$olomon's Separate Source Request to DOE

$OLOMON'S ATTORNEY PRESENTS CASE TO ECOLOGY

Submitted to Shelton Blog via Public Information Request by Katherine Price

From: Kirk Lilley [kirk.lilley@comcast.net]
Sent: Friday, July 23, 2010 2:23 PM
To: Newman, Alan (ECY); mark.goodin@orcaa.org
Subject: Solomon Renewable Energy Co. - Separate Source Determination Request
Attachments: cover ltr.pdf; Sep source determ request.doc; Attachment cover sheets.doc; Cogen Site Plan.pdf; Attachment 2 - Agreement provisions.doc; Siemens calc expected perf.pdf

Alan and Mark – Here is a determination request for the proposed Solomon Renewable Energy Co. cogeneration facility. As noted in the cover letter, please contact me or Dave McEntee with questions or requests for additional information. Dave will be passing through Lacey later today and plans on dropping a hard copy of this request with Alan.

Thank you,
Kirk Lilley

Kirk Lilley PLLC
kirk.lilley@comcast.net
206-271-1425

EXCERPTS FROM:

Separate Source Determination Request

Proposed Solomon Renewable Energy Company
Biomass Cogeneration Facility

A. Background and Project Description

Solomon Renewable Energy Company, LLC (SREC) will own and operate a proposed 31 MW biomass cogeneration facility in Shelton, WA. The facility will be located on property leased from Simpson Lumber Company, LLC (SLC), in the same industrial complex that houses the SLC lumber mill and the Olympic Panel Products (OPP) plywood mill. The SREC boiler will be designed to burn biomass fuel, including sawmill by-products such sawdust, bark and shavings, and forest slash from logging operations.

SREC is motivated by Washington State Initiative 937 and subsequent renewable energy legislation that encourages “green” power production using biomass-powered facilities. Locating the facility adjacent to two existing wood products mills makes good business sense, but as discussed below, SREC will not have to depend on those mills for fuel. The Shelton area is a prime location for access to biomass fuel.

The following descriptions provide background information for each facility.

SREC. Solomon Renewable Energy Company, LLC is a Washington limited liability company. The SREC cogeneration plant will be comprised of a stoker wood-fired boiler, a steam turbine generator, an evaporative cooling tower, a condenser, and a fuel storage building. The boiler will be rated at 437 million British thermal units per hour (MMBtu/hr) and designed to produce up to 250,000 lb/hr of full load steam to supply a steam turbine generator with a nominal gross electrical output rating of 31 MW. The unit will be capable, through heat recovery, of selling lower pressure steam from two extraction ports. The boiler is intended to run as continuously as possible, but maintenance will require occasional shutdowns. During shutdown periods, the adjacent mills will have to provide their own steam to continue operations. As part of its cogeneration function, SREC is entering into steam agreements with the owners of the two adjacent mills to provide each with process steam and into wood fiber supply agreements with the mills for biomass fuel from the companies. The primary function of the facility will be to produce power that qualifies as biomass renewable energy under state law, for sale to the power grid. A site plan showing the location and layout of the SREC facility is provided in Attachment 1.

SLC. Simpson Lumber Company, LLC, a Delaware limited liability company, owns and operates a sawmill and planing facility that produces green and dried dimensional lumber. An existing steam generating plant produces steam to heat lumber dry kilns and buildings at the sawmill. Additionally, SLC provides high-pressure steam to the adjacent Olympic Panel Products plywood mill pursuant to a steam agreement between the two companies. The SLC plant uses lower pressure, 100 psi steam. SLC will retain the ability to use its existing hog fuel boiler in the event SREC does not provide SLC with process steam.

OPP. Olympic Panel Products operates a plywood manufacturing facility adjacent to SLC. It produces higher-end specialty plywood, including use of overlays, for use in concrete forms, road signs, and other specialty applications. OPP requires high pressure (300 psi) steam for its veneer dryers. This steam is currently produced by SLC’s existing boiler. SREC plans to provide 300 psi steam to OPP, while the existing SLC boiler would remain available as an alternative source of steam.

B. Definition of “Source”

This request addresses two different regulatory definitions of “source.” First, under state and local new source review rules, “source” means all of the emissions units … located on one or more contiguous or adjacent properties, and under the control of the same person or persons under common control, whose activities are ancillary to the production of a single product or functionally related groups of products. WAC 173-400-030(76); ORCAA Reg. 1.4. Second, under NESHAP rules, “affected source” means the collection of equipment, activities, or both within a single contiguous area and under common control … . 40 CFR § 63.2, adopted by reference in WAC 173-400-075(6)(a), and applicable under ORCAA Reg. 6.1.4(a)(1). The relevant criterion shared by these two definitions is “common control.” This request, therefore, asks Ecology and ORCAA to make a case-specific determination that SREC will not be under “common control” with SLC or OPP, to confirm that it is a separate source for air regulation applicability purposes.

