15-1010-15180-1

 

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA DEPARTMENT OF COMMERCE

PETROLEUM TANK RELEASE COMPENSATION BOARD

 

In the Matter of Proposed

Rules Relating to Petroleum                                                            REPORT OF THE

Tank Release Cleanup Fund,                                               ADMINISTRATIVE LAW JUDGE

Minnesota Rules Chapter 2890                               

 

 

            Administrative Law Judge Beverly Jones Heydinger conducted a hearing on these rules beginning at 9:00 a.m. on February 19, 2003, at the Metro Square Annex Building, 130 E. 7^th Street, St. Paul and by video conference links with the Lyon County Courthouse, 607 West Main Street, Marshall and the Crow Wing County Courthouse, 326 Laurel Street, Brainerd.  The hearing continued until everyone present in St. Paul and at the remote locations had an opportunity to state their views on the proposed rules.

 

            The hearing and this Report are part of a rulemaking process governed by the Minnesota Administrative Procedure Act.[1]  The legislature has designed the rulemaking process to ensure that state agencies have met all the requirements that Minnesota law specifies for adopting rules.  Those requirements include assurances that the proposed rules are necessary and reasonable and that any modifications that the agency made to the rules after their initial publication do not result in rules that are substantially different from what the agency originally proposed.  The rulemaking process also includes a hearing, when a sufficient number of persons request one.  The hearing is intended to allow the agency and the administrative law judge reviewing the proposed rules to hear public comment regarding the impact of the proposed rules and what changes might be appropriate.

 

            Michael Tostengard, Assistant Attorney General, Suite 1400, 445 Minnesota Street, St. Paul, Minnesota 55101, appeared as the attorney for the Commerce Department Petroleum Tank Release Compensation Board (“Agency” or “Board”).  Board employees James Pearson, Executive Director, John Houck, Engineer, and Peter Bratsch, Analyst Supervisor; MPCA employee Chai Insook; and Mike Kohn, member of the Advisory Committee and employee of PG IC Environmental Corporation (ICECOR) were available to provide the public with information about the proposed rules and to answer any questions.  Approximately thirty members of the public attended the hearing in St. Paul, three people in Marshall and one person in Brainerd.  Twenty-seven people signed the hearing register.[2]

 

            After the hearing ended, the record remained open for twenty days, until March 11, 2003, to allow interested persons and the Board an opportunity to submit written comments.[3]  During this initial comment period the administrative law judge received nine written comments.  Following the initial comment period, the record remained open for an additional five business days to allow interested persons and the Board the opportunity to file a written response to the comments submitted.  The deadline for responses to the comments was March 18, 2003.  Five responsive comments were received.  The hearing record closed for all purposes on March 18, 2003.

 

NOTICE

 

            The Agency must make this Report available for review for at least five working days before the Agency takes any further action to adopt final rules or to modify or withdraw the proposed rules.  During that time, this Report must be made available to interested persons upon request. 

 

Pursuant to the provisions of Minnesota Rules part 1400.2100, and Minnesota Statutes section 14.15, subds. 3 and 4, this Report has been submitted to the Chief Administrative Law Judge for his review.  If the Chief Administrative Law Judge identifies defects which relate to issues of need and reasonableness, the Agency may either follow the Chief Administrative Law Judge’s suggested actions to correct the defects, or submit the proposed rule to the Legislative Coordinating Committee and the House and Senate policy committees with primary jurisdiction over state governmental operations for advice and comment.

 

            Based upon all the testimony, exhibits, and written comments, the Administrative Law Judge makes the following:

 

FINDINGS OF FACT

 

Procedural Requirements

 

1.               On October 30, 2000, the Board published a Request for Comments on Planned Amendment to Rules Governing the Petroleum Tank Release Compensation Fund at 25 State Register 916.

 

2.               On November 19, 2003, the Board requested that a hearing be scheduled and filed the following documents with the Chief Administrative Law Judge:

 

a.               The Dual Notice proposed for publication;

b.               A copy of the proposed rules, certified as to form by the Revisor’s Office;[4] and

c.               The Statement of Need and Reasonableness (SONAR).[5]

The Board also requested prior approval of its Additional Notice Plan.

 

3.               Administrative Law Judge Beverly Jones Heydinger approved the Dual Notice and Additional Notice Plan on November 26, 2002.[6]

 

4.               On December 10, 2002, the Board mailed the Dual Notice of Intent to Adopt Rules to all persons and associations who had registered their names with the Agency for the purpose of receiving such notice, to all consultants and contractors registered with the Board, and to other interested and affected parties.[7]  The Agency also posted the Notice on the Department of Commerce’s web page.

 

5.               The Dual Notice was published on December 16, 2002, at 27 State Register 860.[8]

 

6.               On the day of the hearing, the Board placed the following documents into the record:

 

a.         The Request for Comments published at 25 State Register 916;[9]

b.         A copy of the proposed rules, certified as to form by the Revisor’s Office;[10]

c.         The Statement of Need and Reasonableness;[11]

d.               Certificate of Mailing the Statement of Need and Reasonableness to the Legislative Reference Library (dated November 27, 2002);[12]

e.               The Dual Notice as mailed and as published;[13]

f.                 Certificate of Mailing a Notice of Hearing to Those Who Requested a Hearing (dated January 22, 2003), the Notice and the mailing list;[14]

g.               Certificate of Mailing the Dual Notice and Giving Notice Pursuant to the Notice Plan (dated December 10, 2002) and mailing lists;[15]

h.               Written comments received during the comment period;[16]

i.                 Certificate of Sending Notice to Legislators (dated December 10, 2002);[17] and

j.                 Intended Changes to Minn. Rules, Chapter 2890.[18]

 

7.               The Administrative Law Judge finds that the Board has met all of the procedural requirements under the applicable statutes and rules.

