Delaware officials avoiding Coastal Zone showdown
DNREC Secretary David Small did not sanction the Delaware City refinery in 2015 after learning the company violated a state order prohibiting the shipment of crude oil by barge beyond a single New Jersey location on the Delaware River – even as lawyers at the state Department of Justice expressed concern about the refinery's actions.
Environmentalists say Small's unwillingness to fine the company demonstrates how Gov. Jack Markell's administration has helped Delaware's largest industrial employer disarm the Coastal Zone Act, the state's landmark environmental zoning law. Markell spokesman Jonathon Dworkin said the administration is confident DNREC handled the issue properly.
In 2013, Small's predecessor, Collin O'Mara, issued an order and accompanying permit allowing the refinery to begin shipping up to 45,000 barrels of oil daily by barge from its Delaware City refinery to the company's sister refinery in Paulsboro, N.J. Later that year, PBF Energy sent a barge loaded with crude about 7 miles past Paulsboro into the Philadelphia Energy Solutions Refinery on the Schuylkill River.
The company continues to tell investors and state regulators it has the ability to ship crude well beyond Paulsboro – in spite of the order signed by O'Mara allowing shipments only to Paulsboro.
PBF insists there is an important distinction between O'Mara's order and the permit it accompanied. Because the permit makes no reference to final destination, PBF maintains it has no limitations where it can ship the oil it receives by train at its new $100 million rail yard off of Del. 1.
“It’s our position that we are not limited to where the destination of the cargo goes,” said John Deemer, the refinery’s health, safety and environmental manager.
In an interview with The News Journal, O'Mara disagreed with that position.
“I think my order was clear,” said the former DNREC secretary, who's now president and CEO of the National Wildlife Federation. “They should uphold the agreement in the order or go through the Coastal Zone Act process to make any changes.”
STORY: Delaware City Refinery dinged again for toxic releases
STORY: Delaware City Refinery workers committed to charity
While investigating the case, lawyers in Attorney General Matt Denn’s office referred to PBF Energy's statements to investors as “something of a smoking gun,” demonstrating that the company plans to make future shipments outside the purview of O'Mara's 2013 order. On several occasions, deputy attorney generals urged Small to confront the refinery.
Small declined to be interviewed for this story. Markell said it was his understanding that PBF made only one shipment outside of O'Mara's order.
But Kenneth Kristl, who directs the Environmental and Natural Resources Law Clinic at Widener University, said state regulators should not overlook the refinery's action –– even if there was only one shipment.
"Clearly, something happened that shouldn't have and they did nothing about it," Kristl said. "That's a failure of DNREC to carry out its enforcement duty under the law."
Without an enforcement action, the dispute over where PBF can ship crude oil remains unresolved.
The refinery has applied for a Coastal Zone Act permit to become a distribution hub for denatured ethanol. That proposal would allow the refinery to receive up to 420,000 gallons of the gasoline additive each day by train before shipping it off by barge to refineries along the East Coast.
Passed in 1971 under Republican Gov. Russell Peterson, the Coastal Zone Act banned new heavy industry and changes or additions to existing plants within a 275,000-acre area bordering the state's shoreline, an area that includes the Delaware City refinery.
"The real question in our mind is whether this is just a refinery, or will it become part of a new hub-and-spoke transportation business for PBF to distribute crude and other things like ethanol to third parties," asked Mark Martell, secretary and conservation chair for the Delaware Audubon Society. "Because that would be something new entirely."
The Delaware City refinery opened in the mid-1950s and remained in continuous operation until Valero Energy shuttered the plant just days before Thanksgiving 2009, a decision that left hundreds of workers jobless at the height of the Great Recession.
Markell responded by providing $45 million in state assistance to PBF Energy, a taxpayer boost that helped convince the fledgling refinery operator to take on what turned out to be a $660 million reclamation project. The company completed a full restart of the refinery in 2011, eventually restoring all 750 jobs lost in the plant’s closure.
The deal is among Markell’s biggest economic development successes. PBF Energy has since added four other plants around the country, helping it to become one of the nation’s largest independent refinery operators.
