judge mark barnett's feb. 9, 2012 order upholding hyperion air quality permit

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CIRCUIT COURT OF SOUTH DAKOTA

SIXTH JUDICIAL CIRCUITHUGHES COUNTY COURTHOUSE

P.O. BOX 1238

PIERRE, SOUTH DAKOTA 57501-1238

MARK BARNETTCIRCUIT COURT JUDGE

Phone: (605) 773-4014

Fax: (605) 773-6492

[email protected]

February 9, 2012

Frederick W. Addison III

Amy L. Rickers

Munsch, Hardt, Koph & Harr, PC3800 Lincoln Plaza

500 N. Akard Street

Dallas, TX75201-6659

Sam E. Khoroosi

Khoroosi Law Office

300 N. Dakota Ave., Suite 405Sioux Falls, SD 57104

John H. Davidson

31275 Saginaw Ave.

Vermillion, SD 57069

Robert L. Graham

Allison A. TorrenceGabrielle Sigel

Jenner & Block

330 North Wabash Ave.

Chicago, IL 60611

Todd Meierhenry

Meierhenry & Sargent LLP315 S. Philips Ave.

Sioux Falls, SD 57104

Roxanne Giedd

Deputy Attorney General

Chief, Litigation Division

Attorney General's Office

1302 E. Highway 14, Suite 1Pierre, SD 57501

Re: Hughes County Civ No. 09-400;In Re In the Matter of the

Prevention of Significant Deterioration (PSD) Air Quality Permit

Application of Hyperion Energy Center - Hyper ion Refining LLC -

Permit #28.0701 - PSD

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mailto:[email protected]

mailto:[email protected]



Hyperion proposes to construct a petroleum refinery and power plant

known as the Hyperion Energy Center, hereinafter HEC, in Union County,

South Dakota. Hyperion applied for and was issued a Prevention of

Significant Deterioration Air Quality Preconstruction Permit #28.0701- PSD

Permit, hereinafter PSD permit by the Board ofMinerals and Environment,

hereinafter the BME. Subsequent to the issuance of the PSD Permit,Hyperion and Citizens Opposed to Oil Pollution, Save Union County, and

Sierra Club, hereinafter collectively referred to as Sierra Club, appealed the

BME's findings and conclusions to this court. Thereafter, Hyperion

requested an extension of the commence construction deadline in the PSD

permit. Additionally, this court issued its order requiring the BME to take

additional evidence. A second hearing was held before the BME, which

consisted of the testimony of several live witnesses from all parties. The

BME subsequently issued an amended permit from which Hyperion and

Citizens now appeal.

BACKGROUND

Hyperion proposes to construct a petroleum refinery near Elk Point,

South Dakota. In addition to the petroleum refinery, the proposed facility

will include a power plant, referred to as the Integrated Gasification

Combined Cycleplant, hereinafter IGGC power plant.

Prior to constructing the petroleum refinery and power plant, Hyperion

is required to apply for a PSD permit. A PSD permit is required for any

regulated pollutant prior to construction of new major stationary sources in

areas designated as in attainment with the National Ambient Air Quality

Standards, hereinafter NAAQS. In South Dakota, the DENR's Air Quality

Program administers the air quality permitting as required by the Clean Air

Act as well as state and federal statutes and regulations.

In December of 2007, Hyperion submitted its PSD permit. Following

the submission ofHyperion's application of the PSD permit, there was a

period of time reserved for review and public comment for the proposed PSD

permit. Also, during this time, Sierra Club filed a Petition to Intervene in the

Contested Case Hearing, which was granted. Following a contested hearing

between the parties, the BME issued a PSD permit on August 20, 2009.

After the issuance of the PSD permit, Hyperion and Sierra Club appealed.

On June 23, 2010, Hyperion requested an extension from the DENR of

the "commence construction" deadline contained within the PSD permit. Also

on June 23, 2010, this court issued its order requiring the BME to take

addition evidence for issues related to the request for extension of

construction commencement date; the primary NAAQSfor Nitrogen Dioxide

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Final Rule; the primary NAAQSfor Sulfur Dioxide Final Rule; the coker

quench water tank; any final greenhouse gas rules, and any additional

evidence regarding Best Available Control Technology determinations,

hereinafter BACT. Hyperion's application was supplemented several times,

and was complete in February 2011. DENR then proposed a Draft Amended

PSD permit which was subject to review and public comment for a period oftime. A second contested case hearing was held and, on September 16, 2011,

BME issued its Findings of Fact and Conclusions of Law and approved the

Proposed Amended Permit. Subsequently, Sierra Club filed a notice of

appeal regarding several issues with the Amended Permit. Hyperion also

filed a notice of appeal reasserting a single issue.

