COMMONWEALTH OF KENTUCKY
NATURAL RESOURCES AND
ENVIRONMENTAL PROTECTION CABINET
FILE No. DWM-25864-037
CHARLES WALTERS, PETITIONER
V. PETITIONER'S REPLY IN SUPPORT OF A RECOMMENDATION OF SUMMARY DISPOSITION AND IN OPPOSITION TO MOTIONS OF KENTUCKY PIONEER ENERGY LLC AND NATURAL RESOURCES
AND ENVIRONMENTAL PROTECTION CABINET FOR SUMMARY DISPOSITION
NATURAL RESOURCES AND
ENVIRONMENTAL PROTECTION CABINET
KENTUCKY PIONEER ENERGY, LLC RESPONDENTS
* * * *
Comes the Petitioner, Charles Walters, by counsel, and in accordance with the Agreed Scheduling Order, files this Reply In Support of a Recommendation of Summary Disposition in favor of Petitioner and in opposition to the Cabinet's Response To Walters' Cross-Motion For Summary Disposition, the Reply of Kentucky Pioneer Energy LLC To the Cabinet's Response To Kentucky Pioneer Energy LLC's Motion for Summary Disposition, and the Memorandum of Kentucky Pioneer Energy LLC in Opposition to Petitioner's Cross Motion for Summary Disposition and Reply To Petitioner's Opposition To the Motion of Kentucky Pioneer Energy LLC for Summary Disposition.
For the reasons stated herein, Petitioner respectfully requests that the Hearing Officer enter a report and recommendation for summary disposition in favor of Petitioner and against Respondents, and that the Hearing Officer enter a recommendation that the Secretary deny the Motions of Kentucky Pioneer Energy LLC (KPE) and the Natural Resources and Environmental Protection Cabinet (Cabinet) for a recommendation for summary disposition.
The challenged Cabinet determination granted KPE an advance determination regarding the status of the acceptance, storage and destruction of waste fuels proposed to be managed at an as-yet constructed electric power plant in Trapp, Kentucky.
In his opening brief, Petitioner Walters (Walters) argued that the Cabinet erred in concluding that the proposed KPE site is not a "waste site or facility" required to obtain a waste permit for the management of municipal solid waste-based "fuel" at the proposed electricity generation plant, and erred in finding that the proposed waste-based fuel was a "refuse-derived fuel" and that the site was a "recovered material processing facility."
Walters argued that the Cabinet's determination that the material described in the October 9, 2000 letter was "RDF" or refuse derived fuel, as that terms is defined in KRS Chapter 224, was clearly erroneous since the information available to the Cabinet was insufficient to justify that finding, and further because the representations of the applicant made in response to the federal air permitting process contradicted the Cabinet's conclusion. Walters argued that the waste-based material does not, as a matter of fact and law, constitute "refuse-derived fuel" as that term is defined at KRS 224.01-010, since plastics and paper will not be extracted for recycling but will be retained for energy value in the waste.
Additionally, Walters argued that the Cabinet erred in determining that the site need not obtain a waste permit because the receipt, storage, handling, loading and thermal treatment of the municipal solid waste-based fuel is not exempted from the definition of "waste site or facility." The waste material to be handled is neither a "recovered material" nor a "refuse derived fuel," and the facility is not engaged in processing of any material, and certainly not processing "recovered material." Failing to demonstrate entitlement to an exemption, the proposed activity is 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 has filed a "Response" to Walters Cross-Motion, and KPE has filed a "Reply" to that "Response." Additionally, KPE has filed a memorandum in opposition to Walter's Cross-Motion. Each pleading will be addressed seriatim.
Cabinet's Response To Walter's Cross-Motion
1. The Cabinet provides no explanation for how the waste fuel can retain
all plastics and paper and yet be considered a "refuse derived fuel"
The Cabinet's Response to the fatal contradiction between the requirement of for removal of recoverable plastics and the company representation during the EPA air quality review process that the plastics would be retained for heat value, is to simply gloss over and ignore the contradiction. The sole response of the Cabinet is contained on Page 1 of the Response:
The Petitioner also asserts that . . . "the representations of the applicant
made in response to the federal air permitting process contradicted the
* * *
Regarding the arguments on pages 6 and 16-18 of the Petitioner's brief
concerning a contradiction, the Cabinet does not observe that any
misapplication of acts or law has occurred. The air quality permit appeal
case was recently finalized by an Agreed Order . . . .
Cabinet's Response, pp. 1-2 (Italics added).
