AG-2022-000005

BEFORE THE EXECUTIVE DIRECTOR
OF THE UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
IN THE MATTER OF:
CRESCENT POINT U.S. CORP.'S
APPLICATION FOR CERTIFICATION
OF THE SURFACE CASING OF THE
DEEP CREEK 7-27-4-2E WELL AS
POLLUTION CONTROL FACILITY
EXECUTIVE DIRECTOR'S REMAND
ORDER
January..?.( 2019
Lucy B. Jenkins
Administrative Law Judge
In accordance with Utah Code Section 19-1-301.5(14)(a)(ii), the Executive Director
hereby remands the Administrative Law Judge's (the "ALJ") Findings of Fact, Conclusions of
Law, and Recommended Order on the Merits, dated August 31, 2018 (the "Proposed Order"), for
supplemental briefing and analysis of several questions of law discussed below.
INTRODUCTION
The Executive Director thanks the ALJ and the parties, Crescent Point U.S. Corp.
("Crescent Point") and the Director of the Division of Water Quality ("Director") (and their
counsel) for their conscientious work in presenting the present matter for final review. This
matter involves complex questions of law and fact, and multilayer application of provisions of
the Utah Code to the specific facts presented. The Proposed Order is detailed and thoughtful.
However, upon careful review of the administrative record and in light of the fact that this matter
presents many issues of first impression, the Executive Director has identified several important
questions of law that deserve further consideration and development. This Order requests that
the parties undertake more detailed legal analysis of several elements of the Utah Code
provisions at issue which have not been adequately addressed by the record. The parties'
supplemental briefing should inform a new recommended order from the ALJ, and the ALJ may
order additional supplemental briefing from the parties as the ALJ determines is warranted.
I. THE POLLUTION CONTROL ACT TAX EXEMPTIONS
The Executive Director requests that the parties' supplemental briefing account for
distinctions in the Sales and Use Tax Act, codified at Utah Code§ 59-12-101, et seq. (the
"SUTA") and the Pollution Control Act, codified at Utah Code§ 19-12-101, et seq. (the "PCA").
A. Statutory Interpretation
This matter in large part presents issues of statutory interpretation, which are questions of
law. See Hertzske v. Snyder, 2017 UT 4, ,-r 5, 390 P.3d 307 (quoting Vorher v. Henriod, 2013 UT
10, ,-r 5, 297 P.3d 614) (both statutory interpretation and the application of a statute "present[] a
question of law") (internal quotation marks and citation omitted). The Utah Supreme Court
regularly engages in statutory analysis and has provided guidance as to how this is to be done:
"It has been a long-held practice of the courts in this state to 'seek to give effect to the intent of
the Legislature' when interpreting statutes," Hertzske, 2017 UT 4, ,-r 10 (quoting State v.
Rasabout, 2015 UT 72, ,-r 10 & n.14, 356 P.3d 1258), and "[t]he best indicator oflegislative
intent is the plain language of the statutes themselves." Hertzske, 2017 UT 4, ,-r 10. To that end,
courts read "the plain language of the statute as a whole and interpret its provisions in harmony
with other statutes in the same chapter and related chapters." Miller v. Weaver, 2003 UT 12, ,-r 17;
66 P.3d 592, 597 (Utah 2003). See also Utah Code § 68-3-2(3) ("Each provision of, and each
proceeding under, the Utah Code shall be construed with a view to effect the objects of the
provision and to promote justice.").
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B. The Sales and Use Tax Act.
"Since the 1930s, Utah law has imposed a tax on retail sales of tangible personal
property." B-J Titan Servs. v. State Tax Comm 'n, 842 P.2d 822, 824 (Utah 1992). The current
statutory program is known as the Sales and Use Tax Act, codified at Utah Code§ 59-12-101, et
seq. (the "SUTA"). The SUTA itself includes several exemptions, such as sales of aviation fuel,
motor fuel, special fuel that are already subject to excise tax, and sales of food and alcoholic
beverages consumed during flights over the state. These exemptions are codified at Utah Code §
59-12-104. Notably, these exemptions include sales oftangible personal property where such
property is "purchased for resale in the regular course of business, either in its original form or as
an ingredient or component part of a manufactured or compounded product." Utah Code §
59-12-104(25). This exemption was at issue in the B-J Titan Services case referenced above.