 

Background and Nature of the Proposed Rules

 

8.               Minnesota Rules Chapter 2890 governs reimbursement from the Petroleum Tank Release Cleanup Fund (Petrofund) for costs paid by applicants for the cleanup of contamination caused by releases from underground and aboveground petroleum storage tanks.  The Rules explain the forms, procedures, and cost guidelines that eligible applicants must understand in order to take full advantage of the reimbursement program as they comply with Minnesota Pollution Control Agency (MPCA) cleanup requirements.

 

9.               According to the Board, the proposed amendments to the Petrofund rules are intended to achieve two main objectives:  (1) update practices and terminology that became outdated due to changes in MPCA practices and terminology, and (2) simplify reimbursement procedures.  The proposed amendments also address changes that have occurred over the past seven years in costs for cleanup services.

 

Statutory Authority

 

10.           Minnesota Statutes, section 115C.07, subds. 3(a)-(c), provide the authority for the Board to adopt and implement rules relating to the Petrofund.  The section states, in relevant part:

 

(a)  The board shall adopt rules regarding its practices and procedures, the form and procedure for applications for compensation from the fund, procedures for investigation of claims and specifying the costs that are eligible for reimbursement from the fund.

 

(c)  The board may adopt other rules necessary to implement this chapter [The Petroleum Tank Release Cleanup Act].

           

11.            The Administrative Law Judge finds that the Board has the statutory authority to adopt the proposed rules.

 

Rulemaking Legal Standards

 

12.            Under Minnesota law,[19] the agency must establish the need for and reasonableness of the proposed rules by an affirmative presentation of facts.  In support of a rule, an agency may rely on legislative facts, namely general facts concerning questions of law, policy and discretion, or it may simply rely on interpretation of a statute, or stated policy preferences.[20]  The Board prepared a SONAR in support of its proposed rules.  At the hearing, the Board primarily relied upon the SONAR as its affirmative presentation of need and reasonableness for the proposed amendments.  The SONAR was supplemented by comments made by Board staff and witnesses at the public hearing, and by the Board’s post-hearing comments and replies.

 

13.            The question of whether a rule is reasonable requires an analysis of the rulemaking record as a whole.  A rule is reasonable if it is shown to have a rational basis.  Minnesota case law has equated an unreasonable rule with an arbitrary rule.[21]  Arbitrary or unreasonable agency action is action without consideration and in disregard of the facts and circumstances of the case.[22]  A rule is generally found to be reasonable if it is rationally related to the end sought by the governing statute.[23]  The Minnesota Supreme Court has further defined an agency’s burden in adopting rules by requiring it to “explain on what evidence it is relying and how the evidence connects rationally with the agency’s choice of action to be taken.”[24]  An agency is entitled to make choices between possible approaches so long as the choice made is rational.  Generally, it is not the proper role of the Administrative Law Judge to determine which policy alternative presents the “best” approach since this would invade the policy-making discretion of the agency.  The question is, rather, whether the choice made by the agency is one that a rational person could have made.[25]

 

14.            In addition to need and reasonableness, the Administrative Law Judge must assess whether the rule adoption procedure was complied with, whether the rule grants undue discretion, whether an agency has statutory authority to adopt the rule, whether the rule is unconstitutional or illegal, whether the rule constitutes an undue delegation of authority to another entity, or whether the proposed language is not a rule.[26]

 

15.            Minnesota law allows an agency to withdraw a proposed rule, or a portion of a rule, at any time prior to filing it with the Secretary of State,[27] “unless the withdrawal of a rule or a portion of the rule makes the remaining rules substantially different.”[28]

 

16.            The standards to determine whether changes create a substantially different rule are found in Minn. Stat. § 14.05, subd. 2.  The statute specifies that a modification does not make a proposed rule substantially different if “the differences are within the scope of the matter announced in the notice of intent to adopt . . . and are in character with the issues raised in that notice,” the differences “are a logical outgrowth of the contents of the notice of intent to adopt . . . and the comments submitted in response to the notice,” and the notice of intent to adopt “provided fair warning that the outcome of that rulemaking proceeding could be the rule in question.”  In determining whether modifications make the rule substantially different, the Administrative Law Judge is to consider whether “persons who will be affected by the rule should have understood that the rulemaking proceeding . . . could affect their interests,” whether the “subject matter of the rule or issues determined by the rule are different from the subject matter or issues contained in the notice of intent to adopt,” and whether “the effects of the rule differ from the effects of the proposed rule contained in the notice of intent to adopt.”

 

Additional Notice Requirements

 

17.            Minnesota Statutes, sections 14.131 and 14.23 require that the SONAR contain a description of the agency’s efforts to provide additional notice to persons who may be affected by the proposed rules.  In October of 2000, a rulemaking advisory committee, appointed by the Commissioner of Commerce to comment on proposed rule amendments and advise the Board and the Department of Commerce during the rule revision process, held its first meeting.  The Committee was comprised of three applicants, six interested parties, and nine environmental consultants and contractors.  On October 25, 2000, a newsletter article entitled “Amendments to the Petrofund Rules” was submitted for publication to the editors of the Minnesota Petroleum Marketers Association Newsletter, the MPCA Tank Monitor, and the MPCA Dispenser.  The article explained that the Agency was in the process of drafting amendments to the Petrofund rules and solicited comments from affected parties.

