Delaware City Refinery appeals $150,000 state fine
The Delaware City Refining Co. says it should not be forced to pay a $150,000 fine for violating a state order that limits where the company can ship crude oil.
The refinery has filed notice that it intends to appeal the penalty – marking the latest chapter in a convoluted, four-year dispute among environmentalists, state regulators and refinery owner PBF Energy that has spanned two governors and three Delaware Department of Natural Resources and Environmental Control secretaries.
Meanwhile, two separate but related battles appear to be brewing behind the scenes. In one, the state and PBF are fighting over DNREC's attempts to alter one of the refinery's air-quality permits. In the other, environmentalists are accusing DNREC of failing to provide adequate notice of a recent public hearing.
"This is like a layer cake," longtime environmental activist Amy Roe said. "And at its center is DNREC failing to follow its own procedures."
DNREC declined a request for comment, citing the pending litigation.
Officials with the refinery, its parent company PBF Energy and its attorney, Joseph Schoell of the Philadelphia-based law firm Drinker Biddle & Reach, did not return phone calls and emails seeking comment Tuesday.
However, in its appeal filed last week, the company describes the $150,000 fine as "arbitrary, capricious, unreasonable ... an abuse of the secretary's discretion ... contrary to fact ... not supported by sufficient evidence ... not in accordance with applicable law ... procedurally deficient," and otherwise contrary to the DNREC secretary's authority.
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DNREC Secretary David Small handed down the penalty on March 10 after determining the refinery violated a 2013 order issued by his predecessor Collin O'Mara. That order and an accompanying permit allowed PBF Energy to ship crude oil by barge from the Delaware City Refinery. State officials maintain the order also limited the destinations of those shipments exclusively to another refinery PBF owns in Paulsboro, New Jersey.
After The News Journal published a story about refinery shipments to Philadelphia, Small determined the refinery "concealed" 17 shipments – totaling 35.7 million gallons – that were sent to three other destinations in 2014. When confronted by state regulators, the refinery then misrepresented how many shipments had occurred, he found.
The refinery has steadfastly maintained it did nothing wrong. Company officials argue the actual permit did not place any restrictions on the destination of its barge shipments. PBF Energy has repeatedly told shareholders it has the ability to ship crude oil from Delaware City to anywhere in the world.
The refinery now claims it never told DNREC it wanted to make shipments to Paulsboro only and "was not fairly apprised" of that limitation.
Refinery officials also maintain they "never intentionally misrepresented" the number of crude oil shipments and "voluntarily submitted corrected information" upon learning of its error.
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Showdown in the making
The legal battle between the refinery and DNREC has its roots in Delaware's landmark Coastal Zone Act.
Passed in 1971 under Republican Gov. Russell Peterson, the act sought to protect land bordering the Delaware River, Delaware Bay and Atlantic Coast from the encroachment of heavy industry. The law barred new heavy industries from locating within a 2-mile-wide ribbon that runs the length of Delaware's 115-mile shoreline, including sites used to transfer bulk products "from vessel to onshore facilities or vice versa."
Industrial operations in existence at the time, such as the 60-year-old Delaware City refinery, were allowed to continue grandfathered functions. But those facilities are supposed to seek a new permit from DNREC before expanding beyond their existing operations and boundary lines.
Backed by $45 million in state incentives, PBF Energy took control of the defunct refinery in 2010 – one year after former owner Valero Energy had shuttered the plant – and eventually restored all 550 jobs.
By 2013, PBF had completed a $100 million rail yard near Delaware City that allowed the refinery to receive low-cost oil from North Dakota and Canada. The company then sought to share its new flow of oil with its refinery across the Delaware River in Paulsboro.
Over the objections of environmentalists, O'Mara ruled that petroleum products moving out of the refinery would be the same as petroleum products being brought in. For that reason, he ruled, the refinery would not need a special permit under the Coastal Zone Act to ship crude oil to Paulsboro because the actual docks where those transfers took place were grandfathered.
