Both sides knew that sulfolane pollution existed in the groundwater beneath the 240-acre site.
Beyond that, they agree on little else about who is to blame for the sulfolane pollution problem that has spread in a plume 3 miles long and 2.5 miles wide. Sulfolane is an industrial solvent used in the production of gasoline.
The refinery sale contract, as a Fairbanks judge recently put it, was a "confusing amalgam" reflecting the competing interests of two sophisticated companies, each trying "as much as possible to shift past and future liability to the other party."
A decade after the sale, they are locked in a complex dispute about sulfolane liability and the exact date on which Flint Hills should have realized that the problem was much worse than it appeared on that April Fools' Day. In November, Superior Court Judge Michael McConahy ruled that Flint Hills could not collect damages from Williams in a lawsuit. He said the current refinery owner waited seven months too long to go to court against the old owner, and the statute of limitations had run out.
'Shoulder to shoulder'
Oddly enough, the court case did not start as a fight between Flint Hills and Williams, but with a lawsuit filed by James West of North Pole against Flint Hills for sulfolane damages in early 2010.
"Flint Hills and Williams stood shoulder to shoulder in defending the West claim," McConahy said in a footnote to his ruling. "Once the West case was concluded the case awkwardly morphed into a case between Flint Hills and Williams. It is unclear when, or even if, Flint Hills would have ever brought a claim against Williams had West never sued Flint Hills."
In his 50-page order, McConahy concluded that Flint Hills should have known by October 2006 that sulfolane was a serious problem. He said the clock started then on the three-year statute of limitations and the deadline for action was October 2009.
About seven months later, Flint Hills filed its claim against Williams. Flint Hills said it didn't know that sulfolane had spread until the fall of 2008, and that should be the starting point for the statute of limitations. McConahy said Flint Hills received repeated warnings from consultant Shannon & Wilson and from the Department of Environmental Conservation, starting shortly after the 2004 purchase, that it needed to do more about investigating the spread of sulfolane. He said Flint Hills ignored the warnings.
McConahy said the company would have discovered the extent of the problem much earlier had it paid attention to Shannon & Wilson or to warning letters from DEC. The state did not take action against the company, but it sent repeated letters saying the source of sulfolane needed to be determined.
In announcing its plans this week to shut down the refinery in the spring, Flint Hills mentioned the future costs of cleaning up sulfolane as one reason for the decision. There is no question that the cleanup has harmed the economics of the refinery, which is a subsidiary of Koch Industries, a multinational corporation with subsidiaries in manufacturing, trading and investments. In 2011, Forbes magazine described Koch Industries as "the second largest privately held company in the United States, with an annual revenue of about $98 billion."
"Our company has spent an enormous amount of money and resources addressing soil and groundwater contamination," said Flint Hills Vice President Mike Brose. "With the already extremely difficult refining market conditions, the added burden of excessive costs and uncertainties over future cleanup responsibilities make continued refining operations impossible."
Sulfolane just one part of economic picture
Flint Hills said the cleanup cost has already topped $55 million, much of that paid by insurance, but the company has to pay for future work regardless of whether the refinery is operating.
The shutdown won't save money unless the Parnell administration agrees that a higher pollution level in groundwater is acceptable.
Business conditions for the refinery, harmed by the steep price of Alaska North Slope crude oil, the high cost of electricity and the decline in the jet fuel market in Anchorage, have been long-term issues that would impact future operations.
The sulfolane story is just one aspect of the overall economic picture and it includes a regulatory battle and a court battle.
On the regulatory front, Flint Hills has objected to state plans to set the cleanup level for the solvent at 14 parts per billion in the groundwater, saying that a level 25 times higher than that is safe. While it appeals that decision with the DEC, the company is also appealing McConahy's decision that the legal clock has run out on its claims against Williams.
On Nov. 5, the court said "all of the claims by Flint Hills against Williams are barred by several statutes of limitations noted above and therefore all its claims against Williams shall be, and hereby are, dismissed with prejudice."
The case, with about 100 motions filed over the years, is a complicated one that is likely to drag on in one form or another in multiple courts.
Flint Hills claims that its contract with Williams waives the three-year statute of limitations. Delays in notifying each other would not defeat liability claims but "would only reduce the magnitude of the claims," Flint Hills said. Williams contends that Flint Hills is attempting to improperly circumvent the statute of limitations.
Williams, a diversified energy company with 4,700 employees, has told investors in recent years that its liability for sulfolane could "range from an insignificant amount up to $32 million, although uncertainties inherent in the litigation process, expert evaluations and jury dynamics might cause our exposure to exceed that amount."
Monitoring stopped in 2002
The refinery has used sulfolane in making gasoline since 1985 and still uses it. Old spills that are not clearly documented are believed to be the source of the pollution.
The court said that in 2001, consultant Shannon & Wilson found the chemical in groundwater at a portion of the refinery site previously believed to be free of contamination.
DEC asked that Williams continue to check to find the source of the sulfolane leak, but the company stopped monitoring in July 2002.
When Flint Hills took over the refinery it maintained most of the environmental staff, with the exception of the lead employee, and kept all of the files. In June 2004, Shannon & Wilson advised Flint Hills of the 2001 tests that showed sulfolane had been found on the north part of the property.
DEC told Flint Hills that summer to find the source, and Shannon & Wilson advised that with groundwater moving 1.3 feet a day, the chemical could move well beyond the property, the judge said.
In October 2004, Doug Bauer of DEC wrote to the president of Flint Hills that "the source(s) of sulfolane in the ground water at the refinery needs to be determined" and that the chemical would be regulated.
In January 2005, Shannon & Wilson said that a 2004 sample from a monitoring well showed 11 times as much sulfolane as had been detected there three years earlier. In 2006, Shannon & Wilson said the extent of the contamination had not been determined.
"We therefore recommend that additional efforts be pursued to assess the sources and distribution of sulfolane at the refinery," the company wrote on Oct. 24, 2006.
McConahy said with that notice, the three-year clock began ticking on the statute of limitations because Flint Hills learned of a problem that required work.
"Nonetheless, despite the monitoring well results, Shannon & Wilson's stated concern that the contamination was migrating, its proposal for new monitoring wells and ADEC's concurrence in that proposal, Flint Hills did not install any additional monitoring wells for sulfolane until August 2008," McConahy wrote.
Flint Hills had brought in a new consultant in 2007, Elizabeth Page of Reiss Remediation, another Koch company, who concluded that sulfolane was not a problem beyond the refinery. She believed the sulfolane plume was stable and not migrating. "If, indeed, that was her conclusion, it was not a reasonable one," McConahy wrote.
In August 2009, Page criticized Shannon & Wilson for not dealing with sulfolane earlier, but the consulting firm pointed to its reports over the previous five years for Flint Hills.
"We believe both the sulfolane and benzene issues the refinery now faces might have been averted had the actions we recommended been taken," Jon Lindstrom of Shannon & Wilson wrote.
In its version of events, Flint Hills says Williams created the pollution problem and that the state of Alaska is also a liable party that bears "responsibility for contamination issues at the North Pole refinery and surrounding areas."
Flint Hills says it took "decisive action" after it learned in October 2009 that "contamination had migrated well beyond the property boundary" and began providing bottled water to people in the area and developing plans to deal with the pollution.