05/16/95 TUE 15:02 FAX 2025640024
c rr4
WATER/MUNICIPAL BRANCH
/ -J ^ ' i
©001
OPTIONAL FOPlM 99 £7-901
fax transmittal
UNITED STATES Ef*
Depy/Apei
Fa* #
* ol papes ^
^tlOnp f
r.T» £
2.q-L-F&*{-¥c)Zi
SERVES
ADMINISTRATION
OFFCEOf
ENFORCEMEMT AND
COMPLIANCE ASSURANCE
MEMORANDUM
FEB 2 8 1995
SUBJECT: Issuance of Revised Interim Clean Water Act Settlement Penalty Policy
FROM: Steven A.
Assistant Administrator
.JWT
TO: Regional Administrators
Attached is the Agency's new Interim Clean Water Act Settlement Penalty Policy to
be used by EPA in calculating the penalty that the Federal government will generally seek in
settlement of judicial and administrative enforcement actions brought pursuant to section 309
of the Act. This Policy establishes a framework which EPA expects to use in exercising its
enforcement discretion in determining appropriate settlement penalties.
This Policy provides the flexibility necessary to secure appropriate relief in settlement
of cases against municipalities, and supersedes six interpretive guidances issued since the
Clean Water Act Penalty Policy was issued in February, 1986. This Policy also furthers
four important environmental goals. First, penalties should deter noncompliance, and help
protect the environment and public health by deterring future violations by the same violator
and by other members of the regulated community. Second, penalties should help ensure a
level playing field by ensuring that violators do not obtain an economic advantage over their
competitors. Third, penalties should be generally consistent across the country in order to
provide fair treatment to the regulated community wherever they may operate. Fourth,
settlement penalties should be based on a logical calculation methodology to promote swift
and fair resolution of enforcement actions and the underlying violations.
This interim revised version of the Policy provides numerous improvements to the
1986 Policy, while still retaining the underlying principles and methodology in the prior
Policy. There are four key changes. First, this revision establishes an alternative approach
to use in appropriate cases to determine penalties against municipalities. This approach,
called the national municipal litigation consideration, is based, in part, on past settlements
and on an evaluation of four key factors: the size of the facility (service population), duration
of violation, environmental impact, and economic benefit. Our Regional offices have the
discretion to select from a range of values for each of these factors and may then reduce the
penalty further, if appropriate, by up to 40 percent, for supplemental environmental projects.
Second, the methodology for evaluating the gravity or seriousness of the violation has been
Recyctedrtleeyclabl*
5*". Prwi*c
•' .• casimrj x i«as ST*, rocypod Iidcc
-------
UO/JLO, »o iut 10-.UJ rAA zuzoonuu^
nrt.ic.K/1'lUlNiCi^AL BRANCH
Itu uv-
- 2 -
revised to eliminate redundancy, improve national consistency, and better cover non-effluent
limit violations (such as bypasses). Third, we have established two new gravity adjustment
factors to provide incentives for quick settlements and to mitigate penalty amounts for small
facilities. Fourth, we have consolidated the existing Policy and six subsequent guidances
interpreting it into one document.
This Policy is effective March 1, 1995, and supersedes the Clean Water Act Civil
Penalty Policy issued on February 11, 1986. This Policy applies to all CWA civil judicial
and administrative actions filed after March 1, 1995 and to all pending cases in which the
government has not yet transmitted to the defendant or respondent an oral or written
proposed settlement penalty amount. This Policy also may be applied (instead of the 1986
version) in pending cases in which penalty negotiations have commenced if application of this
Policy would not be disruptive to the negotiations.
We are issuing this Policy in an interim version because we expect to revise it based
on public comments and our experience in using it. We are issuing it as an interim policy,
rather than as a draft, because we believe this revision is superior in many ways to the
existing 1986 version of the Policy. This interim approach also will put this Policy revision
on a consistent timeline with our generic penalty policy analysis. Based on the results of the
^generic penalty policy analysis, we can then modify the interim version accordingly. We are
specifically interested in how well the national municipal litigation consideration and gravity
adjustment factors function, and whether we should include an explicit penalty adjustment
factor for environmental auditing or voluntary self-disclosures of violations.1 We expect to
publish this interim version of the Policy in the Federal Register within the next 30 days.
Thank you for your comments on the three prior internal drafts of this Policy. If you
have any questions or comments on this Policy you may contact David Hindin. Acting
Branch Chief, Multimedia Enforcement Branch, at 202 564-6004. or Ken Keith in the Water
Enforcement Division at 202 564-4031.
Attachment
cc: (w/attachment)
Regional Counsels
Regional Water Division Directors
Regional Water Enforcement Branch Chiefs
ORC Water Branch Chiefs
Department of Justice, EES Chief and Deputy Chiefs
/?'
1 The 1986 Policy and this interim revision both automatically produce smaller penalty amounts
r'or violators who conduct environmental audits and promptly remedy violations This is because
violators who promptly remedy violations will have Shorter histories of violations, which reduces hmh
:he economic benefit and gravity penalty amounts
-------
INTERIM CLEAN WATER ACT SETTLEMENT PENALTY POLICY
March 1, 1995
TABLE OF CONTENTS
I. INTRODUCTION 2
II. PURPOSE 2
III. APPLICABILITY 3
(1
IV. PENALTY CALCULATION METHODOLOGY 4
A. Economic Benefit 4
B. Gravity Component 6
C. Gravity Adjustment Factors 12
D. Litigation Considerations 13
E. Ability to Pay 21
V. SUPPLEMENTAL ENVIRONMENTAL PROJECTS (SEPs) 22
VI. OTHER TYPES OF PENALTIES 22
VTI. DOCUMENTATION APPROVALS, AND CONFIDENTIALITY 23
ATTACHMENT 1 ~ Examp es of How to Calculate Statutory Maximum Penalty
ATTACHMENT 2 — Settlement Penalty Calculation Worksheet
S7^c
prO^
-------
MAifciK/fllUlNlClfAi- bKAlNCn
nu U^4
Interim CWA Settlement Penalty Policy - March I. 1995 Pa.ee 2
I. INTRODUCTION
Section 309 of the Clean Water Act (CWA), (33 U.S.C. §1319) authorizes the
Administrator of the U.S. Environmental Protection Agency ("EPA" or "Agency") to bring
civil judicial and administrative actions against those who violate certain enumerated
requirements of the CWA. In such actions the Administrator may seek civil penalties.
EPA brings enforcement actions to require alleged violators to promptly correct the
violations and remedy any harm caused by the violations. As part of an enforcement aciion.
EPA also seeks substantial monetary penalties which 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
competitors who have done whatever was necessary to comply on time. Penalties also
encourage companies to adopt pollucion prevention and recycling techniques, so that they
minimize their pollutant discharges and reduce their potential liabilities.
This Policy implements the Agency's February 1984 general Policy on Civil Penalties
(#GM-2l) and the companion document, A Framework for Statute Specific Approaches to
Penalty Assessments (n'GM-22), both issued on February. 16, 1984. This Policy revises and
hereby supersedes the Clean Water Act Penalty Policy for Civil Settlement Negotiations
issued on February 11. 1986.'
This document sets forth the policy of the EPA for establishing appropriate penalties
in settlement of civil judicial and administrative actions. Subject to the circumstances of a
particular case, this policy provides the lowest penalty figure which the Federal Government
should accept in a settlement. This Policy is drafted so that violators whose actions, or
inactions, resulted in a significant economic benefit and/or harmed or threatened public
health or the environment will pay the highest penalties. Obviously, where settlement is not
possible, the Government reserves the right to seek penalties up to the statutory maximum.
