96-005344 Florida Power Corporation vs. Department Of Environmental Protection Status: Closed Recommended Order on Tuesday, September 23, 1997.

Summary: Where power units capable of burning petcoke prior to January 6, 1975, utility entitled to exemption from Prevention of Significant Deterioration review. Agency reversed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA POWER CORPORATION, )

)

Petitioner, )

)

vs. ) Case No. 96-5344

)

DEPARTMENT OF ENVIRONMENTAL )

PROTECTION, )

)

Respondent, )

)

and )

)

LEGAL ENVIRONMENTAL )

ASSISTANCE FOUNDATION, INC., )

and SIERRA CLUB, INC., )

)

Intervenors. )

_______________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on June 2 and 3, 1997, in Tallahassee, Florida, before Donald R.

Alexander, the assigned Administrative Law Judge of the Division

of Administrative Hearings.

APPEARANCES

For Petitioner: James S. Alves, Esquire

Douglas S. Roberts, Esquire

W. Steve Sykes, Esquire

Post Office Box 6526

Tallahassee, Florida 32314-6526

For Respondent: W. Douglas Beason, Esquire

3900 Commonwealth Boulevard

Mail Station 35

Tallahassee, Florida 32399-3000

For Intervenor: Gail Kamaras, Esquire

(LEAF) Debra A. Swim, Esquire

1115 North Gadsden Street

Tallahassee, Florida 32303-6327

For Intervenor: Jaime Austrich, Esquire

(Sierra Club) Post Office Box 1029

Lake City, Florida 32056-1029

STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner should be

issued an air construction permit authorizing its Crystal River

steam generating plant Units 1 and 2 to co-fire a five to seven

percent blend of petroleum coke with coal.

PRELIMINARY STATEMENT

This matter began on June 25, 1996, when Respondent,

Department of Environmental Protection, issued its Intent to Deny

"a permit for the proposed project to burn a blend of petroleum

coke and coal in the existing coal-fired Units 1 and 2 at the

Crystal River Power Plant." On October 4, 1996, Petitioner,

Florida Power Corporation, filed a Petition for Formal

Administrative Hearing with Respondent for the purpose of

contesting the proposed agency action.

The case was then referred by Respondent to the Division of

Administrative Hearings on November 13, 1996, with a request that

an Administrative Law Judge conduct a formal hearing. By notice

of hearing dated December 2, 1996, a hearing was scheduled on

February 3 and 4, 1997, in Tallahassee, Florida. At Petitioner's

request, the hearing was continued to March 6 and 7, 1997. By

agreement of the parties, the hearing was continued to June 3 and

4, 1997.

On May 27, 1997, Petitions to Intervene were filed by Legal

Environmental Assistance Foundation, Inc. and Sierra Club, Inc.

After an objection was lodged by Petitioner, the undersigned

conditionally allowed the prospective intervenors to participate

in this proceeding subject to proof of standing at final hearing.

At final hearing, Petitioner presented the testimony of

J. Michael Kennedy, manager of air programs in the Environmental

Services Department and accepted as an expert in air quality

permitting and compliance; Danny Douglas, plant manager for

Crystal River Units 1 and 2 and accepted as an expert in power

plant operations and management; Robert Kunkel, manager of

systems performance engineering with ABB Combustion Engineering

and accepted as an expert in power plant boiler design and

engineering; and Kennard F. Kosdy, a principal in the

environmental consulting firm Golder Associates, Inc. and

accepted as an expert in air quality engineering and

administration of air quality control requirements. Also, it

offered petitioner's exhibits 1-47 and 49-67. All exhibits were

received in evidence. Respondent presented the testimony of Al

Linaro, administrator/technical supervisor of the new source

review program and accepted as an expert in air quality

engineering with an emphasis on the Prevention of Significant

Deterioration program. Also, it offered respondent's exhibits 1-

24. All exhibits were received in evidence except exhibit 1.

Legal Environmental Assistance Foundation, Inc. offered

intervenor's exhibits 1 and 2, which were received in evidence.