Soon after acquiring Delaware City, PBF Energy announced plans to undertake a $1 billion project that would have reduced sulfur in its refined products. But PBF abandoned that project, and instead pivoted to its $100 million rail yard. Completed in 2013, the project enabled it to receive low-cost oil from North Dakota and tar sands crude from Canada –– ending the local refinery’s decades-long reliance on tankers from the Middle East and Venezuela.
PBF next sought to share its new flow of low-cost oil with the company’s other East Coast refinery in Paulsboro.
"The whole purpose, why we were doing it, was that … Paulsboro’s not able to bring in crude by rail to their facility,” Deemer said.
DNREC did not require the refinery to seek a Coastal Zone permit for either its new oil-by-rail facilities or its planned shipments to Paulsboro. But state regulators did require PBF Energy to get an air-quality permit, which mandated that the company install pollution-capturing equipment at its pier in Delaware City.
The state decision to require an air-quality permit –– rather than an exemption to the Coastal Zone Act –– spurred Delaware Audubon and the Sierra Club to appeal O'Mara's ruling to the Environmental Appeals Board and the state's Coastal Zone Industrial Control Board. Both boards ultimately rejected the appeals, leading first to a failed challenge in Superior Court, and another in Delaware Supreme Court.
Courts ruled only on the jurisdictional issue, not on whether granting the air-quality permit skirted the Coastal Zone Act.
"The vested enforcement authority rests solely with DNREC and whatever their motivation, they decided not to enforce the act," said Kristl, who represented the Audubon and Sierra Club in the case.
Victor Singer, former chair of the New Castle County Planning Board and former member of Delaware's Coastal Zone Industrial Control Board, contends the Markell administration has crippled the Coast Zone Act.
"They've pretty much destroyed it," Singer said. "What remains enforceable is far less than when it was enacted up to the start of Markell's first term. And the governor can take credit for that."
Markell's office disputes that assertion.
"Progress under this administration has shown that we can support a growing economy and protect the environment at the same time," Dworkin said. "While seeing record jobs numbers, we have not only continued to experience the benefits of the Coastal Zone Act, but also successfully required the refinery to significantly reduce emissions, ranked among the most effective states in cutting dirty pollutants from power plants, and dramatically increased investments in clean solar power."
The refinery's Deemer argues that environmentalists are making much ado about nothing. What difference does it make on Delaware's shoreline, he asks, “If you’re shipping cargo to China or you’re shipping it across the river to Paulsboro? The emissions at our docks are the same thing.”
Whistleblower reported shipment
The barge that went from Delaware City to Philadelphia likely would have gone unnoticed entirely if not for a worker at the PES refinery who tipped off a deputy attorney general in Delaware.
It is unclear exactly when State Attorney General Matt Denn’s office learned of the oil shipment, and Denn declined to comment for this story, citing his attorney-client privilege with DNREC. The attorney general is responsible to both citizens and the agency.
And once the whistleblower’s accusations became known, Denn’s office stepped in to urge DNREC take action. Email correspondence between the agencies tell the story.
“In late-June 2015, a deputy attorney general advised me that an acquaintance who works at a Philadelphia-area refinery had informed him that the refinery where he is employed was receiving shipments of Bakken crude oil by barge and that he believed it was shipped from Delaware City refinery," Deputy Attorney General Robert Phillips told Philip Cherry, the former head of DNREC’s air quality division in a Sept. 1 email that laid out what DOJ had discovered.
"If the foregoing information is accurate," he added, "there is a strong argument to be made [Delaware City Refining Co./PBF Energy] are violating” their permit and the Coastal Zone Act.
Hours later, Cherry forwarded the message to his boss, Small, who took the reins of DNREC after O'Mara stepped down in 2014.
“This arrived today without warning or conversation,” Cherry wrote. “We should probably discuss before we reply. Very interesting….”
The attorney general's office sent other emails, but DNREC did not respond.
