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Rochester Plating Works, Inc. - Decision and Order, February 20, 1997

Decision and Order, February 20, 1997

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter
- of the -
Dispute of the Environmental Conservation Law Article 72, Title 4, Hazardous Waste Program Fees and Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York, Part 480 et seq. Program Fees

- by -

ROCHESTER PLATING WORKS, INC. Two Cairns Street Rochester, New York 14611-2476

Recalculation Request No. 012878

DECISION AND ORDER

February 20, 1997

DECISION AND ORDER OF THE DEPUTY COMMISSIONER

Final decision-making authority in this matter has been delegated to Deputy Commissioner Frank Dunstan, because the Acting Commissioner was the General Counsel of the Department when this matter was adjudicated.

The attached Hearing Report (the "Report") of Administrative Law Judge ("ALJ") Daniel P. O'Connell including its Findings of Fact, Discussion, Conclusions, and Recommendations, in the matter of disputed regulatory program fees assessed by the Department of Environmental Conservation pursuant to Article 72 of the Environmental Conservation Law ("ECL") and 6 NYCRR Part 481, et seq. upon Rochester Plating Works, Inc. ("Rochester") is hereby adopted as my Decision in this matter, subject to the following.

With respect to the disputed regulatory fees, two factual questions are at issue. The first is whether Rochester's process water should be excluded from the definition of hazardous waste based on the criteria provided in 6 NYCRR 371.1(e)(1)(viii). This exclusion is commonly called the "closed-loop" exclusion. If the exclusion provided in 6 NYCRR 371.1(e)(1)(viii) does not apply to Rochester, then the second question is whether Rochester's process water has hazardous characteristics prior to treatment. If so, a legal issue arises as to whether the hazardous process water is "hazardous wastewater" within the meaning of Title 4 of Article 72.

Based on the record before me, Rochester's electroplating process is not a closed-loop. To qualify for the "closed-loop" exclusion materials that are reclaimed must be reused as feedstocks within the original primary production process in which such materials were generated. The reclamation process must be an essential part of the production process and materials must be handled to minimize loss. The reclamation process should be completely enclosed, which is interpreted by Staff to mean that not more than 10% of the production materials can be lost during the reclamation process. I find this interpretation to be reasonable and accept it. After reclamation, Rochester disposes of about 17% of its process water and returns only about 83% of its process water to the production process. Based on the foregoing, I conclude that Rochester does not meet the criterion for the "closed-loop" exclusion. Accordingly, I concur with the ALJ that Rochester does not qualify for the exclusion provided in 371.1(e)(1)(viii).

Because the closed-loop exclusion is inapplicable here, it is necessary to consider the second issue. The record shows that Rochester creates hazardous process water. It is "hazardous" because it contains chromium in excess of 5.0 mg/l (See 6 NYCRR 371.3(e) at Table 1), as the ALJ concluded.

Accordingly, it is necessary to determine whether Rochester Plating's process water is "hazardous wastewater" pursuant to Title 4 of Article 72. As a legal matter, Staff contends, and I concur, that Rochester's process water becomes a "spent material" prior to treatment, because it becomes contaminated in the electroplating process and can no longer serve its purpose without treatment (6 NYCRR 371.1(a)(7)). Treatment of the hazardous process water "reclaims" it (6 NYCRR 371.1(a)(3)), which is a type of "recycling" (371.1(a)(4)). The regulations provide that materials are nevertheless "solid waste" if they are reclaimed spent materials (6 NYCRR 371.1(c)(4)(iii)), and as such, a reclaimed material is still a "discarded" material (371.1(c)(2)(ii)). Therefore, it is a "solid waste" (371.1(c)(1)). Because it exhibits a hazardous characteristic, it is a "hazardous waste" (371.1(d)), and is not excluded from the definition of hazardous waste, as concluded under the "closed-loop" discussion, above. Therefore, in the absence of any waiver or exclusion, the process water is hazardous wastewater, and Rochester is subject to the annual fee under Title 4 of Article 72.

This determination is consistent with the General Counsel's Declaratory Ruling #72-09 in the Matter of Anoplate Corporation (February 15, 1995).

I concur with ALJ O'Connell's analysis concerning the assessment of penalties and interest. However, based on the circumstances unique to this matter, I conclude that there is reasonable cause to waive the penalty in its entirety. I am unable to adjust or waive interest on the fees owed.

