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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Kentucky Pioneer Power Plant Case Submitted  Posted: November 6, 2003

COMMONWEALTH OF KENTUCKY

FRANKIN CIRCUIT COURT

CIVIL ACTION NO. 03-CI-561

DIVISION II

CHARLES WALTERS, PETITIONER

V. REPLY BRIEF FOR PETITIONER CHARLES WALTERS

NATURAL RESOURCES AND

ENVIRONMENTAL PROTECTION CABINET

And

KENTUCKY PIONEER ENERGY, LLC RESPONDENTS

* * * *

INTRODUCTION

The issues in this case involve the construction of several statutory definitions in KRS Chapter 224 and the application of those definitions to an undisputed set of material facts.1

Kentucky Pioneer Energy (KPE) has proposed a new power plant for Clark County, Kentucky, to be powered by a gas created from a mixture of coal and processed municipal solid waste. It sought a determination from the Respondent Natural Resources and Environmental Protection Cabinet (Cabinet) as to whether the proposed waste fuel would fall within an exemption from solid waste permitting as a "refuse-derived fuel" or whether it would be subject to those laws.

The Cabinet found that the processed municipal solid waste that Kentucky Pioneer Energy intends to import2 as a fuel for its proposed electric power plant met the statutory definition of "refuse derived fuel" so as to justify exemption from state solid waste laws and county solid waste plans, despite evidence demonstrating that all plastics and paper would be intentionally retained in the waste in order to boost the heat value of the waste fuel. The core question on appeal is whether the Cabinet's exemption determination is arbitrary, capricious and inconsistent with law in light of the absence of evidence before the agency that all recoverable recyclable plastics and paper would be removed or that none of the 10% plastics and 70% paper that comprised the bulk of the proposed processed waste fuel could not be recovered for recycling.3

All parties agree that if the waste stream does not fall within the definition of "refuse derived fuel," it is not an exempt "recovered material" and must secure a state permit and local determination of consistency with the adopted solid waste plan.

In his opening brief, Petitioner Walters demonstrated that the Secretary erred as a matter of law in concluding that the proposed solid municipal waste stream was a "refuse derived fuel", the handling, storage and disposal of which would be exempt from the ambit of a "solid waste site or facility." Walters demonstrated that the proposed waste-based fuel did not fit the exemption for "refuse-derived fuel" because the statute limits that exemption to wastes that have been extensively separated by removing recoverable materials for recycling, and in this instance all plastics and paper were not to be separated, but instead intentionally retained in the waste mix for their fuel value. In light of the Cabinet's failure to consider whether the paper and plastics were recoverable for recycling, Walters demonstrated that the wastes were not entitled to an exemption, so that the proposed activity would be a solid waste management and the facility a waste site or facility required to be permitted under KRS 224.40-305, and is a "municipal solid waste disposal facility" required to obtain local government concurrence prior to permitting under KRS 224.40-315.

The Cabinet and KPE have filed response briefs, in accordance with the briefing schedule agreed to by the parties. Petitioner Walters files this brief in reply to the arguments raised by KPE and the Cabinet, and will address each seriatum.

1. KPE'S RESPONSE BRIEF

KPE agrees with Petitioner Walters that the facts as found by the Hearing Officer and adopted by the Secretary are not disputed, and that the issue here is one of "the interpretation of KRS Chapter 224 and its application to the facts that is in issue." Brief for Respondent Kentucky Pioneer Energy LLC, at 7.

Yet throughout the KPE brief, it seeks to bootstrap into the record supposed facts that were not before the agency when it made its' decision finding the waste to be entitled to exemption as "refuse derived fuel."

KPE does not dispute that no effort will be made to remove paper and plastics from the municipal solid waste when it is processed into a pelletized waste fuel. Indeed, the Hearing Officer/Secretary found that:

the municipal solid waste will be separated by highly mechanical

and automated processes including magnetic removal of iron based

metal, electrostatic removal of non-iron (i.e. aluminum) metal, and

gravity separation of glass. The remainder, consisting of about 70%

paper and 10% plastic, is then shredded and milled into a

homogeneous mixture that is fairly uniform in size.

Hearing Officer's Report and Recommended Order, at 4.