The exemptions codified in the SUTA itself fall to the jurisdiction of the Tax Commission for
review, subject to the Utah Administrative Procedures Act. Utah Code§ 63G-4-101, et seq.; See
also B-J Titan Services, 842 P.2d at 824 ("As the proceedings in these petitions commenced after
January 1, 1988, the Utah Administrative Procedures Act ... governs the standards of review.").
C. The Pollution Control Act.
By contrast, the legislature has created additional exemptions from the SUTA as part of
the Pollution Control Act ("PCA"). The PCA forms part of the Environmental Quality Code, not
part of the SUTA. As a result, there are important differences between the PCA and the SUTA,
which are outlined below.
The PCA exemption is stated as follows:
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19-12-201. Sales and use tax exemption for certain purchases or leases related to pollution
control.
(1) Except as provided in Subsection (2), a purchase or lease of the following is exempt from a
tax imposed under Title 59, Chapter 12, Sales and Use Tax Act
(a) freestanding pollution control property;
(b) tangible personal property if the tangible personal property is:
(i) incorporated into freestanding pollution control property; or
(ii) used at, used in the construction of, or incorporated into a pollution control facility;
(c) a part, if the part is used in the repair or replacement of property described in Subsection
(l)(a) or (b);
(d) a product transferred electronically, if the property transferred electronically is:
(i) incorporated into freestanding pollution control property; or
(ii) used at, used in the construction of, or incorporated into a pollution control facility; or
(e) a service, if the service is performed on:
(i) freestanding pollution control property;
(ii) a pollution control facility; or
(iii) property described in Subsection (l)(b), a part described in Subsection (l)(c), or a product
described in Subsection ( 1 )(d).
(2) A purchase or lease of the following is not exempt under this section:
(a) a consumable chemical that is not reusable;
(b) a consumable cleaning material that is not reusable; or
(c) a consumable supply that is not reusable.
(3) A purchase or lease of office equipment or an office supply is not exempt under this section if
the primary purpose of the office equipment or office supply is not the prevention,
control, or reduction of air or water pollution by:
(a) the disposal or elimination of, or redesign to eliminate, waste, and the use of treatment works
for industrial waste; or
(b) the disposal, elimination, or reduction of, or redesign to elirp.inate or reduce, air pollutants, air
pollution, or air pollution sources, and the use of one or more air cleaning devices.
Therefore, subject to certain exclusions, the PCA exemption from the SUTA applies to two
different categories of property: (!)freestanding pollution control property ("Freestanding
Pollution Control Property"); and (2) tangible personal property that is (a) incorporated into
Freestanding Pollution Control Property; or (b) used at, used in the construction of, or
incorporated into a pollution control facility ("Pollution Control Facility").
Unlike the SUTA, where jurisdiction to grant an exemption falls to the Tax Commission,
a person may not claim an exemption under the PCA until one of the directors of the Department
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of Environmental Quality makes an express determination that the matter qualifies for the PCA
exemption:
19-12-202. Certification required before claiming a sales and use tax exemption.
( 1) Before a person may claim a sales and use tax exemption under Section 19-12-201, the
person shall obtain certification issued in accordance with Section 19-12-303 .
(2) For purposes of Subsection (1 ), if a certification relates to air pollution:
(a) a person shall submit an application under Section 19-12-301 or 19-12-302 to the director of
the Division of Air Quality; and
(b) the director of the Division of Air Quality shall perform the duties described in:
(i) Section 19-12-303 related to certification; and
(ii) Section 19-12-304 related to revocation of certification.
(3) For purposes of Subsection (1 ), if a certification relates to water pollution:
(a) a person shall submit an application under Section 19-12-301 or 19-12-302 to the director of
the Division of Water Quality; and
(b) the director of the Division of Water Quality shall perform the duties described in:
(i) Section 19-12-303 related to certification; and
(ii) Section 19-12-304 related to revocation of certification.