NOW, THEREFORE, have considered this matter, it is ORDERED that:

  1. Rochester Plating Works, Inc. shall pay the disputed regulatory fees for the years 1991 and 1992 authorized by ECL 72-0402(1)(e) and 6 NYCRR Part 483 for generating more than 15 tons of hazardous wastewater during each of those two years. The total amount of fees owed is SIX THOUSAND DOLLARS ($6,000).
  2. Rochester shall pay the interest owed on the outstanding regulatory fees. The interest shall be calculated using the method prescribed in ECL 72-0201(6) and 6 NYCRR 481.6(b). The interest shall be calculated to the date of this Decision and Order.
  3. Within 30 days of service of a conformed copy of this Decision and Order, the Department Staff shall prepare an invoice that reflects the waiver of the penalty and the appropriate fees and interest owed. The Staff shall then forward the invoice to Rochester by regular mail.

For the New York State Department
of Environmental Conservation

_____________/s/_____________
By: Frank M. Dunstan,
Deputy Commissioner
Albany, New York

Dated: February 20, 1997

STATE OF NEW YORK
DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter
- of the -
Dispute of the Environmental Conservation Law Article 72, Title 4, Hazardous Waste Program Fees and Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York, Part 480 et seq. Program Fees

- by -

ROCHESTER PLATING WORKS, INC.
Two Cairns Street
Rochester, New York 14611-2476
Recalculation Request No. 012878

HEARING REPORT

SUMMARY

The Rochester Plating Works, Inc. (Rochester) disputes the $3,000 hazardous waste program fee that the NYS Department of Environmental Conservation (the Department) has assessed Rochester for calendar years 1991 and 1992. The total amount of the disputed fee is $6,000. Environmental Conservation Law (ECL) 72-0402(1)(e) authorizes the Department to assess this fee annually upon generators who generate equal to or greater than fifteen tons per year of hazardous wastewater. Based on an invoice dated April 30, 1996, the Department Staff also asserted that Rochester owes an additional $3,487.51 in penalties and interest.

For the reasons described below, Rochester's electroplating operations do not qualify for the exclusion provided in 6 NYCRR 371.1(e)(1)(viii) which is commonly referred to as the "closed-loop" exemption. Consequently, the Rochester's process water is a hazardous waste as described in 371.3(e) and as addressed in Declaratory Ruling #72-09 in the Matter of Anoplate Corporation (February 15, 1995). The Hearing Report concludes that Rochester must pay the disputed regulatory fees. In addition, the Report concludes that the Commissioner, or his designee, has the discretion to reduce or waive the penalty, but not the discretion to waive the interest.

PROCEEDINGS

An invoice from the NYS Department Environmental Conservation (the Department) dated August 17, 1992 assessed the Rochester Plating Works, Inc. (Rochester) $3,000 in 1991 and again in 1992 for generating more than 15 tons of hazardous wastewater per year. The total disputed fee is $6,000. Although the Department has assessed Rochester fees for generating hazardous wastewater for the calendar years 1993, 1994, and 1995, Rochester has paid these fees under protest pending a resolution of this dispute.

By letter dated September 16, 1992, Rochester challenged the hazardous wastewater fees assessed by the Department for the 1991 and 1992 calendar years. After an exchange of correspondence and a series of conference calls between representatives from Rochester and the Department Staff, the Department's Regulatory Fee Determination Unit referred the matter to the Office of Hearings and Mediation Services. The matter was assigned to Administrative Law Judge Daniel P. O'Connell on May 9, 1996.

On May 23, 1996, ALJ O'Connell initiated a pre-hearing conference call with Douglas S. Hurd, President of Rochester, and Department Staff Attorneys, Monica L. Abreu and Ann DeBarbieri. The purpose of the conference call was to discuss the regulatory fee dispute filed by Rochester in an effort to narrow and resolve issues concerning the disputed fees and penalties, and to define the scope of issues for the hearing [6 NYCRR 481.10(f)].

After the Parties had an opportunity to review the summary of the conference call and to submit additional information, ALJ O'Connell issued a Ruling on Factual Issues for Adjudication dated July 1, 1996. The ruling discussed the applicability of Declaratory Ruling #72-09 in the Matter of Anoplate Corporation (February 15, 1995). In addition, the ruling identified two issues for adjudication. The first issue was whether the process water at Rochester is excluded from the definition of hazardous waste based on the criteria provided in 6 NYCRR 371.1(e). These criteria describe what is commonly referred to as a "closed-loop" process. If the exclusion provided by 371.1(e) did not apply to Rochester, then the second question was whether Rochester's process water has hazardous characteristics prior to treatment.

