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DALEE OIL COMPANY,

Petitioner,

V.

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY,

Respondent.

Dorothy M. Gunn, Clerk

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph Street

Suite

11-500

Chicago, IL 60601

Carol Sudman, Hearing Officer

Illinois Pollution Control Board

1021

North Orand Avenue, East

P.O. Box 19274

Springfield,

IL

62794-9274

CLER~cSOFFICE

SEP

3

02003

)

PCB No.

03-118

STATE

OF IWNOIS

)

PCBNo.

03-119

Pollution

control Board

)

PCB No.

03-150 (Consolidated)

)

(UST Fund Appeals)

)

NOTICE

Curtis W. Martin

Shaw & Martin, P.C.

123 South Tenth STreet

Suite 302

P0

Box

1789

Mt. VernOn, IL

62864

PLEASE

TAKE NOTICE

that

I have today filed with the

office of the

Clerk

of the Pollution

Control Board

a RESPONSE TO PETITIONER’S

BRIEF, copies of which are herewith served upon you.

Respectfully submitted,

ILLINOIS ENVIRONMENTAL PROTECTION AGENCY,

Respondent

Assistant Counsel

Special Assistant Attorney General

Division ofLegal Counsel

1021

North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

217/782-5544

217/782-9143

(TDD)

Dated:

September 30, 2003

OF THE STATE OF ILLINOIS

)

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P.03

BEFORE THE POLLUTION CONTROL BOARA~~L

fED

OF THE

STATE OF ILLINOIS

~

F~’~

)

SEP3O~3°3

Petitioner,

)

PCB No. 03-118

~ T~

OF

~

v.

)

PCB No.

03-fl

~

ni

.

~

r~troI

Board

ILLINOIS ENVIRONMENTAL

)

PCB No. 03-150 (Co~l1~à?edy

PROTECTION AGENCY,

)

(UST Fund Appeals)

Respondent.

)

RESPONSE TO PETITIONER’S

BRIEF

NOW COMES the Respondent, the Illinois

Environmental Protection Agency

(“Illinois

EPA”), by

one of its

attorneys, John J.

Kim,

Assistant

Counsel

and

Special

Assistant

Attorney

General, and,

pursuant to

an order entered by the Hearing Officer dated August 6,

2003, hereby

submits its Response to the Petitioner’s Briefto the Illinois Pollution Control Board

(“Board”).

1.

BURDEN OF PROOF

Pursuant

to

Section

105.112(a)

of

the

Board’s

procedural

rules

(3.5

Iii.

Adm.

Code

105.112(a)),

the

petitioner bears

the

burden of proof.

The burden of proving

that

challenged

costs in

a claim for reimbursement

are

reasonable and related to

corrective action rests solely on

the

applicant

for reimbursement.

Richard

and

Wilma

Salyer

v.

Illinois

EPA,

PCB

98-156

(January 21,

1999), p.

3; ~

~

Ted Harrison Oil

Comnany v. Illinois EPA, PCB 99-127 (July

24,

2003), pp.

4-5

(the burden of proof is

on

the owner or operator of an underground

storage

tank to provide an accounting of

all

costs).

Here,

there

are

three decisions under appeal, all of

which

involve

the

same

common

issue.

Thus,

the

burden

of proving

that

those

decisions

involving a modification of costs allowed for a groundwater treatment

system were

erroneous

is

upon the Petitioner.

DALEE OIL COMPANY,

1

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II.

STANDARD

OF REVIEW

Section

22.11 8b(g) ofthe Environmental Protection Act (“Act”) provides that an

applicant

may appeal an Illinois EPA decision denying reimbursement to the Board under the provisions of

Section 40 ofthe Act

(415 ILCS

5/40).’

Pursuant to

Section 40 ofthe Act, the Board’s. standard

ofreview is

whether

the application submitted

to the Illinois

EPA would not violate the Act and

Board

regulations.

Ted Harrison, p.

5.

In this situation, the

Board’s standard of review should

be whether the information submitted to the Illinois EPA would lead to a violation ofthe Act and

Board regulations if the reimbursement requested had been granted.

Based

on

the

information

within

the

Administrative

Records

(“Records”)

and

the

testimony

elicited at hearing held on July 24,

2003,2 and

applying’the relevant

law,

the Illinois

EPA respectfully requests that the Board enter an order upholding the Illinois EPA’s decisiOn.

