Pride Solvents and Chemical Company - Ruling, July 29, 1993
Ruling, July 29, 1993
STATE OF NEW YORK :DEPARTMENT OF ENVIRONMENTAL CONSERVATION
In the Matter of Alleged Violations
of Environmental Conservation Law of
the State of New York Article 27 and
Title 6 of the Official Compilation
of Codes, Rules and Regulations of
the State of New York §360-1.5(a)(2)
DEC CASE No.
123 Oak Avenue
Matamoras, Pennsylvania 18336
BACKGROUND AND BRIEF PROJECT DESCRIPTION
Pride Solvents and Chemical Co., Inc. (the "Applicant") seeks a permit to operate a hazardous waste management facility at 78-88 Lamar Street, West Babylon, Suffolk County. The permit is sought for an existing facility which stores and recycles hazardous waste solvents that are generated by metal finishing and electronic firms and by a variety of other industries and commercial businesses. The hazardous wastes are generated off-site and then shipped to the facility, where they are reclaimed in the facility's distillation unit. The facility accepts spent solvents only from companies it supplies; residues that it generates are disposed of off-site at authorized facilities. The facility's total container storage capacity is 360 55-gallon containers. Its storage and recycling of hazardous waste is presently authorized under a Resource Conservation and Recovery Act ("RCRA") Part "B" permit, which was issued by the federal Environmental Protection Agency ("EPA").
To continue facility operations, the Applicant is seeking from the Department of Environmental Conservation ("the Department", or "DEC") a Part 373 hazardous waste management facility permit. Department Staff wants the permit denied in part because the application fails to meet requirements of 6 NYCRR 373-2.8(h)(1). That section requires that "an owner or operator of a hazardous waste treatment, storage or disposal facility, or a group of such facilities, must demonstrate financial responsibility for bodily injury and property damage to third parties caused by sudden accidental occurrences arising from operations of the facility or group of facilities. The owner or operator must have and maintain liability coverage for sudden accidental occurrences in the amount of at least $1 million per occurrence with an annual aggregate of at least $2 million, exclusive of legal defense costs." This liability coverage may be demonstrated in a number of different ways, which are outlined in 6 NYCRR 373-2.8(h)(1)(i)-(vi).
The Applicant now requests a variance from the requirements of 6 NYCRR 373-2.8(h)(1), as is provided for in 6 NYCRR 373-2.8(h)(3). That section states that a variance may be obtained "if an owner or operator can demonstrate to the satisfaction of the [DEC] commissioner that the levels of financial responsibility required by [6 NYCRR 373-2.8(h)(1)] are not consistent with the degree and duration of risk associated with treatment, storage or disposal at the facility or group of facilities." The Applicant's variance request consists of four letters: a letter dated February 21, 1991, from Arthur Dhom, Jr., president of Pride Solvents (Exhibit 7A, the attachments to which are Exhibit 7B); and three letters from Robert Del Gadio, Applicant's counsel, dated March 5, 1991 (Exhibit 7C), April 18, 1991 (Exhibit 7D), and July 12, 1991 (Exhibit 7E).
As its preferred alternative, the Applicant proposes to demonstrate financial responsibility for sudden accidental occurrences by a pledge of its net worth, coupled with personal guarantees from Arthur Dhom, Art Dhom, Jr., and William F. Tyree (see Exhibit 7A, page 8). This proposal requires a variance to the forms or types of authorized coverage, as there is no provision in the regulations which allows a company to pledge its net worth, and only corporate (not personal) guarantees are recognized under 6 NYCRR 373-2.8(h)(7).
If the Department will not or cannot accept its preferred alternative, the Applicant has a "fall-back" proposal - - a letter of credit, issued by a major bank doing business in New York State, for the principal sum of $500,000 (see Exhibit 7E, page 1). A letter of credit is an authorized means of showing liability coverage [6 NYCRR 373-2.8(h)(1)(iii)], although the amount proposed by the Applicant is less than what is required by regulation.
DEC's combined notice of complete application, notice of public comment period, and notice of intent to deny the Applicant a 6 NYCRR Part 373 hazardous waste management facility permit was published in the October 24, 1990 edition of the Department's Environmental Notice Bulletin. As lead agency, DEC determined the project to be a Type II action and therefore no Draft Environmental Impact Statement has been prepared.
