User's Guide To EPA's
Supplemental Environmental Projects Policy
Special Litigation and Projects Division
Office of Civil Enforcement
Office of Enforcement and Compliance Assurance
U.S. EPA
2006
-------
O
H
m m
3°
C/) ""
-------
User's Guide to EPA's
Supplemental Environmental Projects Policy
Table of Contents
I. Annotated Guide to SEP Policy Documents
IL SEP Policy and Implementing Guidance
lab 1 Supplemental Environmental Projects Policy (May 1,1998)
Tab 2 Revised Approval Procedures for Supplemental Environmental Projects
(July2LI999)
Tab 3 Appropriate Penalty Mitigation Credn Under the SEP Policy (April 14, 2000)
Tab 4 Supplemental Hnvironmental Projects (SEP) Polk) (March 22, 2002)
Tab 5 Importance of the Nexus Requirement in the Supplemental Environmental
Projects Policy (October 31, 2002)
Tab 6 Clarification and Expansion of Environmental Compliance Audits Under the
Supplemental Environmental Projects Policy {January 10, 2003)
Tab 7 Expanding the Use of Supplemental 'Environmental Projects (June 11, 2003}
Tab 8 Guidance on the Use of Environmental Management Systems in Enforcement
Settlements as Snjunctive Relief and Supplemental Environmental Projects
(June 12.2003)
Tab 9 Interim Guidance for Community Involvement in Supplemental Environmental
Projects (June 17.2003)
Tab 10 Guidance for Determining Whether a Project is Profitable and When to Accept
Profitable Projects as Supplemental Environmental Projects, and How to Value
Such Projects (December 15, 200")
Tab 11 Guidance Concerning the Use of Third Parties in the Performance of SEP.s and the
Aggregation of SEP Funds (December 15. 2003}
Tab 12 Supplemental Environmental Projects in Administrative Enforcement Matters
Involving Section 1018 Lead-Based Paint Cases (November 23. 2004)
-------
Tab 13 Reminder That Waiver is Required for Supplemental Environmental Projects Not
Meeting All Conditions of SEP Policy (March 21, 2005)
Tab 14 Clean Water Act Municipal Settlements and Supplemental Environmental
Projects (SEPs) (November 4, 2005)
III. Additional SEP Resources
Tab A Frequently Asked Questions and Answers Concerning die SEP Policy
Tab B PROJECT Model Quick Guide
Tab C Supplemental Environmental Projects Model Consent Agreement and Order
(January L 1999}
Many of these documents are also available on-line at;
http:ifcfptih.epa gov? compliance -resources.
-------
Annotated Guide to SEP Policy Documents
EPA's Final Supplemental Environmental Projects (SEP) Policy was issued May 1,1998.
Since that time, EPA's Office of Enforcement and Compliance Assurance (OECA) has issued a
number of guidance documents interpreting and, in some cases, modifying, the SEP Policy. The
following index provides information on these guidance documents. It is organized
alphabetically by general topic with a brief description of the guidance, and the title/date for the
relevant guidance. Please note that the descriptions provided are merely summaries. For a full
description of the issue and the guidance please see the referenced documents.
Unless otherwise indicated, the documents listed below can also be found at:
http://cfbub.epa.gov/compliance/resources/tx)licies/civil/seps/
Aggregation of SEP Funds - "Guidance Concerning the Use of Third Parties and the
Performance of SEPs and the Aggregation of SEP Funds," dated December 15,2003.
(See Tab 11.)
The guidance addresses the question of whether a defendant/respondent can aggregate
SEP funds and provides examples of instances when this might be acceptable, and
provides recommendations for ensuring that such settlements comport with the
Miscellaneous Receipts Act (MRA). Advance consultation with the Special Litigation
and Projects Division (SLPD) (formerly Multi-Media Enforcement Division) of the
Office of Civil Enforcement (OCE; formerly the Office of Regulatory Enforcement,
ORE) is encouraged. Additionally, the guidance discusses why aggregation of SEP funds
by EPA is not allowable.
Approvals Required for SEPs - "Revised Approval Procedures for Supplemental
Environmental Projects," dated July 21,1998. (See Tab 2.)
The guidance describes when prior approval is required for certain categories of SEPs and
identifies the appropriate approving official.
* Supersedes April 24, 1996 memorandum 'Approval Procedures for Supplemental Environmental
Projects. *
-------
Community Involvement in SEPs - "Interim Guidance for Community Involvement in
Supplemental Environmental Projects," dated June 17,2003. (See Tab 9.)
This interim guidance is designed to provide information to EPA staff on involving
communities in the selection and implementation of SEPs in appropriate cases.
Compliance Audits - "Clarification and Expansion of Environmental Compliance Audits Under
the Supplemental Environmental Projects Policy," dated January 10,2003. (See Tab 6.)
The May 1,1998 SEP Policy allows compliance audits in the "Audits and Assessments -
Environmental Compliance Audits" subcategory as SEPs only for small businesses
(employing less than 100 employees) and small communities (containing less than 2,500
persons). This guidance expands the "Environmental Compliance Audits" subcategory to
allow all State and local governments, regardless of size, to undertake such audits as
SEPs, without prior Headquarter's approval.
Additionally, the guidance provides that in instances where large companies wish to
conduct a compliance audit that is exceptional, a case team may propose such a potential
project under the "Other Types of Projects" and seek advance approval from the Director,
SLPD (formerly MED). Such projects must demonstrate exceptional environmental
benefit and be consistent with all other provisions of the SEP Policy.
CWA Municipal Settlements and SEPs - "Clean Water Act Municipal Settlements and
Supplemental Environmental Projects (SEPs)," dated November 4,2005. (See Tab 14.)
This guidance clarifies the interaction between the May 1995 Interim Clean Water Act
(CWA) Settlement Penalty Policy (CWA Policy) and the May 1,1998 SEP Policy. For
purposes of settling CWA cases with municipalities, enforcement staff should follow the
CWA Policy when considering the appropriate balance between the penalty and SEPs.
The guidance reiterates that in CWA municipal cases where the municipal penalty matrix
is applied, a minimum of 60% of the number derived from the matrix must be collected
as the penalty.
* Supersedes "Clarification of Interaction Between 1995 Clean Water Act Interim Settlement Policy and
the 1998 Supplemental Environmental Projects Policy "dated March 22, 2002.
Environmental Management Systems (EMS) - "Guidance on the Use of Environmental
Management Systems in Enforcement Settlements as Injunctive Relief and Supplemental
Environmental Projects," dated June 12,2003. (See Tab 8.) Also available online at:
http://crpub.epa.gov/compliance/resources/publications/incentives/erns/
This document provides guidance for determining when it is most appropriate to include
an EMS in an enforcement settlement as injunctive relief, and when an EMS can be
-------
considered for inclusion as a SEP. Although the May 1,1998 SEP Policy did not
encourage EMSs as SEPs, EMSs could be included as SEPs under the "Other Types of
SEPs" category, with advance Headquarter's approval.
This modification to the SEP Policy provides that EMSs by State and local governments
and small businesses that meet the criteria in the SEP Policy are now eligible for
consideration as SEPs as "Other Types of SEPs" without advance Headquarter's approval.
Regions are required to consult with the Office of Planning, Policy Analysis, and
Communications (OPPAC) and the Special Litigation and Projects Division (SLPD)
(formerly Multi-Media Enforcement Division) of the Office of Civil Enforcement (OCE,
formerly the Office of Regulatory Enforcement, ORE) prior to extending SEP credit to
the first EMS for either a State or local government or a small business.
Additionally, while the SEP Policy allows up to 100% mitigation credit for States and
local governments and small businesses, this guidance provides that the mitigation credit
for an EMS should not exceed 80%, unless the defendant/respondent can demonstrate
that the EMS is of outstanding quality.
Frequently Asked Questions and Answers - This document addresses many of the most
frequently asked questions concerning implementation of the SEP Policy. (See Section B,
Tab A.)
Legal Guidelines - "Supplemental Environmental Projects (SEP) Policy," dated March 22, 2002.
(See Tab 4.)
This memorandum reiterates several important aspects of EPA's 1998 SEP Policy
designed to ensure that projects meet the applicable legal guidelines and are consistent
with Agency policy.
Nexus - "Importance of the Nexus Requirement in the Supplemental Environmental Projects
Policy," dated October 31,2002. (See Tab 5.)
The purpose of this memorandum is to emphasize the importance of nexus in evaluating
proposed SEPs. The memorandum explains what nexus is and why it is important, with
emphasis on avoiding problems relating to the Miscellaneous Receipts Act (MRA).
Penalty Mitigation - "Appropriate Penalty Mitigation Credit Under the SEP Policy," dated April
14,2000. (See Tab 3.)
This memorandum serves as a reminder to enforcement staff that while the percent of
penalty mitigation is within EPA's discretion, the mitigation percentage should not
exceed 80% except for the two allowable exceptions. These exceptions allow up to 100%
mitigation credit for (1) small businesses, government agencies or entities and non-profit
-------
organizations who can demonstrate that the project is of outstanding quality, and (2) for
any defendant/respondent if the SEP implements pollution prevention and the
defendant/respondent can demonstrate that the SEP is of outstanding quality.
Requests for waivers to go above 80% mitigation credit for projects not meeting the
exceptions above must also demonstrate the outstanding qualities that warrant going
above the 80% maximum.
Profitable SEPs - "Guidance for Determining Whether a Project is Profitable and When to
Accept Profitable Projects as Supplemental Environmental Projects," dated June 17,2003. (See
Tab 10.)
The May 1998 SEP Policy stated that SEPs that were profitable to the
defendant/respondent were "generally not acceptable." OECA acknowledges that the
environmental or public health benefit of certain profitable projects (particularly
pollution prevention projects) may outweigh the benefit to the violator. This
memorandum provides guidance for determining if a project is profitable, and describes
those circumstances in which a profitable project may be an acceptable SEP.
Generally, projects which are profitable within the first five years of implementation are
not acceptable as SEPs (within the first three years for small businesses.) Projects which
become profitable after the first five years of implementation (three years for small
businesses) must meet certain conditions (referred to as the "high hurdles") described in
the guidance in order to be considered as a SEP.
Third Parties Used to Implement SEPs on Behalf of Defendants/Respondents - "Guidance
Concerning the Use of Third Parties and the Performance of SEPs and the Aggregation of SEP
Funds," dated December 15,2003. (See Tab 11.)
Section n of this guidance describes those circumstances hi which a defendant/respondent
may use a third party to assist in implementing a SEP. Those circumstances are where (1)
the defendant/respondent is obligated under the settlement document to complete the
project satisfactorily; (2) the defendant/respondent fully expends the amount of funds
agreed to be spent in performance of the SEP; and (3) the project meets all conditions and
requirements of the SEP Policy.
Additionally, enforcement staff is reminded that cash donations to third parties are not
permissible.
TSCA Section 1018 Administrative Settlements and SEPs - "Supplemental Environmental
Projects in Administrative Enforcement Matters Involving Section 1018 Lead-Based Paint
Cases," dated November 23,2004. (See Tab 12.)
-------
This memorandum provides for an exception to the minimum penalty requirements of the
SEP Policy for certain public health SEPs performed pursuant to administrative
enforcement settlements under Section 1018 of the Residential Lead-Based Paint Hazard
Reduction Act. For Section 1018 administrative settlements that include SEPs requiring
lead-based paint abatement or blood lead level screening and/or treatment for children
where Medicaid coverage is not available, the minimum penalty requirement is reduced
from 25% of the gravity-based penalty to 10% of the gravity-based penalty.
Waivers From the SEP Policy Are Required - "Reminders That Waiver is Required for
Supplemental Environmental Projects Not Meeting All Conditions of SEP Policy," dated March
21,2005. (See Tab 13.)
Memo provides a reminder to enforcement personnel that waivers from the Assistant
Administrator for OECA are required if a project does not meet all conditions of the SEP
Policy, and the case team wants to claim SEP credit for the project in the enforcement
databases.
-------
1
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Issuance of Final Supj
FROM: Steven A. HI
Assistant A
TO: . Regional Administrators
Environmental Projects Policy.
I am pleased to issue the final Supplemental Environmental Projects (SEP) Policy, the
product of almost three years of experience implementing and fine-tuning the 1995 Interim
Revised SEP Policy. It is also the product of the cooperative effort of the SEP Workgroup,
comprised of representatives of the Regions, various OECA offices, OGC and DOJ. This Policy
is effective May 1,1998, and supersedes the Interim SEP Policy.
Most of the changes made to the Interim SEP Policy are clarifications to the existing
language. There are no radical changes and the basic structure and operation of the SEP Policy
remains the same. The major changes to the-SEP Policy include:
1. Community Input The final SEP Policy contains a new section to
encourage the use of community input in developing projects in
appropriate cases and there is a new penalty mitigation factor for
community input We are preparing a public pamphlet that explains the
Policy in simple terms to facilitate implementation of this new section.
2. Categories of Acceptable Projects. The categories of acceptable projects
have remained largely the same, with some clarifications and a few
substantive changes. There is now a new "other" category under which
worthwhile projects that do not fit within any of the defined categories, but
are otherwise consistent with all other provisions of the SEP Policy,.may
qualify as SEPs with advance OECA approval. The site assessment
subcategdry'has beeh'revised and renamed to "environmental quality-
assessments." The environmental management system subcategqry has
been eliminated.
Internet Address (URL) • http://www.opa.gov
Rtcy cUdfficcyctebk . Printed wlh Vtgrtatob 01 Basrt Inks on Rv r-(r*x! Pzptr (Mlntmfci 20%
Received
0 1998
Enforcement & Co
Doei»t
'
-------
3. Use of SEPS to Mitigate Stipulated Penalties. The final SEP Policy
prohibits the use of SEPs to mitigate claims for stipulated penalties, but
does indicate that in certain defined extraordinary circumstances, I may
approve a deviation from this prohibition.
.4. Penalty Calculation Methodology. The penalty calculation steps have been better
defined and broken into five steps rather than three. .A calculation-worksheet,
keyed to the text of the Policy, has been added. The penalty mitigation guidelines
have not been substantively changed, only clarified.
5. Legal Guidelines. The legal guidelines have been revised to improve clarity and
provide better guidance. The nexus legal guideline has been revised to make it
easier to apply. The fifth legal guideline concerning appropriations has been
revised and subdivided into four sections.
Questions regarding the final SEP Policy should be directed to Ann Kline (202-564-
0119) in.the Multimedia Enforcement Division.
Attachment
cc: (w/attachment,
OECA Office Directors
Regional Counsels, Regions l-X '
Director, Office of Environmental Stewardship, Region I
Director, Division of Enforcement and Compliance Assurance, Region n
Director, Compliance Assurance and Enforcement Division, Region VI
Director, Office of Enforcement, Compliance and Environmental Justice, Region VIII
Regional Enforcement Coordinators, Regions I-X
Chief, DOJ, EES
SEP Workgroup Members
David Hindin, Chair, EPTDD . Ann Kline, MED
Leon Acierto, V Gerard Kraus, MED
Christropher Day, ID Sylvia Liu, DOJ, PSLS
Joe Boyle, V Amy Miller, IX
Lourdes BufilL WED . Peter Moore, MED
Becky Dolph. VH Mike Northridge, OSRE
Karen Dworkin, DOJ, EES Reginald Pallesen, V
Owen Fitz-Henley, IV Rudy Perez,-!!
; MelanieGaryey, FFEOJ -Erv PickelL AED—
Mark Haag, DOJ, PSLS Jo Ann Semooes, DC
Tanya HilLOGC Etren Ordonez, VT
Leslie Jones, OSRE. Lawrence Wapensky, VIII
Maureen Katz, DOJ, EES
Amelia Katzen* I
-------
EPA SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY
Effective May 1,1998
A. INTRODUCTION
1. Background
In settlements of environmental enforcement cases, the U.S. Environmental Protection
Agency (EPA) requires the alleged violators to achieve and maintain compliance with Federal.
environmental laws and regulations and to pay a civil penalty. To further EPA's goals to protect
and enhance public health and the environment, in certain instances environmentally beneficial
projects, or Supplemental Environmental Projects (SEPs), may be part of the settlement This
Policy sets forth the types of projects that are permissible as SEPs, the penalty mitigation .
appropriate for a particular SEP, and the terms and conditions under which they may become part
of a settlement./The primary purpose of this Policy is to encourage and obtain environmental
and public health protection and improvements that may not otherwise have occurred without the
settlement incentives provided by this Policy.
In settling enforcement actions, EPA requires alleged violators to promptly cease the
violations and, to the extent feasible, remediate any harm caused by the violations. EPA also
seeks substantial monetary penalties in order to deter noncompliance. Without penalties,
regulated entities would have an incentive to delay compliance until they are caught and ordered
-to comply. Penalties promote environmental .compliance and help protect public health.by
deterring future, violations by the same-violator and deterring violations by other members of the
regulated community. Penalties help ensure a national level playing field by ensuring that
violators do not obtain an unfair economic advantage over their competitors who made the
necessary expenditures to comply on time. Penalties also encourage regulated entities to adopt
pollution prevention and recycling techniques in order to minimize their pollutant discharges and
reduce their potential liabilities.
. Statutes administered by EPA generally contain penalty assessment criteria that a court or
administrative law judge must consider in determiningan appropriate penalty at trial or a
hearing. In the settlement context, EPA generally follows these criteria in exercising its
discretion to establish an appropriate settlement penalty. In establishing an appropriate penalty,
EPA considers such factors as the economic benefit associated with the violations, the gravity or
seriousness of the violations, and prior history of violations. Evidence of a violator's
commitment and ability"to perform a SEPr isalsla a relevaniffa^toFfor EPAto consider in
establishing an appropriate settlement penalty: All else being equal, the final settlement penalty •
will be lower for a violator who agrees to perform an acceptable SEP compared to the violator
who does not agree to perform a SEP.
-------
SEP Policy page 2
The Agency encourages the use of SEPs that are consistent with this Policy; SEPs may
not be appropriate in settlement of all cases, but they are an important part of EPA's enforcement
program. While penalties play an important role in environmental protection by deterring
violations and creating a level playing field, SEPs can play an additional role in securing
significant environmental or public health protection and improvements. SEPs may be
particularly appropriate to further the objectives in the statutes EPA administers and to achieve
other policy goals, including promoting pollution prevention and environmental justice.
2. Pollution Prevention aqd Environmental Justice
The. Pollution Prevention Act of 1990 (42 U.S.C. § 13101 et seq., November 5, 1990)
identifies an environmental management hierarchy in which pollution "should be prevented or
reduced whenever feasible; pollution that cannot be prevented should be recycled in an
environmentally safe manner whenever feasible; pollution that cannot be prevented or recycled
should be treated in an environmentally safe manner whenever feasible; and disposal or other
release into the environment should be employed only as a last resort..." (42 U:S.C. §13103).
Selection and evaluation of proposed SEPsjJhould be conducted generally in accordance with
this hierarchy of environmental management, i.e., SEPs involving pollution prevention
techniques are preferred over other types of reduction pr control strategies, and this can be
reflected in the degree of consideration accorded to a defendant/respondent before calculation of.
the final monetary penalty.
Further, there is an acknowledged concern, expressed in Executive Order. 12898 on
environmental justice, that certain segments of the nation's population, is* lowrincome and/or
minority populations, are disproportionately burdened by pollutant.exposure. Emphasizing. SEPs
in communities where environmental justice concerns are present helps .ensure that persons who
spend significant portions of their time in areas, or depend on food: and water sources located
hear; where the violations occur would be protected. Because environmental justice is not a
specific technique or process but an overarching goal, it is not listed as a particular SEP category;
but EPA encourages SEPs in communities where environmental justice may be an issue.
•B. Using this Policy
In evaluating a proposed project to determine if it qualifies as a SEP and men determining
how much penalty mitigation is appropriate, Agency enforcement and compliance personnel
should use the following.five-step process:^
(1) Ensure that .the project meets the basic definition of a SEP. (Section B)
- (2) — Ensure that all legal gmdelines, including nexus; areiaisfied. nCSectidnTG)^"
(3) Ensure mat the project fits within one (of more) of the designated categories of SEPs
. (SectionD)
(4) Determine the appropriate amount of penalty mitigation. (Section E)
(5) Ensure that the project satisfies all of the implementation and other criteria.
(Sections F,G,H;! and J)
-------
SEP Policy page 3
4. Applicability
This Policy revises and hereby supersedes the February 12,1991 Policy on the Use of
Supplemental Environmental Projects in EPA Settlements and the May 1995 Interim Revised
Supplemental Environmental Projects Policy. This Policy applies to settlements of all civil
judicial and administrative actions filed after the effective date of this Policy (May 1,1998), and
to all pending cases in which the government has not reached agreement in principle with the
alleged violator on the specific terms of a SEP.-
This Policy applies to ail civil judicial and administrative enforcement actions taken
under the authority of the environmental statutes and regulations that EPA administers. It also
may be used by EPA and the Department of Justice in reviewing proposed SEPs in settlement of
citizen suits. This Policy also applies to federal agencies that are liable for the payment of civil
penalties. Claims for stipulated penalties for violations of consent decrees or other settlement
agreements may not be mitig'ated by the use of SEPs.'
This is a settlement Policy and thus is not intended for use by EPA, defendants,
respondents, courts or administrative law judges'at a hearing or in a trial.' Further, whether trie
Agency decides to accept a proposed SEP as part of a settlement, and the amount of any penalty
mitigation that may be given for a particular SEP, is purely within EPA's discretion. Even
though a project appears to satisfy all of the provisions of this Policy, EPA may decide, for one
or more reasons, that a SEP is not appropriate (e.g., the cost of reviewing a SEP .proposal is
excessive, the oversight costs of the SEP may be too high, the defendant/respondent may not
have the ability or reliability to complete the proposed SEP, or the deterrent value of the higher
penalty amount outweighs the benefits of the proposed SEP).
This Folicy establishes a ftamework for EPA to use in exercising its enforcement
discretion in determining appropriate settlements. In some cases, application of this Policy may
not be appropriate, in whole or part In such cases, the litigation team may, with the advance
approval of Headquarters, use an'altemative or modified approach.
1 In extraordinary circumstances, the Assistant Administrator may consider mitigating potential
stipulated penalty liabjlity using SEPs where: (1) despite the circumstances giving rise to the claim for
stipulated penalties,' the violator has the ability andlhtention to cpmplywuTa new settlement agreement
obligation to implement the SEP; (2) there is no negative impact on the deterrent purposes of stipulated
penalties; and (3) the settlement agreement establishes a range for stipulated penalty liability for the.
violations at issue. For example, if a respondent/defendant has violated a settlement agreementwhich
provides mat a violation of X requirement subjects it to a stipulated penalty between $1,000 and $5,000,
then the Agency may consider SEPs in determining the specific penalty amount that should be
demanded.
-------
SEP Policy page 4
B. DEFINITION AND KEY CHARACTERISTICS OF A SEP
Supplemental environmental projects are defined as environmentally beneficial projects
which a defendant/respondent agrees to undertake in settlement of an enforcement action, but
which the defendant/respondent is not otherwise legally required to perform. The three
bolded key parts of this definition are elaborated below.
"Environmentally beneficial" means a SEP must improverprotectror reduce risks to
public health, or the environment at large.. While hi some cases a SEP may provide the alleged
violator with certain benefits, there must be no doubt that the project primarily benefits the
public health or the environment
"In settlement of an enforcement action" means: 1) EPA has the opportunity to help
shape the scope of the project before it is implemented; and 2) the project is not commenced until"
after the Agency has identified a violation (e.g., issued a notice of violation, administrative order,
or complaint).2
"Not otherwise legally, required to perform-means" the projector activity is not required
by any federal, state or local law or regulation. Further, SEPs cannot include actions which the
defendant/respondent is likely to be required to perform:
(a) as injunctive relief3 in the instant case;
(b) as injunctive relief in another legal action EPA. or another regulatory agency could
bring;
(c) as part of an existing settlement or order in another legal action; or,
(d) by a state or local requirement
/ .
SEPs may. include activities which the defendant/respondent will become legally obligated to
undertake two or more years in the future, if the project will result hi the facility coming into
compliance earlier than the deadline. Such "accelerated compliance" projects are not allowable,
2 Since the primary purpose of this Policy is to obtain environmental or public health benefits that
may not have occurred "but for", the settlement, projects which the defendant has previously committed
to perform or have been started before the Agency, has identified a violation are not eligible as SEPs.
Projects which have been committed to or started before the identification of a violation may mitigate the
penalty in other ways. Depending on the specifics, if a rcgujated entity had initiated environmentally.
beneficial projects before the enforcement process commenced, the initial penalty calculatipnjcoald be
lower due to the absence of recalcitrance,- no-history ofothefviolationsTgood faith efforts, less severity
of the violations, or a shorter duration of the violations.
3 The statutes EP A administers generally provide a court with broad authority to order a defendant to
cease its violations, take necessary steps to prevent future violations, and to remediate any harm caused
by the violations. If a court is likely to order a defendant to perform a specific activity i*:. par»™:.lar .._
case, such an activity does not qualify as a SEP.
-------
SEP Policy page 5
however, if the regulation or statute provides a benefit (e.g., a higher emission limit) to the
defendant/respondent for early compliance.
Also, the performance of a SEP reduces neither the stringency nor timeliness
requirements of Federal environmental statutes and regulations. Of course, performance of a
SEP does not alter the defendant/respondent's obligation to remedy a violation expeditiously and
return to compliance.
C. LEGAL GUIDELINES
EPA has broad discretion to settle cases, including the discretion to incjude SEPs as an
appropriate part of the settlement The legal evaluation of whether a proposed SEP is within
EPA's authority and consistent with all statutory and Constitutional requirements may be a
complex task. Accordingly, this Policy uses five legal guidelines to ensure that our SEPs are
within the Agency's and a federal court's authority, and do not run afoul of any Constitutional or
statutory requirements.4.
1. A project cannot be inconsistent with any provision of the underlying statutes.
2. All projects must advance at .least one of the objectives of the environmental statutes
that are the basis of the enforcement action and must have adequate nexus.. Nexus is the
relationship between the violation and the proposed project. This relationship exists only
if:
a. the project, is designed to reduce the likelihood that similar violations will
occur in the future; or
b. the project reduces the adverse impact to public health or the environment to
which the violation at issue contributes; or
c. the project reduces the overall risk to public health or the environment
potentially affected by the violation at issue.
Nexus is easier to establish if the primary impact of the project is at the site where the
alleged violation occurred or at a different site in the same ecosystem or within the
immediate geographic5 area. Such SEPs may have sufficient nexus even if the SEP
* These legal guidelines are based on federal law as it applies to EPA; States may have more or less
flexibility in the use of SEPs depending on their laws.
• * The* immediate geographic area will generally be the area within a 50 mile radius of the site on •
which the violations rrcuned. E-casystera :,: scog-Mpiiic proxiht'ty is rot by itself a sufficient basis for
'i; a project r«:i?st alws;» satisfy subparagraph a, b, or c in the uef^itidn of nexus. In sonv. cases, a
-------
SEP Policy Pa8e6
addresses a different pollutant in a different medium. In limited cases, nexus may exist
even though a project will involve activities outside of the United States;6 The cost of a
project is not relevant to whether there is adequate, nexus.
3. EPA may not play any role in managing or controlling funds that may be set aside or
escrowed for performance of a SEP. Nor may EPA retain authority to manage or
administer the SEP. EPA may, of course, perform oversight to ensure that a project is
implemented pursuant to the provisions of the settlement and have legal recourse if the
SEP is not adequately performed.
4. The type and scope of each project are defined in the signed settlement agreement.
This means the "what, where and when" of a project are defined by the settlement
•agreement. Settlements in which the defendant/respondent agrees to spend a certain sum
of money on a project(s) to be defined later (after EPA or the Department of Justice signs
the settlement agreement) are not allowed.
5. a. A project cannot be used to satisfy EPA's.statutory obligation or.another
federal agency's obligation to perform a particular activity. Conversely, if a
federal statute prohibits the expenditure of federal resources on a particular
activity, EPA cannot consider projects that would appear to circumvent that
prohibition
b. A project may not provide EPA or any federal agency with additional
resources to perform a particular activity for which Congress has specifically
appropriated funds. A project may not provide EPA with additional resources to
perform a particular activity for which Congress has earmarked funds in an
appropriations committee report7 Further, a project cannot be used to satisfy
EPA's statutory or earmark obligation, or another federal agency's statutory
obligation, to spend funds on a particular activity. A project, however, may .be
related to a particular activity for which Congress has specifically appropriated or
earmarked funds.
c. A project may not provide additional resources to support specific activities
performed by EPA employees or EPA contractors. For example, if EPA has
developed a brochure to help a segment of the regulated community comply with
project may be performed at a facility or site not owned by the defendant/respondent
6 All projects which would include activities outside the U.S. must be approved in advance by
Headquarters and/or the Department of Justice: See section J.
rt-j sre instructions for changes to EPA's discretionary budget authority made Ky
appropriations committee in .committee reports that the Agency generally honors as ? -Barter of r--: .'-y .
