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Independent Energy Producers of New Jersey v. New Jersey Dept. of Environmental Protection and Energy

Decided. As Corrected.: July 8, 1994.

INDEPENDENT ENERGY PRODUCERS OF NEW JERSEY, APPELLANT,
v.
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION AND ENERGY AND PUBLIC SERVICE ELECTRIC AND GAS COMPANY, RESPONDENTS.



On appeal from the New Jersey Department of Environmental Protection and Energy.

Before Judges Petrella, Baime and Conley.

Baime

The opinion of the court was delivered by

BAIME, J.A.D.

The Independent Energy Producers of New Jersey (IEPNJ), a trade association whose members are engaged in the construction and operation of non-utility generating plants, appeals from a decision of the Department of Environmental Protection and Energy (Department) granting an air pollution control permit to Public Service Electric and Gas Company (PSE&G) for the repowering of its existing Bergen Generating Station and a conditional permit for the construction of a new facility at the same site. The principal question presented is whether PSE&G was required to obtain a certificate of need under the Electric Facility Need Assessment Act (N.J.S.A. 48:7-16 to -25) as a prerequisite to obtaining an air pollution control permit. We hold that a certificate of need was not required for the repowering phase of the project. However, we conclude that the Department erred by granting a conditional air pollution control permit for the construction of the new facility at the same site.

I.

The facts are not in dispute. On January 15, 1992, PSE&G filed an application for an air pollution control permit for its Bergen generating station project. The project consists of two phases. In Phase I, the existing 627 MW capacity plant will be repowered by replacing two steam generating units, each rated at 285 MW, with four combined-cycle natural gas turbines capable of producing 425 MW of power. An existing steam turbine will also produce power using steam recovered from gas turbines. So too, an existing generator will continue to produce 17 MW of power. The repowering phase of the project will increase the installed power of the existing plant from 627 MW capacity to 667 MW capacity. In Phase II, new combined-cycle capacity of approximately 650 MW will be added by constructing four additional combined-cycle turbines, with a similar routing of steam to a second existing steam turbine generator.

The existing Bergen generating station is located on a 110 acre site in Ridgefield, facing the Overpeck Creek to the north, the Hackensack River to the southwest, and the New Jersey Turnpike immediately to the east. IEPNJ does not dispute the fact that portions of the existing station are outdated and should be replaced with more efficient, state-of-the-art equipment. We note in that respect that the original plant was constructed in the 1950's. Replacement of the existing steam boilers with combustion gas turbines will increase energy producing efficiency while substantially decreasing emission of pollutants into the atmosphere. In addition, Phase I will replace the existing oil tank with one less than half its size. Exhaust stacks will be 90 feet shorter than those in place. The existing "once-through cooling design" will be replaced with a "closed-loop" system, reducing the heat load to the surrounding water bodies by utilizing "wet-dry type mechanical-draft coolers." In short, the record contains overwhelming evidence that modernization of the existing station in Phase I will enhance its operational efficiency and will result in significant improvement in the environmental quality of the region.

If constructed, Phase II will consist of four additional gas turbine engines, with a combined total capacity of 650 MW. As noted earlier, there will be a similar routing of steam to a second existing steam turbine generator. If Phase II receives the requisite regulatory approvals and is constructed as planned, the total combined generating capacity of the Bergen station will be 1,300 MW.

