State files lawsuit over North Pole refinery cleanup costs

State files lawsuit over North Pole refinery cleanup costs

Source: http://www.alaskadispatch.com, March 6, 2014
By: Dermot Cole

The state filed a lawsuit Thursday against the current owner and the former owner of the North Pole refinery, seeking damages from Flint Hills and Williams for past and future cleanup costs stemming from sulfolane pollution that extends 3 miles from the refinery.

It’s the latest step in a complicated political and legal tangle in which worries about the Fairbanks economy and efforts to get state action to save the refinery compete with concerns about the safety of drinking water in North Pole.

A trial could be years away, so it’s likely that the parties will attempt to cut a deal with the civil suit as a starting point for negotiations. The longer the liability questions remain unresolved, the more likely the closure of the refinery will be permanent.

A related issue that has already proven contentious is whether the state would offer concessions to a refinery buyer or to the current owner, Flint Hills, to encourage a sale. Flint Hills said it has no plans to waver on the shutdown. The company said it will close down because the risk of using any sulfolane at the refinery, a chemical needed for its gasoline production, is too high.

The president and CEO of Flint Hills charged this week that it appears the state “has no interest in seeing this refinery operate in the future without extracting unreasonable concessions from Flint Hills.”  Allowing a buyer to avoid responsibility for old spills, as proposed by the governor, is not enough to lead to a sale, he said.

CEO Brad Razook said the proposed cleanup level is arbitrarily low and just above the level at which the chemical can be detected, he said, which means the company — even after a sale — would face uncertain risks from any and all spills.

Flint Hills said it received a written offer last week under terms requiring the state to make a series of concessions, mostly on the extent of future liability for pollution costs and what should be an acceptable level of sulfolane pollution. Under that proposal, Flint Hills said it would pay 10 percent of the cost, up to $25 million, for an expanded water system to extend to homes in the polluted area.

While the companies and the state wrangle over who should pay and how much, the ultimate cost of cleaning groundwater and providing drinking water will depend on what the state sets as the proper cleanup level. One point of debate will be if the state would allow pollution to remain in the groundwater if a piped water system is installed in the subdivisions outside of North Pole.

The state is asserting that a sulfolane level of 14 parts per billion is appropriate, while Flint Hills is seeking 362 parts per billion as the point at which cleanup action would be taken.

Flint Hills is emphatic that the closure announcement is not a tactic to get a better oil supply contract from the state: “Fint Hills has no intention of running a refinery in Alaska in the future,” Razook wrote to Gov. Sean Parnell Tuesday.

Razook said the governor had been warned in early November of what was coming but failed to do anything about it.

“I told you that this refinery was in danger of closing because the Alaska DEC was proposing to use a cleanup level of 14 parts per billion that would make it difficult for anyone to operate it,” Razook wrote. “The general counsel of our company met with Attorney General (Michael) Geraghty one week later and repeated the same message, noting that the path we were headed down would result in the refinery closing and the state, Williams and Flint Hills Resources being engaged in protracted litigation over responsibility for cleanup. There was no response from you or the attorney general following those November 2013 meetings.”

Parnell told reporters on Feb. 6 that he believed Flint Hills shut down its refinery because of market conditions and other factors, not just sulfolane.

“It’s an accumulation of the costs of doing business, and to put one reason out there as the reason is not being accurate or truthful, based on what I heard from the company,” Parnell said.

Flint Hills, a subsidiary of Koch Industries, bought the refinery in 2004 from the Williams Companies, which began using the solvent to make gasoline in 1986. The lawsuit said Flint Hills and Williams are “liable to the state for those sums necessary to restore the site to its pre-release condition” and pay for the cost of expanding the North Pole water system, the cost of providing alternative water supplies to hundreds of homes and the cost of researching and cleaning groundwater.

Flint Hills says it has spent more than $70 million on sulfolane cleanup, with $50 million of that covered by an insurance policy taken out as part of the sale.

Flint Hills argues that all of the pollution off the refinery site is the responsibility of Williams. But the state court suit says that as early as 2005, Flint Hills “erroneously concluded that any sulfolane in the ground was from historical releases that occurred before it owned” the refinery.

The state said that Flint Hills was on notice four months after it bought the refinery about sulfolane in the groundwater at the refinery, but years passed before it took decisive action.

In a second court fight, Flint Hills is appealing a Superior Court ruling from November that said the statute of limitations had run out on its claims against Williams, the company that sold it the refinery a decade ago.

In response to the state lawsuit, Flint Hills will argue that as a former owner of the refinery site, the state should pay part of the bill, based on existing state laws regarding environmental cleanup costs. The state sold the land beneath the refinery to Williams before Flint Hills bought the refinery.

A 2002 memo from a state attorney advised that the state go along with Williams’ request to sell the leased land to the Tulsa-based company. The state analysis noted a “long history of contamination with no end in sight,” citing benzene pollution of up to 2,200 times the cleanup level on the property. The review said that the state would benefit by reducing its liability if it converted the lease to a sale.

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