-------
SEP Policy page 7
environmental requirements, a project may not directly, or indirectly, provide
additional resources to revise, copy or distribute the brochure.
d, A project may not provide a federal grantee with additional funds to perform a
specific task identified within an assistance agreement.
D. CATEGORIES OF SUPPLEMENTAL ENVIRONMENTAL PROJECTS
EPA has identified seven specific categories of projects which may qualify as SEPs. In
order for a proposed project to be accepted as a SEP, it must satisfy the requirements of at least
one category plus all the other requirements established in this Policy.
1. Public Health
A public health-project provides diagnostic, preventative and/or remedial components of
human health care which js related to the actual or potential damage to human health caused by
the violation. This may include epideMologicaTdatalzpl^
examinations of potentially affected persons, collection and analysis of blood/fluid/ tissue
samples, medical treatment and rehabilitation therapy.
Public health SEPs are acceptable only where .the primary benefit of the project is the
population that was harmed or put at risk by the violations.
2. Pollution Prevention
A pollution prevention project is one which reduces the generation of pollution through
"source reduction," i.e., any practice which reduces the amount of any hazardous substance,
pollutant or contaminant entering any waste stream or otherwise being released into the
environment, prior to recycling, treatment or disposal (After the pollutant or waste stream has
been generated, pollution prevention is no longer possible and the waste must be handled by
appropriate recycling, treatment, containment, or disposal methods.)
procedure modifications, reformulation or redesign of products; substitution of raw materials,
and improvements in housekeeping, maintenance, training, inyehtory control, or other operation
and maintenance procedures; Pollution prevention also includes any project which protects
natural resources through conservation or increased efficiency in the use of energy, water or
other materials.—"In-processrecycling,--wherein-waste materials pnxiuced during a—
manufacturing process are returned directly to production as raw materials on site, is considered
a pollution prevention project
In all cases, for a project to meet the definition of pollution prevention, there must be an
overall decrease in the amount' and/or toxicity of pollution released trt tbs envir^f, coat
-------
SEP Policy pageS
merely a transfer of pollution among media. This decrease may be achieved directly or through
increased efficiency (conservation) in the use of energy, water or other materials. This is
consistent with the Pollution Prevention Act of 1990 and the Administrator's "Pollution
Prevention Policy Statement: New Directions for Environmental Protection," dated June 15,
1993
3. Pollution Reduction
If the pollutant or waste stream already has been generated or released, a pollution
reduction approach — which employs recycling, treatment, containment or disposal techniques —.
. may be appropriate. A pollution reduction project is one which results in a decrease in the
amount and/or toxicity of any hazardous substance, pollutant or contaminant entering any waste
stream or otherwise being released into the environment by an operating business or facility by a
means which does not qualify as "pollution prevention." This may include the installation of
.more effective end-of-process control or treatment technology, or improved containment, or safer
disposal of an existing pollutant source. Pollution reduction also includes "out-of-process
recycling," wherein industrial waste collected after the manufacturing process and/or consumer
waste materials are used as raw materials for production off-site:
» . - . •
4. Environmental Restoration and Protection .
An environmental restoration and protection project is one which enhances the condition
of the. ecosystem orlmmediate geographic area adversely affected.8 These projects may be used
to restore or protect natural environments (such as ecosystems) and man-made environments,
such as facilities and buildings. This category also includes any project which protects the
ecosystem'from actual of potential damagVresultirig from the violation or improves the overall
condition of the ecosystem.9 Examples of such projects.include: restoration of a wetland in the
same ecosystem along the same aviari flyway in which the facility is located; or purchase and
management of a watershed area by the defendant/respondent to protect a drinking water supply
where the violation (e.g., a reporting violation) did not directly damage the watershed but
potentially could lead to damage due to unreported discharges. This category also includes
projects which provide for the protection of endangered species (e.g., developing conservation
programs or protecting habitat critical to the well-being of a species endangered by the
violation).
In some projects where a defendant/respondent has agreed to restore and then protect
certain lands, the question arises as to whether the project may include the creation or
* If EPA lacks authorityto require repair of the damage caused by the violation, then repair itself may
constitute a SEP.
9 Simply preventing new discharges into the ecosystem, as opposed to taking affirmative action :.
directly related to preserving existing conditions at a property, would not constitute a restoration s?:d
protection project, but may fit into another category such as pollution prevention cr ooHutics reduction.
-------
SEP Policy page 9
maintenance of certain recreational improvements, such as hiking and bicycle trails. The costs
associated with such recreational improvements may be included in the total SEP cost provided.
they do not impair the environmentally beneficial purposes of the project and they constitute
only an incidental portion of the total resources spent on the. project.
In some projects where the parties intend that the property be protected so that the
ecological and pollution reduction purposes of the land are maintained in perpetuity, the
defendant/respondent may sell or transfer the land to another party with the established resources
and expertise to perform this function, such as a state park authority. In some cases, the U.S.
Fish and Wildlife Service or the National Park Service may be able to perform, this function.10
With regard to man-made environments, such projects may involve the remediation of
facilities and buildings, provided such activities are not otherwise legally required. This includes
the removal/mitigation of contaminated materials, such as soils, asbestos and lead paint, which -
are a continuing source of releases and/or threat to individuals.
5. Assessments and Audit?
Assessments and audits, if they are not otherwise available as injunctive relief, are
potential SEPs under this category. There are three types of projects in this category: a.
pollution prevention assessments; b. environmental quality assessments; and c. compliance
audits. These assessments and audits are only acceptable as SEPs when the
•defendant/respondent agrees to provide EPA with a copy of the report. The results may be made
available to the public, except to the extent they constitute confidential business information
pursuant to 40 CFR Pari 2, Siibpart B.,
a, Poflutipn prevention Assessments are systematic, internal reviews of specific processes
and operations designed to identify and provide information about opportunities to reduce the
use, production, and generation of toxic and hazardous materials and other wastes.. To be eligible
for SEPs, such assessments must be conducted using a recognized pollution prevention .
assessment or waste minimization procedure to reduce the likelihood of future violations.
/ Pollution prevention assessments are acceptable as SEPs without an implementation commitment
by the defendant/respondent Implementation is not required because drafting implementation
requirements before the results of an assessment are known is difficult. Further, many of the
implementation recommendations may constitute activities that are in the defendant/respondent's
own economic interest
b- Environmental qu?ljty assessments are investigations of: thecondition of the
environment at a site not owned or operated .by the defendant/respondent; the environment
impacted by a site or a "facility regardless of whether the site or facility is owned or operated by
10 These federal agencies have explicit statutory authority to accept gifts of land and money in
certain circumstances. All projects with these federal agencies must be reviewed and approved in
advance by legal counsel in the agency, usually the Soiic»to»: s Office in the Depr.rtmsnt of the Interior
-------
SEP Policy Pa8e 10
the defendant/respondent; or threats to human health or the environment relating to a site or a
facility regardless of whether the site or facility is owned or operated by the
defendant/respondent. These include, but are not limited to: investigations of levels or sources
of contamination in any environmental media at a site; or monitoring of the air, soil, or water
quality surrounding a site or facility. To be eligible as SEPs, such assessments must be
conducted in accordance with recognized protocols, if available, applicable to the type of
assessment to be undertaken. Expanded sampling or monitoring by a defendant/respondent of
its own emissions or operations does not qualify as a SEP to the extent it is ordinarily
available as injunctive relief.
Environmental quality assessment SEPs may not be performed on the following types of
sites: sites that are on the National Priority List under CERCLA § 105,40 CF£ Pan 300,
Appendix B; sites that would qualify for an EPA removal action pursuant to CERCLA § 104(a)
and the National Oil and Hazardous Substances Pollution:Contingency Plan, 40 CFR § 300.415;
and sites for which the defendant/respondent or another party would likely be ordered to perform
a remediation activity pursuant to CERCLA §106, RCRA §7003, RCRA 3008(h), CwVV§ 311,
or another federal law;.
c. Environmental compliance audits^are independent evaluations of a
defendant/respondent's compliance status with environmental requirements. Credit is only given
for the costs associated with conducting the audit While the SEP should require all violations
discovered by. the audit to be promptly corrected, no credit is given for remedying the violation
since persons are required to achieve and rpaintftin compliance with environmental requirements.
In general, compliance audits are acceptable as SEPs only when the defendant/respondent is a
small business or small community.'1112
6. Environmental Compliance Promotion
An environmental compliance promotion project provides training or technical support to
other members of the regulated community to: 1) identify,.achieve and maintain compliance
with .applicable statutory and regulatory requirements or 2) go beyond compliance by reducing
the generation, release or disposal of pollutants beyond legal requirements. For these types of
projects, the .defendant/respondent may lack the experience, knowledge or ability to implement
the project itself, and, if so, the defendant/respondent should be required to contract with an
appropriate expert to develop and implement the compliance promotion project Acceptable
1', For purposes of this Policy, a. small business is owned by a person or another entity that employs
400 or fewer individuals. Small businesses could be individuals, privately held corporations, farmers,
landowners, partnerships and others. A small community is one comprised of fewer man 2,500 persons.
12 Since most large companies routinely conduct compliance audits, to mitigate penalties for such
audits would reward violators for performing an activity that most companies already do. In contrast,
these audits are r.ct commonly done by small businesses, perhaps because such audits may be too
expensive.
-------
SEP Policy page 11
projects may include, for example, producing a seminar directly related to correcting widespread
or prevalent violations within the defendant/ respondent's economic sector.
Environmental compliance promotion SEPs are acceptable only where the primary
impact of the project is focused on the same regulatory program requirements which were
violated and where EPA has reason to believe that compliance in the sector would be
significantly advanced by the proposed project For example, if the alleged violations involved
Clean Water Act pretreatment violations, the compliance promotion SEP must be directed at
ensuring compliance with pretreatment requirements. Environmental compliance promotion
SEPs are subject to special approval requirements per Section J below.
7- Emergency Planning and Preparedness
An emergency planning and preparedness project provides assistance — such as
computers and software, communication systems, chemical emission detection and inactivation
equipment, HAZMAT equipment, or training - to a responsible_state or local emergency .
response or planning entity. This is to enable these organizations to fulfill their obligations under
me Emergency Planning and Community Right-to-Know Act (EPCRA) to collect information to"
assess the dangers of hazardous chemicals present at facilities within their jurisdiction, to ,
develop emergency response plans, to train emergency response personnel and to better respond.
to chemical soills.
EPCRA requires regulated sources to provide information on chemical production,
storage and use to State Emergency Response Commissions (SERCs), Local Emergency
Planning Committees (LEPCs) and Local Fire Departments (LFDs). This enables states and
local communities to plan for and respond effectively to chemical accidents and inform
potentially affected citizens of the risks posed by chemicals present in their communities, thereby
enabling them to protect the environment or ecosystems which could be damaged by. an accident
Failure to comply with EPCRA impairs the ability of states and local communities to meet their
obligations and places emergency response personnel, the public and the environment at risk
from a chemical release.
Emergency planning and preparedness SEPs are acceptable where the primary impact of
the project is within the same emergency planning district or state affected by the violations and
EPA has hot previously provided the'entity with financial assistance for the same purposes as the
proposed SEP: Further,' this type of SEP is allowable only when the SEP involves non-cash
assistance and there are violations of EPGRA, or reporting violations under CERCLA § 103, or
CAA § 112(r), or violations of other emergency planning, spill or release requirements alleged in
the complaint.
8. Other Types of Projects
Projects determined by the case team to have environmental merit which do not fit within
at least one of the seven categories above but that are otherwise fully consistent with aH c'-Lcr
-------
SEP Policy page 12
provisions of this Policy, may be accepted with the advance approval of the Office of
Enforcement and Compliance Assurance..
9. Projects Which Are Nojt Acceptable as SEPs
The following are examples of the types of projects that are not allowable as SEPs:
a. General public educational or public environmental awareness projects, e.g.,
sponsoring public seminars, conducting tours of environmental controls at a facility,
promoting recycling in a community;.
b. x Contributions to environmental research at a college or university;
c. Conducting a project, which, though beneficial to a community, is unrelated to
environmental protection, e.g., making a contribution to a non-profit, public interest,
environmental, or other charitable organization, or donating playground equipment;
d. Studies or assessments without a requirement to address the problems identified''""
in the study (except as provided for in § D.5 above);
e. Projects which the defendant/respondent will undertake, hi wholeI or part, with
low-interest federal loans, federal contracts, federal grants, or other forms of federal
financial assistance or non-financial assistance (e.g., loan guarantees).
E. CALCULATION OF THE FINAL PENALTY
Substantial penalties are an important part of any settlement for legal and policy reasons.
Without penalties there would be no deterrence, as regulated entities would have little, incentive
to comply. Additionally, penalties are necessary as a matter of fairness to those regulated entities
mat make the necessary expenditures to comply on time: violators should not be allowed to
obtain an economic advantage over their competitors who complied.
.As a general rule, the net costs to be incurred by a violator in performing a SEP may be
considered as one factor in determining an appropriate settlement amount In settlements in
which defendant/respondents commit to conduct a SEP, the final settlement penalty must
equal or exceed either: va) the economic benefit of noncompliance plus 10 percent of the
gravity component; or. b) 25 percent of the gravity component only; whichever is greater.
Calculating the;final penalty in a settlement which includes a SEP is a five step process.
Each of the five stops is explained below. The five steps are also summarized in the penalty
calculation worksheet attached to this Policy.
-------
SEP Policy page !3
Step 1: Settlement Amount Withput a SEP
a. The applicable EPA penalty policy is used to calculate the economic benefit of
noncompliance.
b. - The. applicable EPA penalty policy is used to calculate the gravity component of the
penalty. The gravity component is all of the penalty other than the identifiable economic
benefit amount, after gravity has been adjusted by all other factors in the penalty policy (e.g.,
audits, good faith, litigation considerations), except for the SEP.
c. The amounts in steps 1 .a and b are added. This sum is the minimum amount that
would be necessary to settle the case without a SEP.
Step 2: Minimum Penalty Amount With a SEP
The minimum penalty amount must equal or exceed the economic benefit of
noncompliance plus 10 percent of the gravity component, or 25 percent.of the gravity component
only, whicheveris greater. The rninirnum.penalty..amount is calculated as follows:""
a. Calculate 10 percent of gravity (multiply amount in step 1 .b.by 0.1),
b. Add economic benefit (amount in step l.a) to amount in step 2.a.
c. Calculate 25 percent of gravity (multiply amount in step l.b by 0.25).
d. Identify the minimum penalty amount: the greater of step 2.c or step 2.b.13
Step 3. Calculate the SEP Cost
The net present after-tax cost of the SEP, hereinafter called the "SEP COST," is the
maximum amount that EPA may take into consideration in determining an appropriate penalty
mitigation for performance of a SEP. In order to facilitate evaluation of the SEP COST of a .
proposed project, the Agency has developed a computer model called PROJECT.14 There are
three types of costs that may be associated with performance of a SEP (which are entered into the
PROJECT model): capital costs (e.g., equipment, buildings); one-time nondepreciable costs
(e.g:, removing contaminated materials, purchasing land, developing a compliance promotion
13 Pursuant to theJFelbruaiy 1995 Revised Interim Clean-Water Act'Settfement Penalty Policyfsectioh
V, a smaller minimum penalty amount may be allowed for a municipality..
M A copy of the PROJECT computer program software and PROJECT User's Manual may be
purchased by calling that National Technology Information Service at (800) 553-6847, and.asking for
Document #PB 98-500408GEi, or they may be downloaded from the World Wide Web" at
-------
SEP Policy page 14
seminar); and annual operation .costs and savings (e.g., labor, chemicals, water, power, raw
materials).15
To use PROJECT,.the Agency needs reliable estimates of the costs associated with a
defendant/respondent's performance of a SEP, as well as any savings due to such factors as
energy efficiency gains, reduced materials costs, reduced waste disposal costs, or increases in
productivity. For example, if the annual expenditures in labor and materials of operating a new
waste recycling process is $100,000 per year, but the new process reduces existing hazardous
waste disposal expenditures by $30,000 per year, the.riet cost of $70,000 is entered into the
PROJECT model (variable 4).
In order to run the PROJECT model properly (i.e., to produce a reasonable estimate of the
net present after-tax, cost of the project), the number of years that annual operation costs or
savings will be expended in performing the SEP must be specified. At a minimum, the
defendant/respondent must be required to implement the project for the same number of years
used in the PROJECT model calculation. (For example, if the settlement agreement requires the
defendant/respondent to operate the SEP equipment for two years, two years should be entered as
the. input forhumber of years of annual expense-in the-PROJECT model;)—If certain costs or '
savings appear speculative, they should .not be entered into the PROJECT model. The PROJECT
model is the primary method to determine the SEP COST for purposes of negotiating
settlements.16
EPA does not offer tax advice on whether a regulated entity may deduct SEP
expenditures from its income taxes. If a defendant/respondent states that it will not deduct the
cost of a SEP from its taxes and it is willing to commit to this in the settlement document, and
provide the Agency with certification upon completion of ttte SEP that it has hot deducted the
SEP expenditures, the PROJECT model calculation should be adjusted to calculate the SEP Cost
.without reductions for taxes.' This is a simple adjustment to the PROJECT model: just enter a
zero for variable 7, the marginal tax rate.' If a business is not willing to make this commitment.
15 ThePROJECT calculated SEP Cost is a reasonable estimate, and not an exact after-tax
calculation. PROJECT does not evaluate the potential for market benefits which may accrue with the
performance of a SEP (e.g., increased sates of a product, unproved corporate public image, or improved
employee morale). Nor does h consider costs imposed on the government, such as the cost to the:
Agency for oversight of'the SEP, or the burden of a lengthy negotiation with a defendant/ respondent
who does not propose a SEP until tote in the settlement process; such factors may be considered in .
determining a mitigation percentage rather than in calculating after-tax cost. '
16 See PROJECT User's Manual, January 1995. If the PROJECT model appears inappropriate to a
particular fact situation, EPA Headquarters should be consulted to identify an alternative approach. For
example, PROJECT does apt readily .calculate die cost of an accelerated compliance SEP. The cost of
such a SEP is only die additional cost associated with doing the project early (ahead of the regulatory
requirement) and it needs to be calculated in a slightly different manner. Please consult with the Office
Of Regulatory Enforcement foFdirectionsTdifhow to calculate thfboste of Spi:
-------
SEP. Policy page i5
the marginal tax rate in variable 7 should not be set to zero; rather the default settings (or a more
precise estimate of the business1 marginal tax rates) should be used in variable 7.
If the PROJECT model reveals that a project has a negative cost during the period of
performance of the SEP, this means that it represents a positive cash flow to the
defendant/respondent and is a profitable project. Such a project is generally not acceptable as a
. SEP. If a project generates a profit, a defendant/respondent should, and probably will, based on
its own economic interests, implement the project. While EPA encourages regulated entities to
undertake environmentally beneficial projects that are economically profitable, EPA does not
believe violators should receive a bonus in the form of penalty mitigation to undertake such
projects as part of an enforcement action. EPA does not offer subsidies to complying companies
to undertake profitable environmentally beneficial projects and it would thus be inequitable and
perverse to provide such subsidies only, to violators. In addition, the primary goal of SEPs is to
secure a favorable environmental or public health outcome which would not have occurred but
f2I the enforcement case settlement. To allow SEP penalty mitigation for profitable projects
would thwart this goal.17
Step 4: Determine the SEP Mitigation Percentage and then the Mitigation Amount.
• . - ' " «
Step 4.a: Mitigation Percentage. After the SEP COST has been calculated, EPA should
determine what percentage of that cost may be applied as mitigation against the amount EPA
would settle for but for the SEP; The quality of the SEP should be examined as to whether and
how effectively it achieves each of the following six factors listed below, (the factors are not
listed in priority order.)
• Benefits to the Public or Environment at Large. .While all SEPs benefit public health or .
the 'environment, SEPs which perform well on this factor will result in significant and
: quantifiable reduction in discharges of pollutants to the environment and the reduction in
risk to the general public. SEPs also will perform well on this factor to the extent they
result in significant and, to the extent possible, measurable progress in protecting and
restoring ecosystems (including wetlands and endangered species habitats').
• InnQYatJveness. SEPs which perform well on this factor will further the development, -
implementation, or dissemination of innovative processes, technologies, or methods
which more effectively: reduce the generation, release or disposal of pollutants; conserve
natural resources; restore and protect ecosystems; protect endangered species; or promote
compliance. This includes "technology forcing" techniques which may establish new
regulatory "benchmarks."
17 The penalty mitigation guidelines provide that the amount of mitigation should not exceed the net
cost of the project. To provide penalty mitigation for profitable projects would be providing a credit in
excess of net costs.
-------
SEP Policy . page 16
• Environmental Justice. SEPs which perform well on this factor will mitigate damage or
reduce risk to minority or low income populations which may have been
disproportionately exposed to pollution or are at environmental risk.
••" Community Input, SEPs which perform well on this factor will have been developed
taking into consideration input received from the affected community. No credit should
.be given for this factor if the defendant/respondent did not actively participate in
soliciting and incorporating public input into the SEP.
• Multimedia Impacts. SEPs which perform well on this factor will reduce emissions to
more than one medium.
• Pollution Prevention. SEPs which perform well on this factor will develop and
implement pollution prevention techniques and practices
The better the performance of the SEP under each of these factors, the higher the
appropriate mitigation percentage. The percent of penalty mitigation is within.EPA's discretion;
..there is no presumption as to the correct percentage of mitigation. The mitigation-percentage
should not exceed 80 percent of the SEP COST, with two exceptions:
i • - .-•".-
.(1) For smallbusinesses, government agencies or entities, and non-profit organizations,
this mitigation percentage of the SEP COSTmay be set as high as 100 percent if the
defendant/respondent can demonstrate the project is of outstanding quality.
(2) For any defendant/respondent, if the SEP implements pollution prevention, the
mitigation percentage of the SEP COST may be set as high as 100 percent if the •
; defendant/respondent can demonstratethat the project is of outstanding quality. ™
If the government must allocate significant resources to monitoring and reviewing the'>
implementation of a project; a lower mitigation percentage of the SEP COST may be appropriate.
In administrative enforcement actions .in which there is a statutory limit (commonly
called "caps") on the total maximum penalty that may be sought hi a single action, the cash
penalty obtained plus the amount of penalty mitigation credit due to the SEPs shall not exceed
the limit.
Step 4.b: SEP Mitigation Amount. The SEP COST (calculated pursuant to step 3) is
multiplied by the mitigation percentage (step 4.a) to obtain the SEP mitigation amount, which is
die amount of Ae SEP cost that may be used in potentially mitigating the preliminary sgttkment .
penalty.
-------
SEP Policy page 17
Step 5: Final Settlement Penalty
S.a, The SEP mitigation amount (step 4.b) is then subtracted from the settlement
amount without a SEP (step 1 .c).
5.b The greater of step 2.d or step S.a is the minimum final settlement penalty
allowable based on the performance of the SEP.
F. LIABILITY FOR PERFORMANCE
Defendants/respondents (or their successors in interest) are responsible and legally
liable for ensuring that a SEP is completed satisfactorily. A defendant/respondent may not
transfer this responsibility and liability to someone else, commonly called a third party. Of
course, a defendant/respondent may use contractors or consultants to assist it in implementing a
SEP.18
G. OVERSIGHT AND DRAFTING ENFORCEABLE SEPS
The settlement agreement should accurately and completely describe the SEP. (See
related legal guideline 4 in § C above.) It should describe the specific actions to be performed by
the defendant/respondent and provide for a reliable and objective means to verify that the
defendant/respondent has timely completed the project. This may require the
defendant/respondent to submit periodic reports to EPA. The defendant/respondent may utilize
an outside auditor to verify performance, and the defendant/respondent should be made -
responsible for the cost of any such activities. The defendant/respondent remains responsible for
the quality and timeliness of any actions performed or any reports prepared.of submitted by the
auditor. A final report certified by ah appropriate corporate official? acceptable to EPAVand
evidencing completion of the SEP and .documenting SEP expenditures, should be required
. To the extent feasible, defendant/respondents should be required to quantify the benefits
associated with the project and provide EPA with a report setting forth how the benefits were •
measured or estimated. The defendant/respondent should agree that whenever it publicizes
a SEP or the results of a SEP, it will state in a prominent manner that the project is being
undertaken as part of the settlement of an enforcement action.
The drafting of a SEP will vary depending on whether the SEP is being performed as part
of an administrative or judicial enforcement action. SEPs with long implementation schedules.
~(e~.gV 18 months bTlonger)^ SEPs'which require EPA review and comment on interim milestone
activities, and other complex SEPs may not be appropriate in administrative enforcement
18 Non-profit organizations, Such as universities and public interest groups, may function AS
ors or consultants. "'
-------
SEE Policy - page 18
actions. Specific guidance on the proper drafting of settlement documents requiring SEPs is
provided in a separate document.
H. FAILURE OF A SEP AND STIPULATED PENALTIES
If a SEP is not completed satisfactorily, the defendant/respondent should be required,
pursuant to the terms of the settlement document, to pay stipulated-penalties for its failure.
Stipulated penalty liability should be established for each of the scenarios set forth below as
appropriate to the individual case.
1. Except as provided in paragraph 2 immediately below, if the SEP is not
completed satisfactorily, a substantial stipulated penalty should be required. Generally, a
substantial stipulated penalty is between 75 and 150 percent of the amount by which the
settlement penalty was mitigated on account of the SEP.
2. - If the SEP is not completed satisfactorily.'but the defendant/respondent:
a) made good faith and timely efforts to'compfete-the project; aiidb) certifies,
with supporting documentation, that at least 90 percent of the amount of
money which was required to be spent was expended on the SEP, no stipulated
penalty is necessary.
3. . If the SEP is satisfactorily completed, but the defendant/respondent spent less
than 90 percent of the amount of money required to be spent for the project, a small
stipulated penalty should be required. Generally, a small stipulated penalty is between 10
and 25 percent of the amount by which the settlement penalty was mitigated on account
, of the SEP.
4. If the SEP is satisfactorily completed; and the defendant/respondent spent at least
90 percent of the amount of money required to be spent for the-project, no stipulated
penalty is necessary.
The determinations of whether the SEP has been satisfactorily completed (i.e., pursuant
to the terms of the agreement) and whether the defendant/respondent has made 4 good faith,
timely effort to implement the SEP should be reserved to the sole discretion of EPA, especially
in administrative actions in which there is often no formal dispute resolution process.
-------
SEP Policy page 19
I. COMMUNITY INPUT
In appropriate cases, EPA should make special efforts to seek input on project proposals
from the local community that may have been adversely impacted by the violations.19 Soliciting
community input into the SEP development process can: result in SEPs that better address the
needs of the impacted community; promote environmental justice; produce better community
understanding of EPA enforcement; and improve relations between the community and the
violating facility. Community involvement in SEPs may be most appropriate in cases where the
range of possible SEPs is great and/or multiple SEPs may be negotiated.
When soliciting community input, the EPA negotiating team should follow the four
guidelines set forth below.
I. Community input should be sought after EPA knows that the defendant/respondent is
interested in doing a SEP and is willing to seek community input, approximately how
much money may be available for doing a SEP, and that settlement of the enforcement
action is likely. If these.conditions are not satisfied, EPA will have very little information
to provide communities regarding the scope of possible SEPs.,
2. The EPA negotiating team should use both informal and formal methods to contact the.
Leal community. Informal methods may involve telephone calls to local community
organizations, local churches, local elected leaders, local chambers of commerce, or other
groups. Since EPA may riot be able to identify all interested community groups, a public
notice in a local newspaper may be appropriate
3. To ensure that communities have a meaningful opportunity to participate,, the EPA .
negotiating team should provide information to communities about what SEPs are, the
opportunities and limits of such projects,theconfidential nature of settlement
negotiations, and the reasonable possibilities and limitations in the current enforcement
action. This can be done by holding a public meeting, usually in the evening, at a local
school or facility. The EPA negotiating team may wish to use community outreach
' experts at EPA or the Department of Justice in conducting this meeting. Sometimes the
defendant/respondent may play an active role at this meeting and have its own exoerts
assist in the process.