The Parties exchanged additional information in an effort to settle the dispute without an adjudicatory hearing. Rochester provided details about its production and water treatment processes. The Department Staff furnished guidelines issued by the US Environmental Protection Agency (EPA) which the Staff relies on to determine whether processes are "closed-loops." Unfortunately, the Parties could not settle the matter. During a conference call on September 24, 1996, the Parties agreed, however, that an adjudicatory hearing was not necessary because the exchange of information from July 1996 to September 1996 had developed the record sufficiently to answer the factual issues identified in the July 1, 1996 ruling.

By memorandum dated September 25, 1996, I canceled the adjudicatory hearing, and provided the Parties with an opportunity to summarize their respective positions concerning the factual issues identified in the July 1, 1996 ruling, and to submit arguments about what the proper penalties and interest should be. With respect to the question concerning the penalties and interest, the Parties were encouraged to address the Commissioner's Decision dated November 27, 1995 concerning the Matter of Doris Fitch, and Declaratory Ruling #72-11 in the Matter of John Newell dated May 23, 1996. The Parties duly filed their briefs and replies, and the record of this proceeding closed on October 22, 1996.

FINDINGS OF FACT

The following Findings of Fact include the original findings stated in the July 1, 1996 ruling, and new findings based on additional factual information presented since the ruling. The original findings are identified below with cardinal numbers (e.g., 6). New findings are identified with cardinal numbers and a letter (e.g., 6a).

  1. The electroplating process at Rochester Plating Works, Inc. consists of two parallel production lines. Each production line is the same, and includes the following sequence of steps.
  2. The metal objects to be zinc plated are immersed in a caustic wash and then rinsed in water. The objects are immersed in an acid wash and rinsed in water again. These two steps prepare the metal objects for electroplating by removing dirt, grease and corrosion.
  3. The objects are immersed in the electroplating tank. When the electroplating process is complete, the objects are rinsed in water.
  4. The zinc plated objects are immersed in a "bright dip." Then the zinc plated objects are transferred to a weak chromic acid wash. The chromic acid wash provides additional rust protection, and provides an opportunity to color the plated objects.
  5. After the chromic acid wash, the objects are rinsed in water. Finally, the zinc plated objects are air dried.
  6. All the rinse water used in the electroplating process (i.e., the process water) is collected and piped to a treatment system at the Facility.
    1. All rinse tanks are hard plumbed from the plating lines to the treatment tanks and back to the plating rinses.
    2. The water treatment system includes a chromium ion exchange polishing filter. Periodically, the filter is cleaned by back washing. The backwash water is pumped to the acid collection tank where the backwash water is mixed with process water and then piped to the water treatment system.
    3. The amount of chromate present in samples taken from the chromate rinses for lines #1 and #2, as well as the chromate collection tank was 34.6 milligrams per liter (mg/l), 86.6 mg/l, and 40.1 mg/l, respectively. For chromate, the toxicity characteristic leaching procedure (TCLP) limit established by the EPA is 5.0 mg/l. The samples were collected on August 8, 1996. The chromate collection tank is also the collection tank for process water from the acid wash.
  7. After treatment, the water is stored in a tank call the "swimming pool."
  8. Each month, Lozier Laboratories, Inc. tests a 24 hour composite sample of water from the swimming pool. Each year, the Monroe County Department of Environmental Services tests a 96 hour composite sample of water from the swimming pool. Water samples are collected for analysis at the point where the overflow pipe from the swimming pool discharges to Rochester's main drain.
    1. The chromate level of a sample taken from the swimming pool on August 8, 1996 was <0.05 mg/l.
  9. Water is taken from the swimming pool and used in the rinsing cycles identified above. If the amount of water collected from the rinse cycles, which has been treated in the treatment system, exceeds the capacity of the swimming pool, the excess treated water, which has been determined to be non-hazardous by an independent laboratory, overflows from the swimming pool into the local municipal sewer system.
    1. Rochester discharges about 16.8% of the process water it uses in the production process. On August 29, and 30, 1996, Rochester calculated the total daily flow to be about 17,280 gallons per day. Of that amount, 2,900 gallons per day was discharged to the local municipal sewer system [(2,900 gpd/17,280 gpd) x 100 = 16.8%]. In other words, Rochester returns about 83.2% of the reclaimed process water to the production process.
    2. In addition to using the water from the swimming pool, Rochester can add water from the local municipal water supply system to the production process during the cleaning, acid, plating, and chromate rinses. Also, municipal water can be added at the main waste water treatment system and the polishing filter. On hot days, Rochester uses municipal water for cooling and rinsing purposes.
    3. The plating room at Rochester is washed down two or three times per week. The wash water is collected and piped to the acid collection tank where the water recirculates through the water treatment system. On September 4, 1996, a sample of the wash water collected at the floor drain was analyzed for chromate. The chromate level was 0.07 mg/l.
  10. Rochester Plating, Inc. does not have a State Pollutant Discharge Elimination System (SPDES) permit (ECL Article 17). Rochester Plating, Inc., does not need a SPDES permit because the water used in its electroplating operations is discharged to the local municipal sewer system after it is pre-treated.
  11. Reclamation at Rochester does not involve controlled flame combustion. Rochester's process water does not accumulate in storage tanks for more that 12 months before reclamation, and the process water is not used to produce a fuel.
    1. By letter dated September 16, 1992, Douglas S. Hurd, President, Rochester Plating Works, Inc., challenged the hazardous wastewater fee assessed by the Department for the 1991 and 1992 calendar years. After an exchange of correspondence and a series of conference calls, the dispute was referred to the Office of Hearings and Mediation Services on May 7, 1996 some 3 years and 8 months later.

