AG-2022-000010

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1720851.1
BEFORE THE EXECUTIVE DIRECTOR
OF THE UTAH DEPARTMENT OF ENVIRONMENTAL QUALITY
IN THE MATTER OF
CRESCENT POINT U.S.
CORPORATION’S APPLICATION
FOR CERTIFICATION OF THE
SURFACE CASING OF THE DEEP
CREEK 7-27-4-2E WELL AS A
POLLUTION CONTROL FACILITY
FINDINGS OF FACT, CONCLUSIONS OF
LAW AND RECOMMENDED ORDER ON
THE MERITS
AFTER REVISED PERMIT ORDER
(REVISED)
December 29, 2020
Lucy B. Jenkins
Administrative Law Judge
This matter is before me pursuant to an appointment by the Executive Director of the
Utah Department of Environmental Quality dated March 29, 2018. The appointment charges the
Administrative Law Judge to conduct the adjudicative proceeding and to submit to the Executive
Director a proposed dispositive action pursuant to Utah Code Ann. § 19-1-301.5 and Utah
Admin. Code Rules R305-7-101 to 113, R305-7-200 to 217, and the applicable sections of R305-
7-601 to 623. Following are the Director’s Findings of Fact and my Conclusions of Law and
Recommended Order on the Merits.
REGULATORY BACKGROUND
1.This administrative proceeding arises under the Pollution Control Act (the “Act”),
Utah Code Ann. §§ 19-12-101 to 305, and its implementing regulations found in Utah Admin.
Code r. 317-12-1 to 5.
2. In order to claim a sales and use tax exemption under the Act, a person must file
an application for certification to the Utah Division of Water Quality (“DWQ”), if the
application relates to water pollution. Utah Code Ann. § 19-12-202(3).
3.The Act allows an exemption from sales and tax exemption for:
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(a)freestanding pollution control property;
(b)tangible personal property if the tangible personal property is:
incorporated into freestanding pollution control property; or
used at used in the construction of, or incorporated into a
pollution control facility;…
Utah Code Ann. § 19-12-201.
4.The Act defines a “pollution control facility”as:
… 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;…
Utah Code Ann. § 19-12-102(6)(a).
5.The Act defines “freestanding pollution control property” as:
. . . 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….
Utah Code Ann. § 19-12-102(5)(a).
PROCEDURAL BACKGROUND
6.On July 22, 2016, Crescent Point U.S. Corp. (“Crescent Point”) submitted a
revised application for pollution control facility tax exemption certification to the Utah Division
of Water Quality (“Division”) (“Revised Application”) which requested a sales and use tax
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exemption for the surface casing of the Deep Creek 7-27-4-2E oil production well (“Deep Creek
Well”) as a pollution control facility.1 AR000317-357.
7.On September 15, 2016, the Director of the Division (“Director”) denied the
Revised Application on the grounds that the primary purpose of the surface casing was not
pollution prevention and that it did not meet the Act’s definition of a pollution control facility:
From our review of the application materials, additional research, and discussions
with oil and gas experts with Utah Division of Oil, Gas, and Mining (UDOGM),
we conclude that the primary purpose of surface casing is not pollution prevention,
as required for tax exemption certification under UCA Subsection 19-12-102(6) of
the Utah Pollution Control Act. Although oil production surface casing does isolate
internal casings from the formation and groundwater, the primary purpose of the
surface casing is to maintain the integrity of the well bore hole during construction
and of the well during production. In particular, the surface casing is necessary to:
maintain hole integrity by preventing caving; minimize lost circulation into
shallow, permeable zones; cover weak incompetent zones to control kick-imposed
pressures; provide a means for attaching the blowout preventers; cover freshwater
sands; and to support the weight of all casing strings run below the surface casing.
Further, we find that an oil well surface casing does not meet the definition of a
pollution control facility because there is no “treatment works” as defined by UCA
Subsection 19-6-102(19) for industrial waste associated with the surface casing.
AR000359-360.
8.On October 14, 2016, Crescent Point filed a Request for Agency Action
challenging the Director’s denial of the Revised Application.
9.On August 31, 2018, the Administrative Law Judge (“ALJ”) issued a
Recommended Order in favor of the Deep Creek Well receiving certification as a freestanding
pollution control facility (“Recommended Order”).
10.On January 25, 2019, the Executive Director of the Utah Department of
Environmental Quality (“Executive Director”) remanded the case back to the ALJ to conduct
1 Crescent Point states that this application supersedes and replaces its previous applications filed
on November 24, 2015 and January 20, 2016. AR000320.