O'Mara ultimately allowed the shipments to proceed by approving an air-quality permit the refinery needed to modify pollution-capturing equipment at its piers. But in granting that permit, he also issued an order stipulating that the refinery should request a new decision before making any shipments beyond Paulsboro.
The limitation now being enforced by the state came in the form of two paragraphs. One says the refinery stated on the record that shipments would be limited to Paulsboro. The other states that any change would trigger the need for a new status decision.
The refinery's appeal claims that order was not clear enough.
"DCRC should not be expected to infer obligations from a passing reference in the air permit order," the suit states.
One becomes 17
DNREC first confronted the Delaware City Refinery over crude shipments that appeared to violate O'Mara's order in late 2015 after a whistleblower at a Philadelphia refinery tipped off Attorney General Matt Denn's office that crude barges were arriving there from Delaware City.
At that time, refinery officials assured DNREC they had made only a single, "atypical" shipment to a destination other than Paulsboro. Based on those statements, Small chose not to sanction the refinery, despite concerns from Denn's office.
A story published by The News Journal in December detailed how Small took no action against the refinery. The same day the article was posted online, the refinery informed DNREC and the Delaware Department of Justice that it actually made two shipments – both in 2014 and both involving multiple barges. The letter PBF sent to the state did not detail how many barges were sent or where they arrived.
Less than a week after receiving that letter, DNREC issued a violation notice to PBF Energy and demanded the company hand over documents and other information relating to its crude-by-barge shipments.
It was then that the refinery revealed that 17 oil barges had been sent to destinations other than Paulsboro.
"They certainly didn't disclose all of the facts initially," Small said when asked in March if the refinery had misled state officials. "I won't speculate on why that is."
Small handed down the $150,000 penalty during his final week in office. He was replaced five days later by Shawn Garvin, a former regional administrator for the U.S. Environmental Protection Agency, who had been nominated to the post by new Gov. John Carney.
New wrinkles
Soon after Garvin's swearing-in, DNREC refused to publicly clarify how long the refinery had to appeal the fine.
A press release announcing the fine stated PBF had 30 days to appeal. Yet the actual order issued by Small gave the refinery 20 days to appeal and 30 days to seek a public hearing. Refinery officials insisted that gave them 50 days total.
DNREC spokesman Michael Globetti on Tuesday said via email that interpretation was incorrect. But, he added, "DNREC will not dispute the timeliness of the appeal."
The refinery's filing is now pending before the Environmental Appeals Board, a seven-member body appointed by the governor and tasked with hearing appeals of decisions made by the DNREC secretary. As of Tuesday, no hearing date had been set.
"It's unbelievable to me that DNREC is willing to allow the refinery to file its appeal after the deadline," Roe said. "They certainly never allow citizens the same leeway."
Roe is currently embroiled in another battle with DNREC related to the refinery.
Last fall, PBF Energy sought DNREC's permission to receive and store 10,000 barrels of ethanol a day before shipping the unblended gasoline additive to other facilities along the East Coast via barge. Currently, the refinery brings in about 2,000 barrels of ethanol by rail, which is then blended with gasoline produced at the facility.
Small allowed the project to go forward, but that approval is now being appealed in Superior Court by Delaware Audubon and the League of Women Voters of Delaware.
Roe requested a public hearing on the air-quality permits needed for that project in February. A hearing was held on April 19, but Roe says she was never informed of the meeting date. While DNREC advertised the hearing in two newspapers, the agency did not contact Roe directly or issue notice through its email notification system, as required by federal law, she claims
During the April 19 public hearing, the refinery learned DNREC is now proposing to insert language in the air-quality permit issued by O'Mara that would clearly limit future shipments to Paulsboro alone.
The refinery strongly objected to the move in a letter mailed to DNREC last week, noting that the legality of the limitation is still being contested.
"DNREC's proposal... cannot be justified as consistent with any legal standard under federal or state law regarding air quality requirements," wrote John Deemer, the refinery’s health, safety and environmental manager. "DCRC has not submitted any application requesting the modification, nor has there been any change in law necessitating or even authorizing the revisions."
Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.