DNREC approves Delaware City refinery's ethanol project
PBF Energy won state approval Wednesday to ship unblended ethanol by barge from its Delaware City refinery.
DNREC Secretary David Small signed an order affirming the refinery’s proposed $7 million Ethanol Marketing Project is consistent with the state’s Coastal Zone Act, clearing the way for the company to seek other permits needed to undertake the new operation.
Small said his decision was made based on DNREC's prior interpretations of the state's landmark environmental zoning law.
"As we assembled the facts and looked at the historical decisions this agency has made, this really became a puzzle with pieces that fit together," he said. "It was my conclusion that approving this permit made a lot of sense."
The project effectively will allow the Delaware City-area refinery to also become a depot that receives and stores ethanol before shipping the unblended gasoline additive to other facilities along the East Coast.
The refinery, one of the state’s largest industrial employers, applied for a permit under the Coastal Zone program in August, saying the added shipping flexibility will better position the plant to remain competitive in a rapidly changing industry.
A refinery spokesperson was not immediately available for comment Wednesday afternoon.
PBF Energy has said it hopes to soon begin work on the $7 million Ethanol Marketing Project. Full production is expected sometime during the first quarter of 2017. The small amount of construction work required will employ 20 to 25 workers, although no additional hiring is anticipated as a result of the expanded operations.
Analysts have speculated the project is likely related to the skyrocketing costs of blending ethanol under the federal renewable fuel standard, which cost PBF Energy $95 million during the second quarter of 2016, according to a company earnings statement.
Environmental groups strongly objected to the project. Delaware Audubon Society said the shipping of ethanol amounts to a bulk product transfer operation, which is expressly prohibited by the Coastal Zone Act.
"A literal reading of the Coastal Zone Act results in only one interpretation," states Delaware Audubon's letter of opposition to the permit application.
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Passed in 1971 under Republican Gov. Russell Peterson, the law sought to protect the Delaware Bay and the state’s 115-mile shoreline from the encroachment of heavy industrial development.
The Coastal Zone Act barred new heavy industries from locating within a 2-mile-wide ribbon that runs the length of Delaware’s shoreline, including sites used to transfer bulk products “from vessel to onshore facilities or vice versa.”
Existing industries, such as the Delaware City Refinery, were allowed to continue their “grandfathered” functions. But they were required to seek a permit from the Delaware Department of Natural Resources and Environmental Control before expanding beyond their existing operations and boundary lines.
Permits for bulk product transfer facilities “may not be issued,” according to the Coastal Zone Act.
Small said that prohibition does not extend to grandfathered uses.
"Even if it is a bulk product transfer facility, it was in existence prior to the law being passed," he said Wednesday. "The docking facility is a pre-existing, non-conforming use and the law allows for the expansion of that use with a permit."
A state hearing examiner also rejected the Audubon's concerns that the refinery’s ethanol project would violate Coastal Zone Act, noting that the refinery now receives ethanol across its docks before blending the additive into gasoline.
"The shipment use would utilize the existing docks that currently receive ethanol," wrote DNREC review attorney Robert P. Hayes. "The [Coastal Zone Act] should not be interpreted to prohibit such a reasonable expansion of nonconforming uses ... The Audubon interpretation is unreasonable and inconsistent with the plain language of the CZA."
Small’s ruling Wednesday comes at a tumultuous time for both the refinery and state regulators.
The decision was handed down less than a week after DNREC issued a violation notice to PBF Energy for making inaccurate statements to the agency about the final destination of several oil barges.
State officials say a 2013 order issued by former DNREC Secretary Collin O’Mara limited the final destination of barges loaded with crude oil in Delaware City to another PBF Energy refinery in Paulsboro, New Jersey.
Months after that order was issued, a whistleblower at a refinery in Philadelphia tipped off the Delaware Department of Justice that the Delaware City refinery had sent an oil barge up the Schuylkill River, a few miles north of Paulsboro.
Refinery officials previously claimed that was the only shipment sent to a refinery other than Paulsboro, New Jersey.
An article published in The News Journal earlier this month detailed how the state chose not to sanction or issue any warning to PBF Energy for that “one-time” shipment, which had reportedly arrived at the Philadelphia Energy Solutions Refinery in the fall of 2013.
But just days before that article was published, the refinery quietly informed DNREC and the Delaware Department of Justice it had actually made two shipments – both in 2014 and both involving multiple barges.
The violation notice issued by DNREC on Friday does not impose any immediate penalties on the refinery, although the agency did say it “reserves the right to take further enforcement action in the future.”
Yet neither that violation nor any pending sanctions related to the refinery’s release of chemicals into the air since mid-2013 played a role in Small’s decision Wednesday.
The Coastal Zone Act includes six factors the DNREC secretary can consider when weighing whether to approve a permit, including potential environmental impact, economic effect and aesthetics. Past violations are not part of that list.
"It's really a separate issue that is being dealt with on its own context and processes," Small said.