4. After the initial public meeting, the extent of community input .and participation in the
SEP development process will have lobe determined, the amount of input and •
participation is likely to vary with each case. Except in extraordinary circumstances and
with agreement of the parties, representatives of community groups wj]l.not participate -
19 In civil judicial cases, the Department of Justice already seeks public comment oh lodged consent.
decrees through a Federal Register notice. See 28 CFR §50.7. In certain administrative enforcement
actions, there are also public notice requirements that are followed before a settlement is finalized. See
40CFP?»rt22.~"
-------
SEP Policy Pa8e 20
directly in the settlement negotiations. This restriction is necessary because of the
confidential nature of settlement negotiations and because there, is often no equitable
process to determine which community group should directly participate in the
negotiations.
J. EPA PROCEDURES
1. Approvals
The authority of a government official to approve a SEP is included in the official's
authority to settle an enforcement case and thus, subject to the exceptions set forth here, no
special approvals are required. The special approvals apply to both administrative and judicial
enforcement actions as follows:
. a. Regions in which a SEP is proposed for implementation shall be given the .
opportunity to review and comment on the proposed SEP. ~ •
r- •"•""". " ' •
b. In all cases in which a project may not fully comply with the provisions of this
Policy (e.g., see footnote 1), the SEP must be approved by the EPA Assistant
Administrator for Enforcement and Compliance Assurance. If a project does not
fully comply with all of the legal guidelines in this Policy, the request for
approval must set forth a legal analysis supporting the conclusion that the project
is within EPA's leeal authority and is not otherwise inconsistent with law.
c. In all cases in which a SEP would involve activities outside the United States, the
SEP must be approved in advance, by the Assistant Administrator and, for judicial
: cases only, the Assistant Attorney General for the Environment and Natural
Resources Division of the Department of Justice.
.d. In all cases in which an environmental compliance promotion project (section
. • D.6) or a project in the "other" category (section D.8) is contemplated, the project
must be approved in advance by the appropriate office in OECA, unless otherwise
delegated;
2. Documentation and Confidentiality
In each caseJn whichi ajSEP.isincluded as part of a settlement, an .explanation of the SEP
"with supporting materials (including the PROJECT model printout, where applicable) must be
included as part of die case file. The explanation of the SEP should explain how the five steps
set forth in Section A.3 above have been used to evaluate the project and include a description of
the expected benefits associated with the SEP: The explanation must include a description by the
enforcement attorney of how nexus and the other legal guidelines are satisfied.
-------
S^P Policy page 21
Documentation and explanations of a particular SEP may constitute confidential
settlement information that is exempt from disclosure under the Freedom of Information Act, is
outside the scope of discovery, and is protected by various privileges, including the attorney-
client privilege and the attorney work-product privilege. While individual Agency evaluations of
proposed SEPs are confidential, privileged documents, this Policy is a public document and may
be released to anyone upon request.
This Policy is primarily for the use of U.S. EPA enforcement personnel in settling cases.
EPA reserves the right to change this Policy at any time, \vitkoutprior notice,, or to act at
variance to this Policy. This Policy does not create any rights, duties, or obligations,
implied or otherwise, in any third parties.
-------
SEE Policy
page 22
ATTACHMENT
SEP PENALTY CALCULATION WORKSHEET
This worksheet should be used pursuant to section E of the Policy.
Specific Applications of this Worksheet in a Case Are Privileged, Confidential Documents.
STEP
AMOUNT
STEP 1 : CALCULATION OF SETTLEMENT AMOUNT WITHOUT A SEP.
l.a. BENEFIT: The applicable penalty policy is used to calculate the
economic benefit of noncompliance.
I.b. GRAVITY: The applicable penalty pojicy is used to calculate the
gravity component of the penalty; this is gravity after all adjustments
in the applicable policy. . -__.= ... ......
l.c ' -; SETTLEMENT AMOUNT without a SEPriSum of step-Ka plus I. b.l^
$
$.
.$.r__ " '.
STEP 2: CALCULATION OF THE MINIMUM PENALTY AMOUNT WITH A SEP
2.a 10% of GRAVITY: Multiply amount in step I.b by 0.10
2.b BENEFIT PLUS 10% of GRAVITY: Sum of step l.a plus step 2.a.
2.c. 25 % of GRAVITY: Multiply amount in step I.b by 0.25. '
2.d MINIMUM PENALTY AMOUNT: Select greater of step 2.c or step
2.b. . ,
STEP 3: CALCULATION OF THE SEP COST USING PROJECT
MODEL.
$• . .
$ : .-
$.
$ ";. .:
$
STEP 4: CALCULATION OF MITIGATION PERCENTAGE AND MITIGATION
AMOUNT. "..'...
4.a. SEP Cost Mitigation Percentage. Evaluate the project pursuant to the
6 mitigation factors in the Policy. Mitigation percentage should not
- exceed 80% unless one of the exceptions applies.
4.b. SEP Mitigation Amount. Multiply step 3 by step 4.a - - . .• .- - v ' ; . •-.
STEP 5: CALCULATION OF THE FINAL SETTLEMENT PENALTY.
5.a'" 7 Subtract step 4.b from step l.c . ' -T-" -•
5.b. " Final Settlement Penalty: Select greater of step 2.d or step 5.a. .
%
$...-" -.
$ •'• .
$'.
-------
-------
* \ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JUL 2 I £98
CrF!C= CF
ENFORCEMEJIT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT:. Revised Approval Procedures/br'SuppIeriienttl Environmental 'Projects'
FROM: Eric V. Schaeffer, Director
Office of Regulatory Enforcement
TO: Regional Counsels, Regjons I-X
Director, Office of Environmental'Stewardship; RSgion I
Director,. Division of Enforcement and Compliance Assurance, Reeiqn II
Director, Compliance Assurance and Enforcement Division, Region VI
Director, Office of Enforcement, Compliance and Environmental Justice Region
VIII
Regional Enforcement Coordinators, Regions I-X
Through this memorandum, we are revising the implementing procedures for
supplemental environmental projects (SEPs) to accommodate changes in the Final SEP Policy,
which was effective May 1,1998. This memorandum supersedes and replaces the April 24,1996
memorandum entitled "Approval Procedures for Supplemental Environmental Projects," signed
by Robert Van Heuvelen.
While most changes are minor, it is worthwhile to note that under the new approval
procedures:
a request for approval of a SEP that does not meet all of the legal
guidelines must set forth a legal analysis supporting the conclusion that
the project is within EPA's legal authority and is not otherwise
inconsistent with the law.
Such SEPs may require Assistant Administrator approval. This contrasts with the .procedures of
the new "other" category. "Other" SEPs are those which fully comply with the Policy (including
the legal guidelines), but' do not fit within a specific category of SEP. Such SEPs may be
R»cycl«d/n«cycl»bU . Primed wtth Vegetable OB Based Inks on 100% Recycled P»per (40% Postconsumer)
-------
approved by the appropriate office in OECA, unless otherwise delegated, with consultation by
the Multimedia Enforcement Division. This division is delegated the authority to determine that
a proposed SEP is consistent with the Policy.
Staff \yho manage implementation of the Policy in the Multimedia Enforcement Division,
as well as the other divisions hi the Office of Regulatory Enforcement, routinely respond to
inquiries from Regional and Department of Justice staff on proper application of-the Policy.
These inquiries have .been useful to us and the Regions, and in many of these consultations we
have been able to offer suggestions on how to remedy problematic SEP proposals. "
. We encourage the Regions to continue to routinely consult with us on an informal and
early basis concerning any questions you may have regarding implementation of the SEP Policy.
At the same time, we need to clarify the procedures for when formal consultation and approval
are necessary. The procedures governing approval of SEPs are set forth hi Section J of the Final
SEP Policy. This memorandum provides guidelines for how the procedures are to be
implemented. These guidelines are consistent'with the Redelegation of Authority and Guidance
on Headquarters Involvement'in RegulatoryEnforcemeni Cases, issued by the" Assistant
Administrator on July 11,'1994.- -
Adherence to these procedures ensures consistent, fair- and defendable application of the
SEP Policy. We appreciate your compliance and look forward to working with you to obtsin the
1 best possible results in our enforcement cases.
The new approval procedures are set forth below. The wording in italics is a verbatim
reproduction of text in section J of the Final SEP Policy. The implementing procedures are in
bold.
a. Regions in which a SEP is proposed for implementation shall be given the
opportunity to review and comment on the proposed SEP.
The originating Region-should send a short memorandum describing
the SEP to each Region with a facility, that will be affected by the SEP.
*
b. In all cases in which a project m^nnt fJd}v comptywifr th? ^mW«/?H,T nfi'm's
e':g^ see footnote 1), the SEP must be approved by the EPA Assists}-,:
forEnforcement Tond Goinpliance Assurance.- If a projectdces-twt
y complywith all of the legal guidelines in this Policy, the request for
approval must set forth a legal analysis supporting the conclusion that the project
is within EPA's legal authority and is not otherwise inconsistent with la\\:
If there is an issue or question about whether a proposed SEP is
-------
consistent with the Policy (or ho>v a project can be modified to. become
consistent), the Region should consult with the appropriate Division in
the Office of Regulatory Enforcement (ORE).1 If there is still an issue
after this consultation, the Region should send a memorandum
containing a brief description of the SEP and the case to the Director
of the Multimedia Enforcement Division in ORE. If MED determines
that the SEP is consistent with the Policy, the proposed SEP does not
need further review by jne or the Assistant Administrator. If the
Multimedia Enforcement Division believes a project is inconsistent
with the Policy, and the Region .still wishes to "proceed with the project.
the Region may then elevate its request to the appropriate OECA
Office Direetor (usually me) or the Assistant Administrator. Please
remember that there may be some projects that, although inconsistent
.with the Policy's guidelines, are nevertheless justifiable and have such
compelling environmental benefits that they could be approved as.
exceptions to/the Policy."
c. In allcqses-in which gSE£ wouldJnvolvejistivities.oittsidethe UmisfLStaies, the
SEP must be approved in advance by the Assistant Administratorjind. for judicial
cases only, the Assistant Attorney Generafjbr^the Environment and Natural
Resources Division of the Department of Justice.
Memoranda requesting approval for such projects should be sent to
the Assistant Administrator, with a copy-tp ORE's Multimedia
Enforcement Division. (The Multimedia Enforcement Division will
provide copies to the appropriate media divisions in ORE.)
d. In all.cases in which an environmental compliance promotion project (secrion
D. 6) or a project in the ^ojgsr? category (section D.8) is contemplated, the .
project must be approved in advance by the appropriate office in OECA, unless
otherwise delegated.
Requests for such approval should be sent to the appropriate Division
Director in 'OECA, with a copy to the Multimedia Enforcement
Branch Chief in ORE. I am delegating to thfe ORE Division Directors^
.the authority..to approve environmental compliance promotion SEPS
and «Other!'".SEPs"in their respective programs, after consulting with
4he Multimedia Enfercement D_iyislon,.:
1 If the case involves a federal facility or Superfund matter, the initial consultation should
be with the Federal Facilities Enforcement Office or OSRE, respectively.
-------
Questions regarding these procedures, or any aspect of the Final SEP Policy, may be
directed to Ann Kibe of the Multimedia Enforcement Division, 202-564-0119,.
cc: ORE Division Directors
QEC A Office Directors • -
SEP Workgroup Members
Joel Gross, DOJ
-------
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
APR 1 4 2000
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: ApprofiatePttaaigat Credit under the SEP Policy
FROM: EricV.SchaefferiTJir
Office of Regulatory Enforcement
TO: Regional Counsels, Regions I-X
Air Division Directors (Regiojns I-X)
Water Division Directors (Regions I-X)
RCRA Division Directors (Regions I-X)
Pesticides and Toxics Division Directors (Regions I-X)
The purpose of this memorandum is to reinforce a key element of the Supplemental
Environmental Projects Policy (SEP Policy), SEP mitigation credit I am sending this
memorandum because I believe it is important from time to time to remind staff about certain
aspects of the SEP Policy. Consistent application of the SEP Policy across all Regions is critical
to its implementation. .
The SEP Policy states that, while the percentage of penalty mitigation for a SEP is within
EPA's discretion, with no presumption as to the correct percentage of mitigation, "[t]he
mitigation percentage should not exceed 80 percent of the SEP COST, with two exceptions...."
Section E, page 16. The two exceptions which allow for dollar-for-dollar SEP mitigation credit
are:
(1) for small businesses, government agencies or entities, and non-profit
organizations who can demonstrate that the project is of outstanding quality, and
(2) for any defendant/respondent if the SEP implements pollution prevention and
the defendant/respondent can demonstrate that the project is of outstanding .
quality.
Dollar-for-dollar credit in other situations would not be consistent with the SEP Policy
and would require a waiver from the Assistant Administrator. SEPs do not replace penalties.
Rather, credit for SEPs is a recognition, based on many aspects of the project, of the
H«cycta*R«cyctabl« .PUntod wtth Vegetable Ol Based kite on 100% Recyctod Paper <4O%Postoonsumer)
-------
-2-
environmental or public health benefits anticipated by the project. Therefore, dollar-for-dollar
credit would be inappropriate where the project was not of outstanding quality, and requests for
waivers to allow dollar-for-dollar credit should also demonstrate the outstanding quality that
makes the project worth the additional credit. Refer to the six factors listed in section E, step 4a
of the SEP Policy, p. 15-16, for how to determine whether a project would be of outstanding
quality.
We appreciate the Regions' efforts and commitment to obtain the most benefit for the
environment and public health from our enforcement actions. The SEP Policy is an important
tool in that effort and we appreciate the opportunity to assist you hi applying it. Questions from
your staff about the SEP Policy can be directed to Melissa Raack (202-564-7039) or Beth
Cavalier (202-564-3271). In addition, please do not hesitate to call me (202-564-2220) or David
Nielsen, Director of the Multimedia Enforcement Division (202-564-4022).
cc: Regional Enforcement Coordinators, Regions I-X
ORE Division Directors
SEP Network
-------
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAR 22 2002
OFFICE OF
ENFORCEMENT AND
MEMORANDUM COMPLIANCE ASSURANCE
SUBJECT: Supplemental Environmental Projects (SEP) Policy
FROM: Sylvia K.Lowrano
Acting Assistant^!
TO: Regional Administrators, I-X
Regional Counsel, I-X
The continued use of Supplemental Environmental Projects (SEPs) in settlement
agreements provides the Agency with a useful tool for achieving environmental benefits beyond
those gained by compliance with Federal and state laws. The Regions' work in promoting and
implementing SEPs over the past few years has been an important element in achieving these
gains. With such environmental gains come the responsibility to ensure that these projects meet
•the applicable legal guidelines and are consistent with Agency policy. The purpose of this memo
is to reiterate several important aspects of EPA's 1998 SEP Policy.
The SEP Policy describes the key characteristics that a project should have hi order to be
considered as a SEP. Projects must improve, protect, or reduce risks to public health or the
environment; be undertaken in settlement of an enforcement action; and must be projects that the
alleged violator is not otherwise legally required to perform.
The SEP Policy reflects the following legal guidelines to ensure that SEPs are within the
Federal government's authority, and do not run afoul of any statutory requirements, especially the
Miscellaneous Receipts Act (MRA), 31 U.S.C. §3302(b), and other applicable pnnaples of
appropriations law.
1) A project cannot be inconsistent with any provision of the underlying statute.
2) All penalty payments must be deposited into the Treasury unless otherwise authorized
by law.
3) All projects must advance at least one of the objectives of the environmental statutes
that are the basis of the enforcement action and must have adequate nexus Nexus is to
relationship between the violation and the proposed project. This relationship exists only
if:
Internet Address (URL) • http^/www.epagov
clabl« .Printed with Vaoelabte O» Based Into on Recycled Paper (Minimum 30% Postconsumert
-------
a) the project is designed to reduce the likelihood that similar violations will occur
in the future; op.
b) the project reduces the adverse impact to public health or the environment to
which the violation at issue contributes; or
c) the project reduces the overall risk to public health or the environment
potentially affected by the violation at issue.
4) EPA may not play any role in managing or controlling funds that may be set aside or
escrowed for performance of a SEP.
5) The type and scope of each project are defined in the signed settlement agreement
6) A project cannot be used to satisfy EPA's statutory obligation or another federal
agency's obligation to perform a particular activity.
7) A project may not provide EPA or any federal agency with additional resources to
perform a particular activity for which Congress has specifically appropriated funds.
8) A project may not provide additional resources to support specific activities performed
by EPA employees or EPA contractors.
9) A project may not provide a federal grantee with additional funds to perform a specific
task identified within an assistance agreement.
10) Projects that involve only contributions to a charitable or civic organization are not
acceptable.
It is important to note that these constraints are intended to ensure compliance with
statutory requirements and cannot be waived by Agency officials. Working within these legal
restrictions, the Agency has been extraordinarily successful in incorporating SEPs into
settlements. SEPs are an important part of the settlement process and are an appropriate means
to further Agency enforcement goals and objectives. We encourage the Regions to continue to
promote SEPs and look for opportunities to incorporate such projects into their settlements.
The Multimedia Enforcement Division (MED) in the Office of Regulatory Enforcement
(ORE) has overall responsibility for coordinating SEP issues for the regulatory enforcement
program. Should you have any questions about a particular SEP or the SEP Policy please
Ltactme or MED's Director, David Nielsen at (202) 564-4022, or have your staff contact Beth
Sier or Melissa Raack of David's staff. Beth can be reached at .(202) 564-3271 and Melissa
can be reached at (202) 564-7039.
Questions about SEPs at Federal facilities can be directed to Bernadette Rappold Actog
Director Site Remediation and Enforcement Staff, Federal Faeces Enforcement Office (FFEO)
-------
at (202) 564-0000, or to Melanie Garvey of her staff at (202) 564-2579. For any SEPs stemming
from the cleanup enforcement program, please contact Ken Patterson, Director, Regional Support
Division, Office of Site Remediation Enforcement (OSRE) at (202) 564-5134, or Michael
Northridge of his staff at (202) 564-4263.
Attachment
cc: ORE Division Directors
Enforcement Division Directors, I-X
Ken Patterson, Director, RSD, OSRE ;
Charles Sheehan, Acting Deputy Director, RSD, OSRE
Craig Hooks, Director, FFEO
Bernadette Rappold, Acting Director, SRES, FFEO
SEP Coordinators
Enforcement Coordinators
-------
-------
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
I WASHINGTON, D.C. 20460
OCT 3!
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
SUBJECT: Importance of the Nexus Requirement in the Supplemental Environmental
Projects Policy
FROM: Walker B. Smith, Director
Office of Regulatory Enforcement
TO: Regional Counsel
Regional Enforcement Division Directors
Regional Media Division Directors
The purpose of this memo is to emphasize the importance of nexus in evaluating
proposed Supplemental Environmental Projects (SEPs). The Office of Regulatory Enforcement
(ORE) continues to receive many inquiries from enforcement staff regarding nexus in reviewing
proposed SEPs. This memorandum explains what nexus is and why it is important, with
emphasis on avoiding problems related to the Miscellaneous Receipts Act (MRA).
I. What is Nexus?
Nexus is the relationship between the violations being enforced and the proposed SEP.
Nexus ensures that SEPs are within the Agency's or the Court's authority, and do not run afoul of
any Constitutional and statutory requirements. Nexus exists only if a proposed project meets one
of the following criteria:
a. the project is designed to reduce the likelihood that similar violations
will occur in the future; or
b. the project reduces the adverse impact to public health or the
environment to which the violation at issue contributes; or
c. the project reduces the overall risk to public health or the environment
potentially affected by the violation at issue.
In most cases, nexus is not difficult to establish. For example, a company that eliminates
its use of the particular chemical that was the basis for the violation in the underlying settlement
reduces the likelihood that similar violations will occur in the future. A company that has
violated the Clean Air Act could hold an asthma screening day for the community that was
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable . Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Poslconsumer)
-------
affected by the company's failure to comply. This type of project would reduce the adverse
impact to public health by identifying and referring for treatment those people in the community
suffering from asthma. A company that has violated the Emergency Planning and Community
Right-to-Know Act could agree to operate a reverse 911 system for the community that would be
affected by a release of hazardous pollutants from the violating facility. This type of project
would reduce the overall risk to public health in the affected community by ensuring that
potentially affected people receive a phone call notifying them of a release, so they can take
prompt action to avoid exposure. In some cases, however, the nexus is not as clear. In such
cases, we urge your staff to contact us so that we can fully discuss case-specific information and
evaluate the proposed project under the SEP Policy and the MRA. Many times, after further
review and discussion, we determine that the original project has a nexus to the violations.
Sometimes, projects must be modified in order to establish nexus. In a few cases, even after
discussions, no nexus is found. In those cases, we can suggest alternative projects that do have a
nexus to the violations at issue. It is helpful, therefore, for any case team that has questions about
nexus to contact my staff early in the process.
It is important to note that geography alone does not create nexus. The mere fact that a
SEP is beneficial to an area near the facility does not by itself satisfy the nexus requirement.
Enforcement staff must be able to demonstrate how the project relates to the violations that are
the subject of the enforcement action.
II. Importance of Nexus and Appropriations Law in Developing SEPs
An adequate nexus is important because it ensures that the Agency complies with the SEP
Policy and the requirements of the MRA. The MRA requires that, unless otherwise provided by
law, "an official or agent of the Government receiving money for the Government from any
source shall deposit the money in the Treasury as soon as practicable without deduction for any
charge or claim." 31 U.S.C. § 3302(b). It is intended to preserve Congressional prerogatives to
appropriate funds as provided for hi the U.S. Constitution. Penalties for violating the MRA
include removal from office and, in some cases, personal liability for the amount of money
misappropriated. 31 U.S.C. § 3302(d). If there is a relationship between the alleged violation
and the SEP, then it is within the Agency's discretion to take the SEP into account as a
mitigating factor when determining the amount of a penalty that the Agency will agree to as part
of an overall settlement. If there is no nexus, then the Agency does not have that discretion.
A related concern involves augmentation of appropriations. EPA must be careful not to
accept any project that augments or supplements, or appears to supplement, its appropriations or
the appropriations of any other Federal agency. Augmentation of appropriations can occur if a
proposed SEP is for an activity or project for which the EPA or another Federal agency has
already received appropriated funds, or where the Federal Government is required by law to carry
out the project or activity, or the activity is something for which the Agency has an established
program to perform or fund, and the SEP would provide EPA with additional resources to
perform or fund that particular program. For example, a proposed SEP that would print and
-------
distribute EPA pamphlets describing the dangers of lead-based paint would augment EPA's
appropriations. EPA is required by law to provide such pamphlets and receives funding in its
budget for this activity. Augmenting an agency's appropriation is not permitted, as only
Congress has the authority to appropriate funds for Federal agencies.
III. Resources for reviewing SEPs
Attached are some helpful SEP documents, including the model SEP Consent Agreement
and Final Order language, the Questions and Answers for the Practitioner (January 1999) and the
Revised Approval Procedures for SEPs (July 1998). Also, for SEP ideas, many regions have
web-based SEP databases that may provide examples of acceptable SEPs.
IV. Conclusion
We appreciate your continued efforts to include SEPs in settlements, and hope that
this memorandum has been helpful in explaining the importance of ensuring that a proposed
SEP meets the nexus requirement in the SEP Policy. We recognize that in some
instances, enforcement staff may need to seek a waiver from the Office of Enforcement and
Compliance Assurance on other aspects of the SEP Policy. For the reasons noted above,
however, nexus cannot be waived.
Should you have any questions on implementation of the SEP Policy, please contact Beth
Cavalier (202) 564-3271 or Melissa Raack (202) 564-7039; questions concerning the MRA
should be directed to James Drummond, Office of General Counsel, at 202-564-5456. Also,
questions regarding SEPs and CERCLA should be directed to Michael Northridge (202)-564-
4263; questions regarding SEPs and Federal Facilities should be directed to Melanie Garvey
(202) 564-2579.
Attachments
cc: Regional SEP Coordinators
Headquarters SEP Coordinators
ORE Division Directors
Enforcement Coordinators
Karen Dworkin, DOJ
-------
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN 10 2003
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
Subject: Clarification and Expansion of Environmental Compliance Audits under the
Supplemental Environmental Projects Policy
From: Phyllis P. Harris, CHJ c4 ff I 90~"> ___
Principal Deputy Assistant Adminrstratof
To: Regional Administrators (I-X)
Regional Counsel (I-X)
The purpose of this memorandum is to advise that the environmental compliance audit
category of Supplemental Environmental Projects (SEPs) is being expanded and to notify you of
our decision to allow all state and local governments, regardless of size, to undertake such audits
as SEPs without prior Headquarters approval. Environmental compliance audits are currently
allowed'only for small businesses (employing less than 100 persons) and small communities
(containing less than 2,500 persons).
The SEP Policy allows for assessments and audits if they are not generally available as
injunctive relief, and the defendant/respondent agrees to provide EPA with a copy of the
assessment report. The SEP Policy limits environmental compliance audits to small companies
because larger companies have the resources and expertise to routinely conduct them. Therefore,
to mitigate penalties for such audits would reward violators for performing an activity that
companies should already be doing. In contrast, these audits are not commonly done by small
businesses, perhaps because they may be too expensive. We reviewed this limitation in the SEP
Policy and determined that it is still appropriate. We recognize however, that some larger
compares may conduct compliance audits that are exceptional; as such, a case team may always
^r^potential project under the "Other" category of the ^^^^^
from the Director of the Multimedia Enforcement Division within the Office of Regulatory
Enforcement The case team should provide information on the exceptional environmental merit
of suchTpSect, and explain how the project is consistent with all other provisions of the SEP
Policy.
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable • Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 30% Postconsumer)
-------
Recently, several Regions requested that we consider expanding the "assessments and
audits" category to allow state and local governments to receive SEP credit for conducting a
compliance audit. Concerns were raised because state and local governments are similar to small
business and small communities in that they do not commonly conduct compliance audits
because they may be too costly and are not supported during state budget development. After
reviewing this issue, we believe that it is appropriate to expand the assessments and audit
category to allow state and local governments to conduct compliance audits as SEPs. Regions
must ensure that all other aspects of the SEP Policy are met, e.g., nexus, for any proposed
project.
As always, we appreciate your efforts to continue to include SEPs in settlements, as they
are an important tool in our effort to obtain significant benefits for the environment and public
health. If you have any questions, please contact Melissa Raack (202-564-7039) or Beth Cavalier
(202-564-3271) of my staff. For questions concerning SEPs at Federal facilities, please contact
Melanie Garvey of the Federal Facilities Enforcement Office (FFEO) at (202) 564-2579. For
questions concerning SEPs and CERCLA, please contact Mike Northridge of the Office of Site
Remediation Enforcement at (202) 564-4263.
cc: Media Enforcement Division Directors (I-X)
Regional Enforcement Coordinators, Regions I-X
ORE Division Directors
SEP Regional Contacts
HQ SEP Coordinators
S. Sisk (NEIC)
M. Guernica (OPPAC)
J. Silberman (OPPAC)
-------
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JUN I I 2003
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Expanding the Use
FROM: John Peter S
Assistant A
TO: Assistant A3m5iistrators
Regional Administrators
Deputy Assistant Administrators
Deputy Regional Administrators
All OECA Staff
All Regional Enforcement Staff
As a follow up to my February 21,2003 memorandum, Steve Shimberg, Associate
Assistant Administrator and staff from the Office of Regulatory Enforcement (ORE) have
discussed a variety of Supplemental Environmental Projects (SEP) Policy issues and ideas for
new SEPs with Headquarters program offices and Regions. We have found the discussions to be
extremely helpful in gaining insight into ways to simplify the SEP Policy, and useful in
educating senior Agency staff about SEPs. These discussions reinforced our belief that certain
SEP Policy revisions and clarifications are necessary. The purpose of this memorandum,
therefore, is to summarize the foundation underlying our SEP Policy and to announce the actions
we are taking to encourage and expand the use of SEPs in the settlement of enforcement actions.
During FY2002,10% of our civil judicial and administrative penalty settlements included
SEPs valued at a total of $56.5 million dollars. While we should be proud of these figures, I
believe that we have a tremendous opportunity to achieve greater benefits for the environment
and communities affected by violations. Through settlements containing SEPs, we have the
opportunity to not only bring regulated entities into compliance, but to secure public health and
environmental benefits in addition to those achievedvby compliance with applicable laws. As
such, all enforcement staff should consider every opportunity to increase our use of SEPs and
include more environmentally significant SEPs wherever possible.