Sierra Club appeal the following issues:

I. "Whether the [BME's] decision to issue a PSD Permit to

Hyperion for construction of the REC should be reversed for

violating applicable federal or state air pollution control law

II. Whether the [BME's] decision to issue a PSD Permit to

Hyperion for construction of the REC should be reversed as

violating the mandatory public participation requirements

imposed under federal and state air pollution control law

III. Whether the failure ofDENR and the [BME]to require an

Environmental Impact Statement [hereinafter EIS] under the

South Dakota Environmental PolicyAct, SDCL Ch. 34A-9,with

respect to the construction ofthe REC ... should be reversed

as violating the South Dakota Environmental Policy Act ... "

Opening Brief by Sierra Club, January 13, 2010, 2-3.

IV. "Whether the [BME's] 2011 Decision to issue an Amendment

Permit and the [BME's] 2009 Decision to issue the Original

Permit should be reversed pursuant to S.D.C.L. § 1-26-36

V. Whether, even if the Original Permit did not expire as a matter

oflaw, the [BME's] 2011 Decision to issue an Amended Permit,

should be reversed pursuant to SDCL § 1-26-36because

Hyperion failed to establish satisfactory justification for the

extension until March 15, 2012 ofthe commence construction

deadline as provided in the Amended Permit

VI. Whether the [BME's] 2011 Decision should be reversed

pursuant to SDCL § 1-26-36because the [BME]concluded that

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Hyperion and DENR met their burden of proving that their

Amended Permit applied BACT to all significant emissions units

at the REC, where: [there were several issues involving BACT]

VII. Whether the [BME's] 2011 Decision should be reversed

pursuant to SDCL § 1-26-36 because the [BME]concluded thatHyperion and DENR met their burden of proving that the REC

will not cause or contribute to a violation of the [NAAQS]or

PSD increments, when Hyperion and DENR's air quality

modeling: [failed to use representative metrological data and

failed to follow certain recommendations of the Environmental

Protection Agency, hereinafter the EPA]

VIII. Whether the [BME's] 2011 Decision should be reversed

pursuant to SDCL § 1-26-36 because the [BME] improperly

placed the burden on [Sierra Club], as intervening parties, to

prove that the REC will cause a violation of the NAAQS and

PSD increments, including by finding that the Citizens failed to

conduct independent air quality modeling."

Sierra Club Additional Opening Brief, November 9,2011,4-6.

Hyperion appeals the following issue:

I. "Whether the lack of evidence and support in the administrative

record for the DENR's proposed CO limit of 0.007 lb/mmBtu on

large process heaters renders the Board's findings of

achievability of this limit for the large process heaters at the

REC clearly erroneous?"

Hyperion's Brief on Appeal, November 10, 2011, 4.

STANDARD OF REVIEW

When reviewing a decision from an administrative agency, this court

must use the standard of review set forth in SDCL § 1-26-36, which states as

follows:

The court shall give great weight to the findings made and

inferences drawn by an agency on questions of fact. The court

may affirm the decision of the agency or remand the case for

further proceedings. The court may reverse or modify the

decision if substantial rights of the appellant have been

prejudiced because the administrative findings, inferences,

conclusions, or decisions are:

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(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error oflaw;

(5) Clearly erroneous in light of the entire evidence inthe record;

or

(6) Arbitrary or capricious or characterized by abuse of

discretion or clearly unwarranted exercise of

discretion.

A court shall enter its own findings of fact and conclusions of

law or may affirm the findings and conclusions entered by the

agency as part of its judgment. The circuit court may award

costs in the amount and manner specified in chapter 15-17.

Under this statute, the applicable standard of review "will vary depending on

whether the issue is one of fact or one oflaw." Orth v. Stoebner & Permann.

Const., Inc., 2006 SD 99, , - r 27, 724 NW2d 586, 592 (quoting Tischler v. United

Parcel Service, 1996 SD 98, , - r 23, 552 NW2d 597,602). "When the issue is a

question of fact, then the actions of the agency are judged by the clearly

erroneous standard; and when the issue is a question oflaw, then the actions

of the agency are fully reviewable [i.e., de novo]." Id. "Mixed questions of fact

and law are fully reviewable." Orth, 2006 SD 99, , - r 27, 724 NW2d at 592

(quoting Brown v. Douglas Sch. Dist., 2002 SD 92, , - r 9, 650 NW2d 264,268)."Adecision is clearly erroneous if, after reviewing the entire record, the

reviewing court is left with a definite and firm conviction that a mistake has

been made." Enger v. FMC 2000 SD 48, , - r 6,609 N.W.2d 132,134 (citing

Sopko v. C & R Transfer Co., Inc., 1998 SD 8, , - r 6, 575 N.W.2d 225, 228).

