When multiple operators, co-owners, co-operators and third-party contractors are all managing different engineered systems at the same location, extra care is needed to manage potential environmental issues that may arise
The obligations facing facilities throughout the chemical process industries (CPI) related to state and federal environmental laws, regulations and permits continue to be both complex and significant. The operational and regulatory complexity is compounded for facilities that have multiple owners and operators inside a single fenceline. In fact, such scenarios can give rise to some of the most challenging issues that exist under environmental law. CPI companies that have multiple entities operating at their facilities must carefully consider different potential environmental scenarios that could arise, to evaluate how well their systems would function under the circumstances, and to ensure that their contractual arrangements with the other entities are clear and robust and that there are strong, well-tested understandings of how those arrangements are to be implemented, especially in the event of a significant incident.
The basic environmental law framework. Examining the primary federal and state environmental statutes related to clean air and water, waste management and more, it is clear that the U.S. Congress had in mind a world in which the owner or operator of a facility or entity generating a regulated emission or waste stream would be the one legal “person” responsible for obtaining permits, implementing pollution controls, ensuring the performance of protective work practices and the like. The National Pollutant Discharge Elimination System (NPDES) permitting regulations under Section 402 of the U.S. Clean Water Act provide just one example of this — “owners and operators” of a “point source” must obtain a permit to discharge pollutants. Perhaps in the 1970s and 1980s, the ownership and operation of major industrial facilities was mostly unitary and that legal approach was representative of the world it purported to regulate. Modern commercial and physical arrangements. Today, however, real-world industrial operations are vastly more complex and integrated than that original “owner/operator” scheme presumed. Today, there are many different commercial and physical arrangements at work in modern CPI sites. Individual industrial units within a single fenceline are now often owned or operated by multiple entities following transactions, joint ventures, tolling arrangements and spinoffs that have occurred with increasing frequency at multi-product chemical-manufacturing and petroleum- refining complexes.
Many of these facilities also now encompass production units integrated with large-scale support services, such as cogeneration facilities for steam and electricity production, industrial gas systems, and chemicals-management and storage systems. These support services, which are often industrial-scale activities in their own right, are commonly outsourced to third parties whose own employees and equipment are present inside the larger facility complex. Typically, such third-party vendors also manage very large, heavily regulated repair, maintenance, waste management, testing, cleanout and other functions as independent contractors to the facility’s owners and operators. Modern arrangements increase legal complications. In many scenarios, these new arrangements create significant additional complexity under the “owner/operator” framework of most of today’s environmental laws. In wastewater and stormwater discharges, for example, where multiple parties operate inside a single fenceline (and each handles a variety of products and materials that could wind up in the site’s discharge streams), questions inevitably arise as to who should be responsible for permitting, monitoring and ensuring compliance related to those discharges. Presuming (as is typical) that the company that owns and operates the outfalls is the permit holder, rather than each operator establishing its own dedicated discharge system and then obtaining its own separate permit, it is a reality — however unfair — that the permit holder is legally responsible if unauthorized materials end up in the discharge as a result of another party’s spills or leaks. Sorting out (among the various operators) how such circumstances should be handled in advance — in terms of, for instance, what protective practices will all parties pursue, to whom do reports of spills get made, who pays the penalties if enforcement occurs — is clearly a complicated and resource-intensive undertaking.
Other environmental scenarios
The U.S. Environmental Protection Agency (EPA; Washington, D.C.), for example, takes the position that many persons can be the “generator” of a waste produced at a facility. Under U.S. Resource Conservation and Recovery Act (RCRA) regulations, a regulated “generator” is “any person, by site, whose act or process produces hazardous waste” or “whose act first causes a hazardous waste to become subject to regulation.” Imagine the scenario where a vendor is engaged to remove sediments from a hazardous-storage tank. The person who owns the tank and the product contained in it would be a generator, but so would the vendor, whose act (removing the sediments from the product tank) would cause the sediments to be subject to regulation. While EPA recognizes this complication and encourages parties in circumstances like these to enter into “co-generator agreements” that allocate responsibility for different wastes, if the party contractually obligated fails to comply, EPA reserves the right to enforce against everyone who meets the definition of “generator.”