Under Utah Code Section 19-12-303(a) (for a "pollution control facility"), the Director
must make four separate determinations in order for an application under Utah Code§ 19-12-301
to qualify for the exemption under the SUTA:
(i) the application meets the requirements of Subsection 19-12-301 (3);
(ii) the facility that is the subject of the application is a pollution control facility;
(iii) the person who files the application is a person described in Subsection 19-12-301(1);
and
(iv) the purchases or leases for which the person seeks to claim a sales and use tax exemption
are exempt under Section 19-12-201 ....
Utah Code§ 19-12-303(a) (emphasis added).
By contrast, under Utah Code Section 19-12-303(b) (for a Freestanding Pollution Control
Property), the Director must make four separate determinations in order for an application under
Utah Code Section 19-12-302 to qualify for the exemption under the SUTA:
(i) the application meets the requirements of Subsection 19-12-302(2);
(ii) the property that is the subject of the application is freestanding pollution control
property;
(iii) the person who files the application is a person described in Subsection 19-12-302( 1 ); and
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(iv) the purchases or leases for which the person seeks to claim a sales and use tax exemption are
exempt under Section 19-12-201.
Utah Code§ 19-12-303(b) (emphasis added).
The two certifications are similar except for the highlighted language in each subsection
(ii). In the first instance, the Director must determine that the facility that is subject to the
application is a Pollution Control Facility, while in the second case, the Director must determine
that the property that is subject to the application is Freestanding Pollution Control Property.
This is an important distinction that is addressed in more detail below.
Because the analysis that the Director must perform is different, depending on the type of
exemption the requesting party asserts, the PCA requires a different application form for each
type of exemption. Utah Code Section 19-12-301 relates to applications for claimed Pollution
Control Facilities, while Utah Code Section 19-12-302 relates to applications for claimed
Freestanding Pollution Control Property. It is important to note that under the statutory scheme,
an application under one theory is not the same as an application under the other theory. By the
express terms of the PCA, neither type of application applies to the other. Compare Utah Code §
19-12-301 ( 5) ("This section does not apply to the certification of freestanding pollution control
property") with Utah Code§ 19-12-302(4) ("This section does not apply to the certification of a
pollution control facility."). In this respect, the statute is clear and unambiguous.
D. Pollution Control Facility vs. Freestandine Pollution Control Property Theories
The administrative record shows that Crescent Point submitted its final application under
the Pollution Control Facility theory and that the Director analyzed the application under this
theory. Yet, the Proposed Order is presented using the Freestanding Pollution Control Property
theory as the basis for reversing the Director's final decision. This situation arose because
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Crescent Point purported to alter its legal position during legal briefing. This shift in legal
positions is not allowed by the PCA and constitutes a major reason the Executive Director is
remanding this matter to the ALJ for reconsideration.
When a director receives an application under Utah Code Section 19-12-302 requesting
certification as a Freestanding Pollution Control Property a director must look to the following
definition:
(5) (a) "Freestanding pollution control property" means tangible personal property located in the
state, regardless of whether a purchaser purchases the tangible personal property
voluntarily or to comply with a requirement of a governmental entity, if:
(i) the primary purpose of the tangible personal property is the prevention, control, or
reduction of air or water pollution by:
(A) the disposal or elimination of, or redesign to eliminate, waste, and the use of treatment works
for industrial waste; or
(B) the disposal, elimination, or reduction of, or redesign to eliminate or reduce, air pollutants,
air pollution, or air contamination sources, and the use of one or more air cleaning
devices; and
(ii) the tangible personal property is not used at, in the construction of, or incorporated into a
pollution control facility.
Utah Code§ 19-12-102(5) (emphasis added).
On the other hand, when a director receives an application under Utah Code Section
19-12-301 requesting certification as a pollution control facility, a director must look to the
following definition:
(6)(a) "Pollution control facility" means real property in the state, regardless of whether a
purchaser purchases the real property voluntarily or to comply with a requirement of a
governmental entity, if the primary purpose of the real property is the prevention,
control, or reduction of air pollution or water pollution by:
(i) the disposal or elimination of, or redesign to eliminate, waste and the use of treatment works
for industrial waste; or
(ii)(A) the disposal, elimination, or reduction of, or redesign to eliminate or reduce, air
pollutants, air pollution, or air contamination sources; and
(B) the use of one or more air cleaning devices.