DISCUSSION

Declaratory Ruling #72-09 in the Matter of Anoplate Corporation (February 15, 1995) established that the water used to rinse objects in electroplating operations (i.e., the process water) is a hazardous waste even if the process water is treated on site and rendered non-hazardous. The determination in Anoplate is based in two facts. First, the Parties to that proceeding stipulated that the operations at Anoplate are not a "closed-loop." Second, Anoplate's process water is hazardous according to the definition provided in ECL 27-0901(3).

Rochester, like Anoplate, is an electroplating facility that collects its process water and treats it on site. Rochester argued, however, that the factual assumptions of Anoplate do not apply to the production process at Rochester. Rochester argued that the "closed-loop" exclusion provided in 6 NYCRR 371.1(e)(1)(viii) applies to its electroplating process. In addition, Rochester asserted that its process water is not a solid waste, and therefore, not a hazardous waste.

Is Rochester's Electroplating Process a Closed-Loop?

Rochester argued that the exclusion provided in 371.1(e)(1)(viii) applies to its electroplating operation. This provision excludes secondary materials from being considered solid wastes when these materials are reclaimed and returned to the original process under certain conditions. A process which satisfies the criteria outlined in 371.1(e)(1)(viii) is commonly described as a "closed-loop."

Section 371.1(e)(1)(viii) outlines the following criteria for a closed-loop process. First, the secondary materials can only be stored in tanks, and the entire process including reclamation is completely enclosed [371.1(e)(1)(viii)(a)]. In this case, the secondary material is the process water collected from the various rinses and washes.

Second, the reclamation process cannot involve controlled flame combustion [371.1(e)(1)(viii)(b)]. Third, the secondary materials cannot accumulate in storage tanks for over 12 months before they are reclaimed [371.1(e)(1)(viii)(c)]. Fourth, the secondary materials are not used to produce a fuel, or used to produce products that are used in a manner constituting disposal [371.1(e)(1)(viii)(d)].

The only criterion at issue is whether the reclamation process at Rochester is completely enclosed [371.1(e)(1)(viii)(a)]. None of the other criteria are at issue. The reclamation process at Rochester does not involve controlled flame combustion [371.1(e)(1)(viii)(b)]. Rochester's process water does not accumulate in storage tanks for more that 12 months before it is reclaimed [371.1(e)(1)(viii)(c)], and the process water is not used to produce a fuel [371.1(e)(1)(viii)(d)].

At Rochester, all process water is collected in tanks. All rinse tanks are hard plumbed from the plating lines to the treatment tanks, and then to the swimming pool. Treated water that is stored in the swimming pool can be either returned to the rinse tanks and reused in the production process, or discharged to the municipal sewer system. Based on the data collected on August 29 and 30, 1996, Rochester discharges about 16.8% of the process water it uses in the production process. In other words, Rochester returns about 83.2% of the reclaimed process water back to the production process.

In addition to using the water from the swimming pool, Rochester can add water from the local municipal water supply system to the production process during the cleaning, acid, plating and chromate rinses. Also, municipal water can be added at the main waste water treatment system and the polishing filter. On hot days, Rochester uses municipal water for cooling and rinsing purposes.

For a production process to be completely enclosed as provided for by 371.1(e)(1)(viii)(a), the Staff argued that the production process cannot loose more than 10% of the reclaimed material. That is to say that after reclamation, 90% of the reclaimed materials must be returned to the production process. With respect to this matter, the Staff asserted that Rochester's production process is not a closed-loop because Rochester discharges 16.8% of its process water, and returns the balance (83.2%) to the production process.