IlL

FACTS

There

are

three

decisions under

appeal

by

the Petitioner,

all

involving

the

same

issue.

The

Petitioner

has

sought, 1~~r

~jLa,reimbursement of costs

associated

with

a

groundwater

treatment unit

and

soil vapor extraction unit (“unit”)

utilized at the

subject site.

In each of the

decisions

under

appeal,

the

Illinois

EPA

adjusted

the

amount

of money

allowed

for

reimbursement on

a monthly basis for the unit.

AR

118, pp.

1-4; AR 119, pp.

1-4;

AR

150, vol.

1, pp.

1-4.

Specifically,

the

Petitioner sought reimbursement in the

amount

of $3,750.00/month

for

the unit.

AR

118, pp.

31, 34, 47, 49; AR

119, pp.

58,

60,

76, 70,

84, 87; AR

150, vol.

1, pp.47,

‘In its

brief, the Petitioner seems to

argue that

the Illinois

EPA’S reliance upon

Section 22. lSb(d)(4)(C)

of the Act

is

misplaced,

since that section

has been repealed.

The

Illinois

EPA acknowledges that Section 22.1gb ofthe Act was

repealed,

but notes

that provisions of that section

are nonetheless

still applicable

here.

For a full

discussion of this

statutory history, the Illinois EPA

refers

the Board to its

discussion atpages 4 through

5

in the Ted

Harrison case.

Citations

to

the Administrative Record will hereinafter be made as, “AR XXX,

p.

“

The

“XXX” shall refer to

either

uS,

119 or

150,

as

in

PCB 03-118,

03-119

and 03-150.

References to

the transcript of the hearing will

be

made as, “TR,

p.

_.“

2

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50,

62.

65,

77, 20,

93,

97, 108, 111, 121, 124, 137, 140,

153,

156,

168, 171, 183, 186.

The

Illinois EPAreduced thepermonth allowance

to

$2,457.31/month.

AR

118, p.

4; AR 119,

p. 4;

AR

150,

vol.

1,

p.

4.

The difference between the amount

sought

by

the

Petitioner

and

the

amount

approved

by

the

Illinois EPA is $1,292.69/month.

In

PCB

03-118,

there

were

two

months for which

reimbursement was

sought

for the unit

(October and

November

200:1),

AR

118,

pp.

31, 34, 47, 49.

In PCB 03-119, three months were sought forreimbursement for the Unit

(July, August and

September 2001).

AR 119,

pp. 58, 60,

67, 70,

84, 87.

Finally, in PCB 03-150,

10

months

were

sought

for reimbursement

for the

unit

(November or

December

2001,

and

January through

September 2002).

AR

150,

vol.

1,

pp.

47,

50,

62,

65,

77, 80,

93, 97,

108,

111,

121,

124,

137,

140,

153,

156,

168,

171,

183,

186.

The amounts deducted in the final decisions

under

appeal

reflect

the

number

of

months

sought

for

reimbursement

multiplied

by

$1,292.69/month.

IV.

THE PETITIONER FAILED TO DEMONSTRATE

THE COSTS

IN QUESTION

ARE

REASONABLE

The Petitioner has failed

to

demonstrate

that the monthly

rate sought

for reimbursement

for the

unit

is

reasonable,

as

required pursuant

to

Section

22.1 8b(4)(d)(C)

of the

Act.

The

Petitioner relies on two arguments in its

brief,

one

being testimony presented in

the

form of an

offer of proof and

the other a

more general

argument

regarding market or

industry standards.

Both arguments fail on the merits and should not be considered or, at best, should be discounted.

A.

The Petitioner’s Offer ofProof Should

Not Be Admitted

in

its

briel,

the

Petitioner

argues

that

certain

calculations

described

by

one

of its

witnesses should

be taken into consideration as a demonstration that the

monthly rate

sought for

the unit

is

reasonable.

Petitioner’s Brief;

pp.

3-4.

However, the testimony

upon

which

those

arguments are based was elicited at the hearing in the form ofan offer ofproof.

TR, pp. 36-38.

3

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The objection made by the Illinois

EPA at hearing was that the document that was the subject of

the

testimony

contained

information that

was

never

presented to,

or

made available

to,

the

Illinois EPA at

any

time up to

the dates ofthe decisions in question.

TR, pp.