In the clean air context, obligations are determined in part based on the quantity of emissions released into the environment by a facility. Major sources — defined in the U.S. Clean Air Act as a stationary source with potential emissions exceeding certain tons-per-year thresholds — are obligated to obtain additional permits and are subject to more stringent requirements; smaller emissions sources, while still subject to regulation and normally requiring agency authorization, often face fewer requirements. Where multiple companies operate emissions-generating units at a single CPI complex, questions may arise as to whether and how to aggregate their emissions to determine if the facility qualifies as a single major source, or if there can be multiple, less-regulated minor sources inside a single fenceline.
Additionally, when permitting air emissions sources, it is typical for agencies to require modeling that would show anticipated impacts to the nearest third-party “receptors” in order to determine what emissions levels are protective of those receptors. If your nearest receptor is only a few hundred feet away inside the same fenceline, instead of outside the complex fence, your modeling will dictate much more stringent controls. Many of the environmental agencies recognize this concern and allow multiple inside-the-fence entities to designate the larger complex as a single facility for purposes of such modeling (that is, to disregard each other as receptors), using a mechanism often referred to as a “single property designation.” However, the contractual arrangements between entities intended to achieve that result may not always be straightforward.
Clean air complexities also arise in the context of Title V deviation reporting. For example, cogeneration facilities that supply power to neighboring operational units within the same fenceline occasionally experience power failures. Those failures will typically cut power to the co-located, downstream operational units. Almost invariably, this leads to unplanned emissions, which wind up in the semiannual deviation reports that are required of major point sources. Permits provide no protection in this scenario because unplanned emissions cannot be permitted. Worse, the affected operational units often bear the brunt of enforcement. Regulatory agencies rarely accept no-fault defenses in this context, even if comprehensive mitigation efforts are deployed to manage the power outages. This leaves the affected operational unit to deal with the enforcement action and penalties.
Statutes like the Toxic Substances Control Act (TSCA) and the Emergency Planning and Community Right-to-Know Act (EPCRA) are just as tricky. Reporting requirements related to the handling and storage of hazardous chemicals are often triggered by the storage, processing or release of hazardous substances in particular quantities. Are the chemicals in question to be aggregated facility-wide, or only counted entity-by-entity for purposes of establishing these thresholds? And who is legally responsible for reporting, and under which circumstances? If there is a reportable release or, unfortunately, a more serious incident such as a fire, explosion or natural disaster involving one or more entities inside the complex fence, who has incident command, and under what circumstances? Who is responsible for notifying the relevant agencies and who will interface with those agencies when they arrive at the facility?
Recent hurricanes highlight broader operational complexities that can arise when natural disasters strike. Hurricane Harvey, for example, drenched many highly integrated petroleum refineries and petrochemical complexes along a swath of the U.S. Gulf Coast, with record-setting rainfalls. As a result, many facilities scaled back or completely shut down production units. These scale-backs and shutdowns are not trivial. They require detailed engineering and business planning and training, and the disruptions force operators to make difficult decisions with potentially significant environmental consequences.
Co-location and integration with third-party suppliers compound these challenges. What are the site-wide consequences if certain suppliers go offline or if only certain operators scale back or shut down production? How are those consequences addressed and managed? These types of questions illustrate the potential complications that become necessary to vet as an operator implements its natural-disaster -response strategy.
Process safety management and risk management plan (RMP) implementation force similar evaluations. Under EPA’s RMP rules, operators must determine what processes are covered by the regulations. Some RMP rules apply to entire facilities, while others only apply to certain processes.
The RMP regulations also permit a degree of flexibility to develop a risk- management process that fits the facility. Typically, regulatory flexibility is viewed as beneficial by the regulated community. But the RMP program’s regulatory flexibility might sometimes be more of a bane than a boon. Different operators within a co-located facility likely use the flexibility within the rules to write RMPs that best fit their processes. Individually, this may be fine. Collectively, however, those RMPs could result in a hodge-podge of procedures that may not synchronize in a way that leads to efficient, coordinated response actions.