II. PURPOSE
The purpose of this Policy is to further four important environmental goals. First.
Denalties should be large enough to deter noncompliance. Second, penalties should help
' The guidances issued to interpret and supplement the 1986 Penalty Policy are also superseded. These
locuments are the: Addendum to the Clean Water Act Civil Penalty Policy for Administrative Penalties, issued
\ugust 28. 1987: Guidance on Penalty Calculations for POTW Failure to Implement an Approved Pretreamient
'rogram. issued December 22. 1988: Bottomline Penalties for Cases Involving More than Five Years ot Non-
compliance. issued May 11. 1992: Gravity Penalty Pilot Policy for Clean Water Act Cases, issued November i 2.
992; and Fiual Interim Guidance on Use of Litigation Consideration Reductions in ;hc CIdun Water Act Pctialr.
'illicy. Ksued October 10. 1993 (which incorporated the November 1992 Gravis Penalty Pilot Policy).
-------
Interim CWA Settlement Penalty Policy - March 1. 1995
Pane 3
ensure a level playing field by ensuring that violators do not obtain an economic advantage
over their competitors. These two goals generally require that penalties recover the
economic benefit of noncompliance, plus an appropriate gravity amount. Third, CWA
penalties should be generally consistent across the country. This is desirable as it not only
prevents the creation of "pollution havens" in different parts of the nation, but also provides
fair and equitable treatment to the regulated community wherever they may operate. Fourth,
settlement penalties should be based on a logical calculation methodology to promote swift
resolution of enforcement actions and the underlying violations.
III. APPLICABILITY
This Policy applies to all CWA civil judicial and administrative actions filed after the
^effective date of this Policy, and to all such pending cases in which the government has noc
yet transmitted to the defendant or respondent an oral or written proposed settlement penalty
amount. This Policy also may be applied (instead of the 1986 version) in pending cases in
which penalty negotiations have commenced if application of this Policy would not be
disruptive to the negotiations. This Policy applies to civil judicial and administrative
penalties sought under CWA §309. including: violations of NPDES permit limits and
conditions; discharges without an NPDES permit: violations of pretreatment standards and
requirements (including local limits and pretreatment programs); violations of §405 sludge
use or disposal requirements; violations of §308 information requests; and violations of
§309(a) compliance orders. This Policy does not apply to actions brought exclusively under
CWA §311 (oil and hazardous substance spills) nor for violations of requirements in §404
("wetlands" cases involving disposal of dredged or fill material). Separate penalty policies
apply to these two types of cases.
This Policy sets forth how the Agency generally expects to exercise its enforcement
discretion in deciding on an appropriate enforcement response and determining an appropriate
settlement penalty. In some cases, the calculation methodology set forth here may not be
appropriate, in whole or part; in such cases, with the advance approval of the Assistant
Administrator, an alternative or modified approach may be used.
n This Policy only establishes how the Agency expects to calculate the minimum
penalty for which it would be willing to settle a case. The development of the penalty
- amount to plead in an administrative or judicial complaint is developed independent of this
Policy, except that the Agency may not seek a settlement penalty in excess of the statutory
maximum penalty for the violations alleged in the complaint. This Policy is not intended for
use by EPA, violators, courts, or administrative judges in determining penalties at a hearing
or trial. (Also see §VI below).
A settlement penalty calculation is generally required before the Agency files an
administrative complaint or refers a civil action to the Department of Justice. The penalty
-------
Inlerim CWA Settlement Penalty Policy — March 1. 1995 Pave 4
calculation should be revised as relevant new information is discovered during the course of
the litigation. The penalty calculation should be reviewed periodically (e.g.,on the
anniversary of when the complaint was Filed) to determine if any revisions to the calculation
are necessary.
* rv, PENALTY CALCULATION METHODOLOGY
Before proceeding to calculate the settlement penalty, Agency staff should estimate
the statutory maximum penalty in order to determine the potential maximum penalty liability
of the discharger.- The penalty which the government seeks-in settlement may not exceed
this statutory maximum amount. Examples of how to calculate the statutory maximum are
set forth in Attachment 1. In general, the statutory maximum penalty for violations of an
effluent limit for a period longer than one day includes a separate penalty for each day in the
lime period (assuming there was a discharge on each day).
The settlement penalty is calculated based on this formula:
Penalty = Economic Benefit + Gravity +/- Gravity Adjustment Factors -
Litigation Considerations - Ability to Pay - Supplemental Environmental Projects-
Each component of the penalty calculation is discussed below. A worksheet sumrnari/ina
the penalty calculation js included as Attachment 2.
A. Economic Benefit
Consistent with EPA's February 1984 Policy on Civil Penalties, every effort should
be made to calculate and recover the economic benefit of noncompliance. The objective of
the economic benefit calculation is to place violators in the same financial position as they
would have been if they had complied on time. Persons that violate the CWA are likely to
have obtained an economic benefit as a result of delayed or completely avoided pollution
control expenditures during the period of noncompliance. Commonly delayed and avoided
CWA pollution control expenditures, include, but are not limited to:
o Monitoring and Reporting (including costs of the sampling and proper laboratory
analysis);
o Capital equipment improvements or repairs, including engineering design,
purchase, installation, and replacement;
; This calculation of tJie statutory maximum penalry. done as pan of the sculviuem pnul(> eukuiarioii. ^ a
.c-.'il rviiliHiion. .^uhject u> the aitornev-work product privile^s. Tliis ci> nut mieiuted for use :!i ujun.
£
-------
Interim CWA Settlement Penalty Policy -- March I. 1995
ff
Pa?e 5
o Operation and maintenance expenses (e.g. labor, power, chemicals) and other
annual expenses; and
o One-time acquisitions (such as land purchase),
The standard method in settlement efforts for calculating the economic benefit from
delayed and avoided pollution control expenditures is through the use of the Agency's BEN
model. Refer to the "BEN User's Manual" (Office of Enforcement, December 1993, or any
subsequent revision) for specific information on the operation and proper use of BEN. There
is no minimum amount triggering the use of the BEN model. In estimating economic benefit
using the BEN model, the benefit should be calculated from the first date of noncompliance,
but EPA generally does not go back no more than five years prior to the date when the
complaint should be filed.3
The BEN model will produce a valid estimate of the economic benefit from delayed
and avoided compliance costs only if it is properly used.4 Before using the BEN model you
need a defensible theory of on-time compliance: that is, the pollution control system or
measures the violator should have installed and operated earlier to have prevented the CWA
'Violations at issue in the case.5 As a general rule, the best evidence of what the violator
should have done to prevent the violations, is what it eventually does (or will do) to achieve
compliance.6
In some cases, the BEN model may not be an appropriate methodology for estimating
economic benefit or will not capture the full scope of the economic benefit. For example, if
the violator is a privately-owned regulated utility, the standard BEN model may not be
appropriate. In this situation, the Agency should consider a wrongful profits analysis and
seek to recover the profits and other competitive market benefits the violator obtained as a
result of operating during the period of violation.7 In another type of case, if the violator
J The five year guideline for when die BEN and gravity calculations stans is a policy decision. Legally, there
is nothing that prevents EPA from calculating economic benefit or gravity from die first date of violation, even if
thai is more than five years before the complaint is filed, as long as the statutory maximum penalty (calculated
pursuant to the five year statute of limitations) exceeds the settlement penalty amount.
J The BEN model does not calculate the "competitive advantage" benefits a firm may have obtained as a result
of operating in violation of the law. Such benefits include profits and increases in market share from selling good?
and services during the period of violation.