27-35

During the

hearing,

counsel

for

the

Petitioner

did

not

make

any

arguments as

to

why

the

information

contained

in

the

document

should

be

considered

by

the

Board

or

otherwise

admitted

into

evidence.

The information in question was not

found in

any of

the submittals prepared

by the

Petitioner for the Illinois EPA’s review,

and therefore the Illinois EPA had no way to know the

information.

In

fact,

there is no

evidence that the Illinois EPA had ever seen the information

in

question on the document until

it was provided

at hearing.

Similarly, the testimony of Joseph

Kelly

as

elicited

by

the

Petitioner

described

figures

and

calculations

that

had

never

been

disclosed

to

the

Illinois

EPA.

Indeed,

Mr.

Kelly

admitted

that

if

the

information

was not

provided with

the specific

breakdown of calculations

and

other factors, it would be

impossible

for

the

Illinois

EPA

to

determine

the

Petitioner’s

consultant’s

overhead

calculations

or

its

amortization terms.

TR, pp. 45-46.

It

is

well-settled that the Board’s review of a final decision by the Illinois EPA should be

limited

to

the information before the Illinois EPA during the period ofreview and up to

the date

ofthe decision itself.

Typically, information or evidence that was not before the Illinois EPA at

the

time

of

its

decision

is

not

admitted

at

hearing

or

considered by

the

Board.

Community

Landfill Company and

City of Morris v. Illinois EPA,

PCB 01-170, p.

4 (December

6,

2001).

In the instant case, the principle repeated by the Board in

the

Community

Landfill case is

applicable.

The Illinois EPA did not know what the period of time for amortization of the down

payment for the unit, the Illinois

EPA did

not know the overhead

percentage

applied to

the site’s

costs

by the Petitioner’s

consultant,

and

generally speaking the

Illinois EPA

did

not know the

4

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specific calculations employed by the

Petitioner’s

consultant

to

reach

the

monthly

rate

of

$3,750.00/month.

Since

this

information

was not

before the

Illinois

EPA

at the

time of

its

decision,

the

Hearing

Officer

properly

excluded

the

testimony

at

hearing

but

did

allow the

Petitioner to make an offer ofproof. The Petitioner has offered

no explanation in

its briefas to

whythe offer ofproof should be admitted, and the

only explanation provided at hearing was that

the information was used for “demonstrative” purposes.

TR, p.

29. That is a weakexplanation,

since

there was nothing

demonstrative about the

document

or the

testimony;

rather,

both

the

document and

the testimony

sought

to

present information

to

the Board for consideration

that

was not before the Illinois EPA at the time of .its decisions.

The Board should therefore not only

uphold the Hearing Officer’s decision to exclude the document aridtestimony, but

it should also

accordingly

strike or not

consider the arguments

in

the

Petitioner’s brief based

on

the offer of

prooftestimony.

If the

Board

somehow

does

decide

that

it

will

allow

the testimony

and

resulting

arguments,

then the IllinoisEPAcan

only respond that

it did not

have any of the information in

question before it at the time of its

decision and therefore

could not possibly have taken it into

account.

Since the information was not included

with any request for reimbursement of costs for

the unit’s

monthly

rate, then the Petitioner failed

to

meet

its

burden of providing an

adequate

demonstration

that

the

cost

(i.e., the

monthly

rate)

was reasonable.

Whether

the

Petitioner’s

arguments

regarding the

consultant’s

calculations

are

at

all persuasive

after the

fact

are

not

relevant to the question ofwhether the applications as submitted contained adequate information

to

support the

requested monthly rate.

The Board

should uphold the Hearing

Officer’s decision

and

disregard

the

testimony,

and

resulting

arguments

in

Petitioner’s

briefs,

regarding

the

Petitioner’s consultant’s calculations.

5.

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B~The

Petitioner’s Argument That Industry Standards

Support The Request Is

Unfounded And Without Merit

The other argument proffered by the Petitioner in

support of its request that the Illinois

EPA’s

decisions be

overturned is

that

the

costs

sought

for

the unit’s

monthly

rate

are

“well

within the industry standard for rental charges of

a Unit of this type.”

Petitioner’s Brief, p.

4.

It

should first be noted that this statement, made by Mr. Kelly at hearing, was based on

some

inquiriesof other industry

professionals.

~

There is no information in

any

ofthe

applications

for

payment

submitted

by the Petitioner’s

consultant

to

that

effect,

and

such testimony of Mr.