In order to facilitate such efforts, we have begun to implement some activities to assist in
maximizing the opportunity to include SEPs in settlements. For example, this week we are
Internet Address (URL) • http-7foww.epa.gov
ftecycM/RtcyclaU* • Printed with V«getebto OH B«Md We* on R«cjrcl«d Paper (Mlntaum 50* Posteonwmw content)
-------
issuing an Interim Final Guidance on Community Involvement in SEPs, and a guidance on
when it is appropriate to give penalty mitigation for entities who undertake environmental
management systems as SEPs. In addition, as discussed in further detail below, we are
launching an effort to simplify the SEP Policy, and are piloting a SEP library which will serve as
a clearinghouse for possible SEPs.
SEP Basics
SEPs are environmentally beneficial projects that a violator is not otherwise legally
required to perform but agrees to undertake in settlement of an enforcement action. While the
Agency has secured significant environmental benefits through SEPs, we must remain mindful
of the legal guidelines that limit the Agency's ability to consider and approve some SEPs.
These guidelines flow from the U.S. Constitution and Miscellaneous Receipts Act1 (MRA) and
preserve congressional prerogatives to appropriate funds as provided for in the U.S. Constitution.
As such, these guidelines define the foundation on which the SEP Policy is premised. Within
these legal boundaries, the Agency has broad discretion to settle environmental enforcement
cases, including the discretion to include SEPs as an appropriate part of the settlement.
To ensure the Agency's enforcement discretion is used appropriately and in compliance
with the U.S. Constitution and the MRA, all SEPs must satisfy several key elements. To be
approved as a SEP, a project must:
• Be related to or have a "nexus" to the underlying violation;
• Provide significant environmental and public health benefits;
• Benefit the community affected by the violation; and
• Secure public health and/or environmental improvements beyond what
can be achieved under applicable environmental laws.
Moreover, in light of the legal boundaries set by the U.S. Constitution and the MRA,
there are several types of commonly proposed projects that are not acceptable as SEPs, and other
limitations on SEPs, including:
• Donations to third parties;
• EPA management of funds obtained through a SEP;
• Augmentation of appropriations (absent express congressional
authorization); and
• Projects for which a violator is already receiving federal financial
assistance, i.e, a federal loan, contract or grant.
These concepts and legal guidelines are fundamental to the success and appropriateness of
1 The Miscellaneous Receipts Act, 31 U.S.C. § 3302, requires that penalties due and
owing the United States must be placed into the U.S. Treasury.
-------
any project and are more fully defined in the SEP Policy. While they do limit the Agency's
discretion in agreeing to some SEPs, we believe that the enforcement program's track record has
established that they do not limit our ability to develop and approve creative and important SEPs.
With these concepts in mind, we have begun taking steps to review and, where appropriate,
revise certain aspects of the SEP Policy and how it is implemented. We believe that these
changes, outlined in the list of action items attached, will help promote the use of SEPs in
enforcement settlements by simplifying some provisions in the SEP Policy and by providing
additional incentives to violators to agree to conduct SEPs.
Next Steps
Attached is a list of action items that represents a significant commitment to promoting
the use of SEPs. Included in this list are projects designed to provide greater information on
SEPS to Agency enforcement staff, violators and the public.
SEP Policy Simplification
During the discussions to date, several Regional and Headquarters offices raised questions
about the complexity of the existing SEP Policy. Specifically, we heard a number of questions
concerning how to define an appropriate nexus in certain situations, and whether or not nexus
can be waived in a particular circumstance. As discussed above, nexus is important to ensure
compliance with the MRA, and as such cannot be waived. Given this, however, we believe that
there may be ways to simplify nexus, and still ensure that there remains a connection between
the underlying violation and the SEP.
In addition to nexus, some offices raised questions about the appropriate minimum
penalty that must be collected as part of a settlement that includes a SEP. Specifically, the issue
raised is whether or not going below economic benefit would be appropriate in some cases. The
current SEP Policy is based upon the premise that collection of at least economic benefit ensures
that violators are not allowed to obtain an economic advantage over their competitors who
complied with the law.
We recognize that there are a number of strongly held opinions about how to proceed
with any proposed changes to such basic premises and, as such, no decisions have been made on
whether to change these two critical parts of the existing SEP Policy. Therefore, we will initiate
a dialogue on these important issues to more fully understand the implications of change and, if
necessary, to clarify various aspects of the SEP Policy.
In addition to the dialogue, we understand that it may be helpful to shorten and simplify
the current SEP Policy. We have begun work on several such changes, e.g., clarification on the
role of EPA staff in community involvement, and will have a draft revised SEP Policy to the
Regions for comment in November 2003.
Information on SEPs
-------
We have also included in the action item list, two projects designed to provide greater
access to information on both SEPs that are part of concluded settlements, and ideas for new
SEPs. Specifically, an EPA intranet link, which includes information on SEPs that are part of
concluded settlements, will be available in August 2003 through the Integrated Compliance
Information System (ICIS). OECA plans to make this SEP link available on the internet in the
near future. With respect to ideas for new SEPs, OECA will create a SEP Library Pilot, whereby
staff from ORE will work with Headquarters Program Offices and Regions to solicit and develop
project ideas generated from within the Agency and will include these ideas in a repository of
potential SEPs. During the pilot, the list of project ideas will be available to Agency staff only
via the Intranet.
Conclusion
We sincerely appreciate the time and effort that the Regions and Headquarters offices put
into providing us with information on specific program ideas, and on ways to clarify/simplify the
SEP Policy. Your efforts to include SEPs and ensuring their implementation shows your sincere
commitment to finding creative ways to better the environment for the communities and
environment affected by violations. We look forward to continuing to work with you on finding
ways to encourage SEPs, and welcome your participation in our efforts to do so.
Attachment
cc: Christine Todd Whitman
Linda Fisher
Tom Gibson
Tom Sansonetti, US DOJ
John Cruden US DOJ
Bruce Gelber US DOJ
-------
ATTACHMENT
SIGNIFICANT ACTION ITEMS TO BE IMPLEMENTED IN FURTHERANCE OF
"SUPPLEMENTAL ENVIRONMENTAL PROJECTS"
Efforts to Provide Information on SEPs to the Public and EPA staff
Community Involvement in SEPs
o Provide education and guidance to EPA, violators and communities on SEPs
- Allows for better understanding of SEPs;
- Provides additional incentives to violators who reach-out to affected
communities
- Emphasis on environmental justice
- Office of Regulatory Enforcement (ORE)
- Interim Guidance signed May 21, 2003
Guidance on the Use of Environmental Management Systems (EMSs) in
Enforcement Settlements as In junctive Relief and SEPs
o Provides that EMSs by State and local governments and small businesses that meet the
criteria in the SEP Policy will be eligible for SEP penalty mitigation credit as "other
types of projects" without advance Headquarters approval
— Office of Planning, Policy Analysis and Communication (OPPAC)
and ORE
— Guidance to be issued in June 2003
Promoting Appropriate SEPs
o Development of SEP link to the ICIS Database via Intranet and Internet
- Enhances ability to review SEPs that are part of a concluded settlement,
fromFY 1998 to present
ORE
- Intranet ready, August 2003
- Internet ready, First Quarter, FY 2004
o Implement a SEP Library Pilot, whereby Regions and Program offices can propose
possible SEPs
- Provides vehicle for proposing potential projects that are important to a
particular office mission
- Pilot library will include project ideas generated by Agency-staff only;
available to Agency personnel only via Intranet, during pilot timeframe
1
-------
— Pilot library for one year; review success, then revise if necessary and
evaluate ability to make internet available
ORE
— Memorandum soliciting project ideas sent to Regions, Sept. 2003
Intranet ready, FY 2004
— Review/revise, August 2004
O Institute periodic memorandum from OECA AA advising enforcement staff (Regions
and HQ and DOJ), of priority SEPs to support program priorities
— Provides an opportunity for program offices to promote office priorities
ORE
— First memorandum issued September 2003
o Encourage the use of SEPs in state settlements
- Begin dialogue with states regarding the benefits of including SEPs in state
settlements
- Use existing discussions, i.e., MOA discussions, meetings with ECOS and
NAAG to encourage SEPs
- ORE, Regions
Efforts to Simplify and Provide Additional Guidance on SEP Policy
• Simplify SEP Policy
c Review various sections of the SEP Policy to simplify and shorten 1998 Policy;
- Allows for better understanding and easier application of SEP Policy
ORE
- Draft for Regional, Headquarters and Department of Justice (DOJ)
review, November 2003
O Begin dialogue on nexus and minimum cash penalty provision with Regional and HQ
SEP Coordinators
ORE
August 2003
Guidance on Use of Third Parties (will be combined with Guidance on Aggregating
SEPs and SEP Dollars, as issues are closely related)
O Provides information to EPA on proper use of third parties by defendants/respondents to
implement SEPs, i.e, a contractor
- Includes recommended approach for including language into settlements to
allow for use of third parties
ORE
-------
Guidance to be issued June 2003
Guidance on Aggregating SEPs and SEP dollars
o Provides information and guidance to EPA on legal impediments to aggregating or
"pooling" SEP dollars
o Provides guidance on possibility of aggregating several SEPs, i.e., where several
different defendants undertake discrete pieces of a SEP
Recommends contacting ORE for assistance when considering aggregating
SEPs
ORE
- Guidance to be issued June 2003
Guidance Permitting; Profitable Projects as SEPs
o Provides guidance for determining the value of profitable projects for mitigation
purposes and parameters for determining whether to accept a profitable project as a SEP
ORE
- Guidance to be issued August 2003
-------
8
-------
'
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
JUN 1 2 2003
SUBJECT: Guidance on the Use of Environmental Management Systems in Enforcement
Settlements as Iniunctne Relief and Supplemental.Environmental Projects/
FROM: John Peter Suarez, Assistant Administrator
TO: Regional Administrators (I-X)
Regional Counsel (I-X)
Through this Guidance, the Office of Enforcement and Compliance Assurance (OECA) is
reiterating our support for the use of Environmental Management Systems (EMSs) by all sizes
and types of organizations, whether they are in compliance or determined to be in violation. We
will promote EMSs as a potentially valuable tool for maintaining compliance, achieving beyond-
compliance results, and minimizing environmental impacts in non-regulated areas.
OECA will continue to encourage incorporating compliance-focused EMSs as injunctive
relief in enforcement settlements when necessary to address the root causes of the violations.
When EMS settlement terms are necessary as injunctive relief, enforcement staff should consult
the OECA-National Enforcement Investigations Center's (NEIC) Compliance-Focused
Environmental Management System (CFEMS) - Enforcement Agreement Guidance (revised
August 2002).
Currently, the Supplemental Environmental Project (SEP) Policy provides that "Other
Types of Project may bVaccepted with advance OECA approval. This O^P™*
EMSs by State and local governments and small businesses that meet the catena in the SEP
Poncy are n*w eligible for SEP penalty mitigation credit as "Other Tyrjs of Projects" wrtiout
^cTHeadquar^ers approval. Each Region must consult with the Office of Plannin^Policy
Analysis and Communications (OPPAC) and the Office ^^^^^^L
MullLedia Enforcement Division (MED) prior to extending SEP credit to, the first EMS for
either a State or local government or small business under this Guidance. Regions are
entu^et to consult with OPPAC and ORE-MED on subsequent State and local government
and small business EMS SEPs.
-------
-2-
EMSs by medium-size or large companies may be proposed for SEP credit as "Other
Types of Projects." These SEPs will continue to require approval from the ORE-MED Director.
Finally, we are clarifying that EMSs that are not formally incorporated into settlement
agreements as injunctive relief or SEPs may be considered for penalty adjustments in the context
of settlement penalty calculations. This discretion may be exercised to the extent permitted
under EPA's Audit Policy and media-specific penalty policies.
This Guidance is intended to apply to settlement negotiations, only. It is effective
immediately. The attachment includes a list of OECA contacts for questions concerning EMSs
and SEPs. OECA will continue to also support compliance audits as SEPs, as described in my
January 10, 2003 memorandum, "Clarification and Expansion of Environmental Compliance
Audits Under the SEP Policy."
Attachment
cc: Phyllis P. Harris, Principal Deputy Assistant Administrator
Steven J. Shimberg, Associate Assistant Administrator
John Cruden, Deputy Assistant Attorney General, DOJ-ENRD-EES
Media Enforcement Division Directors (1-X)
Regional Enforcement Coordinators, Regions I-X
OECA Office Directors
ORE Division Directors
OECA & Regional EMS and SEP Contacts
Steve Sisk, OCEFT-NEIC
-------
- ATTACHMENT -
Guidance on the Use of Environmental Management Systems in Enforcement
Settlements as Iniunctive Relief and Supplemental Environmental Projects
EPA has determined that properly designed and implemented Environmental
Management Systems (EMSs) can help promote positive environmental outcomes. OECA
supports the Agency's EMS policy as expressed in the USEPA EMS Position Statement.
Together with Regional compliance and enforcement programs, we have and will continue to
play a leading role within the Agency in actively promoting EMSs.1 OECA supports and will
promote EMSs for industry, state and local governments, and federal facilities of all types and
sizes, whether in compliance or determined to be in violation.
EMSs as Iniunctive Relief in Enforcement Settlements
EPA's approach in all enforcement actions is to seek appropriate injunctive relief to
return violators to compliance and minimize or eliminate the potential for repeat violations by
addressing the root causes of noncompliance. Where EPA determines, taking into account a
violator's size, characteristics, and overall compliance obligations, that the root cause of a
defendant's or respondent's violations is the absence of a systematic approach to identifying,
understanding, and managing the regulated entity's compliance with applicable environmental
requirements, the appropriate injunctive relief should include an EMS with a compliance focus.
In addition, where specific elements or requirements common to EMSs are independently
required by law or regulation, such elements/requirements should be sought as injunctive relief
whether or not a compliance-focused EMS, per se, is sought. Since 1993, OECA and the
Regions have concluded cases requiring the defendants to develop and implement compliance-
focused EMSs at 258 facilities nationwide.2
1 The USEPA Position Statement on EMSs at
(EMS Position Statement; May 15, '02) articulates the Agency's policy that EMSs can help improve
environmental performance when they are implemented diligently, supported with adequate resources,
and continually improved. The EMS Position Statement encourages the widespread use of EMSs across a
range of organizations and settings, with particular emphasis on adoption of EMSs to achieve improved
environmental performance and compliance, pollution prevention through source reduction, and continual
improvement.
2 The enforcement cases with EMS injunctive components concluded to date address a range of
facilities sharing the common characteristic of compliance issues requiring EMS-rype solutions to address
the violations' root causes. Examples of multi-facility settlements with EMSs as injunctive relief include
the December 19, 2000 settlement in II S v. Nucor Corporation, Inc. (Nucor) and the January 16, 2003
settlement in 11 S. v. Kopoers Industries. Inc. (Koppers) addressing thousands of Clean Water Act (CWA)
violations, in addition to some Clean Air Act (CAA), and Resource Conservation and Recovery Act
(RCRA) violations EMSs have also been obtained as injunctive relief in actions involving universities,
e a ITS v Massachusetts Institute of Technology (April 18, 2001), single media cases with root cause
ngnirnnmt J--IT- — II* " Nati""al RailT™d P^n^er Corp. [AMTRAK] (September 19, 2001),
and an action addressing a federal facility, Department of Energy, Brookhaven National
-------
-2-
OECA practice is to seek, as injunctive relief in settlements, EMSs that are developed
pursuant to the OECA-National Enforcement Investigations Center's (NEIC) Compliance-
Focused Environmental Management System (CFEMS) - Enforcement Agreement Guidance
(revised August 2002). CFEMS describes an EMS with policies and procedures addressing
twelve key elements designed by NEIC, based on extensive, practical field experience, to assist
in preventing and addressing noncompliance caused by management problems. The CFEMS
Guidance includes model consent decree language to assist in settlement negotiation, and may be
consulted on a case-by-case basis in litigated matters where the Agency is seeking a CFEMS or
features of a CFEMS as injunctive relief.
The CFEMS Guidance is intended to supplement, not replace, EMS standards such as
ISO 14001 developed by voluntary consensus standards bodies. The CFEMS 12 elements
support the broad, multimedia, beyond-compliance approaches that are the hallmarks of an
effective, functioning EMS. They supplement existing EMS voluntary consensus standards by
filling potential compliance-related gaps and actively promoting compliance-focused approaches
and results.3 An EMS that has been enhanced by the CFEMS elements is thus tailored to address
the specific, additional compliance-focused needs of violators with systematic management
issues.4
It is possible to use the CFEMS 12 elements as a starting point for development of a new
EMS based on the "plan-do-check-act" management cycle. In practice, violators subject to
enforcement actions may have EMSs - or a variety of discrete management elements such as
policies, training programs, corrective action procedures, etc., that are common precursor
elements to formal EMSs - already in place prior to the discovery of the violations by EPA.
From a performance-based perspective, when violations whose root causes are management-
based occur despite the prior existence of EMSs or precursor management elements, those EMSs
or management elements have not achieved their goals. EPA can add significant value, when
negotiating injunctive relief in appropriate settlement agreements, by requiring the violators to
enhance their existing EMSs to achieve and maintain actual compliance (as opposed to merely
Laboratory Memorandum of Agreement (March 23, 1998). An EMS was required in a criminal action
against a municipality, U.S. v. City of Roanoke. Virginia (January 10, 2000), as a condition of probation.
3 For example, while ISO 14001 requires organizations to express a "commitment to comply"
and to identify and periodically evaluate compliance with legal obligations, the standard does not
expressly require actual compliance, operational controls for assuring compliance, or that an organization
establish compliance objectives and targets.
4 CFEMSs include: an environmental policy with an express statement of management's intent
to provide adequate EMS personnel and resources; processes and monitoring to ensure sustained
compliance; written targets, objectives, and action plans, for each organizational subunit, to achieve and
maintain compliance with all environmental requirements; a mandatory pollution prevention program; a
program for ongoing community education and involvement in the environmental aspects of the
defendants' operations; procedures for investigating and promptly correcting violations and their root
causes; and ongoing evaluation of facility compliance, including periodic compliance audits by
independent 3rd party auditors.
-------
-3-
committing to compliance as an internal policy goal).5
While OECA strongly encourages all organizations interested in focusing their EMSs on
compliance to reference the CFEMS model as a potentially useful tool for supplementing
existing EMS standards, it is not OECA's position that EMSs associated with voluntary EPA
programs, e.g., National Environmental Performance Track (NEPT) and the Public Entity
Environmental Management System Resource (PEER) Center/Local Government Program6,
need to incorporate the CFEMS 12 elements. NEIC developed the CFEMS model for application
in enforcement actions as injunctive relief for defendants with violations caused by management
failures. In our view, such organizations warrant the compliance focus embodied in the CFEMS
approach. Different considerations may exist in addressing top performers who are pre-screened
for compliance (e.g., "green track" programs) or other facilities not demonstrated to be currently
in noncompliance (e.g., compliance assistance programs).
EMSs as Supplemental Environmental Projects (SEPs) for Small Businesses and State and Local
Governments:
OECA is clarifying the eligibility of EMSs, under the SEP Policy (May 1,1998)7 for
penalty mitigation credit and encouraging their inclusion in settlements as SEPs when they meet
the SEP Policy's terms and are not appropriate to require as injunctive relief. In the past, under
the SEP Policy, OECA has allowed enforcement personnel to propose penalty mitigation credit
for EMSs as "Other Types of Projects," but has required prior approval by the Director of the
Multimedia Enforcement Division (MED) within the Office of Regulatory Enforcement (ORE).8
5 To ensure the most effective process possible for both parties, EPA staff should endeavor to
the maximum extent possible to merge the CFEMS elements into the violators' preexisting EMSs or
management elements. This includes utilizing a company's preexisting nomenclature, if it differs from
the language employed in the CFEMS Guidance, as long as the requisite substantive enhancements are
achieved.
6 The PEER Center is supported by a cooperative agreement between EPA's Office of Water and
the Global Environment and Technology Foundation. OECA has supported and provided funding for this
program. The PEER Center has developed a national clearinghouse of EMS information with a focus on
municipalities. In July 2002, EPA also designated eight Local Resource Centers around the country to
provide assistance to local governments interested in adopting EMSs. The PEER Center website may be
accessed at .
7 EPA Supplemental Environmental Projects Policy (May 1, 1998). The SEP Policy is posted at
.
8 For example, Region 3 recently proposed, and OECA approved, SEP credit for an EMS in
settlement of In the Matter of: State of Maryland. Department of Public Safety and Correctional Services.
-------
-4-
OECA is now waiving the prior ORE-MED approval requirement for EMSs by state and
local governments and small businesses9 that otherwise meet the criteria in the SEP Policy and
this Guidance, i.e., EMSs by State and local governments and small businesses that meet the SEP
Policy criteria are eligible for penalty mitigation credit as "Other Types of Projects" without
advance ORE-MED approval. Each Region must consult with the Office of Planning, Policy
Analysis and Communications (OPPAC) and ORE-MED prior to extending SEP credit to the
first EMS for either a State or local government or small business under this Guidance. Regions
are encouraged to consult OPPAC and ORE-MED on subsequent State and local government
and small business EMS SEPs. EMSs by medium-size or large companies may be proposed for
SEP credit where not appropriate as injunctive relief but will continue to require prior ORE-
MED approval.
OECA recognizes that defendants and respondents often come to the settlement table
with multiple SEP proposals. In such cases, the most environmentally beneficial candidate
project(s) for SEP credit may be an EMS alone, an EMS in conjunction with one or more other
projects, or the alternative projects. Consistent with smart enforcement principles, in choosing
between multiple SEP candidates when violator funds and/or penalty mitigation opportunities
are limited, EPA case teams should include in the settlements those projects which promise the
greatest overall environmental benefits.
The decision as to whether to accept a proposed EMS for SEP credit under the SEP
Policy remains within the discretion of EPA and the case team. The Settlement Justification
Memoranda in all cases should explain how the EMS meets the SEP Policy's conditions,
including a nexus to the violations10 and documentation of key underlying facts and
expenditures. The remainder of this section provides additional guidance on when and under
what circumstances EMSs are appropriate for consideration as SEPs.
Guidance on When EMSs Are "Supplemental" Projects: The SEP Policy, and federal law,
Division of Correction. EPA Docket No. RCRA-3-2001-0404/CWA-3-2001-0403 (Consent Agreement
and Final Order; May 6, 2003).
9 Under the SEP Policy, a small business is one that is owned by a person or another entity that
employs 100 or fewer individuals. Small businesses can be individuals, privately held corporations,
farmers, landowners, partnerships and others. Experience suggests that some small businesses are
unlikely to implement EMSs as a normal course of business due to resource constraints. State and local
governments face similar limitations that often lead to EMS design and implementation activities not
receiving support during budget development. Providing penalty mitigation under the SEP Policy to
these organizations is thus likely to produce positive environmental outcomes of benefit to the public
which would not otherwise be realized.
10 The SEP Policy defines "nexus" as the relationship between the violation and the proposed
project. This relationship exists where the project is designed to reduce the likelihood that similar
violations will occur in the future, reduces the adverse impact to public health or the environment to
which the violation at issue contributes, or reduces the overall risk to public health or the environment
potentially affected by the violation at issue. SEP Policy at 4.
-------
-5-
require SEPs to be "supplemental" projects that the violators are "not otherwise legally required
to perform." Under this requirement, the SEP Policy disallows projects that "the defendant/
respondent is likely to be required to perform as injunctive relief." Actions already required of
violators by permit, order, or other similar enforceable mechanism are also not "supplemental."
Therefore, enforcement personnel should consider first whether the nature of the violations in
any given case, given their root causes, warrants seeking an EMS as injunctive relief. The
decision as to whether to accept a proposed EMS for SEP credit under the SEP Policy, versus
requiring an EMS as injunctive relief and/or accepting other types of SEPs, is a matter of
Agency discretion to be exercised based on case-specific facts.
Federal Facilities: Executive Order (E.O.) 13148 requires appropriate federal facilities to
develop and implement EMSs by December 31,2005. Federal facilities subject to E.O. 13148
remain ineligible to receive SEP credit for EMSs because they are already required to develop
and implement EMSs pursuant to the E.O. Any exception to this policy for federal facilities will
require the advance approval of the Assistant Administrator for OECA.
CERCLA Remediation Actions: OECA has not, at this time, identified a sufficient nexus
between EMSs and CERCLA remediation actions to satisfy the SEP Policy's nexus criterion.
Therefore, EMSs should not be accepted as SEPs in these actions without prior ORE-MED
approval, even for small businesses and State or local governments.
Guidance on When EMSs Are "Environmentally Beneficial Projects" Providing "Public
Benefits ": An EMS is a systematic process of understanding and managing a facility's
environmental risks and hazards (aspects and impacts). Adopting an EMS does not ensure
compliance with legal requirements. Nevertheless, as stated in the EPA EMS Position Statement,
EMSs can help promote positive environmental outcomes and are encouraged by EPA. OECA
has determined that the SEP Policy's "environmentally beneficial projects" and "public benefits"
SEP criteria can generally be satisfied when the terms of settlement require the violators to
implement their EMSs for at least one full EMS cycle11, identify and report performance results
on two or more EMS targets and objectives promoting beyond-compliance results with public
benefits12, ensure that issues and priorities of concern to the communities in which the facilities
11 A full cycle of EMS implementation means that the EMS is developed, put into practice, and
a full "Plan-Do-Check-Act" cycle is completed, including auditing of conformance against the EMS
standard, management review of the EMS (including the results of the audit), and any necessary
adjustments to the EMS for continual improvement.
12 The intent of this requirement is to encourage the adoption of targets and objectives that can
produce real and quantifiable beyond-compliance environmental benefits. Examples of such benefits,
with corresponding metrics, can be found in the Environmental Performance Table at pages 24-27 of the
National Environmental Achievement Track (NEAT) Application Package (EPA240-B-00-003;
December 2000). The Environmental Performance Table was developed by the Office of Policy,
Economics, and Innovation (OPEI), based on the Global Reporting Initiative (GRI) and in the context of
the NEPT program, to address essentially the same beyond-compliance/quantification/reporting issues of
concern in the SEP context. The Table is posted at
.
-------
-6-
are located are identified and considered, and submit to EPA SEP Completion Reports
describing what the violators have done to develop, implement, and act on their EMSs.
Settlement agreements should provide for copies of the parties' EMS Manuals, with trade secrets
and other confidential business information redacted, to be made available to EPA upon request.
Guidance on EMS Costs Eligible for SEP Credit: SEP credit should be extended only to EMS
expenditures that produce significant benefits accruing primarily to the public. EPA compliance
and enforcement personnel may choose to limit the costs that are eligible for credit to
developmental, as opposed to implementation/operational costs (though costs associated with
implementing targets or objectives promoting beyond compliance results may be eligible for
SEP credit) and/or require an appropriate expenditures/penalty adjustment ratio, to reflect an
apportionment of the EMS benefits between the violator and the public or distinguish between
efforts necessary to get EMSs up and running versus maintaining them once they are in place.
Providing SEP credits for EMS developmental costs may be a particularly effective way to
promote facilities to implement them, thereby realizing the public and private benefits that EMSs
can provide. Where SEP credit consists primarily of (or is limited to) developmental costs, as
discussed above, the settlement agreement should nevertheless specify EPA's expectations
concerning EMS implementation and performance measurement.
Guidance on SEP Mitigation Credit: The exact percent of mitigation credit that can be given for
any SEP is within the enforcement personnel's discretion. In general, for an EMS SEP, the
Regions can offer up to 80% mitigation credit depending upon the level of performance in terms
of anticipated public and environmental benefits. While the SEP Policy allows up to 100%
mitigation credit for State and local entities and small businesses, the mitigation percentage for
an EMS SEP should not exceed 80% unless the defendant/respondent can demonstrate that the
EMS is of outstanding quality. An EMS satisfying all 12 CFEMS key elements that also
provides environmentally beneficial, beyond compliance public benefits as described above
under Guidance on When EMSs Are "Environmentally Beneficial Projects " Providing "Public
Benefits" may be considered to be of outstanding quality for this purpose.
Other SEP Policy Requirements: The EMS projects described in this guidance, like all SEPs,
must be consistent with the SEP Policy to qualify for penalty mitigation. These include the "in
settlement of and "nexus" criteria. The SEP Policy provides a full discussion of these factors.