Citing 40 CFR 261.1(c)(8) and 6 NYCRR 371.1(a)(1) Rochester argued that only 75% of the material needs to be returned to the production process. Rochester argued that its process is a closed-loop because it returns over 80% of the reclaimed process water back to the production process. Rochester's argument, however, is misplaced.

Section 371.1(a)(1), which is worded identically to 40 CFR 261.1(c)(8), describes the conditions under which a material is accumulated speculatively if the material is accumulated for recycling. In the first instance, it was determined in the July 1, 1996 Ruling that Rochester's process water is not recycled within the meaning of 371.1(c)(6)(i)(b) because Rochester's process water must be treated before being reused (Ruling, pp. 6 - 7). Without treatment, Rochester could not reuse the process water in its electroplating process as an effective substitute for either the reclaimed water in the swimming pool, or the municipal water supply.

In addition, materials that are accumulated speculatively are expressly determined to be solid wastes pursuant to 371.1(c)(6)(ii)(c). Finally, the closed-loop exclusion outlined in 371.1(e)(1)(viii) requires the secondary materials to be reclaimed, rather than recycled. If secondary materials are recycled, they are not solid wastes according to the definition provided in 371.1(c)(6).

Rochester's argument, nevertheless, raises a question about whether Staff's determination to limit the allowable loss of reclaimed secondary materials to only 10% is an appropriate interpretation of 371.1(e)(1)(viii)(a). Although the Staff did present information from the EPA [Federal Register for December 16, 1985 (pp 51264-51265), and July 14, 1986 (pp 25441-25443)], the information does not expressly limit the amount of secondary materials that may be lost during the reclamation process. The Staff did not identify or present any other information supporting the determination.

An allowable loss of 10%, which requires a reclamation process that is 90% efficient, is reasonable, however, for the following reasons. First, it recognizes that no reclamation process would be 100% effective. At the same time, the determination assures that significant amounts of secondary materials will be reclaimed and returned to the production process. In addition, Rochester did not offer any other reasonable alternative concerning the efficiency of the reclamation process. Therefore, I defer to the Department Staff's determination.

Finally, the amount of reclaimed process water that overflows from Rochester's swimming pool to the municipal sewer system must be considered in determining whether Rochester's production process is a closed-loop. Although all the water stored in the swimming pool is reclaimed and can be reused in Rochester's electroplating process, 371.1(e)(1)(viii) expressly requires that all reclaimed materials must be returned to the original process. Therefore, Rochester's reclamation process is not a closed-loop as outlined in 371.1(e)(1)(viii) because less than 90% of the reclaimed water is returned to the production process.

Is Rochester's Process Water a Hazardous Waste?

Since Rochester's electroplating process is not a closed-loop, the next issue is whether Rochester's process water is hazardous as defined in ECL 27-0901(3). Hazardous wastes are a subcategory of solid wastes. Section 371.1(c) states that a solid waste is any discarded material not otherwise excluded in 371.1(e)(1). Furthermore, a discarded material is any material that is abandoned by being disposed of, incinerated, or accumulated, stored or treated prior to, or in lieu of, being disposed of. For the purpose of assessing regulatory fees, a waste means discarded material, including ... liquid[s], ... resulting from industrial, commercial, mining, [and] agricultural operations ... [480.2(bc)].

Rochester's process water is stored and treated prior to, and in some cases in lieu of, being disposed of . Consequently, the process water is a discarded material, and a solid waste as defined by 371.1(c). With respect to 480.2(bc), the process water is a waste because it is a discarded material as provided by 371.1(c) that is also a liquid resulting from an industrial operation.

Whether Rochester's process water is a hazardous waste depends on whether it exhibits any hazardous characteristics like ignitability, corrosivity, reactivity, or toxicity (371.3), or whether the process water is specifically listed as hazardous (371.4). On August 8, 1996, the amount of chromate present in samples taken from the chromate rinses for lines #1 and #2, as well as the chromate collection tank was 34.6 milligrams per liter (mg/l), 86.6 mg/l, and 40.1 mg/l, respectively. For chromate, the toxicity characteristic leaching procedure (TCLP) limit established by the EPA is 5.0 mg/l. The results from the analyses show that Rochester's process water exceeds the EPA's TCLP limit. Therefore, Rochester's process water is hazardous based on the toxic characteristic standard outlined in 371.3(e) and Table 1.

There was no issue about whether the test method used to determine the concentration of chromate in the samples was a method approved by the Commissioner [371.3(e)(1)]. Furthermore, the question of whether the process water is specifically listed as hazardous in 371.4 does not need to be answered because of its demonstrated toxic characteristic.