Kelly arguably

is akin to the testimony

described

above, in that the substance of the testimony

was not before the IllinoisEPA at the time

of its decisions.

For that reason alone the testimony,

and resulting argument, should be disregarded.

Reliance on Mr.

Kelly’s testimony forms the basis for

the

Petitioner’s

argument that the

requested

cost of the

unit

was reasonable.

The Petitioner states that the “testimony

ofMr. Kelly,

the only witness

with

the

experience

and

information necessary to

determine the

reasonableness

ofthe

charges for the Unit involved

in this case, proved that the reasonable charge

in the industry

for a unit of this nature is the $3,750.00 per month requested by DaLee rather

than

the

$2,457.31

approved by the Agency.”

Petitioner’s Brief, p. 6.

Looking

at

the

specific

testimony of

Mr.

Kelly,

there

is

no

reason to

give

the

weight

accorded

by

the

Petitioner

to

the testimony.

The

Petitioner argues that

Mr.

Kelly

is

the

only

witness

with the experience and

information necessary to

determine the reasonableness of

the

unit’s

charges.

However,

Mr.

Kelly

testified

that he

only

had prior

involvement with

similar

types

of

equipment

in

“about

eight

other

sites.”

TR,

p.

16.

.

That is

not

a broad

and

diverse

background that confers

the

ability of Mr.

Kelly alone to determine what

is

or is not

reasonable

6

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for the

unit’s

cost.

In fact,

Mr.

Kelly testified that

he

based

reasonableness

on

two

factors;

namely, what themarket bears and recouping his company’s costs.

TR, p.

58.

However, that method

of determination

is

inconsistent

with

both the

Act

and

common

sense.

There is no

provision in

Section

22.18b of the Act that “reasonableness”

is

determined

solely by

what the market will bear.

While

industry

standards

should

be

taken into account to

some

extent,

the vague

reference to

what

the market

will bear

has no

definitive

standard

or

explanation.

Further, there is a serious question as to whether Mr. Kelly has a sufficiently broad

background to

determine what the market

will actually bear for this

type of unit.

Mr.

Kelly’s

other stated factor is recouping his company’s costs.

In this

case, the purchase price for the unit

in

question $83,691.00.

AR

150,

vol.

2,

pp.

151-152.

If Mr.

Kelly’s

company received

the

requested $3,750.00/month

for

36

months

as

requested, then a

total

of $135,000.00

would

be

paid for

the unit.

This

would

represent

a

difference

of $51,309.00,

which Mr.

Kelly would

apparently consider to be his

company “recouping” its

costs.

Put another way, if the consulting

company purchased the unit for $83,691.00,

then was paid $135,000.00 for the purchase price, it

would

recover over 61

of the actual purchase price.

It would be

difficult to imagine that any

overhead costs would come anywhere close to that difference.

To be

fair,

there were

certain financing

charges that the consultant apparently took

into

account

in

reaching

its

requested

figure

of

$3,750.00/month.

Mr.

Kelly

testified

that

the

consultant had to pay approximately $2,677.00/month to

its

financier for 36

months.

TR, p.

57.

Even under that viewpoint, there was a difference of over $ 1,000.00/month

in what was sought

for reimbursement and what was owed to the

financier.

That difference multiplied by

36 months

(the stated anticipated life of the unit and period for financing)

would

result in a

difference of

7

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over

$36,000.00

between

what

was

paid

to

the

financier

and

what

was

received

in

reimbursement.

The Petitioner did not

successfully argue

that

the

costs

sought

for reimbursement were

reasonable.

The consultant

for the Petitioner testified that

despite the

large difference in what

was paid to the financier forthe unit

and what would have been

received in reimbursement (had

the total

amount sought been approved), the determinative factor in

whether the

unit’s

cost was

reasonable

was

what

the

market

would

bear

and

whether

the

consultant’s

costs

would

be

recouped.

The consultant never specifically defined what costs needed to be recouped, and there

was

no comprehensive testimony regarding industry standards other than Mr.

Kelly’s testimony,

which

was

limited

at

best.

The

Petitioner

failed

to

provide

any

information

within

the

applications for reimbursement that substantiated their claims for the monthly rate, and the only

explanation offered by Mr. Kelly at hearing was that the market would bear the cost and it would

be

sufficient to

allow for a recouping of the consultant’s (undefined) costs.