And while not environmental law per se, in the related worker safety context, the U.S. Occupational Safety and Health Administration (OSHA; Washington, D.C.) has long recognized the complications of so-called “multi-employer worksites” and developed guidance on which employers are subject to enforcement for regulatory violations at such sites under what circumstances. If agencies can recognize and plan for the tricky circumstances these co-located arrangements give rise to, then industry certainly can, as well.
Developing key arrangements
Most often, in standard operating scenarios, multiple operators that are co-located and co-integrated within a single facility have general guidance and mutual understanding of who is responsible for what. Complications in those relationships most commonly arise in non-routine scenarios where something has gone wrong — whether it’s an operational challenge, a noncompliance, an incident or accident, or attention from regulatory enforcement officials. In those circumstances, finger pointing and disagreements can begin. If the relative responsibilities of the different parties are not clear, that can lead to significant disputes and, in the interim, mistakes being magnified while none of the parties are willing to undertake the necessary efforts to correct a problem.
Unfortunately, in some cases, the contractual agreements between parties operating together inside a single industrial facility are often as simple as the legacy party retaining responsibility for pre-existing conditions and the parties agreeing going forward to each be responsible for their own compliance. As suggested above, the scenarios where things can go wrong often arise where both parties have underlying legal obligations, where responsibility is unclear or disputed, and where the entity with the greatest ability to control a problem may be an entity that was not responsible for the problem in the first place. In these circumstances, a “my stuff/your stuff” contractual allocation of responsibility is far from adequate.
The better approach to such allocations is to have the environmental experts and counsel with each relevant company carefully discuss the major applicable requirements and how they are implemented. They should also imagine the primary foreseeable circumstances that could lead to those companies having potentially overlapping responsibilities or trigger a need to work together in order to develop and implement solutions that are most favorable to all concerned.
Once areas of overlap are identified and a list of such scenarios is developed, companies should consider pursuing tabletop-style exercises or drills to better understand who needs to be involved, and when, which issues are most likely to lead to confusion or disagreement, and how those issues are likely to arise in the most probable or highest-stakes scenarios. Once those understandings are reached, operators are in a better position to plan for those scenarios together, to clarify who is responsible for what and when, and to codify those responsibilities in contractually enforceable language.
Proactive efforts save time and resources and will promote more efficient responses to events that trigger co-location and co-integration issues. Plant personnel and support staff will be able to resume their work more quickly. Getting bogged down in the blame game or post-incident allocation negotiations only distracts from the real task at hand — ensuring safe, reliable production.
Authors
Timothy A. Wilkins is a partner in Bracewell LLP’s Environmental Strategies Group. (111 Congress Ave., Suite 2300, Austin, TX 78701; Phone: 512-542-2134; Email: [email protected]). He provides strategic assistance with environmental permitting, the defense of environmental enforcement actions, assistance with the environmental aspects of major transacations, and managing environmental compliance audits and audit disclosures. Wilkins has advised clients in the energy and chemical manufacturing industries on thousands of facilities across the U.S., including numerous facilities with multiple operators onsite. He holds B.A., magna cum laude, from Trinity University, a Master’s of Public Policy degree from Harvard University, and a J.D., cum laude , from Harvard Law School.
A.J. Wissinger is a health, safety security and environmental (HSES) counsel at LyondellBasell, one of the world’s largest plastics, chemicals and petroleum refining companies (1221 McKinney St., Houston, TX 77010; Phone: 713-309-3947; Email: [email protected]). In that role, he counsels his in-house clients on a variety of issues arising under health, safety, security and environmental laws. Before going in-house, Wissinger worked as an attorney for a regulatory agency in Pennsylvania, and served as an intern at Bracewell LLP. He holds a B.A. from Cornell University, an L.L.M. degree from the University of Texas School of Law, and a J.D. from the University of Pittsburgh School of Law.