The Hearing Officer/Secretary further found the representation made by KPE as to the processing of the waste:

In comments made at the public hearing on June 28, 2001, to the

federal air permit for the plant, KPE explained the process of manu-

facturing the fuel pellets from MSW, which involves first removing

large objects and white goods, then removing recyclable goods such

as glass and metal. KPE acknowledged that "(p)lastic components

of the MSW have energy content and will be retained in to (sic)

RDF."

Id. at 4.

The question was thus framed – where the statute demands that in order to qualify as exempt "refuse derived fuel" the waste had to be subject to "extensive separation", defined as "extraction of recoverable materials for recycling," and the Cabinet was aware that the wastes would not be processed to remove paper and plastic and that the resulting waste composition would contain 70% paper and 10% plastic, and where the Cabinet had been requested by public comment to resolve the issue of whether that paper and plastic was recoverable and recyclable, did it err in granting the exemption without resolving that threshold question?

All agree that it is not the mere use of a solid waste as a fuel for energy recovery that exempts a waste from regulation, since diversion of wastes for energy recovery does not exempt the waste from regulation unless the waste is a recovered material that qualifies as a "refuse-derived fuel." KRS 224.01-010(20). Consistent with the legislative policy of the Commonwealth favoring waste recycling as a higher priority than waste-to-energy facilities, KRS 224.43-010(2)(1991), a proposed waste stream in which recoverable recyclable plastics and paper will be intentionally retained and not separated from the waste during processing, would not meet the statutory definition of a "refuse derived fuel."

The statutory definition limits "refuse-derived fuel" to a product

derived from the extensive separation of municipal solid waste, which includes the extraction of recoverable materials for recycling and the

removal of nonprocessables such as dirt and gravel prior to

processing the balance of the municipal solid waste into the refuse-

derived fuel product[.]

KRS 224.01-010(23). (Emphasis added).

The statute does not say "extraction of recoverable materials for recycling except paper and plastic", but instead requires that recoverable recyclable materials be extracted in order for the separation of the waste to be considered "extensive," and for the resulting product to be considered "refuse derived fuel."

KPE does not dispute that paper and plastic (including recyclable paper and plastic) will not be separated from the waste, nor does it dispute that it desires to have paper and plastics remain in the waste fuel to boost the heat value. Instead, it argues that separating "nearly all ferrous metals, aluminum, and glass" coupled with "existing curbside removal of a substantial amount of plastic and paper fiber" is sufficiently "extensive" to meet the statutory definition of RDF. KPE Brief at 11.

There are several problems with KPE's argument.

First, and foremost, there is nothing in the record before the agency (other than the post hoc representation by KPE) to indicate that the proposed waste stream will come from communities in which the municipal waste will have been subject to curbside removal of recyclable plastic or paper fiber. Nothing in the KPE submittal to the Cabinet identifies the sources of the waste or reflects that the mixed municipal waste that is to be processed into pellets has been pre-sorted in any manner for plastics and paper or been subject to curbside recycling programs. The statement by KPE that the wastes to be processed will be subject to "curbside removal of a substantial portion of paper and plastic," KPE Brief at pp. 9, 11, is not based on facts in the record supporting the Cabinet's exemption determination, but instead is a last-ditch, post hoc effort to bolster the Cabinet's determination.

In fact, the evidence available to the Cabinet, based on the response to comments provided by KPE in the air permitting process (and cited on pp. 24-25 of Petitioner's Brief) reflects that the company had not yet identified the specific sources of the waste, but was instead "currently negotiating contracts in regions of the country that have larger populations, larger quantities of waste available and higher tipping fees." Id. Indeed, the KPE response to comments during the air permitting process, attached as Appendix 4 to Petitioner's Brief, reflects at p. 3 that the company was seeking its waste sources from "[o]ther regions of the country, such as those at very large population areas," that "have . . . large consolidated quantities of waste[.]" In that same discussion, KPE noted the infeasibility of negotiating with individual municipalities in Kentucky for their waste. KPE did not explain, or represent to the Cabinet, how it would procure the wastes, nor provide any representation or assurance that those "large consolidated quantities of waste" it sought would all be pre-sorted for recyclable paper and plastic.

Second, even if the unidentified communities and sources of the municipal solid waste had curbside paper and plastic programs, KPE did not demonstrate that such programs would have removed all recoverable recyclable paper and plastics, or a "substantial" amount of the recyclable paper and plastic, as it now claims, nor did the Cabinet make such a finding. Instead, the Cabinet was aware that the proposed composition of the waste pellets would be 70% paper and 10% plastic, and it was made aware by public comment that the company had indicated an intention to retain the plastics and paper and not to remove any of those materials during the waste processing.