¦' The BEN model is comparing the compliance costs the violator would have paid if it had complied ou-iimc,
versus the usually smaller compliance costs it actually pays by complying late.
Sec BEN User s Manual. December 1993. page 6-1.
Regions should consult Headquarters for how in conduct this analysis: a tinanciaJ aiiHultaw is likely in he
needed.
-------
Interim CWA Settlement Penally/ Policy — March I. 1995
—MmJ.
decides that its "method of compliance" is to cease operations at the facility, conducting a
BEN analysis may be complicated.6 In a few unusual cases, economic benefit may be
negative: this means, e.g., operating the old inefficient treatment system was more
expensive than purchasing and operating a new, more efficient treatment system. When
economic benefit is negative, the settlement calculation enters zero as the economic benefit.
B. Gravity Component
n
The graviry calculation methodology is based upon a logical scheme and criteria that
quantifies the gravity of the violation based upon the CWA and its regulatory programs.
Every reasonable effort must be made to calculate and recover a gravity component in
addition to the economic benefit component. As EPA's February 1984 Polio.' on Civil
Penalties, states on page 4:
The removal of the economic benefit of noncompliance only places the violator
in the same position as he would have been if compliance had been achieved
on time. Both deterrence and fundamental fairness require that the penalty
include an additional amount to ensure that the violator is economically worse
off than if [he] had obeyed the law.
The gravity component of the penalty is calculated for each month in which there was
a violation. The total gravity component for the penalty calculation equals the sum of each
monthly gravity component. The monthly gravity formula is:
Monthly gravity component = (1 + A+ B4-C + D) x $1,000.
¦phe four gravity factors -- A, B, C, and D — are considered for each month in which there
were one or more violations. Values are assigned to each of the four factors as described in
the text and tables below. In performing the gravity calculation, the monthly gravity
component is calculated from the first date of noncompliance up to when the violations
ceased or the date the complaint is expected to be filed, but EPA has the option to start the
gravity calculation no more than five years prior to the date when the complaint should be
filed. (See footnote #4.) In cases with continuing violations, the gravity calculation^should
be revised periodically to include additional months of violations that have occurred since the
previous calculation.
' In cases where a facility determines thai n can only comply by ceasinc operations, an appropriate BEN
analysis would be to input the savings obtained from the delayed closure costs and (lie avoided costs of nor ire.iiiuL'
die wastewater during ihc period of noncompliance. See Appendix B in BEN User's Manual. If it is not possible
:•.) estimate tlicSc avoided treatment comi. ih;u a wrongful prot'u analysis is iicc-jsiary
-------
Interim CWA Settlement Penalty Policy -- March J. 199S
Paze 7
"A" - Significance of Violation (Monthly Range 0 to 20V This factor is based on the
i degree of exceedance of the most significant effluent limit violation in each month. Values
for this factor are selected from within designated ranges; violations of toxic monthly efflueni
limits are weighted most heavily. Values are selected using the table below based on the
effluent value which yields the highest factor A value. Regions select a particular value for
factor A within the designated range. For purposes of this table conventional and
nonconventional pollutants include biochemical oxygen demand, chemical oxygen demand,
total oxygen demand, dissolved oxygen, total organic carbon, total suspended solids, total
dissolved solids, inorganic phosphorous compounds, inorganic nitrogen compounds, oil and
grease, calcium, chloride, fluoride, magnesium, sodium, potassium, sulfur, sulfate, total
alkalinity, total hardness, aluminum, cobalt., iron, vanadium and temperature. Factor A
values for fecal coliform and pH, which are calculated using logarithmic scales, are
calculated using the special scales at the bottom of the table. All other pollutants are
classified as toxic pollutants.
If there were no effluent limit violations in a particular month, but there were other
violations, then factor A is assigned a value of zero in that month's gravity calculation. In
pretreatment cases in which the industrial user was not required to provide monthly
compliance reports, and provided less frequent effluent data (e.g.. in a 40 CFR §403.12(e)
periodic compliance report), any effluent violations reported in the report are assumed to
' represent identical violations in each month of the reporting period for purposes of
calculating gravity if there is substantial evidence supporting this assumption. Examples of
such evidence are: (1) no pretreatment equipment was in operation during the period and (2)
the production and treatment operations remained consistent during the period. This means
the monthly gravity calculation, with a factor A value, should be repeated for all of the
months covered by the report.9 If there was no evidence indicating continuing violations
throughout the period covered by the periodic compliance report, then a value for Factor A
should be assigned only for the month in which the sampling occurred. If the industrial user
did not notify the control authority and repeat the sampling after finding the effluent violation
as required by 40 CFR §403.12(g)(2), dien an appropriate value tor gravity Factor D should
be assigned for this notification or monitoring violation(s).
; Tbe prcireaaneiU regulations. 40 CFR §403.12(f)(3). require die periodic compliance report to contain data
jwhich is representative of conditions occurring during die reporting period. For example, if aji industrial user
reports in its December (semi-annual) periodic compliance report that u violated ilic daily maximum cadmium limit
hv 1505 in September, and this was the most significant effluent violation, using the Graviiy Factor A Table,
tucror A will be assigned a vaJue between 3 and 7 tor eadi of die six months covered hy the repun (July -
December! if. e.e.. EPa had evidence diai die facility lucked treatment equipment during [hat period and wastewater
jeneraiins operations were consistent during die peritid.
-------
Interim CWA Settlement Penally Policy — March 1. 199S Paee 8
GRAVITY FACTOR A - SIGNIFICANCE OF THE VIOLATION
Select a value for factor A based on the effluent limit violated in the month .
which produces the highest range of values for factor A.
Percent by which effluent limit was exceeded:
Factor A Value Ranges
Monthly
Average
7-day Average
Daily Maximum
Toxic
Pollutants
Conventional &
Nonconventional
Pollutants
1 - 20
1 ¦ 30
1 - 50
1 - 3
0 - 2
21-40
31 - 60
51 - 100
1 - 4
1 - 3
41 • 100
61 - 150
101 - 200
3 - 7
2 - 5
101 - 300
151 - 450
201 - 600
5-15
3 - 6
CO
o
_J
V
451 - >
601 - >
10-20
5-15
Percent Exceedance of Fecal
Coliform Limit:
Standard Units above or below pH
limit:
Factor A Value
Ranges:
0-100
0 - .50
0 - 5
101 - 500
.51 - 2.0
2 • 8
501 • 5,000
2.01 - 3.0
4-10,
5,001 - >
3.01 - 4.0
6-12
4.01 - >
8-15
"B" — Health and Environmental Harm CMonthlv Ranse 0 to 50 ). A value for this
factor is selected for each month in which one or more violations present actual or potential
^iarm to human health or to the environment. Values are selected using the table below,
based on the type of actual or potential harm that yields the highest factor value.
-------
Interim CWA Settlement Penalty Policy ~ March 1. 1995
Pase 9
GRAVITY FACTOR B -- HEALTH AND ENVIRONMENTAL HARM
Type of Actual or Potential Harm
Factor B Value Ranges
Impact on Human Health (e.g., interference with drinking water
supplies, harm or increased risks to subsistence fishing)
10-50
Impact on Aquatic Environment (or the POTW)
Water quality-based effluent standard(s) or whole effluent
toxicity limit violated
1 - 10
Fish kill, beach closing, restrictions on use of water body;
or pass through or interference at the POTW caused by
the IU discharge.
