Permitting: A Big Ticket Item

An overly restrictive permit can cost an ethanol plant more than just fines for noncompliance.
By Holly Jessen | March 10, 2011

Imagine an ethanol plant that requires grain trucks to follow a scripted route: Trucks must enter by taking a right turn, drive in a counterclockwise direction, and then leave by taking a left turn. Now imagine that it’s a permitted requirement that, if violated, could result in noncompliance and hefty fines.

It’s a real example of what one ethanol plant faced as it went through the permitting process, says Jessica Karras-Bailey, an associate with RTP Environmental Associates Inc., which provides environmental consulting services. With Karras-Bailey’s help, the plant was able to find out why the state wanted to include such a restrictive requirement (air dispersion modeling reasons), explain why that wouldn’t work from an operational standpoint and negotiate a more flexible requirement in the final permit. “But it’s not always easy,” Karras-Bailey tells EPM.

Although some states are more restrictive than others, permitting that goes above and beyond what the state or federal regulations require affects many ethanol plants nationwide, says Piyush Srivastav, president of Nebraska-based National Air Quality Specialties LLC. While it’s true that states do have the authority to set more restrictive regulations than the federal requirements, what’s at issue here is when state agencies write permits that are more restrictive than their own state regulations, Srivastav explains. When that happens, state agencies are reaching beyond their regulatory authority. “Congress and the EPA laid out these regulations and the intent of the regulations was put in place with the big picture of protecting the environment,” he says.

Karras-Bailey characterizes the problem as over regulation on the part of the state agencies. She doesn’t believe states are necessarily incorrect in regulating certain things at ethanol plants, but agrees that their methods of regulation can cause problems for the plant. “They are looking at it in such a way that there’s no flexibility for the facility,” she says, pointing out that some plants are required by their permits to shut the doors while corn is being unloaded, which can slow down operations dramatically.

NAQS has worked with ethanol plants whose air permits were written to allow plant emissions in terms of pounds per hour, rather in tons per year, as the federal air regulations allow, Srivastav says. A permit with pounds per hour limits is much more restrictive than tons per year. “In some sense, you are having to meet the standard on an hourly basis,” he says. If a plant goes over those pounds per hour limits it could be fined for violating its permit, even if it didn’t violate the underlying regulations. There are some limited circumstances where pounds per hour limits could be justified, but not in many cases, he adds. Other examples of unnecessary permit conditions include redundant limits that include both emissions limits and throughput limits, requiring spare bags for baghouses or treating the capacity of a boiler or engine as a permit limit.

Someday down the road, an ethanol plant with a very restrictive permit may find itself in violation of its permit conditions. What if an inspector drops by and there are no spare bags in the baghouse or testing shows the plant has exceeded its pounds per hour limits? At that point, many states look at it in black and white, turning it back on the plant by pointing out that it accepted the limits it has now violated—“Even though you may not have violated any of the underlying regulations, which is really what you should be held accountable for,” he says.

Tory Kort of Chief Ethanol Fuel Inc. in Hastings, Neb., confirms that ethanol plant permits have become more and more complicated and prescriptive over time. The environmental engineer and environmental health and safety manager has worked at the 62 MMgy plant for more than five years. In 1982, when the plant was first constructed, its first air permit was only two pages. “Today it’s a lot different,” he says, estimating that the plant’s current air permit is more than 30 pages long.

Kort also cautioned against accepting permit conditions that have no regulatory basis. A permit that limits the amount of ethanol produced at the facility, for example, could limit profitability. Other conditions limit operational flexibility, opening ethanol plants up to potential violations. “If there is not regulation in place that says we have to do it that way, then it’s just an additional compliance risk,” he says.

In 2009, Chief Ethanol was fined for exceeding air emission limits set in its operating permit, according to information from the Nebraska Department of Environmental Quality. Just as the example given by Srivastav, the plant’s air permit was written in terms of pounds per hour, not tons per year. “All we had to do is change the permit and we were back in compliance, with no changes in the plant,” Kort says, adding that it’s frustrating because the state shouldn’t have written in the condition in the first place, making some compliance enforcement actions feel excessive and unjustified.

Buffalo Lake Energy, a 110 MMgy BioFuel Energy Corp. ethanol plant, was fined $285,000 for air quality violations and discharging wastewater that failed to meet acceptable levels of toxicity. The water violations happened mainly during the start up of the plant, explains Rick Yabroff, director of environmental health and safety for BioFuel Energy. They were caused by design and construction flaws that were corrected in order for the plant to meet the conditions of its water permit. As for the air permit violations, the company realized at start up it would need a permit modification to change some minor things in its air permit. The violations were recorded in the six months before the modified permit was approved by the state agency.

A future concern for the company is at its plant in Wood River, Neb. The state agency is now requiring frequent air control tests on scrubbers. Instead of one test per performance term, the agency is now asking for several tests a year, way above and beyond what the regulations require. This will open the plant up to possible liability as well as increased costs for more frequent testing. “It’s always controversial whether it is really necessary or not,” Yabroff says.

Offense, not Defense

In a situation where the regulatory agency seems to hold all the cards, what can an ethanol plant do to avoid overly restrictive permit conditions? That starts long before a permit is finalized. It’s key that ethanol plant management understand the underlying regulations, Srivastav says. Without understanding what state and federal regulations it is held to, how can a plant negotiate changes to the permit suggested by the state? The plant may assume that the limits in the permit are required by the regulations, which may not always be the case.