Nothing in the January 3, 2003 Agreed Order resolving the air quality permit challenge by KPE addressed the fundamental inconsistency identified by Petitioner between the statutory requirement that extraction of recoverable materials for recycling occur before a waste fuel could be considered a "refuse-derived fuel", and the representation by KPE to EPA and the Division for Air Quality that "[p]lastic components of the MSW have energy content and will be retained" rather than being extracted for recycling.1
The agency has provided no explanation or justification for the inconsistency between the removal of recoverable materials such as paper and recyclable plastics that the statute requires for a waste-based material to be considered "refuse-derived fuel", and the admission by KPE that plastics and paper will not be removed. That the Cabinet "does not observe that any misapplication of facts or law has occurred" is the heart of the problem, since the misapplication is apparent and fatal to the challenged determination.
2. The Cabinet misinterprets the definition of "Refuse Derived Fuel"
In addition to arguing that the KPE admission in the air quality permitting application that plastics and paper would not be extracted defeated the attempt to shoehorn the waste into the category of "refuse derived fuel" in order to seek exemption from waste laws, Walters argued in his opening brief that under the statutory definition, anything less than complete extraction of recoverable plastics and paper for recycling would not qualify the waste for exemption.
The General Assembly limited the category of "Refuse-derived fuel" to " a sized, processed fuel product derived from the extensive separation of municipal solid waste[,]" and then defined what was meant by "extensive separation of municipal solid waste":
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[.]
The definition is clear ? in order to be considered a "refuse derived fuel," extensive separation of the municipal solid waste must occur, and in order to be considered "extensive," the separation must include extraction of recoverable materials for recycling.
The Cabinet agrees with the applicable rules of construction but disagrees with the reading that Walters gives the statute. Yet the Cabinet fails to provide any alternative reading of the statutory definition that gives effect to the plain language. The Cabinet claims that the statute does not "require that 100 percent of recovered materials (e.g. plastic) be removed from raw material in order for the processed material to qualify as RDF. This is because the General Assembly which enacted the law did not require 100 percent removal."
While less than clear, the Cabinet appears to argue that 100 percent removal of recoverable materials is not required, only that the separation of plastics that are capable of being recycled be "extensive." Cabinet's Response at p. 4. The Cabinet misconstrues the statute. The requirement of "extensive separation" applies to the municipal solid waste stream. With respect to recoverable materials for recycling, the statute is unqualified in requiring that they be removed in order for the separation of the municipal solid waste stream to be considered extensive.
The Cabinet's interpretation of the statutory definition leaves the Cabinet with no meaningful standard to guide the exercise of agency discretion, and renders the definition incomprehensible by reading into the statute additional modifiers to limit the obligations imposed by the law with respect to both recoverable materials and nonprocessables. The only reading of the statute consistent with the language and structure of the definition is that the applicant has an obligation of "extensive separation of the municipal solid waste" in order to qualify the waste as an exempt "refuse derived fuel" and that "extensive separation" of the waste is defined to mean the separation of recoverable materials and removal of nonprocessables prior to further processing.
There is nothing in the literal reading of the statutory definition that leads to an absurd or unreasonable result rather Walters demonstrated and the Cabinet fails to refute that the requirement for removing recyclables, is fully consistent with and advances the goals of the 1991 comprehensive solid waste statutory reform in which the General Assembly differentiated reuse and recycling of wastes from the use of wastes for energy recovery, and favored recovery of recyclable materials over use of wastes for energy recovery. KRS 224.43-010(3). Requiring removal of recoverable materials or recycling prior to use of municipal solid waste as a fuel is the only interpretation consistent with both the statutory definition and the priorities established by the General Assembly.
3. The Cabinet's Independent Research Failed To Resolve The Inconsistency Between
The Statutory Requirement for Extraction of Recoverable Materials and The KPE Acknowledgment That Such Separation for Plastics And Paper Would Not Occur
In response to Walters complaint that the Cabinet's conclusion that the proposed KPE waste stream was "refuse derived fuel" was inconsistent with the representations made by KPS in the air quality permit process, the Cabinet responds that the Cabinet's decision was based on the information provided by the company as well as "its own research." Cabinet Response at p. 5. The Cabinet provides an affidavit from the person responsible for the challenged determination, George F. Gilbert, outlining the "independent research" conducted by the Cabinet in making the determination.
Additionally, the Cabinet argues that since the determination was not a permit determination, there is no "statutory or regulatory requirement that a so-called 'record' is required in this case[.]" Cabinet Response at. p. 5.