The transcript of hearing (three volumes) was filed on July

1, 1997. Proposed findings of fact and conclusions of law were

originally due on August 1, 1997, but this time was extended to

August 15, 1997. Responses to each party's proposed order were

authorized to be filed by August 25, 1997. All were timely filed

by the parties, and they have been considered by the undersigned

in the preparation of this Recommended Order. Finally, on

September 5, 1997, Respondent filed a Motion to Strike certain

attachments to Petitioner's Response to Proposed Recommended

Order. The motion is dealt with in the Conclusions of Law

portion of this order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of

fact are determined:

A. Background

1. Petitioner, Florida Power Corporation (FPC), is an

investor-owned public utility engaged in the sale of electricity

to approximately 1.2 million customers. Among others, it

operates the Crystal River Power Plant consisting of five

electric-generating units in Citrus County, Florida. Units 1, 2,

4, and 5 are coal-fired, while Unit 3 is a nuclear unit.

2. Respondent, Department of Environmental Regulation

(DEP), is a state agency charged with the statutory

responsibility of regulating the construction and operation of

business enterprises in a manner to prevent air pollution in

excess of specified limits. Among other things, DEP issues air

construction permits for a limited period of time to undertake

and evaluate initial operations of a business enterprise; long-

term approval subsequently is available under an air operation

permit. As a part of this process, and pursuant to federal law,

DEP engages in a Prevention of Significant Deterioration (PSD)

review to determine if non-exempt alterations to major facilities

result in net emission increases greater than specified amounts.

Under certain conditions, however, the use of alternative fuels

or raw materials are exempted from PSD review.

3. Intervenor, Legal Environmental Assistance Foundation,

Inc. (LEAF), is a non-profit Alabama corporation licensed to do

business in the State of Florida. It is a public interest

advocacy organization whose corporate purposes include securing

environmental and health benefits from clean air and water.

Intervenor, Sierra Club, Inc. (Sierra Club), is a public interest

advocacy organization incorporated in California and doing

business in Florida. Its corporate purposes include securing the

environmental and health benefits of clean air and water.

4. On December 26, 1995, FPC filed an application with DEP

for an air construction permit authorizing it to burn a blend of

petroleum coke and coal in its existing coal-fired Units 1 and 2

at the Crystal River Power Plant in Citrus County, Florida. In

the application, FPC did not address PSD review since it believed

it qualified for an exemption from PSD permitting under Rule 62-

212.400(2)(c)4., Florida Administrative Code. That rule exempts

from PSD review the

[u]se of an alternative fuel or raw material

which the facility was capable of

accommodating before January 6, 1975, unless

such change would be prohibited under any

federally enforceable permit condition which

was established after January 6, 1975.

5. After reviewing the application, DEP issued an Intent to

Deny on June 25, 1996. In that document, DEP stated that

[a]ccording to information in Department

files, both Units 1 and 2 operated on liquid

fuel prior to January 6, 1975. Very

substantial modifications of the boilers and

pollution control equipment were implemented

thereafter by [FPC] to convert the units to

coal-firing mode. Therefore the project does

not qualify for the exemption from PSD review

claimed by the company.

6. Contending that it was entitled to an exemption from PSD

review and therefore a permit, FPC filed a Petition for

Administrative Hearing on October 4, 1996. In its Petition, FPC

generally alleged that petroleum coke is a product with

characteristics very similar to coal; Units 1 and 2 were capable

of accommodating coal and petroleum coke as of January 6, 1975;

and contrary to the statements in the Intent to Deny, any boiler

modifications and pollution control improvements to those units

were minor and not substantial.

B. The Permitting Program

7. The PSD program is based on similar PSD requirements

found in the federal Clean Air Act of 1970, as amended (the Act).

The permitting program is a federally required element of DEP's

State Implementation Plan (SIP) under Section 110 of the Act.

DEP has fulfilled the requirement of administering the federal

PSD program by obtaining approval from the Environmental

Protection Agency (EPA) of state PSD regulations that meet the

requirements of federal law. The requirements of the SIP are

found in Chapters 62-204, 62-210, 62-212, 62-296, and 62-297,

Florida Administrative Code.

8. Chapter 62-212 contains the preconstruction review

requirements for proposed new facilities and modifications to

existing facilities. Rule 62-212.400, Florida Administrative

Code, establishes the general preconstruction review requirements

and specific requirements for emission units subject to PSD

review. The provisions of the rule generally apply to the

construction or modification of a major stationary source located

in an area in which the state ambient air quality standards are

being met.