Utah Code§ 19-12-102(6) (emphasis added).
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As with any other matter that is governed by statute, the agency's analysis must begin
with, and be consistent with, the statutory text, in this case focusing on one of the two definitions
provided above. The Proposed Order presents a single legal theory, that the surface casing of the
Deep Creek Well qualifies as Freestanding Pollution Control Property. See Proposed Order at
17-38.
The Proposed Order's adoption of the Freestanding Pollution Control Property theory,
rather than the Pollution Control Facility theory, is not supported by the administrative record.
Crescent Point submitted its application to the Director exclusively under the Pollution Control
Facility theory. Under the PCA, a tax exemption based on the Pollution Control Facility theory is
not the same as an exemption based on the Freestanding Pollution Control Property theory, as
described above. The legislature created two different application programs for each type of
exemption and provided two different definitions to correspond to each exemption. Applications
for Pollution Control Facility certifications are submitted and processed under Utah Code §
19-12-301, while applications for certifications for Freestanding Pollution Control Property are
submitted and processed under Utah Code§ 19-12-302. As discussed above, these applications
are separate and distinct.
Review of the administrative record shows that during legal briefing on the merits,
Crescent Point impermissibly attempted to change the basis for its application. The Proposed
Order states that "[o]n January 20, 2016, Crescent Point submitted an application of the surface
casing of the Deep Creek Well as freestanding pollution control property pursuant to Utah Code
Ann. § 19-12-102(5)(a). AR000092-97." Proposed Order at 33 (emphasis added). This
statement is incomplete and, in any event, misleading and irrelevant because the initial
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application was withdrawn. While the cover email to the January 20, 2016 application
(AR000092) states that the application was filed under the Freestanding Pollution Control
Property theory, the actual application was made using the Division's Pollution Control Facility
form . Yet, by Crescent Point's own representation, the January 20, 2016 application was
withdrawn and should not form the basis of the ALI's analysis or the Executive Director's
review. On July 19, 2016, Crescent Point filed a "Revised Pollution Control Facility"
application ("Revised Application"). See AR000317-357. To avoid any doubt, in its Revised
Application, Crescent Point represented to the Director as follows : "This revised application is
being filed and is meant to replace the previously filed applications." Id. AR000320 (emphasis
added). The Revised Application cannot be treated as an application for an exemption based on
the Freestanding Pollution Control Property theory because Crescent Point never requested such
a certification from the Director. See Utah Code§ 19-12-301(5) ("This section does not apply to
the certification of freestanding pollution control property").
Consistent with Crescent Point's Revised Application, the Director's final determination
considered the question of whether the Deep Creek surface well casing qualified as a Pollution
Control Facility and accordingly did not consider the Freestanding Pollution Control Property
definition. See AR000359-60. Consistent with its Revised Application and the Director's final
decision, Crescent Point's Request for Agency Action is based exclusively on the theory that the
Deep Creek Well surface casing qualifies as a Pollution Control Facility. See AR000361
(Crescent Point appeals the Division of Water Quality's "denial of Crescent Point's application
for certification of the surface casing of the Deep Creek 7-27-4-2E Well ... as a Pollution
Control Facility .... ")(emphasis added).
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It was not until Crescent Point's Opening Brief, submitted on May 2, 2018, that Crescent
Point purported to alter the legal basis for its claimed exemption, this time claiming that the
Director's determination was clearly erroneous because the Deep Creek Well surface casing
qualifies as Freestanding Pollution Control Property, a theory that was not considered by the
Director because Crescent Point did not ask the Director to consider it. The apparent basis for
this shift in legal strategy is found in a footnote on page 13 of Crescent Point's opening brief on
the merits:
Under Utah Code Ann. § 19-12-102, "Freestanding pollution control property" is tangible
personal property and a "pollution control facility" is real property. In the case of BJ-Titan v. Tax
Comm 'n, 842 P.2d 822, 829 the Utah Supreme Court held that cement poured around
well casing "has not lost its identity as tangible personal property." As such, Crescent
Point will base its case on the definition of "freestanding pollution control property," as
opposed to the definition of a "pollution control facility," though from Crescent Point's
perspective, the outcome should be the same under either definition.