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supplemental briefing, stating that a decision must be made consistent with the Revised
Application which sought certification of the surface casing as a “pollution control facility” and
not as “freestanding pollution control property,” as those terms are defined in the Act..
(“Remand Order”).
11.On June 16, 2020, the Executive Director issued a Limited Remand Order to the
Director, asking for issuance of “a revised permit order that includes: (1) written findings of fact;
(2) written conclusions of law; and (3) sufficient legal analysis to enable agency and judicial
review of the Director’s order” (“Limited Remand Order”). Limited Remand Order, at p. 11.
12.On September 4, 2020, the Director issued an Amended Denial of Crescent
Point’s Water Pollution Control Facility Certification (“Amended Denial”).
After reviewing and considering all of the facts and arguments presented in the briefing,
and pursuant to Utah Code § 19-1-301.5(12)(c), the ALJ hereby submits to the Executive
Director the following Findings of Fact, Conclusions of Law, and Recommended Order on the
Merits.
DIRECTOR’S FINDINGS OF FACT
1.On July 22, 2016, Crescent Point filed a Revised Application for Sales and/or Use
Tax Exemption (“Revised Application”) for Deep Creek 70270402E Well at SWNE 27 4.0 S 2.0
U in Uintah County, Utah.
2.Crescent Point requested certification of the surface casing of the Deep Creek
Well as a standalone real property pollution control facility. The surface casing consists of
concrete and piping. Revised Application, ¶ 8.
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3.In its Revised Application, Crescent Point maintained that the surface casing of
the Deep Creek Well satisfies the criteria for certification as a water pollution control facility.
See Id., p. 1.
4.The surface casing of the Deep Creek Well is comprised of an 8.625- inch steel
pipe permanently cemented into the wellbore that runs from the surface to a depth of just over
1,000 feet. See Id., p. 2.
5.Throughout its length, the steel pipe is encased in and affixed to the surrounding
strata by industrial-grade 15.8 ppg Class V 2% chlorides cement. Id.
6.The Revised Application states that the surface casing was “designed” in
compliance with Utah Admin. Code R649-3-8. Id.
7.Utah Admin. Code R649-3-8 requires that “in areas where the pressures and
formation to be encountered during drilling are known, sufficient surface casing shall be run to
reach depths below . . . domestic, fresh water levels [and] prevent blowout or uncontrolled flows.
The casing program . . . must be planned to protect any potential oil or gas horizon penetrated
during drilling from infiltration of waters from other sources and to prevent the migration of oil,
gas, or water from one horizon to another.”
8.The primary purpose of the surface casing is to maintain the integrity of the well
bore hole during construction and of the well during oil production. See, e.g., Administrative
Record for the administrative adjudicative proceeding at AR000001, AR000003, AR000002,
AR000040, AR000052, AR000054-55, AR000080, AR000111, AR000155, AR000310.
9.The primary purpose of the Deep Creek Well is to bring to the surface “large
amounts of oil, gas, and waste water (sic). . . .” See Revised Application, p.3.
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10.Crescent Point does not describe any treatment works associated with the Deep
Creek Well in its application for certification, nor can the Director find any treatment works
associated with the Deep Creek Well. See Id.
11.Pursuant to Utah Code § 19-12-301, on September 14, 2016, the Director denied
Crescent Point’s application to be certified as a pollution control facility. Director’s Amended
Denial, pp. 2-3.
STANDARD OF REVIEW
This permit review adjudicative proceeding is governed by Utah Code Ann. § 19-1-
301.5, which requires the administrative law judge to “conduct a permit review adjudicative
proceeding based only on the administrative record and not as a trial de novo.” Utah Code Ann.
§ 19-1-301.5(9)(a). The administrative law judge must “conduct a review of the director’s order
or determination, based on the record” and submit a proposed dispositive action to the Executive
Director. Id. § 19-1-301.5(13)(b) and (c).