For the purpose of assessing regulatory fees, wastewater is a liquid waste that contains a minimum of 95% water by weight, and a maximum of 1% by weight of total organic carbon, as well as a maximum of 1% by weight of total suspended solids [480.2(bd)]. Rochester's process water is wastewater, as that term is defined in 480.2(bc), because it is at least 95% water by weight and has limited amounts (i.e., < 1%) of organic carbon and suspended solids.

Applicability of Anoplate

For the reasons outlined above, the exclusion provided by 6 NYCRR 371.1(e)(1)(viii) does not apply to Rochester's operation. Furthermore, Rochester's process water has hazardous characteristics [341.3(e)]. Therefore, this regulatory fee dispute matter is factually similar to Anoplate.

The record shows that Rochester's process water is a hazardous waste and wastewater, as those terms are defined in the regulations. Based on Anoplate (pp. 3 - 4), Rochester's process water is a hazardous waste when it leaves the rinse tanks and is sent to the treatment unit.

Moreover, since Rochester's process water is a hazardous waste and wastewater, as those terms are defined in the regulations, Rochester generates hazardous wastewater [ECL 72-0401.5; 6 NYCRR 480.2(o); Anoplate, pp. 4-5]. Consequently, the Department has the authority to assess Rochester the disputed regulatory fees [ECL 72-0402(1)(e), and 6 NYCRR Part 483].

Interest and Penalties

Based on an invoice dated April 30, 1996, Rochester owes $3,487.51 in penalties and interest. If Rochester must pay the disputed regulatory fees, Rochester requested that the penalties and interest be set aside. Citing ECL 72-0201(5), and 6 NYCRR 481.5(a) and (b), the Department Staff argued, however, that Rochester must pay all penalties and interest.

When a regulatory fee is disputed, the Permittee has two options. The Permittee may pay the fee in a timely manner and dispute the obligation to pay the fee. Alternatively, the Permittee may file a dispute without paying the fee. When a Permittee chooses the latter option, ECL 72-0201(5), and 6 NYCRR 481.5(a) and (b) authorize the Department to assess penalties and interest if the dispute is settled in the Department's favor.

Assessing penalties for the late payment of regulatory fees is addressed by the Commissioner in a Decision concerning the Matter of Doris Fitch (Permit #604-3-30-0538), dated November 27, 1995, and by the General Counsel in Declaratory Ruling #72-11 in the Matter of John H. Newell dated May 23, 1996. Copies of these agency determinations were attached to the July 1, 1996 rulings for the Parties' review.

One of the issues in Fitch, was whether the adjudicatory hearing to consider the disputed regulatory fee commenced in a timely manner. According to Ms. Fitch, an unfairly large penalty and an equally unfair amount of interest had accumulated on the disputed regulatory fee before the hearing began. After the hearing, the Administrative Law Judge concluded that Ms. Fitch had not suffered any prejudice during the period from when she requested a hearing to when the hearing began 3 years and 10 months later. The ALJ recommended that the Commissioner assess full penalties and interest. In the Decision, however, the Commissioner decided not to assess any penalties or interest given the unique circumstances of the case, provided Ms. Fitch paid the assessed regulatory fee promptly.

In Newell, the General Counsel explained that the regulatory fees authorized by ECL Article 72, Title 10 (Mined Land Reclamation Program Fees) must be paid in full. According to the General Counsel, the regulated entities who use environmental resources must bear the regulatory costs spent to ensure that those resources are used in a way that is consistent with the environmental, economic and social needs of the state. In addition, the General Counsel determined that the guidelines for assessing mined land reclamation fees should be interpreted under a strict construction.

Given the determinations in Fitch and Newell, the Parties to this proceeding were encouraged to address them in closing arguments. Rochester argued that the Commissioner, or his designee, should apply the rationale in Fitch, and not assess any penalties or interest. Rochester argued that it did not contribute to any delays in bringing this matter to a speedy conclusion.

The Department Staff argued that the language provided in ECL 72-0201(5) and the implementing regulations at 481.5(a) and (b) concerning the assessment of penalties is mandatory. Citing 481.5(b), the Staff further argued that challenging an outstanding fee is not a basis for reducing the penalty if the dispute is resolved in the Department's favor.

Referring to the relevant statutory and regulatory provisions, the Staff similarly argued that the payment of interest is also mandatory. According to the Department Staff, the question of whether the Commissioner has the discretion to waive interest was not briefed in Fitch. The Staff contended that the rationale in Fitch may not have taken 481.6(d) into account. This regulation states there is no provision for challenging the interest assessed.