4 - 50
Other impact on aquatic environment
2 - 25
"C" -- Number of Effluent Limit Violations (Monthly Range 0 to 5). This factor is
based on the total number of effluent limit violations each month. ' (Violations of interim
limitations in administrative orders are not counted here, but included as part of
recalcitrance.) In order to properly quantify the gravity of the violations, all effluent limit
violations are considered and evaluated. Violations of different parameters-at the same
outfall are counted separately and violations of the same parameter at different outfalls are
counted separately. The- guidelines in Attachment 1 for calculating the statutory maximum
penalty are generally not applicable for selecting the value for gravity factor C (e.g.,
violation of a weekly limit need not be calculated as 7 separate violations). A minimum
factor C value of 1 is generally appropriate whenever there are violations of two or more
different pollutants. Values for this factor may be selected by comparing the number of
effluent limits exceeded with the number of effluent limits in the permit: e.g., if all of the
limits in the permit were violated in a month, a value of 5 would be appropriate; if 50
percent of the limits in the permit were violated, a factor of 2 or 3 would be appropriate.
"D" — Significance of Non-effluent Limit Violations. This factor has a value
-anging from 0 (zero) to 70 and is based on the severity and number of the six different
;ypes of non-effluent limitation requirements violated each month. There are six types of
ion-effluent violations: 1) monitoring and reporting; 2) pretreatment program
mplementation; 3) sludge handling; 4) unauthorized discharges; 5) permit milestone
ichedules; and 7) other types of non-effluent violations. The value for factor D for each
Tiomh in which there is a non-effluent limit violation is selected pursuant to the table on the
lext page. The factor D value for a given month is the sum of the highest value for each
ype of non-effluent limit violation.
With regards to monitoring and reporting violations, the failure to submit a report in a
imelv manner should generally not be treated as a continuing violation past the month in
-------
xuc ii.Vil iu-.-./u-i'Ju-i
(lAlJiK/iilUlNlUll'AL. tJKAlMOtl
Interim CWA Settlemenl Penalty Policy — March /. J 995 Paee JO
which the report is due. For example, if an industrial user fails to submit a baseline
monitoring report as required by 40 CFR 403.12(b), this should be counted as a violation
only in the month when the report was due. Given the importance of such a report, if the
violator fails to submit the report at all a factor D value of 5 or more may be appropriate for
this violation.10
With regards to pretreatment program implementation violations, "key program
activities" include: identifying all industrial users; issuing appropriate control mechanisms to .
all significant industrial users (SIUs); inspecting SIUs; enforcing industrial user self-
monitoring; enforcing pretreatment standards (including local limits); submitting pretreatment
reports to the approval authority; and failing to comply with other significant pretreatment
program obligations. The 1989 Guidance for Reporting and Evaluating POTW
Noncompliance with Prerreatrmnt Requirements or subsequent revisions may be helpful in
evaluating the seriousness of pretreatment program implementation violations.
As an example of calculating factor D for a given month, assume a discharger did not
sample for 4 of the 8 parameters in its permit, the discharge monitoring report was submitted
20 days late, and there were several days of discharge of a process wastestream through an
unauthorized outfall without any treatment. Using the factor D table, for Type 1, a value of
4 may be selected based on the failure to conduct sampling for half of the parameters; the
delay in submitting sampling data is not considered since the other Type 1 violation produces
a higher value. For the unauthorized discharge of the process wastestream, a value of 6 may
be selected for Type 4. Since there are no Type 2, 3, 5, and 6 violations, a value of 0 is
entered for each of these Types. Thus, the total'value for factor D' for this month is 10.
:0 The failure to provide the regulatory ageiicy with required sampling data on the discharge is a very saioui
violation as this eliminates the government's ability to perform necessary oversight anil allows die discliatU'.-r to
avoid die possible application of gravity factor A.
-------
Interim CWA Settlement Penalty Policy ~ March 1. 1995 Pa?e II
GRAVITY FACTOR D ~ NON-EFFLUENT LIMIT VIOLATIONS
THE FACTOR D VALUE FOR A GIVEN MONTH IS THE SUM OF THE HIGHEST VALUE
FOR EACH TYPE OF NON-EFFLUENT LIMIT VIOLATION.
Type and Extent of Violation
Factor D Value
Ranges
1. Effluent Monitoring and Reporting Violations;
Failure to conduct or submit adequate pollutant sampling data for 1 or
more pollutant parameters (but not all parameters)
1 to 6
Failure to conduct or submit any required pollutant sampling data in a
given month but with a reasonable belief that the facility was in compliance
with applicable limits.
2 to 6
Failure to conduct or submit any required pollutant, sampling data in a
given month without a reasonable basis to believe that facility was
otherwise in compliance with applicable limits.
6 to 10
Failure to conduct or submit whole effluent toxicity sampling data
4 to 10
Delay in submitting sampling data
0 to 5
Failure to submit a pretreatmem baseline report. 90-day compliance repon.
or periodic compliance report (40 CFR 403.12(b), (d). or (e,) or failure to
sample again after finding a violation (40 CFR 403.12(g)(2)).
2 to 8
Any Other monitoring or reporting violation
0 to 10
2. Pretrearmem Program Implementation Violations:
All key program activities.implemented, with some minor violations.
0 to 4
One or two key program activities not implemented
2 to 6
Many key program activities not implemented
4 to 8
Few if any program activities implemented
6 to 10
3. Failure to properly control, treat, or dispose of sludge
1 to 10
4. Unauthorized discharge: e.g.. discharge through an
unpermitted outfall, discharge of a wascestream not identified in the permit,
sewer overflows, or spill (other than oil Or §311 hazardous substance)
1 to 20
5. Violation of permit milestone schedule
1 to 10
6. Any other type of noneffluent limit violation
1 to 10
-------
v» / x. kj / i> o
luc X.J. ±4' rAA ^UiiOb4UUii4
HAitK/ AL bKAlNCH
U J. 4
Interim CWA Settlement Penalty Policy -- March 1, 1995 Page 12
C. Gravity Adjustment Factors
In certain circumstances as explained below, the total monthly gravity amount may be
adjusted by three factors: flow reduction factor (to reduce gravity); history of recalcitrance
(to increase gravity); and the quick settlement reduction factor (to reduce gravity). The
resulting figure — benefit + (gravity gravity adjustments) -- is the preliminary penalty
amount.
Flow Reduction Factor for Small Facilities. The total monthly gravity amount may
be reduced based on [he flow of the facility. This factor is applicable to direct and indirect
discharges, both municipal and non-municipals. Flow reduction percentages are selected
using the table below. In order to ensure that these reductions are directed at small facilities
(that are not otherwise part of large corporation), this gravity reduction does not apply to
non-municipals if the facility or parent corporation employs more than 100 individuals.
FLOW REDUCTION FACTOR
average daily wastewater
DISCHARGE FLOW (in gallons per day)
PERCENTAGE REDUCTION FACTOR
OF TOTAL GRAVITY
Less than 5,000
50
Between 5,000 and 9,999
40
Between 10.000 and 19,999
30
Between 20,000 and 29,999
20
Between 30,000 and 49,999
10
Between 50,000 and 99,999
5
100,000 and above
0 (i.e., no reduction)
History of Recalcitrance Adjustment Factor. The "recalcitrance" factor is used to
increase the penalty based on a violator's bad faith, or unjustified delay in preventing,
mitigating, or remedying the violation. Recalcitrance is also present if a violator failed to
comply with an EPA issued administrative compliance order or a §308 information request,
&r with a prior state or local enforcement order. This factor is applied by multiplying the
total gravity component by a percentage.between 0 and 150. In administrative penalty
actions, violations of administrative compliance orders are not included in the recalcitrance
calculation (because EPA lacks the authority to seek penalties in the administrative forum for
violations of administrative compliance orders).