The silence prompted Denn's office to compose a letter citing possible violations, and asking refinery officials to confirm or deny the whistleblower’s claim. The DOJ forwarded the letter to Small with the suggestion that he sign it and present it to the refinery.
“I have recommended that the contact with [the refinery] should in the first instance come from DNREC,” Deputy Attorney General Ralph “Dirk” Durstein wrote.
This time, Small responded immediately.
“We will be contacting the refinery,” he wrote, before forwarding his six-word response to Michael Barlow and Meredith Tweedie, Gov. Markell’s chief of staff and chief legal counsel.
The following week, Small’s assistant emailed both a deputy attorney general and her boss to say she would be preparing the draft letter for Small’s signature.
“Slow down!!!!!” Small responded in an email addressed to her alone.
Eight days later, Denn’s office followed up via email.
“I’ve been asked to expedite the issuance of the letter,” Durstein wrote. “The AG is concerned that some action be taken on this matter, before the end of the week.”
Durstein also forwarded a prior email he sent to Assistant DNREC Secretary Kara Coats in which he points to documents Delaware City Refining Co. (DCRC) filed with the U.S. Securities and Exchange Commission openly referencing shipments to refineries other than Paulsboro, the “smoking gun.”
“DCRC has represented in an official disclosure an intent to exceed the scope of operations disclosed to DNREC, without having provided notice or a status determination to DNREC,” Durstein told Coats. “I believe that this information provides ample grounds for confronting PBF/DCRC with this information, and demanding disclosure of the nature and extent of crude oil shipments from Delaware City, other than to the Paulsboro facility.”
Small then forwarded the original whistleblower email –– along with a copy of O’Mara’s order that allowed the refinery to begin shipping crude oil to Paulsboro –– to private lawyer Max Walton.
Walton previously represented the state in a U.S. Supreme Court case involving the Coastal Zone Act. He also was hired by Markell to provide legal advice after the Attorney General’s Office raised concerns in 2013 that the refinery’s request to ship oil to Paulsboro would conflict with the Coastal Zone Act. And he represented DNREC in the suit brought by the Audubon and Sierra Club challenging that decision.
Walton declined to comment for this story.
Letters provided to The News Journal by DNREC and Denn’s office appear to tell the rest of the story.
After months of inaction, DNREC finally confronted the refinery about the Philadelphia-bound barge in late November 2015.
Refinery officials confirmed the crude shipment to Philadelphia had occurred, but they described the transport as a one-time event due to “an unanticipated logistical irregularity … potentially caused by the Paulsboro refinery’s inability to accept crude at that time,” assistant DNREC secretary Coats told DOJ in a letter dated Dec. 11.
“DNREC is satisfied with DCRC’s explanation,” Coats wrote. “As such, DNREC has determined that no additional action is warranted.”
A month later, the Attorney General’s Office also formally dropped its pursuit of the case, though it warned the refinery against making future shipments.
“Any future such departure from the approved shipments should properly be the subject of a status determination request, with full disclosure of the nature and time of any deviation from the permitted activity,” State Solicitor Aaron R. Goldstein wrote in a Jan. 6 letter to Deemer, the refinery’s health, safety and environmental manager.
The refinery fired back in a letter dated Feb. 3, refuting any wrongdoing.
“DCRC believes that the crude oil transfer event did not constitute noncompliance with any applicable standard, and preserves all available arguments and defenses consistent with that position,” Deemer wrote.
In a separate interview with The News Journal, refinery officials offered multiple scenarios as possible reasons for why they approved the 2013 oil barge shipment to Philadelphia –– but they did not recall precisely which one led to the shipment in question, or even if it went to the PES refinery.
If Delaware City experienced an operational issue preventing it from processing crude, they said, the plant might be stuck with more oil than it could refine or store. Or if Paulsboro shut down, a shipment already en route to the New Jersey plant would become “stranded cargo” and have to be diverted. Perhaps another refinery might have its own supply issues and call on PBF for a crude shipment.
“Things happen all of the time where you can have an operating problem here where you have to reduce throughput and then you have too much crude –– you have to shed crude, you know, sell it to other customers,” environmental engineer Larry Boyd said. “Or other customers can be short and have a need where they would shut down or need to buy crude, so there’s always exchanges of crude going on.”