Other Penalty Adjustments for EMSs That Are Not Incorporated Into Settlement Agreements as
Injunctive Relief or SEPs:
EPA's Audit Policy creates additional incentives for regulated entities to develop and
implement EMSs as a means of achieving and maintaining compliance. A violator who
discovers, corrects, promptly discloses, and prevents a recurrence of a violation through the
implementation of an EMS will generally meet the Audit Policy's "due diligence" criterion. The
Audit Policy provides for 100% of the gravity-based penalty to be waived in such circumstances
-------
-7-
if all other conditions of the Audit Policy are met.13 A municipality with an EMS developed
pursuant to the Agency-supported PEER program (see f.n. 6, above), for example, that uses its
EMS to discover, correct, and disclose its violations under the Audit Policy would be expected to
satisfy the "due diligence" criterion.
Pursuant to the Agency's statute-specific penalty policies, EPA personnel have the
discretion to calculate a settlement penalty that reflects relevant actions by violators. With
respect to EMSs, the range of possible scenarios where a violator's actions may be considered in
adjusting a penalty downward from the preliminary penalty amount include where a company
discovers a violation through an existing EMS and corrects the violation prior to EPA's
discovery or the company lacks a preexisting EMS but puts one into place before concluding
settlement negotiations. For example, where EPA discovers that a company has identified and
corrected violations through the implementation of an EMS, EPA may consider the
implementation of that EMS, along with other case-specific facts, as an example of the
defendant's/respondent's good faith efforts to comply, particularly where the violator institutes
changes in its EMS to prevent recurrence of the violation. This proactive use of an EMS by a
company is the type of responsible behavior we want to encourage through the penalty
calculation formula.
It may also be appropriate to consider whether and to what extent a violator has
implemented an EMS in assessing the degree of willfulness and/or negligence. For example, the
RCRA Civil Penalty Policy provides that EPA should consider whether the violator took
"reasonable precautions against the events constituting the violation," in assessing the degree of
the violator's willfulness and/or negligence. Applying the RCRA Civil Penalty Policy to a
particular set of facts which include a preexisting EMS, EPA may determine that it is appropriate
to adjust the penalty downwards. An example might be where, as part of its EMS, a company
has a good system for identifying, labeling, storing, and inspecting its on-site hazardous waste
containers but committed isolated violations. On the other hand, where an EMS was in place but
violations occurred nonetheless as a result of a lack of management commitment to the process,
an upward penalty adjustment to reflect the willfulness or negligence of the violation may be
appropriate.
Disclaimer
This Guidance is intended to apply to settlement negotiations, only. The procedures set
out in this document are intended solely to guide government personnel. They are not intended
to, and cannot be relied upon to create, rights, substantive or procedural, enforceable in any party
in litigation with the United States. EPA reserves the right to act at variance to this Guidance or
to change it at any time without public notice.
Contacts
13 "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of
Violations" 65 FR 19,618 (April 11, 2000) (Audit Policy). The Policy is posted at
.
-------
-8-
If you have questions concerning EMSs, generally, please contact Jon Silberman of the
Office of Planning and Policy Analysis (OPPAC) at (202) 564-2429. For questions on CFEMS,
please contact Steve Sisk of the National Enforcement Investigation Center (NEIC) at (303) 236-
6683. For questions concerning SEPs, generally, please contact Melissa Raack (202-564-7039)
or Beth Cavalier (202-564-3271) of the Office of Regulatory Enforcement (ORE)-Multimedia
Enforcement Division (MED). For questions concerning SEPs at Federal facilities, please
contact Melanie Garvey of the Federal Facilities Enforcement Office (FFEO) at (202) 564-2579.
For questions concerning SEPs and site remediation, please contact Mike Northridge of the
Office of Site Remediation Enforcement (OSRE) at (202) 564-4263.
-------
-------
ENVIRONMENTAL PROTECTION AGENCY
[FRL -]
Interim Guidance for Community Involvement in Supplemental Environmental
Projects
AGENCY: Environmental Protection Agency (EPA)
ACTION: Notice
SUMMARY: The Office of Enforcement and Compliance Assurance (OECA) is noticing
an interim guidance document entitled, "Interim Guidance for Community Involvement
in Supplemental Environmental Protects." This document is intended to encourage
EPA personnel to involve communities in supplemental environmental projects. EPA
solicited public comments on a draft of this guidance on June 30, 2000 (65 FR 40639).
The public comment period lasted sixty (60) days. EPA received five (5) comments on
the draft guidance. The response to these comments follows below.
ADDRESSES: Copies of the interim guidance can be obtained by writing the
Enforcement and Compliance Docket and Information Center (2201 A), Docket Number
EC-G-2000-055, Office of Enforcement and Compliance Assurance, U.S.
Environmental Protection Agency, 1200 Pennsylvania Avenue, N.W., Washington, D.C.
20460, or by contacting the office via email at docket.oeca(5)epa.gov.
FOR FURTHER INFORMATION CONTACT: For further information contact Melissa
-------
Raack, 202-564-7039 or Beth Cavalier, 202-564-3271, Office of Regulatory
Enforcement, Mail Code 2248-A, United States Environmental Protection Agency, 1200
Pennsylvania Avenue, N.W., Washington, D.C. 20460, e-mail: raack.melissa@.epa.qov.
cavalier.beth@epa.gov. The interim guidance can also be found at
http://www.epa.gov/compliance/resources/policies/civil/seps/sepco mm2003-intrm.pdf.
John Peter Suarez,
Assistant Administrator
Office of Enforcement and Compliance Assurance
RESPONSE TO COMMENTS: Today, the United States Environmental Protection
Agency (EPA) or (Agency) is issuing an interim guidance entitled "Interim Guidance for
Community Involvement in Supplemental Environmental Projects." This interim
guidance is designed to provide information to EPA staff on involving communities in
the selection and implementation of Supplemental Environmental Projects ("SEPs"), in
appropriate cases. The Agency has decided to issue this guidance as "interim" in
order to evaluate its effectiveness in involving communities in SEP selection and
implementation, and to assess the establishment of SEP libraries. This interim
guidance is effective immediately upon publication.
On June 30, 2000, EPA published a draft of the guidance in the Federal Register
(65 FR 40639) and allowed 60 days for public comment. The comment period closed
-------
on August 29, 2000. EPA received five comments. With one exception (discussed
below), the comments on the draft guidance were generally favorable. Several
commenters stated they believed the guidance could better define the meaning of the
term "communities." They also suggested that EPA clarify the guidance to provide that
EPA should consult with the community adversely affected by the environmental
violation, in addition to consulting community officials. These commenters suggested
that the Agency should weigh input from the affected community more heavily than
input from community officials or others in communities not directly affected by the
violation. The Agency has clarified the guidance to indicate that EPA staff should give
particular attention to input from communities affected by the violation that is the subject
of the enforcement settlement.
A few commenters suggested that EPA should not accept SEPs from defendants
who are unwilling to seek community input on potential SEPs. While the Agency
agrees that the possibility of substantial penalties should provide an incentive for
defendants to settle with EPA, the Agency will continue to enter into some settlements
that include SEPs where the community has not been involved in the SEPs selection.
This is because the Agency has placed a high priority on including SEPs in settlements.
While the Agency has provided incentives for defendants to agree to involve the
community in that process, such as informing defendants of the positive results of
community input and considering a defendant's efforts in seeking community input on
potential SEPs as a factor in determining the SEP mitigation percentage, nevertheless,
some defendants may remain reluctant to involve the community. In addition,
3
-------
timetables, such as court-ordered deadlines, may not permit community involvement.
EPA may decide in some cases that a settlement with a SEP - even if not obtained with
community involvement - is better than a settlement without a SEP. In some
circumstances, EPA may elect to involve the community without the participation of the
defendant. Every settlement and every defendant is unique, and EPA must take many
factors into consideration when negotiating a settlement.
One commenter proposed that EPA not use the term "SEP Bank" because it is
confusing. The commenter suggested the term "SEP Library" instead, which conveys
more clearly what the term means, i.e., a collection of ideas for possible SEP projects.
The Agency agrees with this comment, and has revised the guidance accordingly.
Another commenter stated that the draft guidance places too much emphasis on
the limitations on community participation and not enough emphasis on empowering
communities. As an example of the limitations, the commenter noted that the guidance
suggests that, in some instances, "it may be desirable to delay the community
involvement until after the consent decree is entered." (65 FR 40641). The commenter
was concerned that this may result in a final settlement document that does not take
into account the needs of the affected community. In addition, the commenter believed
that the Miscellaneous Receipts Act (31 U.S.C. § 3302) ("MRA"),1 may impede efforts to
'The MRA, 31 U.S.C. §3302(b), requires that money received for the use of the United
States be deposited into the Treasury as soon as practicable unless the Federal agency receiving
the money has statutory authority to use the funds differently.
-------
"assign penalties to SEPs" once the decree is entered, and in effect, preclude
communities from shaping the SEP. The Agency agrees that including communities
as early in the process as possible, given the circumstances of a particular case, is
desirable, and the guidance certainly does not suggest restricting community
participation to circumstances where the consent decree has already been signed.
Moreover, EPA does not intend to suggest that penalty money could be converted to a
SEP based on comments received during the public comment period. Rather, the
consent decree between EPA and the defendant must define the type, scope and costs
of the project, as discussed in the SEP policy. The Agency believes that in some
instances, given the timing of settlement negotiations within the context of litigation
deadlines, a defendant and EPA may reach agreement on the SEP, but may not be
able to finalize all details of the SEP before entry of the consent decree. In these
circumstances, the Agency still believes community involvement after the consent
decree is entered will help ensure the successful implementation of the SEP.
With respect to the commenter's statement concerning the MRA, the Agency's
SEP policy has been designed to ensure compliance with the MRA. All monetary
penalties assessed against violators are deposited into the Treasury. An acceptable
SEP is a mitigating factor that EPA may consider in deciding whether to settle a matter
and what the terms of such a settlement are. SEPs are not substitutes for monetary
penalties. Another commenter stated that the Agency should not wait, as it currently
does, to include a community in SEP proposal/selection until after it has identified a
violation, conducted an investigation, and filed a lawsuit. This commenter also stated
5
-------
that the Agency should work first with communities to identify opportunities for projects,
then work such projects into settlements, instead of selecting the best approach for a
specific case at hand. The Agency believes both approaches are meritorious and the
guidance allows EPA a significant degree of flexibility. However, in no event will the
desirability of a community SEP affect the Agency's decision to pursue an enforcement
action. The guidance attempts to remain as flexible as possible with respect to all
aspects of community involvement. The differences in cases and communities will
dictate the particular approach that will work best for a specific case. In addition, the
defendant must be willing to undertake a SEP; EPA cannot mandate that a SEP be part
of a settlement. As such, EPA needs to ensure that the defendant is willing to conduct
a SEP, to include the community in the SEP process, and to abide by Agency and
court-ordered deadlines. However, the Agency does agree that working with
communities to identify potential SEPs is a good way to expedite the SEP element of
the settlement process and to include SEPs that are important to the affected
community. The Agency believes that a SEP library is an excellent vehicle for collecting
potential projects. Several Regional offices have already begun to collect ideas for
SEPs from communities, and the interim guidance encourages Agency enforcement
staff to consider development of SEP libraries.
The commenter also raised concerns that the draft guidance may discourage
some SEPs because they are too "resource intensive" with respect to EPA oversight.
Although the Agency seeks SEPs with the maximum favorable environmental impact,
the Agency must also consider its resource limitations and balance those limitations
6
-------
against the benefits of the proposed SEP when deciding whether or not to agree to a
particular SEP.
One commenter proposed a SEP idea for its community but did not comment on
the draft guidance. EPA has forwarded the comment to the appropriate regional office
for evaluation and possible inclusion in a regional SEP library.
One commenter stated that the Agency should retain its existing approach to
community input. The commenter suggested that the draft guidance created the
presumption that communities would be involved in the earliest stages in most
enforcement proceedings and act as a "third party" to the settlement. Although the
commenter claimed that including communities in the SEP suggestion/selection
process would create a substantial disincentive for companies to conduct SEPs, the
commenter did not include any support for this claim, nor did it include any further
details on the "substantial disincentive" the commenter envisioned.
EPA disagrees with these comments. First, the guidance makes clear that there
is no formula for determining whether or not community involvement in SEP selection
is appropriate and it does not dictate the level or timing of any such involvement. The
guidance does not impose any requirements or obligations on EPA, defendants, or the
community. Rather, the guidance identifies a number of factors for EPA staff to
consider in evaluating what is appropriate in any given case. Second, the Agency
believes that there are substantial benefits for defendants who involve affected
7
-------
communities in SEP selection. One particularly important incentive is that, under the
SEP policy, a defendant's inclusion of community input into a SEP may be considered
as a factor supporting increased penalty mitigation. The interim guidance encourages
enforcement staff to consider giving more credit to a defendant who agrees to
implement a SEP where there has been a commitment to include affected communities
into the SEP selection. As to the commenter's suggestion that including a community
will unreasonably delay resolution of enforcement actions, the Agency does not believe
that this will be a significant problem. The Agency can set milestones and objectives for
community involvement that are consistent with litigation deadlines. There will be times
when inclusion of a SEP, or community involvement in the SEP process, in a particular
settlement is not appropriate, specifically where deadlines or other circumstances do
not make inclusion of a project or community involvement possible, even if the
community supports a particular project. Lastly, because EPA (and the Department of
Justice (DOJ) in judicial actions) is the final decision maker on SEP selection, the
Agency can ensure that all legal requirements are met.
The same commenter noted that DOJ and EPA already have opportunities to
seek community/public input on cases, e.g., pursuant to DOJ's provision for public
comment on consent decrees under 28 CFR § 50.7. While this is one opportunity for
input, it occurs after the parties have signed a consent decree, which is late in the
enforcement process. As stated in the interim guidance, the Agency would like to
remain flexible, and where appropriate, include community involvement in selecting or
implementing SEPs that address the needs and concerns of all involved: the Agency,
8
-------
the defendant, and the affected community.
The commenter also noted that the revised Consolidated Rules of Practice
("CROP"),
64 FR 40138 (July 23, 1999)2, did not include modifications to the "settlement process."
The Agency did not include such provisions because it is not requiring community
involvement. The Agency encourages community involvement where appropriate and
possible, and is issuing this guidance to provide helpful information to EPA staff to
facilitate community involvement. The guidance specifically notes that there will be
situations in which community involvement is not appropriate. This guidance is not
intended to alter any current administrative or judicial settlement process requirements.
Furthermore, the guidance is not intended to and does not alter statutory requirements
for public participation in settlements, or change DOJ requirements for public comment
on settlements. Finally, both the defendant and the Agency must agree to enter into a
SEP as part of a settlement. If the defendant does not agree to a SEP, the settlement
will not include a SEP.
The commenter also expressed concern about public participation as it relates to
the finality of settlements. The Agency believes that if an affected community is
involved in the selection of a SEP that is included in the final settlement, the community
2The CROP are procedural rules for the administrative assessment of civil penalties,
issuance of compliance or corrective action orders, and the revocation, termination or suspension
of permits, under most environmental statutes.
-------
will be less likely to submit an adverse comment on the settlement as a whole.
In addition, this commenter also stated that by asking a defendant to "actively
participate" in reaching out to communities, the Agency may, in effect, indirectly or
directly supplement Agency outreach activities for which Congress has provided
funding. The commenter specifically raised concerns about the MRA. The Agency has
not sought nor has Congress specifically appropriated money for SEP outreach
activities. Moreover, EPA carefully considered the MRA when designing the SEP
Policy. The SEP Policy includes specific "Legal Guidelines" intended to preclude
improper augmentation of EPA's appropriations. See Section C., Item 5., of the May 1,
1998, SEP Policy. Nevertheless, EPA has clarified in the final guidance that should any
costs be incurred when conducting community outreach, each party must bear its own
costs throughout the settlement process in any enforcement action, including those
which involve SEPs. Finally, a number of commenters suggested editorial,
non-substantive comments on the guidance. The Agency has made these changes in
the final guidance, where appropriate.
INTERIM GUIDANCE ON COMMUNITY INVOLVEMENT IN SUPPLEMENTAL
ENVIRONMENTAL PROJECTS
Introduction
In its Supplemental Environmental Projects Policy (SEP Policy) of May 1, 1998,
10
-------
EPA included a section on community involvement3. Seeking community involvement
in a SEP, especially from the community directly affected by the facility's violations, can
have a number of benefits. It can promote environmental justice, enhance community
awareness of EPA's enforcement activities, and improve relations between the
community and the violating facility.
While community involvement is not possible or appropriate in all settlements
involving SEPs, in many cases community involvement may be a valuable part of SEP
consideration without adversely affecting the enforcement process. This document
encourages EPA staff to include community involvement in settlements, where
appropriate, and to strive to meet the community involvement goals of the SEP Policy.
In addition, this interim guidance suggests resources that may be utilized to foster
community involvement.
This interim guidance recognizes that not every settlement can include a SEP, or
a SEP that is proposed or favored by community members. SEPs are projects
3 The SEP Policy allows EPA to consider a defendant's or respondent's willingness to
perform an environmentally beneficial project when setting an appropriate penalty to settle an
enforcement action. The purpose of a SEP is to secure significant environmental or public health
protection improvements beyond those achieved by bringing the defendant into compliance. The
SEP must be a new project, where EPA has the opportunity to shape the scope of the project
before it is implemented, and the defendant must not be otherwise legally required to do the
work. Community participation in SEP consideration is just one of the factors considered in
valuing a SEP. This summary of the SEP Policy should not be considered a full summary of the
SEP requirements and persons interested in such requirements should consult EPA's Final SEP
Policy, available at 63 FR 24796 (May 5, 1998), or
htro://w\\^v.epa.gov/compliance/resources/Dolicies/civil/seps/index.html.
11
-------
undertaken voluntarily by defendants4, and not all defendants are interested in
performing SEPs. Defendants may not be willing to solicit input from the community, or
may not be receptive to community input. Further, final approval of all SEPs rests with
EPA,5 which must review project proposals to ensure consistency with the SEP Policy
and the law. A proposed project may not be able to be approved because it may not
have the required nexus to the underlying violation, or may violate other legal
requirements. Also, if different community groups support different SEP projects, some
part of the community is likely to be disappointed no matter what the outcome of the
SEP consideration process might be. Finally, court imposed deadlines on the parties
may not allow for community input into the SEP selection.
Nevertheless, EPA believes that community involvement is an important factor
that should be considered along with other factors surrounding the particular facts of a
potential settlement, such as quick response to environmental threats, timely resolution
of enforcement actions, and using limited resources effectively to achieve the maximum
benefit for human health and the environment. This guidance encourages Regions to
think creatively about how to engage communities, particularly communities affected by
the facility's violations, even though direct community participation will not be possible
4 SEPs can only be obtained in settlement agreements, not imposed by a court or
administrative tribunal. Under the MRA, 31 U.S.C. §3302(b), all court or administratively
imposed penalties must be paid to the treasury. Only in settlement, before a penalty is imposed,
can a penalty be mitigated by a SEP.
5 Throughout this interim guidance, the term "EPA," when used in the context of a
judicial enforcement action, also includes the Department of Justice.
12
-------
in every case that includes a SEP. For example, Regions can consider setting up a
SEP library to solicit community project ideas outside of the context of a particular
enforcement action so that community project ideas are available to draw from in
appropriate cases. Also, settlements can be structured to provide for community input
on implementation of the SEP, even if participation in SEP consideration itself is not
feasible.
Building trust between EPA and communities is the foundation of effective
community involvement in the SEP consideration process. Even where community
outreach does not result in a community-supported or proposed SEP being included in
a settlement, effective community outreach can help increase the community's
confidence in the process and may encourage the community to work with EPA in the
future.
Including communities, when possible, in the consideration of SEPs, may
benefit the defendant6, the community, the environment, and EPA. First, because
SEPs help to protect the environment and public health, and can redress environmental
harm, involving communities in SEP consideration enables EPA and the defendant to
focus on the particular environmental priorities and concerns of a community, which is
especially important if several different SEPs are being considered. The community
also can be a valuable source of SEP ideas, including ideas that result in creative or
6"Defendant," when used herein, includes defendants in civil judicial actions and
respondents in EPA administrative actions.
13
-------
innovative SEPs that might not otherwise have been considered.
Furthermore, pursuant to the SEP Policy, a defendant's participation and
inclusion of public input into a SEP is one of the factors EPA uses to determine the
degree to which penalty mitigation is appropriate in a particular case. (SEP Policy, p.
16). Enforcement staff should consider giving a defendant who conducts outreach to
communities in development of an acceptable SEP proposal, a greater mitigation
percentage for a SEP than a defendant who does not conduct such outreach.
Defendants may also benefit from community involvement because it can result in
better relationships with the community.
Given the wide range of settlement scenarios, types of violations and
communities, there is not standard formal to determine when community involvement in
the consideration of a SEP is appropriate. There are a number of factors that may help
EPA staff determine whether or not community involvement may be appropriate in a
particular case. Generally these factors may include:
1. The parameters surrounding the specifics of each case, e.g., court-
ordered deadlines, imminent and substantial endangerment situations;
2 The willingness of the defendant to conduct a SEP, and a willingness to
solicit and respond in a meaningful way to community input;
3. The impact of the violations on the community, especially the community
most directly affected by the facility's violations;
14
-------
4. The level of interest of the community in the facility and the potential SEP;
and
5. The amount of the proposed penalty and the settlement amount that is
likely to be mitigated by the SEP.
An excellent way to include communities in SEPs is to establish a "SEP library."
A SEP library is an inventory of potential SEPs that can be consulted in individual cases
where the defendant requests assistance in identifying appropriate SEPs. Several EPA
Regional offices have established SEP libraries; others are considering development of
a SEP library. A SEP library can include specific projects identified as priorities by
communities, non-governmental organizations and others. SEP libraries can be
developed from project ideas obtained from the affected community through town
meetings, publications, the internet, or public hearings. Collecting ideas for possible
SEPs for inclusion in a SEP library can happen at any time. Therefore, the
enforcement action in which a SEP may ultimately be selected from the SEP library will
be unknown at the time the potential SEP is placed into the library. Therefore, inclusion
of SEP in the SEP library does not ensure that a project will be chosen and/or
implemented in any particular settlement.
Finally, SEPs are developed in the context of settlement negotiations. As such,
confidentiality between the government and the defendant is essential to the exchange
of ideas and exploration of settlement options. Because of this, EPA must consider
how to provide information to the public to facilitate its involvement in SEP
15
-------
consideration and development without undermining the confidentiality of settlement
negotiations. Much of the information developed by the government may be privileged
and therefore not appropriate for release to the public. In addition, a defendant may
provide information to the government that must be kept confidential. For example, a
defendant may provide confidential business information ("CBI") to EPA. CBI, by law,
cannot be provided to the public.7 Thus, each case will have limits on what information
EPA can make available to the public. In judicial cases, DOJ will also retain authority to
determine what information can be released to the community.
EPA believes that community involvement in SEPs is an important goal, and is
committed to involving communities in the consideration of SEPs. This interim
guidance is intended to encourage enforcement staff to consider community
involvement in SEPs, and to help effectuate the best possible SEPs in the settlement of
enforcement cases in a manner that promotes mutual trust and confidence, and builds
positive relationships between the community and the Agency.
Signed:,
John Peter Suarez, Assistant Administrator
Office of Enforcement and Compliance
Assurance
This document is interim guidance intended for use of the EPA personnel and
1 See 40 CFR Part 2, subpart B.
16
-------
does not create any right or benefit, substantive or procedural, enforceable at law by a
party against the United States, its agencies, its officers, or any person. This interim
guidance is not intended to supercede any statutory or regulatory requirements, or EPA
policy. Any inconsistencies between this interim guidance and any statute, regulation,
or policy should be resolved in favor of the statutory or regulatory requirement, or policy
document, at issue.
APPENDIX A
RESOURCES FOR IDENTIFYING COMMUNITIES
Below are some suggested resources within and outside of EPA that may be
useful in targeting community outreach efforts.
Suggested Internal Sources
1. Community involvement coordinators at EPA's Office of Emergency and
Remedial Response Community Involvement and Outreach Center;
2. Headquarters offices, including: Office Environmental Justice, American Indian
Environmental Office, Federal Facilities Enforcement;
3. Colleagues in other media programs or regions;
4. Regional offices or coordinators who handle community involvement,
environmental justice, tribal issues, or community-based environmental
17
-------
problems.
Suggested External Sources
1. State, local or tribal governments;
2. Education or spiritual organizations;
3. Other federal agencies
4. Neighborhood organizations or groups, and individuals in neighborhoods closest
to the defendant's facility;
5. Community activists;
6. Environmental and environmental justice organizations and groups;
7. Local unions, business groups, and civic groups;
8. The defendant or other members of the regulated community (e.g., trade
associations);
9. Local newspapers, radio, television, local internet sites.
APPENDIX B
COMMUNITY OUTREACH TECHNIQUES
* This list is intended to provide a library of options available for use in conducting
community outreach, and is not intended to suggest that all of these techniques be
used in any given case.
1. Interview: Face to face or telephone discussions with community members
18
-------
provide information about local concerns and issues. A significant time
commitment may be required to gather feedback representative of the
community;
2. Small Group Meeting: Convening community members in a local meeting place
stimulates dialogue, generates information, and may build rapport among
participants;
3. Focus Group Meeting: Focus group participants are convened by a trained
facilitator to provide answers to specific questions. The direct approach is an
efficient information gathering tool if participants represent a cross-section of the
community.
4. Public Meeting: Public meetings are useful for hearing what people have to say
about current issues and engaging community members in the process. At
public meetings, EPA should focus on active listening and learning from the
public.
5. Public Availability Session/Open House: A public availability session is a less
structured alternative to a public meeting that provides everyone an opportunity
to ask questions, express concerns, react to what is being proposed, and make
suggestions. Typically, a public official announces she or he will be available at
a convenient time and place where community members can talk informally.
6. Public Notice: Public notices in the print media or on radio and television are a
relatively inexpensive way to publicize community participation opportunities. In
addition to the mainstream media, minority publications, church bulletins and
other such vehicles offered by local organizations can reach a more diverse
19
-------
audience.
7. Workshop: Workshops are participatory seminars to educate small groups of
citizens on particular site issues.
8. Site Tour: Site tours can familiarize citizens, the media and local officials with the
nature or environmental concerns affecting a community near a specific site.
Tours may result in better communication among the community, facility and
Agency.
9. Information Repository: An information repository is a project file containing
timely information on site-specific activities and accurate detailed and current
data about a site or enforcement action. Project files are typically kept at
convenient public locations, e.g., libraries, and publicized through various media.
20
-------
10
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460 ,
DEC 5 2D03
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Guidance for Determining Whether a Project is Profitable, When to Accept
Profitable Projects as Supplemental EnvironmentaWProjefcts, and How to Value
Such Projects
FROM: John Peter Suarez
Assistant Adminis
TO: Regional Counsel
Regional Enforcement Division Directors
Regional Media Division Directors
This memorandum advises enforcement personnel of a change inithe Supplemental
Environmental Projects (SEP) Policy. This change will allow for the acceptance, under certain
circumstances, of SEPs that may ultimately be profitable to a defendant/respondent. Under the
existing SEP Policy, profitable projects are not generally permitted as S$Ps. However, after
further consideration, the Office of Enforcement and Compliance Assurance (OECA) has
determined that, in some instances, a project's environmental or public fcjealth benefits may
outweigh its potential profitability to the alleged violator, such that the pjroject may be allowed as
a SEP. In addition, the positive returns for some projects may be so speculative or remote that a
business may not decide to undertake the project independent of the enforcement settlement.
The attached guidance document describes the background and rationale for this decision
and sets forth issues to consider for evaluating whether to accept a profitable project as a SEP as
well as how to value such a SEP and establish the appropriate mitigation credit. Specifically, the
guidance includes:
Acceptance of projects as SEPs that are expected to become profitable after five years is
appropriate if the project is consistent with the criteria described in the guidance;
• An exception for small businesses and small communities. For tfcese entities, projects
that are expected to become profitable after three years may be accepted as SEPs if the
projects are consistent with the criteria described in the guidance}
A five to fifteen year period for evaluating the profitability of a proposed project;
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable - PrtnM with V^etabte OH Ba*xf Ink. on Recyc^d Paper (Minimum 50% Posteonsumar ««*«>
-------
• A recommended process for valuation of a profitable project using the PROJECT Model;
and
• A recommended mitigation credit of no more than 80% for profitable pollution
prevention SEPs, and not more than 60% for all other profitable SEPs.
The decision to permit profitable SEPs under certain circumstances was reached after
considering numerous comments and suggestions from Regional and Headquarters enforcement
and program personnel. These considerations are described further in the Background section of
the attached guidance.