9. Paragraph (2)(c) of the rule identifies certain

exemptions from those requirements. More specifically,

subparagraph (2)(c)4. provides that a modification that occurs

for the following reason shall not be subject to the requirements

of the rule:

4. Use of an alternative fuel or raw

material which the facility was capable of

accommodating before January 6, 1975, unless

such change would be prohibited under any

federally enforceable permit condition which

was established after January 6, 1975.

The rule essentially tracks verbatim the EPA regulation found at

40 CFR 52.21(b)(2)(iii)(e)1.

10. Therefore, in order to qualify for an exemption from

PSD review, FPC must use "an alternative fuel . . . which [Units

1 and 2 were] capable of accommodating before January 6, 1975."

In addition, FPC must show that "such change would [not] be

prohibited under any federally enforceable permit condition which

was established after January 6, 1975." Contrary to assertions

by Respondent and Intervenors, in making this showing, there is

no implied or explicit requirement in the rule that FPC

demonstrate that it had a subjective intent to utilize petroleum

coke prior to January 6, 1975.

C. The Application and DEP's Response

11. In its application, FPC proposes to co-fire a five

percent (plus or minus two percent) blend of petroleum coke with

coal, by weight. It does not propose to make any physical

changes to Units 1 and 2 to utilize petroleum coke. Also, it

does not request an increase in any permitted air emission rates

for the units because it can meet its current limits while

burning the proposed blend rate of petroleum coke with coal.

12. The application included extensive fuel analysis and

air emissions data obtained from a DEP-authorized petroleum coke

trial burn conducted from March 8 until April 4, 1995.

13. Although it is not proposing to make physical changes

to the plant, FPC applied for the air construction permit in

deference to DEP's interpretation that such a permit is required

when a permittee utilizes an alternative fuel.

14. After completing his initial review, the DEP supervisor

of the New Source Review program acknowledged in a memorandum to

his supervisor that FPC was "entitled to a permit" but suggested

that FPC be asked to "change their minds."

15. Before the permit was issued, however, DEP changed its

mind and issued an Intent to Deny on the ground that prior to

January 6, 1975, Units 1 and 2 were not capable of accommodating

coal or a blend of petroleum coke with coal.

D. The Units

16. Unit 1 has a generating capacity of 400 MW and

commenced operation as a coal-fired plant in October 1966. It

fired coal until March 1970, fuel oil until October 1978, and

then again fired coal from June 1979 to the present.

17. Unit 2 has a generating capacity of 500 MW and

commenced operations as a coal-fired plant in November 1969. It

fired coal until September 1971, fired fuel oil from December

1971 until October 1976, and then again fired coal from December

1976 to the present.

18. Original equipment installed during the initial

construction of Units 1 and 2 included the following: the barge

unloader, which removes coal from barges that deliver coal from

New Orleans; the stacker/reclaimer, which stacks the coal into

piles and then reclaims the coal by directing it from the coal

piles to conveyors that deliver it to the units; the crusher

house, which has two crushers that crush the coal on the way to

units down to nuggets no larger than three-quarters of an inch in

diameter; the silos, which store the crushed coal; the feeders,

located below the silos, which regulate the flow of coal from the

silos to the pulverizers; the pulverizers, which grind the coal

in preparation for combustion and then direct the pulverized coal

to the burners, which are located on the corners of each unit's

boiler; and the boilers, where the fuel is combusted, imparting

heat to water contained in the waterwalls and thereby producing

steam for electrical generation.

19. The foregoing equipment was reflected in the plant's

construction specifications and remains in operation, on site, at

the plant. Components and parts of this equipment have been

maintained, replaced, and repaired periodically. The original

operations manual for the barge unloader, stacker/reclaimer,

crushers, and conveyor systems are still kept and utilized on

site.

20. The primary fuel utilized in Units 1 and 2 is coal,

although these units also co-fire from one to five percent number

2 fuel oil and used oil.

21. The combustion of fuel in Units 1 and 2 results in air

emissions. As a result of changing regulatory requirements,

there have been substantial improvements to the units' air

pollution control capabilities since original construction.

E. Existing Air Permits

22. Unit 1 currently operates under Air Operation Permit

Number A009-169341. Unit 2 operates under Air Operation Permit

Number A-009-191820. Both permits were amended by DEP on October

8, 1996. Although each air operation permit contains an

expiration date that has been surpassed, the permits remain in

effect under DEP's regulations during the pendency of the

agency's review of FPC's applications for air operation permits

under the new Title V program found in Chapter 62-213, Florida

Administrative Code.