In reviewing the proposed dispositive action, “[t]he executive director shall uphold all
factual, technical, and scientific agency determinations that are not clearly erroneous based on
the petitioner’s marshaling of the evidence.” Id. § 19-1-301.5(14)(b)2 Utah Administrative
Code Rule R305-7-214 explains this standard of review as follows:
2 While subsection (13)(b) expressly applies directly to the Executive Director’s review, the standard of
review that the ALJ is to apply to the record is not expressly stated in the Utah Code. Under a fair
reading of the statute, it is clear that the ALJ is to apply the same standard as the Executive Director is
required to apply. This conclusion is based on a reading of the permit review adjudicative proceeding
statute as a whole. In the first instance, the ALJ’s express duty and authority is to undertake a permit
review adjudicatory proceeding and not a trial de novo on the merits, resulting in a recommended ruling
for the Executive Director. In other words, the role of the ALJ is to “stand in the shoes” of the Executive
Director and provide her with a recommended ruling on the merits. Thus, the ALJ is to apply the same
standard of review to the administrative record as the Executive Director is required to apply. Utah Code
Ann. § 19-1-301.5.
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(a) The petitioner has the burden of proof;
(b) Marshaling the evidence is a natural extension of the petitioner's burden of
proof;
(c) For each factual, technical, and scientific determination challenged by
petitioner, the petitioner is required to marshal and acknowledge the evidence in
the record that supports the Director's determination. Such determination shall be
overturned as clearly erroneous only if the petitioner has proven, after marshaling,
that the Director's determination is not supported. See Subsections 19-1-
301.5(6)(d)(v)(G) and (H) and 19-1-301.5(14); and
(d) If the petitioner fails to marshal, there is a presumption that the Director's
factual, technical, and scientific determination is not clearly erroneous.”
The standard of review for non-factual determinations recognizes that the Director has
been granted substantial discretion to interpret its governing statutes and rules. Utah Code Ann.
§ 19-1-301.5(16)(c)(i); Utah Admin.Code r. 305-7-214((3). The Executive Director may use
“the executive director’s technical expertise in making a determination.” Utah Code Ann. § 19-
1-301.5(14)(d).
The Utah Sales and Use Tax Act includes a tax exemption for purchases or leases that are
exempt under the Pollution Control Act (the “Act’). Utah Code Ann. § 59-12-104(11). The
Act exempts a purchase or lease of “tangible personal property if the tangible personal property
is: … (ii) used at, used in the construction of, or incorporated into a pollution control facility”. A
person must obtain certification from the Utah Division of Water Quality (or the Division of Air
Quality) before claiming a sales and tax exemption under the Act. Utah Code Ann. § 19-12-
202(1).
While courts generally construe taxing statutes in favor of taxpayers and against the
taxing authority, statutes providing tax exemptions are strictly construed against the taxpayers.
See Hales Sand & Gravel, Inc. v. Utah State Tax Comm 'n, 842 P.2d 887, 890-91 (Utah 1992);
see also Parson Asphalt Prods., Inc. v. Utah State Tax Comm 'n, 617 P.2d 397, 398 (Utah
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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"). Therefore, Crescent
Point has the burden of showing that its certification application meets the requirements for a
tax exemption, and the Act must be strictly construed against Crescent Point.
CONCLUSIONS OF LAW
Crescent Point’s Revised Application applied for certification of the surface casing as a
pollution control facility. However, Crescent Point treated the surface casing as freestanding
pollution property - instead of a pollution control facility - in its briefs during the motions phase
of this administrative proceeding. The Director did too. Thus, the Recommended Order was
based on Crescent Point’s and the Director’s characterization of the surface casing as a
freestanding pollution property, rather than as a pollution control facility (as stated in Crescent
Point’s application).
The Remand Order directed the ALJ and the parties to refocus on the Revised
Application as an application for certification of the surface casing as a pollution control facility.
In the Remand Order, the Executive Director pointed out the distinctions between exemption
applications for a pollution control facility versus a freestanding pollution property, including
that the pollution control facility exemption applies to “tangible personal property if the tangible
personal property is: … (ii) used at, used in the construction of, or incorporated into a pollution
control facility;” Utah Code Ann. § 19-12-201(1)(b). Accordingly, the Executive Director
remanded the Recommended Order to the ALJ for further proceedings and reconsideration and
directed the parties to include in their supplemental briefing: (i) an analysis of whether the
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Director’s certification denial should be remanded to the Director for re-evaluation of the
primary purpose of real property instead of the primary purpose of the surface casing (as
personal property) ; and (ii) if remand to the Director is not appropriate, analysis of: the primary
purpose of the pollution control facility (real property) and whether the existence of treatment
works is required.
It is important to note that as of the time the Executive Director issued the Remand
Order, Crescent Point had characterized the surface casing as personal property and
characterized its application as certification of freestanding pollution control property (personal
property) in its briefs. The Executive Director remanded the matter for consideration of the
surface casing as a pollution control facility, consistent with Crescent Point’s application.
