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Sithe/Independence Power Partners - Ruling, October 23, 1992

Ruling, October 23, 1992

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of the Application of
SITHE/INDEPENDENCE POWER PARTNERS, L.P.,
for permits to construct and operate a
power generation plant in the Town of
Scriba, Oswego County

DEC Project No. 7-3556-00040/00007-9

RULINGS
OF THE
ADMINISTRATIVE
LAW JUDGE ON
PARTY STATUS
AND ISSUES

Sithe/Independence Power Partners, L.P. (the "Applicant") seeks permits to construct and operate the Independence Station Cogeneration Facility, a 1,012 megawatt (MW) combined cycle power generation plant. As proposed, the project would include four natural gas-fired combustion turbines. These would operate in a combined cycle mode to produce steam for powering two steam turbine generators. The project would supply hot water and electric power to the adjacent Alcan Rolled Products Company plant. About 80 percent of the project's projected electric power output is under contract to the Consolidated Edison Company. Remaining power will also be sold to the Niagara Mohawk Power Corporation.

As designed, the project's combustion turbines would be fueled with natural gas. These turbines would have combustors for the dry control of nitrogen oxide formation. Steam would be produced by four heat recovery steam generators using combustion turbine exhaust and the supplemental firing of natural gas. A selective catalytic reduction unit would control nitrogen oxide emissions to 4.5 parts per million ("ppm"). The heat recovery steam generators would exhaust through four 195-foot stacks.

As proposed, two auxiliary boilers firing natural gas or No. 2 fuel oil would be used as backup for the process steam and hot water supply. These boilers would exhaust through one additional stack, also 195 feet high. Fuel oil would be stored onsite in a 250,000 gallon above-ground tank.

The Applicant would buy potable water from the City of Oswego, and wastewater from the facility (including cooling tower blowdown, process water, area washdown, sanitary wastes, and neutralized chemical wastes) would be treated prior to discharge to Lake Ontario.

To construct and operate the facility, the Applicant is seeking a Prevention of Significant Deterioration ("PSD") permit (under 40 CFR 52.21), an Air permit (under Environmental Conservation Law [ECL] Article 19), a Protection of Waters permit (under ECL Article 15), a State Pollutant Discharge Elimination System ["SPDES"] permit (under ECL Article 17), a Freshwater Wetland permit (under ECL Article 24), and a Water Quality Certification (under Section 401 of the Clean Water Act and 6 NYCRR Part 608).

As lead agency under the State Environmental Quality Review Act ("SEQRA") (ECL Article 8), the Department of Environmental Conservation (the "Department", or "DEC") made a positive declaration in September, 1991, thereby requiring development of a Draft Environmental Impact Statement ("DEIS"). The DEIS, dated June 1992, was accepted as complete by Department Staff on August 12, 1992. It is part of the project application.

Legislative Public Hearing Session

On September 10, 1992, the Department Staff held a legislative hearing on the DEIS and project application. It was held in the theater auditorium of the Oswego High School, Utica Street, Oswego. Presiding was John M. Cianci, chief of the project management section of DEC's Division of Regulatory Affairs.

Twenty-two people gave oral comments, most of them in support of the project. Among those speaking on the project's behalf were State Assemblywoman Frances Sullivan (117th District, Fulton), a representative for State Senator John M. McHugh (46th District, Watertown), many Oswego County officials, local residents, and the Greater Oswego Chamber of Commerce, which presented a petition it said had been signed by 7500 local project supporters.

Among arguments favoring the project, the following points were raised:

  • The project would create 1300 high-paying construction jobs and, upon completion, another 50 high-paying jobs related to facility operation.
  • By using natural gas, the project would reduce reliance on foreign oil and other, more polluting technologies.
  • Air emissions, especially for nitrogen oxide, would be minimal, allowing the community a clean, non-polluting energy source.
  • The project, upon completion, would provide low-cost, reliable energy to the AlCan plant, maintaining jobs there and fostering possible plant expansion.
  • The project would be a magnet for other industrial development, including recycling facilities, thereby increasing the job base in an area with high unemployment.
  • The project would boost the local tax base, by itself contributing $2 million annually in property taxes.

Project proponents said that in the design of the project, environmental impacts had been greatly mitigated, particularly to wetlands, and that, as part of its plan, the Applicant would donate 50 acres of land to the county, such land to be developed into nature trails and a bird observation platform. This land, adjacent to Lake Ontario, would increase public access to the lake, boosting recreational use and, in turn, tourism.