Crescent Point Opening Brief at 13, n.1. Crescent Point then proceeded to brief its case as if it
had filed an application under, and the Director had based the decision on Utah Code §
19-12-302.
Crescent Point's attempt to shift its legal position should have been rejected out of hand
because such an after-the-fact shift is not allowed based on the type of application Crescent Point
filed and the Director reviewed. It is not appropriate to hold the Director to a determination that
the Director was not asked to make (and expressly did not make). For avoidance of doubt, the
Executive Director hereby rules that Crescent Point's application must be evaluated on its merits
on the same tenns under which it was filed and reviewed by the Director, namely, as a request for
certification under Utah Code§ 19-12-301 as a Pollution Control Facility.1
1 The Executive Director can find no basis for the following representation set forth on page 17
of the Proposed Order: "The parties have agreed that the freestanding pollution control facility
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Both the Director (in briefing) and the ALJ (in the Proposed Order) failed to account for
Crescent Point's shift in legal position. The Proposed Order analyzed the Director's underlying
determination on the basis of Freestanding Pollution Control Property under Section 19-12-302.
It should be analyzed under the Pollution Control Facility theory under Section 19-12-301.
E. Primary Purpose Analysis.
The "primary purpose" determination is at the heart of the PCA exemptions. The
legislature has empowered two DEQ directors to make "primary purpose" determinations under
the PCA, in contrast to having given the Tax Commission authority to determine exemptions
under SUTA. This reflects the specialized technical and scientific expertise needed to make
"primary purpose" determinations under the PCA. As the ALJ noted, based on the legislative
history, the legislature "left it to DEQ to address how primary purpose is determined." Proposed
Order at 27.
Yet the "primary purpose" analysis is different, depending on the theory presented to the
Director. The Executive Director requests supplemental briefing to address the "primary
purpose" analysis that applies to the Pollution Control Facility elements of the PCA, not the
"primary purpose" analysis that applies to the Freestanding Pollution Control Property elements
of the PCA.
In the case of Freestanding Pollution Control Property, the "primary purpose" test is
embedded in the definition, as follows:
(i) the primary purpose of the tangible personal property is the prevention, control, or
reduction of air or water pollution. Utah Code § 19-12-1 02( 5) (emphasis added).
requirements are pertinent to the Petitioner's application to certify the surface casing at the Deep
Creek Well .... " Even if such an agreement existed, it would be contrary to the express
statutory language cited above. In any event, the Executive Director declines to allow the parties
to shift, for the first time on appeal, the basis for an exemption under the PCA.
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In the case of a Pollution Control Facility, the "primary purpose" test is likewise
embedded in the definition, as follows:
(6)(a) ... , if the primary purpose of the real property is the prevention, control, or
reduction of air pollution or water pollution. Utah Code § 19-12-102(6) (emphasis
added).
The Proposed Order focuses exclusively on the legal question of whether the "primary
purpose" of the surface casing of the Deep Creek Well is pollution control. See Proposed Order
at 2-19. The Executive Director is not persuaded that this analysis is consistent with the plain
language of the PCA. For Pollution Control Facility analysis, it must be determined that the
primary purpose "of the real property" (e.g., the facility) meets the pollution control criteria. By
contrast, in the case of Freestanding Pollution Control Property, the focus ofthe "primary
purpose" test is on "the tangible personal property" that is the subject of the application. The
confusion of the primary purpose analysis is another reason for the Executive Director's remand
to the ALJ for reconsideration.
"Real property" for Pollution Control Facility analysis is not defined by the statute. On
this and related points, the legislature apparently intended to rely on the technical expertise of the
agency to make the determination by focusing on the primary purpose of the real property (as
opposed to the specific equipment or other freestanding personal property at issue). If the
legislature had intended the analysis to be the same, it would not have created the distinctions
present in the statutory scheme.
