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Pure Wafer versus the City of Prescott

Wednesday, April 23, 2014

The City of Prescott operates wastewater treatment plants under Aquifer Protection Permits (APP) issued by the Arizona Department of Environmental Quality (ADEQ). Federal and state laws mandate that municipalities with treatment plants have in place, maintain, and enforce programs for pretreatment of wastewater containing pollutants of concern discharged into the public collection and treatment system that may interfere with the treatment process or pass through into the environment. Prescott's Pretreatment Program was adopted by the City Council on May 28, 2013, and approved by ADEQ October 1, 2013.

Notice of Violation On July 20, 2012, the City received a Notice of Violation (NOV) from ADEQ resulting from elevated levels of fluoride in treated effluent water from the Airport Water Reclamation Facility (AWRF), exceeding the allowable limit of 4.0 milligrams per liter (mg/l). The City responded to the NOV within prescribed timeframes, including approving a consent order on May 28, 2013, subsequently approved by ADEQ on June 3, 2013, for remedial action regarding the fluoride exceedance. The consent order established a one-year period for the City to demonstrate measures to bring the effluent water discharged by the AWRF into compliance with the APP limits established for fluoride. The consent order may be terminated by ADEQ after the City documents four (4) consecutive quarters of effluent water discharge in compliance with limits established by the APP.

The Wastewater Pretreatment Program provides for a permitting process to ensure that pollutants of concern, including fluoride, the subject of the ADEQ consent order, are addressed at their sources prior to entering the City's wastewater collection system. Fluoride affecting the AWRF originates from a silicon wafer recycling facility located near the Prescott Municipal Airport operated by Pure Wafer, Inc.

On February 11, 1997, the City entered into a development agreement with Exsil, Inc., the predecessor of Pure Wafer, Inc. The agreement made City water and wastewater capacity available to Exsil, and set forth mutual understanding with respect to the associated qualities, rates, and responsibilities. On that date, prior to approval by the City Council, the subject of wastewater to be discharged by Exsil plant, and treatment that would be required, was raised. The official meeting minutes summarized the discussion, including a statement by an Exsil representative that: "...the company did not want to pollute the air, water and ground, that a system would be designed that would allow discharge from their plant to be pure enough to go into the city's wastewater treatment plant, and would aim at getting to a point to discharge directly... ." This did not prove to be the case, given issuance of a Notice of Violation by ADEQ in December 1999, eighteen months after the plant began operations in 1998.

While the City's Pretreatment Program moved toward adoption, as mandated by federal and state laws, varying interpretations of the 1997 Development Agreement, as it relates to wastewater discharge, pretreatment, and treatment, arose between Pure Wafer and the City. Resolving to work together to equitably abate the fluoride exceedance, the parties discussed installation of an external chemical pretreatment process module adjacent to the Pure Wafer facility, and cost sharing of associated capital and operating expenses - $1 million for the process unit and $360,000 per year, respectively. These estimates were based upon specific concentrations of fluoride in the wastewater generated by the Pure Wafer plant - an "influent fluoride average of 40 parts per million" (mg/l), in the wastewater flowing into the process module; and an after-treatment concentration of 16.6 mg/l.

Federal Lawsuit With negotiations between the parties approaching impasse in late August 2013, Pure Wafer and the City began discussion of alternative dispute resolution methods including arbitration, as provided for by the 1997 development agreement. During the dialogue, on October 14, 2013, without prior notification to the City, Pure Wafer filed a federal lawsuit seeking an injunction against application of the Pretreatment Program to the firm's operation under the 1997 development agreement.

The City was forced to defend itself in the federal court action for several reasons: (1) as required by federal and state mandates, the City must have an approved wastewater pretreatment program in effect; (2) the need for judicial interpretation of the 1997 development agreement, to determine whether public (City) expenditures to abate the fluoride exceedance caused by discharges from a corporation (Pure Wafer) are lawful; and (3) the potential cost impacts on City wastewater system rate-payers ($1 million for the process module; and $360,000 annual expense for operation, corresponding to an average cost of $20 per year for each City wastewater customer).

Injunction Ruling On April 18, 2014, United States District Court Judge James Teilborg granted a permanent injunction against the City, preventing the City from enforcing certain portions of the pre-treatment ordinance against Pure Wafer (i.e., that part of the ordinance requiring Pure Wafer to pre-treat the wastewater from its industrial processes).

Although the Court stated that Pure Wafer was obligated to comply with "legitimate environmental regulations", the ruling went on to say that Pure Wafer was not required to comply with "cost-shifting regulations passed under the guise of environmental regulations." The Court determined that the City's pre-treatment requirement for Pure Wafer was not an "environmental regulation" but rather a "cost-shifting measure." As a result, if the ruling stands, the City will be obligated to pay for the cost of installation and operation of any pre-treatment of Pure Wafer's wastewater. The Court concluded "the plain language of Section 4.2 of the Agreement obligates the City to accept Pure Wafer's effluent water regardless of fluoride concentration". The Court also concluded that Pure Wafer is entitled reasonable attorney's fees and costs.

Next Steps Review of the Court's decision has identified several points of serious concern about the 17-year-old development agreement and its judicial interpretation in 2014:

  • The Court's decision extended well beyond the development agreement provisions, as well as the pleadings of both the plaintiff (Pure Wafer) and defendant (City).

  • Despite specific provisions in the agreement to the contrary, the Court's decision effectively relieves Pure Wafer from any responsibilities for limiting the fluoride level in their plant discharge, and more broadly, from any specific obligation for environmental compliance.

  • Without a fluoride limit on the Pure Wafer wastewater discharge, neither the capital nor operating costs for treatment equipment can be determined; however, it is certain that these costs will increase dramatically, by millions of dollars.

Following discussion of the case in executive session today, on behalf of its citizens and wastewater system rate-payers, the City Council directed the City Attorney to file a notice of appeal of the April 18, 2014, permanent injunction, while expressing a willingness to discuss a settlement with Pure Wafer before the appeal is heard by the Ninth District federal court.