Following the Remand Order, Crescent Point reverted to its original position, as an application
for certification of the surface casing as a pollution control facility, and acknowledged that the
surface casing is real property. See Brief of Crescent Point on Remand Issue #1, p. 3.
Following briefing of whether the Director’s certification denial should be remanded to
the Director, the ALJ issued its Recommended Order in Response to Director’s Remand Order
Question Number One dated April 30, 2019, which recommended that a remand to the Director
is not appropriate. The Executive Director then issued its Limited Remand Order to the Director
dated June 16, 2020, which directed the Director to issue a revised permit order that includes
findings of fact, conclusions of law, and legal analysis.
Pursuant to the Limited Remand Order, the Division issued the Director’s Amended
Denial of Crescent Point’s Certification Application which analyzed Crescent Point’s application
for certification of the surface casing as a pollution control facility. The Director denied
Crescent Point’s Application based on the following determinations:
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(i)“The Director has determined that Crescent Point’s application was
complete, that it was submitted on a form prescribed by the Director, and
that it contained the following, as required by statute: a description of the
pollution control facility, a description of the property, part, product or
service for which a sales and use tax exemption was claimed, a description
of the existing or proposed operation procedure for the claimed pollution
control facility; and a statement of the purpose serviced or to be served by
the pollution control facility. At this time, the Diversion of Water Quality
used only one application form for both a real property pollution control
facility, and a tangible personal property freestanding pollution control
property.
(ii)The Director hereby makes a determination that, according to the Pollution
Control Act, the Director cannot certify the surface casing standing alone as
a pollution control facility. The materials used to construct the surface
casing can only be exempt from sales and use taxes pursuant to Utah Code
§ 19-12-201 if they are “used at, used in the construction or, or incorporated
into a pollution control facility,” which means that the Deep Creek Well as
a whole must be certified as a pollution control facility in order for Crescent
Point to receive a sales and use tax exemption. The statute does not allow
the Director to segregate parts of the pollution control facility to meet the
definition of a pollution control facility. Further, the statute requires a
treatment works in all cases, and there is not a treatment works associated
with the Deep Creek Well. Therefore, the Director hereby makes the
determination that the Deep Creek Well in Uintah Utah, does not meet the
definition of a pollution control facility because the primary purpose of the
facility the Deep Creek 7-27-4-2E oil production well is to produce oil, not
to prevent control, or reduce water pollution, and because there are no
treatment works associated with the facility, both as described in detail later.
(iii)The Director hereby makes a determination that the person who filed the
application is a person described in Subsection 19-12-301(1). Crescent
Point is a person who is “an owner. . . . of a trade or business that includes
a pollution control facility.” See Utah Code § 19-12-301(1)(a).
(iv)The Director hereby makes a determination that the purchase for which
Crescent Point seeks to claim a sales and use tax exemption, which includes
the concrete and piping that make up the surface casing for the well, are not
exempt under Utah Code § 19-12-201, because they were not “used at, used
in the construction or, or incorporated into a pollution control facility.” See
Utah Code § 19-12-201(1)(b)(ii). This determination was made because the
Deep Creek 7027-4-2E well has been determined not to be a pollution
control facility, so that any tangible personal property (i.e., the concrete and
piping used to construct the surface casing) used at, used in the construction
of, or incorporate into the well are not exempt form sales and use taxes.”
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Amended Denial, pp.8-9 (emphasis added). The Director stated that its Amended Denial
supersedes and replaces the Director’s September 15, 2016 denial of Crescent Point’s
certification application. Id., p. 1.
For the reasons stated below, the ALJ recommends that the Executive Director deny
Crescent Point’s application for certification of the surface casing of the Deep Creek Well as a
pollution control facility.
I.The Primary Purpose of the Surface Casing as a Pollution Control Facility is Not
Pollution Prevention
A.Crescent Point’s exemption application was for the surface casing, not the Deep
Well Creek.
The Executive Director did not allow Crescent Point to shift its legal position to claim
that the surface casing was freestanding pollution control property: “For avoidance of doubt, the
Executive Director hereby 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.” Remand Order,
p. 10. For the same reasons that the Executive Director did not allow Crescent Point to change
its certification application to freestanding pollution control property, the Director cannot change
Crescent Point’s application from the surface casing to the Deep Creek Well. In addition, the
Administrative Record was created in response to Crescent Point’s Revised Application. Also,
the Director determined that the application was complete and that it contained a description of
the pollution control facility, but this was incorrect because the Director considered the Deep
Creek Well to be the pollution control facility, instead of the surface casing covered in the
Revised Application.