Refinery officials have consistently maintained they did nothing wrong when they sent oil barges to refineries other than Paulsboro.
They insist there is a distinction between O’Mara’s order and the permit it accompanied. Because the permit makes no reference to the final destination, PBF maintains it has no limitations on where it can ship the oil it receives by train.
PBF Logistics, the company’s transportation subsidiary, also has repeatedly told investors it has the ability to supply crude oil to third parties from Delaware City. Those investor statements make no mention of state restrictions or a difference of interpretation between the refinery and state regulators.
"[Delaware City Refining Co.'s] position is that no violation has occurred," Lindsey said. "We will be communicating and, as appropriate, cooperating with DNREC regarding the [violation notice] to ensure that there is a full consideration of the relevant facts."
Environmental groups have long argued O’Mara’s 2013 order, which for the first time gave the refinery the ability to export up to 45,000 barrel of crude by barge daily, violated the Coastal Zone Act.
O’Mara did not require the refinery to seek a Coastal Zone permit for those shipments to Paulsboro or a $100 million rail yard that allowed it to bring low-cost oil in from the Midwest. Instead, state regulators required PBF Energy to get an air-quality permit, which mandated that the company install pollution-capturing equipment at its pier in Delaware City.
The decision to bypass the Coastal Zone Act spurred Delaware Audubon and the Sierra Club to appeal O’Mara’s ruling to the Environmental Appeals Board and the state’s Coastal Zone Industrial Control Board. Both boards ultimately rejected the appeals, leading to a failed challenge in Delaware's Supreme Court.
The groups at that time argued that allowing the refinery to ship crude oil would open the door to a wider array of bulk shipments prohibited by the Coastal Zone Act.
The court ruled only on the jurisdictional issue, not on whether granting the air-quality permit skirted the act.
Refinery officials have since claimed PBF Energy should not be required to seek a Coastal Zone Act permit for its proposed ethanol project because crude exports were already allowed.
“The facilities haven’t changed and the cargo going back and forth in both directions are raw materials, intermediates and products relative to petroleum refining,” said Tom Godlweski, the refinery’s environmental manager. “The coastal Zone Act and regulations don’t necessarily say that every time a new set of molecules moves across the dock, that’s prohibited by the Coastal Zone … [T]he products may change going out, [but] it’s still petroleum refining.”
Small said he disagreed with the refinery on that point and required PBF Energy to seek a permit to move a new product across its docks.
"Ethanol was not in use prior to 1972," he said. "As such, I believe a permit is required, but it is an allowable use."
The DNREC secretary acknowledged that an appeal of his order is "quite likely."
Environmentalists have said they fear Small’s ruling on ethanol shipping may further strengthen the refinery’s argument that it has the authority to ship crude oil and other petroleum-based products from its docks to any destination, effectively making the facility a bulk product transfer operation.
"My clients and I will be examining the secretary's legal analysis very closely over the next several days to determine whether there are bases for an appeal," said Ken Kristl, who directs the Environmental and Natural Resources Law Clinic at Widener University and represented the Audubon and Sierra Club in previous appeals.
The Coastal Zone Act allows 14 days to file such a petition.
It remains to be seen whether Small’s decision could have consequences for his future. Governor-elect John Carney, who is scheduled to be sworn into office next month, has not named his choice for DNREC secretary. Small, who Markell tapped to replace O'Mara in May of 2014 after O'Mara resigned to head the National Wildlife Federation, on Wednesday declined to comment on whether he is in the running for that post.
Earlier this month, Carney said he was monitoring the controversy surrounding the refineries' shipments and would “make sure we’re following up appropriately once I take office.”
Environmental groups have argued current Gov. Jack Markell and DNREC – under both Small and O’Mara – have allowed the Delaware City refinery to dismantle some of the most important protections adopted by the General Assembly when it adopted the Coastal Zone Act.
"They've basically been given a blank check under Markell," said Al Denio, a member of the Sierra Club's Delaware chapter and former member of a community advisory panel for the refinery. "It remains to be seen whether that will continue under Carney."
Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.
CLARIFICATION
This story has been updated.
The News Journal mischaracterized Delaware City Refinery’s inaccurate admissions about the number of crude shipments it sent to non-PBF Energy refineries as a lie in stories published Dec. 27 and Dec. 28. Refinery officials said disseminating the errors to regulators and the newspaper was an “inadvertent and unfortunate mistake,” not a lie.
When answering questions from state environmental regulators, the Delaware Department of Justice and The News Journal regarding a whistleblower’s report of crude shipments being sent beyond PBF’s refinery in Paulsboro, New Jersey, PBF officials consistently provided inaccurate information, explaining that only one “atypical” shipment had been made to a third party.
Later, the refinery acknowledged in a letter to the Delaware Department of Natural Resources and Environmental Control that multiple shipments of crude had been sent up the Delaware River to third parties. That acknowledgment came after DNREC determined no sanctions would be leveled against the refinery because it had made only one shipment beyond what a former DNREC secretary said was allowed under a 2013 permit.