When an agency makes factual determinations on the basis of deposition

testimony or documentary evidence, the matter is reviewed de novo.

McKibben v. Horton Vehicle Components, Inc., 2009 SD 47, , - r 11, 767 NW2d

890, 894 (citing Truck Ins. Exchange v. CNA, 2001 SD 46, , - r 6, 624 NW2d 705,

708). "When findings of fact are made based on live testimony, the clearly

erroneous standard applies." Orth, 2006 SD 99, , - r 28, 724 NW2d at 592 (citing

Brown, 2002 SD 92, , - r 9,650 NW2d at 268).

ANALYSIS

In making its decision in this appeal, this court has thoroughly

reviewed, weighed, and educated itself on each assertion oferror presented

by Sierra Club and Hyperion and reflected upon the factual findings and

conclusions of law made by the BME. In educating itself on the issues

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presented, this court has participated in three hours of oral argument and

carefully considered some 500 pages of briefs, which have been spread

between briefs on the initial appeal to this court; briefs on the motion to

remand for more evidence; and briefs on the return to the circuit court. In

short, this court has fully familiarized itself with virtually all of the

multitudinous issues raised by the parties, including arguments relating tovarious BACT issues for emitting equipment; arguments of statutory and

regulatory interpretation and application; arguments as to correct air

modeling data; claimed burden shifting; and the like.

I. Best Available Control Technology ("BACT")

A. Sierra Club's Claims

In assessing Sierra Club's assertions of error in the BME's factual

findings related to BACT for several emission sources, this court carefullyreviewed the following BACT findings for clear error: the method of analysis

used by the DENR in determining BACT; BACT limits for coke drum steam

vents; BACT for coker quench water handling system; BACT limits for

greenhouse gas for several emission units, including a BACT analysis for

greenhouse gases in process heaters, C02 vents, combined cycle combustion

turbines, small combustion sources, and a leak detection and repair program;

a cost analysis and BACT limit for process heaters for various regulated

pollutants including but not limited to, nitrogen oxides, volatile organic

compounds, particulate matter, and sulfur; BACT limit for cooling towers,

storage tanks, loading racks, the sulfur recovery plant, and the wastewater

treatment plant; BACT involving the IGCC for various regulated pollutants

and flaring; and BACT for flare control for the HEC.

This court has thoroughly and carefully assessed each of these alleged

factual errors under the clearly erroneous standard. It is apparent to this

court that the BME correctly analyzed the various expert opinions and

testimony relating to the BACT for several emission sources. This court also

finds, as did the BME, that the DENR followed a proper and adequate

method of analysis of weighing particular factors in order to find what

constituted BACT for several emission sources. The record clearly supports

theBME's factual findings relating to BACT, and, thus, this court is not left

with a definite and firm conviction that a mistake was made by the BME in

its factual findings relating to BACT.

B. Hyperion's Claim

Hyperion asserts one factual error in the BME's decision. Hyperion

argues that it was error for the BME to conclude that a CO limit of 0.007

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Ib/mmBtu was BACTfor large process heaters. Instead, Hyperion asserts

that the stringent BACTlimit of 0.007 Ib/mmBtu is unattainable and instead

proposes that the BACTlimit for COfor the large process heaters should be

O.Ollb/mmBtu. In responding to Hyperion's argument, DENR argues that

Hyperion waived this issue by not arguing it at previous levels ofthis

administrative appeal.

Upon review, this court does not find that Hyperion waived its

argument regarding the COBACTlimit for large process heaters. In support

of such finding, the court notes that, even though there was no testimony at

the additional evidence hearing, Hyperion admitted into the administrative

record evidence regarding the COBACTlimit for large process heaters. In

finding no such waiver, this court will address the merits of the COBACT

limit for large process heaters argument.

In recommending the 0.0071b/mmBtu COlimit as BACTfor the largeprocess heaters, the BME reviewed and properly relied on several other

permits from other facilities in finding that the more stringent BACTlimit

(0.007 Ib/mmBtu) was achievable. It is not within this court's province to

overturn findings of fact by the BME that are clearly supported by the record.

Further, there is nothing in the record that would leave this court with a

definite and firm conviction that a mistake was made by the BME. A CO

limit of 0.007 Ib/mmBtu is, not only achievable, but BACT. Thus, the BME

did not err in its finding regarding the COBACTlimit for the large process

heaters.

