new state rule strengthening financial assurances from phosphate companies

Will a new state rule strengthening financial assurances from phosphate companies adequately protect Florida taxpayers from another Piney Point?

State Remains Vulnerable

The February 2001 bankruptcy of Mulberry Corporation left Florida with two abandoned phosphogypsum stack systems that are costing taxpayers over $160 million to close. In September 2004, a major spill of process water from the Mosaic phosphogysum stack occurred because of improper water management during hurricane season. These environmental and financial disasters demonstrated the clear need for the Florida Department of Environmental Protection to substantially strengthen the financial responsibility and water management criteria of its phosphogypsum management rule. DEP has not adopted strong enough rules.

New amendments adopted by DEP on February 24, 2005 fail to adequately remedy the rule&’s financial responsibility and water management deficiencies. The new rule provides substantially less financial protection than does the U.S. Environmental Protection Agency’s test criteria, and lacks stronger criteria for the management of process water in operating phosphogypsum systems.

The best level of financial assurance from owners and operators of solid and hazardous waste facilities is by means of financial instruments such as a guarantee bond, performance bond, letter of credit, insurance, or closure trust fund. Unfortunately, DEP’s 1993 phosphogypsum management rule allowed phosphate companies to meet a far less stringent test. Financial assurance was based on financial information about the owner and operator&’s financial condition, and failed to include in closure calculations the enormous cost of water treatment and disposal. Due to the impotence of the test, Mulberry Corporation was able to meet the financial assurances of DEP’s 1993 rule, but nevertheless filed bankruptcy.

In 2003, DEP proposed to phase out the financial test alternative and require the use of financial instruments. The Florida Legislature responded by requiring DEP to provide financial tests as a means for phosphate companies to demonstrate financial responsibility. Retention of the financial test option greatly weakens the phosphogypsum rule, as evidenced by the phosphate companies&’ choice to use the financial test instead of providing financial instruments (i.e., bonds, letters of credit, insurance, or closure trust funds). While the financial test criteria of DEP&’s new rule requires more frequent and potentially more reliable financial information, and includes the costs of water treatment and disposal as part of the costs of closure, the criteria are not strong enough.

The new financial test alternative does not require specific protected funds to be set aside to fund closure expenses. The reports of tangible net worth are based upon accumulation of assets over years and do not reflect whether the assets are liquid and available for use by the company. Financial statement reports of the book value of assets do not reflect the value of the assets if immediate closure is required. Furthermore, the financial test requirement of a ratio of cash flow from operations to total liabilities of 10% or greater is much too low. The ratio should be 15% or greater.

DEP’s new “Cash Deposit Arrangement” alternative does not cover the full cost of unplanned early closure of phosphogypsum stacks. The cash to be deposited is on a graduated scale over time. During the first three years, only 62% of unplanned closure costs are scheduled to be funded. Florida citizens are being required to assume the risk of tens of millions of dollars of early closure costs for phosphate companies who choose the cash deposit arrangement. Another deficiency of DEP’s new rule is that the financial responsibility criteria does not apply to phosphogypsum stacks which are closed, undergoing closure, or for which an application for closure was submitted by July 2005. It appears that only 10 of the 25 phosphogysum stacks in Florida will be subject to the new financial responsibility criteria. Additionally, companies which produce phosphate products such as Coronet Industries in Hillsborough County are not covered at all by the rule.

The new rule also lacks criteria for managing water in active phosphogypsum systems. Mosaic&’s 2004 spill established that DEP&’s existing measures are inadequate to prevent major spills. The Interim Stack System Management Plan criteria merely consists of instructions for water management for two years of operation in the event of a plant shut down. The rule must be strengthened. Florida remains at risk from financial and environmental disasters related to phosphogypsum stacks.

Environmental attorney Thomas W. Reese is a member of the Tampa Bay Regional Planning Council’s Agency on Bay Management.

New Rule Increases Oversight

The Florida phosphate industry has provided a strong industrial economic base for our state’s economy for over 100 years and provides 75% of the phosphate fertilizer used by our American farmers.

Phosphogypsum or “gypsum” is a byproduct that is produced during the manufacture of phosphate fertilizer. Gypsum is stored in large stacks and is transported to the stacks by water pipeline. This “process water” is continually being circulated in the fertilizer manufacturing process and is also retained in ponds on top of gypsum stacks. These gypsum stacks are only located directly beside fertilizer manufacturing plants. No gypsum stack is associated with the phosphate mining process. Once a gypsum stack has reached the end of its useful storage life, it is closed in an environmentally sound manner. Liners are place on top and the sides are grassed. Long-term monitoring after closure is required.

In Feb. 2001, a local Florida fertilizer company, Mulberry Phosphates, went out of business and abandoned three gypsum stacks. The Florida Department of Environmental Protection (DEP) was left with the responsibility of managing disposal of the process water and stack closure. While Mulberry was an independent private company, other phosphate companies did step forward, and took immediate actions to assist the state with the Mulberry failure. Individual phosphate companies helped dispose of the water from the Mulberry stacks and one company (Cargill, now Mosaic) actually took over responsibility from the state, on a limited reimbursement basis, to close two of the Mulberry stacks located at a fertilizer facility in Polk County.

The industry also supported use of tax money previously paid into a fund by the industry to cover the DEP expenses to treat the Mulberry water and, as part of state legislation passed in 2003, endorsed an additional tax amount to be levied by the state on phosphate mining to assist with the cost.

The 2003 law also required DEP to look at its rules to assure that they adequately require the phosphate companies to demonstrate financial responsibility to be able to close out each stack system at the end of its useful life. In response to the law, the Florida Environmental Regulation Commission approved new department rules on this topic earlier this year.

Some key provisions of the new rule requirements are:

• A new Interim Stack System Management Plan for each stack must be completed by each company and submitted to the state. These plans address the effective management and operation of the gypsum stacks during temporary periods of shut down.
• Site-specific plans to manage the process water must be developed for each stack. These plans show how the companies will manage the anticipated volume of process water on the stacks to insure future closure and long-term care. Existing rules are in place to assure the effective day to day management of process water during active operations.
• Detailed estimates of future gypsum stack terminal closure costs, including process water management, must be calculated by each company for each stack and updated utilizing accepted accounting methods. To assure the state that each company can meet these gypsum stack closure financial obligations, one or more of several specified financial mechanisms must be supplied by each company and updated and approved by the state.
• More frequent reporting on the financial condition of each company is required. Also, under the 2003 law, there are criminal liability provisions in place if a company were to falsify financial documents.

The new rules have substantially increased the stringency of financial responsibility requirements that must be met by each company producing phosphate fertilizer in Florida.

Gray Gordon is vice president of public affairs for Mosaic Fertilizer LLC