If you have questions about this guidance, the SEP policy, or specific SEPs, please do not
hesitate to contact me or the Agency's SEP contacts, Melissa Raack and Beth Cavalier. Melissa
can be reached at (202) 564-7039, and Beth can be reached at (202) 564-3271. For questions
concerning the PROJECT model, please contact Jonathan Libber at (202) 564- 6102 or the
Financial Issues Helpline at (888) ECONSPT ((888) 326-6778). For questions about SEPs at
Superfund sites, please contact Michael Northridge at (202) 564-4263. For questions about SEPs
at federal facilities, please contact Melanie Garvey at (202) 564-2579 or Bernadette Rappold at
(202) 564-4387.
cc: ORE Division Directors
Regional SEP Coordinators
Enforcement Coordinators
Karen Dworkin, DOJ
Melanie Garvey, FFEO
Bernadette Rappold, FFEO
Michael Northridge, OSRE
Melissa Raack, ORE/MED
Beth Cavalier, ORE/MED
John Cross, OPPTS
David Sarokin, OPPTS
Attachment
-------
Guidance for Determining Whether a Project is Profitable,
When to Accept Profitable Projects as
Supplemental Environmental Projects,
and
How to Value Such Projects
The purpose of this guidance is to modify that portion of the May 1998 Supplemental
Environmental Projects (SEP) Policy, which states that profitable projects are generally
unacceptable as SEPs.1 The Office of Enforcement and Compliance Assurance (OECA) has
determined that, in some instances, projects that are potentially or ultimately profitable to an
alleged violator maybe allowable as a Supplemental Environmental Project. OECA believes
that in cases where a project's environmental or public health benefits outweigh its potential
profitability to the alleged violator, the project may be acceptable as a SEP.
This guidance document describes the background and rationale for this decision and also
provides criteria for evaluating if a project is likely to be profitable and whether to accept a
profitable project as a SEP. In addition, the document provides guidelines for determining the
value2 of such a SEP and the appropriate mitigation credit.
Background
On August 22, 2001, the Office of Inspector General (OIG) issued an audit report, Final
Report on Region 6 Supplemental Environmental Projects; Report No. 2001-P-00014, addressing
the implementation of SEPs. This report criticized the Agency for approving projects that were
ultimately profitable to the defendant/respondent in light of the current Policy's prohibition on
such projects. In its response to the OIG, OECA committed to review this issue and provide
guidance to the Regions. Following this review, and after extensive discussion with the Regions,
other Headquarters offices, and the Department of Justice, OECA concluded that some projects
that are ultimately profitable to the defendant/respondent may in fact have significant
environmental or public health benefits (e.g., pollution prevention projects). OECA also
recognizes that some companies may not elect to pursue certain projects because of the
speculative nature of the returns or the untested technology involved. Based on these
considerations, OECA believes it is appropriate, under certain circumstances, to allow a
proposed SEP, even though that SEP might eventually become profitable to the
defendant/respondent.
1 Conforming changes to the SEP Policy that reflect this guidance are underway.
2 The SEP Policy uses the PROJECT model to calculate the value of a SEP. PROJECT
generates the net cost of a project over time. For purposes of determining the monetary value of
a SEP, OECA uses the PROJECT generated net cost, therefore, the net cost over time is
considered the monetary "value" of the SEP.
1
-------
Potentially profitable projects present a challenge to enforcement personnel who must
determine the appropriate value of the project. A profitable project is one that results in no net
cost to the alleged violator. This raises the question of how to determine the value of such a
project and subsequently the associated mitigation credit. This guidance provides some
background on this issue, describes the circumstances under which a profitable project may be
acceptable as a SEP, and provides guidance for determining the value and mitigation credit that
can be given.
1. Profitable Projects and the Project Period
Projects for which the net annual costs (i.e., annual costs minus annual savings) reflect a
savings are most likely to be profitable to the defendant/respondent at some point. To determine
whether a project is profitable, the PROJECT financial model evaluates the project costs and
savings for a specified period of time referred to as the "number of credited years" or the "project
period." If the PROJECT model returns a negative value, this indicates that the proposed project
will provide a positive return over that period of time and should be considered "profitable" for
the alleged violator.
Thus, the determination of whether a proposed SEP is profitable depends greatly on the
project period, which is the length of time for which the project costs are considered. The OIG
report noted the lack of guidance on this issue and recommended that OECA clarify the project
period to be considered when determining the value of a SEP. The OIG recommended that the
useful life of capital equipment (generally considered to be fifteen years) may be the appropriate
period for determining SEP value (and for considering profitability). Under this scenario,
projects that were profitable within the first fifteen years would be unacceptable as SEPs. The
OIG made no recommendation regarding the appropriate project period for projects where no
costs are incurred for capital equipment.
After soliciting Regional comments on the OIG recommendation, OECA rejected the
OIG's recommendation as impractical. The SEP Policy states that "at a minimum, the
defendant/respondent must be required to implement the project for the same number of years
used in the PROJECT model calculation." (See page 14, paragraph 2.). Based on this language,
under the OIG recommendation, defendants/respondents would be required to implement SEPs
for fifteen years; consent decrees and administrative settlements would, therefore, have to remain
open and be monitored for fifteen years, creating a significant administrative burden. In addition,
imposing a complete ban on all SEPs that would likely be profitable within a fifteen year window
would likely result in the elimination of many pollution prevention SEPs, which are more likely
to be profitable to a defendant/respondent.
To balance competing concerns in this area, OECA proposed prohibiting as SEPs projects
that are profitable to the defendant/respondent within the first five years of implementation.
OECA further proposed the careful evaluation of projects that become profitable between five
and fifteen years to ensure that the benefits to public health or the environment warrant giving the
-------
defendant/respondent SEP credit. If the Region determines that it does, the project can be
accepted as a SEP.
OECA proposed a five-year project period as the minimum time period for determining
the acceptability of proposed, potentially profitable projects, because a five-year cycle is
commonly used in the financial world for evaluating businesses' financial stability and for
evaluating potential investments and other business activities. Because businesses commonly
use a "five-year plan" for financial planning, OECA has also adopted this five-year period in its
ability to pay analysis computer models.
Some of the Regional enforcement and pollution prevention personnel that reviewed the
draft guidance commented that the proposed five-year limit for profitable projects might not be
appropriate in all circumstances. Based on their experience, they felt that a five-year planning
period was not always feasible, especially for small businesses. According to the Regions,
because a five-year cost/benefit analysis may be burdensome for a small business, many small
businesses will not opt to implement a project that was profitable in less than five years without
the inducement of an enforcement settlement and the incentives that the SEP Policy provides.
The Regions cited many factors, such as institutional barriers, opportunity costs of capital,
emphasis on shareholder returns, and a lack of recognition of potential profits from resource
conservation and efficiency, as reasons why smaller companies may not commit to a project that
would be profitable in five, or less, years. The Regions commented that technical assistance
agencies report that new technologies are resisted by companies receiving assistance, even when
potential exists for great payback.
After considering the Regional comments and concerns and upon further discussion with
OECA's financial experts, OECA has determined that approval as SEPs of projects that become
profitable within five years is not appropriate. We believe that a shorter project period for
limiting profitability would be inappropriate for larger, more sophisticated companies, which
have the resources to implement a project that would not be profitable for five or more years.
Thus, not only would these companies be reducing their civil penalties, but the SEP that provided
the mitigation would be profitable in less than five years. This would seriously undermine the
deterrent value of the settlements in those cases.
However, we understand the Regions' concern that a five-year project period may
eliminate some otherwise acceptable projects especially for small businesses. Therefore, we
have adopted a different approach for small businesses and small communities.3 For entities
3 To maintain consistency with the SEP Policy, which uses the Clean Air Act's definition
of a small business stationary source (see CAA § 507(c)(l)(A)), "small business" is defined
under this guidance to be a business that is owned by a person or another entity that employs 100
or fewer individuals. Small businesses could be sole proprietorships, individuals, privately held
corporations, farmers, landowners, partnerships, and others. A small community is one
comprised of fewer than 2,500 persons.
-------
meeting the definition of a small business or a small community, a three-year project period may
be used for determining the acceptability of a profitable project.
2. When to Accept a Proposed Profitable Project as a SEP
SEPs mitigate civil penalties in an enforcement action and reflect the Agency's use of its
enforcement discretion. All proposed projects, including ultimately profitable projects found to
be acceptable under this guidance, should meet the factors and conditions outlined in the SEP
Policy. However, because a profitable project accepted as a SEP will provide benefits to the
alleged violator as well as to public health or the environment, OECA believes that such projects
should meet a higher standard, or "high hurdle," for acceptance. This "high hurdle" can be met
if the project demonstrates attributes such as:
(1) a high degree of innovation (e.g., projects that use new technologies or processes not
commonly in use by the industry or sector) with the potential for widespread application;
(2) technology that is transferable to other facilities or industries, and the
defendant/respondent will share information about the technology;
(3) extraordinary environmental benefits that are quantifiable (e.g., project will result in
measurable reductions in air pollutant emissions or measurable improvement in water
quality);
(4) exceptional environmental or public health benefits to an Environmental Justice
community; and/or
(5) a high degree of economic risk for the alleged violator.
OECA believes it is inappropriate for SEPs that are profitable (as determined in Step 6,
see below) to receive the maximum allowable mitigation credit. When considering the percent
of mitigation credit to give, Regions should consider how well the project meets the "high
hurdle" criteria as well as the length of time before the project becomes profitable and the degree
of profit.4 Regions may wish to provide a lower percent of mitigation credit for projects that
become profitable earlier on or show a significant profit. Projects that are only slightly profitable
may receive a higher mitigation percent. OECA recommends a maximum upper mitigation
percentage of 80% for profitable pollution prevention SEPs, and a maximum upper mitigation
percentage of 60% for all other profitable SEPs.
4 This can be determined by running PROJECT using varying project periods between
five and fifteen years.
-------
3. Using the PROJECT Model to Calculate the Value of Such SEPs for Purposes of
Penalty Mitigation
Section E of the SEP policy (see pages 12-17) describes the steps that Regions should
take in calculating the value of a SEP. The policy recommends that use of the PROJECT model
and describes the three types of cost information that may be associated with a SEP and that are
entered into the PROJECT model. These three types of costs are: (1) capital costs, which are
costs associated with equipment, buildings, etc.; (2) one-time, nondepreciable costs, such as the
purchase of land or the removal of contaminated materials; and (3) annual costs and savings (also
called "annual recurring costs"). Annual costs include operation and maintenance expenditures,
lease payments, and insurance premiums. Annual savings may include items, such as reduced
energy costs, reduced cost of raw materials, and reduced waste disposal costs resulting from the
implementation of the project.
The PROJECT model requires input of data concerning the annual recurring costs of a
SEP and the number of years that these costs will be credited. This data is entered into the
annual recurring costs and number of credited years (also known as the "project period") fields of
the PROJECT model and, along with the cost information described above, is important in
determining whether a SEP is profitable."
In most cases, the value of a SEP as generated by the PROJECT model is the value on
which any mitigation percentage will be based. A SEP that is profitable will generate a negative
or zero value. A mitigation percent applied to such a value will result in zero credit. Therefore,
we have developed a two-tier approach to assist the Regions in determining an appropriate value
and mitigation credit for a profitable SEP.
The approach described in the steps below and in Attachment A should be used in
evaluating any SEP for which there is a negative value entered into the annual recurring costs
field of the PROJECT model. Annual recurring costs are determined by adding the annual costs
to the alleged violator and subtracting any annual savings or profits that the alleged violator may
realize as a result of performing the SEP. If the result of this calculation is a negative number,6
then a negative entry will be made in the annual recurring costs field of PROJECT. SEPs with a
negative annual recurring cost are more likely to result in a zero or negative PROJECT value,
indicating that the SEP may be profitable, and this guidance should therefore be applied.7
5 For the purposes of this discussion, SEPs that result in a zero or negative PROJECT
result, indicating cost savings to the defendant/respondent, will be considered "profitable."
6 A negative number indicates an annual return rather than cost to the violator.
7 Regions should be alert to other factors that could produce a profit for a violator. For
instance, a violator may produce a new product line or business as a result of the SEP, which
could ultimately result in increased revenues for the violator. Such factors should also be
-------
4. Using PROJECT to Determine the Value of Profitable Projects
Step 1 - Collect information from defendant/respondent on costs of the project as well as any
savings due to efficiencies, substitution of raw materials, re-use of waste products, etc.8
- If the cost entry for annual expenses is a negative number (indicating the project may return at
least some savings to the defendant), proceed to Step 2.
- If the cost entry for annual expenses is positive, set the number of years in the annual expense
category to the number of years that violator will be required to implement the project. Run
PROJECT to determine the value of the SEP. This is the current process and will continue to
apply for most SEPs.
Step 2 - Run PROJECT Model using five (5) years as the project period.9
Step 3 - If the PROJECT Model returns a negative value using the five-year project period, this
indicates that there is a positive return for the defendant. A positive return at this step indicates
that the SEP will be profitable within the first five years and the proposed SEP should be
rejected.
Step 4 - If the PROJECT Model returns a positive value, indicating that there is a net cost to the
defendant during the first five years, then the proposed SEP should be run through PROJECT
again, this time using fifteen (15) years as the project period. This second PROJECT run is done
to see if the proposed SEP will become profitable between five and fifteen years.
Step 5 - If the PROJECT Model still returns a positive value, indicating a net cost to the
defendant, the SEP can be approved providing it meets all other requirements of the SEP Policy
(e.g., nexus, etc.)
Step 6 - If the PROJECT Model returns a negative value, indicating that the defendant will be
making a profit at some point during the fifteen-year project period, the Region should carefully
consider the project's benefits to public health or the environment as described above. If the
benefits are significant despite the profit to the defendant/respondent, the proposed SEP may be
considered as well when determining the acceptability of a proposed project and/or the
appropriate mitigation percentage to apply.
8 The defendant/respondent should submit this information in writing, and the
information should be kept in the case file as part of the record.
9 For a small business or small community, a project period of three (3) years may be
used. The second-tier project period of fifteen (15) years will be used for all proposed SEPs,
including those proposed by small businesses and small communities.
6
-------
approved, however, the percent of mitigation credit given should reflect the fact that the
defendant/respondent receives a financial benefit.
Step 7 - Determine the mitigation percentage: it is inappropriate for SEPs that are profitable (as
determined in Step 6) to receive the maximum allowable mitigation credit. When considering
the percent of mitigation credit to give, Regions should consider how well the project meets the
"high hurdle" criteria as well as the length of time before the project becomes profitable.10
Regions may wish to give a lower percent mitigation credit for projects that become profitable
earlier. OECA recommends a maximum mitigation credit of 80% for pollution prevention SEPs,
and a maximum mitigation credit of 60% for all other SEPs.
Step 8 - The percent mitigation should be applied against the SEP's value as determined by the
PROJECT model. This requires the litigation team to enter information about the SEP,
including the number of years credited into PROJECT. While the SEP Policy calls for entering
the same number of years as the defendant/respondent is obligated to implement the SEP, this
will generally not work for profitable SEPs, because the cost of performing the SEP decreases
over time as the defendant/respondent recoups expenditures and approaches the profitability
point. If, for example, a defendant/respondent is only obligated to implement the SEP for two
years, but the SEP will become profitable at some point between five and fifteen years, using a
two-year project period would likely place too high a value on the project and result in too high
penalty mitigation. The overriding goal should be to use a timeframe that reflects the real cost of
the SEP to the defendant/respondent but that takes into account that the SEP will become
profitable in the near future. Therefore, we recommend using the value as determined by
PROJECT using a five-year project period.11 This is the value generated in Step 2 above.
Step 9 - Maintain written justification for selection or rejection of the proposed project(s) and the
rationale behind the selected mitigation percentage for the case file. As part of the justification,
the case file should include copies of the relevant PROJECT model runs conducted on each
proposed SEP.
10 This can be determined by running PROJECT using varying project periods between
five and fifteen years.
1' It may also be the case that a defendant/respondent is committed to perform the SEP
for more years than it will take for the project to become profitable. If a project is not profitable
during the first five years, but becomes profitable later, the PROJECT-generated value will
decrease over time and eventually become negative at the point at which the project becomes
profitable. For the purposes of penalty mitigation, one cannot assign a percentage mitigation to a
negative value. Therefore, we recommend using the PROJECT-generated value for a five-year
project period as the value of the SEP for mitigation purposes for projects that will be profitable,
unless another period more appropriately captures the costs, as well as the profitability, to the
defendant/respondent.
-------
This document is guidance intended for use of the EPA personnel and does not create any
right or benefit, substantive or procedural, enforceable at law by a party against the United
States, its agencies, its officers, or any person. This guidance is not intended to supercede any
statutory or regulatory requirements, or EPA policy. Any inconsistencies between this guidance
and any statute, regulation, or policy should be resolved in favor of the statutory or regulatory
requirement, or policy document, at issue.
-------
Attachment A
Process Flowchart for Determining Whether a Project is Profitable,
When to Accept Profitable Projects as Supplemental Environmental Projects
and
How to Value Such Projects
3. Negative PROJECT
result = SEP Profitable,
Should be REJECTED
5. Positive PROJECT result = SEP
not profitable at 1 5 years - may be
ACCEPTED
Enter SEP
information
into
PROJECT
model
2. Run
PROJECT with
# of Credited
Years = 5
(3 for small
businesses)
Positive
PROJECT result
= SEP not
profitable at 5 years
CONTINUE TO
STEP 4
4. Run
PROJECT with
# of Credited
Years = 15
_J
6. Negative PROJECT result = SEP is
profitable at 15 years. SEP may be
accepted if it meets all other SEP Policy
criteria and conditions of this guidance.
8. Apply mitigation percent to SEP's
value. Result of this calculation is
subtracted from bottom line penalty.
7. Determine mitigation percentage
based on "high hurdle" criteria and
other factors.
-------
11
-------
.»
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
DEC \ 5 2D03
OFFICE OF
ENFORCEMENTAND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Guidance Concerning the Use of Third Parties in the Performance of
Supplemental Environmental Projc
FROM:
ggregation of SEP Funds
TO:
John Peter Suarez
•\ssistaiil Administrate
Regional Counsels (Region I-X)
Regional Enforcement Managers (Region I-X)
Regional Media Division Directors (Region I-X)
Regional Enforcement Coordinators (Region I-X)
As part of my June 11, 2003 memorandum "Expanding the Use of Supplemental
Environmental Projects," my office committed to issue guidance to assist Agency enforcement
staff in encouraging and expanding the use of SEPs in enforcement settlements. Through
settlements containing SEPs, we have the opportunity to not only bring regulated entities into
compliance, but to secure public health and environmental benefits in addition to those achieved
by compliance with applicable laws.
The June 11, 2003 memorandum also challenged enforcement staff to consider every
opportunity to include more environmentally significant SEPs wherever possible. In response to
that challenge, we have seen an increase in the number of innovative and creative SEP proposals
put forward by the Regions. Two frequently asked questions concern the potential for
aggregating funds to be used for SEPs into SEP "banks" or escrow accounts, and working with
private entities to manage and/or implement SEPs. This memorandum provides guidance on
how the Regions should approach these issues to comport with the Miscellaneous Receipts Act
(MRA) and appropriations law. While the conditions of the MRA may limit our ability to
aggregate SEP funds, this guidance provides suggestions for including SEPs in enforcement
settlements in a manner that we believe does not trigger MRA or appropriations concerns. In
addition, this guidance contains suggestions on the use of private organizations in implementing
SEPs.
Internet Address (URL) • http://www.epa.gov
Recycled/Recyclable .Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 50% Postconsumer content)
-------
I. Aggregation of SEPs
A. Can SEPs Be Aggregated by Defendants/Respondents?
OECA has been been asked whether there are circumstances in which EPA can allow
defendants/respondents to aggregate SEP funds. Where several defendants/respondents are
settling separate cases for similar violations in the same general geographic area and at
approximately the same time, the aggregation of SEPs could provide increased leverage and
allow for projects with a greater environmental or public health benefit, and could provide an
opportunity for defendants/respondents in smaller cases to take advantage of the SEP Policy.
Where Defendants/Respondents Are Jointly and Severally Liable for Performance of
Consolidated SEP: The aggregation of SEPs may be acceptable if the settlements are crafted
carefully. For instance, defendants/ respondents may propose pooling resources to hire a
contractor to manage and/or implement a consolidated SEP. Such an approach could be
acceptable if the respondents/defendants remain liable under the settlement agreement to perform
the consolidated project in the same manner as they would under a typical settlement.
Defendants/respondents are generally held accountable through the inclusion of stipulated
penalties should the SEP not be completed as agreed upon.
Performance of Complementary, Segregable SEPs: Another approach that may be
acceptable could be a situation where defendants/respondents in separate cases are interested in
performing discrete and segregable tasks within a larger project. Such an approach would have
to meet the following conditions to address any MRA concerns: (1) each discrete project must
have a nexus to the violations at issue in the particular settlements and meets all conditions of the
SEP Policy; (2) each discrete project must be itself worthwhile with environmental or public
health benefits; and (3) the settlement must hold each defendant/respondent responsible for
implementation and completion of a specific portion of the larger project. If the settlements are
structured carefully, such an approach can result in a significant environmental or public health
benefit that might otherwise be unavailable.
Example I: A number of defendants/respondents in separate enforcement actions are interested in
restoring and conserving a particular piece of property. One defendant/respondent could assume
responsibility for acquiring the property and transferring ownership to a third party such as a
local municipality or a land trust. A second defendant/respondent could assume responsibility
for conducting a stream bank clean up and revegetation project on the property. A third
defendant/respondent could take responsibility for re-establishing a fish ladder or other aquatic
habitat.
Example 2: Defendants/respondents in separate settlements could develop and deliver
compliance and training programs providing training and assistance to a regulated sector in a
manner that reaches a significantly greater subset of that sector. For example, defendants/
respondents in separate hazardous waste enforcement cases could develop and present
specialized training materials, videos, brochures, etc. relating to hazardous waste management in
particular educational areas such as science labs and art schools. Because each compliance
-------
promotion SEP would focus on a different educational area, the aggregation of SEPs in this
manner could result in a much greater impact within the regulated community.
Other Considerations: While the aggregation of SEPs under these scenarios could be
designed to avoid MRA concerns, in addition to the conditions set forth above, there are other
practical limitations which need to be considered. For example, aggregation of SEPs in this
manner may require that all settlements be completed at approximately the same time and that
defendants/respondents in separate settlements are willing to cooperate with one another, either
because they are all responsible for completion of the entire project or because one party's
project is dependent on the timely performance by another party of its project, as in the first
example above.
Consultation with ORE/SPLD: Regions are encouraged to consult with the Office of
Regulatory Enforcement's (ORE) Special Litigation and Projects Division (SLPD)1 early in the
process when considering proposals by defendants/respondents to aggregate or coordinate SEPs
in a manner described above.
B. Can EPA Aggregate SEP Funds?
OECA has had several inquiries into the feasibility of establishing SEP "banks" or
accounts for pooling the funds applied towards SEPs. Specifically, the question is whether EPA
may hold and manage, in one account, SEP funds from several settlements that would otherwise
have been used by defendants/respondents for SEP projects in each individual enforcement
settlement. While the aggregation of SEP funds may result in a SEP with greater public health or
environmental benefits than several smaller funds, we have been advised by OGC that the MRA
prohibits EPA from managing SEP funds.
The SEP Policy was written carefully to ensure compliance with the MRA. SEPs are not
penalties; they are environmentally beneficial projects not otherwise required by law. The SEP
Policy makes clear that defendants/respondents must perform a project and be responsible for its
satisfactory completion rather than simply making a cash payment. The SEP policy is based on
the premise that where a defendant/respondent performs an environmentally beneficial project,
the Agency has the discretion to take the performance of the project into account as a mitigating
factor when determining the amount of a penalty that the Agency will agree to as part of an
overall settlement. A cash payment, such as a payment or donation to a third party or to a SEP
"bank," where there is no further responsibility for the defendant/respondent to ensure that a
specific project is completed, is prohibited because it could easily be construed as a diversion
from the Treasury of penalties due and owing the government.
There are also constraints within appropriations law that restrict the Agency's ability to
establish SEP accounts. Only Congress can appropriate funds for a federal agency. Establishing
a SEP account where the Agency manages the funds and determines how they are to be spent
1 ORE'S Multimedia Enforcement Division has been renamed the Special Litigation and
Projects Division.
-------
would amount to an augmentation of appropriations. The SEP Policy makes clear that EPA
cannot manage or direct SEP funds. See SEP Policy, page 6 at paragraph 3.
II. Management of SEPs and SEP Funds by Private, Third Party Organizations
A. Can Defendants/Respondents Use Private, Third-Party Organizations to
Manage SEPs and SEP Funds ?
We are aware that there are private organizations that are developing libraries of projects
that might be suitable as SEPs. These groups hold themselves out as clearinghouses for
environmental projects, and offer to obtain and manage funds, oversee the projects, and in some
cases, charge a fee for their services. Private organizations that are developing libraries of
projects and offering project and funds management, project implementation, and oversight
services can play a valuable role in SEPs. It is permissible for defendants/respondents in
enforcement actions to use a third party as a contractor or consultant to assist in the
implementation of a SEP. See SEP Policy, Section F, page 17. An alleged violator could use a
private organization to recommend SEPs to it during negotiations with the Agency, and then to
manage a SEP, as long as (1) the defendant/respondent is obligated under the settlement
document to complete the project satisfactorily, (2) the defendant/respondent fully expends the
amount of funds agreed to be spent in performance of the SEP, and (3) the project meets all of
the conditions and requirements of the SEP Policy. In other words, this approach is acceptable as
long as the transactions with the defendants/respondents are structured such that the
organizations are acting as contractual service providers to defendants/respondents as opposed to
mere recipients of donated funds.
Cash Donations to Third Parties Are Not Permissible: Defendants/respondents may not
simply make a cash payment to a third party conducting a project without retaining full
responsibility for the implementation or completion of the project, as this appears to violate the
MRA. In the context of an enforcement action, the Office of Legal Counsel (OLG) within the
Department of Justice considered whether a defendant's donation of money to an organization
designated by the Department of Interior (DOI) violated the MRA. In re: Steuart Transportation
Company. 4 Op. Off. Legal Counsel 684 (1980), arose from a settlement of claims the United
States and the Commonwealth of Virginia brought against an oil company for a spill in the
Chesapeake Bay. Among other things, the federal government sought damages for the death of
migratory waterfowl. The settlement terms required the oil company to resolve these claims by
donating money to a waterfowl preservation organization designated by DOI and the
Commonwealth of Virginia. One argument advanced to OLC by the proponents was that the
proposed settlement did not violate the MRA because no money was received for the use of the
United States within the meaning of the MRA since the funds did not go directly to DOI.
OLC concluded that the absence of a direct payment to DOI did not remove the
transaction from the MRA. "[T]he fact that no cash actually touches the palm of a federal
official is irrelevant for the purposes of [the MRA], if a federal agency could have accepted
possession and retains the discretion to direct the use of the money. The doctrine of
-------
constructive receipt will ignore the form of the transaction in order to get to the substance." hi
re: Steuart at 688 (emphasis added).
B. Can EPA Use Private, Third-Party Organizations to Manage SEPs and SEP
Funds?
Several private organizations have proposed working with EPA to maintain SEP libraries
and provide project implementation and/or management services. This raises some difficult legal
issues. First, a close working relationship with such organizations could create the appearance
that EPA is using the organization as a means to indirectly manage or direct SEP funds. Second,
there are ethical restrictions on endorsing or otherwise providing private organizations with
unfair competitive advantages in selling their SEP management and implementation services to
defendants/respondents. Based on consultation with OGC, we have concluded that it would be
improper for EPA to enter into an agreement with such organizations at either the Headquarters
or Regional level.
OGC has advised that Regions could make a list of such organizations available to
defendants/respondents as long as the Region does not promote one group over another, has an
open and fair process for adding other qualified groups to the list, and maintains a disclaimer
making it clear that the list does not constitute an endorsement or recommendation of any of the
listed entities.
If you have any questions about this memorandum, please contact Susan O'Keefe at (202)
564-4021, or either Beth Cavalier or Melissa Raack of her staff. Beth can be reached at (202)
564-3271; Melissa can be reached at (202) 564-7039.
cc: OECA Office Directors
ORE and OC Division Directors
SEP Coordinators
DOJ, Environmental Enforcement Section, Projects Group
This document is guidance intended for use of the EPA personnel and does not create any right
or benefit, substantive or procedural, enforceable at law by a party against the United States, its
agencies, its officers, or any person. This guidance is not intended to supercede any statutory or
regulatory requirements, or EPA policy. Any inconsistencies between this guidance and any
statute, regulation, or policy should be resolved in favor of the statutory or regulatory
requirement, or policy document, at issue.
