Compliance With Compassion

A surprise visit from the ethanol compliance inspector doesn't have to be an adversarial event. A Minnesota woman is trying to make her regulatory work educational, proactive and fine-free—wherever possible. Her simple advice is to know your permit's inclusions and limitations, keep your records organized and up-to-date, and appoint a point person responsible for your plant's compliance. And, if your plant receives a warning letter, act quickly, cooperate with regulatory authorities and take immediate corrective measures. A lapse in compliance doesn't have to escalate into a fine.
By Sarah Smith | May 09, 2008
Ethanol plant developers, plant managers, energy attorneys and farmers often grouse about regulatory agencies impeding their progress. Regulatory work can be a difficult job, and Sarah Kilgriff, an air quality inspector, understands that the welcome mat isn't always put out to greet her. But she and her employer, the Minnesota Pollution Control Agency, are making a concerted effort to work with developers and plant operators to arrive at a mutually satisfactory goal—ethanol plants that operate within the bounds of a regulatory framework and by doing so are publicly palatable.

Regulatory work by its very nature can be adversarial and, too often, offending operators or unsuccessful developers, although a distinct minority, can highlight the darker side of regulation when violations come to light and receive public attention. That was the case in late 2007, when an ethanol refinery in Granite Falls, Minn., received one of the largest fines in state history, $300,000, for numerous violations and a recalcitrance for compliance that prompted a change in plant leadership. In March 2008, developers of another Minnesota plant said they might not build after the MPCA ordered them to undergo a costly Environmental Impact Statement process. The study is estimated to cost $500,000. For the most part, however, the state's 17 ethanol plants operate quietly—and out of the public eye.

The Permitting Process: Nuts and Bolts
Developers proposing to build an ethanol plant "would be well-advised" to consult the MPCA's Web site, advises Public Information Officer Ralph Pribble. "We have a guidance document that walks them through all the things they would need to get their necessary applications in line, ready for expedient processing," he says. Although that sounds easy enough, permits are where both developers and operators stumble. The permits, reviewed and issued for plant developers by a team of state engineers, spell out the laws that need to be complied with. It's a comprehensive document, Pribble says. "With some years of experience now in ethanol we've got good insight into what works and what doesn't, insight into siting facilities, lining up their supplies, their transportation, that sort of thing," he says. Developers who skimp on the early stages, submitting only the bare essentials and incomplete or incorrect information, can find the later stages arduous and time consuming. Time is money. Construction cost increases can eat up a budget while a developer waits for permit approval.

Because there are so many new facilities under construction, the MPCA assigns ethanol plants to reviewers on the biofuels sector team for processing.

"It's really important that when regulated parties are proposing a new facility they pay attention to what needs to be submitted and make sure they submit good quality information
so we can process those applications as quickly as possible," Kilgriff says. One hiccup in the application can lengthen the review time, and that can be frustrating for developers."

The operating permit is vitally important in other ways: it's what Kilgriff will use during a compliance inspection. It spells out conditions such as production capacity, emissions guidelines and, most importantly, record-keeping requirements. "A large portion of our inspections will include a thorough review of record keeping and that can include records of inspections of control equipment and records of monitoring parameters in the facility," Kilgriff says. If plant operators or developers have an information gap, she's there to assist. "The agency doesn't provide any formal training, however, I think it goes a long way for these folks to know that it's OK to contact their regulatory agency and be familiar with the compliance and enforcement staff who are assigned to them. I would far and away rather answer questions ahead of time than to see compliance issues get out of hand."

Assessing Environmental Impact
One of the thornier issues the agency deals with are environmental studies. Environmental assessment worksheets (EAW) and environmental impact statements (EIS) are, according to the agency, a standardized public process designed to disclose information about the potential negative environmental effects of a proposed development and ways to avoid or minimize them before the project is permitted and built. Typically an EIS is a more thorough, costly and time-consuming process than an EAW, depending on the scope of the project.

"Minnesota's initial threshold for mandatory environmental review is expansion or new production of 5 million gallons [per year]," Pribble says. "Anything above that is a mandatory EAW. The threshold for a mandatory EIS is 125 million gallons [per year] new or expanded but the MPCA also has discretionary authority to order an EAW or EIS for any facility for which we are the responsible governing unit." Developers can also voluntarily complete an EIS, but Pribble says that hasn't happened yet with an ethanol plant.

A bill that never made it to committee this session would have lowered the mandatory threshold for an EIS to 50 million gallons, adding to the costs of development. The proposal came at the same time the Minnesota Environmental Quality Board convened an interagency group to examine the impact of the state's ethanol plants—existing and proposed—on the state's groundwater supply. Critics say the added burden was unnecessary since proposed plants already undergo a rigorous review.

The MPCA's discretion to order an EIS, even for a smaller plant, recently shocked the industry when a proposed 70 MMgy plant near Erskine, Minn., was ordered to undergo such a review. Plant officials said the estimated cost, $500,000, and the delay—estimated at 500 days—would essentially halt the proposal altogether. "We believe a well-scoped project with timely communications and cooperation could be done in less time," Pribble says. It was the first time the MPCA had exercised such discretion for an ethanol plant. "During consideration of public comments on the draft EAW we reassessed the data provided in the EAW and determined we had inadequate information on the location and connectivity of groundwater and surface waters in the area, including nearby wetlands," Pribble says. "We requested more data on those issues but in the end we didn't have enough information to determine potential for significant environmental impacts. The recommendation for an EIS in this case doesn't mean we've determined the potential for significant environmental impacts, rather it means we don't have enough information to make that determination."