The Department's initial review of PSE&G's permit application and related documentation lasted more than one year and was extremely thorough. On February 18, 1993, the Department issued a draft permit and, shortly thereafter, published notice of a public hearing. The hearing was conducted subsequently on March 18, 1993. IEPNJ did not appear at the public hearing, but filed written comments in which it stated its belief that the Electric Facility Need Assessment Act (EFNA) applied to the Bergen project and, therefore, a certificate of need was required. We will examine the requirements of EFNA in greater depth later in this opinion. Suffice it to say at this point that the statutory scheme bars a public utility from commencing construction of any electric facility without first obtaining a certificate of need. N.J.S.A. 48:7-19. The Act also prohibits a governmental agency from issuing any permit or license required for such construction or substantial expansion prior to issuance of a certificate of need. Ibid. EFNA defines an electric facility as (1) any electric generating unit or combination of units at a single site with a combined production of 100 MW or more, or (2) any electric generating units added to an existing electric generating facility which will increase its installed capacity by 25% or by more than 100 MW. N.J.S.A. 48:7-18d(1) and (2). In its written comments, IEPNJ suggested that an inquiry should be conducted by way of a "declaratory ruling" under the Administrative Procedure Act (N.J.S.A. 52:14B-1 to -15). However, IEPNJ never specifically requested such a ruling. Nor did it file objections, questions or comments with regard to air emission parameters.

On May 27, 1993, the Department's hearing examiner issued a detailed report containing his findings on the Bergen station project and recommending changes in the permit conditions in response to the comments received. These revisions dealt solely with monitoring conditions for the cooling water and are not germane to this appeal. In response to IEPNJ's contention that a certificate of need was required under EFNA, the hearing examiner found that the two phases of the Bergen station project, although interrelated in certain aspects, were separate and distinct. In reaching this Conclusion, the hearing examiner emphasized that Phase I of the project involved replacing and repowering the existing facility and was not contingent upon approval of Phase II. Because the net increase in the installed capacity of the existing plant was 40 MW, less than 100 MW or 25% of the station's current capacity, the hearing examiner concluded that Phase I did not require a certificate of need. In contrast, Phase II, if constructed, would have a generating capacity of 650 MW. The hearing examiner thus determined that a final air pollution control permit could not be issued for Phase II of the project until a certificate of need under EFNA was obtained. We quote the hearing examiner's report in part because of its critical importance to resolution of the issues raised:

Phase I consists of the conversion of three existing units which total 610 MW (unit #1 and Unit #2 steam generating units, each with a capacity of 285 MW, and Unit #4, with two combustion turbines, each with a capacity of 20 MW) to four new combustion turbines and two new cooling towers, which along with existing Unit #1 steam turbine/generator condensers and auxiliary equipment, totals 650 MW. In addition to asbestos removal, the extent of the demolition or removal of the existing plant includes the No. 6 fuel oil tank and pipes, Unit 1 & 2 boilers, and Unit #4. The steam turbine building will remain standing except insofar as modification is needed to install the new equipment. Thus, the Department considers Phase I of this project to be replacement of the existing generation capacity within the limits imposed by the Act. The Act requires a certificate of need for "Any electric generating units added to an existing electric generating facility which will increase its installed capacity by 25% or by more than 100 megawatts whichever is smaller." N.J.S.A. 48:7-18 - 19. Here, an existing facility is being renovated in Phase-I which has the effect of increasing its capacity by 40 MW, less than both the triggering figures of 100 MW or 25% of installed capacity, here, 152.5 MW. It bears emphasis that the proposed Phase-II of this project with a generating capacity of 650 MW does require a certificate of need such that the issuance of this permit for Phase-I is in no manner contingent on approval of Phase-II.

Based upon the hearing examiner's report, the Department granted an air pollution control permit for Phase I. The Department found that the proposed facility was not a major modification of an existing major stationary source of air - pollution as defined by 40 C.F.R. § 52.21(b)(1)(i) (1993) and that the substantive requirements of federal regulations did not apply because the contemplated emissions would be offset by creditable decreases. The Department's approval was contingent upon PSE&G's fulfillment of 21 conditions, four that must be met before Phase I begins operation and 17 thereafter.

The Department's Disposition of the issues relating to Phase II was far more equivocal and has been characterized in different ways by the parties to this appeal. In its covering letter, the Department withheld "final determination" regarding Phase II until a certificate of need under EFNA is obtained. The Department's permit, however, added that the ...


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