Opponents of the project had two basic arguments: (1) The project is not needed to satisfy the state's electricity demands; and (2) It will boost electric rates for downstate ratepayers, given terms of a contract between the Applicant and Consolidated Edison, which provides electricity in New York City and Westchester County. With the exception of the Power Authority of the State of New York ("PASNY"), those speaking against the project as planned also filed for party status, and their concerns are addressed under my rulings on proposed issues.

PASNY took no position on the project except to say there should be an adjudicatory hearing, and that such hearing should consider the following points:

  1. The state has no need for new capacity until at least the year 2000, and maybe not until 2015, depending on rates of growth.
  2. Between 1995 and 2000, the project will cost Consolidated Edison ratepayers almost $1 billion more than they would otherwise pay for electricity, based on comparing Sithe's contract rate with Con Ed against the rates for power projected to otherwise be available.
  3. As a result of higher energy rates, more than 10,000 jobs will be lost in New York City and Westchester County.
  4. Air emissions in New York State, especially in New York City, may not be reduced, as facilities displaced by Sithe attempt to sell their power in other markets.
  5. After five years, Sithe may choose to sell its power out-of-state, at which point New York will suffer the environmental consequences of the plant's operation, with diminished economic rewards.

Apart from comments taken at the legislative hearing, other written submissions were received by Department Staff up until October 16, 1992, the noticed deadline for comments on the DEIS.

Issues Conference

As announced in a notice, dated September 3, 1992, from the Department's Office of Hearings, I held an issues conference on October 15, 1992, in the community room of the McCrobie Building, Lake Street, Oswego. Participating at the issues conference were the Applicant, Department Staff, and representatives from four of the five organizations that filed for party status.

The Applicant was represented by William J. Gilberti, Esq., of Devorsetz, Stinziano, Gilberti and Smith, P.C., Syracuse, New York.

The Department Staff was represented by Keith Silliman, Assistant DEC Counsel, Albany, New York.

Also at the issues conference were:

  1. Consolidated Edison Company of New York, Inc. ("Con Ed"), appearing by Garrett E. Austin, assistant general counsel;
  2. The County of Westchester Public Utility Service Agency ("the County"), appearing by Michael McDermott, assistant county attorney;
  3. Local 1-2, Utility Workers Union of America, AFL-CIO ("the Union"), appearing by Seth Goldstein, Esq., of Mamaroneck, New York; and
  4. The New York State Energy Office ("the Energy Office"), appearing by Howard A. Fromer, general counsel.

One other agency, the City of New York Department of Telecommunications and Energy ("the City"), made a written filing, but did not appear at the issues conference. After the conference I spoke to the City's counsel, Jaime Steve, by telephone. He said that while the City was not requesting an adjudicatory hearing, it wanted full party status at any hearing that was held.

Standards for Determining Issues

An issues conference is held to determine (1) what, if any, issues require adjudication; and (2) who should participate at an adjudicatory hearing, should issues be identified and a hearing therefore be required.

Pursuant to 6 NYCRR 624.6(c), the Administrative Law Judge ("ALJ") shall determine what issues require adjudication based upon whether an issue proposed is "substantive and significant." In cases such as here, where the Department Staff determined that the project, as conditioned by its draft permits, would comply with all applicable statutes and regulations, the burden is on those filing for party status to satisfactorily demonstrate that issues exist which warrant adjudication (In the Matter of the Town of Huntington, Interim Decision of the Commissioner, December 22, 1988; and In the Matter of Bonded Concrete, Inc., Interim Decision of the Commissioner, June 4, 1990).

Any person filing for party status (in other words, any prospective intervenor) "must identify a substantive factual or legal dispute, indicate how its proposed issue is related to a failure to meet statutory or regulatory criteria, and show how adjudication of the issue might result in the denial of the permit or the imposition of significant conditions" (In the Matter of the International Business Machines Corporation, Interim Decision of the Commissioner, July 3, 1990). As noted recently by the Commissioner, the purpose of the issues conference and of the subsequent issues rulings is to narrow a hearing's focus "to those issues that are genuinely in dispute and which may affect the outcome of the permitting decision" (In the Matter of Hyland Facility Associates, Interim Decision of the Commissioner, August 20, 1992) (emphasis added).

For regulatory purposes, a "substantive" issue is one not based on mere speculation but on facts that can be subjected to adjudication [In the Matter of Concerned Citizens Against Crossgates v. Flacke, 89 AD2d 759 (3d Dept., 1982), aff'd. 58 NY2d 919 (1983)]. A "significant" issue is one whose resolution can result in permit denial or the imposition of significant conditions (In the Matter of NYC Dept. of Environmental Protection, Chelsea Pump Station, Third Interim Decision of the Commissioner, October 6, 1988; and In the Matter of St. Lawrence County, Third Interim Decision of the Commissioner, April 30, 1990).