-------
Interim CWA Settlement Penally Policy — March 1. 1995
Page 13
A minimum recalcitrance factor of 10 percent is generally appropriate for each
instance in which a violator fails to substantially comply in a timely manner with an
administrative compliance order ("AO"), a §308 information request, or a state enforcement
order. Thus, if a particular discharger violated 3 AOs, a minimum recalcitrance factor of 30
percent is generally appropriate. If a violator completely fails to comply with an AO or
§308 request, a recalcitrance factor of 20 percent may be appropriate for that failure, while if
there were only minor violations of the AO or request, a recalcitrance factor of 5 percent
may be appropriate for that violation.
$ Quick Settlement Adjustment Factor. In order to provide an extra incentive for
violators to negotiate quickly and reasonably, and in recognition of a violator's
cooperativeness, EPA may reduce the gravity amount by 10 percent if EPA expects the
violator to settle quickly. For purposes of this reduction factor, in Class I administrative
enforcement actions, a quick settlement is when the violator signs an administrative consent
order resolving the violations within four months of the date the complaint was issued or
within four months of when the government first sent the violator a written offer to settle the
case, whichever date is earlier. In Class II administrative enforcement actions and judicial
cases, the controlling time period is 6 and 12 months, respectively. If the violator is not able
to sign the consent order within this time period, this adjustment does not apply.
Environmental Auditing Adjustment Factor. This interim revision of the Penalty
Policy contains no explicit gravity adjustment factor for violators that conduct, or fail to
conduct, environmental audits, disclose the results to the government, promptly correct the
violations and remedy any harm. This interim revision of the Policy (and the original 1986
version), however, automatically produces smaller penalty amounts for violators who
promptly remedy violations. This is because violators who promptly remedy violations will
have shorter histories of violations and this automatically reduces both the economic benefit
and gravity amounts. After the Agency completes its review of its environmental auditing
policy,'this Policy may be reissued with an explicit adjustment factor for this factor. In the
interim, Regions, may with the advance approval of Headquarters, appropriately adjust the
gravity amount based on the presence, or absence, of an environmental auditing program;
D. Litigation Considerations (to decrease preliminary penalty amount)
1. Overview. The government should evaluate every penalty with a view toward
litigation and attempt to ascertain the maximum civil penalty the court or administrative
judge is likely to award if the case proceeds to trial or hearing. Many enforcement cases
may have mitigating factors, weaknesses or equitable problems that could be expected to
persuade a court to assess a penalty less than the statutory maximum amount. The simple
existence of weaknesses in a case, however, should not automatically result in a litigation
consideration reduction of the preliminary bottom-line settlement penalty amount (economic
benefit + gravity _+ gravity adjustment factors). The government may reduce the amount
of the civil penalty it will accept at settlement to reflect weaknesses in its case where rhe
-------
Interim CWA Settlement Penalty Policy — March 1. 1995
facts demonstrate a substantial likelihood that the government will not achieve a higher
penalty at trial.
2. Legal Evaluation. The mere existence of weaknesses or limitations in a case
should not result in a reduction of the preliminary bottom-line settlement penalty amount,
unless the Agency determines that the preliminary settlement amount is more than EPA is
likely to obtain at trial.11 In evaluating potential litigation consideration reductions, EPA
legal staff should: (a) Determine the statutory maximum penalty; (b) Evaluate what penalty
the court might assess at trial given the particular strengths and weaknesses of the case; and.
(c) Compare this amount to the preliminary settlement amount (benefit + gravity -f-
recalcitrance).
While Agency legal staff cannot predict the exact penalty amount a court might assess
at trial, case law indicates that a court should use the statutory maximum as its preliminary
penalty figure, and then reduce that amount, as appropriate, using only the penalty
assessment factors in §309(d) of the Act. Fitting the facts of EPA's enforcement case to the
method adopted by the courts in recent CWA penalty decisions provides the Agency with the
clearest method to estimate penalty litigation outcomes.12
3. Application. Adjustments for litigation considerations are taken on a factual basis
specific to the case. Before a complaint is filed, the application of certain litigation
considerations is almost always premature, since the Agency generally does not have enough
information to fully evaluate litigation risk regarding the assigned judge's previous ruling on
similar matters, the court's informed opinion, or witness performance. Other litigation
considerations, including evidentiary matters, witness availability, and equitable defenses
often may not be reliably demonstrated until .after case filing. Reductions for these litigation
considerations are more likely to be appropriate after the Agency obtains an informed view,
through discovery and settlement activities, of the strengths and weaknesses in its case and
how die specific court views penalties in the case. Pre-filing settlement negotiations are
often helpful in identifying and evaluating litigation considerations, especially regarding
potential equitable defenses, and thus reductions based on such litigation considerations may
be appropriately taken before the complaint is Hied. As a general rule, the greater the
11 In many situations, weaknesses or limitations in a case are already accounted for in the preliminary penalty
calculation For example, the gravity ejaculation will be less in those circumstances in which the period of violation
was brief, the exceedances of the limitations were small, the pollutants were not toxic, or there is no evidence of
environmental harm. The economic benefit calculation alio will be smaller when the violator has already returned
to compliance since the period of violation will be shorter.
A 11 The prevailing CWA case law on the assessment of penalties indicates that, in assessing a penalty, a court
begins at the statutory maximum amount and reduces the penalty based on the specific factors set out in section
309(d) of the CWA. See Atlantic States Legal Foundation v. Tvson Foods. S97 F.2d 112S (11th Cir. 1990). In
contrast, settlement penalties calculated pursuant to this Policy build the Agency 's bottom line negotiating position
upward from zero, generally ending up with a figure orders of magnitude less than die sanatory maximum peoalts.
-------
Interim CWA Settlement Penalty Policy - March 1. 1995
disparity between the maximum .statutory penalty and the preliminary penalty amount, the
less litigation considerations should affect the Agency's settlement position.
4. Possible Litigation Considerations. While there is no universal list of litigation
considerations, the following factors may be appropriate in evaluating whether the
preliminary settlement penalty exceeds the penalty the Agency would likely obtain at trial:
a. Known problems with the reliability or admissibility of the government's evidence
proving liability or supporting a civil penalty;
b. The credibility, reliability, and availability of witnesses;13
c. The informed, expressed opinion of the judge assigned to the case (or person
appointed by the judge to mediate the dispute), after evaluating the merits of the
case.'"'
d. The record of the judge in any other environmental enforcement case presenting
similar issues. (In contrast, the reputation of the judge, or the judge's general
demeanor, without a specific penalty or legal statement on a similar case, is rarely
sufficient as a litigation consideration.)
e. Statements made by federal. State or local regulators that may allow the
respondent or defendant to credibly argue that it believed it was complying with the
federal law under which EPA is seeking penalties.
f. The payment by the defendant of civil penalties for the same violations in a
case brought by another plaintiff.15
The credibility and reliability of witnesses relates to their demeanor, reputation, truthfulness, and
impcachabiliiy. For instance, if a government witness has made statements significantly contradictory to the position
tjf is to Support at trial, bis credibility may be impeached by the respondent or defendant. The availability of a
witness will affect the settlement bottom-line if the witness cannot be produced at trial: it does not relate to the
inconvenience or expense of producing the witness at trial.
14 This factor, except as provided below with respect to the record of the judge or other trier of fact, may not
be applied in anticipation, or at the stage of initial refenal. aDd Should not be distorted by taking at face valu; wlui
a judge attempting to encourage a settlement might say.