23. The air operation permits governing Units 1 and 2

contain mass emission rate limitations of 0.1 pounds/million (mm)

British thermal units (Btu) or particulate matter (PM), and 2.1

pounds/mmBtu for sulfur dioxide. These mass emission rate

limitations restrict the amount of each pollutant (measured in

pounds) that is to be released into the atmosphere per million

Btu of heat energy by burning fuel. The PM limitation is

applicable to Units 1 and 2 under state regulations originally

promulgated in 1972.

24. The sulfur dioxide limitation was established in 1978

as a result of a PSD air quality analysis performed in

conjunction with the permitting of Units 4 and 5. Prior to 1978,

sulfur dioxide limits promulgated early in 1975 imposed a limit

of 6.17 pounds/mmBtu on coal-fired operations at Units 1 and 2.

25. Because Units 1 and 2 were subjected to a PSD air

quality impact analysis along with Units 4 and 5, the units'

sulfur dioxide emission limits were reduced from 6.17 to 2.1

pounds/mmBtu. The 2.1 pounds/mmBtu sulfur dioxide emission

limitation applicable to Units 1 and 2 was set with the intention

of assuring no adverse air quality impacts.

26. The sulfur dioxide impacts associated with Units 1, 2,

4, and 5, after collectively being subjected to PSD air quality

review, were much lower than the sulfur dioxide impacts

previously associated with only Units 1 and 2.

F. Is Petroleum Coke an Alternative Fuel ?

27. Petroleum coke is a by-product of the oil refining

process and is produced by many major oil companies. The oil

refineries refine the light ends and liquid products of oil to

produce gasoline and kerosene, resulting in a solid material that

resembles and has the fuel characteristics of coal.

28. Both historically and presently, it has been common-

place for electric utilities to rely on petroleum coke as fuel.

For example, during the period 1969 through 1974, regular

shipments of petroleum coke were sent to various electric utility

companies throughout the United States to be co-fired with coal.

In addition, DEP has issued permits for Tampa Electric Company to

co-fire petroleum coke with coal.

29. In 1987 and again in 1990, the EPA promulgated air-

emission regulations which specifically define "coal" as

including "petroleum coke." DEP has incorporated these

regulations by reference at Rule 62-204.800(7)(b) 3. and 4.,

Florida Administrative Code.

30. Given these considerations, it is found that petroleum

coke constitutes an alternative fuel within the meaning of Rule

62-212.400(4)(c)4., Florida Administrative Code.

G. Were the Units Capable of Accommodating the Fuel ?

31. Petroleum coke and coal are operationally equivalent.

Petroleum coke can be handled, stored, and burned with the

existing coal handling equipment at Units 1 and 2. The barge

unloader, stacker/reclaimer, storage areas, conveyors, silos,

crusher house, pulverizers, and burners, all installed prior to

1975, can handle petroleum coke.

32. The equipment comprising Units 1 and 2 does not require

any modification in order to burn a blend of petroleum coke with

coal. Also, there will be no net impact on steam generator

design or operation, and there will be no decline in performance

or adverse impacts to the boilers.

33. FPC could have co-fired petroleum coke with coal

historically without making physical alterations or derating the

units. Similarly, petroleum coke can be fired in Units 1 and 2

now without alterations or derating. These findings are further

supported by Petitioner's Exhibits 35 and 36, which are reference

books published in 1948 and 1967 by the manufacturer of the

equipment installed at Units 1 and 2. They confirm that prior to

1975, petroleum coke was suitable for the manufacturer's boilers

and pulverizers.

34. Unrebutted testimony demonstrated that Units 1 and 2

could have co-fired petroleum coke with oil during the oil-firing

period. Even when Units 1 and 2 fired oil instead of coal for a

period of time in the 1970s, the coal-handling equipment remained

in existence on-site and available for use, and both units

remained readily convertible to their original, coal-firing

modes. Because the plant remained capable of accommodating coal,

it also remained capable of accommodating petroleum coke.

35. In light of the foregoing, it is found that co-firing

petroleum coke with coal at Units 1 and 2 could have been

accomplished prior to January 6, 1975.

H. Are there Post-January 6, 1975, Prohibitions ?

36. There is no evidence to support a finding that a

federally enforceable permit condition was establshed after

January 6, 1975, that prohibits co-firing petroleum coke with

coal.