The applicable statute and regulations clearly authorize the Department to assess a penalty. ECL 72-0201(5) specifies how the penalty should be calculated, and sets a limit on the maximum amount of penalty that can be assessed. Section 481.5(c) provides that the penalty may not exceed 25% of the total amount of regulatory fees owed. What is at issue here, however, is whether there is discretion to reduce or waive the penalty. If the Commissioner has the discretion, then there is a question about under what circumstances may the penalty be reduced or waived. The applicable regulations address these questions and provide guidance.

If the Department decides to assess a penalty, 481.5(d) requires the Department to provide the Permittee with notice of the right to appeal the penalty. This subsection also provides the Permittee with the right to a hearing. After a hearing, the Commissioner's decision to reduce or waive a penalty:

must be based upon a finding that the failure to pay the fee was based upon reasonable cause and not due to willful neglect. The absence of willful neglect alone is not sufficient grounds for not imposing a penalty.

In addition, 481.5(b) expressly states that a challenge to a fee is not a basis for a reduction in penalty under 481.5(d), when the dispute is resolved in favor of the Department. There is then discretion to reduce or waive the penalty under certain conditions. For example, the reduction or waiver cannot be based on the absence of willful neglect to pay a regulatory fee, or the filing of a regulatory fee challenge. There must be some other reasonable cause.

With respect to the question of interest, the Department correctly argued that interest must be paid. ECL 72-0201(6) states:

In addition to any penalty that may be assessed pursuant to subdivision five of this section, there shall be collected interest upon the unpaid amount at the underpayment rate set by the commissioner of taxation and finance pursuant to section one thousand ninety-six of the tax law. Such interest shall accrue thirty days from the date prescribed for fee payment until payment is actually made to the Department.

The implementing regulations (481.6), restate a Permittee's obligation to pay interest, and the method that the Department must use to calculate the interest. The interest assessed is based on the sum of the amount of the regulatory fee owed and any related penalty [481.6(b)]. Unlike the penalty, there is no dollar limit to the amount of interest that must be collected as long as regulatory fees are owed. Furthermore, the regulations expressly state there is no provision for challenging the interest assessed [481.6(d)].

The wording of the regulations concerning interest (481.6) are significantly different from those which address penalties (481.5). Given these differences, I conclude that interest that must be assessed, but the actual amount interest collected can be reduced through by reducing or waiving the penalty [481.6(b)].

By letter dated September 16, 1992, Douglas S. Hurd, President, Rochester Plating Works, Inc., challenged the hazardous wastewater fee assessed by the Department for the 1991 and 1992 calendar years. After an exchange of correspondence and a series of conference calls, the dispute was referred to the Office of Hearings and Mediation Services on May 7, 1996 some 3 years and 8 months later. This period is similar to the period in Fitch which was 3 years and 10 months.

There were no allegations, and the record of this matter does not show, that Rochester willfully neglected to pay regulatory fees for 1991 and 1992. Rather, Rochester demonstrated an awareness of its obligation to pay regulatory fees by formally challenging its assessment as provided by 481.9. Section 481.9 confers rights and obligations on both the Permittee and the Department Staff, and requires the exchange of correspondence and the series of conference calls that occurred between the Staff and Rochester before this matter was referred to the Office of Hearings and Mediation Services. Therefore, any reduction or waiver of penalties should not be based solely on the length of the period from when the dispute arose to when the dispute was referred to hearing.

Rochester's attempt to implement a closed-loop system by installing water treatment equipment is a significant factor that supports penalty reduction, however. As explained above, Rochester's process is not a closed-loop, as provided by 371.1(e)(1)(viii), because less than 90% of the reclaimed process water is returned to the production process. In other words, more than 10% of the reclaimed process water is discharged to the local municipal sewer system. Based on the data provided for August 29 and 30, 1996, the deficiency is about 7%. Although other factors at Rochester's facility may need to be addressed, Rochester's electroplating process appears to be very close to qualifying for the exclusion provided in 371.1(e)(1)(viii).

For the forgoing reasons, I conclude that Rochester did not willfully neglect to pay regulatory fees for 1991 and 1992. I further conclude that Rochester's attempt to configure its production process so that it could qualify for the exclusion provided in 371.1(e)(1)(viii) to avoid paying regulatory fees for generating wastewater is a reasonable cause that supports mitigation of the penalty. Consequently, the Commissioner, or his designee, should reduce the penalty so that it is less than 25% of the fees owed. After the Commissioner, or his designee, determines the appropriate penalty, the interest must be calculated and assessed in the manner prescribed by 6 NYCRR 481.6(b).