The Director claims that the Executive Director directed the parties to consider the
primary purpose of the Deep Creek Well instead of the surface casing, but this is misleading.
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See Director’s Supplemental Brief Regarding Remand Order Question #1, p. 3; Director’s
Response to Brief of Crescent Point on Remand Issue #1, p.2. Instead, the Executive Director
directed the parties to consider the primary purpose “of the real property (e.g. the facility)”
instead of the surface casing (which at that time Crescent Point considered the surface casing to
be freestanding pollution control property (personal property)). The Remand Order distinguishes
the pollution control facility (real property) analysis from the freestanding pollution control
property (personal property):
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 of the
“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.
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. …
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.
Remand Order, pp.12-13 (emphasis added). The Remand Order directs the parties to address 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):
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(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?
Id., p. 20 (emphasis added).
The Limited Remand Order includes the following issue:
4. In light of the statutory analysis provided in the Remand Order, what are the
Director’s findings and conclusions regarding the geographical limits of the real
property element in the statute as applied to the facts of this matter? Specifically,
is the statutory concept of real property limited to the well casing in question or is
it a broader concept that includes the overall treatment facility, including a
treatment works? What is the basis for the Director’s determination on this issue?
Limited Remand Order, p.13 (emphasis added).
In conclusion, the Director cannot change Crescent Point’s Revised Application to an
application for certification of the Deep Creek Well as a pollution control facility. Furthermore,
the Executive Director directed the parties to analyze the primary purpose of the real property,
not the Deep Creek Well.
B.The Pollution Control Act Does Not Require Consideration of the Deep Creek
Well, Instead of the Surface Casing Alone, as a Pollution Control Facility.
The Director decided to consider the Deep Creek Well as a whole (and not the surface
casing alone) when making a pollution control facility determination. Amended Denial, p. 8.
The Director’s analysis supporting this decision is:
“The Director can find no allowances in the Pollution Control Act that
allows segregation of portions of real property in order to meet the
definition of pollution control property.”
Because the concrete and piping that form the surface casing ultimately
becomes real property … which is affixed to the Deep Creek Well real
property as a whole, the Deep Creek Well as a whole must be considered
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when making a determination regarding whether it meets the definition of a
pollution control facility.
Id. 4.
The Director’s analysis is not sufficient to support the Director’s decision. The Director
does not include any analysis of the definition of “real property” such as an analysis of
definitions of “real property” in other provisions of the Utah Code or case law. For example,
“real property” is defined in Utah Code section 57-1-1 governing real estate conveyances:
Real property” or “real estate” means any right, title, estate, or
interest in land, including all nonextracted minerals located in, on,
or under the land, all buildings, fixtures and improvements on the
land, and all water rights, rights-of-way, easements, rents, issues,
profits, income, tenements, hereditaments, possessory rights,
claims, including mining claims, privileges, and appurtenances
belonging to, used, or enjoyed with the land or any part of the land.
Utah Code Ann. §57-1-1 (emphasis added).
The Director also does not consider the plain language of the Act, which uses the term
“real property” to contrast to “personal property” and which does not specifically address
whether or not real property, as a whole, has to be considered as the pollution control facility.
See Utah Code Ann. § 19-12-102 et seq. The Director states that it can find no allowances in the
Pollution Control Act that allows segregation of portions of real property, but takes an
inconsistent position in the briefs by interpreting the statute to allow segregation of real property,
such as an air scrubber.3
3 “However, as stated in the Director’s September 4, 2020, denial letter, “In this case, as stated
above, the Director cannot separate the surface casing from the rest of the real property to which
it is attached.” September 4, 2020, Denial Letter at 5 (emphasis added). Regarding the Deep
Creek Well, the three casing strings—conductor casing, surface casing and production casing—
make up the Deep Creek Well, and all are required to work together and cannot perform without
each other. None of them are standalone units. For instance, in the power plant mentioned by
Crescent Point, one standalone portion of the real property, such as an air scrubber, might be
certified as a pollution control facility. However, that air scrubber, though affixed to the real
property, could be removed from the power plant, and the power plant would still operate—
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In the Director’s analysis of the treatment works requirement, the Director states:
The Director interprets the Pollution Control Act as requiring that
there must be a treatment works in all cases in order to meet the
definition of a pollution control facility. In the case of real property
(a pollution control facility), the Director’s discretion is limited to
the physical boundaries of that real property and the means or
permanence of connectivity between the associated treatment works
and the pollution control facility.