It is worth noting that under the PCA text, in the case of Freestanding Pollution Control
Property, the tangible personal property at issue in the analysis must not have been "used at, in
the construction of, or incorporated into a pollution control facility." Utah Code§
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19-12-102(5)(a)(ii). The apparent intent of this limitation is if tangible personal property is used
at, in the construction of, or incorporated into a Pollution Control Facility it becomes real
property and thus is covered instead by the Pollution Control Facility exemption. Again, this
portion of the definition makes it clear that the Pollution Control Facility and Freestanding
Pollution Control Property theories must be mutually exclusive and must require different
analyses: for tangible personal property that is incorporated into (or used in the construction of)
real property, only the Pollution Control Facility exemption potentially applies, whereas for
tangible personal property that retains its essential character as "freestanding" (e.g., moveable,
personal property), only the Freestanding Pollution Control Property theory would potentially
apply. Utah Code§ 19-12-102(5)(a). This interpretation is bolstered by the fact that the PCA
requires separate applications for each type of exemption.
For purposes of the Pollution Control Facility "primary purpose" analysis, it should be
noted that Crescent Point has taken the position that the surface casing of the Deep Creek Well
qualifies as tangible personal property, not as real property. See Opening Brief at 13 , n.1 (citing
B-J Titan, 842 P.2d at 829) (noting, for purposes of the manufactured product exemption from
the SUTA that cement poured around a well casing "has not lost its identity as tangible personal
property."). This position is not necessarily inconsistent with the PCA, which provides a sales
and use tax exemption, under the Pollution Control Facility theory, for tangible personal
property "that is used at, used in the construction of, or incorporated into a pollution control
facility." Utah Code§ 19-12-201(1)(b)(ii). However, supplemental briefing should address the
primary purpose of real, rather than personal property, as required by the fact that Crescent Point
applied for certification as a Pollution Control Facility under Utah Code§ 19-12-301.
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The Proposed Order's focus on the primary purpose of the surface casing is not
surprising because the Director's underlying analysis appears to be cast, at least in part, in the
same terms. See, e.g., AR000359 ("we conclude that the primary purpose of a surface casing is
not pollution prevention .... ")(emphasis added); Initial Order at 19-22 (summarizing the
Director's evaluation of the primary purpose of the Deep Creek well surface casing). However,
the Director also relied on the "treatment works" element of the Pollution Control Facility
analysis, suggesting that the Director was, in fact, considering the "primary purpose of the real
property," as required by the PCA. In this respect, the Director's decision is potentially
ambiguous. Based on this potential ambiguity, remand to the Director may ultimately be the best
course of action. The Executive Director will leave it to the parties and ALJ to address this
question in connection with supplemental proceedings on remand. For the reasons discussed
more fully below, it may well be that remand to the Director is not warranted because that
decision is merely interim, and it falls to the Executive Director to render the final agency action.
This is one of the primary questions that should be addressed on remand, before reaching other
questions.
F. Treatment Works.
The Proposed Order suggests that one dispositive legal question presented here is
whether "and" in PCA Section 19-12-102(5)(a)(i)(A) should be read in the conjunctive or
disjunctive sense, to determine whether pollution control and treatment works are both required,
or whether pollution control by itself is enough without treatment works. See Proposed Order at
30-31 . The Executive Director is not persuaded that this is the correct question and requests that
supplemental briefing address the "treatment works" element of the statute anew, within the
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proper Pollution Control Facility and real property lens as outlined above. An important element
of the Director's final decision is the fact that "there is no treatment works." AR000360. While
there is some potential ambiguity in the Director's decision as to the focus of the primary
purpose analysis, the reference to treatment works was based on the Director's evaluation ofthe
Pollution Control Facility definition. !d. As discussed above, there are more broad legal
questions that must be addressed before reaching the conjunctive/disjunctive issue. These broad
issues have not been briefed by the parties or evaluated by the ALJ. The new proposed order
should evaluate the conjunctive/disjunctive legal question in the broader context of the PCA
provisions as discussed herein.
II. STANDARDS OF REVIEW
The Executive Director further requests that the parties account for the following rules of
statutory construction, scope, and deference in their supplemental briefing. A director's
determination under the PCA is "another administrative authorization made by a director." Utah
Code Section 19-1-301.5(1)(e)(5). As a result, if a director's determination under the PCA is
appealed, this is to be accomplished as a permit review adjudicative proceeding under Utah Code
Section 19-1-301.5. The review procedures for a permit review are distinguishable from the
Utah Administrative Procedures Act that governs decisions made by the Tax Commission under
the SUTA.