I. Miscellaneous

37. By letters dated February 14 and June 2, 1997, the EPA

Region IV office replied to inquiries from DEP regarding the

instant application. The conclusions reached in those letters,

however, were based on a misapprehension of the facts in this

case. Therefore, the undersigned has not credited these letters.

38. To prove up its standing, LEAF introduced into evidence

a copy of its articles of incorporation and a brochure describing

the organization. In addition, it asserted that the air quality

for its members would be "at risk" if Units 1 and 2 did not meet

PSD standards and air emissions were "increased."

39. Intervenor Sierra Club proffered that a substantial

number of members "live, work, or recreate in the vicinity of the

Crystal River Units 1 and 2, and in the area subject to the air

emissions by those units," and that those members "would be

substantially affected by the proposed exemption."

CONCLUSIONS OF LAW

40. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties hereto

pursuant to Section 120.569, Florida Statutes (Supp. 1996).

41. As the permit applicant, FPC has the ultimate burden of

persuasion of entitlement to an air construction permit. See ,

e . g ., Cordes v. State, Dep't of Environmental Regulation , 582 So.

2d 652, 654 (Fla. 1st DCA 1991).

42. The contested issue in this case is whether FPC's

proposal to co-fire petroleum coke with coal is exempt from the

requirement to obtain a PSD permit under Rule 62-212.400(2)(c)4.,

Florida Administrative Code. That rule exempts from PSD review:

[u]se of an alternative fuel or raw material

which the facility was capable of

accommodating before January 6, 1975, unless

such change would be prohibited under any

federally enforceable permit condition which

was established after January 6, 1975.

If the exemption applies, FPC is entitled to an air construction

permit. If the exemption does not apply, the permit should be

denied.

43. By a preponderance of the evidence, FPC has

demonstrated that petroleum coke is an alternative fuel within

the meaning of the PSD exemption. This conclusion is supported

by the established facts that petroleum coke is similar to coal

with respect to handling and combustion, has the characteristics

of fuel, and is commonly sold and utilized as fuel. Moreover,

both the EPA and DEP historically have referred to it as an

alternative fuel.

44. FPC has also demonstrated that no federally enforceable

permit condition established since January 6, 1975, prohibits

utilization of a petroleum coke blend with coal at Units 1 and 2.

45. Finally, by a preponderance of the evidence FPC has

established that co-firing petroleum coke in Units 1 and 2 could

have been accomplished prior to January 6, 1975. On this issue,

it was shown that the units could and did burn coal prior to 1975

and that petroleum coke is operationally equivalent to coal.

This being so, FPC is entitled to an exemption from PSD review,

and it should be issued an air construction permit.

46. Intervenors have demonstrated, at least minimally, that

they are substantially affected by these proceedings and should

be accorded intervenor status. A showing of "special injury" is

not required. Friends of the Everglades v. Bd. of Trustees , 595

So. 2d 186 (Fla. 1st DCA 1992).

47. Respondent's Motion to Strike the attachments to

Petitioner's Response to Proposed Order is denied.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of

law, it is

RECOMMENDED that the Department of Environmental Protection

enter a final order granting the application of Florida Power

Corporation and issuing the requested air construction permit.

DONE AND ORDERED this 23rd day of September, 1997, in

Tallahassee, Leon County, Florida.

___________________________________

DONALD R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1560

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 23rd day of September, 1997.

COPIES FURNISHED:

Kathy Carter, Agency Clerk

Department of Environmental Protection

3900 Commonwealth Boulevard

Mail Station 35

Tallahassee, Florida 32399-3000

James S. Alves, Esquire

Post Office Box 6526

Tallahassee, Florida 32314-6526

W. Douglas Beason, Esquire

Department of Environmental Protection

3900 Commonwealth Boulevard

Mail Station 35

Tallahassee, Florida 32399-3000

Gail Kamaras, Esquire

1115 North Gadsden Street

Tallahassee, Florida 32303-6327

Jaime Austrich, Esquire

Post Office Box 1029

Lake City, Florida 32056-1029

F. Perry Odom, Esquire

Department of Environmental Protection

3900 Commonwealth Boulevard

Tallahassee, Florida 32399-3000

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this Recommended Order. Any exceptions to

this Recommended Order should be filed with the Department of

Environmental Protection.