board's failure to consider the impact of the proposed rule on ozone concentrations is contrary to law. Before discussing the statutory and regulatory framework, we begin with applicable standards of review and then address each of Appellant's arguments in turn.

I. Standard of Review

{¶7} This Court reviews administrative actions taken by the Board, including the adoption and promulgation of regulations, in accordance with NMSA 1978, Section 74-2-9 (1992). Pursuant to the statute, we will only set aside such actions if they are found to be either "(1) arbitrary, capricious or an abuse of discretion; (2) not supported by substantial evidence in the record; or (3) otherwise not in accordance with law." Section 74-2-9(C). It is the burden of the party challenging the rule's adoption to demonstrate that the agency's action fell within one of these grounds for reversal. See Fitzhugh v. New Mexico Dep't of Lab., Emp. Sec. Div., 1996-NMSC-044, ¶ 25, 122 N.M. 173, 922 P.2d 555.

{¶8} An action taken "by an administrative agency is arbitrary and capricious if it is unreasonable or without a rational basis, when viewed in light of the whole record." WildEarth Guardians v. New Mexico Env't Improvement Bd., 2024-NMCA-021, ¶ 11, 542 P.3d 820 (internal quotation marks and citation omitted). And an action is not supported by substantial evidence if, looking at both the favorable and unfavorable evidence in the record, there is insufficient evidence that a reasonable mind would regard as adequate to support the agency's conclusion. See Fitzhugh, 1996-NMSC-044, ¶¶ 23-24. Moreover, an agency's action is not in accordance with the law when it "is based on an error of law, is arbitrary and unreasonable, or is based on conjecture, and is inconsistent with established facts." Nuclear Waste P 'ship, LLC v. Nuclear Watch New Mexico, 2022-NMCA-014, ¶ 12, 505 P.3d 886 (internal quotation marks and citation omitted).

{¶9} As far as our analysis requires us to engage in statutory interpretation, our review is de novo. See Tucson Elec. Power Co. v. Tax 'n &Revenue Dep't, 2020-NMCA-011, ¶ 6,456 P.3d 1085 ("[T]he interpretation of statutes presents a question of law that we review de novo."). In reviewing statutes, we seek "to give effect to the intent of the Legislature, look[] to the plain language of the statute, and construfe] the entire statutory scheme as a whole." WildEarth Guardians, 2024-NMCA-021, ¶ 12. "When an agency that is governed by a particular statute construes or applies that statute, th[is C]ourt will begin by according some deference to the agency's interpretation." Morningstar Water Users Ass'n v. New Mexico Pub. Util. Comm'n, 1995-NMSC-062, ¶ 11, 120 N.M. 579, 904 P.2d 28. Although we "confer a heightened degree of deference to legal questions that implicate special agency expertise or the determination of fundamental policies within the scope of the agency's statutory function," id. (internal quotation marks and citation omitted), we are "not bound by the agency's interpretation and may substitute [our] own independent judgment for that of the agency because it is the function of the courts to interpret the law," WildEarth Guardians, 2024-NMCA-021, ¶ 12 (internal quotation marks and citation omitted).

II. Chaves and Rio Arriba Counties

{¶10}Appellant...