Amended Denial, p. 7 (emphasis added). The last sentence in the above quote is a bare,
ambiguous legal conclusion with no documentation to support the Director’s decision.
The Executive Director remanded the permit denial for the Director to provide more
detailed findings, conclusions and basis for the Director’s determinations and included the
following statements on the standard of review:
Moreover, Utah Admin. Code R305-7-214(3) provides that the
“standard of review for non-factual determinations provided in
Section 19-1-301.5(6=16)(c)(i) recognizes that the Director has
been granted substantial discretion to interpret the division’s
governing statutes and rules. [footnote omitted] This rule is
appropriate because division directors are the primary
decisionmakers on permit orders (and financial assurance
determinations). Division directors have special expertise and staff
to support important programs that often involve federal primacy
issues and oversight in highly technical areas, including radiation
control, drinking water, hazardous waste, and air quality. But this
rule also demonstrates the need for division directors to document
how they have exercised their “substantial discretion to interpret the
division’s governing statutes and rules” pursuant to findings and
conclusions that are adequately detailed to support the review, by
the Executive Director and Utah courts, of the director’s
determinations.
Limited Remand Order, pp. 6-7 (emphasis added).
albeit with more pollution to the air. In that particular case, the primary purpose of the entire
power plant would be to produce power, but the standalone pollution control facility (i.e. an air
scrubber) would have a separate primary purpose.” Director’s Response to Crescent Point’s
Opening Brief After Revised Permit Order at 20.
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In conclusion, the Director does not adequately document her interpretation that under
the Act, the Deep Creek Well, as a whole, is the pollution control facility and that the surface
casing cannot be considered as a standalone pollution control facility. The ALJ therefore does
not adopt the Director’s interpretation and concludes that the surface casing should be considered
as a standalone pollution control facility, as a part of the real property.
C.The Primary Purpose of the Surface Casing is Not Preventing Water Pollution.
The Director’s Amended Denial focuses on her conclusion that the entire Deep Creek
Well is the pollution control facility, but alternatively concludes that the primary purpose of the
surface casing is not pollution prevention:
Even if the Pollution Control Act authorized the Director to separate
the surface casing from the rest of the real property to which it is
attached, from the Division of Water Quality’s review of the
application materials, additional research, and discussion with oil
and gas experts with the Utah Division of Oil, Gas and Mining, the
Director concludes that the primary purpose of a surface casing is
not pollution prevention, as required for tax exemption certification
under Utah Code § 19-12-102(6). Although oil production well
surface casing does isolate internal casings from the formation and
groundwater, the primary purpose of the surface casing is to
maintain the integrity of the well bore hole during construction and
of the well during production. In particular, the surface casing is
necessary to: maintain hole integrity by preventing caving;
minimize lost circulation into shallow, permeable zones; cover weak
incompetent zones to control kick-imposed pressures; provide a
means for attaching the blowout preventer; cover freshwater sands;
and to support the weight of all casing strings run below the casing
surface. Using the Nucor definition of primary purpose, a purpose
can only be primary of all other purposes are incidental. However,
the structural purposes of the surface casing are at least as, or
arguably more important, than preventing water pollution.
Therefore, the surface casing itself, even if it could be separated
from the entire well, cannot be certified as a pollution control
facility.
Director’s Amended Denial, pp. 5-6 (emphasis added).
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The underscored portion of the Director’s conclusion is essentially identical to the
Director’s original denial. The Director’s Finding of Fact number 8 says “[t]he primary purpose
of the surface casing is to maintain the integrity of the well bore hole during construction and of
the well during oil production.” This Finding of Fact cites to technical journals, a DOGM
Environmental Handbook, Crescent Point’s pollution control facility application submitted on
November 24, 2015, Crescent Point’s Petition for Review submitted on March 11, 2016, and a
BLM Manual, all of which seem to support a conclusion that the surface casing has several
important purposes, including water pollution prevention and maintaining the integrity of the
well bore hole.