I? If the defendant has previously paid civil penalties for the violations to another plaintiff, this factor may
be used to reduce the amount of the settlement penalty by no more than the amount previously paid "for the same
violations. (If the previous plaintiff was a State qualified to preempt federal enforcement under EPA's interpretation
of Section 309(g)(6). EPA's complaint should not include counts already addressed by a penalty. Sec "Supplemental
Guidance on Section 309(g)(6) (A) of the Clean Water Act." memorandum from Frederick F. Stielil, Enforcement
Counsel for Water, to Regional Counsels. March 5. 1993. and "Guidance on State Action Preempting Civil Penalty
Enforcement •Vrions Under the Federal Clean Water Act. OE/OW. Augu.M 28. 1987.1
-------
Interim CWA Settlement Penalty Policy -• March I. 1995
g. The development of new, relevant case law.
h. A blend of troublesome facts and weak legal arguments such that the Agency faces
a significant risk of obtaining a nationally significant negative precedent at trial.
5. Not Litigation Considerations. In contrast to the above list of possible litigation
considerations, the following items are not litigation considerations:
a. A generalized goal to avoid litigation or to avoid potential precedential
areas of the law.16
b. A duplicative use of elements included or assumed elsewhere in the Penalty
Policy, such as inability to pay, "good faith"17, "lack of recalcitrance", or a
lack of demonstrated environmental harm18.
c. Off-the-record statements by the court, before it has had a chance to
evaluate the specific merits of the case are, by themselves, not a reason to
reduce the preliminary settlement penalty amount. (Compare with 4_c above.)
111 A generalized desire to minimize litigation costs is not a litigation consideration.
" The efforts of the violator to acliieve compliance or minimize die violations after EPA, a State or
pretreatxnem control authority has initiated an enforcement action (i.e., an administrative or judicial enforcement
action) do not constitute "good faith" efforts. If such efforts are undertaken before the regulatory agency initiates
an enforcement response, the setdement penalty calculation already includes such efforts through a potentially
smaller economic benefit amount, a shorter or less serious gravity component, or a lack of any recalcitrance. The
Penalty Policy assumes all members of the regulated community will make good faith efforts both to achieve
compliance and remedy violations when they occur: consequently the settlement penalty calculation begins at zero
and builds upward, with no reductions for good faith. In contrast, the absence of good faitli efforts provides the
basis for increasing the penalty through use of the recalcitrance factor.
:k The gravity calculation will reflect the lack of environmental harm. Courts have considered the extent of
environmental hann associated with violations in determining the "seriousness of violations" pursuaut to the factors
in §509fd}. and have used the absence of any demoasrratcd or discrete identified environmental harm to impose less
thpn the statutory maximum penalty, Proof of environmental harm, however, is neither necessary for liability nor
$r die assessment of penalties.
-------
" Interim CWA Settlement Penalty Policy -- March I. 1995
Paee 17
d. The fact that the receiving water is already polluted or that the water can
assimilate additional pollution is not a litigation consideration.19
e. By itself, the failure of a regulatory agency to initiate a timely enforcement action
is not a litigation consideration.20
6. Approval of Litigation Considerations. The Agency recognizes that the
quantitative evaluation of litigation considerations often reflects subjective legal opinions.
Therefore, EPA Regions may reduce the preliminary penalty amount for litigation
considerations for up to one-third of the net gravity amount (i.e., gravity as modified by the
gravity adjustment factors) without Headquarters approval (where such approval would ¦
otherwise be required). Of course, such a reduction must be fully explained and maintained
in the case file. This reduction is not applicable in municipal cases in which the tabies.in
D.7 below are used.
7. Municipal Cases. In those cases against a municipality or other public entity
(such as a sewer authority) in which the entity has failed to comply with the Clean Water Act
but nevertheless did make good faith efforts to comply, the Agency may mitigate the
preliminary penalty amount based on this national municipal litigation consideration. The
preliminary penalty amount (economic benefit + gravity +. gravity adjustments) may be
mitigated to no less than the cash penalty determined by operation of the two tables set forth
below. In addition, the cash penalty amount established by the tables may be reduced based
on compelling ability to pay considerations and by up to 40 percent for appropriate
supplemental environmental projects. Reducing the cash penalty below the amount
established by the national municipal litigation consideration (other than for ability to pay
considerations or for 40 percent based on a SEP) requires compelling evidence of other
considerations and the prior approval of Headquarters (even if Headquarters' approval of the
settlement would otherwise not be required).
The national municipal litigation consideration is a discretionary factor and the
Agency, is under tio obligation to use it in all municipal cases.21 It should only be used if
there is some evidence that the municipality made a good faith effort to comply. The
national municipal litigation consideration is based on the economic benefit, environmental
" See. e.g., Natural Resources Defense Council v. Texaco Refinlae and Mkrg.. 800 F. Supp. 1, 24 (D. Del.
1992).
:r' See PIRG v. Powell Duffrvn. 913 F. 2d 64, 80-81 (3rd Cir. 1990).
¦' The national municipal litigarion consideration is primarily intended m apply in cases m which chere has been
a failure to timely construct treatment facilities or other capital projects; ic may not be appropriate in pretreamiem
failure to implement cases.
-------
Interim CWA Settlement PenalPt Policy — March 1. 1995
PageJl
impact, duration and size of the facility, and is derived, in part, on the settlement penalties
EPA has obtained from judicial municipal cases settled between October 1988 and December
1993. There are three steps to calculate a penalty using the national municipal litigation
consideration tables.
1. Using Table A determine the economic benefit environmental impact factor
amount. This dollar amount is found by selecting an appropriate value from the range
.in the appropriate cell in Table A. The economic benefit is the. benefit previously
calculated pursuant to section IV.A. above. Impact of the violations is based on the
actual or potential (risk) of harm caused, in whole or part, by the violations.
2. Using Table B determine the population months of violations factor amount. This
dollar amount is found by selecting an appropriate value from the range in the
appropriate cell in Table B. The service population is the total population served by
the violating POTW(s) during the period. The months of violation are the total
number of months calculated pursuant to section IV.B above. (If the service
population exceeds 3 million, the Table B value is found by combining values from
multiple rows. For example, if the service population was 4.5 million, the factor B
penalty contribution would be the sum of a value selected from the appropriate cell in
the 1,000,001 to 2.000,000 population row plus a value selected from the appropriate
cell in the 2.000,001 to 3,000,000 population row.)
3. Sum the selected factor values from Tables A and B. Note that the factor values in
Tables A and B are in thousands of dollars.
-------
Interim CSVA Se/fje/rieiif Penalty Policy -
- March I. 1995
Pace 19
NATIONAL MUNICIPAL LITIGATION CONSIDERATION » TABLE A
ECONOMIC BENEFIT ENVIRONMENTAL IMPACT FACTOR IN THOUSANDS OF DOLLARS
IMPACT OF
VIOLATIONS ON
HUMAN HEALTH OR
THE ENVIRONMENT
.001 to
50
ECC
50 to
100
)NOMIC B
100 to
250
ENEFIT R
250 in
1.000
ANGES IN
1,000 to
2,000
THOUSAND
2.000 to
5.000
~S OF DOL
5,000 to
10,000
,LARS
10,000
lo
25,000
greater
than
25,000
No actual or potential
harm.
6 to 9
11 to 15
17 to 23
32 to 43
49 to 67
75 to 103
110 to
15i
167 to
230
283 to
389
Minor actual or potential
harm (e.g., water quality-
based effluent or whole
effluent (oxicily limit
violated).
