The California Supreme Court has ruled that a project's air impacts are to be measured against existing ambient conditions, not against a permitted level of operations for the emitter. The unanimous ruling upholds an appellate court's decision that a proposed expansion of a ConocoPhillips oil refinery in Wilmington and Carson must be measured against on-the-ground conditions and, therefore, requires an environmental impact report (see CP&DR Legal Digest, March 2008). In 2003, ConocoPhillips proposed to modify and augment existing facilities in order to produce an ultra-low sulfur diesel fuel. These changes would entail, among other modifications, a substantial increase in the operation of its cogeneration plant and boilers, which were subject to existing permits limiting their rate of heat production. ConocoPhillips applied to the South Coast Air Quality Management District for a permit to make the modifications. SCAQMD prepared an initial study and then a negative declaration, concluding the project would not have any adverse environmental impacts. However, during the environmental review process, the environmental justice group Communities for a Better Environment (CBE) submitted evidence that the project would increase nitrogen oxide (NOx) emissions by more than 600 pounds per day and that this amount could cause adverse health affects in surrounding neighborhoods. In response to this CBE's contentions, SCAQMD determined the increased steam generation from the cogeneration plant, in addition to other newly proposed activities, would create between 201 and 420 pounds per day of additional NOx emissions. Although the district had adopted a threshold of significance for NOx of 55 pounds per day, it determined that the revised increase was acceptable because the project would not have a significant environmental impact because the increased steam generation would not exceed the maximum rate of heat production allowed under the existing permits. CBE nevertheless filed suit against SCAQM, with ConocoPhilips as a real party in interest. The two mounted a joint defense. The Supreme Court analyzed two questions: First, whether the prior operating permits established a baseline for review under the California Environmental Quality Act (CEQA) of a "new project." Second, whether the record supported a fair argument that the project would have significant adverse effects on the environment and, therefore, require preparation of an environmental impact report (EIR). On the first question, the district and ConocoPhillips argued that using the pre-project NOx emissions as a baseline for analyzing the project's effects would violate vested rights held by ConocoPhillips to operate its boilers at permitted levels. The court disagreed, citing � 15125(a) of the CEQA Guidelines. "[T]he impacts of a proposed project are ordinarily to be compared to the actual environmental conditions existing at the time of CEQA analysis, rather than to allowable conditions defined by a plan or regulatory framework," Justice Kathryn Mickle Werdegar wrote for the court. SCAQMD and ConocoPhillips contended that using the existing conditions as the baseline for analysis would violate the statute of limitations, because CEQA analysis of the diesel fuel project should not constitute review of the district's previous approval of the boiler permits. Again, the court disagreed. It noted that CBE did not attempt to set aside the district's approval of the boiler permits � only approval of the ultra-low sulfur diesel fuel project, which was timely challenged. Finally, SCAQMD and ConocoPhillips argued that numerous Court of Appeal decisions supported the use of maximum operational levels allowed under a permit as a CEQA baseline. This is known as the Fairview line of cases (see CP&DR Legal Digest, April 1999). The court rejected this argument and factually distinguished the ConocoPhillips project from the projects in the Court of Appeal cases. The latter had involved modification of a previously analyzed project or the continued operation of equipment without significant expansion of use, the court determined. "We conclude the district's use of the maximum capacity levels set in prior boiler permits, rather than the actually existing levels of emissions from the boilers, as a baseline to analyze NOx emissions from the diesel project was inconsistent with CEQA and the CEQA Guidelines," Werdegar wrote. On the second issue � whether the record provided substantial evidence of a fair argument that the project would have significant adverse effects � the court held that the district's own negative declaration provided evidence the project would have substantial air impacts. Thus, an EIR should have been prepared. The court remanded the issue of how to calculate the true baseline to the district for analysis in the project EIR. The Case: Communities for a Better Environment v. South Coast Air Quality Management District, No. S161190, 2010 DJDAR 3872. Filed March 15, 2010. The Lawyers: For CBE: Adrienne Bloch, (510) 302-0430. For the South Coast Air Quality Management District: Bradley Hogin, Woodruff, Spradlin & Smart, (714) 558-7000. For ConocoPhillips: Jocelyn Thompson, Alston & Bird, (213) 576-1104.

--Katherine J. Hart