Alternatively, the Commissioner, or his designee, could suspend the penalties that may be assessed with the understanding that Rochester would use those funds to assure that its operation is a closed-loop as provided in 371.1(e)(1)(viii).

CONCLUSIONS

  1. The rinse water used in Rochester's electroplating process (i.e., the process water) is not a recycled material within the meaning of 371.1(c)(6)(b) because the process water must be treated before being reused. Without treatment, Rochester could not reuse the process water in the electroplating process as an effective substitute for either the treated water from the swimming pool or the municipal water supply.
  2. Reclamation at Rochester does not involve controlled flame combustion [371.1(e)(1)(viii)(b)]. In addition, Rochester's process water does not accumulate in storage tanks for more that 12 months before reclamation [371.1(e)(1)(viii)(c)], and the process water is not used to produce a fuel [371.1(e)(1)(viii)(d)].
  3. An allowable loss of 10%, which requires a reclamation process that is 90% efficient, is reasonable in determining whether a process is completely enclosed pursuant to 371.1(e)(1)(viii)(a).
  4. Since Rochester's production and reclamation process is about 83.2% efficient, Rochester's electroplating process is not a closed-loop as provided by 371.1(e)(1)(viii).
  5. Since Rochester's process water is stored and treated prior to, and in some cases in lieu of, being disposed of, the process water is a discarded material, and, therefore, a solid waste as defined by 371.1(c).
  6. With respect to 480.2(bc), the process water is a waste because it is a discarded material as provided by 371.1(c) that is also a liquid resulting from an industrial operation.
  7. For chromate, the toxicity characteristic leaching procedure (TCLP) limit established by the EPA is 5.0 mg/l. Since, the analysis of the samples taken on August 8, 1996 shows that Rochester's process water exceeds the EPA's TCLP limit, Rochester's process water is hazardous based on the toxic characteristic standard provided in 371.3(e) and Table 1.
  8. Rochester's process water is wastewater, as that term is defined in 480.2(bc), because it is at least 95% water by weight and has limited amounts (i.e., < 1%) of organic carbon and suspended solids.
  9. This regulatory fee dispute matter is factually similar to Anoplate because Rochester's process water is hazardous [341.3(e)], and the exclusion provided by 6 NYCRR 371.1(e)(1)(viii) does not apply to Rochester's operation.
  10. Rochester's process water is a hazardous waste when it leaves the rinse tanks and is sent to the treatment unit.
  11. Because Rochester's process water is a hazardous waste and wastewater, as those terms are defined in the regulations, Rochester generates hazardous waste. Consequently, the Department has the authority to assess Rochester the disputed regulatory fees authorized by ECL 72-0402(1)(e), and 6 NYCRR Part 483.
  12. Sections 481.5(b) and (d) provide the Commissioner, or his designee, with the discretion to reduce or waive the penalty. The reduction or waiver, however, cannot be based solely on the absence of willful neglect to pay a regulatory fee, or the filing of a regulatory fee challenge. There must be some other reasonable cause.
  13. Interest, however, that must be assessed. The amount of interest collected, however, may change through a reduction or waiver of the penalty as provided by 481.6(b).
  14. Rochester did not willfully neglect to pay regulatory fees for 1991 and 1992. Furthermore, Rochester's attempt to configure its production process so that it could qualify for the exclusion provided in 371.(e)(1)(viii) to avoid paying regulatory fees for generating wastewater is reasonable cause that supports mitigation of the penalty.

RECOMMENDATIONS

  1. Based on the analysis provided above, the Commissioner, or his designee, should conclude that Rochester's electroplating process is not a "closed-loop" as provided in 6 NYCRR 371.1(e)(1)(viii), and that Rochester's process water is hazardous and wastewater, as those terms are defined in the regulations.
  2. The Commissioner, or his designee, should conclude that Rochester is liable for the regulatory fees assessed by the Department Staff concerning the hazardous wastewater generated by Rochester for calender years 1991 and 1992. Rochester should be directed to pay these regulatory fees which total $6,000.00 (six-thousand dollars).
  3. The penalty assessed should be between 5% to 10% of the $6,000 in regulatory fees owed by Rochester.
  4. After the appropriate penalty is determined, the interest must be calculated and assessed in the manner prescribed by 6 NYCRR 481.6(b).

_____________/s/_____________
Daniel P. O'Connell
Administrative Law Judge

TO: Douglas S. Hurd
President
Rochester Plating Works, Inc.
Two Carin Street
Rochester, NY 14611-2476

Monica Abreu, Esq.
Compliance Attorney
NYS Department of Environmental Conservation
50 Wolf Road
Albany, NY 12233-5500

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