H. Air Modeling

Sierra Club asserts that the BME erred when it concluded that the

HEC will not violate state and federal air quality standards. Sierra Club

argues that site specific data from Union County is more representative

meteorological data for air quality monitoring than data gathered at Sioux

City, Iowa or Sioux Falls, South Dakota. Sierra Club asserts that Hyperion

should be required to collect one full and complete year of site-specific Union

County meteorological data to use in a revised air quality modeling analysis.

Additionally, Sierra Club argues that Hyperion improperly modeled S02,

N02, and particulate matter emissions. Lastly, Sierra Club asserts that

there were significant errors in Hyperion's air quality modeling because it

failed to completely revise its air quality modeling as requested by the EPA.

In reviewing the record for factual error in Hyperion's air modeling,

this court is not left with a definite and firm conviction that a mistake was

made. Hyperion complied with state and federal air quality standards. This

court defers to the factual findings of the BME as its findings were supported

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by the record. Further, the BMEwas in the best position to judge the

credibility ofwitnesses as to the appropriate air quality modeling; air

monitoring data; and representative data site. This court also finds that the

record supports the BME's findings as to the NAAQSand increment analysis

for S02, N02, and particulate matter and Hyperion's compliance with the

NAAQSfor nitrogen dioxide and sulfur dioxide.

III. Environmental Impact Statement

In arguing for the necessity of an Environmental Impact Statement,

hereinafter EIS, Sierra Club asserts that the BME had jurisdiction to require

an EIS. Further, Sierra Club argues that the REC is the type ofproject,

because of its size, that an EIS should be mandated for.

In reviewing the statutory authority and case law presented by Sierra

Club in support of its argument, this court finds, as did the BME, that an EISis not mandatory in the PSD permitting process in South Dakota. Further,

an EIS is outside of the jurisdiction of the BME. Lastly, this court finds, as

did the BME, that the DENR properly exercised it authority and discretion in

choosing not to perform an EIS. Thus, because it was not mandatory and

outside of the jurisdiction of the BME, an EIS was not required to be

performed by the DENR.

IV. Public Review and Comment

Sierra Club asserts that crucial permit information was not subject to

public review and comment. Sierra Club argues that such crucial information

pertaining to Hyperion's PSD permit, which was not subject to public review

and comment, includes the following:the disclosure ofcharacteristics ofcrude

fuel feedstock to be refined at REC; characteristics ofpetroleum coke;

identification and quantification ofair emissions occurring during the

construction of the REC; identification and quantification ofair emissions

occurring during the operation of support facilities to the REC; a startup,

shutdown, and malfunction plan; flare minimization plan; and a dust

suppression/dust prevention plan.

In agreeing with all of the BME's factual findings related to the public

review and comment on information contained within the permit, this court

finds the public was provided a meaningful opportunity and time to review

and comment on the PSD permit. Further, this court also finds that the

DENR conducted a due diligence review ofthe Application by spending

hundreds of hours reviewing and considering several thousand public

comments. This court also notes that many of Sierra Club's assertions of

error regarding public review and comment about particular permit

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information, such as a startup, shutdown, and malfunction plan, is improper

at this time. The public will have an opportunity to comment and review

such information if Hyperion is allowed to apply for a Title V Operating

Permit. Thus, based on the public's meaningful opportunity to comment on

the permit and the due diligence review of the public comments by the

DENR, this court is not left with a definite and firm conviction that a mistakewas made by the BME in adopting the DENR's responses to the public

comments.

V. Construction Date Extension

Sierra Club argues that Hyperion allowed the initial permit to expire

by failing to commence construction of the HEC within the eighteen month

construction period. Further, Sierra Club argues that the filing of an

application for an extension of the permit is not enough to extend the period

of time in which the permit is still considered valid.

In assessing this argument, this court finds the arguments of Sierra

Club to be lacking in merit. Sierra Club's offered interpretation would render

the permit law in South Dakota completely unworkable in practical terms.

This court cannot read ARSD 74:36:09:02and S.D.C.L. § 1-26-28to render an

absurd result. Further, some of the cases cited by Sierra Club with regard to

this issue are of no assistance to the court. Notably, those decisions did not

involve an extension of a permit at all. Those cases simply held that once the

permit has expired, the permit is no longer valid. The situations presented in

Sierra Club's cited cases are not what the court and the parties are faced

with in this case. In this case, the application for extension was filed on June

23, 2010 before the initial eighteen months ran out, and therefore, the

application was timely and appropriate. The law and cases cited by DENR

are persuasive. The conclusions of the BMEwere well-reasoned and well-

supported, and thus, this court concludes that the filing of the extension

application for the commence construction date within the eighteen month

timeframe was timely and appropriate. Therefore, as the BME found, the

permit was not rendered invalid.