The Director does not reference documents in the Administrative Record which support
the “Division of Water Quality’s review of the application materials, additional research, and
discussion with oil and gas experts with the Utah Division of Oil, Gas and Mining”. However,
the Director does include additional analysis in the Amended Denial which supports the
Director’s position that the primary purpose of the surface casing is not preventing pollution, in
the last three sentences of the Director’s conclusion. The Director uses the Nucor4 definition of
primary purpose, i.e., that a purpose can only be primary if all other purposes are incidental, and
concludes that preventing water pollution is not the primary purpose of the surface casing
because the structural purposes are not incidental. See also Director’s Response to Crescent
Point’s Opening Brief, p.24. The same argument could be used to refute the Director’s finding
that the “primary purpose of the surface casing is to maintain the integrity of the well bore hole
during construction and of the well during oil production”.5 However, the Director’s analysis
4 Nucor Corp., Nucor Steel – Utah Div. v. Utah State Tax Comm’n, 832 P.2nd 1294 (Utah 1992).
5 In fact, the Director says “the structural purposes of the surface casing are at least as, or arguably more
important, than preventing water pollution.” Amended Denial, p.6.
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supports the Director’s discretion to interpret the division’s governing statutes and rules by
concluding that the primary purpose of the surface casing is not preventing water pollution. The
Director also uses the statutory history of changing the term “a substantial purpose” to “the
primary purpose” as support for her position. Amended Denial at 5.
The Director has substantial discretion to interpret the Act. The Director’s conclusion
that under the Act, the primary purpose of the surface casing of the Deep Creek Well is not to
prevent water pollution is sufficiently detailed to support the Director’s interpretation. The
director is also entitled to strictly construe the tax exemptions against Crescent Point, as Crescent
Point has not satisfied its burden of showing that the primary purpose of the surface casing is to
prevent water pollution.
II.Treatment Works Are Required for Certification of a Pollution Control Facility
The Act allows an exemption from sales and use tax for:
a.freestanding pollution control property;
b.tangible personal property if the tangible personal property is:
incorporated into freestanding pollution control property; or
used at used in the construction of, or incorporated into a pollution control
facility;…
Utah Code Ann. § 19-12-201(b) (emphasis added). The Act defines a “pollution control facility”
as:
… 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;…
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Id.. § 19-12-102(6)(a) (emphasis added). The Act defines “[t]reatment works” as “any plant,
disposal field, lagoon, dam, pumping station, incinerator, or other works used for the purpose of
treating, stabilizing or holding wastes.” Id. § 19-6-102(19).
The Limited Remand Order instructed the Director to issue an amended permit order with
more detailed findings, conclusions and basis for the Director’s determinations and to address the
certain specific questions, including the following:
2. In light of the statutory analysis provided in the Remand Order,
what are the Director’s findings and conclusions regarding whether
the statute requires treatment works in all situations? How much
discretion is the agency afforded in determining that a treatment
works be part of the real property?
3. How would the Director address prior Director decisions that
may—or may not have—applied the treatment works element
stringently in other tax certification matters? See Utah Code § 63G-
4-403(4)(h)(iii) (providing that a reviewing court may overturn an
agency action if it is "contrary to the agency's prior practice, unless
the agency justifies the inconsistency by giving facts and reasons
that demonstrate a fair and rational basis for the inconsistency . . .
."). To create a complete record for review, it is important that the
Director's amended permit order directly address the agency's prior
practice issues with respect to the treatment works element as
summarized in the Remand Order at 16-18 and prior briefing.
Limited Remand Order at 12.
The Amended Denial includes the following statements related to the treatment works
requirement:
1.Finding of Fact 10: “Crescent Point does not describe any
treatment works associated with the Deep Creek Well in its
application for certification, nor can the Director find any
treatment works associated with the Deep Creek Well. See
generally Revised Application at 3.” Amended Denial at 3.
2.Determination (ii):
The Director hereby makes a determination that, according to the
Pollution Control Act, the Director cannot certify the surface casing
standing alone as a pollution control facility. The materials used to
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construct the surface casing can only be exempt from sales and use
taxes pursuant to Utah Code § 19-12-201 if they are “used at, used
in the construction or, or incorporated into a pollution control
facility,” which means that the Deep Creek Well as a whole must be
certified as a pollution control facility in order for Crescent Point to
receive a sales and use tax exemption. The statute does not allow
the Director to segregate parts of the pollution control facility to
meet the definition of a pollution control facility. Further, the statute
requires a treatment works in all cases, and there is not a treatment
works associated with the Deep Creek Well. Therefore, the Director
hereby makes the determination that the Deep Creek Well in Uintah
Utah, does not meet the definition of a pollution control facility
because the primary purpose of the facility the Deep Creek 7-27-4-
2E oil production well is to produce oil, not to prevent, control, or
reduce water pollution, and because there are no treatment works
associated with the facility, both as described in detail later.