A. Strict Construction of Sales and Use Tax Exemptions.
While review of PCA exemptions falls to the Department of Environmental Quality, not
the Tax Commission, the Executive Director is persuaded that in connection with the statutory
analysis described above, the Utah Court of Appeals and Supreme Court would nevertheless
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apply the general rules of tax code construction. After all, the PCA provides exemptions to the
SUTA. To the extent that the Proposed Order engages in statutory analysis, it does not cite or
rely on the tax code rules of construction that strictly review statutes providing for tax
exemptions against the taxpayer. In connection with the requested statutory analysis, the AJL
should evaluate and analyze the applicable provisions of the PCA in light of the guiding
construction rules as articulated by the Utah Supreme Court. See Hales Sand & Gravel, Inc. v.
Utah State Tax Comm 'n, 842 P.2d 887, 890-91 (Utah 1992) (courts "generally construe taxing
statutes in favor of the taxpayer and against the taxing authority," but "construe statutes
providing tax exemptions strictly against the taxpayer.") (citations omitted); see also Parson
Asphalt Prods., Inc. v. Utah State Tax Comm 'n, 617 P.2d 397, 398 (Utah 1980) (internal citations
omitted) ("Even though taxing statutes should generally be construed favorable to the taxpayer
and strictly against the taxing authority, the reverse is true of exemptions. Statutes which provide
for exemptions should be strictly construed, and one who so claims has the burden of showing
his entitlement to the exemption.").
B. Relevance of Director's Prior Certifications and Determinations.
The Proposed Order relies, in part, on prior certifications made by the Director under the
PCA in prior matters that were not appealed, specifically, Crescent Point's prior applications for
two Class II injection wells and the use of a phase separator. See Proposed Order at 34-36. The
Proposed Order contends that the Director, not having required treatment works in those matters,
has acted in a manner that is clearly erroneous by doing so now.
The relevance of these previous matters to the present review is not adequately explained
in the Proposed Order. The Director's previous certifications, whether relating to Crescent
16
Point's Class II injection wells, phase separators, or other matters, have not been appealed, nor
have they been reviewed by the Executive Director or other board or court. The full
administrative records for such matters are not presented here. It may be that the Director made
legal errors in the previous certifications, based on the statutory text. But it also may be that the
Director made no such errors. That is not the question on appeal in this matter. Even if that were
the case, there does not appear to be adequate information in the administrative record for this
matter to understand the reasoning behind the Director's past decisions. The sole question before
the Executive Director here is whether the Director's denial of the Revised Application is clearly
erroneous under Utah Code Section 19-1-301.5.
Similarly, the Proposed Order takes issue with the Director's February 11, 2016 denial,
based on the rationale that it did not require treatment works. See Proposed Order at 23. The
Proposed Order contends that the Director's requirement of treatment works in the Director's
final determination (dated September 15, 2016) is therefore clearly erroneous. Yet, the Proposed
Order does not account for the fact that Crescent Point expressly withdrew the application(s) that
formed the basis for the Director's February 11,2016 denial. It stands to reason that just as
Crescent Point's Revised Application was meant to replace all previous applications, so, too, the
Director's final denial was meant to replace the previous denial letter. It would have been
helpful had the Director expressly analyzed this issue, but the final denial letter is silent on this
point. Yet, the rationale for holding the Director to the analysis of a withdrawn application is not
explained in the Proposed Order. This question has not been adequately addressed in the parties'
briefing or in the Proposed Order. The Executive Director's provisional view is that the
Director's final decision (AR000359-60), issued in response to the Revised Application (which,
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by its terms, superseded and replaced Crescent Point's prior applications) must stand on its own
merits.
In short, if the ALJ concludes that the Director's previous determinations, in previous
matters and based on withdrawn applications in this matter, are relevant to the question of
whether the Director's final determination is clearly erroneous, the basis for this conclusion must
be explained in detail in the new proposed order and must be supported by the administrative
record.
C. Deference.
There seems to be the potential for confusion about the nature and scope of the instant
review and the role that deference should play here. Because it is on appeal, the Director's
decision here is only an interim agency action. At this stage of the proceedings, there is no final
agency action. By definition, the final agency action will be the Executive Director's final order.