 

18.            On November 26, 2000, a letter was sent to all Petrofund-registered consultants and contractors to notify them of the planned rule amendments and to inform them of the procedure for being included on the official rulemaking mailing list for Petrofund rules.  Information regarding the planned amendments and the Rulemaking Advisory Committee was posted on the Petrofund section of the Department of Commerce web site.  The information on the web site was updated throughout the rulemaking process.

 

19.            The Advisory committee met five times between October 2000 and January 2002.  In June 2001, a rough draft of the proposed rule amendments was sent to interested members of the MPCA staff for their review and comments.  A draft of the proposed rules was published on the web site the same month and the rulemaking mailing list was asked to comment on the draft at that time.  The notice on the web site informed the public that the Board was nearing completion of a final draft of amendments that would make significant changes to the Petrofund administrative rules and was soliciting comments before a final draft proposal was completed.  The draft was available for review on the website or by requesting hard copies from Board staff.  This informal comment period was in addition to those opportunities for comment required by Minnesota Statutes Chapter 14.

 

20.            Minnesota Statutes section 14.116 requires that, when an agency mails a notice of intent to adopt rules, it must send a copy of the notice and the SONAR to certain legislators.  The Board mailed the proposed rules, the notice and the SONAR to those legislators required by Minn. Stat. § 14.116 by letter dated December 10, 2002. 

 

21.            The Administrative Law Judge finds that the Agency fulfilled its additional notice requirement.

 

Statutory Requirements for the SONAR

 

Cost and Alternative Assessments in the SONAR:

 

22.            Minnesota Statutes, Section 14.131 requires an agency adopting rules to include in its SONAR:

 

(1)             a description of the classes of persons who probably will be affected by the proposed rule, including classes that will bear the costs of the proposed rule and classes that will benefit from the proposed rule;

(2)             the probable costs to the agency and to any other agency of the implementation and enforcement of the proposed rule and any anticipated effect on state revenues;

(3)             a determination of whether there are less costly methods or less intrusive methods for achieving the purpose of the proposed rule;

(4)             a description of any alternative methods for achieving the purpose of the proposed rule that were seriously considered by the agency and the reasons why they were rejected in favor of the proposed rule;

(5)             the probable costs of complying with the proposed rule; and

(6)             an assessment of any differences between the proposed rule and existing federal regulations and a specific analysis of the need for and reasonableness of each difference.

 

23.            Those who will bear the costs of the proposed rules are consultants and contractors who perform petroleum tank release cleanup services as they may need to make some modifications to their accounting systems.  The contractors and consultants affected by these rules are those who choose to do petroleum cleanup work.  The agency identifies applicants, consultants and contractors as beneficiaries of the rules, due to reduced confusion and simplified reimbursement procedures.

 

24.            The Board states that the proposed rules will not affect state revenues.

 

25.            The Board was not able to identify any less intrusive method with which to bring the Petrofund Rules in accord with MPCA practices and terminology connected to petroleum tank release cleanup procedures.

 

26.            The Rulemaking Advisory Committee considered several different approaches to simplifying the reimbursement process for applicants.  The first of these was the elimination of competitive proposals for environmental consultants.  However, discussions on this topic revealed that most applicants and members of the regulated industries were not comfortable eliminating the competitive bidding process.  The Committee also considered how applicants could obtain information concerning the appropriate scope of work connected with the cleanup that could be used in obtaining competitive bids for a project.  The Committee considered the advantages of having a consultant perform a risk evaluation and other tasks necessary to develop a scope of work appropriate for further investigation of the site.  This information could be used to solicit competitive consultant proposals, with the consultant who developed the appropriate scope of work prevented from bidding on the site cleanup.  The Committee decided that this approach had too many drawbacks, such as the possibility that the consultants asked to give proposals would disagree with the assessment of the original consultant as to the scope of work to be performed.

 

27.            The Rulemaking Advisory Committee also considered consolidating several of the cleanup tasks into several major task groups and setting maximum costs for large segments of the cleanup, rather than for individual tasks.  Consultants have requested task consolidation for several years.  This approach, while well-suited to construction, was judged by the Committee to be impractical for subsurface investigation work performed by environmental consultants because the work is not sufficiently predictable or quantifiable.  In order to account for the worst-case scenario, the fee schedule’s maximum costs for the major task groups would have to be based on the assumption that every task in the group would be performed at every site.  In reality, however, many sites would not require performance of all of the tasks in the group and some applicants would receive a windfall by receiving reimbursement for a greater scope of work than was actually performed.  In addition, the Committee felt that the validity of consultants’ change orders would only be satisfactorily documented when there was task-by-task accountability.

 

28.            The Rulemaking Advisory Committee thought about revising the current rules by increasing the maximum costs allowed but decided that fee-based billing, as proposed, would be easier to use and administer.

 

29.            Finally, the Rulemaking Advisory Committee considered not amending the current rules.  This option was rejected because the disparity between the practices and terminology used by the Petrofund program and those used by the MPCA continues to grow, resulting in confusion for applicants and consultants.  In addition, the Board anticipates that the Petrofund’s current sunset date will be extended.

 

30.            With regard to the fifth regulatory factor, the Board expects that the compliance costs connected to the proposed rules will be minimal.  These costs are attributable to changes required in consultants’ and contractors’ accounting systems.

 

31.            There are no federal regulations that govern reimbursement for petroleum tank release cleanup costs in Minnesota.