The filings of the prospective intervenors outline basically four proposed issues, each alleged to relate to the Department's mandates under the SEQR Act (ECL Article 8). This act requires that as a permitting authority, the DEC "choose alternatives which, consistent with social, economic and other considerations, to the maximum extent practicable, minimize or avoid adverse environmental effects, including effects revealed in the environmental impact statement process" [ECL Section 8-0109(1)] (emphasis added).

Where, as here, a DEIS accompanies the permit application, the issues conference will focus "on whether and to what extent significant impacts, alternatives, mitigation measures or social and economic considerations identified in the DEIS or in comments on the DEIS should be addressed in the adjudicatory hearing session of the hearing, particularly where there is a reasonable likelihood that the issues arising from the DEIS might lead to the denial of the permit or the attachment of significant permit conditions thereon" [6 NYCRR 624.6(b)]. Issues may be raised under SEQRA, but unless they are substantive and significant, the Department need not convene an adjudicatory hearing, even where it is lead agency [In the Matter of Hyland Facility Associates, Interim Decision of the Commissioner, August 20, 1992].

Proposed Issues for Adjudication

Issues proposed for adjudication relate to basically four points: (1) the Applicant's sales contract with Con Ed; (2) a perceived lack of need for the Sithe project; (3) concerns that Sithe may later sell its power out-of-state; and (4) the status of the project as a "qualifying facility" under the federal Public Utilities Regulatory Policies Act of 1978 ("PURPA"). For purposes of discussion, these points are treated separately below.

Sales Contract

Con Ed has entered a contract with Sithe for electric power which would be generated by the proposed Independence Station Cogeneration Facility. This contract has a twenty-year term, and if the project is permitted, Con Ed expects that its purchases will begin in 1995, when the project is scheduled for completion. According to Con Ed, it is obligated to purchase from the Applicant up to 6.6 billion kilowatt-hours of electric energy annually, representing about 15% of Con Ed's total expected electric energy requirements for 1995. Con Ed says this purchase will reduce the amount of energy that is produced in some of its existing plants as well as the amount of energy it purchases from others.

The Sithe-Con Ed contract provides that for the first five years of its term, Sithe shall be paid based on the 1990 long-run avoided cost (LRAC) estimates established by the New York State Public Service Commission (PSC). The intervenors argue generally that these estimates are higher than the PSC's 1992 LRAC estimates, and that if the 1992 estimates were applied, payments by Con Ed to Sithe during the first five years would be about $1 billion less than those projected under the 1990 estimates. The intervenors are concerned that given the current contract structure, Con Ed will be paying more for Sithe's energy than its actual value, and that as a consequence, Con Ed ratepayers, who are concentrated in New York City and Westchester County, will be paying excessive utility costs.

As a first point, one should stress that pursuant to rules of the Federal Energy Regulatory Commission (FERC), Sithe is entitled to provide Con Ed with electric production at Con Ed's avoided costs calculated at the time the contract obligation was incurred [18 CFR 292.304(d)(2)(ii)]. The contract was entered into in May, 1991, and the PSC ruled that the sales price be calculated based on the 1990 LRACs. The PSC has indicated in subsequent correspondence, produced by the Applicant, that it lacks jurisdiction to reopen the contract or otherwise direct its renegotiation. As for DEC, it has never had jurisdiction over the contract, but only over the project itself. This is not changed by SEQRA or the DEC's lead agency status. Unlike the project, the contract is not an "action" [as defined by ECL Section 8-0105(4)] and therefore is not subject to SEQRA review [see Niagara Mohawk Power Co. v. Public Service Comm'n, 138 AD2d 63, 68-69 (1988)].

The intervenors express concern that, if the contract is not changed, it will affect adversely both downstate ratepayers and the general business climate in the New York City area, given increased utility cost burdens. These are projected economic impacts and, for that reason, they are not encompassed by SEQRA review. As noted recently by the Commissioner, "SEQRA review is a vehicle to address adverse environmental impacts and consideration of adverse economic impacts that are unrelated to environmental impacts is not within its purview" [In the Matter of Hyland Facility Associates, Interim Decision of The Commissioner, August 20, 1992; citing In the Matter of William E. Dailey, Inc., Interim Decision of the Commissioner, May 14, 1992] (emphasis added). SEQRA provides a broad definition of "environment" [see ECL 8-0105(6)] but not so broad as to encompass social or economic issues.

