Harbinger of Things to Come: Limetree Bay Terminals

In a letter to Limetree Bay Terminals dated April 5, 2018, Assistant Administrator Bill Wehrum responded to a series of permitting questions posed by a potential PSD permittee in the U.S. Virgin Islands. It is rare for the Assistant Administrator to respond to this type of request and his response presages a number of changes in EPA’s handling of the NSR program.

ANALYSIS

Limetree Bay Terminals (LBT) operates a petroleum refinery in the U.S. Virgin Islands. It wrote to EPA seeking concurrence on three issues:

1. Whether a proposed restart of idled units to produce fuel compliant with the maritime sulfur regulations (called MARPOL) would not be viewed as a “new source” under EPA’s Reactivation Policy;

2. Whether the MARPOL project and a project to produce renewal diesel fuel (RDF) are separate projects; and

3. Whether the addition of a deeper water loading configuration (the single point mooring (SPM)) is a modification of the existing wharf or a new emissions unit for PSD purposes.

Reactivation Policy

Assistant Administrator Wehrum began by noting that the “current policy on the reactivation of sources provides that a major stationary source that has been idled for 2 or more years is presumed permanently shut down,” causing the source to be treated as new, but “this 2-year presumption is rebuttable.” He reiterated that the EPA weighs the following factors:

• Length of time the facility has been shut down and concrete plans to restart;

• Statements by the owner or operator of intent;

• The cause of the shutdown;

• Status of permits, including but not limited to Clean Air Act operating permits, acid rain permits and other required permits, and emission inventory;

• Maintenance and inspections during shutdown; and

• Time and capital needed to restart.

The terminal was shut down by the prior owner in 2012 and purchased by the new owner in 2016. During the entire shutdown period the terminal operations, wastewater treatment plant and power generation activities continued operation and the prior owner had announced, at the time of shutdown, its intent to retain permits and restart the facility. The prior owner had spent over $410 million to maintain restart capacity. Evidence of this work, maintenance of permits and equipment, inspections was provided. Based on this documentation, Assistant Administrator Wehrum determined that the “facility was not permanently shut down and should not be considered a ‘new source’ for purposes of PSD applicability.” Most intriguingly, however, a footnote stated:

As this description indicates, the current Reactivation Policy has been derived from a series of EPA site-specific determinations and guidance issued over the course of many years. Further, EPA has not cited any specific regulatory provisions of the NSR program to support its position on source “reactivation.” We are applying the current Reactivation Policy to resolve the LBT issue, but we intend to reconsider the policy in the near future.

Project Aggregation

The second issue presented is whether the MARPOL compliance diesel restart should be combined with a proposed project to produce RDF. The MARPOL project involved restarting units to process heavy crude oil, heavy fuel oil, and petroleum intermediates into refined petroleum products. This process used existing refinery equipment. The economic viability of the MARPOL project is based on a perceived shortfall starting in 2020. The RDF project would convert vegetable, animal and recycled cooking oils into RDF. This requires a feedstock pretreatment train and a new hydrogen unit to convert the oils and repurposing an existing hydrotreating unit. The economic viability of the RDF project depends upon meeting the Renewable Fuel Standard (RFS) and California’s Low Carbon Fuel Standard (LCFS) to generate Renewable Identification Numbers (RINs).

In evaluating this proposal, Assistant Administrator Wehrum noted that the two projects did not use the same equipment, same feedstocks, or products of each other. He also accepted LBT’s representations that there was no interaction and that the two projects were independently technically and economically viable. LBT conceded that there were some shared utilities, but argued that each project could run independently or could fire fuel oil to meet these needs. Assistant Administrator Wehrum, in accepting this demonstration, observed that “sharing utilities does not in and of itself mean that activities at a source are functionally or economically dependent on one another.” Accordingly, he approved the two projects as separate for PSD purposes.

Separate Emissions Unit

The third issue is whether the proposed single point mooring (SPM) unit, which would extend 5,800 feet out to sea with a flexible hose and buoy for loading and unloading crude oil into ships, should be considered a “new” unit or part of the “existing” wharf arrangement. Assistant Administrator Wehrum noted that the regulatory definition at 40 CFR 52.21(b)(7) did not really answer this question. Prior EPA guidance, notably a letter to the Semiconductor Industry Association, had noted that it is sometimes appropriate to treat an entire semiconductor fabrication building as a single unit, citing the “interconnected natures of the ‘tools’ in the fab”, the interconnected systems for delivering materials and managing discharges, and the “physically connected, integrated, and operated” manner in which fabs operated.

Assistant Administrator Wehrum found that LBT was already handling the crude oil at its existing wharf, that the “new” SPM would be "physically interconnected and operated as part of a continuous system” and that it fell comfortably within the concept of a modification of an existing source. He noted that several states had reached similar conclusions in analogous situations: “the treatment of multiple loading docks or berths as a single emissions unit is not unusual.”

Assistant Administrator Wehrum then noted that LBT had stated it would add a vapor capture and collection system, not to the SPM, but to the existing wharf. Assistant Administrator Wehrum approved this, noting that while “in the context of the PSD program, a BACT determination for a major modification is focused on each emissions unit, … this approach does not foreclose a determination that different emissions points within an emissions unit can have distinct BACT requirements due to technical or economic feasibility or other factors considered under a BACT review.” The letter then concluded with the normal disclaimers that it did not constitute a final decision on PSD applicability, which would be decided based on the application, and did not reflect EPA’s position on other programs, such as NSPS or NESHAPs.

COMMENTARY

LBT is an interesting decision both because it is unusual in coming from the Assistant Administrator, and because it represents a rare case where multiple issues are presented for evaluation and the project proponent succeeded in all of them. LBT also presents a possible glimpse into the future of the PSD program under this Administration. In answering the second, project aggregation, question, Assistant Administrator Wehrum focused on the technical and economic independence of the projects, foreshadowing the recently released decision on reconsideration. In responding to the first issue on project reactivation, Assistant Administrator Wehrum answered the question based on the current Reactivation Policy, without following the full extension of it in the Entergy – Monroe determination, but also dropped a footnote stating that EPA “intends to reconsider the Reactivation Policy” because it lacks a foundation in the regulatory language. Finally, in the emission unit question, EPA looked first to the rule, found it was not clear, and then essentially deferred to the project proponent’s explanation of the project finding that it fit within prior policy announcements.

As noted by Eric Hiser at the EUEC conference in San Diego, the LBT decision shows some of the current Administration's predilections about NSR: a focus on the underlying regulatory language in favor of past agency site-specific pronouncements/guidance and an increased deference to the project proponent’s (and often a local permitting authority’s) explanation of the project and how it should be defined and construed. Stay tuned for more developments!