By letter dated December 13, 2001, the Kentucky Resources Council, Inc. submitted comments on the request by KPE's parent Global Energy for a determination of the applicability of the state solid waste laws. In that letter, the commenter noted:

The material is not a "refuse-derived fuel" notwithstanding the claim

by the applicant to the contrary, since the applicant has indicated that it

intends to retain the recoverable plastics in the waste (likely for the

Btu value)[.]

Despite the question of whether recoverable plastics and paper would be retained in the waste having been squarely presented, the Cabinet neither knew nor inquired as to whether and to what extent the 70% paper and 10% plastics in the waste left were recoverable or recyclable. Instead, the Cabinet accepted as satisfying the statute, a material separation process that would remove some types of recyclable material, such as iron, glass and aluminum (which lack Btu value) while intentionally doing nothing to remove potentially recoverable recyclable plastics and paper (and indeed intentionally retaining all plastics and paper).

In order for the Cabinet and KPE to prevail, the definition of "refuse derived fuel" will have to be rewritten to provide that extensive separation means removal of "some types of" recoverable materials for recycling, or to create a "curbside program" or a "plastics and paper" exemption.

Instead, the General Assembly was fully aware that waste included materials that were being recovered for "energy recovery or combustion," KRS 224.01-010(20), but exempted from regulation as wastes only that "recovered material"

that met the exacting definition of a "refuse derived fuel" by extensively separating the municipal waste. In defining "extensive separation" to mean the "extraction of recoverable materials for recycling and the removal of nonprocessables such as dirt and gravel," the General Assembly created no exemption for leaving in the waste mix those recoverable recyclables that might be desired by the applicant.

KPE acknowledged that paper and plastics were needed for its fuel, and that no attempt would be made to recover these materials.

On the record before it, the Cabinet could not reasonably determine whether the 70% paper and 10% plastics included recoverable materials for recycling, and thus the exemption determination was arbitrary and capricious, irrational and inconsistent with law. Given the KPE need for the paper and plastic, and the intentional retention of those materials, the Cabinet could not determine whether the processed waste fuel containing 70% paper and 10% plastics would meet the definition of "extensive separation" since there was no information on whether the plastics and paper in the municipal waste to be processed were in fact recoverable and recyclable.

There is no competent evidence in the record that the unidentified source of the waste-based fuel will remove any plastics or paper, and no evidence that the commingled plastics and paper cannot be removed in the same way that dirt, metal, aluminum and glass are removed. The record before the agency on which it made its determination failed to address the plastics and paper component of the mixed municipal waste stream, and the finding that the waste satisfies the definition of "refuse derived fuel" and is thus exempt is inconsistent with law for want of evidence to support the conclusion.

In order for the waste-derived fuel to qualify as RDF, the Cabinet must require that the process by which the fuel pellet is produced removes all recoverable paper and plastics that are recyclable. KPE is not permitted to select among the recoverable recyclable materials and to remove some but retain others. It must, under the plain language of the statute, remove all recoverable paper and plastics that are recyclable.

On remand, it may be that the company can demonstrate that once commingled, plastics and paper cannot be recovered for recycling, and if so, that demonstration can be assessed by the Cabinet and the public. But the Cabinet failed entirely to resolve the conflict between KPE's stated representation that it would process the waste to remove iron, aluminum and glass but would intentionally retain plastics and paper, and the Cabinet's knowledge that some plastics and paper are recyclable. In order to support a rational determination of exemption, the Cabinet would have to find that the plastics and paper were not recoverable for recycling, and it failed to do so.

When the Cabinet became aware that no effort would be made to extract plastics or paper from the waste stream during processing, it was clearly erroneous and inconsistent with law for the agency to grant an advance determination that the waste based fuel was a "refuse derived fuel" and that the facility would not be required to obtain a waste permit.

As to the other arguments raised by KPE, Petitioner Walters stands on the arguments presented in the opening brief.

The Secretary's Response Brief

The Secretary's brief adds little beyond what has been framed in the KPE brief. While the Secretary devotes a number of pages to general discussion of the scope of review of agency decisions, and to the rules of statutory construction; the Secretary provides little in the way of analysis of the relevant statutory provisions, and fails to provide alternative interpretations that would support exemption of the proposed fuel in light of the absolute absence of evidence that the 70% paper and 10% plastics in the processed waste were neither recoverable nor recyclable.