Impacts upon utility rates, jobs, and the general business climate are economic in nature, and therefore not impacts which require SEQRA consideration. For this reason alone, such impacts need not and should not be adjudicated. Even if they were, there was no showing made as to how this litigation would result in permit denial or the imposition of permit conditions significantly different from those already drafted by DEC Staff.

Of those filing for party status, only two, the Union and the County, actually oppose the project. Con Ed took no position on the project, but said it wanted to supplement the DEIS, and requested a hearing for that reason. The Energy Office said it was not seeking a hearing, although if one was ordered, it wanted to contribute to the record's development. Likewise, the City said it had no actual issues to raise, only comments on the DEIS.

Assuming economics was actually litigated (and my ruling is that there is no foundation to do so), those intervening parties would be expected to present experts having credentials in this field. From the filings, and based on the issues conference record, it was not apparent such experts had already been retained, or that assertions made in the filings were supported by competent expert opinion.

Neither the City nor the Energy Office named any actual witnesses they would call, although such is contemplated as part of a filing for party status. Con Ed identified one witness, William A. Harkins, its vice president for planning, and the County identified another, George T. Berry, a consultant to its public utility agency. Both Mr. Harkins and Mr. Berry were identified as professional engineers, not as economists.

The Union's only witness, Joseph Flaherty, was likewise not shown to have the credentials necessary to demonstrate claims that the Sithe contract would cost union member jobs and generally hurt the city's business climate. The fact Mr. Flaherty was elected by his union local, or that he negotiates with Con Ed, does not give him the requisite expertise to support those claims that were made in his filing, which at any rate were largely conclusory and, to a certain extent, speculative.

In summary, the DEC has no jurisdiction with regard to the Sithe-Con Ed contract. Economic impacts related to that contract are outside the purview of SEQRA, and even if one found otherwise, those filing for party status did not demonstrate a capacity to support their claims with expert opinion, or show exactly how litigating their claims would result in permit denial or major permit modifications.

Project Need

Two of those groups filing for party status, Con Ed and the County, attempt to raise a "need" issue unrelated to the Sithe-Con Ed contract. More precisely, they argue the project is not "needed" given the apparent adequacy of Con Ed's resources until at least the turn of the century, and perhaps until the year 2010.

As required by 6 NYCRR 617.14(f)(1), the DEIS includes a section (1.0) on the public need for this project. This section is adequate for purposes of disclosure and discussion, which is the function of the EIS.

According to the Applicant, its project meets public need to the extent that, if permitted, it will provide energy in a clean, reliable, and economical manner, thereby being consistent with both federal and state energy goals. The Applicant notes that with the enactment of PURPA, the federal government has given benefits to facilities, such as its own, which reduce the nation's dependence on foreign oil. Likewise, Section 66-c of the New York Public Service Law encourages the development of co-generation facilities to conserve the state's finite energy resources.

Department Staff is satisfied with the Applicant's showing of public need, noting especially how the project is consistent with New York's own 1992 energy plan. I, too, am satisfied with this showing, both in terms of the disclosure requirement, for purposes of the DEIS, and substantively, to the extent need could possibly be considered as an issue for adjudication.

As a legal matter, need would be a potential hearing issue only were it shown that the project had some particular adverse environmental impact which could not be mitigated or avoided [In the Matter of Hydra-Co. Generations, Inc., Interim Decision of the Commissioner, April 1, 1988]. Even then, need would only be considered as an element of the socio-economic factors which SEQRA requires DEC to balance against such impacts [In the Matter of Multi-Town Solid Waste Management Facility, Interim Decision of the Commissioner, November 19, 1982]. If, as here, the EIS shows all adverse environmental impacts can be mitigated, the EIS requires only a limited discussion of need, since this is a privately-sponsored action.

In the filings, there was no showing of any particular adverse environmental impact which, to the maximum extent practicable, had not already been minimized or avoided. There was also no such showing at the issues conference, despite my inquiries to those filing for party status.

Needless to say, the project will have environmental impacts, although one could argue about their extent or degree. But SEQRA, as a statute, is concerned with significant impacts, and no impacts mentioned in the filings or at the conference were shown to pass that threshold. The Department has stressed that in the SEQRA context, its fundamental considerations are environmental, and that once those are ascertained, "a balancing process occurs in which the social and economic considerations are taken into account. Necessarily, the degree to which the latter considerations will influence the decision varies directly with the significance of the purely environmental considerations. Thus the greater the potential adverse environmental effect, or the more valuable the affected resources, the greater is the scrutiny which must be brought to bear upon social and economic factors" [In the Matter of Miracle Mile Associates, Decision of the Commissioner, December 6, 1979].