 

Performance-Based Regulation:

 

32.            Minnesota Statutes, Section 14.131, requires that an agency include in its SONAR a description of how it “considered and implemented the legislative policy supporting performance-based regulatory systems set forth in section 14.002.”  Section 14.002 states, in relevant part, that “whenever feasible, state agencies must develop rules and regulatory programs that emphasize superior achievement in meeting the agency’s regulatory objectives and maximum flexibility for the regulated party and the agency in meeting those goals.”

 

33.            The Board states that its amendments create reimbursement levels that are “prima facie unreasonable” so that applicants who demonstrate compliance with the “purpose” of the rules may still receive reimbursement.[29]  It is not entirely clear how an applicant will demonstrate that costs in excess of the maximums set in the rule are reasonable.  The Board concludes that “superior achievement” is consistent with the “low bid requirement” because only qualified bidders participate, and thus the Petrofund pays for high quality at the lowest cost.  Also, an applicant may exceed the lowest bid if it can document that the selected consultant has “superior” qualifications.[30]  Several commenters took issue with the low bid requirements.  See discussion of 2890.2000, infra.

 

34.            The Board also cites the amendments allowing annual bidding or evaluation in lieu of job-by-job bidding as an additional example that its proposed rules are flexible and performance-based.  Although the proposed rules set very stringent controls on reimbursement and require detailed recordkeeping, the Board has considered the regulatory policy stated in Minn. Stat. § 14.002.  The Administrative Law Judge concludes that the Board has met the requirements set forth in Minn. Stat. § 14.131 for assessing the impact of the proposed rules, including consideration and implementation of the legislative policy supporting performance-based regulatory systems.

 

35.            This Report is limited to the discussion of the portions of the proposed rules that received critical comment or otherwise need to be examined, and it will not discuss each comment or rule part.  Persons or groups who do not find their particular comments referenced in this Report should know that each and every suggestion, including those made prior to the hearing, has been carefully read and considered.  Moreover, because some sections of the proposed rules were not opposed and were adequately supported by the SONAR, a detailed discussion of each section of the proposed rules is unnecessary.  The Administrative Law Judge finds that the Board has demonstrated, by an affirmative presentation of facts, the need for and reasonableness of all rule provisions not specifically discussed in this Report.  The Administrative Law Judge also finds that all provisions not specifically discussed are authorized by statute and there are no problems outside of those identified in this Report that would prevent the adoption of the rules.

 

Analysis of Proposed Rules in General                    

 

36.            Some commenters questioned the wisdom of amending these rules when the compensation for petroleum tank release clean-up is scheduled to sunset in 2005.  The Board anticipates that the Legislature will extend the program.  It has identified significant disparities between the practices and terminology used by the MPCA in its clean-up guidance and the current Petrofund rules.  Amending the rules to improve consistency with the MPCA is within the Board’s discretion.

 

37.            There were several criticisms of the Board’s reimbursement methodology.  Some commenters objected to requiring competitive bids and simultaneously capping itemized costs.  Commenters suggested other approaches that would give an applicant greater flexibility in the selection of a consultant and require less detailed cost accounting.  The Board has considered other options but concludes that neither competitive bidding nor cost limits alone can assure that the reimbursements are the lowest that are reasonable.

 

38.            The Board’s insistence on competitive bidding and cost caps does effectively keep reimbursement low.  If a bid is low, but a few of the included costs are high, reimbursement for those costs will be reduced, thus further decreasing reimbursement.[31]  Some commenters implied that some consultants and contractors would no longer participate in the reimbursement program because of the onerous documentation and low reimbursement.  However, there was no specific information or any witness to directly support the suggestion.  So long as there are qualified consultants and contractors willing to perform the work, one cannot conclude that the Board’s approach to low reimbursement is unreasonable.

 

39.            Some commenters proposed that reimbursement up to 10% above the low cost proposal is reasonable.[32]  The Board did not accept the suggestion because it could increase reimbursement above the level necessary for the work performed.  The Board concluded that reimbursement at a level higher than necessary is not reasonable.  This judgment is within the Board’s discretion.

Analysis of Proposed Rules Part by Part                    

 

2890.0005  Applicability

 

40.            The purpose of this subpart is to bring all applicants into compliance with the procedures contained in these proposed rules to the extent that is administratively feasible to do so.  It is intended to alleviate the problems associated with the current Petrofund program in which applicants who incurred costs under an earlier version of the Petrofund rules were not required to comply with subsequent revisions to the rules.  The Board believes that it is not administratively feasible to require immediate compliance with these rules for those applicants who are currently incurring costs for a step of services that has not been completed.

 

41.            It is reasonable to bring all Petrofund reimbursement under one version of the rules to the degree possible.  This would simplify matters for applicants, consultants, contractors and Board staff.  It is not clear from this subpart as currently drafted that the Board has achieved the goal of simplification.  One of the primary reasons for this is the lack of a date certain for the effectiveness of these rules. 

 

42.            This chapter will be effective five working days after the Notice of Adoption is published in the State Register.  It is unlikely that people outside of the Board staff will know what date that is.  As the Board gets to the stage of final adoption of these rules, it should consider placing a date in the applicability section that will correspond to the date on which the rules will become effective.  For example, if these rules were finally approved by this office in early May, the Board could calculate the amount of time needed to submit the Notice of Adoption to the State Register, the date on which the relevant edition of the State Register would be published, add five working days to the publication date, and provide a date certain in the rule.  This would allow the Board to replace the current language which reads: “This chapter, as adopted at . . . SR . . ., applies to costs for work performed on or after its effective date” with a date certain, as in the following example: “This chapter applies to work performed on or after May 29, 2003.”  Including the actual effective date of the rules would alleviate confusion among applicants, consultants and contractors as to when these rules will begin to govern their work.