9 to 11
16 to 19
25 to 29
47 to 55
73 to 86
1 12 to
131
164 to
192
251 to
293
424 to
495
Moderate actual or
potential harm (e.g., fish
kill, heach closing,
restrictions on use of water
hody, raw sewage
discharges).
13 to 14
22 to 25
13 to 38
63 to 71
98 lo
110
150 to
168
219 to
246
335 to
376
566 to
636
.Severe acu»;il or potential
harm (e.g., repeated beach
ulusings, interference with
drinking water supplies).
17 to 32
30 to 55
46 lo 84
87 to
158
135 to
245
206 to
374
301 to
548
460 to
837
778 to
1,414
-------
interim l'U/1 Settlement Penalty Policy - MdtfJ) 1. 1995 Face to
NATIONAL MUNICIPAL LITIGATION CONSIDERATION -- TABLE B
POPULATION MONTHS OF VIOLATION FACTOR IN THOUSANDS OF DOLLARS
SERVICE
POPULATION
1 to 6
7 lo 12
13 ro
IS
19 to
21
ML
25 in
30
>NTHS 01
3 1 lo
36
C VIOLA'I
37 to
42
ION
43 to
48
49 to
54
55 to
60
61 io
66
66 >
100 to 5,000
0 lo
0.6
0 lo
IS
0.1 lo
3
0.1 to
4.2
0.1 to
5.4
0.1 to
6 6
0.2 lo
7.8
0.2 to
9
0 2 io
10.2
0.2 to
11.4
0 3 to
12.6
0.3 to
14
5,001 in 25,000
0.6 to
3
1.8 lo
9
3 (o 15
4.2 to
21
5.4 lo
27
6.6 lo
33
7.8 to
39
9 to 45
10.2 io
51
11.4 io
57
12.6 to
63
14 io 70
25.00! io 50,000
3 to 6
9 to 18
15 lo
30
21 to
42
27 to
54
33 lo
66
39 io
78
45 lo
90
51 to
102
57 to
114
63 to
126
70 to
140
50.001 m
100,000
6 in 12
18 to
36
30 10
60
42 to
84
54 to
108
66 to
132
78 io
156
90 lo
180
102 to
204
114 to
228
126 lo
252
140 to
280
100,001 lo .
250,000
12 lo
30
36 to
90
60 in
150
84 to
2I0
108 .to
270 r-
132 lo
330
156 to
390
180 to
450
204 io
510
228 io
570
252 io
630
280 lo
700 '
250,001 en
500,000
30 lo
60
90 in
180
150 to
300
2I0 lo
420
270 in
540
330 lo
660
390 to
780
450 (o
900
510 to
1,020
570 lo
1,140
630 to
1,260
700 lo
1,400
500.001 ii>
1.000,000
60 lo
120
180 (o
360
300 to
600
¦120 to
840
540 to
1,080
660 to
1,320
7SO io
1,560
900 io
1,800
1,020
10
2,040
1,140
to
2,280
1.260
lo
2.520
1.400 to
2.800
1,000,001 10
2,000.000
120 to
2-10
360 (o
720
600 lo
1,200
840 to
1,680
1,080
to
2,160
1,320
lo
2,640
1.560
10
3,120
i ,,sor>
to
3,600
2,040
lo
4,080
2.280
to
4,560
2.520
lo
5,040
2,800 io
_ 5,600
2.000.001 to
3.000.000
240 ro
360
720 lo
1,080
1,200
to
1,800
1,680
2,520
2,160
to
3,240
2,640
lo
3,960
3.120
IO
4,680
3,600
to
5.400
4,080
to
6,120
4.560
IO
6,840
5,040
to
7,560
5,600 to
8,400
-------
Interim CWA Settlement Penalty Policy — March 1. 1995
Pa^e 21
E. Ability to Pav (to decrease preliminary penalty amount)
The Agency typically does not request settlement penalties, which combined with the
^cost of the necessary injunctive relief, that are clearly beyond the financial capability of the
violator. This means EPA should not seek a penalty that would seriously jeopardize the
violator's ability to continue operations and achieve compliance, unless the violator's
behavior has been exceptionally culpable, recalcitrant, threatening to human health or the
environment, or the violator refuses to comply.
The adjustment for ability-to-pay may be used to reduce the settlement penalty to the
highest amount that the violator can reasonably pay and still, comply with the CWA. The
violator has the primary burden of establishing the claim of inability to pay. The violator
must submit the necessary information demonstrating actual inability to pay as opposed to
unwillingness to pay Further, the claim of inability to pay a penalty should not be confused
with a violator's aversion to make certain adjustment in its operations in order to pay the
penalty.-
If the violator is unwilling to cooperate in demonstrating its inability to pay the
penalty, this adjustment should not be considered in the penalty calculation, because, without
the cooperation of the violator, the Agency will generally not have adequate information to
determine accurately the financial position of the violator. In some cases, the Agency may
need to consult a financial expert to properly evaluate a violator's claim of inability to pay.
If the violator demonstrates an inability to pay the entire negotiated penalty in one
lump sum (usually within 30 days of consent decree entry), a payment schedule should be
considered. The penalty could be paid in scheduled installments with appropriate interest
accruing on the delayed payments. The period allowed for such installment payments should
generally not extend beyond three years.
If a payment schedule will not resolve the violator's ability-to-pay issue, as a last
recourse, the Agency can reduce the amount it. seeks in settlement to a more appropriate
amount in situations in which inability-to-pay can be clearly documented and-reasonably
quantified.
In the case of municipalities, one quick way to evaluate whether there might be an
ability to pay issue is to examine the most recent bond rating (within the past 5 years). If the
bond rating is below BBB (Standard & Poor's rating scale) or below Baa (Moody's rating
scale)', the community may be in poor financial condition and a detailed financial evaluation
-------
Interim CWA Settlement Penalty Folicy — March J. 1995 Pape 22
by an appropriate expert may be necessary to determine whether the financial condition
affects the ability to pay a penalty.
V. SUPPLEMENTAL ENVIRONMENTAL PROJECTS (SEPs)
Supplemental Environmental Projects (SEPs) are defined by EPA as environmentally
beneficial projects which a violator undertakes, but is not otherwise legally required to
perform, in exchange for favorable penalty consideration in settlement of an enforcement
action. In order for a violator to receive a settlement penalty reduction in exchange for
performing such a project, the project must conform with the EPA's SEP Policy, or be
approved in advance by the Assistant Administrator23. A SEP may be allowed in a
municipal case, even if the cash penalty is less than economic benefit, provided the cash
penalty is no less than 60 percent of the amount provided in section 1V.D.7. Use of SEPs in
nk particular case is entirely within the discretion of EPA, and the Department of Justice in
judicial cases,
VI. OTHER TYPES OF PENALTIES
This Policy only establishes how the Agency expects to calculate the minimum
penalty for which it would be willing to settle a case. The development of the penalty
amount to plead in an administrative or judicial complaint is developed independent of this
Policy. This Policy is not intended and should not be used as the basis for a penalty
demand in a complaint, an administrative hearing or, a civil judicial trial. The Agency will
not use this Penalty Policy in arguing for a penalty at trial or in an administrative penalty
hearing.2'' In those cases which proceed to trial or an administrative hearing, the Agency
should seek a penalty higher than that for which it is willing to settle.
If the "bottom-line" settlement penalty calculated pursuant to this Policy exceeds the
maximum penalty that can be obtained in an administrative penalty action pursuant to §309(g)
of the CWA, the Agency should instead proceed judicially." In rare circumstances, the
A -
" See "EPA Policy on the Use of Supplemental Environmental Projects in Enforcement Settlements",
transmitted ou February 12. 1991 by the Assistant Administrator for Enforcement, or subsequent revisions.