The Secretary makes two specific arguments – first that the Petitioner is seeking "total" removal of all plastics and paper from wastes in order to qualify them as refuse-derived fuel, and that this is inconsistent with the law, and second, that the conversion of the waste fuel to syngas makes the KPE power plant a "recovered material processing facility."

As to the first point, the Secretary misstates the Petitioner's position, which has never been that "removal of all (100%) of plastics and paper was required by the General Assembly."

Petitioner has consistently argued that recoverable recyclable materials, including paper and plastic that are recoverable, must be extracted in order for the waste fuel to be considered derived from "extensive separation of municipal solid waste" and to be eligible for the "refuse derived fuel" exemption. That is what the statute requires.

The Cabinet's effort to create a strawman cannot obscure the undisputed facts – the Cabinet was made aware by public comment prior to the challenged determination that the company intended not to extract or separate any plastics or paper from the municipal solid waste (recoverable recyclables included) because, in the company's own words, it needed to keep the paper and plastics in the processed waste fuel for their heat value. Failing to demonstrate that the recoverable recyclable plastics and paper would be extracted, or that all of the plastics and the paper in the waste stream were incapable of being recovered, the waste fuel did not qualify as "refuse-derived fuel" and the Secretary erred in concluding that it did.

The Secretary makes only one other argument – that the Petitioner is in error in arguing that the KPE facility is not a "recovered material processing facility" since the facility will be heating the RDF and coal to make syngas, and that this constitutes processing. Cabinet's Response Brief, p. 11. Petitioner has already responded to this line of argument, demonstrating that the reuse of the waste as a fuel does not constitute processing, and that the company had admitted it would not be processing the waste but rather would simply be receiving and reusing the material. By its own words, KPE acknowledged that it would

merely be receiving, storing, and reusing the already processed final

fuel product, RDF, a recovered material.

Global Analysis, at p. 5 (Emphasis added).

The fact that the KPE facility is engaged in a "gasification process whereby RDF and coal are broken down into elemental components through the application of heat in order to form syngas" does not make the facility a "recovered material processing facility" since the waste fuel, which is the "recovered material" is not being processed for reuse or resale, but instead is being processed elsewhere for reuse by KPE as a fuel. The receipt, storage and reuse of the "already processed" waste-based fuel for the gasification process does not make the facility a "recovered material processing facility" since it is not processing the recovered material before it is reused. For this reason, and because the waste is not a "recovered material" inasmuch as it is not a "refuse derived fuel" but is instead merely a waste used for energy recovery, KRS 224.01-010(20), the Cabinet determination that the facility was exempt from the requirement to obtain a waste permit due to its status as a "recovered material processing facility" is contrary to law and to fact.

CONCLUSION

The evidence in the record before the Cabinet when it issued the determination of exemption indicated that the proposed waste would be processed for iron, aluminum and glass, but not for plastic and paper, because the applicant desired to have the paper and plastic remain in the waste. The issue of whether the paper and plastic in the waste might include recoverable recyclable paper and plastic was raised by public comment. The Cabinet erred as a matter of law in concluding that the resulting processed waste fuel, which the company acknowledged would typically be 70% paper and 10% plastic, met the definition of "refuse derived fuel" without first determining whether the paper and plastic component of the waste to be processed was recoverable and recyclable.

The question of whether the proposed coal and waste-fueled electricity generating facility is subject to the requirements of KRS Chapter 224 as a waste site or facility is of significance to the residents of Trapp and of Clark County, since if exempted from the ambit of the KRS Chapter 224.40, the planned importation of up to 1 million tons annually of processed municipal solid waste from other states representing (according to KPE's parent Global) the equivalent of “roughly half of the residential waste generated in the entire Commonwealth of Kentucky” will not be subject to scrutiny by the local governing body of Clark County for consistency with that county’s approved solid waste plan; nor will the storage, handling, and management of the material be subject to the environmental performance standards of 401 KAR 47:030.