 

43.            The Board states in its Response to Public Comments that there is no conflict between the proposed rules and Minnesota Statutes § 115C.09, subd. 3(c) which provides that

 

When an applicant has obtained responsible competitive bids or proposals according to rules promulgated under this chapter prior to June 1, 1995, the eligible costs for the tasks, procedures, services, materials, equipment, and tests of the low bid or proposal are presumed to be reasonable by the board, unless the costs of the low bid or proposal are substantially in excess of the average costs charged for similar tasks, procedures, services, materials, equipment, and tests in the same geographical area during the same time period.

 

The Board explains that the above statutory provision provides a “safe harbor” for certain costs contained in previously-existing contracts.  However, because “[t]he proposed rules specify maximum costs that are equal to, or higher than, the average costs charged throughout Minnesota[,] . . . [if the costs paid by the applicant] exceed the proposed maximum costs, they logically have been found to fall outside the ‘safe harbor’ provided for in Minn. Stat. § 115C.09, subd. 3(c).”  Thus, the Board concludes that there is no conflict between the statute’s “safe harbor” and the applicability section.

 

44.            While the Board is correct that in most cases there would be no conflict between the statute and the proposed rules, there may be situations in which a cost in a previously-existing contract falls within the safe harbor created by the statute and exceeds the maximum costs contained within the proposed rules.  This is because a cost could exceed the proposed maximum costs (some of which are equal to the average costs charged through Minnesota) but not be “substantially in excess of the average costs charged . . . in the same geographical area during the same time period.”  As long as the Board is conscious of this possibility and reads the rule and the statute together so as not to nullify the safe harbor contained in the statute for costs contained in certain previously-negotiated contracts, this is not a defect.  If the Board intends to treat costs in excess of its maximum costs as prima facie unreasonable even though they fall under the safe harbor provided by the statute, then it would be exceeding its authority by nullifying the statutory language.

 

2890.0073, subp. 11, Definition of “Draftsperson.”

 

45.            The definition in the current rule requires that a draftsperson have a trade school diploma or its equivalent and one or more years of experience in computer-assisted design.  The rule as originally proposed for amendment changed the wording to “at least one year of experience in computer-assisted design.”  A commenter[33] objected to excluding new graduates from the definition of “draftsperson” and the Board agreed to the change.  The change will allow reimbursement for a broader group of draftspeople.  This is not a substantial change because the definition was included in the proposed rule and the public had notice that the definition could change. 

 

2890.0073, subp. 12, Entry Level Professional.

 

46.            In response to a comment,[34] the Board reduced the years of experience that would qualify a person to be an entry level professional from eight years to five years.  The Board did not explain why it lowered the experience level or why it selected five years of experience.  Because there was no objection to reducing the level of experience and it will broaden the payment for entry level professionals, the change appears to be reasonable.  Because the qualifications were included in the proposed rules and changes could have been anticipated, the reduction is not a substantial change.

 

 

 

 

2890.0073, subp. 16d, Free Product Recovery through Hand Bailing or Portable Pump

 

47.            The Board has defined free product recovery through hand bailing or portable pump as “the recovery of free product from the leak site using hand bailing or a portable pump.”  The SONAR does not clarify the need for the definition.  Because the definition merely recites the terms it purports to define, it is neither necessary nor reasonable and must be deleted.

 

2890.0073, subp. 24, Midlevel Professional and subp. 36, Senior Level Professional

 

48.            As proposed, there are two ways to qualify as a midlevel professional.  The first is to have a college degree in certain specified fields, a professional certification (if available), and at least four years of relevant experience.  The second way is to have a graduate degree in the environmental sciences and at least three years of experience performing specified activities.  The qualifications for a senior level professional are essentially the same with more required experience.

 

49.            The problem with these definitions is spelled out by one of the comments.[35]  A person whose college major was not in the listed sciences could never qualify as a midlevel or senior level professional unless the person obtained a graduate degree in the environmental sciences, regardless of how much additional training, coursework, experience or professional certifications the person had received.  The Board’s only rationale was that the MPCA advised them to require the specific college majors or an advanced degree. 

 

50.            Although it is necessary to set training and experience standards, these proposed standards are unreasonably narrow.  If a person is registered as a professional engineer and has the necessary experience, it is difficult to see the rationale for requiring specific college majors, and the Board has not offered one.  There is no evidence that the Board reviewed the backgrounds of known, competent mid- and senior level professionals to substantiate the proposed narrow definitions.  This defect could be remedied by requiring a college degree plus the professional certification as an alternative to the specified majors, or by requiring more experience or evidence of specific coursework of those with other majors.  This modification would be needed and reasonable and would not constitute a substantial change.

 

2890.0081, subp. 5, Excavation.

 

51.            One commenter[36] suggested adding some words to the definition of excavation to clarify that it involves not only “the equipment and labor required to remove petroleum-contaminated soil” and to displace the soil required to access the contaminated soil, but also the work required “to carry out any corrective actions.”  The commenter used the example of system trenching.

 

52.            The Board responded that the addition of the suggested phrase to the definition was not necessary because Minn. Stat. Chapter 115C “provides that costs for any work performed at leaksites that is not necessary to carry out corrective actions will not be considered eligible for reimbursement.”[37]  This statement was not responsive to the commenter’s suggestion.  The commenter presumably was not concerned that applicants might be reimbursed for actions that were not corrective in nature, but rather that, unless specifically provided for, applicants would not be reimbursed for excavation that did not fall under the proposed definition but was nevertheless required for corrective action.  The commenter’s suggestion seems reasonable and the Board should consider the suggestion in the context in which it was raised.  If amended according to the suggestion, the definition would be clarified and such amendment would not represent a substantial change from the rules as originally proposed.

