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Refinery company to PSC: screw you!

by Jim Fuglie | .(JavaScript must be enabled to view this email address) | Last Word | August 5th, 2017

Of all the sleazy companies to show up in North Dakota’s oil patch in the nearly ten years since the Bakken Boom began, the sleaziest of them all has to be Meridian Energy, the company proposing to build an oil refinery called the Davis Refinery just three miles from Theodore Roosevelt National Park. I wrote about them a few months ago. Here’s an update.

Normally, when a company wants to build a large energy plant, like a refinery, it applies for a siting permit from the North Dakota Public Service Commission. Most good companies do that. It’s the law. In the case of oil refineries, if the refinery is going to be capable of processing more than 50,000 barrels of oil per day, they have to obtain a site compatibility permit from the PSC.

Here’s Section 49-22 of the North Dakota Century Code: “The legislative assembly finds that the construction of energy conversion facilities and transmission facilities affects the environment and the welfare of the citizens of this state. Therefore, it is necessary to ensure that the location, construction, and operation of energy conversion facilities and transmission facilities will produce minimal adverse effects on the environment and upon the welfare of the citizens of this state by providing that no energy conversion facility or transmission facility shall be located, constructed, and operated within this state without a certificate of site compatibility or a route permit acquired pursuant to this chapter. The legislative assembly hereby declares it to be the policy of this state to site energy conversion facilities and to route transmission facilities in an orderly manner compatible with environmental preservation and the efficient use of resources. In accordance with this policy, sites and routes shall be chosen which minimize adverse human and environmental impact while ensuring continuing system reliability and integrity and ensuring that energy needs are met and fulfilled in an orderly and timely fashion.”

Well, that’s reasonable enough, I guess. Take care of the people and their environment while providing the energy we need. The two should be compatible. You’d think that it might also keep a refinery away from the boundary of a national park.

The proposed Meridian refinery is a 55,000 bpd facility. The Davis Refinery stock offering from January 2017 says: “Meridian Energy Group, Inc. (“Meridian” or the “Company”) is a closely-held South Dakota corporation that will construct and operate the Davis Refinery, a 55,000 barrel per day high conversion crude oil refinery on a 715-acre site in Billings County, near Belfield, North Dakota, in the heart of the Bakken formation.”

In its application for a state water permit, Meridian is requesting enough water—645 acre feet per year—to supply a refinery processing 55,000 barrels of oil per day.

In its application for an air quality permit from the North Dakota Health Department, the company makes its projections on how much pollution they will be producing based on a 55,000 barrel per day refinery.

Well, okay then, it’s going to build a refinery processing more than 50,000 bpd. So the company has to get a siting permit from the PSC, right? Well, not according to the company’s lawyer, Lawrence Bender (I’m going to stop just short of calling him sleazy too, but I will say the sleazy company found the right lawyer).

Bender wrote a letter to the PSC in which he says “Please be advised that at this time, Meridian is designing its refinery to be capable of refining twenty seven thousand five hundred (27,500) barrels per day. Further, at this time, there is no design in existence nor plans to propose a design for more than 27,500 barrels.”

Huh? The company had told two other state agencies and all potential investors that the refinery is going to process 55,000 bpd. Oh, he does go on to say “Though Meridian does not presently have any designs or plans to propose a Refinery with capacity beyond 27,500 barrels of oil per day, Meridian considers it a possibility that such addition could be made at a later date.”

Good grief. A “possibility?” Somebody better tell those investors looking at the stock prospectus for Meridian Energy that the refinery they’re investing in is only a “possibility.”

The PSC members and their staff aren’t stupid. They took note of that, and wrote back “The Commission has received information that Meridian’s application to the State Water Commission for a Water Appropriation Permit is based on a facility capable of refining 55,000 barrels per day. Further, Meridian’s applications to the North Dakota Department of Health for the construction of a new crude oil refinery are based on a facility with a nominal processing capability of fifty five thousand (55,000) barrels per day.”

The letter went on, “Since Meridian is filing applications with other state agencies for permits based on a facility that can refine up to 55,000 barrels per day of oil, and since an oil refinery of that capacity is jurisdictional to the Commission for siting under North Dakota Century Code chapter 49-22, it appears that the proposed refinery is jurisdictional under the siting law. Please let us know whether Meridian agrees, and if so, when we can expect an application.”

Well, good for Patrick Fahn, director of the PSC’s Public Utilities Division, who wrote that letter. He sent it on March 1 of this year. It took Lawyer Bender about three weeks to respond. He said, basically, “Screw you, PSC.”

Explaining the water permit request, Bender reiterated that Meridian only planned to build a 27,500 bpd, but said again “it is a possibility” that the plan could expand in the future. And in response to the question on the air quality permit, he said basically, “the Health Department made us do it.” Well of course they did. They knew what Meridian was up to. They aren’t stupid either.