In brief response, nothing in the "independent research" conducted by the Cabinet explains or resolves the inconsistency between the representation of KPE in the air permit process that plastics and paper would be retained in the waste-derived fuel to support the needed heat value of the fuel, and the statutory obligation that to be eligible for categorization as a "refuse derived fuel" that recoverable materials such as plastics and paper that are recyclable be extracted.
Additionally, with respect to Walters complaint that the Cabinet determination on the eligibility of the waste stream for treatment as RDF is not supported by the record, the Cabinet responds that there is no statutory or regulatory requirement to maintain a "record" in this case since it is not a permit determination.
The independent research conducted by the Cabinet reflects that it went beyond the material submitted by the applicant and the commenters in making the determination. Plainly, that independent investigation should have resolved the inconsistency of the KPE representations to EPA and the Division of Air Quality in the air permitting application, which was brought to DWM's attention by public comments submitted during the comment period on the waste determination application.
4. That the Waste-Based Material Will Be Gassified As Part of Process of Generating Electricity Does Not Make The Plant An Exempt "Recovered Material Processing Facility" It Fails That Definition Because It Is Not Processing The Recovered Material Prior To Its Reuse As A Fuel Feedstock
The Cabinet determined that the facility need not obtain a solid waste permit since it was a "recovered material processing facility"; a conclusion that Walters challenged both because the processed waste was not an eligible "recovered material" under the statute, and because the facility was not engaged in those activities required to fall within the category of "recovered material processing facility."
The Cabinet response is that since 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" that "gasification of RDF does indeed involve a process." Cabinet Response at p. 6.
While gasification may be a process of using the waste fuel, as is pulverization of coal, burning of unsorted garbage, or any of a wide range of processes by which fuels are destroyed, the disposal of a pre-packaged waste fuel in a gasifier does not make the facility a "recovered material processing facility" since the fuel is not being processed for reuse or resale, but instead is being processed elsewhere for use by KPE. KRS 224.01-010(21) defines a "recovered material processing facility" as:
a facility engaged solely in the storage, processing, and resale or
reuse of recovered material, but does not mean a solid waste
management facility if solid waste generated by a recovered material
processing facility is managed pursuant to this chapter and
administrative regulations adopted by the cabinet[.]
KRS 224.01-010(21) (Emphasis added).
The statute requires that a facility be engaged in three activities storage, processing and either reuse or resale, of a recovered material, in order to be considered a recovered material processing facility. The KPE facility is not engaged in the "storage, processing and resale or reuse of recovered material[.]" According to the October 9, 2000 representation to the Cabinet of the scope of the facility activity, no processing of the waste stream will occur at the facility:
The proposed Kentucky Pioneer Energy facility will not be receiving
any municipal solid waste, nor will the facility be removing any component
of a solid waste stream for any purpose, energy recovery or otherwise.
Instead, the RDF will have been separated from MSW and manufactured
into a RDF fuel product at a separate facility. The proposed site will
merely be receiving, storing, and reusing the already processed final
fuel product, RDF, a recovered material.
Global Analysis, Exhibit A, at p. 5 (Emphasis added).
The receipt, storage and use of the waste-based fuel for the gasification process does not make the facility a "recovered material processing facility" since it is not processing the material. For this reason alone, 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. The Cabinet's attempt to equate the gasification "process" with the processing of the waste fuel for use in the gasification process, distorts the statutory definition.
5. The Proposal To Revisit The Determination Does Not Justify Or Excuse
A Decision That Is Clearly Erroneous And Inconsistent With Law
Finally, the Cabinet asserts that the determination regarding whether a solid waste permit is required "will be revisited prior to KPE's start-up in order to assure further that the material will meet the statutory definition of RDF." Cabinet Response p. 7.
That the Cabinet will revisit the issue does not obviate the necessity of resolving the numerous errors of law and fact committed in making the initial determination. Among the other errors identified by Walters, the Cabinet erred in approving as a "refuse derived fuel" a material that would not, by the company's admission during the Subpart Eb process, be processed to remove plastics and paper. The Cabinet erred in approving as an exempt "refuse derived fuel" a waste-based fuel which would retain recyclable recoverable materials, the presence of which under the statute would fail to satisfy the requirement of "extensive separation" since the General Assembly defined that term as including the removal of such materials and nonprocessables prior to further processing. The Cabinet erred in approving the proposed facility as a "recovered material processing facility" despite the acknowledgment by KPE that the waste fuel will come to the facility ready-to-use and that no processing of the waste fuel will occur by KPE or at the KPE facility.2 For these and the other reasons outlined in Walters' opening brief, summary disposition should be recommended on behalf of Walters against the Cabinet's determination.