C. Common Control Analysis

EPA regulations do not define “control,” so a case-by-case evaluation is to be guided by the SEC definition of control. 45 Fed. Reg. 59874, 59874 (Sept. 11, 1980). Under SEC rules:

Control is the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person (or organization or association) whether through the ownership of voting shares, contract, or otherwise.

17 C.F.R. § 240.12b-2. In applying this definition in determinations over the past 30 years, EPA has looked to see if (1) control is established through ownership by the same parent corporation or subsidiary of the parent corporation, (2) direct control is established through contract, or (3) indirect control is established through a support or dependency relationship such that one would not exist but for the other, or a contract-for-service relationship in which one sells all of its product to the other. See, e.g., Letter from Richard Long, EPA Region 8, to Margie Perkins, Colo. Dept. of Public Health & Env’t, Oct. 1, 1999, p. 2.

1. There is no control through ownership: the SREC plant will be owned by a separate company and will not share the same parent as SLC or OPP.

EPA guidance and determinations on common control generally first ask whether control through common ownership exists. Using the SEC definition, the question is whether the owners of one company have the power to direct or cause the direction of the management and policies of the other through the ownership of voting shares. EPA interprets this to mean that a person with as much as 50% voting interest in an entity should be considered to control it. Letter from Douglas Skie, EPA Region 7, to Jeffrey Chaffee, Montana Dept. of Health and Envt’l Sciences, March 22, 1990, p. 2; letter from Jewell Harper, EPA Region 4, to Ron Methier, Georgia Dept. of Nat’l Resources, July 20, 1995, p. 1 (citing a March 16, 1979 memo from John Seitz). In particular, EPA states that the “determination must focus on who has the power to manage the pollutant-emitting activities of the facilities at issue, including the power to make or veto decisions to implement major emission-control measures or to influence production levels or compliance with environmental regulations.” Letter from Robert Miller, EPA Region 5, to William Baumann, Wisconsin Dept. of Nat’l Resources, Aug. 25, 1999, p.2; see also, memo from J. Seitz, EPA OAQPS, August 2, 1996, p. 10.

In this case, there will be no common shareholder or member with a 50 percent or greater voting interest in SREC and either SLC or OPP. As a result, there will be no common owner with the ability to exercise control over SREC and SLC or SREC and OPP. This fact distinguishes the SREC plans from determinations in which EPA found common ownership through voting interest. See J. Harper, EPA Region 4, July 20, 1995 letter (United Technologies and Precision Components plants were under common control because UT had 50% voting power over Precision through another company, which UT had 100% control over); letter from D. Neely, EPA Region 4, to E. Reksten, Chattanooga-Hamilton Air Pollution Control Bureau, Aug. 8, 2001 (DuPont and DUSA facilities were under common control because DuPont had 50% joint ownership in DUSA); letter from D. Skie, Letter from Douglas Skie, EPA Region 6, to C. Rhodes, Colorado Air Pollution Control Div’n, Aug. 22, 1991 (two cogeneration turbine projects were under common control because CTI Partners, the 100% owner of one project, was also 50% owner in the other).

In addition, neither SLC nor OPP will otherwise have the power to manage the pollutant-emitting activities at SREC, and vice-versa. Under the Solomon Renewable Energy Company, LLC Operating Agreement, which serves as SREC’s charter, the business and affairs of SREC will be managed by an Operational Manager and an Administrative Manager. Initially, both posts will be held by a single individual. Under Sections 2.1.1 and 2.1.2 of the Agreement, the Operational Manager has the sole power to manage the plant, including construction, operation, production, emission control measures, and environmental compliance. Copies of relevant agreement provisions are provided in Attachment 2. SREC is wholly-owned by a limited liability company, which was formed by nine investors whose ownership interests range between approximately 9 to approximately 14 percent per investor. While each of these nine investors is a direct or indirect shareholder of SLC's ultimate parent company (of which they collectively own a majority share), the initial Operational and Administrative Manager is the sole “active” investor with any operational or administrative control over SREC; the eight other “passive” investors have no voting or other power to direct the management or policies of SREC. The person serving as the initial Operational and Administrative Manager for SREC is not a director, officer or otherwise a control person of SLC, its parent or ultimate parent, or OPP. Moreover, the Operating Agreement (in Amendment 1) requires that any person deemed to be a control person of SLC, its parent, or ultimate parent, is disqualified from serving as SREC’s Operational or Administrative Manager.

Link to SREC/DOE determination request cover letter pdf:
http://myweb.hcc.net/pkands/docs/DOE-SREC/SREC-DOE request cover letter.pdf

Link to complete SREC/DOE determination request letter pdf:
http://myweb.hcc.net/pkands/docs/DOE-SREC/SREC to DOE letter.pdf

SHELTON BLOG NOTE:

SREC/DOE determination cover & request letters also in blog reference documents.

Department of Ecology's response to follow.