Bender then went on to say that under an old attorney general’s opinion, issued in 1976 by then-Attorney General Allen Olson, “applications to different state agencies concerning the same energy conversion facility need not be identical.” What?

Bender’s conclusion: Meridian doesn’t believe those two applications trigger a site compatibility review by the PSC, and they will not seek a certificate of site compatibility. So they plan to just go ahead and start building a refinery, without PSC permission.

So we’ve got a standoff right now. I’ve talked to two of the three PSC members about this, and they’re mulling it over. They gave it a run, and the company told them to get lost. So until Meridian puts a shovel in the ground, there’s not much the PSC can do.

It’s pretty obvious that the reason Meridian doesn’t want to apply for a site compatibility permit is that they believe the PSC might NOT issue a permit for this location if they applied for one. Well, that seems pretty stupid. Now they’ve really pissed off the PSC. We’ll see how this plays out.

Meanwhile, Garland Erbele, the State Engineer over at the Water Commission, did take some action, announcing he was granting a water permit for only 90 per cent of the water Meridian had applied for. His logic: If he only gives Meridian enough water to build a refinery capable of processing 49,999 barrels of oil per day, then Meridian can’t build its 55,000 BPD refinery. There, Take That, Meridian!

Cute. Real Cute. And pure pap. You don’t think Meridian might have a “fudge factor” of ten per cent or so in its request?

And what was Meridian’s reaction to that? Hey, no problem. Here’s a statement from their press release to potential investors: “William Prentice, Meridian CEO, commented on the Allocation Draft Permit, ‘We thank the Water Commission for the thoroughness and fairness of their review. While the recommended allocation is slightly less than we requested, I’m confident that we will employ our resources and determine how to make the Davis Refinery even more efficient, like we’ve done in so many areas thus far.’”

And the company’s engineer, Dan Hedrington, said in the same press release “The Recommended Decision is the draft permit the Engineer’s Office has been working toward. The document appears very thorough and complete . . .”

In other words, Thanks, Mr. Erbele. That’ll be just fine.

Really, Erbele’s little stunt is beneath the dignity of a state government agency. That’s playing Meridian’s game. You want to send Meridian a REAL message, Mr. Erbele? Grant them a permit for enough water to process the 27,500 barrels per day.

Meridian says it “might” come back later and decide to expand its refinery capacity to 55,000 bpd, but right now it’s at 27,500. So give them that much. And tell them if they decide to expand, you “might” give them more water.

There’s precedent for that. Way back in 1974, one of Erbele’s predecessors, Vern Fahy, who worked for Gov. Art Link and Agriculture Commissioner Myron Just (the two elected officials on the State Water Commission), got an application from Michigan Wisconsin Pipeline Company for water to build a whole bunch of coal gasification plants in western North Dakota.

The company requested 68,000 acre feet (Yeah, kind of makes that refinery look like small change, doesn’t it?) and the Water Commission granted them just 17,000 acre feet—a fourth of what they wanted. Wise men, Link and Just. In the end, they didn’t even need that much for the one plant they built—which, by the way, is still in operation today.

Further, they attached a whole list of conditions to the permit. At the time, North Dakota didn’t have much in the way of mined-land reclamation or air pollution laws, so they wrote some, and attached them as conditions to a water permit. Most of those conditions were eventually enacted by the Legislature and became law.

An aside—that water permit and its conditions became the entry point for then-Tax Commissioner Byron Dorgan’s involvement in North Dakota environmental matters. Just and Link had Dorgan ask Attorney General Allen Olson if those conditions could stand the test of law. Olson opined that he thought they could, and so they were valid.

Credit those four men for leading the way to protecting North Dakota’s environment. We could use four more of them today. Link’s gone, but the other three are still around. Wonder if they’re busy—today’s government leaders could use some advice about what to do with a rogue company like Meridian.

Meanwhile, today’s leaders need to do what those four great leaders did in the 1970’s—circle the wagons, and sit down and figure out what to do about this sleazy company.

Governor Burgum and the Public Service Commissioners need to display some leadership here. They need to get all the players in the room—the PSC, the Water Commission, the Health Department, and maybe even the State Securities Commissioner (don’t be surprised if THAT office needs to engage at some point)—and figure out how to get this company in line.

Surely Byron Dorgan and Art Link and Myron Just and Allen Olson would not allow a company such as this to build a refinery three miles from the national park named for our country’s greatest conservation president.

An oil refinery and a national park are not compatible. And we can’t move the national park. But we can move the proposed refinery. That’s why we have Section 49-22.1 of the North Dakota Century Code. Let’s enforce it. Pretty much everybody would agree that building a refinery in North Dakota is a good idea. Pretty much everybody would agree that three miles from a national park is the wrong place to build it (except for three people—the Billings County Commissioners, who get to collect massive property taxes from it).

There’s going to be lots more to this story. I’ll try to keep you posted.

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