KPE's Opposition To Cross-Motion And Reply To Walters
1. The Scope of Review
KPE describes the standard of review in these words:
The highest Court in Kentucky held that an action by an administrative agency
is not arbitrary if that action is supported by substantial evidence in the record.
Kentucky law follows the "residuum rule" whereby the administrative decision
will not be overturned as long as the administrative agency had competent
evidence to support its findings.
KPE Memorandum at 4.
In response, review of agency action is concerned with question of arbitrariness: "was due process afforded, did agency act within statutory powers, and was decision supported by substantial evidence." Hougham v. Lexington-Fayette Urban County, Ky. App. 29 S.W. 3d 370 (2000), (citing American Beauty Homes). The scope of review on matters of law is de novo. Rogers v. Fiscal Court of Jefferson County, Ky.App, 48 SW 3d 28 (2001); Roland V. Kentucky Retirement Systems, Ky.App., 52 S.W.3d 579 (2001). 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).
With respect to the "residuum rule," while it is correct that the former Court of Appeals embraced the concept that courts will not set aside agency findings upon the ground that incompetent evidence was received if there were enough competent evidence to permit the same findings independently of the incompetent evidence, Big Sandy Community Action Program v. Chaffins, Ky., 502 S.W.2d 531 (1973), that principle does not provide that the agency decision is to be upheld "as long as the administrative agency had competent evidence to support its findings" to the exclusion of overwhelming evidence in the record to the contrary. The residuum rule speaks to the quality of evidence in administrative proceedings, not to the sufficiency of the evidence. To the extent that the rule is quoted to support the proposition that DWM's factual determination must be upheld if there is any evidence to support it, KPE misunderstands the responsibility of the agency in making factual determinations. The agency is obligated, in making the initial determination and in any hearing on that determination, to weigh the evidence, and to render a finding of fact based on an evaluation of the evidence. Absent that weighing and evaluation, the agency decision cannot be said to be supported by substantial evidence. Secretary, Labor Cabinet v. Bosten Gear, Inc., Ky., 25 S.W.3d 130, 134 (2000), citing Kaelin v. City of Louisville, Ky., 643 S.W.2d 590, 591 (1982). (Emphasis added). The agency is obligated to "consider all the evidence" in making a determination. Bowling v. Natural Resources and Environmental Protection Cabinet, Ky.App. 891 S.W.2d 406, 409-10 (1994).
Where, as here, the agency was made aware that the applicant had represented the composition of the waste-derived fuel as retaining all plastics and paper for heat value, the decision to classify the material as "refuse derived fuel" was clearly erroneous, contrary to fact, and inconsistent with law since no effort would be made to extract the recoverable recyclable plastics or paper.
2. KPE Misconstrues The Statutory Definition of "Refuse Derived Fuel"
KPE joins the Cabinet in attempting to recast the statutory definition of "refuse derived fuel" in order to allow recoverable plastics and paper to remain in the waste yet still gain exemption from waste laws. As did the Cabinet, KPE claims that "extensive" modifies both "separation" and "extraction", even though the phrases are separated by a comma and the latter phrase is intended to define what is meant by "extensive" rather than to be modified by it.3
KPE argues that Petitioner's reading of the statute would "render this entire section of the KRS meaningless" because:
it is technologically and practically infeasible to remove every fiber of
plastic or paper once they are intermingled with other waste.
KPE Memorandum at 6.
Walters responds in this manner. First, there was no evidence before the agency concerning the technological or practical feasibility or infeasibility of complete extraction of "recoverable materials for recycling". Further, the statute itself provides the boundaries for the extent to which recyclable materials must be separated it is the "recoverable materials" hat must be extracted, so that the statute, by definition, limits the duty to those recyclable materials that are technologically recoverable. Third, the assertion of "infeasibility" as a defense masks the reality that KPE needs the plastics and paper in the wastes in order to derive the necessary heat values and has no intention of requiring separation of those recyclable papers and plastics whether recoverable or not.
The KPE memorandum is telling in its' careful restatement of the Lockwood Affidavit. On page 7 of the KPE memorandum, it again notes that "extensive separation" of the recoverable material will occur the iron-based metals, aluminum and glass, to be precise. No effort, minimal, extensive, moderate, or otherwise, will be made to remove plastics or paper whether feasible or not.
The argument that not 100% of the recyclable plastics and paper can be technologically recovered, (KPE Memorandum p. 7) is a smokescreen. KPE's opposition memorandum underscores at p. 7 that it does not intend to remove even those recoverable recyclable plastics and paper. Based on the acknowledgment in the KPE memorandum and the Subpart Eb statement, it was clearly erroneous for the agency to find that the material was a "refuse derived fuel."