Meanwhile, developers of the proposed Agassiz Energy LLC plant are reassessing whether they will proceed, and question whether they were being singled out for unnecessary scrutiny. Although there was some discussion as to whether the coal-fired plant would encounter some air quality issues, Pribble says that wasn't the basis for ordering the EIS. It was the impact on local wetlands.

When Things go Wrong, and How to Avoid This Path
Kilgriff got involved with one of the worst-case scenarios—the type she tries to prevent—in 2006 when she inspected Granite Falls Energy LLC. It was not operating in compliance with its permit, she quickly learned during an unannounced inspection.

Kilgriff is a seasoned inspector. A graduate of the University of Minnesota's College of Natural Resources with a bachelor's degree in conservation biology, she has been with the MPCA since 2002. She earned her stripes reviewing stationary source testing for her first two years. The past four years, she has worked in compliance and enforcement, inspecting 20 to 40 commercial facilities annually, depending on a schedule of commitments coordinated with the U.S. EPA. That schedule could include one to two ethanol plants a year, or as many as five to seven. Mostly spot inspections are conducted, just to keep the regulatory playing field even, she says.

Minnesota's 17 refineries currently produce 680 MMgy, according to the state Department of Agriculture, with four plants under construction. Year-end production could reach 1 billion gallons, the department estimates.

In 2006, Kilgriff found that Granite Falls Energy had significantly exceeded its rolling sum permit limits of 45 MMgy. The resulting overproduction in turn caused a host of ancillary violations. A facility with this type of permit must calculate its production each month and add it to the previous 11 months' production to determine compliance with its 12-month rolling limit. Once the facility completes 12 months of production it can start doing the monthly "look-back" in which each month, total production must be within permitted capacity for the preceding 12 months. MPCA records show that GFE had regularly exceeded its production during that first year, and both the plant and agency differed on whether it was a deliberate act to increase revenues, or an oversight. GFE began producing ethanol in November 2005.

At the time of Kilgriff's inspection, GFE did have permits pending to increase its production above the MMgy and to pursue other revenue streams for the plant, including oil separation, steam turbine electrical generation and anaerobic digestion. But the permits had not been approved, and weren't likely to be as long as the facility was operating out of compliance. Kilgriff found that GFE was also producing wet distillers grains without a permit and exceeding water quality discharge limits. Kilgriff discussed air pollution issues and the failure to maintain pollution control equipment, inadequate record keeping and other issues with GFE.

Then, GFE took an ill-advised path. Instead of issuing an immediate mea culpa and a pledge to decrease production and cease the violations, plant officials continued operating above the limit even after they received a formal notice of violation in early 2007. MPCA suggested issuing an Administrative Order to stop the violations. GFE argued that the agency was dragging its feet on the pending applications, frustrating attempts to make the plant profitable. But with the agency escalating the pressure like a snowball rolling downhill, GFE finally took some remedial steps. Company officials put Chief Executive Officer and General Manager Tracey Olson in charge to remedy its untenable situation. Olson immediately started scaling back production, and cooperating with the agencies. But his efforts came too late, GFE was already on track to receive a hefty fine. Olson declined to discuss the situation, but he likely saved GFE from itself.

The penalty was assessed two years after the plant's debut. It currently has a permit pending that would allow it to increase annual production to 70 MMgy. GFE entered into a Stipulation Agreement in which the plant agreed to take corrective actions and stay in compliance. It has. The Granite Falls fine was the largest ever levied against an ethanol plant.

And although penalties have steadily escalated since 1999, neither Pribble nor Kilgriff see a trend that differs from other industry types. "Many of the original or earlier ethanol facilities in Minnesota have been in the business for some time and have had the opportunity to work out the kinks, with regard to how compliance with the air permits is managed," Kilgriff says. "We have had many new plants come on line in Minnesota in the past couple of years and some of the larger penalties have been with those newer facilities not starting out on the right foot."

The MPCA understands the difficulties operators can encounter with a new facility, new technology and new equipment, so she suggests taking a proactive approach, Kilgriff says.

That includes knowing your permit limitations, keeping your records in order, keeping current with maintenance and any new requirements, and keeping a line of communication open with the agency. It's helpful if one employee is appointed as the "point person" during an inspection, one familiar with the records, their location and their provisions. Even though inspections are generally unannounced, they are regularly conducted and plants that keep track of the inspection schedules can help themselves by being prepared.

Kilgriff says she hasn't encountered any hostility as a woman coming into a male-dominated environment, advising plant operators how to run their facilities. "Thankfully, by and large, I have an excellent relationship with the facilities I work with," she says. "I realize that not everyone is thrilled to see me show up at their facility and sometimes I get nervous glances from some of the facility staff but I have always been treated with respect on the job. I'm there to help."

And, Kilgriff says, if in doubt about any compliance issue, ask. There's no such thing as a dumb question. "Compliance takes cooperation and working together and that's what I'm all about," she says.

Sarah Smith is an Ethanol Producer Magazine staff writer. Reach her at ssmith@bbibiofuels.com or (701) 663-5002.