On January 30, 1991, the application was referred to DEC's Office of Hearings. It was assigned to me as Administrative Law Judge ("ALJ"). After speaking with the parties, I deferred hearing scheduling since the Applicant's variance request was still under review. By a letter of January 27, 1993, Benjamin Conlon, DEC counsel, requested that the matter go forward, as the parties had not resolved the financial assurance issues.
By a prior letter, dated December 6, 1991, I had told the parties that if a hearing was required, I would handle the variance question prior to hearing other issues that might be raised with regard to the permit application. I took this approach on the basis of efficiency, as I would not have to hear these other issues if the Applicant could not first demonstrate why a variance should be granted.
LEGISLATIVE HEARING AND ISSUES CONFERENCE
A Notice of Public Hearing, dated March 18, 1993, was published in the Department's Environmental Notice Bulletin and as a legal notice in South Bay's Newspaper on March 24, 1993.
As announced in that notice, a legislative hearing for the receipt of public statements was held on May 3, 1993, at the law offices of the Applicant's counsel, Robert Del Gadio, at EAB Plaza, Uniondale. No one filed to speak and no written comments were received either before or at the hearing.
This legislative hearing was followed immediately by an issues conference involving me, the Applicant, and Department Staff. The Applicant was represented by Mr. Del Gadio and the Department Staff was represented by Benjamin Conlon, senior attorney with DEC's Office of General Counsel, 50 Wolf Road, Albany. The Town of Babylon made a timely written filing for party status and appeared by counsel at the issues conference. But after a recess to talk with counsel for the Applicant and DEC Staff, the town withdrew its filing, and the conference went forward without its participation.
As announced in the hearing notice, the conference discussion was limited to whether the Applicant should receive a variance from the liability requirements of 6 NYCRR 373-2.8(h)(1). Discussion of all other issues was deferred pending a decision by the Commissioner as to whether a variance should be granted. Assuming the variance is granted, a second opportunity shall be provided for interested persons to file for party status and to be heard on any remaining issues that bear upon permit approval.
As noted above, the issue, framed broadly, is whether the Applicant should receive a variance from the liability requirements of 6 NYCRR 373-2.8(h)(1). Within that issue, various sub-issues were discussed at the issues conference and in briefs that I requested be prepared prior to my making issues rulings. The parties' briefs were received on June 21, 1993, and the issues conference record was closed on that date.
Sub-issues considered at the conference and in the parties' briefs included (1) what forms a variance may take, and (2) what types of evidence, among those proposed, are relevant to making the variance determination. These points are entertained in the following discussion.
Form of Variance
The Department's regulations provide that if a variance is granted to the liability requirements, it "will take the form of an adjusted level of required liability coverage" [6 NYCRR 373-2.8(h)(3)]. The parties disagree as to what the term "level" means in this context. According to Department Staff, "level" means "amount". The Applicant submits it means "amount" and "type". The distinction is important because if the Applicant is correct, its preferred variance alternative may be entertained, despite its mechanisms (pledge of net worth, with personal guarantees) not being recognized under 6 NYCRR 373-2.8(h)(1)(i)-(vi). On the other hand, if DEC Staff is correct, the Applicant is restricted to its "fall-back" alternative (a $500,000 letter of credit), which involves an acceptable mechanism, but an amount that is lower than required by regulation.
In this context, the term "level" is not defined by state regulations or by the federal regulations [40 CFR 264.147(a) and 265.147(a)] on which the state regulations are modelled. On the other hand, an EPA commentary (at 47 FR 16545, April 16, 1982) announcing a change to the federal regulations describes their variance provisions as allowing the regional EPA administrator to adjust the "amounts" of coverage required of an owner or operator of a hazardous waste management facility. This use of the term "amount" in describing a provision that allows for variances in the form of an adjusted "level" of required liability coverage suggests that "level" means only "amount" and not also "type". This is also suggested by the common dictionary definitions of "level" as "a position in a scale or rank (as of value, significance, importance, or achievement)" and as "the magnitude of a quantity considered in relation to an arbitrary reference value" (Webster's Ninth New Collegiate Dictionary, c.1988, page 686).
My conclusion is that by means of a variance, the "level" (or "amount") of liability coverage may be adjusted, but only within the mechanisms for providing that coverage which are recognized explicitly by regulation. This means that, by law, the Applicant cannot substitute another mechanism (or "type") of coverage, and that its proposal for a pledge of its net worth, coupled with personal guarantees, cannot be considered.