-------
12
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
NOV 2 3 ?m
ASSISTANT ADMINISTRATOR
FOR ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Supplemental Environmental Projects In Administrative Enforcement Matters
Involving Section 1018 Lead-Based Paint Cases
FROM: Thomas V. Skinner [ ' /
Acting Assistant Administrator
Office of Enforcement and Compliance Assurance
TO: Regional Counsel
Regional Enforcement Managers
Regional Lead Program Managers
SEP Coordinators
The purpose of this memorandum is to provide an exception to the minimum penalty
requkemente ofthe Supplemental Environmental Projects (SEP) Policy for certain public health
irafonned pursuant to administrative enforcement settlements under Section 1018 of the
idST^Based Paint Hazard Reduction Act. Section 101 8 of the Residential Lead-
t ItaRcduction Act of 1992, 42 U.SXJ. § 4852d, and the
under Section 1018 (known as the Real Estate Notification and Disclosure Rule) apply to most
housing built before 1978. The regulations require that:
Sellers and landlords must disclose known lead-based paint and lead-based paint hazards
and provide available reports to buyers and renters;
Sellers and landlords must give buyers and renters the pamphlet titled "Protect Your
Family from Lead in Your Home";
Home buyers receive a 10-day period to conduct a lead-based paint inspection;
Sales contracts and leasing agreements must include certain notification and disclosure
language; and .
Sellers, lessors, and real estate agents share responsibility for ensuring compliance.
Recycled/Recyclable
pnrrtod .*h SoyXUnolt Ink on pap«l lh«l
eonuira • teast 75% recycled fiber
-------
Through this memorandum, I am allowing an exception to the minimium penalty
requirements of the SEP Policy1 for Section 1018 administrative settlements only2, where such
settlements include certain public health SEPs. Specifically, for Section 1018 administrative
settlements that include SEPs requiring lead-based paint abatement or blood lead level screening
and/or treatment for children where Medicaid coverage is not available, the minimum penalty
requirement is reduced from 25% of the gravity-based penalty to 10% of the gravity-based
penalty.3 All other conditions of the SEP Policy, including those regarding mitigation credit,
must be adhered to.4
This exception is being made to address concerns about the potentially significant health
impacts, especially to children, that may result from violations of Section 1018. Regional
enforcement staff have been working hard to negotiate administrative settlements for Section
1018 violations which include abatement SEPs, but have experienced some difficulties as
respondents in these cases are often small businesses or individuals who may not have sufficient
resources or the incentive to both perform significant abatement and pay a penalty equal to 25%
of gravity. Reducing the minimum penalty will provide a financial incentive for a respondent to
perform an abatement or blood-lead level testing SEP while at the same time maintaining the
deterrent value of the penalty. OECA is optimistic that the changes outlined above will result in
an increased number of SEPs in administrative settlements for Section 1018 violations, and
'The SEP Policy requires a minimum penalty of 25% of the gravity-based penalty or 10%
of the gravity-based penalty plus economic benefit, whichever is greater.
2Since the Residential Lead-Based Paint Hazard Reduction Act does not authorize EPA to
seek iniunctive relief hi administrative enforcement actions, lead abatement work conducted
pursuant to an administrative settlement may properly be considered a SEP provided the Region
determines based upon readily available information, that it is unlikely the government could
obtain lead-based paint abatement projects as injunctive relief hi federal court under the facts of
the particular case. When the facts of a case, however, indicate that injunctive relief may be
appropriate the Region should consult with the Department of Justice (DOJ) and, if appropriate,
refer the case to DOJ. This memorandum provides guidelines intended to assist the Regions, and
does not prohibit the Regions from referring cases for penalties or injunctive relief to DOJ.
'There is generally no economic benefit to the violator from such violations.
4Lead-based paint abatement SEPs must be conducted hi compliance with EPA
regulations set forth at 40 C.F.R. § 745.227, including, but not limited to, the Department of
Housing and Urban Development (HUD) Guidelines for the Evaluation and Control of Lead-
Based Paint Hazards in Housing (June, 1995, as revised in 1997), and executed by individuals
certified to perform such work in accordance with the applicable EPA regulations, or where
authorized, State law requirements. Following completion of the abatement work, the
respondent must have lead clearance testing performed by a certified nsk assessor. The
abatement work and lead clearance sampling may not be performed by the same individual or
entity Where the Consent Agreement and Final Order (CAFO) calls for lead-basedpaint
inspections or risk-assessments prior to abatement, clearance may be performed by the same
uXidual or entity that conducted the lead-based paint inspections or nsk-assessments so long as
the individual or entity is certified.
-------
therefore result in fewer incidences of childhood lead poisoning. The exception is permissive not
mandatory, and the Regions should make a determination on a case-by-case basis as to whether
the exception is appropriate.
OECA believes that it is appropriate to allow this exception for Section 1018
administrative settlements due to the unique combination of factors associated with the
communities put at risk by Section 1018 violations and the nature of the violators.
o Lead-based paint presents a significant hazard to children's health. Abatement is the
most direct means to eliminating this hazard.
o In promulgating Section 1018 of Title X, the Residential Lead-Based Paint Hazard
Reduction Act of 1992, at 42 U.S.C. § 4851, Congress found, among other things, that (1)
low-level lead poisoning is widespread among American children, afflicting as many as
3,000,000 children under the age of 6; (2) at low levels, lead poisoning in children causes
intelligence deficiencies, reading and learning disabilities, impaired hearing, reduced
attention span, hyperactivity, and behavior problems; and (3) the ingestion of household
dust containing lead from deteriorating or abraded lead-based paint is the most common
cause of lead poisoning in children. Congress further found that most of the poisoned
children were from low economic backgrounds and were disproportionately minorities.
o Many of the children exposed to the hazards of lead-based paint are living in older
housing in economically disadvantaged communities, presenting environmental justice
concerns. Executive Order 12898 directs each federal agency to make achieving
environmental justice part of its mission by identifying and addressing, as appropriate,
disproportionately high and adverse human health or environmental effects of its
programs, policies and activities on minority populations and low-income populations.
o The President's Task Force on Environmental Health Risks and Safety Risks to
Children has set a goal of ending childhood lead poisoning by 2010. A major theme
voiced recently by the Center for Disease Control (CDC), U.S. Department of Housing
and Urban Development (HUD), and EPA at the June, 2004 National Lead and Healthy
Homes Grantee Conference in Orlando, Florida was that we can and must focus on the
"bad properties" where children are being poisoned and use Section 1018 of the
Residential Lead-Based Paint Hazard Reduction Act of 1992,42 U.S.C. § 4852d, and the
regulations promulgated under Section 1018 (known as the Real Estate Notification and
Disclosure Rule), to end the cycle of poisoning children.
o OECA's FY 2005-2007 NPM guidance explicitly commits the national lead-based paint
enforcement program to the 2010 goal. Lead-based paint abatement is the most direct
means of achieving this goal.
o Respondents in Section 1018 cases are typically small businesses and individual
owners: In many cases, these respondents do not have the resources to ^ertake
significant abatement work while at the same time paying the penalty called for under the
SEP Policy. For these respondents, a smaller civil penalty will still provide necessary
deterrence while at the same time encouraging this significant public health SEP.
-------
o OECA's draft Action Plan To Integrate Environmental Justice for FY 2004-2005
specifically mentions EPA's focus on reducing the risks of lead-based paint in low-
income communities, which often have a high incidence of childhood blood-lead
poisoning associated with older, substandard housing.
o OECA's January 5,2004 guidance on "Recommended Ideas for SEPs" includes lead-
based paint abatement projects as one of the project ideas that have the greatest potential
for significant and measurable environmental and/or public health benefits.
OECA believes that the proposal to provide an exception to the SEPfPolicy for Section
1018 cases, as set forth above, provides significant health benefits and is an important step
towards meeting the goal of ending childhood lead poisoning by 2010.
If you have any questions about Section 1018 administrative enforcement settlements,
please contact Stephanie Brown, Associate Director, Toxics and Pesticides Enforcement Division
at (202) 564-2596. Questions about the SEP Policy in general, or this memorandum hi
particular, may be addressed to Susan O'Keefe, Associate Director, Special Litigation and
Projects Division at (202) 564-4021, or to Beth Cavalier or Melissa Raack. Beth can be reached
at (202) 564-3271. Melissa can be reached at (202) 564-7039.
cc: Walker B. Smith, Director
Office of Regulatory Enforcement
Randolph L. Hill, Deputy Director
Office of Regulatory Enforcement
Ann Pontius, Director
Toxics and Pesticides Enforcement Division
Stepanie Brown, Associate Director
Toxics and Pesticides Enforcement Division
Robert Kaplan, Director
Special Litigation and Projects Division
Susan O'Keefe, Associate Director
Special Litigation and Projects Division
Bruce Gelber, Chief
Environmental Enforcement Section
US Department of Justice
Karen Dworkin, Assistant Chief
Environmental Enforcement Section
US Department of Justice
-------
13
-------
\ UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
| WASHINGTON, D.C. 20460
MAR 21 2005
OFFICE Of
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Reminder That Waiver is Required for Supplemental Environmental Projects Not
Meeting All Conditions of SEP Policy
FROM Walker B. Smith, Director \$P
Office of Civil Enforcement
TO Regional Counsel, I-X
Enforcement Division Director, I-X
Division Directors, OCE
The purpose of this memorandum is to remind Headquarters and Regional enforcement
staff that if they want to receive SEP credit at the end of the fiscal year for a project, absent a
waiver, the project must meet the conditions of the May 1998 SEP policy. Enforcement staff
must include information in the Agency's enforcement case file that shows the project meets the
SEP Policy, and document how the final penalty amount meets the minimum penalty
requirements of the SEP Policy.
If a project does not meet the conditions of the SEP Policy and a Region or Headquarters
wants to claim SEP credit for that project, the Region or Headquarters division managing the
case must obtain a waiver of such SEP Policy conditions. The waiver must be approved by the
Assistant Administrator of OECA prior to the settlement being finalized. The most common
instances in which a waiver is required are 1) when the settlement does not comport with the SEP
Policy's minimum civil penalty requirements1 (the greater of 25% gravity or 10% gravity plus
economic benefit); and 2) when the mitigation credit for the SEP exceeds the maxmwm
allowable amount (generally 80%).2 In no event can the nexus requirement of the SEP Policy be
1 For example, in the event of a global settlement, such as those negotiated for refineries
and utility cases, strict adherence to the SEP Policy's minimum penalty amounts may not be
feasible.
2 In addition, enforcement staff are reminded that, as a condition of the SEP Policy,
projects £m* into the "Compliance Promotion" or "Other" SEP categories must receive prior
-------
waived. If a project does not satisfy the SEP Policy conditions and a waiver of the SEP Policy
has not been granted by the AA/OECA, the project should be entered as injunctive relief for end-
of-year reporting purposes.
Should you have any questions on this matter, or the SEP Policy in general, please
contact the Headquarters SEP Policy contacts, Beth Cavalier (202-564-3271) or Melissa Raack
(202-564-7039). For questions about SEPs arising in federal facility cases, please contact
Melanie Garvey (202-564-2579). For questions about SEPs arising in site remediation cases
(e.g., ones arising under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) or Section 3008(h) of the Resource Conservation and Recovery Act
(RCRA)), please contact Michael Northridge (202-564-4263).
cc: K. Dworkin, USDOJ
Enforcement Coordinators, I-X
SEP Coordinators, I-X and HQ
M. Stahl, OC
D. Hindin, OC
B. Smidinger, OC
David Kling, FFEO
Bernadette Rappold, FFEO
Susan Bromm, OSRE
Paul Connor, OSRE
HQ approval. See July 21,1998 memorandum, "Revised Approval Procedures for Supplemental
Environmental Projects."
-------
14
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
NOV - 4 2005
OFFICE OF
ENFORCEMENT AND
COMPLIANCE ASSURANCE
MEMORANDUM
SUBJECT: Clean Water Act Municipal Settlements and Supplemental Environmental Projects
(SEPs)
TO: Water Protection/Management Division Directors, Regions I-X
Director, Office of Environmental Stewardship, Region I
Director, Division of Environmental Protection and Planning, Region n
Enforcement and Compliance Assistance Directors, Regions II, VI, and
Water, Wetlands, and Pesticides Division Director, Region VII
Regional Counsels, Regions I-X
Regional Enforcement Coordinators, Regions I-X
NPDES Branch Chiefs, Regions I-X
FROM: Mark Pollins, Director
Water Enforcement Division /
Office of Civil Enforcement
Robert Kaplan, Director
Special Litigation and Projects Division
Office of Civil Enforcement
The purpose of this memorandum is twofold. First, we are providing an explanation of
Footnote 13 of the May 1998 Supplemental Environmental Projects (SEP) Policy, which
addresses the interaction between the February 28, 1995 Revised Interim Clean Water Act
(CWA) Settlement Penalty Policy (CWA Penalty Policy) and the SEP Policy and clarifies when to
use the CWA Penalty Policy instead of the SEP Policy.1 Second, this memorandum will discuss
Federal settlements under the CWA where a State is a co-plaintiff and the State accepts an
environmental project as its share of the settlement.
1 This memorandum supercedes the previously issued "Clarification of Interaction
Between 1995 Clean Water Act Interim Settlement Policy and the 1998 Supplemental
Environmental Project Policy," dated March 22, 2002.
Internet Address (URL), http://wvw.epa.gov
Recyc.edm.cyc.ab.. .Printed with Vegetable Oil B««d .nk, on Recycted Paper (Minimum 50% Postconsumer content)
-------
I. Clarification of Footnote 13 of SEP Policy
Footnote 13 in the 1998 SEP Policy states that "[p]ursuant to the February 1995 Revised
Interim CWA Settlement Policy, section V, a smaller minimum penalty amount may be allowed
for a municipality." This footnote was intended to clarify that, for purposes of settling CWA
cases with municipalities or other public entities (such as a sewer authority), Regional and
Headquarters enforcement staff should follow the CWA Penalty Policy when determining the
appropriate balance between the penalty and any SEPs.
The SEP Policy and the CWA Penalty Policy each provide for minimum penalty amounts
in cases including a SEP. The SEP Policy requires a penalty of at least 25% of the gravity-based
component or 10% of the gravity plus the economic benefit, whichever is greater. The CWA
Penalty Policy has minimum penalty requirements for municipal cases as described below.
In enforcement cases where a municipality has failed to comply with the CWA but is
making a good faith effort to return to compliance, EPA may calculate the penalty using the CWA
Penalty Policy's National Municipal Litigation Consideration (NMLC) tables.2 The NMLC tables
are discretionary in municipal cases. The NMLC tables consider both the gravity-based variables
and economic benefit incurred for violations in municipal cases as well as other factors such as the
size of the municipality. The practical impact of these tables is to substantially reduce the required
penalty in a municipal CWA case.
In addition to the substantial penalty reduction afforded by the NMLC tables, the CWA
Penalty Policy further provides that the "penalty amount established by the tables may be reduced
by up to 40 percent for appropriate supplemental environmental projects."3 This means that, at a
minimum, 60% of the final value calculated using the NMLC tables must be assessed as the
penalty,4 and no more than 40% of the penalty amount provided for by the NMLC tables may be
mitigated by performance of an appropriate SEP.5 The selected project(s) must meet all other
2 CWA Penalty Policy at p. 7-20.
3 CWA Penalty Policy at p. 17.
4 For example, if the NMLC generates a preliminary figure of $1,000,000, the settlement
must include a penalty of at least $600,000. The remaining amount of $400,000 may be mitigated
with SEPs, provided those SEPs comply with EPA's SEP Policy.
5 There may be unique circumstances that necessitate deviating from the 60% minimum
penalty when a particular municipality agrees to conduct a SEP as part of a CWA settlement and
where the NMLC is used to calculate the penalty. In such situations, a waiver of the CWA
Penalty Policy's minimum penalty requirements must be obtained from the Assistant
Administrator for Enforcement and Compliance Assurance. (See SEP Policy at p. 20.)
-------
requirements of the 1998 SEP Policy.6 Where the NMLC tables are not used to calculate the
penalty in a CWA municipal case, the SEP Policy minimum penalty requirements should be
followed.
II. Federal Municipal CWA Settlements Where the State is a Co-Plaintiff
For CWA settlements cases where the state is a co-plaintiff, the state may designate that
its share of the penalty be used in any way permitted under state law. If state law allows penalties
to be applied to certain projects or funds, the state penalty can be so applied and shall conform to
all requirements of the state penalty provisions.
If the state penalty will be applied towards a project or fund, the federal consent decree
should include a description of how the penalty will be used. The term "penalty" should be used
in federal consent decrees for state penalties even when they are dedicated to projects or funds
pursuant to state law. For example:
"Within 60 days after the Date of Entry of this Consent Decree, the City
shall pay a total civil penalty in the amount of $ The City shall pay
the United States $ and make payment of this amount by tendering a
check payable to the "Treasurer, United States of America" and sending it to
. The City shall pay the State a civil penalty of $.
Payment of such penalty shall be paid to X state fund (or other arrangement as
authorized by state law.")
Should you have any questions regarding this matter, please contact Cassandra Rice,
Water Enforcement Division at (202) 564-4057. For questions relating to the SEP Policy in
general, please contact Beth Cavalier, Special Litigation and Projects Division (SLPD) at (202)
564-3271 or Melissa Raack, also of SLPD, at (202) 564-7039.
cc: SEP Regional and HQ Coordinators
Karen Dworkin, DOJ
Susan O'Keefe, SLPD
Beth Cavalier, SLPD
Melissa Raack, SLPD
Cassandra Rice, WED
Susan Lepow, OGC
Richard Witt, OGC
Jim Drummond, OGC
6 CWA Penalty Policy at p. 22.
-------
-------
This document is intended for internal use by EPA employees only, and does not create any
rights or privileges in third parties.
SUPPLEMENTAL ENVIRONMENTAL PROJECTS POLICY
FREQUENTLY ASKED QUESTIONS
September 2006
Ql. Is the 1998 SEP Policy still in effect?
A. Yes, the 1998 SEP Policy is still in effect. There have been several supplemental
guidance and implementation memoranda issued since then. These documents
can be found on EPA's SEP web page, www.epa.gov/compliance/civil/seps/. and
can be found in the SEP User's Guide. The SEP User's Guide is a helpful
resource tool that includes each of the above documents, as well as a short
summary of each document.
Q2. What is nexus? Why is a nexus required and can the nexus
requirement be waived?
A. Nexus refers to the connection or link between the violations) being enforced and
the proposed project. The requirement for nexus cannot be waived. Nexus
provides the basis for the Agency's exercise of enforcement discretion in taking
the SEP into account as a mitigating factor when determining the appropriate
penalty that the Agency will agree to as part of an overall settlement. (See Tab 5,
Importance of the Nexus Requirement in the Supplemental Environmental
Projects Policy.}
Q3. To what extent are SEPs acceptable where they address a different medium from
that in which the violation occurred, or address a pollutant different from the
pollutant subject to the violation at issue?
A. Where an appropriate nexus can be established, SEPs may be acceptable where
they address a medium different from that in which the violation occurred, or
address a different pollutant. Examples of how nexus may be established in such
instances include, but are not limited to: (1) where the SEP addresses adverse
impacts to environmental media that are related to the underlying violation
occurring in another medium (e.g., where Clean Air Act violations contributed to
water quality or aquatic ecosystem impacts through deposition in the water and
-------
the SEP is designed to address those water quality or aquatic ecosystem impacts);
and (2) where the pollutants) addressed by the SEP and the pollutants involved hi
the violation both contribute to the same adverse health impacts (e.g., two air
pollutants that both contribute to childhood asthma).
Q4. In settlements with state co-plaintiffs, where both sovereigns recover a civil
penalty, must the U.S. penalty, after mitigation for a SEP, by itself reflect the
minimum penalty requirements of the SEP Policy?
A. No. It is sufficient that the entire civil penalty collected by both sovereigns
together meets the minimum penalty requirements of the SEP Policy. This is true
even if the Consent Decree directs the state penalty to a state fund other than the
state Treasury or provides that it be used for a project (provided these are
permissible alternatives under state law). The important factor is that the total
amount identified in the settlement agreement as a civil penalty equal or exceed
the minimum amounts required under the SEP Policy.
It follows that if the state mitigates its portion of the civil penalty with a state
SEP, then only the amount that is a civil penalty can be considered in determining
whether the total federal/state penalty meets the minimum requirements in the
SEP Policy. SEPs are not penalties, and the amount to be expended on a federal
or state SEP must not be counted in determining whether the minimum penalty
amount has been met.
If the total does not meet the minimum penalty amount required by the SEP
Policy, then a waiver of this requirement of the SEP Policy must be sought from
the Assistant Administrator, Office of Enforcement and Compliance Assurance.
(See Tab 13, Reminder That Waiver is Required for Supplemental Environmental
Projects Not Meeting All Conditions of SEP Policy.)
Q5. The SEP Policy provides that "[a] project may not provide a federal grantee -with
additional funds to perform a specific task identified within an assistance
agreement." (See Tab 1, EPA Supplemental Environmental Projects Policy, page
7.) EPA and other federal agencies receive a significant amount of funding for,
and have in place a number of grant programs. How can we ensure that a SEP
does not run afoul of this prohibition?
-------
A. EPA staff must ensure that a SEP is not the same project as that being done by a
party under a federal grant. This may be done by reviewing the Request for
Proposal of the grant to determine its purpose and scope, reviewing the grant
application that was filed by the grantee to determine precisely what work is being
done, and/or consulting with the program office responsible for administering the
federal grant program. While the SEP Policy precludes a SEP that provides a
grantee with additional resources to perform a specific task identified within an
assistance agreement, the SEP Policy does not preclude all SEPs related to a
program for which EPA has provided some grant funding. On the other hand,
EPA staff must still ensure that the project does not run afoul of any other
restriction designed to prevent augmentation of appropriations.
Q6. Can a defendant/respondent use a third party to develop and/or
implement a SEP?
A. Yes, a defendant/respondent can retain a third party to develop and/or implement
a SEP. The defendant/respondent, however, must remain responsible for the
satisfactory completion of the SEP. At a minimum, the defendant/respondent
must submit a SEP completion report and, if the SEP is not completed as
anticipated in the settlement, must pay stipulated penalties. (See Tab 11,
Guidance Concerning the Use of Third Parties in the Performance of SEPs and
the Aggregation of SEP Funds.)
Q7. Can a defendant/respondent perform a SEP by giving funds to someone else
a state agency or charity) and let that entity perform the environmental project?
A. No. A defendant/respondent cannot make a charitable contribution to someone
else to satisfy its obligation under a SEP. See Question 8-conceming use of a
third party for further guidance. (See also Tab 11, Guidance Concerning the Use
of Third Parties in the Performance of SEPs and the Aggregation of SEP Funds.)
Q8. Can a defendant/respondent perform a SEP to offset stipulated
penalties?
A. Generally no. However, the SEP Policy's Footnote 1 states that, hi extraordinary
circumstances, the Assistant Administrator of OECA may grant an
exception, where the circumstances can meet the three conditions in Footnote 1.
(See Tab 1, EPA Supplemental Environmental Projects Policy, page 1.)
-------
Q9. Do I need to get approval for SEPs?
A. Two categories of projects require approval from OECA. These projects are
"Compliance Promotion" SEPs and "Other" SEPs. These types of projects need
approval from the appropriate office in OECA that corresponds to the violation at
issue, i.e., a RCRA compliance promotion SEP needs to be approved by the OCE
RCRA Enforcement Division Director. For cases involving federal facilities or
site remediation, the Director, Federal Facilities Enforcement Office (FFEO) and
the Director, Office of Site Remediation Enforcement (OSRE) have the authority
to approve compliance promotion SEPs and SEPs falling into the "Other"
category respectively. (See Tab 2, Revised Approval Procedures for
Supplemental Environmental Projects.)
Q10. Is there a SEP Library? Where can I go for project ideas?
A. EPA does not have a central SEP library. However, ideas for projects can be
obtained in several ways. First, there is a list of general project ideas on the SEP
policy and guidance webpage at
http://cfpub.epa.gov/compliance/resources/poUcies/civil/seps/. Second, we now
have access through the Enforcement Compliance History Online system (ECHO)
to SEPs that have been part of enforcement settlements. Enforcement staff can
search through ECHO to find SEPs by simply entering information such as,
project type, dates, or dollar amounts into a search screen. This system is
accessible on the web at www.epa.gov/echo. In addition, some Regional offices
have developed SEP libraries.
Ql 1. Can a SEP be profitable to a defendant/respondent?
A. Projects that are profitable within the first five years (or within the first three years
if the defendant/respondent is a small business) are never acceptable. Projects
that are profitable between five and fifteen years must be scrutinized based on a
number of considerations set forth in EPA guidance. (See Tab 10, Guidance for
Determining Whether a Project is Profitable and When to Accept Profitable
Projects as Supplemental Environmental Projects, and How to Value Such
Projects.)
Q12. Can a defendant/respondent perform and implement an Environmental
Management System (EMS) as a SEP?
-------
When the defendant/respondent is a small business, non-profit, or state entity, an
EMS may be acceptable as a SEP. However, EMSs as SEPs are generally not
allowable for large businesses and prior Headquarters approval is required. (See
Tab 8, Guidance on the Use of Environmental Management Systems in
Enforcement Settlements as Injunctive Relief and Supplemental Environmental
Projects.)
Q13. Can a Federal facility perform and implement an Environmental Management
System (EMS) as a SEP?
A. "Appropriate federal facilities" are required by Executive Order to develop EMSs.
Consequently, in considering an EMS as a SEP in resolution of a penalty action
against a federal facility, EPA Regions should remain mindful of the fundamental
SEP principle that SEPs must go beyond what is otherwise required and should
consult closely with FFEO.
Ql 4. Can a private sector defendant/respondent perform a SEP that involves satisfying
an environmental obligation of a federal agency at a facility currently owned or
operated by the Federal Government?
A. No. Section C. 5.a. of the April 10,1998 SEP policy precludes SEPs that will be
used to satisfy a federal agency's statutory obligation to perform a particular
activity.
Ql 5. May settlement agreements allow for dispute resolution of any SEP issues?
A. The 1998 SEP Policy discouraged dispute resolution for any issues relating to
SEPs. However, OECA, in consultation with DOJ, has determined that dispute
resolution is allowable in two instances only: (1) satisfactory performance of the
SEP, and (2) determination of eligible costs.
Q16. Does a SEP have to be performed within a 50 mile radius of the site of the
violation?
A. Not necessarily. The SEP Policy includes Footnote 5 in the discussion of Legal
Guidelines, specifically the nexus requirement. This footnote states that "[t]he
immediate geographic area will generally be the area within a 50 mile radius of
the site on which the violations occurred. Ecosystem or geographic proximity is
not by itself a sufficient basis for nexus; a project must always satisfy
5
-------
subparagraph a, b, or c in the definition of nexus. In some cases, a project may be
performed at a facility or site not owned by the defendant/respondent."
While SEPs which benefit the community impacted or potentially impacted by the
violation are preferred, there may be cases in which a SEP may be performed at a
distance greater than a 50 mile radius. If a project meets all conditions of the SEP
. Policy, including the nexus requirement, such a project can be performed as a
SEP. For example: a violator has had an oil spill into a particular stream.
Cleanup of the spill and other remedial actions are taken as part of the injunctive
relief. At some distance from the site of the violation (e.g., more than 50 miles),
the stream has suffered from severe degradation of the shoreline and the violator
proposes restoration activities including stabilization of the streambank, removal
of invasive species and revegetation with native species. This may be an
acceptable SEP.
Q17. Are the costs associated with implementation of a SEP tax deductible? Should
defendants/respondents be required to certify that they will not deduct the costs
associated with a SEP?
A. Although the Internal Revenue Service has indicated that it believes certain SEP
costs may be non-deductible, it has not issued official guidance on the
deducibility of SEP costs.
In any event, it is inappropriate for EPA to give tax advice. Therefore, in
determining the value of the SEP using EPA's PROJECT model, the
defendant/respondent should be asked whether it intends to deduct SEP costs.
The PROJECT model will generate a higher value for a project where the project
has been flagged as non-deductible. It is recommended that, when a
defendant/respondent states that it does not intend to deduct the cost of the SEP,
language to that effect should be included in the consent decree or consent
agreement.
Q18. Can SEPs fulfill a third party's legal obligation?
A. While the SEP Policy does not directly address this issue, it is generally
inappropriate for a SEP to be used to meet the legal obligations of a third party.