VI. Justification for Extension

Additionally, Sierra Club argues, in the alternative, that even if the

original permit was not invalid, Hyperion failed to justify the extension of the

commence construction deadline. The applicant must prove that the

extension to the commence construction deadline is justified. In arguing that

the commence construction deadline was not justified, Sierra Club argued

that none of the reasons proffered by Hyperion justified the requested

extension.

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In reviewing de novo the BME's conclusions oflaw regarding the

justifications for the extension presented by Hyperion, this court concludes

that the evidence submitted in support ofHyperion's request for extension of

the commence construction deadline, supports the extension. The extension

was justified given the economic recession which caused delays in thedevelopment of large capital projects such as the HEC; the pending appellate

process regarding the future status of the permit; the addition of another

emissions unit for the HEC; and additional NAAQSanalyses for two more

regulated pollutants. Given the well-documented evidence of such

justifications, this court concludes that Hyperion's extension ofthe commence

construction deadline was justified.

VII. Burdens of Proof Imposed on the Parties

Sierra Club asserted that, based on several findings of fact, the BMEimproperly shifted the burden of proof regarding the PSD permit on to the

Sierra Club. During oral argument, Sierra Club directed the court's attention

to several findings of fact in which it believed the BME improperly shifted the

burden ofproof.

In addressing this argument, this court concludes that this "burden

shifting" argument is without merit. This court has scoured the record, the

factual findings by the BME, and the conclusions of law by the BME for

anything to legitimately suggest that the BME improperly shifted the burden

ofproof. Based on its own review of the record, findings, conclusions, as well

as its review of the specific factual findings as highlighted by Sierra Club in

oral arguments, the court finds that the BME did not improperly shift the

burden onto Sierra Club. The BMEwas merely discussing how much weight

to give to various contentions which Sierra Club raised but did not support

with evidence. It is readily apparent to the court that the burden was placed

on the right parties at all times, and thus this court will not overturn any of

the BME's factual findings or conclusions of law on the basis of Sierra Club's

claim that the burden of proving such findings and conclusions was borne by

the Sierra Club.

CONCLUSION

As stated above, the court has carefully reviewed some 500 pages,

which have been spread between briefs on the initial appeal to this court;

briefs on the motion to remand for more evidence; and briefs on the return to

this court. Additionally, this court spent three hours closely questioning

skilled counsel at oral argument. The court has thoroughly reviewed,

weighed, and educated itself on each assertion of error presented by the

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Sierra Club and Hyperion and reflected upon the findings and conclusions by

the BME.

This court regularly issues lengthy memorandum decisions. In the

present case, however, the court is of the view that drafting such a lengthy

memorandum decision would be contrary to judicial economy, when this courtis firmly convinced that the underlying decision has been reached in

accordance with all applicable statutes, administrative regulations, and case

law. This court is further convinced that the prevailing party at the

administrative hearing level, the DENR, has correctly addressed all of the

issues in its briefs to this court. The court is impressed that "great deference"

in this case is an unneeded luxury or presumption - no deference at all is

necessary to find that the BME's final decisions were well-founded. Ifgreat

deference were factored in, there would be no question that the decision

should stand. True, there are heated disputes abounding in such categories

as the appropriate BACTfor a given emitter, but these disputes are oftencentered upon factual arguments between experts; credibility; and weight of

the evidence, as perceived by the BME. Thus, it is not this court's function to

second guess fact findings of theBME, which do have more than adequate

evidentiary support.

This court is unable to find any error in the findings of fact and

conclusions of law of the BME. The issues presented by Sierra Club and

Hyperion were all correctly addressed by the DENR in its various briefs to

this court. Accordingly, the DENR shall prepare a complete set of Findings of

Fact and Conclusions of Law for this court's review, which shall serially

address all issues raised by Sierra Club and Hyperion. Sierra Club and

Hyperion will be expected to submit their own competing Findings,

Conclusions, and objections. This court fully intends to carefully "police"all

parties' Findings and Conclusions in order to see that they are correct, or

amend as need be. The court will count on the parties to point out any

proposal that is not supported in law or the record. Therefore, the decision of

the BME is AFFIRMED in its entirety.

Sincerely,

The Honorable Mark Barnett

Circuit Court Judge

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judge mark barnett's feb. 9, 2012 order upholding hyperion air quality permit

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