That explanation is

simply insufficient, and

the Board should not accord any weight to the argument.

V.

THE

ILLINOIS EPA’S DECISION WAS BASED ON THE APPLICATIONS

The calculations

employed by the Illinois

EPA were

based

entirely

on

the information

provided within the applications

for payment,

and

were

consistent

with the

Act’s

guidelines.

Brian Bauer of the Illinois

EPA testified that the

figure used by

the Illinois EPA was based

on

the

total

cost

of the

unit

(as documented

by

the

supplier,

Carbonair), the

salvage price,

the

appropriate

handling

charge

allowed

by

Section

22.1 8b(i)(2)

of the

Act,

and

the term of

36

months provided

by

the Petitioner’s

consultant.

TR,

pp.

65-66;

AR

150,

vol.

2,

pp.

151-152,

154-155.

Interestingly, Mr. Kelly testified that he

relied

in

part

on the information provided by

Carbonair

when

determining

whether

he

thought

the

requested

rate

was

reasonable.

The

8

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P.11

difference

between Mr.

Kelly’s

calculations

and

Mr

Bauer’s

calculations

is

that

Mr.

Kelly’s

included factors not provided to the Illinois EPA at the time ofits decisions, and that Mr. Bauer’s

comported with

not

only

common

sense

but

the Act’s

guidelines.

Mr.

Bauer’s

calculations

resulted in the Illinois EPA taking into account the documented total purchase price ofthe unit in

question,

discounting

that

purchase price

by

the

salvage value

described

by

the

Petitioner’s

consultant

(AR

150,

vol.

2,

pp.

154-155), allowing

for the statutory

handling

charge, and

then

dividing

that

final

amount

by

the time

period

provided

by

the

Petitioner’s

consultant

as

the

anticipated life of the unit

(AR

150, vol. 2,

pp.

154-155).

The Illinois

EPA

argues

that

the methodology

employed

by

its

reviewer was fair

and

appropriate,

took

into

consideration

the

awarding

of a

handling

charge

(which

includes

an

allowance for overhead), and did not unfairly reward or penalize the Petitioner’s consultant in its

leasing of the unit to

the Petitioner.

To

the contrary, if the amount sought

for reimbursement

were

awarded, the Petitioner’s consultant would stand to gain an inappropriate windfall.

VI.

CONCLUSION

For all

the reasons and arguments included herein, the Illinois

EPA respectftully requests

that the Board affirm its decisions under appeal.

The Petitioner failed to present applications that

contained

information

adequate

to

support

the

requested

monthly

rate.

The

Illinois

EPA’s

calculations in

determining a reasonable

rate were appropriate and sound,

given that they were

based

on

the

information

provided

by

the

Petitioner

and

statutory

guidelines

for

handling

charges.

9

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Respectfully submitted,

ILL~NO1SENVIRONMENTAL PROTECTIONAGENCY,

Assistant Counsel

Special Assistant Attorney General

Division ofLegal Counsel

1021

North Grand Avenue, East

P.O. Box

19276

Springfield, Illinois 62794-9276

217/782-5544,

217/782-9143 (TDD)

Dated: September 30, 2003

This filing

submitted on

recycled paper.

10

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CERTIFECATE OF SERVICE

I. the undersigned attorney

at law, hereby certify

that

on

September

30,

2003,

1

served

true

and

correct copies of a RESPONSE TO PETITIONER’S BRIEF, by placing true and correct

copies in properly sealed and

addressed envelopes and by depositing

said sealed envelopes in a

U.S.

mail

drop box located within Springfield,

Illinois,

with sufficient First Class

Mail postage

affixed thereto, upon thefollowing named persons:

Dorothy

M. Gunn, Clerk

Illinois Pollution Control Board

James R. Thompson Center

100

WestRandolph Street

Suite

11-500

Chicago, IL 60601

ILLINOIS ENVIRONMENTAL PROTECTION

Assistant Counsel

Special Assistant Attorney General

Division ofLegal Counsel

1021 North Grand Avenue, East

P.O.Box

19276

Springfield, Illinois 62794-9276

217/782-5544

217/782-9143 (TDD)

Curtis W. Martin

Shaw

&

Martin, P.C.

123

South Tenth STreet

Suite

302

P.O. Box

1789

Mt. Vernon, IL

62864

AGENCY,

TOTflL P.13