Wherefore, Petitioner respectfully requests that this Court (a) determine and declare that on the basis of the evidence in the record, and proper interpretation and application of the law, that the Secretary's April 11, 2003 Order was contrary to law and fact in rejecting the conclusions of law and recommended order of the Hearing Officer and affirming the Division of Waste Management's determination of exemption; and (b) enter an order reversing the Cabinet Order and entering an order upholding summary disposition on behalf of the Petitioner and against the Cabinet and KPE; and for any and all other relief to which Petitioner may appear entitled.

Respectfully submitted,

__________________

Tom FitzGerald

P.O. Box 1070

Frankfort, Ky. 40602

(502) 875-2428

Counsel for Petitioner

Charles T. Walters

Certification

I hereby certify that a true and accurate copy of the foregoing Reply Brief for Petitioner Charles T. Walters was served by first-class mail this 4th day of November, 2003 to:

Hon. Jack Bates

Hon. John Horne

Office Legal Services

5th Floor, Capital Plaza Tower

Frankfort, Kentucky 40601

Kendrick R. Riggs

Ogden Newell & Welch PLLC

1700 PNC Plaza

500 West Jefferson Street

Louisville, KY 40202

John P. Proctor

Susan A. McIntyre

Winston & Strawn

1400 L Street NW Washington, D.C. 20005-3502

Dwight N. Lockwood, P.E. QEP

Global Energy, Inc.

312 Walnut Street, Suite 2650

Cincinnati OH 45202

and that the original was filed by mailing same this 4th day of November, 2003 to the Clerk, Franklin Circuit Court. Additionally, the text of the reply brief was sent by electronic mail to Hon. Kendrick Riggs and Hon. Jack Bates & John Horne.

___________________

Tom FitzGerald

1 Both the Cabinet and KPE devote a number of pages to discussion of the standard of review. This appeal involves matters of statutory interpretation, not Cabinet construction of its own regulations. The Cabinet is precluded by KRS Chapter 13A from expanding or altering the scope of a statute by regulation or policy. Where, as here, the question is purely a matter of law, it is subject to "de novo" review, Dunaway v. DLX, Inc., Ky. App. 113 S.W.3d 632 (2003) and if the ruling of the administrative agency is based on an incorrect view of the law, the reviewing court may substitute its judgment for that of the agency. Kentucky Board of Nursing v. Ward, Ky. App. 890 S.W.2d 641 (1994).

2 KPE, while noting in a footnote that "the source of the proposed RDF is completely irrelevant to the legal determination of whether it meets the statutory definition of RDF[,]" KPE Brief at 5, nevertheless attempts to bolster its position by citing a Public Service Commission order praising its receptiveness to using Kentucky's solid waste to fuel its plant.

The reality is that the facility will not be using Kentucky waste as the main supply path, as it acknowledged in comments to the Division of Air Quality. KPE noted, in text cited on pages 24-5 of Petitioner's Opening Brief, that the quantity of waste it would use was "roughly half of the residential waste generated by the entire Commonwealth of Kentucky" and that the "several thousand tons per day of pellets is far larger than is reasonably available within Kentucky" so that it would be obtained through "contracts in regions of the country having larger populations, larger quantities of waste available and higher tipping fees." According to KPE's comments, "the project will use the equivalent of roughly half of the residential waste generated in the entire Commonwealth of Kentucky[, but] that quantity is spread across about 100 of the 120 counties. Each county therefore has a relatively small contribution to the whole. Realistic access to municipal contracts in individual counties, or with several of the landfill operations, is not practical." The company further explained that "[p]roject economics include use of the waste disposal tipping fee." "Other regions of the country, such (sic) those at the very large population areas, have both large consolidated quantities of waste and sufficiently high tipping fees to be viable."

KPE is correct that the source of the waste is not relevant, and it should not attempt to "spin" the facts to suggest that it is intended to or will provide a waste disposal solution for Kentucky's waste rather than importing waste from other states to fuel its plant. Wherever the source of the waste, the General Assembly intended the management of the waste to be subject to state and local review, even where used for energy recovery, unless it fit within a narrowly crafted exemption.

3 Both the Cabinet and KPE note that the Cabinet's determination indicated that it would review the waste fuel manufacturing 30 days prior to commencement of the facility operation. The cabinet's notation in its June 27, 2002 Determination that it would "evaluate if the manufacturing of the fuel meets the statutory definition" thirty days before the commencement of gasification adds nothing to the resolution of this dispute so long as the Cabinet continues to use a flawed legal standard for evaluating whether the proposed waste fuel qualifies as a "refuse derived fuel."



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