EPA Slams Port Hamilton’s Bid to Dodge Consent Decree Mandate

Limetree Oil Refinery (File photo)
The refinery on St. Croix, now owned by Port Hamilton Refining and Transportation. (File photo)

When it purchased the shuttered St. Croix refinery at a bankruptcy auction in December 2021, Port Hamilton Refining and Transportation was fully aware that, under a federal consent decree governing the facility since 2011, it must install a flare gas recovery system before restarting operations, the EPA said in a court filing Friday.

The agency was responding to a motion Port Hamilton filed last month seeking “judicial clarification” of the consent decree that was modified to include Limetree Bay Refining after it purchased the refinery in December 2015 from founding owner Hovensa, which had idled the refinery in 2012 and declared bankruptcy in September 2015. Limetree subsequently declared bankruptcy in June 2021, with Port Hamilton emerging as the successful bidder in a deal that was finalized on Jan. 21, 2022 for $62 million.

At issue is whether Port Hamilton must install a flare gas recovery system, or FGRS, before it may restart the refinery. The company claims that under the modified consent decree, Limetree Bay was allowed to resume operations with the caveat that it would have two years to install an FGRS if it exceeded Clean Air Act emissions standards — and Port Hamilton should be allowed to do the same.

Without that guarantee the facility might not reopen “because the purchase, installation, and operation of a flare gas recovery system would require a substantial expenditure of resources that could prevent Port Hamilton from restarting the refinery or, upon restart without such a system, would expose Port Hamilton to enforcement proceedings, including significant penalty claims,” according to its motion.

The EPA argues that Limetree was given that latitude because the modified consent decree was still being drafted when it proposed restarting operations in April 2018 after 18 months of mandated evaluations of the plant, and under the original decree, the deadline for installing an FGRS was less than two months away.

It’s not an uncommon approach in such cases, given that “[t]he alternative of requiring a defendant to stand still until a consent decree is entered at some future unknown date creates too much uncertainty,” the EPA said in its response.

The first modification of the decree was lodged with the court on Aug. 25, 2020, and after numerous hearings was entered by the court on Dec. 30, 2021, after Limetree Bay’s restart efforts that proved disastrous.

“LBR’s operations between December 2020 and May 2021 resulted in at least six significant air emissions events, including emissions from Flare 8. On May 14, 2021, after determining that the Refinery operations presented an imminent and substantial endangerment to public health or, welfare, or the environment,” the EPA issued an administrative order for the refinery to temporarily cease operations.

On June 12, 2021, the United States filed a complaint against Limetree Bay in V.I. District Court for violations of the Clean Air Act, and that same day the company filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas.

Port Hamilton now contends in its filings that since the two-year deadline for installing an FGRS was not in effect when Limetree restarted, it should be allowed to restart to prove it can operate without such a system and then have two years to install one if it exceeds Clean Air Act standards.

In its response, the EPA called Port Hamilton’s argument a “red herring because when they (and West Indies Petroleum Limited) purchased the Refinery in the LBR bankruptcy, Port Hamilton knew full well 1) that they would be governed by the First Modification, 2) that the enforcement of the FGRS mandate in the First Modification would take into account the post-lodging activities occurring prior to the effective date, and 3) that if the First Modification does not govern on this issue, then Port Hamilton is bound by the original Consent Decree which clearly requires installation of the FGRS.”

Regardless of whether it is the first modification or the original consent decree that governs, “the FGRS must be installed and operational before Port Hamilton restarts the refinery, the EPA said.

“Paragraph 50B [of the modified decree] gave LBR the opportunity to demonstrate that it could operate the Refinery without the need to install FGRS. However, it also made clear that if LBR exceeds the gas flow rate threshold, as specified in Paragraph 50B.a.i, during the first year of operation, then FGRS must be installed on the FCCU Flare. Once the obligation is triggered, Paragraph 50B.a.i provides two years for the installation and operation of the FGRS,” it said.

Moreover, despite titling its motion as one seeking clarity, “Port Hamilton’s Motion is a motion for relief under F.R.C.P. 60(b). Port Hamilton has neither alleged nor met the standard for such relief. Port Hamilton’s Motion should be denied,” the EPA argued, citing federal rules of civil procedure governing relief from a judgment or order.

As a stand-alone flare, Flare 8 is a safety device used to burn off excess gasses to prevent the dangerous buildup of pressure in refinery equipment, the EPA said.

“Flare 8 is also an air pollution control device that destroys volatile hazardous air pollutants, volatile organic compounds, methane, and hydrogen sulfide (H2S). The burning of excess gasses in Flare 8 results in the emissions of air pollutants, including carbon dioxide (CO2), sulfur dioxide (SO2), and H2S, into the environment,” it said.

“The purpose of the FGRS required under the Consent Decree is to recapture and repurpose the excess gasses as a fuel to produce usable energy, thus reducing emissions from the flare and ensuring compliance with emission limits that apply at the flare. This also enables the Refinery to use less of other fuels at the Refinery, resulting in reductions in the amount of CO2, SO2, H2S, and other air pollutants being emitted into the environment from the Refinery,” according to the EPA’s motion.

Port Hamilton’s actions for the first 17 months after acquiring ownership of the refinery made it clear that it understood the obligation to install an FGRS, the agency said, citing the company’s weekly progress reports that stated as much.

However, after that time Port Hamilton changed its position, filing a motion for an information status conference in which it alleged for the first time that “[t]here is no obligation to install a flare gas recovery system,” according to the EPA. U.S. Magistrate Judge Emile A. Henderson III denied that motion.

“Port Hamilton is now looking for a loophole that will allow it to restart the Refinery without installation of the FGRS as required by the First Modification and the original Consent Decree,” the EPA states in its motion.

“Port Hamilton … made strategic decisions to purchase a refinery, that LBR invested $4.1 billion into over a five-year period, for $62 million. Those decisions were made with the full understanding of the FGRS obligation under the Consent Decree and the First Modification, with the full understanding that LBR had triggered the requirement to install the FGRS, and the full understanding that the FGRS was required to be installed by March 14, 2023,” according to the EPA.

“Despite 1) taking initial steps (including hiring engineers to develop the design basis and the mechanical design for the FGRS) to comply with the FGRS obligation; 2) making representations to the United States from February 2022 through April 2023 that the FGRS design work continued; and 3) having 26 months (and counting) to design and install an FGRS, Port Hamilton’s Motion argues that the company is under no obligation to install the FGRS and that requiring it to install the FGRS prior to restart would be inappropriate and inequitable,” it said.

“The primary purpose of the Consent Decree to protect public health and safety from excess air emissions would not be served by a delay in the requirement for installation of the FGRS,” the EPA concluded, urging the court to reject Port Hamilton’s motion.

V.I. District Court Chief Judge Robert A. Molloy is presiding over the case, USA et al v. HOVENSA LLC et al, and had not ruled on the motions as of Wednesday afternoon.