 

2890.1000, subp. 5 and .4000, subp. 3, Notarization.

 

53.            The Petrofund rules require a written bid proposal.  The applicant’s signature must be dated the same date the bid is accepted, and must be notarized.  The proposed rule states that the notary may not be “a person employed by or otherwise affiliated with the consultant services firm that provided the proposal.”[38]  The Board created the limitation on the notary’s employment to ensure that the notary would not have an economic incentive to notarize a signature that was knowingly dated incorrectly.  In support, the Board refers to limitations on notaries in the State of Wyoming.[39]

 

54.            The Board’s limitation is not consistent with Minnesota law.  First a notary’s duty is to determine “either from personal knowledge or from satisfactory evidence, that the signature is that of the person appearing before the officer and named in the document.”[40]  The notary signs and dates the notarization and affixes the notary seal.  A notary “may not acknowledge, witness or attest to the officer’s own signature . . .[41]  The notary is not attesting to anything but the validity of the signature.  Minnesota law does not prohibit notarizing the signature of a business associate.  Any notary who dishonestly or unfaithfully discharges the duties of a notary is subject to discipline.[42] 

 

55.            Apparently the Board has experienced some problems but it has not indicated the frequency of those problems nor is it clear that the problems were with the signature.  The Board has failed to show that limiting notaries beyond the limits set by law is necessary or reasonable.  Therefore this requirement constitutes a defect in the rules.  This defect can be corrected by deletion of any notarization requirements that are not supported by statute.  Amending the rules to remove such requirements is needed and reasonable and would not constitute a substantial change.

 

2890.1300, subp. 1 and .4000, subp. 5, Maximum Allowable Costs.

 

56.            One commenter[43] challenged the limitations for reimbursement.  The applicable statute gives the Board the authority to set maximum costs and separates the appropriate reimbursement for bids obtained under rules in effect prior to June 1, 1995 from bids obtained under the rules in effect thereafter.[44]  While the earlier set of costs were allowable unless “substantially in excess of average costs charged . . . in the same geographical area,” the costs incurred under bids after June 1, 1995 were deemed “reasonable if the costs are at or below the maximums set forth in the rules.[45]  The Board has demonstrated that it is necessary and reasonable to limit reimbursement to the maximum costs set forth in rule.

 

2890.1300  Maximum Preliminary Labor Charges.

 

57.            This section sets maximum costs for many different activities common to cleanup operations.  The general enunciated principle in subpart one is that a task will be reimbursed at the amount specified in the proposal for consultant services or the cost specified in this part, whichever is less.  Although there were objections to this approach, the Board has offered a rational explanation for paying either the amount in the proposal or the maximum set by rule when the cleanup is “routine.” 

 

58.            However, this subpart fails to take into account the nonstandard bid proposals.  Minn. R. 2890.2000, subp. 5B allows an applicant to seek competitive bid proposals when the standard assumptions do not apply.  In those cases, the applicant must get a minimum of two written competitive proposals that are based on identical assumptions.  Yet, the rules as proposed do not seem to permit payment that exceeds the standard assumptions.  Similarly, the rules do not address how new technologies will be reviewed.  The only mechanism for obtaining approval for higher expenses or new technology appears to be ”change orders,” permitted under 2890.2100, subp. 1, or actions required by the agency after the bids were obtained under 2890.2100, subp. 2.  However, change orders are limited to circumstances that could not be known when the competitive proposals were submitted.

 

59.            The Board has failed to explain how it will review the projects with nonstandard scope included in 2890.2000, subp. 5B, or proposals that include new technology not included in the rule.  It has not demonstrated the reasonableness.  To correct this defect, the Board must clarify how the review is done and when costs will be approved that exceed the standard limits.

 

60.            The Board has included a mechanism for reviewing contractor costs that exceed the rule maximums.[46]  A similar approach for consultant services would be reasonable and would not constitute a substantial change because it would clarify the process for reviewing exceptions.  In the alternative, the Board could add a new subpart to 2890.2100 that clarifies that costs included in a “nonstandard scope” bid proposal or that employ new technology must be approved to assure that the tasks are necessary and appropriate for the completion of the corrective action.

 

 

 

2890.1300, subp. 2, Administrative Tasks.

 

61.            Several commenters objected that consultants could not recover for their time spent overseeing the entire project.  These costs include managing the budget and schedule, making work assignments, and coordinating employees and subcontractors.  Some believed that a reasonable mark-up of subcontractor invoices was necessary to recover the costs of administering the contracts, reviewing and paying invoices, and overseeing their work.[47]  One suggestion[48] was to allow markup of certain specified services such as laboratory, well drilling and small items.  However, the Board has specifically included consultant’s mark-up as an “ineligible cost.”[49]

 

62.            Mark-up in this context means an amount, often a percentage, added to a subcontractor’s invoice.  The consultants maintain that they have costs associated with reviewing the accuracy of the bill, associated accounting and payment.  They also assert that they have the knowledge necessary to review subcontractors’ billing and performance, and may get a better price from the subcontractor than an applicant would who deals directly with the subcontractor.  The Board has considered this but has decided to accept the risk because it has not been able to develop a reasonable way to compensate the consultant for the associated effort.  It rejected a percentage mark-up because the percentage may not be tied to a consultant’s level of effort.  Because the consultant can bill the applicant for these costs, the Board’s decision to deny “mark-up” is not, in and of itself, unreasonable.