54 If that were to occur, then the defendant would have no incentive to settle with EPA. See Guidance on the
Distinctions Among Pleading. Negotiating, md Litigating Civil Penalties for Enforcement Cases Under the Clean
Water Act, OECM/OW. January 19. 1989.
For further guidance on choosing between administrative and judicial enforcement options, see "Guidance
on Choosing Among Clean Water Act Administrative. Civil and Criminal Enforcement Actions", which
Attachment 2 to the August 2S. 1987 "Guidance Documents and Delegations for Implementation of Adininisrrame
Fenalrv Authorities Contained in 1987 Clean Water Act Amendments"
-------
Interim CWA Settlement Penalty Policy — March 1. 1995
Pise 23
statutory maximum penalty may be less than the "bottom-line" settlement penalty in civil
judicial cases; in such circumstances, the statutory maximum penalty should serve as the new
"bottom-line" penalty.
VII. DOCUMENTATION, APPROVALS, AND CONFIDENTIALITY
Each component of the settlement penalty calculation (including all adjustments and
subsequent recalculations) must be clearly documented with supporting materials and wricten
explanations in the case file. In all cases in which a settlement penalty may not comply with
the provisions of this Policy, or in a case in which application of this Policy appears
inappropriate, the penalty must be approved in advance by the EPA Assistant Administrator
for Enforcement and Compliance Assurance.
Documentation and explanations of a particular settlement penalty calculation
constitute confidential 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 settlement penalty calculations are confidential documents, this Policy is a public
document and may be released to anyone upon request. Further, as part of settlement
negotiations between the parties, the Agency may choose to release parts of the case-specific
settlement calculations. The release of such information may only be used for settlement
negotiations in the case at hand and, of course, may not be admitted into evidence in a trial
or hearing. See Rule 408 of Federal Rules of Evidence.
,] This Volicy is purely for the use of U.S. EPA enforcement personnel in settling cases.
EPA reserves the right to change this Policy at any time, without prior notice, or to act at
variance to this Policy. This Policy does not create any rights, implied or otherwise, in
any third parties.
-------
ATTACHMENT 1 TO INTERIM CWA SETTLEMENT PENALTY POLICY
EXAMPLES OF HOW TO CALCULATE STATUTORY MAXIMUM PENALTY
Violation scenario
Maximum
statutory penalty*
Authority
Violation of daily maximum limit for
pollutant A, on the 5th of January.
$25,000
Plain reading of CWA, § 309(d)1 "525,000
per day for each violation"
Violation of daily maximum limit for
pollutant A, on the 5th, 10th, and
15th of January.
575,000
Plain reading of CWA, § 309(d): "$25,000
per day for each violation"
Violation of daily maximum limits for
each of pollutants A and B, on the 5th
of January.
$50,000
Tvson Foods and Powell Duffrvn. as well
as plain reading of CWA. § 309(d)'
"525,000 per day for each violation"
Violation in January of weekly
average for pollutant A.
$25,000 per day,
multiplied by 7
days $175,000.
Tvson Foods. 897 F.2d at 1139. Also see.
Gwaltnev. 897 F. 2d at 314.
Violation in January of monthly
average limit for pollutant A.
525,000 per day,
multiplied by 31
days in January =
S775.000'
Tvson Foods. 897 F.2d at 1139 Also see.
Gwaltnev. 897 F. 2d at 314.
Violation in January of monthly
average limit for pollutant A. in which
there is evidence that there were no
discharges on 4 days (e.g. plant shut
down on Sundays).
$25,000 per day,
multiplied by 27
days in January =
S675,000
Natural Resources Defense Council v
Texaco. 2 F.3d 493. 507-508 (3rd Cir.
1993).
Violation in January of monthly
average limits for both pollutants A
and B.
$50,000 per day,
multiplied by 31
days in January.
= 51,550,000
Tvson Foods. 897 F.2d at 1140. footnote
22
Violation in January of monthly
average limit for pollutant A, and of
daily maximum limit for pollutant B
on January 5th and 15th.
5775,000 for
pollutant A, +
$50,000 ($25,000
per day x 2) for
pollutant B, =
5825,000
Tvson Foods. 897 F.2d at 1140, under
"The interaction of daily and monthly
violations"
Violation in January of monthly
averagp limif for pollutant A. and of
daily maximum limit for pollutant A
on Jan. 5th and 15th.
25,000 per day,
multiplied by 31
days in January. =
$775,000.
Tvson Foods. 897 F.2d at 1140, under
"The interaction of daily and monthly
violations"
Failure 10 properly monitor" for
pollutant A on 4 required days in
January
$100,000.
Statutory language. CWA §309.
-------
ATTACHMENT 2 TO INTERIM CWA SETTLEMENT PENALTY POLICY
Case Name Date
Prepared by and [attorney name].
SETTLEMENT PENALTY CALCULATION WORKSHEET
STEP
AMOUNT
1. Calculate Statutory Maximum Penalty (period of violations
from throueh )
2. Economic Benefit (attach BEN printouts, with explanations
for calculations)
3. Total of Monthly Gravity Amounts
4. Economic Benefit H- Gravity (lines 2 + 3)
5. Gravity Adjustments
a. Flow Reduction Factor (0 to 50%) X line 3
1
b. Recalcitrance Factor (0 to 150%) X line 3
c. Quick Settlement Reduction (0 or 10%) X line 3
d. Total gravity adjustments (negative amount if net gravity
reduction) (lines 5.b. - 5.c - 5.a )
6. Preliminary Penalty Amount (lines 4 + 5.d)
7. Litigation Consideration Reduction (if any)
8. Ability to pay reduction (if any)
9. Reduction for Supplemental Environmental Projects (if any)
10. Bottom-line Cash Settlement Penalty (Line 6 less lines 7. 8
and 9. Or, if applicable, amount calculated by national
municipal litigation consideration in j$IV.D,6. less no more
:han 40% of that amount for appropriate SEPs.)
i
-------
Attachment I to Interim CWA Settlement Penalty Policy
Violation scenario
Maximum
statutory penalty*
Authority
Failure to properly monitor for
pollutants A, B, and C On January 15.
$75,000.
Statutory language. CWA §309.
Failure to monitor for a monthly
pollutant parameter.
/?'
$25,000 for each
day in which the
discharger was
required to monitor
for that pollutant.
Statutory language. CWA §309.
Failure to submit adequate discharge
monitoring report on time ( each
failure to monitor for a particular
pollutant is subject to a separate
penalty calculation).
$25,000.
Statutory language. CWA §309.
Failure to timely submit a report or
other document (each failure to timely
complete an activity covered by the ¦
report is subject to a separate penalty
calculation).
$25,000
Settlement policy discretion.
NOTES:
* For adminisirative penalty cases the penally per day for each violation is SlO.OQO and may
not exceed the total penalty amount allowed in a Class f or Class 11 administrative
proceeding.
** Fqr purposes of calculating penalties, the act of monitoring for a particular pollutant
includes the sequence of events starting with the collection of the wastewater sample through
completion of the analytical testing of the sample. The obligation to report the results of the
monitoring is a separate act subject to a separate penalty calculation.
The guidelines set forth here reflect EPA's policy on how to calculate the statutory maximum
penalty with regards to ensuring that all settlement penalties sought pursuant to the Penalty
Policy do not exceed such statutory maximum. At trial or in a hearing, EPA reserves the
right to calculate the statutory maximum pursuant to more aggressive assumptions.
page 2
------- |