My conclusion is unaffected by language in 6 NYCRR 373-2.8(h)(4), which authorizes the Commissioner to adjust levels of financial responsibility, apparently in the absence of a variance request. Cited by the Applicant, this section states that "an owner or operator must furnish to the commissioner, within a reasonable time, any information which the commissioner requires to determine whether cause exists for . . . adjustments of the level or type of coverage" (Emphasis added). [Similar language in 6 NYCRR 373-2.8(h)(3) states that the Commissioner may require an owner or operator who requests a variance to provide such technical and engineering information as he deems necessary to determine a "level" of financial responsibility other than that required by 6 NYCRR 373-2.8(h)(1). In this section, the words "or type" are not present.]
Whatever is meant by 6 NYCRR 373-2.8(h)(4), it relates to adjustments (presumably upward) that the Commissioner might make to an owner/operator's levels of financial responsibility, and not to reductions in those levels that an owner/operator, using 6 NYCRR 373-2.8(h)(3), might seek by means of a variance. These sections refer to two separate procedures (a variance procedure, initiated by the regulated entity, and an adjustment procedure, initiated by DEC) and should not be read together as suggesting that the Commissioner may grant a variance to the level or type of financial responsibility.
If anything, use of the words "level or type" in 6 NYCRR 373-2.8(h)(4) suggests that they have different meanings, and that "level" does not imply "type", but rather "amount", as is also suggested by the EPA commentary, which is cited above.
Evidence Relevant to a Variance Determination
The Department's regulations [6 NYCRR 373-2.8(h)(3)] state that a variance may be obtained if an owner or operator can demonstrate to the satisfaction of the Commissioner that the levels of financial responsibility required by 6 NYCRR 373-2.8(h)(1) "are not consistent with the degree and duration of risk associated with treatment, storage or disposal at the facility. . . If granted, the variance will take the form of an adjusted level of required liability coverage, such level to be based on the commissioner's assessment of the degree and duration of risk associated with the ownership or operation of the facility . . . The Commissioner may require an owner or operator who requests a variance to provide such technical and engineering information as is deemed necessary by the commissioner to determine a level of financial responsibility other than that required by paragraph (1) . . of this subdivision" (Emphasis added).
As quoted, the regulations imply that to decide the variance question, one needs to know the "degree and duration of risk" associated with facility operations. It is also implied that to know this, one would consider technical and engineering information (as opposed to other information not referenced as arguably necessary to the determination).
At the issues conference, I asked the parties what evidence they would offer, for the purpose of deciding what types of proof would be relevant to the variance determination. My conclusions and rulings are as follows:
(1) Evidence will be heard concerning the physical characteristics of the Applicant's facility which are alleged to diminish the degree and duration of risk associated with its operations.
According to the Applicant, the facility has undergone extensive modifications in accordance with construction plans that were submitted and approved by the Suffolk County Department of Health Services. These modifications were meant to achieve compliance with the Article 12 of the Suffolk County Sanitary Code. The Applicant contends that with the modifications in place, its facility is less of a risk than others, especially with regard to secondary containment. DEC Staff disagrees, arguing that the Suffolk County code is no more strict than its own regulations.
In general, the issue is not what Suffolk County requires that is above and beyond DEC's own requirements. The issue is what steps have actually been taken to make the operation safer than others which meet but don't surpass DEC's permitting standards.
The Applicant said it would introduce evidence from a consulting engineer about risk-reduction measures that are incorporated in the facility's construction and operation. This testimony is relevant, as is testimony DEC Staff said it would introduce about existing facility conditions.
It is relevant to know whether products that are reclaimed at the facility are combustible or flammable. The Applicant contends that it handles no combustible or flammable products, while DEC Staff submits that sludge material may be flammable when leaving the facility, and that chlorothene presents a fire and explosion hazard.
In general, operations will be considered in light of testimony from the Applicant's engineering consultant and from DEC personnel who have inspected the premises and are familiar with how the facility works. A site visit will be conducted to verify the parties' representations as to how the facility is structured and how wastes are processed.