Tom Godlewski, the environmental manager for DCRC, provided more detail.
“I believe it was an operating problem at Paulsboro,” Godlewski said. “There was ... an issue at Paulsboro and an issue at PES and we couldn’t use the crude at Paulsboro and it needed to go to PES ... but I don’t know that it was PES.”
Officials at PES Refinery did not return messages seeking comment.
Audubon's Martell acknowledged that the refinery should have an exception to its shipping limitations in the event of an emergency.
"The issue here is communication," he said. "The secretary's order was clear as far as we're concerned, yet the refinery chose not to say anything to DNREC until it got caught with it's hand in the cookie jar."
When asked why DCRC and PBF Energy didn’t clear up the miscommunication during the permitting process, refinery officials remained silent.
Barges on the horizon?
While refinery officials insist they have the authority to send oil barges to locations other than Paulsboro, they said no other such shipments have occurred.
As global crude prices plunged in 2015 and 2016, so too did the need to move barges from Delaware City to Paulsboro and other locations. Lower priced oil from overseas is now flowing into the refinery, while crude-by-rail has dropped dramatically. Oil train shipments to all East Coast refineries from the Midwest dropped 68 percent between Nov. 2014 and Sept. 2016.
“We did ship to Paulsboro after we received the permit, [but] never as much as we anticipated,” Godlewski said.
“There have not been any this year,” Deemer added.
That could change as refinery officials insist they still have the right to send oil from Delaware City to Paulsboro or any other refinery.
“If we had a crystal ball that could answer these questions for you, we would be in New York City on the mercantile exchange,” said PBF Energy spokesman Michael Karlovich. “Trying to predict the future in our industry is incredibly complicated and therefore we generally try to live in the moment.”
Martell said that means it’s more than likely another barge loaded with crude in Delaware City eventually will end up at some other port.
“What is the state going to do then,” he asked. “The refinery has already been caught once and the state did nothing. They just kicked the can down the road for the next administration to deal with.”
In an email exchange with the newspaper, Governor-elect John Carney explained his position: “We will monitor this issue and make sure we’re following up appropriately once I take office. We need to be mindful of protecting our natural resources while also continuing to promote economic growth and making sure that Delawareans have access to good, well-paying jobs like those at the refinery.”
Audubon and other groups are lining up to oppose the refinery's proposal to bring in ethanol by rail before shipping the fuel additive out to third parties via truck and barge – a new use for the plant they say flies in the face of the Coastal Zone Act.
Audubon maintains the truck shipments were approved by DNREC last year without any permits or public hearings. The refinery’s plan to move ethanol out by barge, however, must win approval under the Coastal Zone Act.
A hearing on that permit request was held in late October and the public comment period closed Nov. 4. Small is expected to hand down a decision by Dec. 28.
In a letter it submitted in opposition to that Coastal Zone permit request, Delaware Audubon raises issues with the refinery’s alleged violation of the 2013 permit that opened the door for its crude oil shipments, and the state’s decision against taking enforcement action.
DNREC officials cited the Audubon’s letter as its reason for declining to comment for this story.
“In order to protect the integrity of the permit process, DNREC can make no further comment on the matter at this time,” agency spokesman Michael Globetti said via email.
Denn’s office said its decision not to comment is related to the possible need for future legal rulings.
“It would not be appropriate for DOJ to comment on hypothetical future incidents,” DOJ spokesman Carl Kanefsky wrote in an e-mail, “especially incidents where DOJ might need to provide legal advice to the state agency that has enforcement responsibilities for most of the laws and regulations in question.”
The DOJ’s statements are further indication that PBF Energy is playing fast and loose with the law, Kristl said
"The notion they can do whatever the hell they want runs counter to the secretary's order," he said. "Either they lied to the secretary or they didn't, and are bound by the limitations they said they would agree to. Either way, their stance now suggests they may have misrepresented what they planned to do under their permit."
Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.