Employing an environmental consultant can be helpful, Karras-Bailey says, but it’s not enough to leave permitting up to them. Consultants might know a lot about permitting but they won’t know everything about how a permit might affect the day-to-day operation of an ethanol plant.  “I can’t tell you how important it is that when you get a draft permit from an agency, that the facility reviews it,” she says.

It’s critical that ethanol plant personnel are involved from the get-go, Kort agrees. He scrutinizes every word of a draft permit, trying to understand how it should be interpreted and making sure all requirements are clear. If something is unclear, he goes to the permit writing agency and asks for clarification. In some cases, Chief Ethanol has even taken the initiative to write and submit its own draft permit to the state. The final permit may not contain everything that the company suggested in its draft permit, but it is a good way to help make sure that the permit contains language with which the company is comfortable.

On the air regulation side, Srivastav strongly suggests that ethanol plants work with a consultant who specializes in air permits. Air regulations are extremely complicated and can have a big impact on the bottom line of an ethanol plant. Once a permit has been finalized, the plant has the ability to review and negotiate changes, but this is best done before a permit is issued. “Get permits that are written accurately and protect you. They should provide you flexibility and not hamstring your operations. Once it’s in your permit, that’s the law for you,” he says, adding that it’s crucial to stay engaged in the permitting process.

Changing a permit once it has gone through the public comment period and has been finalized can be very challenging. “I’ve seen permits take two, three years to get a condition changed,” Kort says, “and that makes it difficult to operate a plant at times.” 

If a plant reaches a stalemate with the state agency, it’s sometimes helpful to go to the EPA for an opinion on the matter, Srivastav says. He’s seen cases where the EPA has agreed with the plant on issues being negotiated with a state agency. Still, it’s important to remember that, in most cases, the state agency has the ultimate authority.

Culture of Compliance

As any ethanol plant manager knows, permitting isn’t a do-it-once-and-you’re-done job. Once a plant obtains a permit it must stay in compliance, which means conducting on-site or third party testing and fulfilling yearly, monthly and sometimes daily reporting requirements. Plant expansion or installation of new equipment requires permit modification. Finally, permits must be renewed periodically. “If you don’t have your environmental permits, your facility doesn’t run,” Karras-Bailey says. “And to me, that’s a big ticket item—it could sideline your business very quickly.”

Typically, ethanol plants employ an environmental manager whose job it is to keep an eye on permitting and compliance issues. It’s also common for that person to wear other hats at the facility, including that of safety manager. When sometimes daily compliance checks are required, such as daily pressure drops and visible emissions checks at the plant baghouse for dust collection, the environmental manager will have to rely on other employees to do the checking and record the data. “If it’s not something the entire facility is behind, specifically the managers, what if those daily checks don’t get done?” Karras-Bailey asks.

The environmental manager needs the support of all the plant employees, from the top down, to foster a culture of compliance. Some plants use positive reinforcement, such offering employees a company barbeque or profit sharing when the plant reaches certain milestones without encountering any compliance or safety issues. On the other hand, Karras-Bailey says she has  also been at ethanol facilities where the attitude is “whatever” or “it’s not my job.” It is possible to correct that, she says, but it’s very hard.

Calculating the Cost

Noncompliance with permit conditions can cost an ethanol plant in a variety of ways. The first, and most obvious, is penalties, which can come from the state or the EPA. The fines can be stiff. In 2009, the Minnesota Pollution Control Agency issued more than $2 million in fines to Minnesota ethanol plants. The EPA can impose penalties of up to $42,500 per day, per violation. “If you’ve had noncompliance for an extended period, those numbers can add up to millions of dollars right there,” Srivastav says.

Other costs include working with a lawyer and consultants to resolve the matter. It also takes up a lot of time for the ethanol plant staff and management team. That’s why it’s so important to tap into the needed expertise to make sure the facility’s permits are written correctly.  “The facility can definitely save large sums of money in the long run, mostly from an operational and a liability standpoint,” he says.

Finally, an environmental violation can cost the facility in terms of giving it a black eye in public perception. It’s difficult to put a price on that. “The general public doesn’t understand that, yes, they violated the permit, but they didn’t break any law,” he says.

The community’s reaction to an environmental violation depends on the ethanol plant’s relationship with that community. The Buffalo Lake plant has a great relationship with the public in Fairmont, where it is located, Yabroff says. “They know we’re trying to do the right thing.”  On the other hand, the company doesn’t have the same reputation in neighboring communities where people sometimes assume the plant must be bad or irresponsible due to the violations. The plant’s supporters in Fairmont, though, are quick to come to its defense. That’s something he’s noticed with other plants as well. An open relationship is key to fostering community support, Yabroff says. A plant that doesn’t make that a priority and is seen as isolating itself from the community can do itself a disservice. “It can cause you to spend a lot of time and effort trying to correct misconceptions,” he says. “It really highlights how you have to have a good relationship in the community that you are in.”

Author: Holly Jessen
Associate Editor, Ethanol Producer Magazine
(701) 738-4946
hjessen@bbiinternational.com