To decide the variance question, it will be necessary first to look at the risk of sudden accidents, and then to correlate that risk with a suitable level of liability coverage. This correlation is something not typically done by this agency and outside its normal area of expertise. Therefore, the Applicant, as part of its case, will be expected to furnish testimony (from an actuary or other risk analysis expert) to explain the correlation, and to justify the $500,000 proposed by the Applicant as an acceptable amount of liability coverage. DEC Staff shall have the opportunity to cross-examine the Applicant's expert, to present an expert of its own, or both. DEC Staff shall also furnish whatever guidance memoranda it or EPA may have which explain either (1) the basis for the coverage amounts which are set by their regulations, or (2) the method one would use to find an adequate level of coverage, where a variance request is made.
(2) With certain exceptions, as noted below, evidence will not be heard regarding the Applicant's operational history, including its record of regulatory compliance.
DEC Staff has proposed to offer evidence regarding the facility's compliance history. In particular, Staff would offer evidence concerning groundwater contamination that has resulted in the designation of the West Babylon Industrial Park, where the facility is located, as an inactive hazardous waste site. The Applicant has been named as a "potentially responsible party" for remediation of the site and has been identified by DEC as a likely source of chemicals in a groundwater plume which is said to extend down gradient from the facility.
According to DEC Staff, a facility's past history of spills would be relevant to the degree and duration of risk now present in its operations. I agree, but only if that history is defined in such a way that the recurrence of past events, or ones like them, might be reasonably foreseen. Here this showing has not been made due largely to Staff's poor offer of proof. Under my questioning, Staff admitted it had no particular evidence concerning the dates of spills or how they occurred - - evidence which would be relevant to comparing these events (if they even actually happened) to ones that might happen in the future. Staff conceded it was not sure whether the Applicant caused any groundwater contamination and admitted this was still being explored in hydrological studies. The Applicant argued reasonably that it is one of more than 200 industrial facilities within the West Babylon Park, and that pollution which might exist there could be due to any number of activities within and outside the park boundaries.
The Applicant acknowledged no spills having occurred at its facility, and DEC Staff made no offer of its own, except to say that it thought there had been one oil or petroleum spill, and that this spill had not been reported. It was not explained when this spill occurred or how it became known to DEC, if in fact it happened. Assuming the spill occurred, the failure to report it would bear on the Applicant's fitness and perhaps also on the degree and duration of risk presented by the facility's operations. At any rate, no solid offer was made, so even if some relevance were established, no basis was shown to pursue the matter further.
There is also no basis to pursue Staff's allegation that the Applicant failed to make timely payments to a closure trust fund. This violation of 6 NYCRR 373-3.8(d)(1)(iii) was apparently corrected by the Applicant after having been brought to its attention in a letter from DEC dated July 28, 1992.
Evidence shall be heard only with regard to the following violations, as alleged in the affidavit of DEC inspector Agnes Gara, dated May 21, 1993:
- Failure to update the facility's contingency plan [6 NYCRR 373-3.4(e)] (1992 inspection); and
- Failure to update the facility's waste analysis plan [6 NYCRR 373-3.2(d)(3)(ii)] (1991 and 1992 inspections).
According to DEC regulation, the facility's contingency plan "must be designed to minimize hazards to human health or the environment from fires, explosions, or any unplanned sudden or nonsudden release of hazardous waste or hazardous waste constituents to air, soil or surface water" [6 NYCRR 373-3.4(b)]. On its face, it would appear that if the plan is not revised as needed, this would affect the degree and duration of risk associated with the facility's operation.
So, too, it would be relevant to know that the facility has an adequate plan to ensure that wastes received at the facility actually match the identity of the waste designated by the shipper [6 NYCRR 373-3.2(d)(3)].
The Applicant apparently has not been charged with the two violations which are cited above, although according to the Gara affidavit, they were brought to its attention during her exit interviews. The fact they have not been the subject of enforcement proceedings does not preclude the consideration of these alleged violations, for the first time, within this permit proceeding, although Staff shall have the duty to prove them.
It is unknown whether the facility has been inspected in 1993, but if it has, it will be relevant to know whether these violations still exist, and if not, when and how they were corrected.
The remaining violations alleged by Ms. Gara predate the 1990's. There is no showing that they continued into this decade and no explanation as to how they bear on the degree and duration of risk now present at the facility. For these reasons, they shall not be pursued.
(3) Finally, evidence will not be heard regarding the Applicant's past failure to obtain liability coverage or whether such coverage was available to the Applicant.