As a practical matter, the Applicant has documented as part of its EIS a public need for this project. This is all it must do unless further scrutiny is required. Such scrutiny might be triggered were it shown (1) that the project had some unmitigatable environmental impact, and (2) that such impact was sufficiently significant as to require need to be proven. No showing was made on either point, and for that reason, no issue is raised for hearing.

Litigating need would serve to develop the record further, but toward no apparent end in terms of SEQRA determinations which the DEC must make. In particular, I reject the County's assertion that if the project is not needed, any of its environmental impacts are too great. This is not the type of balancing contemplated by SEQRA, which employs need as a consideration only in limited circumstances not demonstrated by the existing conference record.

Energy Sales Outside the State

In the consideration of project benefits, as addressed in the EIS, Con Ed wants to stress that Sithe is free legally to sell capacity from this project to an out-of-state utility. This is not precluded by its contract with Con Ed and was not disputed by the Applicant, which added that under the commerce clause of the U.S. Constitution, the state would have no ground to interfere should Sithe want to sell outside New York State. Con Ed acknowledged its point was not raised as a ground for permit denial, but said, at any rate, that it should be reflected in the project's EIS, to the extent it relates to benefits New York would derive from this project. Con Ed's proposal is appropriate, and can be done by including Con Ed's filing, with the others, among the comments on the DEIS. Staff said it would do this at the issues conference; therefore, the filings will become part of the record, and a response to the comments required in the final EIS. To the extent that its points were merely, as Con Ed explained, "informational", such information will be part of the EIS, and this can be done without formal adjudication.

Qualifying Facility Status

The County argues that the Sithe project is unlikely to meet the requirements of a "qualifying facility" under PURPA upon initial operation and probably will never meet such requirements without wasteful application of heat. This cannot be considered an issue for adjudication as the Commissioner has previously held that whether a project would be a "qualifying facility" is outside the Department's jurisdiction. (See In the Matter of Hydra-Co. Generations, Inc., Interim Decision of the Commissioner, April 1, 1988).

Whether the facility qualifies is an issue properly before FERC and was decided in the Applicant's favor on September 18, 1992, when FERC issued an order granting the application for certification of the project as a qualifying cogeneration facility.

Parenthetically, one should note also that after the issues conference, the Department Staff prepared and the Applicant accepted a permit condition relating to this point. That condition states that the Applicant shall deliver its FERC certification to DEC prior to starting construction and that it shall maintain "qualifying status" for the operational life of the facility.

Finally, the County argues that if the facility loses its "qualifying facility" status, it could be a real problem. The nature of this problem was not precisely identified, although, from the county's filing, it appeared to relate to Sithe being unable to cover its costs under its contract with Con Ed, which would lead to "all sorts of maneuvering" and no predictable outcome in terms of cost distribution.

The County's concern was not related to any particular environmental project impact. It is economic in nature and therefore outside the purview of SEQRA. As a result, no issue is raised.

Summary

The Department Staff asserted no issues for adjudication and the Applicant has accepted the draft permits, as conditioned by Staff, with no objections to their terms. The prospective intervenors have asserted no issues based on any permit criteria, although two of them, the Union and the County, want permits denied on SEQRA grounds, and the others at least want to be part of any hearing that is ordered.

My rulings are as follows:

  1. No issues have been raised for adjudication.
  2. For that reason, there will be no adjudicatory hearing, and party status is denied to all who filed to participate at such hearing.

Appeals

Pursuant to 6 NYCRR Section 624.4(f) and 624.6(d), the rulings of the Administrative Law Judge denying or limiting party status and setting forth the issues for hearing may be appealed in writing to the Commissioner within three days of the rulings. To expedite the appeal process, these rulings are being faxed today to all whose names appear on the service list. Any appeals must be received at the Office of the Commissioner (NYSDEC, 50 Wolf Road, Albany, New York, 12233-5500) no later than close of business (4:45 p.m.) on October 28, 1992. Any letters or briefs in support of or in opposition to these rulings or any appeals must be received on or before close of business on October 30, 1992. The parties shall ensure transmission of all papers to me and all others on the service list at the same time and in the same manner as transmission is made to the Commissioner.

Order of Disposition

Subject to the Commissioner's determination of any appeals that are filed, this matter is remanded to Department Staff for issuance of final permits as drafted and presented to me. Staff shall ensure completion of the final EIS and make the necessary SEQRA findings.

/s/
Edward Buhrmaster
Administrative Law Judge

Albany, New York
October 23, 1992

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