In order to be considered a "refuse derived fuel," a fuel product must be derived from "the extensive separation of municipal solid waste"[.]" That requirement of "extensive separation was defined by the General Assembly in the next clause of the definition to "include[ ] the extraction of recoverable materials for recycling[.]"
KPE has admitted in the Subpart Eb comments that all of the plastics and paper (including, sub nom, those plastics and paper that are recyclable and recoverable) will be retained to heat value. KPE's Memorandum carefully avoids the suggestion that the refuse-derived fuel will be processed to remove the recoverable recyclable plastics or paper. KPE Memorandum p. 7.
The inescapable conclusion is that the Cabinet approved a proposed waste-based fuel that will contain up to a range of 10% plastics and 70% paper (Lockwood e-mail, provided as Attachment A to KPE Memorandum) where no effort has been made to process the waste so as to recover the recyclable component of those papers and plastics, in direct conflict with the mandate of the statute
KPE Reply To Cabinet's Response
In addition to a memorandum in opposition to Walters' Cross-Motion and in reply to Walters' opposition to the KPE motion for summary disposition, KPE filed a reply to the Cabinet's Response to KPE's Motion For Summary Disposition. No new arguments are provided in that reply that need response.
For the reasons stated herein and in Walters' Cross-Motion and memorandum in support thereof, the Petitioner is entitled to a recommendation of summary disposition as a matter of law that the Cabinet's June 27, 2002 determination is arbitrary, capricious, unsupported by substantial evidence in the record, and is contrary to law and fact. Petitioner requests that a recommendation of summary disposition be entered on behalf of the Petitioner and against the Cabinet and KPE, and further that the Motion for Summary Disposition filed by KPE and concurred in by the Cabinet be overruled, and for any and all other relief to which Petitioner may appear entitled.
P.O. Box 1070
Frankfort, Ky. 40602
Counsel for Petitioner
I hereby certify that a true and accurate copy of the foregoing was served this 21st day of January, 2003 by first-class mail and telefax, and that the text of the document was served electronically on:
Hon. Jack Bates
Hon. John Horne
Office of Legal Services
5th Floor, Capital Plaza Tower
Frankfort, Kentucky 40601
Hon. Kendrick R. Riggs
Hon. Joseph Bickett
Ogden Newell & Welch PLLC
1700 PNC Plaza
500 West Jefferson Street
Louisville, KY 40202
and was sent by first-class mail to:
John P. Proctor
Susan A. McIntyre
Winston & Strawn
1400 L Street NW Washington, D.C. 20005-3502
with a courtesy copy to
Dwight N. Lockwood, P.E. QEP
Global Energy, Inc.
312 Walnut Street, Suite 2000
Cincinnati OH 45202
and that the original has been filed with the Office of Administrative Hearings by fax and by first-class mail this 21st day of January, 2003.
Tom J. FitzGerald
1 The acknowledgement by Kentucky Pioneer Energy that it would retain the plastics and papers in the pelletized municipal solid waste fuel in order to recover their heat value was made as part of the company's response to comments provided during the 40 CFR Part 60 Subpart Eb process that EPA has established for issuing air permits to municipal waste combustors. The public comment submitted by Kentucky Resources Council to the Division of Waste Management on KPE's request for a determination on whether the waste fuel would be considered subject to KRS Chapter 224 as a waste raised this issue and referred expressly to the KPE comments. One would presume that during the Cabinet's "significant amount[ ] of additional research", Cabinet response at p. 6, it would have read the KPE statement and would have reconciled the admission that plastics and paper would be retained in the waste with the demand in the definition of "refuse derived fuel" that such materials be extracted in order to qualify for that designation.
2 KPE, in its opposition memorandum, again acknowledges that it will not be processing the waste-based fuel but will be simply "receiving, storing and reusing the already processed waste material. KPE Memorandum at 3. (Emphasis added). The KPE confirmation that no processing for reuse will occur clarifies that this facility is not a recovered material processing facility, since it is not processing the material for reuse but is simply receiving the waste-based material for use as one of two fuels.
3 KPE asserts that KRS 224.01-010(21) defines "recoverable material." In fact, there is no definition of "recoverable material" and KRS 224.01-010(21) defines a "recovered material processing facility." Apparently KPE meant to provide a partial definition of "recovered material" which is defined at KRS 224.01-010(20). Walters points this out only to suggest that where the statutes were crafted as part of an integrated set of definitions and categorizations under a comprehensive statutory reform effort as was the case with Senate Bill 2 (1991 Ex. Session), one must be careful in paraphrasing the statute.