See Utah Physicians for a Healthy Env't. v. Utah Dep 't of Envt'l Quality, 2016 UT 49 ~13. As a
result, the Utah case law regarding deference to an agency's interpretations of the law are not
applicable to the Executive Director's review of a Director's determinations. Rather, under the
statute, the Executive Director is expected to "uphold all factual, technical, and scientific agency
determinations that are not clearly erroneous." Utah Code§ 19-1-301.5(14)(b). But the
Executive Director's statutory deference to Directors is not equivalent to the level of deference a
Utah court may apply to the final agency action. To the contrary, the Executive Director "may
use the executive director's technical expertise in making a determination." Utah Code §
19-1-301.5(14)(d). Thus, the Executive Director and Division Directors have similar roles in
reaching final agency decisions and both may employ their own technical expertise in rendering
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a final agency action. Similarly, the ALJ s appointed by the Executive Director to preside over
adjudicative proceedings must meet minimum levels of technical and legal background and
experience. See Utah Code§ 19-1-301(5).
Thus, under the administrative procedures the legislature created for the Department of
Environmental Quality, the roles for internal agency reviews are distinguishable from the role
that a reviewing Utah court would apply should the Executive Director's final agency action be
appealed judicially. The Utah court cases involving deference to administrative agencies thus do
not have direct application at this stage of an adjudicative proceeding. The question of whether a
Utah court should defer (if at all) to a final agency action does not apply until after the Executive
Director has rendered a final decision. The purpose of the present internal review is to assist the
Executive Director in applying the law to facts to render the final agency action. Standing in the
shoes of the Executive Director, the ALJ's recommended order should present the case according
to the statutory review scheme, rather than as if the Executive Director or ALJ were sitting as
reviewing Utah court.
REMAND ORDER
For the reasons stated above, the Executive Director rules that Crescent Point's
application must be evaluated on its merits on the same terms under which it was filed and
reviewed by the Director, namely, as a request for certification under Utah Code§ 19-12-301 as a
Pollution Control Facility. As currently drafted, the Proposed Order conflates the analysis,
leading to confusion, inconsistency, and an incomplete administrative record.
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Based on the foregoing, the Proposed Order is hereby remanded to the ALJ for further
proceedings and reconsideration as provided herein. Specifically, the parties shall include in their
supplemental briefing an analysis consistent with this Order, including, the following questions:
1. Whether the Director's determination should be remanded to the Director for
re-evaluation of the "primary purpose of the real property" instead of the primary purpose of the
surface well casing, or whether this question is best addressed by the Executive Director at this
point in the proceedings?
2. If the answer to the first question is that remand to the Director is not appropriate,
whether the Director's September 15, 2016 determination is clearly erroneous, including analysis
of the following two questions (among others):
a) what is the "primary purpose" of the Pollution Control Facility (real property)
at issue in this application?
b) whether the PCA requires the existence of treatment works under the Pollution
Control Facility theory?
~
DATED this ZS day of January, 2019.
By __ ~~~~~~~~~-----
Ala
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CERTIFICATE OF SERVICE
I hereby certify that on this 25th day of January, 2019, a true and correct copy ofthe
foregoing Executive Director's Remand Order was served via e~mail upon each ofthe
following:
Lucy Jenkins, Administrative Law Judge
Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main Street, Suite 1500
Salt Lake City, Utah 84101
lj enkins@j ones waldo .com
Administrative Proceedings Records Officer
[e-mail]
Erica Gaddis, Director
Utah Division of Water Quality
195 North 1950 West
P.O. Box 144870
Salt Lake City, Utah 84114-4870
[e-mail]
Amanda Smith
Steven P. Young
Holland & Hart, L.L.P.
222 South Main Street, Suite 2200
Salt Lake City, Utah 84101
[e-mail]
[e-mail]
Kimberlee McEwan
Utah Attorney General's Office
195 North 1950 West
P.O. Box 140873
Salt Lake City, Utah 84114-0873
kmcewan@agutah. gov
~~--5~
Shane R. Bekkemellom,
Administrative Legal Secretary
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