Texas Natural Resource Conservation Commission Austin Texas Memorandum To: Lawrence Pewitt, P.E. Randy Hamilton, P.E. Stephen E. Anderson Hank Curry From: Jim Braddock, General Counsel Date: July 3, 1991 Subject: Enterprise Products Company - Prevention of Significant Deterioration (PSD) Requirements Mont Belvieu, Chambers County Enterprise Products Company (EPC) formerly owned a complex in Mont Belvieu, Chambers County, which contained facilities related to natural gas liquids including units for fractionation, isomerization, storage and distribution. EPC has sold a number of the facilities citing a need to minimize estate taxation, but continues to operate the facilities it has sold. Currently there are four pending PSD permit applications for the complex with four different owners; they are: 1. PSD-TX-789, Enterprise Products Company - Cogeneration unit. 2. PSD-TX-790, EPC Venture, Inc. (EPCV) - Heat Pump 3. PSD-TX-796, Belvieu Olefins Partners (BOP) - Oleflex Unit. 4. PSD-TX-797, Belvieu Environmental Fuels (BEF) - Methyl -tertiary-butyl-ether (MTBE) Unit. Concern has been raised as to whether any or all of the above referenced applications should be consolidated into one application. Justification for such an action would be that the units involved in two or more of the applications constitute one "source" as defined in the PSD rules: All of the pollutant-emitting activities which belong to the same industrial grouping, are located on one or more contiguous or adjacent properties and are under the control of the same person (or persons under common control) Pollutant-emitting activities shall be considered as part of the same industrial grouping if they belong to the same "Major Group" (i.e., which have the same first two digit code as described in the Standard Industrial Classification Manual). The focus of this opinion is whether the pollutant emitting activities are under the control of the same person (or persons under common control). There is limited information and guidance available for use in making a determination regarding control. The use of the term control rather than ownership suggests that under certain facts either ownership or operational authority could, by itself, constitute control. A request has been made to initially focus on the BEF and BOP projects. These two organizations, based on information supplied by EPC, appear to clearly have separate ownership. Himont USA, Inc., (Himont) which owns fifty percent of BOP, is represented to be a subsidiary of an Italian Company (Montedison, S.P., Milam, Italy) and does not have any ownership interest in BEF, EPC or EPCV. It does, however, have fifty percent ownership of three existing units in the complex: the P/P Splitter, the P/P Splitter Turbine Upgrade, and the propylene dehydrator. Accordingly, based on ownership, it does not appear that either BOP or BEF can be said to be part of the same PSD source with each other or with the EPC or EPCV projects. However, the fifty percent ownership of BOP by Himont raises questions whether it "controls" BOP and the three aforementioned existing units for which it also has fifty ownership. In other words should the three units be considered as the same source as that in the pending PSD application of BOP. EPC has submitted the partnership agreement creating and governing BOP. It provides for a four member management Committee with each partner having one member per twenty-five percent ownership share. Thus, Himont would have two of the four members. Action by the management committee cannot be taken without the concurrence of at least three of the four partners. Accordingly, Himont is unable to control the BOP operation as it cannot by itself control the management committee. As stated earlier, consideration must also be given to the question of whether the operation of the BOP and BEF facilities by EPC constitutes control by EPC for the purpose of aggregating those units with others owned and operated by EPC under the PSD definition of source. EPC has provided an August 11, 1989 PSD determination by EPA (John Calcagni) relating to construction of the new Denver airport as support for the proposition that ownership is the significant factor in deciding what constitutes control. However, the EPA opinion stresses the limited number of facts regarding the proposed airport that were available at the time of the opinion. It does not preclude a determination that an operator could be in control of a proposed facility even prior to construction if the facts warrant such a conclusion. EPC has provided a draft operating Agreement that would, if signed, form the authority under which EPC would operate the BOP owned plant. The operating agreement places restrictions on EPC's authority in the operation of the plant. It provides that BOP would retain ultimate authority over all decisions. It restricts EPC from making an unbudgeted expenditure in excess of ten percent of the budget or which cannot be terminated by BOP without penalty within two years of the expenditure. It also restricts capital expenditures in light of the capital expenditures budget which is established by BOP. Within this framework, EPC does have the authority to " ... perform such actions as may seem advisable or expedient in the Plant operator's reasonable discretion, for the advancement of the interests of the owner in connection with the Operation, repair maintenance modification and use of the facility..." These provisions, taken as a whole, suggest that one could not reasonably state that EPC would control the BOP operation. While EPC has the authority to make routine decisions in the operation of the plant, BOP returns authority to make or approve all significant decisions regarding plant operations including the expenditure of capital funds. EPC simply does not have sufficient authority under the proposal to "control", the plant. EPC has represented that the operating Agreement for the BEF plant will be substantially the same as the proposed Agreement for the BOP plant. If the actual operating Agreements are similar to that proposed it appears that neither the BEF nor the BOP projects would constitute the same source with any other units at the complex. The applications involving EPC and EPCV are far more complicated regarding the PSD "source" issue. EPC, through its attorney, has requested that an opinion on that issue be reserved as EPC and EPCV may decide to restructure those applications in a manner which could affect any determination made under the present facts. If you feel that an opinion on the EPC/EPCV applications is needed please advise me and it will be prepared. otherwise, I shall reserve any opinion on those applications.