The purpose of the SEP Policy is to "encourage and obtain environmental and
public health protection and improvements that may not otherwise have occurred
without the settlement incentives provided by this Policy." (See Tab 1, EPA
Supplemental Environmental Projects Policy, page 1.) Where EPA could obtain
the same protections and improvements by pursuing the responsible party, this
-------
purpose is not being served. Any exceptions to this limitation must be obtained in
advance from the Director of the Office of Civil Enforcement, Office of
Enforcement and Compliance Assurance, and in cases involving federal facilities
or site remediation, the Director, FFEO and the Director, OSRE, respectively
Q19. Can a defendant/respondent begin implementing a SEP before the settlement
becomes a final order? May EPA agree to a SEP that a defendant/respondent
began before the government agreed to accept the project as a SEP?
A. Sometimes, after the parties reach agreement on a SEP, there is a significant time
between that agreement and issuance of a final order. This could occur for
various reasons, including delays in negotiating other aspects of the agreement, or
in obtaining final court or administrative approval. Defendants/respondents
sometimes ask to start the SEP before the agreement becomes final. Allowing a
defendant/respondent to begin implementing a SEP prior to the final order being
issued is generally disfavored for a variety of reasons, including that it may take
away an incentive to conclude the agreement, and in cases subject to public
comment, it could create the misimpression that the government would not revisit
the appropriateness of the SEP in light of public comment. However, there may
be unique circumstances which make it necessary for a defendant/respondent to
begin implementation early. In such cases, prior approval should be sought from
Headquarters (and DOJ in judicial cases). In cases where it is allowed, it must be
made clear to the defendant/respondent that defendant/respondent begins
implementation at its own risk, as the SEP may be contested during public
comment or disallowed by the court or judicial officer.
EPA is also sometimes asked to agree to accept as a SEP a project that a
defendant/respondent began after being notified of the violation but before the
government agreed to the project as a SEP. This is generally not appropriate. The
SEP Policy requires that EPA have the opportunity to help shape the scope of the
project. This will rarely be the case with projects begun before the parties agreed
on the project as a SEP. In addition, the SEP Policy provides that the primary
purpose of the policy is to obtain environmental or public health benefits that may
not have occurred "but for" the settlement. Where a defendant/respondent begins
a project before there is any agreement by the government to accept that project as
a SEP, it is likely that the project will not meet this purpose.
-------
B
-------
July 2002
Quick Guide to Using the Project Model
There are two main data entry screens that will require input. The first screen asks general
information such as case name, Region, analyst (see Attachment A).
The following additional information is required as well:
Entity Type - Usually a C-Corporation (filing IRS Form 1120 or Form 1120 A) -
PROJECT defaults to this, however could also be Not-for-Profit or For Profit Other Than
C- Corporation. Not for profit entities would include governmental entities, universities,
not for profit hospitals, etc. For Profit Other Than C-Corporation covers S-Corporations
(filing IRS Form 1120-S), Partnerships (filing IRS Form 1065) and Individuals (filing
IRS Forms 1040, 1040 A and 1040 EZ). This last category is for entities that pay taxes
at individual rates. Even though they are businesses and their income is reported on their
corporate/partnership return, their incomes are taxed at individual rates.)
State - this is the state in which the violating facility is located, not necessarily the state
in which they are incorporated. Selecting the state will bring up the appropriate tax
rates.
Taxes - PROJECT has state-specific tax rates built in. Select the appropriate state and
the tax rates are filled in for you. If a SEP involves multiple states, you may select AVG
in place of a specific state. AVG gives an average of all state tax rates
If you believe that you have information supporting the use of tax rates different from
that supplied by PROJECT, please contact the enforcement economics toll free hotline
for assistance - 888-326-6778.
Penalty Payment Date - This is the date when the violator actually hands over the
check, not necessarily the date of the settlement.
After you have filled in the general information, you will need to create a New Run. A "run" is
the analysis that PROJECT will do for you. Give your "run" a name and type it in the field titled
"New Run." Click on Add.
Highlight your run and click Enter/Edit. This will bring up the Run Input Screen. (See
attachment B) You will be asked to input the following data:
Capital Investment - includes depreciable investments necessary to implement the SEP.
This category includes items that wear out such as buildings, equipment, and other long-
lived assests..
•Note: LAND IS NOT A DEPRECIABLE CAPITAL INVESTMENT.
-------
One time, Nondepreciable Expenditures - includes any one-time costs necessary to
implement the SEP that do not involve capital expenditures. Such costs could be for
materials or labor needed to start up the project, for purchasing land, or for engineering,
financial or other services that are purchased as part of the project. Examples of
one-time nondepreciable costs associated with SEFs include developing a training
program, disposing of hazardous materials, dredging a stream, conducting a pollution
prevention assessment and purchasing or restoring a wetland. If such expenditures must
occur over time and regularly, rather than as a one-time instance, then input these costs
instead as an annual recurring cost. (For example, if the project involves dredging a
stream for four years at $100,000 a year, your entry would be $100,000 as an annual
recurring cost.)
NOTE: IRS considers the labor and material costs associated with the
construction or installation of a capital investment to be capital costs, not one
time depreciable costs.
Tax Deductible - PROJECT assumes that the cost of the SEP will be deducted by the
Respondent/Defendant. Unless the Respondent/Defendant is willing to certify that they
will NOT deduct the SEP, this box should be checked.
* NOTE: Regarding land purchases - if the one time expense is for a land
purchase, the tax deductible box should be unchecked. The reason for this is
that the IRS does not allow any deductions for the cost of land.
Annually Recurring Costs - includes costs associated with the on-going implementation
of the SEP. This includes items such as labor, power, raw materials, supplies, waste
disposal, lease payments, and property taxes. It DOES NOT include annualized capital
recovery, interest payments, or depreciation.
*NOTE That Annual Cost may be a negative number to reflect net cost savings
associated with the implementation of the project.
Cost Estimate Dates - all costs require the entry of an estimate date. This is the date on
which the SEP estimate is based. If you know the exact date (provided by the
respondent/defendant in a memo or email, or in a phone call) you should enter that date.
If you only know that the estimate was made in a particular month, use the first day of
that month.
Inflation Rate - PROJECT will put this in for you. For a detailed discussion, see the
PROJECT User's Manual. If you feel you want to use a rate different from the
PROJECT default value, please contact the hotline at 888-326-6778.
Number of Credited Years - This should correspond to the number of years that the
respondent/defendant is legally required to operate the project.
* NOTE THAT FOR PROJECTS WITH A NEGATIVE ANNUAL OPERATING
EXPENSE FIGURE, A SLIGHTLY DIFFERENT PROCEDURE MAY APPLY IN
THE FUTURE.
-------
Project Operation Date - This is the date on which the project will begin operation -
generally when all capital investments and one-time expenses have been incurred. If the
SEP involves only annual expenses (or the vast majority of the expenses are annual) then
you should use the date the defendant begins incurring the annual expenses as the Project
Operation Date.
Discount Rate - again, this is calculated by PROJECT. If you have questions or want to
use a different rate, please contact the hotline at 888-326-6778.
Getting the Result; Once you have finished entering the data, click on OK. Highlight your run and click
on Calculate. PROJECT will provide a summary sheet of the calculations and the final result, (see
attachment C)
PROJECT RESULTS - The value that results from a PROJECT run is a reasonable estimate of
the net present after-tax cost of the proposed SEP. It is this figure that should be used as the value
of the proposed SEP, and it is from this figure that penalty mitigation consideration should be
applied. A negative PROJECT result indicates that the proposed SEP will be profitable to the
defendant. Should this result occur, please contact HQ for further guidance.
QUESTIONS: For questions about PROJECT, using PROJECT, or PROJECT results please use the help
system in model by typing the Fl key or accessing the Help menu at the top of the screen. If that is
insufficient, please contact the enforcement economics hotline at 888-326-6778, Jonathan Libber at 202-
564-6102. Melissa Raack at 202-564-7039 or Beth Cavalier at 202-564-3271.
-------
-------
EC-G-2002-150
MODEL SEP CAFO
Explanatory text is indicated in bracketed italics type, preceded by the word Note. Placeholder text
in which fact specific information should be inserted is indicated in bracketed bold text.
January 1999
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION _
BEFORE THE ADMINISTRATOR
In the Matter of
[Respondent's Name]
[Respondent's Address]
Respondent.
Docket No.
CONSENT AGREEMENT AND ORDER
1 Complainant, the United States Environmental Protection Agency ("EPA"), having filed
2 the Complaint herein on [date] against Respondent [Respondent's Name]; and
3 Complainant and Respondent having agreed that settlement of this matter is in the public
4 interest, and that entry of this Consent Agreement and Order without further litigation is the most
5 appropriate means of resolving this matter;
6 NOW, THEREFORE, before the taking of any testimony, upon the pleadings, without
7 adjudication of any issue of feet or law, and upon consent and agreement of the Parties, it is
8 hereby Ordered and Adjudged as follows:
9 I. PRELIMINARY STATEMENT
10 1. EPA initiated this proceeding for the assessment of a civil penalty, pursuant to
11 [statute and regulations].
12 2. The Complaint alleges that Respondent [describe conduct] in violation of [relevant
13 legal requirements].
14 3. Respondent filed an Answer and requested a hearing pursuant to [statute and
15 regulations].
16 4 This Consent Agreement and Order shall apply to and be binding upon Respondent, its
17 officers, directors, employees, successors and assigns, including, but not limited to, subsequent
18 purchasers.
! 9 5 Respondent stipulates that EPA has jurisdiction over the subject matter alleged in the
20 Complaint and that the Complaint states a claim upon which relief can be granted against,
21 Respondent. Respondent waives anv defenses it might have as to jurisdiction and venue, and,
-------
1 without admitting or denying the factual allegations contained in the Complaint, consents to the
2 terms of this Consent Agreement and Order.
3 6. Respondent hereby waives its right to a judicial or administrative hearing or appeal on
4 any issue of law or fact set forth in the Complaint.
5 II. TERMS OF SETTLEMENT
6 7. Pursuant to § of [statute], the nature of the violations, Respondent's agreement to
7 perform a Supplemental Environmental Project (SEP) and other relevant factors, EPA has
8 determined that an appropriate civil penalty to settle this action is in the amount of
9 [ dollars ($ )].
10 [Note: In order to avoid conflicts with the Miscellaneous Receipts Act, the civil
11 penalty provisions must be drafted separately from the provisions for
12 implementation of the SEP.]
13 8. Respondent consents to the issuance of this Consent Agreement and consents for the
14 purposes of settlement to the payment of the civil penalty cited in the foregoing paragraph and to
15 the performance of the Supplemental Environmental Project.
16 [Note: Remember that the Respondent must consent to the issuance of the Final
17 Order and the performance of the SEP]
18 9. Not more than thirty (30) days after the date of issuance of the executed Consent Order
19 signed by the EPA Regional Administrator, Region _, Respondent shall submit a cashier's or
2 0 certified check, payable to the order of the "Treasurer, United States of America," in the amount
21 of [ dollars ($ )], to:
22 EPA-Region
2 3 P.O. Lock Box
24 [address]
2 5 Respondent shall provide a copy of the check to:
2 6 Regional Hearing Clerk
27 [Regional Address] and
2 8 [Attorney Name and Address]
2 9 The check shall bear the case docket number. Interest and late charges shall be paid as specified
30 in Paragraph 21 herein.
31 10. The penalty specified in Paragraph 7, above, shall represent civil penalties assessed
32 by EPA and shall not be deductible for purposes of Federal taxes.
33 11. [Description of the SEP]
34 a. Respondent shall complete the following supplemental environmental project
3 5 ("SEP"), which the parties agree is intended to secure significant environmental or public health
36 protection and improvements. Not more than (30) days after receiving a copy of this Consent
3 7 Agreement signed by the Regional Administrator, Respondent shall [brief description of SEP].
38 b. Respondent shall complete the SEP as follows: [Identify key components of the
3 9 SEP]. The SEP is more specifically described in the scope of work (hereinafter, the "Scope of
4 0 Work"), attached hereto as Exhibit A and incorporated herein by reference.
MODEL SEP CAFO ~~ " " page 2
-------
1 [Note: a milestone schedule may be appropriate if implementation will take
2 longer than 6 months].
3 [Note: Ensure that the description of the project to be performed is clear,
4 complete and specific. Almost all the details of the project should be set forth in
5 the CAFO or scope of work; negotiations over the type and scope of the SEP
6 must be completed prior to fmalization of the CAFO.]
1 [If applicable] 12. [New chemical not more toxic than eliminated chemical]
8 Respondent anticipates that the facility will use [new chemical] as a substitute for [eliminated
9 chemical] in the new systems constituting the SEP. In no event, however, shall any substitute
10 chemical be used in connection with the SEP which is more toxic or hazardous than [eliminated
11 chemical], as such characteristics are described on the material safety data sheet (MSDS) for
12 [new chemical] attached hereto as Exhibit B.]
13 13. [Cost of SEP] The total expenditure for the SEP shall be not less than ]e.g., $x to
14 purchase the equipment and $y to operate the equipment each year for z years], in
15 accordance with the specifications set forth in the Scope of Work. Respondent shall include
16 documentation of the expenditures made in connection with the SEP as part of the SEP
17 Completion Report.
18 14. [Certifications that SEP is not otherwise required] Respondent hereby certifies
19 that, as of the date of this Consent Agreement, Respondent is not required to perform or develop
20 the SEP by any federal, state or local law or regulation; nor is Respondent required to perform or
21 develop the SEP by any other agreement, grant or as injunctive relief in this or any other case.
22 Respondent further certifies that it has not received, and is not presently negotiating to receive,
23 credit in any other enforcement action for the SEP.
24 [Note: This language emphasizes that the SEP is not required by any other law
25 (federal, state or local); nor is it required by any other agreement, grant or as
26 injunctive relief in the instant or any other case. In addition, the language
2 7 precludes Respondent from attempting to obtain double credit for the same
28 project. Also, Respondent cannot be allowed to "bank"projects (i.e., Respondent
2 9 js not to be given credit for projects it has already commenced or completed in
30 advance of the enforcement action by EPA.)]
31 15. [SEP Reports]
32 a SEP Completion Report Respondent shall submit a SEP Completion Report to
33 EPA by [ date]. The SEP (Completion) Report shall contain the following information:
34 (i) A detailed description of the SEP as implemented;
3 5 (ii) A description of any operating problems encountered and the solutions thereto;
36 (iii) Itemized costs; . .
37 (iv) Certification that the SEP has been fully implemented pursuant to the provisions
33 of this Consent Agreement and Order; and
3 9 (v) A description of the environmental and public health benefits resulting from
40 implementation of the SEP (with a quantification of the benefits and pollutant
HI reductions, if feasible).
MODEL SEP CAFO pagC
-------
1
1 b. Periodic Reports Respondent shall submit any additional reports required by the
2 Scope of Work to EPA in accordance with the schedule and requirements recited therein. (Note:
3 For any SEP where implementation is expected to exceed one year, EPA should require
4 submission of periodic reports by Respondent).
5 c. Respondent agrees that failure to submit the SEP Completion Report or any
6 Periodic Report required by subsections a) and b) above shall be deemed a violation of this
7 Consent Agreement and Order and Respondent shall become liable for stipulated penalties
8 pursuant to paragraph 20 below.
9 d. Respondent shall submit all notices and reports required by this Consent Agreement
10 and Order to [specify name and address] by first class mail.
11 e. In itemizing its costs in the SEP completion report, Respondent shall clearly
2 identify and provide acceptable documentation for all eligible SEP costs. Where the SEP
13 completion report includes costs not eligible for SEP credit, those costs must be clearly identified
14 as such. For purposes of this Paragraph, "acceptable documentation" includes invoices,
15 purchase orders, or other documentation that specifically identifies and itemizes the individual
16 costs of the goods and/or services for which payment is being made. Canceled drafts do not
17 constitute acceptable documentation unless such drafts specifically identify and itemize the
18 individual costs of the goods and/or services for which payment is being made.
19 [If applicable] 16. [EPA right to inspect] Respondent agrees that EPA may inspect the
2 0 facility at any time in order to confirm that the SEP is being undertaken in conformity with the
21 representations made herein.
22 [Note: Consistent with the provisions below for Failure to Complete SEP and
2 3 EPA To Judge Achievement of SEP, this language provides vehicle for EPA to
2 4 exercise its discretion in determining if SEP has been completed satisfactorily and
2 5 whether stipulated penalties should be assessed.]
2 6 [If applicable:] 17. [Respondent must use SEP] Respondent shall continuously use or
2 7 operate the systems installed as the SEP for not less than [number] year(s) subsequent to
2 8 installation, and Respondent shall not reinstate the use of [eliminated chemical] at any time.
29 18. [Document retention and certification] Respondent shall maintain legible copies
30 of documentation of the underlying research and data for any and all documents or reports
31 submitted to EPA pursuant to this Consent Agreement and shall provide the documentation of
32 any such underlying research and data to EPA not more than seven days after a request for such
33 information. In all documents or reports, including, without limitation, any SEP reports,
34 submitted to EPA pursuant to this Consent Agreement, Respondent shall, by its officers, sign and
35 certify under penalty of law that the information contained in such document or report is true,
36 accurate, and not misleading by signing the following statement:
3 7 I certify under penalty of law that I have examined and am familiar with
38 the information submitted in this document and all attachments and that, based on
3 9 my inquiry of those individuals immediately responsible for obtaining the
4 0 information, I believe that the information is true, accurate, and complete. I am
MODEL SEP CAFO page 4
-------
1 aware that there are significant penalties for submitting false information,
2 including the possibility of fines and imprisonment.
3 19. [EPA acceptance of SEP Report]
4 a. After receipt of the SEP Completion Report described in paragraph 15.a above,
5 EPA will notify the Respondent, in writing, regarding: i) any deficiencies in the SEP Report itself
6 along with a grant of an additional thirty (30) days for Respondent to correct any deficiencies; or
7 (ii) indicate that EPA concludes that the project has been completed satisfactorily or (iii)
8 determine that the project has not been completed satisfactorily and seek stipulated penalties in
9 accordance with paragraph 20 herein.
10 b. If EPA elects to exercise option (i) above, i.e., if the SEP Report is determined to
11 be deficient but EPA has not yet made a final determination about the adequacy of SEP
12 completion itself, EPA shall permit Respondent the opportunity to object in writing to the
13 notification of deficiency given pursuant to this paragraph within ten (10) days of receipt of such
14 notification. EPA and Respondent shall have an additional thirty (30) days from the receipt by
15 EPA of the notification of objection to reach agreement on changes necessary to the SEP Report.
16 If agreement cannot be reached on any such issue within this thirty (30) day period, EPA shall
17 provide a written statement of its decision on adequacy of the completion of the SEP to
18 Respondent, which decision shall be final and binding upon Respondent. Respondent agrees to
19 comply with any requirements imposed by EPA as a result of any failure to comply with the
20 terms of this Consent Agreement and Order. In the event the SEP is not completed as
21 contemplated herein, as determined by EPA, stipulated penalties shall be due and payable by
22 Respondent to EPA in accordance with paragraph 20 herein.
23 20. [Stipulated Penalties for Failure to Complete SEP/Failure to spend agreed-on
24 amount]
25 a. In the event that Respondent fails to comply with any of the terms or provisions of
2 6 this Agreement relating to the performance of the SEP described in paragraph 11 above and/or to
27 the extent that the actual expenditures for the SEP do not equal or exceed the cost of the SEP
28 described in paragraph 13 above, Respondent shall be liable for stipulated penalties according to
29 the provisions set forth below:
30 (i) Except as provided in subparagraph (ii) immediately below, for a SEP which has
31 not been completed satisfactorily pursuant to this Consent Agreement and Order,
32 Respondent shall pay a stipulated penalty to the United States in the amount of $ [ EPA
33 to set a number 75 - 150 percent of the amount by which the settlement penalty was
34 mitigated on account of the SEP].
3 5 (ii) if the SEP is not completed in accordance with paragraphs [X-Y], but the
3 6 Complainant determines that the Respondent: a) made good faith and timely efforts to
37 complete the project; and b) certifies, with supporting documentation, that at least 90
3 8 percent of the amount of money which was required to be spent was expended on the
3 9 SEP, Respondent shall not be liable for any stipulated penalty.
4 o (jii)' if the SEP is completed in accordance with paragraphs [X-Y], but the Respondent
41 Spent less than 90 percent of the amount of money required to be spent for the project,
42 Respondent shall pay a stipulated penalty to the United States in the amount of $ [10 - 25
MODEL SEP CAFO page 5
-------
l percent of the amount by which the settlement penalty was mitigated on account of
2 the SEP].
3 (iv) If the SEP is completed in accordance with paragraphs [X-Y], and the Respondent
4 spent at least 90 percent of the amount of money required to be spent for the project,
5 Respondent shall not be liable for any stipulated penalty.
6 (v) For failure to submit the SEP Completion Report required by paragraph 15 (a)
7 above, Respondent shall pay a stipulated penalty in the amount of $ [amount] for each
8 day after [date in paragraph 15] until the report is submitted.
9 (vi) For failure to submit any other report required by paragraph 15(b) above,
10 Respondent shall pay a stipulated penalty in the amount of $[amount] for each day after
11 the report was originally due until the report is submitted.
12 b. The determinations of whether the SEP has been satisfactorily completed and
13 whether the Respondent has made a good faith, timely effort to implement the SEP shall be in the
14 sole discretion of EPA.
15 c. Stipulated penalties for subparagraphs (v) and (vi) above shall begin to accrue on
16 the day after performance is due, and shall continue to accrue through the final day of the
17 completion of the activity.
18 d. Respondent shall pay stipulated penalties not more than fifteen (15) days after
19 receipt of written demand by EPA for such penalties. Method of payment shall be in accordance
2 0 with the provisions of paragraph 9 above. Interest and late charges shall be paid as stated in
21 paragraph 21 herein.
22 e. Nothing in this agreement shall be construed as prohibiting, altering or in any way
23 limiting the ability of EPA to seek any other remedies or sanctions available by virtue of
2 4 Respondent's violation of this agreement or of the statutes and regulations upon which this
2 5 agreement is based, or for Respondent's violation of any applicable provision of law.
26 [Note: Language included for payment of an additional penalty for non-completion of
21 SEP or failure to expend amount of funds committed to in Consent Agreement must not
28 appear to give EPA a choice between: 1) collection of an additional penalty; or 2)
2 9 additional SEP expenditures by Respondent. Such a provision might appear to give EPA
3 0 control or discretion over the use of penalty dollars. Unlike a SEP, all assessed penalty
31 dollars must be deposited in the Treasury.]
32 21. Payment Provisions Pursuant to 31 U.S.C. § 3717, EPA is entitled to assess
33 interest and penalties on debts owed to the United States and a charge to cover the cost of
34 processing and handling a delinquent claim. Interest will therefore begin to accrue on a civil or
35 stipulated penalty if it is not paid by the last date required. Interest will be assessed at the rate of
36 the United States Treasury tax and loan rate in accordance with 4 C.F.R. § 102.13(c). A charge
37 will be assessed to cover the costs of debt collection, including processing and handling costs and
3 8 attorneys fees. In addition, a non-payment penalty charge of six (6) percent per year compounded
3 9 annually will be assessed on any portion of the debt which remains delinquent more than ninety
4 0 (90) days after payment is due. Any such non-payment penalty charge on the debt will accrue
41 from the date the penalty payment becomes due and is not paid. 4 C.F.R. §§ 102.13(d) and (e).
4 2 [Note: Penalty and interest provisions and recovery of attorneys fees may vary by
4 3 statute. If appropriate, substitute a statute-specific collection authority in this
MODEL SEP CAFO page 6
-------
1 paragraph. The maximum non-payment penalty charge is six (6) percent unless a
2 statute specifically provides otherwise.]
3 22. [Public statements must acknowledge enforcement action] Any public statement,
4 oral or written, in print, film, or other media, made by Respondent making reference to the SEP
5 shall include the following language, "This project was undertaken in connection with the
6 settlement of an enforcement action taken by the U.S. Environmental Protection Agency for
7 violations of [citation to legal requirements violated]."
8 23. [No relief from compliance; no endorsement by EPA] This Consent Agreement
9 and Order shall not relieve Respondent of its obligation to comply with all applicable provisions
10 of federal, state or local law, nor shall it be construed to be a ruling on, or determination of, any
11 issue related to any federal, state or local permit, nor shall it be construed to constitute EPA
12 approval of the equipment or technology installed by Respondent in connection with the SEP
13 undertaken pursuant to this Agreement.
14 24. [Force Majeure—if appropriate and requested by Respondent]
15 a. If any event occurs which causes or may cause delays in the completion of the
16 SEP as required under this Agreement, Respondent shall notify Complainant in writing not more
17 than 10 days after the delay or Respondent's knowledge of the anticipated delay, whichever is
18 earlier. The notice shall describe in detail the anticipated length of the delay, the precise cause or
19 causes of the delay, the measures taken and to be taken by Respondent to prevent or minimize the
20 delay, and the timetable by which those measures will be implemented. The Respondent shall
21 adopt all reasonable measures to avoid or minimize any such delay. Failure by Respondent to
22 comply with the notice requirements of this paragraph shall render this paragraph void and of no
2 3 effect as to the particular incident involved and constitute a waiver of the Respondent's right to
2 4 request an extension of its obligation under this Agreement based on such incident.
25 b. If the parties agree that the delay or anticipated delay in compliance with this
2 6 Agreement has been or will be caused by circumstances entirely beyond the control of
27 Respondent, the time for performance hereunder may be extended for a period no longer than the
28 delay resulting from such circumstances. In such event, the parties shall stipulate to such
29 extension of time.
30 c in the event that the EPA does not agree that a delay in achieving compliance with
31 the requirements of this Consent Agreement and Order has been or will be caused by
32 circumstances beyond the control of the Respondent, EPA will notify Respondent in writing of
33 its decision and any delays in the completion of the SEP shall not be excused.
34 d The burden of proving that any delay is caused by circumstances entirely beyond the
35 control of the Respondent shall rest with the Respondent. Increased costs or expenses associated
36 with the implementation of actions called for by this Agreement shall not, m any event, be a basis
3 7 for changes in this Agreement or extensions of time under section (b) of this paragraph. Delay in
38 achievement of one interim step shall not necessarily justify or excuse delay in achievement of
39 subsequent steps.
MODEL SEP CAFO pag£
-------
1 25. [If Respondent has agreed that it will not treat the cost of performing the SEP as a
2 business expense to be deducted for purposes of federal taxes, and the tax rate in the PROJECT
3 computer model was thus set at zero, include this paragraph. If not, exclude this paragraph.]
4 Respondent hereby agrees not to claim any funds expended in the performance of the SEP as a
5 deductible business expense for purposes of Federal taxes. In addition, Respondent hereby
6 agrees that, within thirty (30) days of the date it submits its Federal tax reports for the calendar
7 year in which the above-identified SEP is completed, it will submit to EPA [identify EPA
8 official] certification that any funds expended in the performance of the SEP have not been
9 deducted from Federal taxes.
10
11 26. This Consent Agreement and Order constitutes a settlement by EPA of all claims for
12 civil penalties pursuant to [cite statute) for the violations alleged in the Complaint. Nothing in
13 this Consent Agreement and Order is intended to nor shall be construed to operate in any way to
14 resolve any criminal liability of the Respondent. Compliance with this Consent Agreement and
15 Order shall not be a defense to any actions subsequently commenced pursuant to Federal laws
16 and regulations administered by EPA, and it is the responsibility of Respondent to comply with
17 such laws and regulations.
18 27- Each undersigned representative of the parties to this Consent Agreement certifies
19 that he or she is fully authorized by the party represented to enter into the terms and conditions of
2 0 this Consent Agreement and to execute and legally bind that party to it.
2 x 28- Each Party shall bear its own costs and attorneys fees in connection with the action
2 2 resolved by this Consent Agreement and Order.
23
24 For Complainant: For Respondent:
25
26 Director President, Company
27 U.S. Environmental Protection
2 8 Agency, Region
29 Date: Date:
30
31 .Esq.
32 Assistant Regional Counsel [Firm Name]
33 Date: Date:
MODEL SEP CAFO " page g
-------
1 III. ORDER
2 The foregoing Consent Agreement is hereby approved and incorporated by reference into
3 this Order. The Respondent is hereby ordered to comply with the terms of the above Consent
4 Agreement, effective immediately.
Date:
6
7 [Regional Administrator or delegatee]
8 [Title]
9 U.S. Environmental Protection Agency Region
MODEL SEP CAFO page 9
------- |