Amended Denial, p. 8 (emphasis added).
The Director’s Finding of Fact 10 and the Director’s analysis of the treatment works
focus on the Deep Creek Well. The Director does not make a finding of fact or analyze the
treatment works requirement specific to Crescent Point’s Revised Application for the surface
casing. As explained above in Section I on the primary purpose requirement, Crescent Point
applied for certification of the surface casing and the Director cannot change the application to
certification of the Deep Creek Well.
Although the Director does not specifically address whether treatment works are required
for certification of the surface casing of the Deep Creek Well, she concludes that the “statute
requires a treatment works in all cases.” Amended Denial, p. 8.
Crescent Point maintains that treatment works are not required for certification of water
pollution prevention facilities such as a surface casing, asserting that treatment works are not
necessary for pollution control facilities such as a surface casing that prevent pollution, that
treatment works are not necessary for certification when the Act is read as a whole, that “and”
should be read disjunctively, and the Director’s interpretation conflicts with its guidance.
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The Director’s 2016 permit order denial was based in part on the Director’s bare legal
conclusion that treatment works are required, without any analysis to support the conclusion.6
The Amended Denial adds two points regarding the analysis of the treatment works requirement.
First, the Director references statutory construction principles and concludes “the Director must
interpret the statute as requiring both the disposal or elimination of waste and the use of
treatment works to treat the waste, and is not given the discretion to change the plain meaning of
the statute by reading the word “and” as optional. Amended Denial, pp. 6-7. Second, the
Director adds details about prior applications for certification under the Act and approvals,
stating that “DWQ has only approved as pollution control facilities/properties those facilities that
can meet both primary purpose requirements of ‘the disposal or elimination of, or redesign to
eliminate, waste,’ and ‘the use of treatment works for industrial waste.’ Id., p. 7.
The Director has substantial discretion to interpret the Act. The Amended Denial adds
analysis sufficient to support the Director’s interpretation that the Act requires treatment works
in all cases in order to meet the definition of a pollution control facility. The Director is also
entitled to strictly construe the tax exemptions against Crescent Point, as discussed in the
Standard of Review section above.
CONCLUSION AND RECOMMENDED ORDER ON THE MERITS
1.Based on the foregoing, Crescent Point has not met its burden to demonstrate that
the Division erred in denying Crescent Point’s certification application for the surface casing of
the Deep Creek Well as a pollution control facility.
6 “Further, we find that an oil well surface casing does not meet the definition of a pollution control
facility because there is no “treatment works” as defined by UCA Subsection 19-6-102(19) for
industrial waste associated with the surface casing.” AR000360.
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2.Further, based on the foregoing and having satisfied my charge to undertake a
permit review adjudicative proceeding in connection with this matter in accordance with Utah
law, I recommend that the Executive Director deny Crescent Point’s Request for Agency Action
and affirm the Amended Denial.
NOTICE OF OPPORTUNITY TO COMMENT
The parties may file comments to the Recommended Order with the Executive Director
of the Utah Department of Environmental Quality within ten business days of service of this
Recommended Decision in accordance with the requirements of Utah Admin. Code R305-7-
213(6). Comments shall not exceed 15 pages. A party may file a response to the other party’s
comments, not to exceed five pages, within five business days of the date of the service of the
comments.
DATED this 29th of December, 2020.
___________________________________________
Lucy B. Jenkins
Administrative Law Judge
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CERTIFICATE OF SERVICE
I hereby certify that on this 29TH day of December, 2020, a true and correct copy of the
foregoing FINDINGS OF FACT, CONCLUSIONS OF LAW AND RECOMMENDED
ORDER ON THE MERITS AFTER REVISED PERMIT ORDER (REVISED) was sent by
electronic mail to the following:
Administrative Proceedings Records Officer
[e-mail]
Erica Gaddis
[e-mail]
Director, Division of Water Quality
Kimberlee McEwan
Assistant Attorney General
[e-mail]
Attorney for the Director, Division of Water Quality
Amanda Smith
[e-mail]
Steven P. Young
[e-mail]
Holland & Hart LLP
Attorneys for Crescent Point U.S. Corporation
/s/ Karen Richardson