 

63.            The Board has shifted away from reimbursing “project management” and, instead, has attempted to define specific administrative tasks.  However, it is not apparent how the consultant is reimbursed for the following: scheduling and directing staff assignments; coordinating subcontractors; accounting and payroll; ordering and receiving supplies and equipment; and on-site supervision of staff and subcontractors.

 

64.            Proposed Minn. R. 2890.2100 allows a consultant to seek recovery of costs above those included in the proposal.  However, the language implies that the increases are “changes” or unanticipated costs, and not the standard costs one would incur on every job.

 

65.            The Board has not clearly stated how it believes that routine administrative duties will be covered.  Neither has it specifically prohibited payment for them, except that it has excluded the cost of preparing invoices.[50]  To the extent the rules do not clearly state how routine administrative tasks are covered, the rules are not reasonable.  To rectify this defect, the Board must amend 2890.1300, subp. 2 or another provision to clarify how the costs will be reimbursed.  If it is sufficient to include the costs in the bid proposal, the rules should be clear that such costs are reimbursable.

 

 

 

 

2890.1400  Maximum Hourly Rates.

 

66.            The Board originally proposed compensating consultant services at the following hourly rates:

 

Senior level                            $110

Midlevel                                  $85

Entry level                               $60

Field technician                      $55

Draftsperson                          $45

Word processor                    $35

 

In the SONAR, the Board explains that these limits are necessary in addition to maximum costs for certain tasks so that consultants will remain accountable for their charges and be paid at a reasonable rate only for time actually expended.  In fact, because of the maximum caps, the consultant services will be paid for their time only when it does not exceed the cap.  The specific dollar levels were set some time ago, but at the time the SONAR was drafted, the Board believed that the rates were generally accepted within the industry.[51]  There was no data submitted to tie the proposed caps to actual reported rates.  The Board used the hourly rates to set the caps for specified tasks in proposed Minn. R. 2890.1300.

 

67.             Some commenters recommended raising the rates because they had not been raised since 1995,[52] and should be raised 10 percent.[53]  In its response to public comments, the Board proposed raising the rates as follows:

 

Senior level                            $110   130

Midlevel                                  $85     95

Entry level                               $60     70

Field technician                      $55     65

Draftsperson                          $45     55

Word processor                    $35     40

 

The Board did not explain what analysis it did to verify that cost increases were appropriate, but some increase in the rates after seven years is not unreasonable.

 

68.            The Board also adjusted the reimbursement for specific tasks delineated in proposed Minn. R. 2890.1300.  The SONAR sets out the estimated length of time and worker level for each task.  The Board derived the maximums from fee schedules and other information supplied by the industry.  Except where specified, the caps assumed that an entry level professional would perform the work.  To the extent that the rate increases are reasonable, the corresponding changes to proposed Minn. R. 2890.1300 are as well.

 

 

 

 

2890.1500  Maximum Travel and Per Diem Costs.

 

69.            Travel and vehicle costs limits are included in the proposed rule.  The reimbursement is determined by the county where the leak site is located.  For six metropolitan counties (Anoka, Dakota, Hennepin, Ramsey, Scott and Washington) the cap is $1.50 per travel mile for the first occupant and $1 per travel mile for each additional occupant of the vehicle.  For all other counties, the cap is $1.05 per travel mile and 55 cents for each additional occupant.  The Board based the figures on average per-mile driving costs estimated by the American Automobile Association (AAA) at 50.2 cents per mile plus $1 per mile travel time.  This figure was based on an hourly rate of $30 (half the maximum hourly rate of an entry level professional) and estimated driving speeds of 30 mph in the metro area and 55 mph in the other counties.

 

70.            There were several critical comments about this approach to reimbursement.[54]  First, several commenters objected to limiting the reimbursement for employee time to half of an entry level professional’s salary.[55]  Different levels of staff must travel and be paid while they do so.  The Board explains that skill level is immaterial during travel, but there is no precedent cited for limiting an employee’s pay during their travel time.  If the distance to the job site is not cost-effective, one would expect the discrepancy to be reflected in the bid proposals.  If it’s reasonable for a certain level professional to do the work, then it is reasonable to pay them to travel to the work site.

 

71.            The second common complaint was that the assumed speeds, and the differential in the metropolitan area, were not supported by any evidence.  The Board did not present evidence to support these figures.  Third, the reimbursement did not reflect higher operating costs for trucks and heavy equipment that may be more expensive to operate than a car.

 

72.            The Board has failed to demonstrate the reasonableness of the mileage cost limitation.  There may be alternative methods of reimbursement that would discourage long-distance travel, such as capping the reimbursable distances.  Actual time and distance records could be required if the Board is concerned that there are excessive travel charges.  There may be different approaches that are reasonable.  However, the Board failed to show that the method it selected would fully compensate even the lowest, most-efficient travel costs.  The proposed reimbursement levels for travel are a defect in the rules.

 

73.            Several commenters recommended that travel time include time spent collecting supplies and loading them for transport to the site.  However, there was inadequate explanation for why these efforts are not covered by other rule provisions.[56]  Failure to include time for loading and unloading as a travel expense is not unreasonable.

 

 

 

 

2890.2000, subp. 6, Subsequent Steps of Services.

 

74.            An applicant is not required to seek competitive bids for consultant services for active remediation.  The Board must review the consultant’s proposal before the commencement of work and before the applicant approves the proposal.  There is no criteria provided in the rule for this review, and thus, as currently drafted, the rule allows for complete agency discretion in conducting the review.  This defect can be cured by the addition of criteria to indicate the factors the Board will consider in reviewing these proposals.