In the context of facility history, Department Staff wants to show that the Applicant has failed since 1985 to meet the liability requirements of 6 NYCRR 373-3.8(h). These requirements are in the Department's regulations for interim facility status, which govern while this application is pending, and are essentially the same as those from which the Applicant now seeks a variance. The Applicant does not concede having violated these requirements, although it admits not having the insurance required by its RCRA permit, which was issued for a 10-year period commencing in May, 1986.
Whether the facility meets the liability requirements of Part 373, and whether it is in violation of its RCRA permit, have not yet been adjudicated. DEC Staff said it was considering enforcement action with regard to the alleged Part 373 violation, but was first awaiting the result of this hearing. The alleged violation of the RCRA permit is the subject of an EPA complaint, dated March 28, 1988 (Exhibit 8B-B), a hearing on which has also been withheld pending this matter's outcome.
Assuming the Applicant has not had the coverage required either by DEC regulation or by RCRA permit, this is not relevant to the degree and duration of risk associated with its facility's operations, and therefore is excluded as a matter on which evidence shall be heard. Likewise, it is irrelevant what efforts the Applicant made to obtain this coverage, or whether the coverage was obtainable at all.
Based on the issues conference record, there appeared to be no question that the insurance required under Subpart 373-2 is obtainable, although the Applicant argued that it is prohibitively expensive, more than it can afford to pay. The Applicant would like to demonstrate that it cannot obtain the required insurance without undue financial hardship and that such hardship must be considered when determining whether its variance should be granted, especially in light of the service it provides.
The Applicant's failure to obtain insurance at the level fixed by subpart 373-2 is irrelevant since the regulations provide five other alternatives to demonstrate the required liability coverage. The purpose and function of this coverage is to ensure that funds will be available if third parties seek compensation for bodily injury and property damage caused as a result of sudden accidental occurrences. Moreover, variances are granted not for undue hardship, but on the basis of reduced risk associated with facility operations. Again, anything bearing on that risk is relevant, and anything not bearing on it is not relevant and should be kept from the hearing record.
SUMMARY OF RULINGS
- Variances are allowed in terms of "amount" and not "type" of financial responsibility. Therefore, the Applicant's proposal for a pledge of net worth, coupled with personal guarantees, may not be pursued. Its proposal for a $500,000 letter of credit, issued by a major bank doing business in New York State, shall be pursued as the Applicant's variance alternative. The Commissioner shall have the option of approving this alternative, rejecting it, or proposing another of his own, based on his assessment of the degree and duration of risk associated with the facility's operations.
- Evidence on the variance issue shall be limited according to the parameters of the rulings made above. All other proposed evidence shall be excluded as irrelevant to the variance determination.
Pursuant to 6 NYCRR 624.6(d), the ruling of the ALJ setting forth the issues for hearing may, within three days of the ruling, be appealed to the Commissioner. Recognizing the length of these rulings, the deadline for appeals is extended. Any appeals must be received at the Office of the Commissioner (NYSDEC, 50 Wolf Road, Albany, New York, 12233-5500) no later than August 9, 1993. The rulings may be appealed in whole or in part. Any briefs in support of the rulings and in opposition to any appeals that are filed must be received by August 16, 1993. The parties shall ensure transmission of all papers to me and each other at the same time they are sent to the Commissioner.
ORDER OF DISPOSITION
I will arrange for a conference call with counsel for the parties once the deadline for appeals has passed or, assuming appeals are filed, after they have been decided by the Commissioner. The call will be held to establish hearing dates and establish a schedule for the submission of pre-filed direct testimony, pursuant to 6 NYCRR 624.7(b)(6)(ii). As the Applicant has the burden of proof, its direct testimony shall be pre-filed first. With its pre-filed testimony, the Applicant shall provide a draft of its letter of credit, using the format in 6 NYCRR 373-2.8(j)(10). This shall be accompanied by a statement as to how the amount of liability coverage offered by that letter differs from that prescribed by 6 NYCRR 373-2.8(h)(1). The statement shall also briefly summarize the grounds proposed by the Applicant for acceptance of its letter of credit.
Both parties' evidence shall be limited to that which is relevant to a decision on the variance, as determined by these rulings except to the extent they are modified as the result of either party's appeal.
July 29, 1993
Administrative Law Judge
Albany, New York