 

75.            The Board has articulated a list of items that it will consider in reviewing these proposals.  One way to cure the defect would be to include this list in the rules, recognizing that not all items may be relevant in all reviews.  The Board should consider adding language to this subpart similar to the following:  “In conducting its review, Board staff will consider several factors, including, but not limited to: (1) information from the Pollution Control Agency regarding the proposed schedule and the equipment required for remediation; (2) historical cost data on excavation and other tasks involved; (3) cost estimating software for active remediation tasks; (4) hourly rates and analytical and sample costs set by this chapter; and (5) maximum costs for competitively bid contractor tasks set by this chapter.”  This suggested language is an example and should be revised by the Board as necessary to reflect those factors it will consider in its proposal reviews.

 

2890.2700  Maximum Analytical Charges.

2890.3200  Maximum Drilling Charges, Other Technologies.

 

76.            One commenter expressed concern that the board was discouraging the use of new and possibly less expensive technologies by not providing maximum costs for them in the rules.  The Board responded that the “proposed rules do allow for the use of new and innovative methods of site investigation when the methods are approved by the MPCA.”[57]  It was not clear where or how the rules allowed for new and innovative methods when none of them were listed as approved technologies in the rule.

 

77.            The Board points to 2890.2100, subp. 2 (“Additional or different tasks approved by the agency”) as the process an applicant may use to receive approval for methods of site investigation that are not provided for in the rules.  For applicants reading the provisions on drilling and analytical charges, it may not be clear that the Board will entertain other technologies.  The Administrative Law Judge suggests that the Board add a reference to 2890.2100, subp. 2 in both of the above subparts to inform the applicant of the procedure for asking for approval of technologies not listed in the rule.

 

 

 

 

 

 

 

 

2890.3400  Above Ground Well Installation.

2890.3500  At-Grade Well Installation.

 

78.            Thein Well Company[58] objected to the reimbursement for well installation.  For illustration, they pointed out that the reimbursement for drilling a 25’ two-inch well is only $87 less than the reimbursement to drill a 25’ four-inch well.[59]  Thein Well contends that the cost differential of materials for the different sizes is $143.  Although Thein Well has proposed higher rates, it has not clarified whether those were for above-ground or grade-level well installations nor was there supporting evidence to demonstrate that the Board’s proposal was unreasonable or that its proposal was more reasonable than the Board’s.

 

2890.3700  Permits for Drilling.

 

79.            Some commenters asked why permits required by political subdivisions were not assumed to be reasonable items for reimbursement.[60]  The Board responded by clarifying that permit costs were not included in “drilling permitting”[61] and “monitoring well permitting.”[62]  It further responded that such costs could be handled through the change order process.  This is an apparent reference to Minn. R. 2890.2100, subp. 1A.  This allows reimbursement for costs beyond the original proposal that are necessary to complete the services. 

 

80.            The Board’s response is not persuasive because change orders are intended to reimburse for “circumstances beyond the control of the consultant or applicant that could not have been reasonably anticipated when the proposal was accepted by the applicant . . . .”[63]  It is possible, and perhaps probable, that permit costs are reasonably anticipated.  Because the cost of a permit is set by the issuing jurisdiction and is only issued for work requiring a permit, the Board has failed to show why it is reasonable to require a change order to reimburse for permits.  In order to remedy this defect, the Board must amend 2890.1100 to clarify that costs for required permits are reimbursable at the actual cost of the permit, or amend some other provision to the same effect.

 

Local Reports

 

81.            In the same vein, some political subdivisions require that reports be prepared and filed with them.  The Board has proposed that costs for preparation of such reports also be handled as a “change request.”  Because this cost can be anticipated, it is difficult to understand the Board’s position.  However, since the costs to prepare such reports are variable, and may not be known when bids are prepared, the reasonable reimbursement level may vary.  The change order process does permit case-by-case review of such costs.  Thus, although the Board is encouraged to consider including projected report costs in the bid proposals, its review of such costs as a change order is not unreasonable.

 

            Based on the foregoing Findings of Fact, the Administrative Law Judge makes the following:

 

CONCLUSIONS

 

1.               The Board gave proper notice in this matter.

 

2.               The Board has fulfilled the procedural requirements of Minn. Stat. § 14.14 and all other procedural requirements of law or rule.

 

3.               The Board has demonstrated its statutory authority to adopt the proposed rules, and has fulfilled all other substantive requirements of law or rule within the meaning of Minn. Stat. §§ 14.05, subd. 1; 14.15, subd. 3; and 14.50 (i) and (ii).

 

4.               The Board has demonstrated the need for and reasonableness of the proposed rules by an affirmative presentation of facts in the record within the meaning of Minn. Stat. §§ 14.14, subd. 4; and 14.50 (iii), except as noted at Findings 47, 50, 55, 59, 65, 72, 74, and 80.

 

5.               Any Findings that might properly be termed Conclusions and any Conclusions that might properly be termed Findings are hereby adopted as such.

 

6.               A Finding or Conclusion of need and reasonableness with regard to any particular rule subsection does not preclude and should not discourage the Board from further modification of the proposed rules based upon this Report and an examination of the public comments, provided that the rule finally adopted is based upon facts appearing in this rule record.

 

            Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:

 

RECOMMENDATION         

 

            IT IS HEREBY RECOMMENDED that the proposed rules be adopted, except where otherwise noted.

 

Dated this

day of

April

2003.

 

                                                                             

BEVERLY JONES HEYDINGER

Administrative Law Judge